VA’s EHCPM makes these projections 3 or 4  years into the future for budget purposes based on data from the most  recent fiscal year. With the exception of the Veterans  Choice Program, which is funded through the Veterans Choice Fund,  medical services furnished by community providers have been, and  will continue to be, funded through this appropriation account through  fiscal year 2016. 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 VA’s CIC Programs Accounted for 85 Percent of VA’s Projected Fiscal Year 2015 Funding Gap

Higher-than-expected obligations identified by VA in April 2015 for VA’s  CIC programs 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 VA’s CIC programs 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. VA officials expected that the Veterans Choice  Program would absorb much of the increased demand from veterans for  health care services delivered by non-VA providers. 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 appropriations for amounts obligated for medical  services from non-VA providers—regardless of whether the obligations  were authorized under the Veterans Choice Program or CIC—for the  period from May 1, 2015 until October 1, 2015. Unanticipated Obligations for Hepatitis C Drugs Contributed to the Remaining Portion of VA’s Projected Fiscal Year 2015 Funding Gap

Unexpected obligations for new hepatitis C drugs accounted for $0.41  billion of VA’s projected funding gap of $2.75 billion in fiscal year 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. VA Has Made Efforts to Prevent Future Funding Gaps, but Uncertainties about Future Utilization of Health Care Services Remain

To help prevent future funding gaps, VA has made efforts to improve its  cost estimates for CIC services and the department’s tracking of  associated obligations. VA Has Made Efforts to Improve Cost Estimates and Tracking of Obligations for CIC Services

Faced with a projected funding gap in fiscal year 2015, VA made efforts  to improve its cost estimates for CIC services as well as the department’s  tracking of associated obligations. This policy also requires VISNs to certify monthly to VA’s Chief  Business Office that the appropriate review and corrective actions have  been taken and appropriately documented. While we found that all six selected VISNs and the VAMCs they manage  certified that they had implemented this new policy, the methods used to  identify and correct discrepancies between estimated costs for CIC  authorizations in FBCS and the amount of estimated obligations in FMS  varied. Finally, to better track that VAMCs’ obligations for CIC do not exceed  available budgetary resources for fiscal year 2016, VA allocated funds  specifically for CIC to each VAMC. Moreover, as we have  previously reported, VA has made previous attempts to update IFCAP  and FMS that were unsuccessful. VA Is Using More Recent Data to More Accurately Project Future Health Care Utilization, but Uncertainties Remain

To more accurately project future health care utilization of VA services  given the implementation of the Veterans Choice Program, in November  2015 VA took steps to update its EHCPM projection to better inform  future budget estimates. Moreover,  even with improvements to its projection, VA, like other federal agencies,  must make tradeoffs in formulating its budget estimate that requires it to  balance the expected demand for health care services against other  competing priorities. While we are not making any recommendations in  this report, in its comments, VA agreed with our findings and reiterated  the uncertainty the department faces in estimating the cost of emerging  health care treatments.
Why GAO Did This Study

VA projected a funding gap of about $3 billion in its fiscal year 2015 medical services appropriation account, which funds VA health care services except for those authorized under the Veterans Choice Program. To close this gap, VA obtained temporary authority to use up to $3.3 billion from the $10 billion appropriated to the Veterans Choice Fund in August 2014.
GAO was asked to examine VA's fiscal year 2015 projected funding gap and any changes VA has made to prevent potential funding gaps in future years. This report examines (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 VA obligations data 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 officials to identify the steps taken to address the projected funding gap. GAO also examined changes VA made to prevent future funding gaps and reviewed the implementation of these changes at the VAMCs within six VISNs, selected based on geographic diversity.

What GAO Found

GAO found that two areas accounted for the Department of Veterans Affairs' (VA) fiscal year 2015 projected funding gap of $2.75 billion.
Higher-than-expected obligations for VA's longstanding care in the community (CIC) programs—which allow veterans to obtain care from non-VA providers—accounted for $2.34 billion or 85 percent of VA's projected funding gap. VA officials expected that the Veterans Choice Program—which is a relatively new CIC program implemented in fiscal year 2015 that allows veterans to access care from non-VA providers under certain conditions—would absorb veterans' increased demand for more timely care after public disclosure of long wait times. However, administrative weaknesses slowed enrollment into this program, and use of the Veterans' Choice Fund was far less than expected. Moreover, as utilization of CIC programs overall increased, VA's weaknesses in estimating costs and tracking obligations for CIC services resulted in VA facing a projected funding gap.
Unanticipated obligations for hepatitis C drugs accounted for the remaining $408 million of VA's projected funding gap. VA did not anticipate in its budget the obligations for these costly, new drugs 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.
To help prevent future funding gaps, VA has made efforts to better estimate costs and track obligations for CIC services and better project future utilization of VA's health care services. Specifically,
VA implemented new policies directing VA medical centers (VAMC) and Veterans Integrated Service Networks (VISN) to better estimate costs for CIC authorizations—by using historical data and correcting for obvious errors—and to better track CIC obligations by comparing estimated costs with estimated obligations, correcting discrepancies, and certifying each month that these steps were completed. These policies are necessary, in part, because deficiencies in VA's financial systems make tracking obligations challenging. The VISNs and associated VAMCs GAO reviewed have implemented these policies.
VA also allocated funds to each VAMC for CIC and hepatitis C drugs and began comparing VAMCs' obligations in these areas to the amount of funds allocated to help ensure that obligations do not exceed budgetary resources.
VA updated the projection it uses to inform budget estimates 3 to 4 years in the future, adding fiscal year 2015 data reflecting increased CIC utilization.
While VA has made these efforts to better manage its budget, uncertainties remain regarding utilization of VA's health care services. For example, utilization of the Veterans Choice Program in fiscal years 2016 and 2017 is uncertain because of continued enrollment delays affecting the program. Moreover, even with improvements to its projection, VA, like other federal agencies, must make tradeoffs in formulating its budget estimate that requires it to balance the expected demand for health care services against other competing priorities.

What GAO Recommends

GAO is not making any recommendations. After reviewing a draft of this report, VA agreed with what GAO found.