	VA Faces Challenges in Formulating Its Health Care Budget

Our prior work highlights some of the challenges VA faces in formulating  its budget: obtaining sufficient data for useful budget projections, making  accurate calculations, and making realistic assumptions. Our 2006 report  on VA’s overall health care budget found that VA underestimated the cost  of serving veterans returning from military operations in Afghanistan and  Iraq, in part because estimates for fiscal year 2005 were based on data that  largely predated the Iraq conflict. According  to VA officials, the agency subsequently began receiving the DOD data  needed to identify these veterans on a monthly basis rather than quarterly. VA made computation errors when estimating  the effect of its proposed fiscal year 2006 nursing home policy, and this  also contributed to requests for supplemental funding. We found that VA  underestimated workload—that is, the amount of care VA provides—and  the costs of providing care in all three of its nursing home settings. In 2006, we recommended that VA  strengthen its internal controls to better ensure the accuracy of  calculations it uses in preparing budget requests. VA agreed with and  implemented this recommendation for its fiscal year 2009 budget  justification by having an independent actuarial firm validate the savings  estimates from proposals to increase fees for certain types of health care  coverage. In its March 23, 2009, letter to GAO, VA stated it  concurs with this recommendation and will implement our  recommendation in future budget submissions. In January 2009, we also reported that VA may have underestimated its  nursing home spending and noninstitutional long-term care spending for  fiscal year 2009 because it used a cost assumption that appeared  unrealistically low, given recent VA experience and economic forecasts of  health care cost increases. We  recommended that in future budget justifications, VA use cost  assumptions for estimating both nursing home and noninstitutional long- term care spending that are consistent with VA’s recent experience or  report the rationale for alternative cost assumptions. VA health care offers illustrations of and insights into growing  health care costs. For  example, in fiscal year 2009 about $3 billion of approximately $41 billion  for VA health care programs was made available for two years. The provision of advance appropriations would  “use up” discretionary budget authority for the next year. In doing so it  limits Congress’s flexibility to respond to changing priorities and needs  and reduces the amount available for other purposes in the next year. While providing funds for 2 years in a single appropriations act provides  certainty about some funds, the longer projection period increases the  uncertainty of the data and projections used. If VA is expected to  submit its budget proposal for health care for both years at once, the lead  time for the second year would be 30 months. This additional lead time  increases the uncertainty of the estimates and could worsen the challenges  VA faces when formulating its health care budget. Concluding Observations

Given the challenges VA faces in formulating its health care budget and the  changing nature of health care, proposals to change the availability of the  appropriations it receives deserve careful scrutiny. Providing advance  appropriations will not mitigate or solve the problems noted above  regarding data, calculations, or assumptions in developing VA’s health care  budget. Nor will it address any link between cost growth and program  design. Congressional oversight will continue to be critical. In addition, providing advance appropriations  for VA health care will not resolve the problems we have identified in VA’s  budget formulation.
Why GAO Did This Study

The Department of Veterans Affairs (VA) estimates it will provide health care to 5.8 million patients with appropriations of about $41 billion in fiscal year 2009. It provides a range of services, including primary care, outpatient and inpatient services, long-term care, and prescription drugs. VA formulates its health care budget by developing annual estimates of its likely spending for all its health care programs and services, and includes these estimates in its annual congressional budget justification. GAO was asked to discuss budgeting for VA health care. As agreed, this statement addresses (1) challenges VA faces in formulating its health care budget and (2) issues surrounding the possibility of providing advance appropriations for VA health care. This testimony is based on prior GAO work, including VA Health Care: Budget Formulation and Reporting on Budget Execution Need Improvement (GAO-06-958) (Sept. 2006); VA Health Care: Long-Term Care Strategic Planning and Budgeting Need Improvement (GAO-09-145) (Jan. 2009); and VA Health Care: Challenges in Budget Formulation and Execution (GAO-09-459T) (Mar. 2009); and on GAO reviews of budgets, budget resolutions, and related legislative documents. We discussed the contents of this statement with VA officials.

What GAO Found

GAO's prior work highlights some of the challenges VA faces in formulating its budget: obtaining sufficient data for useful budget projections, making accurate calculations, and making realistic assumptions. For example, GAO's 2006 report on VA's overall health care budget found that VA underestimated the cost of serving veterans returning from military operations in Iraq and Afghanistan. According to VA officials, the agency did not have sufficient data from the Department of Defense, but VA subsequently began receiving the needed data monthly rather than quarterly. In addition, VA made calculation errors when estimating the effect of its proposed fiscal year 2006 nursing home policy, and this contributed to requests for supplemental funding. GAO recommended that VA strengthen its internal controls to better ensure the accuracy of calculations used to prepare budget requests. VA agreed and, for its fiscal year 2009 budget justification, had an independent actuarial firm validate savings estimates from proposals to increase fees for certain types of health care coverage. In January 2009, GAO found that VA's assumptions about the cost of providing long-term care appeared unreliable given that assumed cost increases were lower than VA's recent spending experience and guidance provided by the Office of Management and Budget. GAO recommended that VA use assumptions consistent with recent experience or report the rationale for alternative cost assumptions. In a March 23, 2009, letter to GAO, VA stated that it concurred and would implement this recommendation for future budget submissions. The provision of advance appropriations would "use up" discretionary budget authority for the next year and so limit Congress's flexibility to respond to changing priorities and needs. While providing funds for 2 years in a single appropriations act provides certainty about some funds, the longer projection period increases the uncertainty of the data and projections used. If VA is expected to submit its budget proposal for health care for 2 years, the lead time for the second year would be 30 months. This additional lead time increases the uncertainty of the estimates and could worsen the challenges VA already faces when formulating its health care budget. Given the challenges VA faces in formulating its health care budget and the changing nature of health care, proposals to change the availability of the appropriations it receives deserve careful scrutiny. Providing advance appropriations will not mitigate or solve the problems we have reported regarding data, calculations, or assumptions in developing VA's health care budget. Nor will it address any link between cost growth and program design. Congressional oversight will continue to be critical.