STATEMENT OF
FRANCES M. MURPHY, MD, MPH
ACTING DEPUTY UNDER SECRETARY FOR POLICY AND MANAGEMENT
VETERANS HEALTH ADMINISTRATION
DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
SUBCOMMITTEE ON HEALTH
COMMITTEE ON VETERANS' AFFAIRS
U. S. HOUSE OF REPRESENTATIVES

April 5, 2000

Mr. Chairman and members of the subcommittee, I am appearing before the committee this morning to discuss the Veterans Health Administration’s (VHA) planning, budgeting and management of capital assets.

The discussion of our plans to most efficiently and effectively manage our capital assets must be viewed in the context of the tremendous transformation of VA health care that has occurred over the past five years. VA was a hospital-based, disease-oriented, impersonal organization of medical centers. The "New VA" is an integrated health system that provides a continuum of accessible, coordinated, patient-centered care. We have seen demonstrable improvements in our capacity to achieve consistently reliable, accessible, satisfying, high-quality care. We continue to face challenges of reducing medical errors in our health care; of meeting the needs of an aging population; of incorporating the rapid growth of scientific knowledge into daily practice; of incorporating expensive new medical and information technologies; and of realigning our infrastructure to more effectively support current health care needs.

More than at any other time in our history, VA more closely mirrors – and in many cases exceeds – the best in private sector healthcare. Indeed, this transformation underpins our quality improvements. Significant organizational changes include:

• Closing more than 52% of all hospital care beds since July 1994.
• Reducing inpatient admissions by 34% from FY 1994 and FY 1999.
• Reducing VHA’s bed days of care per 1,000 patients by more than 68% nationally – from 3,523 to 1,136 between FY 1994 and FY 1999.
• Increasing annual ambulatory care visits from 24 to 37 million – a 52% increase – since 1995.
• Providing health care to over 700,000 more veterans in FY 1999 vs FY 1994 – a 31% increase.
• Within Veterans Integrated Service Networks (VISNs), consolidating management and operation of 48 hospitals and/or clinics into 23 locally integrated health care systems since September 1995.
• Approving and/or bringing 388 new Community Based Outpatient Clinics (CBOCs) into operation since 1995. VA now has more than 1200 sites of care, bringing health services into more veteran’s communities.
• And over this same period, increasing the rate of selected surgeries and procedures which are safely provided in the ambulatory setting to 92%.

Especially notable clinical achievements have reduced unnecessary hospitalizations, lowered mortality, and resulted in cost-savings through reductions in avoidable health care expenditures. For example:

• Rates of pneumonia and influenza vaccinations provided VA patients far exceed U.S. Public Health Service Healthy People 2000 goals and available benchmarks.
• Life-saving beta-blocker medications after heart attacks are provided at VA hospitals at rates that exceed all available benchmarks.

Similar improvements have been seen in other areas of preventive health services such as screening for cervical and breast cancer and in the treatment of prevalent diseases such as diabetes and mental illness. Simultaneously, patient satisfaction has increased. In fact, VHA scored 79 on the externally conducted American Customer Satisfaction Index. This is significantly above the mean private sector health care score of 70. Loyalty and Customer Service scores were even higher at 90 and 87, respectively.

The transformation that is occurring in how health care is provided has outpaced our ability to make infrastructure changes. VA’s infrastructure was built largely at a time when bed based care was the standard mode of providing health care. As described above, over the past 5 years VA has significantly shifted care from inpatient to ambulatory care delivery. We have also significantly moved care closer to the patient by establishing Community Based Clinics and home care. We currently face the challenge of realigning our infrastructure to optimally support how health care is being delivered today and will be delivered in the future.

As discussed below, we have capital investment planning processes in place to assure that new investments optimally support current requirements, and in the near future, we will be implementing a process to comprehensively review existing capital assets to identify opportunities to restructure those assets in ways that will enhance our ability to serve our patients.

Capital Investment Planning Process

VA has implemented a Capital Investment Planning Process to assure that proposed capital investments support the priorities of the core mission of VA and VHA. Capital asset planning starts at the VISN level. VISN capital asset plans contain two major parts. One describes the linkage of the capital acquisition to VA/VHA/VISN mission, goals, management strategies and performance goals. The second is a baseline assessment that describes the extent that existing capital assets are helping the network to achieve goals, management strategies, operating strategies, and performance goals. The difference between current and projected performance, which cannot be met with existing assets, is the performance gap. In this section of the plan, VISNs explain options considered for closing the perceived gap, including non-capital options such as sharing and contracting. If asset acquisition is thought to be the best option, the VISN plan identifies the asset that is uniquely suited for closing existing performance gaps. In addition, in this section, the VISN plan explains why the capital asset investment is the best alternative of all the available options, including non-capital alternatives.

From the 22 VISN strategic plans, a major construction project inventory is compiled. Projects are reviewed by the VA Capital Investment Board (VACIB) for budget consideration. The Board members prioritized construction investments for FY 2001 using the following criteria:

The VACIB provides an analysis to the Secretary about each proposal’s viability for inclusion in the VA Capital Plan and VA budget request to OMB. Also, the VA Resources Board reviews projects for inclusion in VA’s request for budget and authorization consideration.

For FY 2001, the Department is requesting authorization for two major construction projects to improve VHA facilities. These include a project for seismic corrections through new construction for a gero-psychiatric nursing home building at the Menlo Park Division, Palo Alto Healthcare System, California and a project to renovate psychiatric nursing units at Murfreesboro, Tennessee. I urge the committee’s favorable consideration of our authorization request for these medical projects.

While we believe that we have improved our strategic planning processes and processes for reviewing capital assets investments, I would like to describe two initiatives now underway within the Department that we believe will significantly enhance our capital asset effectiveness.

Capital Asset Realignment for Enhanced Services (CARES)

The VHA will soon implement a comprehensive capital asset management program that will involve detailed studies in each VISN to systematically review current mission requirements, existing and future veterans health care needs, recommended service delivery options, and recommendations for capital realignment options to enhance service to veterans. CARES has emerged as one of the more challenging and complex programs that VHA will undertake in the next five years. However, through this process VHA will position itself for optimal health care delivery in terms of both quality and access to care and will be able to realign its extensive inventory of capital assets to better support the effective and efficient delivery of health care.

As you know, the need to review and realign capital assets was discussed extensively last year. In fact, the House passed legislation that would have supported the CARES concept, however, the final Millennium bill did not contain this provision. VHA has been developing the CARES concept since April 1999. Since that time, communicating the CARES program and the associated processes with VHA’s diverse stakeholder constituency has taken more time than I anticipated. However, this time has been well invested in assuring that this effort has their support.

The draft CARES policy was formally shared with VA stakeholder representatives on February 17, 2000. An initial 30-day comment period has been extended to April 20, 2000 to provide all stakeholders ample time to comment on this critical program. Concurrent with this review and comment period, VHA has drafted a statement of work for the network planning studies and the CARES Guidebook to assist field managers in implementing the CARES program. The initial group of seven VISN planning studies, scheduled for award later this year, will include the eight mega-market locations identified by GAO in testimony before this subcommittee in March 1999. I anticipate that the FY 2000 APF funds (made available for this purpose in VA’s FY 2000 Appropriation) will be sufficient to fund these seven studies and at least two additional VISN planning studies this year.

The discussions regarding the CARES initiative within VHA, with other VA staff offices, and with stakeholder representatives outside of VA have contributed significantly to consensus support of the CARES program. This broad based support and the anticipated level of stakeholder involvement envisioned regarding the 22 VISN studies are considered essential to successfully implementing the service delivery options and capital restructuring proposals that may be identified from these studies.

Although the policy development phase has taken longer than originally anticipated, VHA has concurrently moved forward with several capital restructuring opportunities. Several networks have identified or have implemented capital realignment initiatives that would both enhance delivery of health care services to veterans and at the same time result in significant savings in medical care funding. Significant initiatives are as follows:

Ft. Lyon, Co. – The VA Rocky Mountain Network (VISN 19) has proposed a mission realignment at the Ft. Lyon Colorado facility. The proposal includes reassignment of existing outpatient and NHC functions at the Ft. Lyon facility to three CBOC’s and a newer and more appropriately sized NHCU within the Southern Colorado Health Care System. These proposed changes will increase both access and quality of care for veterans in the southern Colorado area at an estimated annual savings of $8.6 million. The ensuing capital realignment proposal would transfer the Ft. Lyon facility to the State of Colorado for use as a correctional facility for geriatric and mental health inmates. VA will require authorization to affect the direct transfer of the property to the State of Colorado.

The VA Maryland Health Care System (VAMHCS) - has developed a proposal for options to enhance the use of the Ft. Howard campus to better serve veterans in the Baltimore area. VAMHCS has proposed a plan that relocates inpatient functions to other VAMHCS sites, enhances Primary Care at the Ft. Howard site, and working with a private developer will create a ‘continuum of care’ at the Ft. Howard site. In addition to the new VA Primary Care clinic – independent living housing, assisted living housing and a private nursing home would be constructed, all at the developer’s expense. VA’s enhanced use leasing authority will be used to implement the proposed plan. These facilities would be operated by the developer, under VA oversight, and veterans would be given priority as well as discounts as part of the contract agreement. VAMHCS expects to save $79 million over a ten year period from this initiative.

VA Boston Healthcare System (VABHCS) – VABHCS is proposing capital realignment and integration of existing tertiary care facilities in the Boston metropolitan area. The proposed integration will downsize the leased Causeway Outpatient clinic, establish an Ambulatory care Center of Excellence at the Jamaica Plain campus , and integrate inpatient services at the West Roxbury campus. When fully implemented, the estimated annual savings and cost avoidance resulting from the integration are in excess of $50 million. The revenues and savings from the integration and subsequent capital realignment opportunities will allow VABHCS to maintain needed services at all existing facilities as well as enhancing services to veterans by opening additional CBOCs in underserved areas.

Chicago/ VISN 12 Service Delivery Options – The Under Secretary for Health commissioned a steering committee in the fall of 1998 to undertake a detailed evaluation of the full VISN 12 healthcare delivery system. This study went beyond the initial GAO study, to facilities outside the immediate Chicago area. The network-wide concept of healthcare delivery allows workload and demographic data to influence resource allocations, and ultimately, capital asset management. The report was completed in the fall of 1999, and is currently being reviewed in light of stakeholder comments. When finalized, savings of up to $188 million in annual operating costs may be avoided by combining similar programs among the network of facilities.

VA Sierra Nevada Health Care System (VASNHCS) – The VASNHCS is pursuing a capital realignment initiative using VA’s enhanced sharing authority. The proposal consists of a use of space and shared services agreement between VASNHCS and a private hospital corporation to operate a 52 acute long term care "hospital in a hospital" on two vacant inpatient floors. The VASNHCS will realize significant annual revenues from this agreement that will be used to enhance services by opening an additional CBOC, developing rural health contracts with providers in remote areas, and expanding the use of tele-medicine and tele-radiology. Enhanced services at the existing facility will include added staff to reduce waiting times in specialty clinics, expanded clinic hours/days, and expansion of parking capacity for the existing campus.

VA Healthcare Network Upstate New York at VAMC Canandaigua - VISN 2 is pursuing a capital realignment initiative at the VAMC Canandaigua using VA's enhanced sharing authority. The proposal consists of using vacant space in two buildings on the Canandaigua campus, considered excess to the facility's needs, that will be renovated by the proposed developer for much needed affordable housing to low income veterans, especially those at risk of being homeless. It is estimated there are approximately 4700 veterans in western New York who are at risk of being homeless. This proposal allows VA to improve services to these veterans while collaterally bringing them closer to full utilization of VA health care and support activities. With minimal cost to VA, this initiative will also mitigate uncompensated operations and maintenance costs of vacant space for the facility, estimated at $ 200,000 annually.

VA Western New York Healthcare System (Batavia) – The VA Healthcare Network Upstate New York (VISN 2) is proposing to utilize VA’s enhanced sharing authority in conjunction with a VA Homeless Providers Grant to enter into an agreement to provide transitional housing and a multi-resource center for "special needs" veterans. Special needs veterans include homeless, at risk of homelessness, female, recovering substance abuse, and PTSD veterans. This proposal will renovate excess space at the Batavia campus under the homeless grant program and will provide revenues to the VA through "sharing" arrangements for excess capacity services. The proposed agreement will result in cost reimbursement of annual operating and maintenance costs of $95,000 plus projected revenues of approximately $220,000 for services over the first five years of the agreement.

In conclusion, the CARES program will, through network based planning, guide VHA’s future capital investment decisions to realign and allocate capital resources to better meet veterans’ health care needs. To realize the full potential improvement in providing VHA health services that can result from aligning capital assets with current patient needs will require the full cooperation and support of our diverse stakeholder constituency, as well as funding for key investment initiatives identified during the process.

Enhanced-Use Leasing Program

As you are aware, this program has provided VA with the opportunity to enhance the use of our available properties with the resulting revenues supporting healthcare and other benefits services to veterans. Last year, the Millennium Act amended this unique authority in several important ways. First and foremost, all the net proceeds generated from such leases will now be re-invested to improve VA patient care. In addition, the act extended the term for Enhanced-Use leases to 75 years and allows the Department to use minor construction funds as capital contributions. Finally, the Act expanded the Department’s ability to lease VA property not only in instances where the project will enhance a VA activity on the site but also when the lease results in the enhancement of services to veterans in the local community. These enhanced authorities were implemented by VA Directive issued on March 24, 2000.

Since its original enactment, VA has used this authority to improve the efficiency of operations and obtained millions of dollars in financial benefits. These projects have included consolidations, collocation, obtaining child care services, expanding parking facilities for veterans and employees, and re-direct operational funds from managing golf courses into direct medical care. In addition to achieving significant cost savings, these projects have added substantial private investment to support the Department's capital assets, provided new long-term sources of revenues, and created jobs and tax revenues for the local economies. Recently completed projects at VAMCs Indianapolis, Indiana and Mt. Home, Tennessee demonstrate the benefits of this authority.

• The Department recently executed an Enhanced-Use lease for the development and operation of a state-of-the-art, co-generation energy plant at the James H. Quillen Veterans Affairs Medical Center (Mountain Home), Johnson City, Tennessee. In addition to providing energy services to the medical center, the energy plant will also sell energy services to the East Tennessee State University James H. Quillen Medical School and to the City of Johnson City. The project will result in a 25% reduction in energy usage at the medical center, require no capital funding, provide significant operational cost savings and generate revenues. Energy savings and revenues from this project will be used to support a new CBOC thus improving customer service.

• The Department also used the Enhanced-Use leasing authority as a means of obtaining skilled nursing services at the Richard L. Roudebush VA Medical Center in Indianapolis, Indiana. Following a national competition, Beverly Enterprises, Inc. was selected to finance, construct and operate a 94-bed, skilled nursing home care facility on the Medical Center campus for the purpose of providing skilled nursing services to the VAMC on a priority basis. Beds that are not used by VA patients will be available for use by the general public. Specialty services will also be provided for Alzheimer's, Parkinson's and for other gero-psychiatric patients. This lease enables VA to avoid using scarce capital resources to construct a nursing facility. It also provides for the Medical Center to obtain revenues from non-VA users and other shared service arrangements with Beverly. VA’s cost per bed will be about 30% below similar costs for placing patients in local community nursing homes, with no minimum VA patient guarantee or obligation.

Other Enhanced-Use initiatives currently underway include medical and research facilities, VBA regional office collocations, assisted and specialty housing, child development centers, energy plants and parking garages.

As we implement the expanded authorities provided by the Millennium Act we are taking steps to streamline the leasing process. We are currently reviewing the recommendations made by a task force of principals from key offices and medical centers to expedite the approval process for Enhanced-Use leases. We expect to implement these recommendations this spring. While the program has achieved some level of success, it has limitations; namely market demand, compatibility issues and VA mission requirements. By understanding its strengths and constraints the Department is moving toward further application of this authority as one tool in its capital asset program.

Although this authority bypasses the Stewart B. McKinney Homeless Assistance Act, of which it is the Administration’s policy not to bypass, VA is extremely cognizant of taking into account the needs of the homeless and provides funding for such programs as VA’s:

• Loan Guaranty for Multifamily Transitional Housing for Homeless Veterans Program

• Domiciliary Care for Homeless Veterans

• VA’s Compensated Work Therapy/Transitional Residence Program (CWT/TR)

• Homeless Chronically Mentally Ill Program.

Conclusion

Mr. Chairman, our objective is to ensure that VA’s capital assets support our clinical, research and educational missions and evolve quickly to keep pace with our transformed health care delivery systems. These capital assets must also be utilized in ways that bring the greatest value to the Department at the lowest cost. We believe the initiatives that I have discussed here this morning will help in moving the Department forward in this area. This concludes my opening statement and I would be pleased to answer any questions you or the members of the committee may have.

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