Summary

With a 1997 medical care appropriation of $17 billion and a declining veteran population, the Department of Veterans Affairs (VA) faces mounting pressure to control spending as part of efforts to achieve a balanced budget. Last year, GAO reported that VA's health care system could reduce its operating costs by billions of dollars over the next several years. VA has requested medical care funding of $17.6 billion in 1998. This consists of an appropriation of nearly $17 billion and a legislative proposal to retain insurance payments and other third-party reimbursements. VA characterizes this as the first step in a five-year plan to reduce its per patient cost by 30 percent, increase patients served by 20 percent, and finance 10 percent of its expenditures using nonappropriated revenues by the year 2002. This testimony focuses on VA's five-year plan, including the outlook for attaining the stated targets and the potential effects on veterans and others. GAO also offers preliminary observations on VA's progress on two major initiatives: developing a method to more equitably allocate resources and establishing a decentralized management structure to more efficiently and effectively deliver services.

GAO noted that: (1) while VA's budget goals may be attainable, they carry implications such as limited deficit reduction contributions and potential risks to low-income uninsured veterans; (2) achieving increased efficiency is not contingent on either increases in patients served or resources; (3) VA's ongoing efforts to restructure its health care system could yield billions of dollars in savings during the next 5 years; (4) a large part of these savings would be realized through more efficient use of it's workforce, which will allow the existing patient base to be served with fewer employees; (5) sufficient savings could be generated to afford VA an opportunity to increase patients served without new resources or increase its contribution to deficit reduction; (6) VA can significantly decrease its reliance on appropriated resources by using its existing authority to sell excess capacity to help other federal agencies meet their beneficiaries' health care needs; (7) VA's proposal to generate billions of dollars in new revenue to serve 20 percent more patients intensifies VA's direct competition with the private sector and potentially leaves low income, uninsured veterans vulnerable; (8) VA may be able to attain its revenue goals, only by attracting thousands of new users who have higher incomes or public or private insurance; (9) such new users are likely to be drawn from private providers who may see their revenue base erode as patients shift to VA care; (10) VA may spend unreimbursed resources on these veterans that could reduce the availability of resources for low-income, uninsured veterans; (11) VA faces a difficult challenge as it takes steps to implement a new resource allocation method to improve veterans' access to VA care and a decentralized management structure to improve resource utilization; (12) these initiatives promise improvements in equity and have stimulated significant changes in efficiency; and (13) however, VA's challenge will be to adequately monitor these changes to identify and correct unintended effects such as those that limit equity of access.