STATEMENT OF
THE HONORABLE JONATHAN PERLIN, MD, PHD, MSHA, FACP
UNDER SECRETARY FOR HEALTH
VETERANS HEALTH ADMINISTRATION
DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
SUBCOMMITTEE ON MILITARY QUALITY OF LIFE AND VETERANS AFFAIRS
UNITED STATES HOUSE OF REPRESENTATIVES

October 20, 2005

Mr. Chairman and Members of the Subcommittee:

I am pleased to appear before the Subcommittee to discuss the ongoing efforts of the Department of Veterans Affairs (VA) in the Capital Asset Realignment for Enhanced Services (CARES) process.    Before I begin discussing the current status of the process, let me take a step back and discuss why VA began the CARES process. 

While it is easy to consider changes to VA’s physical infrastructure as the focus of the CARES process, what we actually expect to accomplish is to improve our ability to direct resources to meet the health care needs of veterans.  Antiquated infrastructure and facilities that are disproportionately large in relation to the number of veterans in the area draw scarce resources away from veterans’ care--and instead force us to use these funds to maintain underutilized buildings.

The opportunity CARES gives VA to better redirect resources will allow us to provide the enhanced services promised in CARES’ title.   CARES will provide funds we can use to provide newer access points for our care, make home care more widely available, or even to build new medical centers—all of which will provide 21^st century veterans with 21^st century technology and 21^st century care in 21^st century environments.  

VA initiated the CARES process in response to a 1999 Government Accountability Office’s report, which estimated that VA was spending $1 million a day on vacant or underutilized space.  The CARES decision report, approved by former Secretary Anthony Principi in May 2004, agrees: while the practice of VA medicine has evolved, VA’s medical infrastructure has not kept up with the changes VA has made to the way we provide health care.  We entered the 21^st century with an infrastructure system largely designed and built to provide medical care as it was practiced in the middle of the twentieth century. 

In the past few years, American medicine has transformed itself from a hospital centered system to one centered on outpatient services and patients themselves.  VA medicine has kept up with, and sometimes led, these innovations.  Our facilities, however, are out of step with changes in the practice of medicine, the veterans we serve, and with statutory changes in the VA health care benefits package.  The CARES process, the most comprehensive evaluation of the Department’s capital assets and service needs ever conducted, is our plan for enabling VA’s national infrastructure to better fit the needs of today’s veterans.   

CARES is a data driven planning process.  It compares our projected demand for health to the size and condition of our existing infrastructure.  It is resulting in plans for the future which will allow us to go where we need to be.  We need to prepare for an increase of over 12 million clinic stops and a reduction in 600 acute hospital beds over the next 20 years. We intend to provide these services in a safe, secure, modern environment, while maintaining the highest levels of quality.  We can only do so by planning to stage our capital projects over a 20 year planning horizon.

VA’s current infrastructure includes:

• 157 Hospitals (and hospital based outpatient clinics)
• 135 Nursing Home Units
• 42 Domiciliaries
• 721 Community based Outpatient Clinics
• Over 5000 buildings with a combined area of over 100 Million Square Feet

The average age of VA’s buildings is more than 50 years, however, and 42% of our square footage has a condition rated as “below average.”

CARES (Capital Asset Realignment for Enhanced Services):

Through the CARES nationwide medical care infrastructure implementation plan, President Bush has provided $1.5 billion in the last two years to modernize VA facilities and provide more care to more veterans in more places, where veterans need it the most.   Another $750 million is planned for 2006 and priority will be given to continue implementing this long range plan in future budgets.  Through CARES, President Bush is seeking to improve veterans' access to quality primary and specialty health care services, and is working to expand and distribute VA’s system of clinics and hospitals so that the vast majority of veterans are within 30 miles of a VA facility.

Actions Taken

Since May 2004, VA’s actions have centered on implementation of actions and improvements to the planning process identified by the CARES Commission and VA leaders. There were two main drivers for these actions; the incorporation of CARES initiatives into our annual strategic planning process, and the award of a contract to complete studies at 18 of our facilities.     

Partnership Agreements with the Department of Defense

As a result of the findings of the CARES Commission Report, VA is considering its first ever joint-hospital arrangement with another Federal agency.  VA has been negotiating with the Department of Defense (DoD) in a current joint venture with the Navy at our North Chicago hospital.  Many Community Based Outpatient Clinics (CBOCs) are now being planned as joint ventures with DoD.

Veterans Rural Access Hospitals (VRAH)

The CARES Commission Report recommended that VA should establish a clear definition and policy on its designation of facilities as Critical Access Hospitals before making decisions on which hospitals should be given that designation.  In response to this recommendation, VA established a task force to define guidance on the appropriate scope of services that should be provided at small and rural facilities, and to determine an appropriate designation for these facilities. 

A Veterans Rural Access Directive was completed in October 2004.  In this directive, VHA established policy defining the clinical and operational characteristics of small and rural facilities within VHA.  In identifying the complexities of the scope of services at these faciliies, we considered surgical procedures, supportive infrastructure, post-operative and intensive care, patient safety, and outcomes.  We are providing guidance and oversight to ensure that the clinical services provided in our small rural hospitals are safe and maintain quality outcomes. 

      Meeting the Goals of the President’s Management Agenda

VA is a leader in implementation of the President's Real Property Management Agenda.  VA was recognized as one of the first agencies to receive Yellow in status and is pursuing a status upgrade to Green.  The Department has continually worked to improve the management of its real property program.  In FY 2000, VA initiated the Capital Asset Realignment for Enhanced Services (CARES) studies which provided the blueprint for VHA medical facilities regarding maintaining the appropriate amount of holdings along with right sizing our inventory in order to better meet veterans’ health care needs. 

Current Activities

Former Secretary Principi’s CARES Decision report identified 18 facilities where additional studies were required before a complete CARES decision could be made.  Many of these were facilities where stakeholders were concerned about potential changes and where more detailed information was needed to ensure the best analyses of complex service requirements, capital investment needs and the opportunities available for the reuse of vacant property.  Since there continued to be a great deal of stakeholder and agency interest in making final decisions at these sites, VA elected to have an independent analysis by an outside contractor prepared. 

Through a competitive bidding process, VA awarded a contract to PriceWaterhouseCoopers (PwC) in January 2005 to complete 18 outstanding CARES Business Plan Studies.  At each site, the contractor will provide one recommended Business Plan including a recommended health care delivery plan and associated capital and land reuse plans. 

Methodology

The CARES Business Plan Studies methodology uses the May 2004 CARES decision, which identifies specific elements requiring further study, as a starting point.  The studies are divided into three general areas:

a. Health Care Studies:  These are sites where health care service requirements still need to be determined.  Once options for the health service configuration of these studies is developed, the contractor will develop a capital master plan to enable care to be provided in a safe, secure environment.   If any excess space or property is available, the contractor will also complete a general reuse plan.  These sites include the Boston, MA, Manhattan and Brooklyn, NY, Louisville, KY, Waco TX, Big Spring TX, Walla Walla, WA, Montgomery, AL and Muskogee, OK medical centers. 

b. Comprehensive Capital Studies:  These are sites where health care delivery decisions have already been made.  At these sites, comprehensive capital and reuse plans to improve the infrastructure and reduce unneeded space and land need to be completed.  These sites include Canandaigua NY, Montrose/Castle Point NY, St. Albans NY, Lexington KY, Livermore, CA, West Los Angeles, CA, White City, OR, Perry Point, MD and Gulfport, MS.  The study of the Gulfport facility has been temporarily suspended due to damages sustained from Hurricane Katrina.

c. Financial Study:  The remaining study site is Poplar Bluff, MO.  Here, a more comprehensive financial analysis is required before a final decision is made on how best to meet inpatient service needs in this small facility.

In order to reach one recommended Business Plan at each site, the contractor will develop a universe of credible options; narrow the options down to a manageable number, and then recommend one final option for implementation. Specific criteria will be used to narrow the options.

The CARES contract was also structured to incorporate several key elements that will enable us to receive stakeholder feedback.  Since some members of the public indicated that they did not think they were sufficiently included in the previous phase of CARES, we have incorporated a significant number of opportunites for stakeholder input. 

At all but one study site, Local Advisory Panels (LAP) have been chartered under the Federal Advisory Committee Act.  The nine to eleven members of these panels are drawn from representatives of local veteran organizations, businesses, local and state government, community health care providers, our clinical affiliates, and up to two VA representatives from the local site being studied. 

The contractor is required to solicit stakeholder input throughout the study and include their interests along with PwC’s analyses and recommendations. The contract’s structure includes public meetings and an interactive website where the public can obtain information on the study’s progress and provide public testimony and written comments.

Business Plan Development

The process of reaching one final recommended plan for each site is divided into 2 distinct stages: 

Stage One:  In this stage, the contractor will complete an assessment of the current facility status, review future service demand and conduct a market assessment.  In addition, the contractor will obtain input from stakeholders at the first Local Advisory Panel public meeting regarding the concerns and suggestions of what is needed for the specific site.  The contractor then independently formulates what it believes are an array of credible potential options to address specific outstanding site requirements. 

This large universe of potential options is required so that veterans can fully participate in exploring credible possibilities, giving them the opportunity to react to options and make recommendations before any decision is made. 

Later, the contractor and the Local Advisory Panel will hold a public meeting to present the universe of credible options and other options considered but discarded after specific VA-established criteria of access, quality and cost effectiveness are applied.  The purpose of this second public meeting is to gather LAP and stakeholder feedback, and their recommendations on the universe of credible options.

The LAP will provide input on the proposed options or offer alternative business plans to be considered.  These panels will relay any general concerns that VA should consider as we narrow our options.    A CARES internet website and paper comment forms provide additional ways to quantify public input.

At the end of Stage 1, the contractor will provide VA with proposed business plan options, stakeholder reactions to those options, and the contractor’s analysis of the options.  The contractor will also recommend which of these options should be developed further in the next Stage.  Secretary Nicholson will review these reports and determine which options should go further into full development – with a more detailed analysis.

At this time, all LAP meetings have been completed.  VA will proceed with the next steps of the process and will submit site options to the Secretary for decision.  These reports will then be reviewed and decisions will be made on which options to consider.

Stage Two:  To begin the next stage, the LAP will be told of the Secretary’s decision.  Its members will then   provide PwC with more detailed information and comments about   the specific options the Secretary has selected for additional study.  The contractor will then completes the independent analyses and recommend one of the remaining options for implementation. 

At a final Local Advisory Panel meeting PwC will present their findings and recommendations.  At this point the LAP will determine if they agree, or if they would recommend one of the other remaining options.  If the LAP does not agree with the contractor’s final recommendation, the contractor is also required to bring the LAP’s recommended option forward, along with their full evaluation.

The study will incorporate Fiscal Year 2003 VA service utilization data, the current condition of buildings and property, current quality of care measures and research and education activities, and unit cost data at each site, along with other pertinent information.  Along with this data, the contractor will incorporate industry information and expert analyses in reaching its recommendations.  The contractor will also analyze other discriminating factors, such as the ease of implementation of the option; and the impact the option may have on the community, education partners and employees.

VA also requires the contractor to incorporate a sensitivity analysis for each option, so that we can reassess the viability of a given option if unanticipated variations in cost and workload should occur in the future.

We will then review a final report from PWC, and the Secretary will make final decisions on which option should be implemented.  All of the recommendations PWC makes will be fully supported by appropriate data and analysis.  The earliest any identified capital project would come forward for review and funding would be in 2009.  Such projects, having no pre-identified priority, will be incorporated into VA’s usual internal capital investment scoring process, and will compete with other previously identified CARES projects in VA’s annual budget requests.

Conclusion

Mr. Chairman, CARES has provided us with a way to provide VA, veterans, Congress, and the American people a 20-year plan to provide the infrastructure VA will need to provide 21^st century veterans with 21^st century medical care.  CARES is not a simple one-time solution, but the creation of a set of tools and a process for annual capital and strategic planning that will enable VA to keep our sights firmly fixed on the future. 

Throughout this entire process VA has worked closely with Congress.   We are committed to keeping Members appraised of our actions before the public is aware of our decisions.  VA has conducted two Congressional briefings to date, and will continue this collaborative process as we move into the final stage of the CARES study.  We will not discontinue service in any area without having alternative sites of care available and operational.    

Thank you for your interest in this forward looking process, and for your continued commitment to our veterans.  That concludes my statement.  I will be glad to respond to any questions that you or members of the subcommittee may have.