VA Health Care:

Albuquerque Medical Center Not Recovering Full Costs of Lithotripsy Services

HEHS-95-19: Published: Dec 28, 1994. Publicly Released: Feb 1, 1995.

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Pursuant to a congressional request, GAO reviewed the Department of Veterans Affairs' (VA) Albuquerque Medical Center's contracting practices, focusing on: (1) whether the center fully recovered the government's cost of providing nonveteran lithotripsy services; and (2) the effects of the center's pricing policy on competition for lithotripsy services in the Albuquerque area.

GAO found that: (1) in 1993, the Albuquerque VA Medical Center did not fully recover the costs of providing lithotripsy services to nonveterans; (2) the center used an unrealistically high annual workload estimate in calculating its fixed costs; (3) the center's lithotripsy prices for 1994 were still unrealistically high, even though VA policy requires price adjustments if estimates are significantly off; (4) the center lengthened the equipment's depreciation period to compensate for its low procedure rate, but this was not practical, since the equipment will be obsolete before the end of its useful life; (5) the contractor lowered its charges for lithotripsy services significantly below market rates, which may have allowed it to gain a larger market share; (6) the impact of the contractor's lower prices is difficult to estimate because consumers' health care decisions are not driven by cost considerations alone; and (7) the center could raise its prices to cover its full costs for the services and still remain competitive.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: A July 1995 directive clarifies policy and guidance for sharing agreements in which VA provides specialized medical resources to the health care community, and revises the costing methodology used in establishing these sharing agreements to ensure that VA recovers the full cost of providing services. VA is to set its prices to obtain reimbursement that covers the full costs of its resources or service provided, except in circumstances where changes in service workload or local market conditions indicate the establishment of a market price for providing the service. The Albuquerque VAMC will recalculate the price of lithotripsy services in accordance with this policy.

    Recommendation: The Secretary of Veterans Affairs should direct the Director, Albuquerque Medical Center, to raise the price of lithotripsy services provided to nonveterans to a level that will recover the full fixed and variable costs of the services provided, as VA policy requires.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: A July 1995 directive requires that the projected total workload for ongoing sharing agreements shall be submitted by the appropriate medical center clinical service and reviewed by the contracting officer on an annual basis. Prices charged to the sharing partner must be adjusted if the workload projection indicates that VA will not be recovering its full cost of providing the service.

    Recommendation: The Secretary of Veterans Affairs should direct the Director, Albuquerque Medical Center, to implement a process for periodically reviewing the adequacy of workload projections as VA procedures recommend, and use the results to adjust prices, as appropriate.

    Agency Affected: Department of Veterans Affairs


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