Purpose Statute Violation: Veterans Affairs Improperly Funded Certain Cost Comparison Studies with VHA Appropriations

The Department of Veterans Affairs (VA) provides health care to about 4.7 million veterans primarily through its medical facilities--which include hospitals, nursing homes, outpatient clinics, and other health care facilities--and by contracting for care with other healthcare providers. To lower costs, increase access, and improve the quality of care provided to eligible veterans, VA evaluates the efficiency of its medical facilities, which includes performing studies to determine whether increased savings and efficiencies can be obtained from outsourcing certain segments of its operations. We have previously reported that VA would benefit from examining certain aspects of its operations, including its medical and laundry facilities, to determine if operational efficiencies could be achieved through consolidations, competitive sourcing, or both. While VA has the authority to conduct cost comparison studies and, when beneficial, to enter into contracts with commercial providers, VA may only finance cost comparison studies with funds that are legally available for this purpose. Under a provision in Title 38 of the U.S. Code, VA is prohibited by law from using any one of its Veterans Health Administration (VHA) appropriations for medical care, medical and prosthetic research, and medical administration and miscellaneous operating expenses--which fund VHA's operations--to conduct cost comparison studies unless the Congress specifically makes these appropriations available to conduct such studies. The Title 38 cost comparison funding prohibition also provides that no employee compensated from these VHA appropriations may carry out any activity in connection with such studies unless the Congress makes these appropriations specifically available for that purpose. In light of this, Congress asked us in April 2004 whether the limitations imposed by the Title 38 cost comparison funding prohibition applied solely to those studies conducted pursuant to the Office of Management and Budget (OMB) Circular No. A-76, Performance of Commercial Activities, which provides policies and procedures for determining whether commercial activities should be performed in-house using government resources or under contract with private contractor resources. If not, the request further asked whether the prohibition applied to such studies conducted as part of VA's Capital Asset Realignment for Enhanced Services (CARES) process. In our October 2004 legal opinion, we concluded that the Title 38 cost comparison funding prohibition was not limited to standard A-76 cost comparison studies in particular, or A-76 studies in general, and that the prohibition applies to CARES cost comparison studies. We further concluded that if VA had in fact obligated the VHA appropriations for the unavailable purpose of conducting cost comparison studies, then it would have violated the purpose statute. However, we noted in the opinion that we had not simultaneously undertaken an audit to determine if VHA had used these appropriations for this purpose. We met with VA headquarters officials and obtained information and documentation regarding cost comparison studies performed as part of CARES and other cost comparison studies performed during fiscal years 2001 to 2004. The information and documentation VA provided in response to our audit inquiry, however, were limited because VA does not maintain comprehensive, centralized data on the number and type of activities related to cost comparison studies conducted in the past or currently underway. Because of this, we limited the scope of our evaluation to determine whether VA improperly used VHA medical care appropriations in the three areas in which VA reported that cost comparison activities were performed: (1) VA's CARES process, (2) VA's evaluation of its medical center laundry facilities, and (3) the 1,626 cost comparison studies referenced in VA's fiscal year 2002 Performance and Accountability Report (PAR).