VA Real Property: VHA Should Improve Activation Cost Estimates and Oversight
Fast Facts
How much does it cost to get a new medical facility for veterans up and running? The Veterans Health Administration (VHA) spent more than $4 billion staffing and equipping (“activating”) such facilities from fiscal year 2012 through 2018.
But VHA doesn’t have a clear definition of allowable activation expenses or a process to estimate total activation costs.
Our recommendations address these issues to improve VHA’s oversight of activation costs.
Medical staff and equipment can be activation expenses for new medical facilities
A person in scrubs using a large piece of medical equipment
Highlights
What GAO Found
The Veterans Health Administration (VHA) under the Department of Veterans Affairs (VA) is constructing and leasing new medical facilities, such as outpatient clinics, to better serve and meet the changing needs of veterans. VHA equips and staffs these new facilities in a multi-year process called “activation.” From fiscal year 2012 through 2018, VHA channeled more than $4 billion to major medical facilities undergoing activation, which these facilities could use toward furniture, equipment, and new staffing costs, among other start-up expenses.
Activation Costs Include Equipment Purchases and Installation, among Others
VHA lacks processes and clear definitions for estimating total activation costs and for comparing actual expenses against these estimates. Specifically,
- VHA's current cost estimation process does not cover the full duration of activation.
- Headquarters officials have never compared activation costs against estimated costs because until recently, officials said, VHA lacked the accounting mechanisms to facilitate such comparisons; however, while VHA now possesses these mechanisms, it has not documented the process for how the new information should be used.
- VHA documentation does not clearly define allowable activation expenses or the appropriate spending timeframes. Local and regional officials expressed confusion over what items could be purchased with activation funds. In addition, local officials held inconsistent beliefs regarding how long expenses could qualify as activation-related.
VHA management's priorities include data-driven decision-making. Further, the Office of Management and Budget's guidance states that agencies should compare actual project costs against planned expenses so managers can determine if cost goals are being met. Without processes and clear definitions associated with measuring activation costs, VHA does not have reasonable assurance that it will be able to effectively manage the resources associated with activation.
Why GAO Did This Study
VHA operates one of the nation's largest health care systems with more than 1,200 sites across the country; however, many facilities were built decades ago and do not align with the agency's current emphasis on outpatient and specialized care. Additionally, new or expanded facilities are needed to accommodate veterans returning from recent conflicts. VHA is constructing and leasing new facilities to respond to these needs. GAO was asked to review VHA's efforts to activate new major medical facilities.
This report examines the extent to which VHA is able to compare the actual costs of activation against the estimated costs, among other objectives.
GAO analyzed VHA's documentation on estimating activation costs. GAO also interviewed officials and analyzed cost information reported by a non-generalizable selection of eight medical facilities. The facilities had more than $1 million in annual rent or $20 million in construction costs, reported finishing activation in fiscal years 2016 and 2017, and were located in various regions.
Recommendations
GAO recommends that VA (1) develop and document a process for estimating total activation costs, (2) develop and document a process for comparing actual activation costs to the estimates, (3) define allowable activation expenses, and (4) clarify when facilities should cease to classify expenses as activation-related. VA agreed with GAO's recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Office of the Under Secretary for Health | The Assistant Deputy Under Secretary for Health for Administrative Operations should develop and document a process for estimating total activation costs for major medical facility projects. This process should reflect the 12 steps for developing a reliable cost estimate outlined in the GAO Cost Guide. (Recommendation 1) |
In October 2024, we reviewed a policy document VHA provided on the process for estimating total life cycle activation costs for major medical facility projects. We did not see evidence that the policy reflected the 12 cost estimating steps required, nor did we see evidence that the policy had been widely distributed within VHA for cost estimators to follow. As a result, we requested that VHA provide evidence of these two items. We are currently awaiting VHA's response, and we will continue to track their progress in this area.
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| Office of the Under Secretary for Health | The Assistant Deputy Under Secretary for Health for Administrative Operations should develop and document a process for comparing actual activation costs for major medical facility projects to estimates. This process should identify the personnel responsible for comparing the estimated costs to the actual expenses and document their responsibilities. (Recommendation 2) |
VHA operates one of the nation's largest health care systems. VHA constructs and leases new medical facilities to better serve and meet the changing needs of veterans. VHA equips and staffs these new facilities in a process called "activation." From fiscal year 2012 through 2018, VHA channeled more than $4 billion to major medical facilities undergoing activation, which these facilities could use toward furniture, equipment, and new staffing costs, among other start-up expenses. GAO interviewed officials from eight selected medical facilities where major activations were completed in fiscal years 2016 or 2017 and were located in various VA regions. In 2020, GAO reported that VHA lacks processes to develop reliable total activation cost estimates for major activation projects and to compare actual costs against these estimates. VHA officials said that until recently, the agency lacked the accounting mechanisms necessary to facilitate comparisons of a project's total activation costs against estimated costs; however, while VHA now possesses these mechanisms, it has not documented the process for how the new information should be used, including which personnel would be responsible for conducting such comparisons. Without processes for comparing actual expenses against estimates, VHA is limited in its ability to improve resource planning, budgeting, and allocation. Further, OMB guidance states that agencies should obtain information on actual project costs and compare them against planned expenses so managers can have a clear understanding of how resources are being used and whether cost goals are being met. Therefore, GAO recommended that VHA should develop and document a process for comparing actual activation costs at major medical facilities to estimates. GAO noted that this process should identify the personnel responsible and VHA should document their responsibilities. In October 2023, VHA issued a policy directive that documents key processes, the personnel responsible for various processes, and the responsibilities of staff at various levels. In July 2024, GAO confirmed that the agency had developed and documented a process to compare the actual activation costs and the estimated costs. The first part of VHA's process consists of web-based tools that are used to document the estimates and actual costs for relevant categories of activation expenses, such as staffing, furniture, and equipment. Data are updated at each facility as changes occur. For example, the staffing module of the web-based tool records information on each hire's planned salary and benefits, as well as the actual salary and benefits. The second part of VHA's process consists of comparing the baseline cost estimates and the rate at which those funds are actually being expended, using unique accounting codes, and reporting on activation expenditures monthly. According to VHA policy, the Activations Program Manager is responsible for the comparison and expenditure tracking. Having developed a process for comparing actual activation costs to estimates, VHA is better positioned to have reasonable assurance that it can effectively manage the resources associated with activation, which meets the intent of GAO's recommendation.
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| Office of the Under Secretary for Health | The Assistant Deputy Under Secretary for Health for Administrative Operations should define and document what items and services officials can purchase with activation funds. (Recommendation 3) |
VHA operates one of the nation's largest health care systems. VHA constructs and leases new medical facilities to better serve and meet the changing needs of veterans. VHA equips and staffs these new facilities in a process called "activation." From fiscal years 2012 through 2018, VHA channeled more than $4 billion to major medical facilities undergoing activation, which these facilities could use toward furniture, equipment, and new staffing costs, among other start-up expenses. In 2020, GAO reported that VHA had not clearly defined what officials at local facilities can purchase with activation funding. VHA officials said that there is a general understanding that some expenses, such as medical equipment for new facilities or services, are activation expenses. However, there was no policy to inform facility activation staff of what they can purchase with activation funding. In mid-2019, an internal review conducted by VHA found that the lack of clarity regarding what could or could not be purchased should be remedied; however, as of September 2019, no specific plans had been established to define appropriate purchases. The lack of clear definitions regarding what constitutes allowable activation expenses limited VHA's ability to consistently and accurately estimate and track activation costs. VA management priorities include making data-driven decisions to improve resource planning, budgeting, and allocation. In addition, Standards for Internal Control in the Federal Government states that management should use quality information to achieve the entity's objectives. Clear definitions on what expenses facilities should charge to activations accounts would improve VHA's ability to monitor activation costs and improve resource stewardship. Therefore, GAO recommended that VHA should define and document what items and services officials can purchase with activation funds. In April 2024, GAO confirmed that VHA had issued a policy directive that defines and documents the items and services that officials can purchase with activation funds. The directive, which took effect in October 2023, states that activation funds must be used to procure items and services used to ensure the facility will be fully functional. According to the directive, this includes furniture, fixtures, and equipment; contracted services such as developing acquisition packages and coordinating physical moves; operating supplies; and salaries. As a result of having defined and documented the items and services officials can purchase with activation funds, VHA is better positioned to have reasonable assurance that it can effectively manage the resources associated with activation.
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| Office of the Under Secretary for Health | The Assistant Deputy Under Secretary for Health for Administrative Operations should define and document when facilities should cease to spend activation funds. (Recommendation 4) |
VHA operates one of the nation's largest health care systems. VHA constructs and leases new medical facilities, to better serve and meet the changing needs of veterans. VHA equips and staffs these new facilities in a process called "activation." From fiscal year 2012 through 2018, VHA channeled more than $4 billion to major medical facilities undergoing activation, which these facilities could use toward furniture, equipment, and new staffing costs, among other start-up expenses. GAO interviewed officials from eight selected medical facilities where major activations were completed in fiscal years 2016 or 2017 and which were located in various VA regions. In 2020, GAO reported that VHA had not clearly defined how long officials may continue to use activation funding after opening day. VHA officials said that there was a general understanding that activation funding is to be used until the medical facility begins to receive funding for operations. However, there was no policy to inform staff at medical facilities when activation funding will cease. Moreover, officials GAO interviewed from selected medical facilities held differing views on how long they were eligible to receive activation funding from VHA. For example, officials from one of the facilities said that activation funding was provided for up to 5 years, while officials from several other facilities said that activation funding was available until operational expenses are covered by another VHA funding source. The lack of clear definitions regarding when activation funding should end limited VHA's ability to consistently and accurately estimate and track activation costs. VA management priorities include making data-driven decisions to improve resource planning, budgeting, and allocation. In addition, Standards for Internal Control in the Federal Government states that management should use quality information to achieve the entity's objectives. Clear definitions on how long activations funding can be spent would improve VHA's ability to monitor activation costs and improve resource stewardship. Therefore, GAO recommended that VHA should define and document when facilities should cease to spend activation funds. In April 2024, GAO confirmed that VHA had issued a policy directive that defines and documents when facilities should cease to spend activation funds. According to the directive, in general, activation funds for non-recurring expenses-such as furniture, fixtures, and equipment-will not be available to facilities beyond a 1-year timeframe, and activation funds for recurring expenses, such as salaries, will not be available beyond a 2-year timeframe. As a result of having defined and documented when facilities should cease to spend activation funds, VHA is better positioned to have reasonable assurance that it can effectively manage the resources associated with activation.
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