Budget Shortfalls and Outsourcing Remain Serious Threats to VA Employees and Veterans

Friday September 29, 2006

           

DEPARTMENT OF VETERANS AFFAIRS

Introduction

Budget shortfalls and outsourcing remain serious threats to VA employees and veterans.

AFGE’s 150,000 members who work at the Department of Veterans Affairs (VA) are deeply committed to providing veterans with the health care, benefits and other services they need. They are honored to contribute to a health care system that is recognized as “the true future in American health care” (New York Times) and to work in hospitals viewed as “models of top-notch care” (U.S. News and World Report). They took great pride when Secretary R. James Nicholson praised VA’s “heroic staff” for their role in Hurricane Katrina and Rita rescues.  Many AFGE members at the VA are veterans themselves, and they work closely with veterans groups at the national and local levels to ensure veteran access to quality health care and benefits.

So why are VA employees and veterans getting mixed signals? Year after year, the Administration proposes inadequate funding for health care in the face of growing demand. The Administration keeps trying to balance the VA budget on the backs of veterans through co-pays and enrollment fees. The Administration pressures the VA to outsource jobs to private contractors even though contracting out wastes taxpayer dollars and diminishes health care.

The twin threats of underfunding and wasteful outsourcing result in a vicious cycle: Staffing shortages cause burnout among overworked employees who end up leaving, hiring freezes lead to costly contracting out, failure to repair and upgrade VA laundry facilities leads to contracting out of laundry services, and long waiting lists lead to delayed care that worsens health problems, so that  treatment becomes more costly.

1. Congress should enact an assured funding formula for VHA’s budget.

The Flawed Fiscal Year 2006 budget process
In 2005, the problems with the current VA budget process made national headlines. Mid-year, the VA acknowledged a billion dollar shortfall in health care funding, caused in part by the use of outdated projections of the number of soldiers returning from Iraq and Afghanistan. Throughout the summer of 2005, the House and Senate debated how much supplemental Fiscal Year (FY) 2006 funding was needed to close the shortfall before reaching an agreement in late August. 
While the FY 2006 appropriations approved by Congress in November increased VA medical dollars above the President’s request, the increase was more than a million dollars short of the amount veterans groups projected was needed. 
President’s FY 2007 Budget Request – Not much, not much new

Under the new proposed budget, VA funding would increase by $2.6 billion up front. However, over five years, funding would steadily decline and reduce purchasing power by over $10 billion below the 2006 funding level. The White House proposes to double drug co-pays and institute annual enrollment fees for Priority 7 and 8 veterans – a budget gimmick rejected by Congress for the past three years. There are no additional funds for state nursing homes and the major construction budget would be cut significantly by one-third. Other recycled gimmicks include claims of management efficiencies that cannot be proven and overly optimistic assumptions about third party insurance collections.  

On the front lines, budget shortfalls harm patients and worker morale

Across the country, VISNs and hospitals are experiencing significant shortfalls. Their funding is both inadequate and unreliable. This flawed funding process produces many harmful effects:

• Denial of care to over 260,000 Priority 7 and 8 Veterans
• Growing waiting lists, e.g. over 12,000 veterans were on VISN 16’s electronic waiting list (EWL) for over 30 days in fall 2005
• Hiring freezes when facilities are facing hundreds of vacancies
• Pressure and/or requirement to work prolonged overtime
• Delayed facility construction and repairs, causing veterans to travel longer distances to get care
• Delays in equipment repair, requiring costly contracted services
• Closing of nursing units and other inpatient units
• Delayed CAT scans and MRIs, requiring costly outsourcing of tests
• Inability to staff new medical units
• Delays in surgery 

 

AFGE supports the Assured Funding for Veterans Health Care Act of 2005 (H.R. 515), sponsored by Representative Lane Evans (D-IL). H.R. 515 would require that annual VA health care funding be based on the number of enrollees and medical and hospital inflation.

2. Congress should retain the statutory ban on spending VA medical dollars for outsourcing studies.

 

The current spending ban protects VA medical dollars from privatization reviews that take jobs away from veterans, hurt health care quality and waste taxpayer dollars.  

38 USC 8110(a)(5), the federal law that prohibits the use of Veterans Health Administration (VHA) funds for outsourcing studies, was enacted in 1982 with bipartisan support. The ban applies to OMB A-76 studies and other cost comparisons. Proponents were concerned that outsourcing would hurt health care and would not end up being cost effective. Bipartisan concerns remain today. The VA’s track record in contracting out laundries over the past few years is poor; contracted laundries fail to produce savings and in some cases, cost more than VA laundries. In addition, the VA does not adequately track dollars spent on outsourcing studies.

Not a complete ban: Outsourcing with VHA funds is still permitted on a case-by-case basis where the VA is unable to provide needed specialized services or where veterans would have to travel too far to get services. The spending ban only covers VHA funds: The VA may use Veterans Benefit Administration (VBA), National Cemetery Administration (NCA) and departmental-wide construction and administration funds. In addition, Congress can make separate appropriations for these studies, apart from the VHA budget.

Cost of contracted out medical care: Unfortunately, years of budget shortfalls have accelerated this type of outsourcing as a stopgap solution to hiring freezes and growing waiting lists. Contracted out medical care is expensive, e.g. contract nurses can cost more than twice as much as in-house nurses. Contracted care often lacks the consistent level of quality and patient safety provided by VA-trained health professionals. In September 2005, Senators Daniel K. Akaka (D-HI) and Ken Salazar (D-CO) asked GAO to investigate the VA’s growing practice of contracting out registered nurses.

True cost of contracting out: In 2002, OMB compiled a list of VHA jobs for cost comparison studies, should appropriations become available. Laundry and food service jobs are at the top of the list. Veterans hold the majority of these low-wage jobs. These jobs are used to help disabled veterans learn new jobs skills and return to employment and self-sufficiency, thus reducing their dependency on VA benefits. Minorities and women are disproportionately hurt when the VA  contracts out these jobs.  In addition, contracted and consolidated laundries require additional transportation costs, are not as reliable as services provided on-site and may increase hospital infection rates. Consolidated and contract food services incur similar hidden dollar and quality costs.

3. Congress should ensure that any cost comparisons are conducted through a fair competitive process and with strict financial oversight.

 

In 2005, Senate VA Committee Chairman Larry E. Craig proposed to repeal the current spending ban. An amendment to strike the proposal (and keep the spending ban in place) received bipartisan support and lost by only one vote. Later in the year, Senators Craig and Akaka reached an agreement to keep the spending ban in place and instead, conduct a two-year pilot project to study contracting out (moving VA jobs to the private sector), contracting in (moving contractor work back to the VA) and VA’s Business Process Reengineering (BPR) initiative (discussed below). This compromise awaits House action.

If this pilot project is enacted, or if outsourcing studies are conducted with other permissible funds, the cost comparisons should be truly competitive and comply with existing requirements under A-76 and the government-wide “right-to-compete” provisions in the Transportation-Treasury bill. In addition, as the pilot project would require, contractors should not get a competitive advantage if they fail to provide the equivalent level of health coverage as the federal government. 

According to a recent GAO report, VA lacks the accounting structure to adequately track funds and labor used to conduct cost comparison studies. Appropriators should require regular reporting and vigilant oversight to ensure that funds are properly tracked.

4. Business Process Reengineering: Congress should increase oversight of the BPR process to ensure that employees are afforded a meaningful role and to evaluate claims of management efficiency savings.

 

Background: Management Analysis/Business Process Reengineering, a VA initiative launched in August 2005, (MA/BPR or BPR) is an approach that the VA has adopted to improve the efficiency of support functions such as laundries and food service. DVA has stated that unlike A-76 cost comparisons, BPR “cannot result in competition with the private sector.”

Management has stated that employees from the function to be studied will play a key role in the process. However, the AFGE VA Council’s July 2005 request to be involved in the BPR implementation was denied. The Council was not included in the recently formed BPR Steering Committees for food service and laundries. To date, we have not heard of any participation in BPR by laundry or food service employees.

Even though BPR does not involve public-private cost comparisons, AFGE is concerned that BPR will encourage reorganizations and consolidations that threaten VA services and jobs.  Over the years, the VA has consolidated and closed numerous laundries and food service facilities in the name of efficiency, and too often, subsequently hired contractors to perform these services.   

Congress should require more transparency in the BPR process so that claims of management efficiency savings can be evaluated. Despite repeated claims that laundry outsourcing is cost effective, VA’s own report revealed that laundries privatized several years ago produced no savings or actually cost more than in-house laundries. The need for verification of these claims was highlighted by a recent critical GAO report that found that VA lacked adequate support for its recent claims of management efficiency savings, and furthermore, lacked a methodology for even making savings assumptions or developing savings goals.

5. Physicians Pay: AFGE and rank-and-file providers should be included in compensation panels and key groups implementing the new pay law.

The Department of Veterans Affairs Health Care Personnel Enhancement Act of 2004 (P.L. 108-445) was signed into law in December 2004 and took effect on January 8, 2006. The law establishes a new pay system for physicians and dentists, and authorizes alternative work schedules for nurses.

AFGE played an active role in the legislative process, but was excluded from the steering committee and other bodies that addressed critical issues such as pay ranges.  Since the effective date, union representatives and rank-and-file physicians and dentists have not been adequately included in compensation panels (despite requirements in the statute), trainings or policy-setting meetings. We also have concerns about the availability of funds for pay raises, management’s willingness to provide appropriate pay increases, the impact on part-time providers and the choice of surveys used to set local pay.

6. The VA should address AFGE’s concerns about the new leave rule.  

 

Effective January 6, 2006, the VA revised the handbook rule that required physicians, dentists, podiatrists and optometrists to take leave on weekends, while reducing leave accrual by 4 days. In addition, it capped carryover leave to 86 days and froze excess leave until termination of employment. Providers were not given any advance notice of the new carryover rule so that they could use their excess leave instead. Providers with excess leave should be grandfathered in under the new rule and/or be allowed to use their leave within a reasonable period of time. The VA should maintain a dialogue with AFGE over other concerns that may arise over the leave rule in the future.

7. AFGE urges Congress to address health care work staffing shortages.

 

Budget shortfalls have exacerbated understaffing of nurses, other health care workers and support employees such as housekeeping and maintenance workers. There is growing evidence of a link between staffing, quality of patient care and patient outcomes. In addition, poor working conditions increase turnover, in turn worsening the shortage.

1. VA health care workers and VA management should have the right to negotiate safer staffing levels.

 

Currently, staffing levels in hospitals are driven by budgets, not by health care policy. Under current law, VA management and representatives of front-line health care workers are prohibited from bargaining over staffing levels, staff-to-patient ratios, patient panel size or ways to improve direct patient care.

2. All VA health care employees who are required to work a Saturday shift should receive Saturday premium pay.  

 

Congress passed a law in 2003 that expanded the eligibility of VA employees for Saturday premium pay. To date, VA has not finalized the list of employees who will be eligible for premium pay on the basis of providing direct patient care. The VA should not arbitrarily exclude certain groups of workers.

3. AFGE urges Congress to pass mandatory overtime legislation.

 

Budget shortfalls have exacerbated the use of mandatory overtime. When nurses are pressured or required to work double shifts, patients are placed at risk.  Burnout and greater staffing shortages are likely to occur.  The Safe Nursing and Patient Care Act of 2005 [H.R. 791, introduced by Representatives Pete Stark (D-CA) and Steve LaTourette (R-OH) / S. 351 introduced by Senator Edward Kennedy (D-MA)], would prohibit mandatory overtime in hospitals, except in cases of formally declared emergencies or where nurses felt it was safe to do so.

8. The Veterans Benefits Administration needs additional staff and training to meet a growing and more complex caseload.

 

Between 2002 and 2005, the number of new compensation claims filed increased by 50,000. At the same time, staff levels dropped slightly. The number of multiple and complex claims is rising.

To better handle growing caseloads, DVA should:

• Develop more accurate projections of future demand for claims processing that take into consideration veteran populations and changes in law and policy.
• Ensure that staff receives comprehensive training.
• Improve coordination between production and training standards set at the national level and those set locally.
• Allow employee input into decisions regarding productivity and training.

 

Conclusion: AFGE urges Congressional and/or Departmental action in the following areas:

• Assured funding formula for the VA health care budget.

 

• Retain the spending ban on using VHA funds for cost comparisons.

• All cost comparisons should be conducted through a fair competitive process and with financial oversight; moreover, cost comparisons should be conducted with an eye towards bringing contractor work back in-house.

 

• The BPR initiative should include input from front line workers and veterans, and should be required to substantiate claims of management efficiencies.

• AFGE and front line providers should have input into physician pay changes through compensation panels and other key groups.

 

• The VA should address AFGE’s concerns over the leave freeze and other changes in the new physicians leave rule.

• AFGE and management should be allowed to negotiate over staffing.

 

• Saturday premium pay should be given to all VHA employees who work Saturday shifts.

• Congress should pass mandatory overtime legislation.

 

• VBA needs adequate staffing and resources to handle projected caseloads.