VA redirects funds from vet health care to studies on privatization

By Lee Russ

Wednesday, January 18, 2006 at 04:40 PM

What's an agency to do when it wants to perform cost comparison studies with an eye to privatizing functions, but congress won't fund the requests?  Well, if you're the VA: you do the comparisons anyway, using funds and people earmarked for providing medical care to vets.

A press release from the American Federation of Government Employees (AFGE)  today announced that the union's president has formally requested  that Attorney General Alberto Gonzalez, commence "an immediate criminal investigation of current management at the VA" for violations of two laws by diverting money that had been appropriated for health care to pay for outsourcing studies.

AFGE had made two previous attempts to resolve the matter directly with the VA, in In July, 2003 and November, 2003.  It's current request for an investigation seems to have been spurred by a GAO report issued in December, 2005, which concluded that the VA had illegally diverted health care funds to conduct outsourcing studies.  The GAO investigation had been in response to a request from Lane Evans, the Ranking Democratic Member on the Committee on Veterans' Affairs in the House of Representatives.

Gage is quoted as saying, "As a result of chronic understaffing and underfunding issues, the VA has to deny thousands of veterans the healthcare they were promised when they put their lives on the line for this country.  Earlier this summer we learned that the VA faced a $3 billion shortfall because of inexplicable miscalculations. To divert health care dollars to pay for outsourcing studies when the VA faces a budget crisis is criminal at best."

At issue are two different laws which the GAO Report concludes were broken.  One, 38 U.S.C. section 8110 (a)(5), specifically prohibits the misuse of funds appropriated for veterans' healthcare.  Section § 8110(a)(5), states: "Notwithstanding any other provision of this title or of any other law, funds appropriated for the Department under the appropriation accounts for medical care, medical and prosthetic research, and medical administration and miscellaneous operating expenses may not be used for, and no employee compensated from such funds may carry out any activity in connection with, the conduct of any study comparing the cost of the provision by private contractors with the cost of the provision by the Department of commercial or industrial products and services for the Veterans Health Administration unless such funds have been specifically appropriated for that purpose."

The other law, 31 U.S.C. section 1341(a), known as the Anti-Deficiency Act,  prohibits an agency from incurring an obligation in advance or in excess of appropriations and requires agencies to report violations to the Congress and the President (with a copy to the Comptroller General). Under the view of the GAO, all instances of spending in violation of 38 U.S.C. 8110(a)(5) amount to obligations which 31 U.S.C. section 1341(a) require to be reported.

Still, the VA denies any wrongdoing and has indicated it's intent to continue using health care dollars to fund outsourcing studies.  The VA disputes the legal interpretations in the GAO report.  In a letter to McCoy Williams (included as an exhibit in the GAO report), director of financial management and assurance at GAO, VA Secretary R. James Nicholson acknowledged that the VA cannot use health administration funds for formal competitive sourcing studies. He argued, however, that "Congress clearly did not intend to preclude all manner of cost analysis necessary for the day-to-day administration of our health-care system..."  In essence, GAO & VA are at odds over the meaning of the phrase "any study" in the 38 U.S.C. provision.  The VA claims it refers only to formal competitive sourcing studies conducted under the rules set forth in a specific Office of Management and Budget (OMB) Circular (# A-76).  GAO says that such a limitation is contrary to the plain meaning of the phrase "any study."

At issue are cost comparison studies the VA conducted between 2001 and 2004.  It appears that a major factor in the controversy is that the VA sought appropriations of hefty sums, ranging from $16 million to $50 million, to conduct cost comparison studies during that time period, but was turned down by lawmakers.  The agency then conducted the studies anyway, using funds that had been appropriated for health care.