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Hearing Transcript on Veterans Health Administration Contracting and Procurement Practices.
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VETERANS HEALTH ADMINISTRATION CONTRACTING AND PROCUREMENT PRACTICES
HEARING BEFORE THE SUBCOMMITTEE ON HEALTH OF THE COMMITTEE ON VETERANS' AFFAIRS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED ELEVENTH CONGRESS SECOND SESSION SEPTEMBER 23, 2010 SERIAL No. 111-100 Printed for the use of the Committee on Veterans' Affairs
U.S. GOVERNMENT PRINTING OFFICE For sale by the Superintendent of Documents, U.S. Government Printing Office
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CORRINE BROWN, Florida |
STEVE BUYER, Indiana, Ranking |
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Malcom A. Shorter, Staff Director SUBCOMMITTEE ON HEALTH
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Veterans' Affairs are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process is further refined. |
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C O N T E N T S
September 23, 2010
Veterans Health Administration Contracting and Procurement Practices
OPENING STATEMENTS
Chairman Michael H, Michaud
Prepared statement of Chairman Michaud
Hon. Henry E. Brown, Jr., Ranking Republican Member
Prepared statement of Congressman Brown
Hon. Russ Carnahan, prepared statement of
WITNESSES
U.S. Government Accountability Office, Debra A. Draper, Ph.D., M.S.H.A., Director, Health Care
Prepared statement of Dr. Draper
U.S. Department of Veterans Affairs:
Belinda J. Finn, Assistant Inspector General for Audits and Evaluations,
Office of Inspector General
Prepared statement of Ms. Finn
Frederick Downs, Jr., Chief Procurement and Logistics Officer,
Veterans Health Administration
Prepared statement of Mr. Downs
Goold Health Systems, Augusta, ME, James A. Clair, M.P.A., M.S., Chief Executive Officer
Prepared statement of Mr. Clair
Mobile Medical International Corporation, St. Johnsbury, VT, Mark T. Munroe, Senior Vice President, Sales and Marketing
Prepared statement of Mr. Munroe
Modular Building Institute, Lincoln Moss, Senior Vice President and Chief Operating Officer, Ramtech Building Systems, Inc., Mansfield, TX
Prepared statement of Mr. Moss
Robert Bosch Healthcare, Palo Alto, CA, Derek Newell, MPA., MPH, President
Prepared statement of Mr. Newell
Wise Knowledge Systems, Inc., Piper Creek, TX, Jay Wise, Ph.D., Chief Executive Officer
Prepared statement of Dr. Wise
SUBMISSIONS FOR THE RECORD
The Coalition for Government Procurement, Larry Allen, President, letter
Gordon, Hon. Bart, a Representative in Congress from the State of Tennessee, statement
Murfreesboro Pharmaceutical Nursing Supply, Murfreesboro, TN, Richard Reeves, Chief Executive Officer, statement
MATERIAL SUBMITTED FOR THE RECORD
Post-Hearing Questions and Responses for the Record:
VETERANS HEALTH ADMINISTRATION CONTRACTING AND PROCUREMENT PRACTICES
Thursday, September 23, 2010
U. S. House of Representatives,
Subcommittee on Health,
Committee on Veterans' Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:01 a.m., in Room 334, Cannon House Office Building, Hon. Michael Michaud [Chairman of the Subcommittee] presiding.
Present: Representatives Michaud, Brown of Florida, Donnelly, Perriello, Brown of South Carolina, and Boozman.
Also Present: Representative Carnahan.
OPENING STATEMENT OF CHAIRMAN MICHAUD
Mr. MICHAUD. As we get started, would the first panel please come forward? Good morning. The Subcommittee on Health will now come to order. I would like to thank everyone for attending this hearing. The purpose of today's hearing is to investigate potential weaknesses in the Veterans Health Administration's (VHA's) contracting and procurement practices, and explore ways that we can strengthen how VHA contracts and procures medical equipment and health care products for our veterans.
In recent years, we have seen many reports and studies on the contracting and procurement activities of the U.S. Department of Veterans Affairs (VA) . These reports have identified the need for increased transparency and fiscal responsibility, as well as highlighted problems of inadequate competition and lack of accountability and oversight. As a result of these deficiencies in VHA's contracting and procurement practices, veterans may not be getting the latest innovation in health care products. This was also made evident in our June Health Subcommittee hearing on wireless health care technology, which revealed the difficulties that many private companies face in informing VA about their products and getting their products in the hands of our veterans. Furthermore, we are all aware of the problems of dirty reusable medical equipment at certain VA medical centers.
Today, we will hear from the U.S. Government Accountability Office (GAO) about a study that they are conducting on the purchasing and tracking of supplies and medical equipment. Their preliminary observations include the potential risk to our veterans' safety when VA is in noncompliance with VA purchasing and tracking requirements. Finally, internal control weaknesses with VHA's use of billions in miscellaneous obligation continues to be a problem because VA contracting officials do not have sufficient control over the authorization and use of miscellaneous obligations. It is unclear whether these obligations were for legitimate needs.
I have been very supportive of increasing funding for the VA. However, I think we must also make sure that they are using our dollars wisely. For instance, the VA does a great job in negotiating for lower cost prescription drugs. The cost is estimated in 2011 to be $4.8 billion. Even though we are able to negotiate for the lower cost prescription drugs, my concern is whether or not the utilization for those prescription drugs are the most cost effective way that the VA should be moving forward. And I look forward to hearing from today's witnesses as we aim to better understand the challenges that face the VHA contracting and procurement practices, and work together to find potential solutions to these challenges.
I want to now recognize my good friend and colleague Mr. Brown for any opening statement that he may have.
[The prepared statement of Chairman Michaud appears in the Appendix.]
OPENING STATEMENT OF HON. HENRY E. BROWN, JR.
Mr. BROWN OF SOUTH CAROLINA. Thank you, Mr. Chairman, and I appreciate you calling this hearing today. I am pleased to be here to discuss contracting and procurement issues within the Veterans Health Administration. VA's troubled contracting and procurement processes have long been an issue of great concern to this Committee and the subject of various Government Accountability Office and VA Office of Inspector General (OIG)reports that continue to cite major deficiencies and material weaknesses. Given the wide scope of VA's reach and budget, it is particularly important that we ensure that they have the proper procedures and oversight mechanisms in place to ensure that VA's procurement and contracting is done responsibly, appropriately, and with proper oversight.
In that vein, I am particularly concerned about testimony we will hear from the Office of Inspector General that “data in VA and VHA acquisition support information systems is incomplete and unreliable.” Without accurate data, we have no idea what we are doing right or what we are doing wrong, where we are, where we are going, or where we need to be. This is unacceptable within a system that is responsible for the care of our Nation's veterans and spent a little over $9 billion on health care goods and services last fiscal year alone.
Streamlining contracting and procurement processes to eliminate the potential for waste, fraud, and abuse, while at the same time improving the cost and comfort of doing business with VA to ensure our veteran heroes have access to the highest quality medical care is and should be at the top of our priority list.
I look forward to hearing from the witnesses on our first panel about the obstacles to doing business with VHA, and from the government witnesses on our second and third panel about tthe functioning of VHA's acquisition system. Although we are nearing the end of this legislative session, I am hopeful that we will be able to move legislation H.R. 4221, the "Department of Veterans Affairs Acquisition Improvement Act of 2009," introduced by our Ranking Member Steve Buyer. This bill, that I originally cosponsored, would correct the long-term procurement issues within VA and provide great oversight of VA's contracting and access management processes.
I thank you, Mr. Chairman, for being here for this discussion, and I yield back the balance of my time.
[The prepared statement of Congressman Brown appears in the Appendix.]
Mr. MICHAUD. Thank you very much, Mr. Brown. Before I begin I would like to ask unanimous consent that Mr. Carnahan, who will be attending this hearing later, be invited to sit on the dais on the Subcommittee on Health today. Hearing no objections, so ordered. I also would like unanimous consent to include all the written testimony in the record. Hearing none, so ordered.
At this time I would like to introduce the panel. Our first panel includes Mark Munroe, who is the Senior Vice President of Sales and Marketing for the Mobile Medical International Corporation. We have Derek Newell, President of Robert Bosch Healthcare; Linc Moss, who is the Senior Vice President and Chief Operating Officer for Ramtech Building Systems, Inc. We have Jay Wise, who is from Wise Knowledge System, and Jim Clair who is Chief Executive Officer of Goold Health System (GHS). Jim is also accompanied in the audience by Lorraine Lachappelle, who is an R.N., and is the Director of Community Assessment. And it is my understanding that Lorraine also served in the Army. I want to thank you very much for your service on behalf of this great Nation of ours.
Without any further ado, we will start off with Mr. Munroe.
STATEMENTS OF MARK T. MUNROE, SENIOR VICE PRESIDENT, SALES AND MARKETING, MOBILE MEDICAL INTERNATIONAL CORPORATION, ST. JOHNSBURY, VT; DEREK NEWELL, MPA., MPH, PRESIDENT, ROBERT BOSCH HEALTHCARE, PALO ALTO, CA; LINCOLN MOSS, SENIOR VICE PRESIDENT AND CHIEF OPERATING OFFICER, RAMTECH BUILDING SYSTEMS, INC., MANSFIELD, TX, ON BEHALF OF MODULAR BUILDING INSTITUTE (MBI); JAY WISE, PH.D., CHIEF EXECUTIVE OFFICER, WISE KNOWLEDGE SYSTEMS, INC., PIPER CREEK, TX; AND JAMES A. CLAIR, M.P.A., M.S., CHIEF EXECUTIVE OFFICER, GOOLD HEALTH SYSTEMS, AUGUSTA, ME
Mr. MUNROE. My name is Mark Munroe, Senior Vice President of Sales and Marketing for Mobile Medical. Mobile Medical is an international company that develops and manufactures commercial and military mobile surgical hospitals, which meet all U.S. health care standards. These mobile health care solutions are rapidly deployable, fully integrated, self-contained, and present innovative solutions for today's health care delivery needs. My purpose here today is to explain how Mobile Medical has worked with VA medical centers throughout the country while describing some of the challenges associated with those experiences, and pointing out some of our exciting success stories.
Let us begin with the New Orleans VA Medical Center. As we are all aware, Hurricane Katrina struck New Orleans 5 years ago. Since Katrina, the New Orleans VA Medical Center has not provide surgical or endoscopic services to the veterans of New Orleans. Veterans in the New Orleans region must seek health care at other facilities within the system. This often causes veterans to wait for needed procedures, or travel greater distances to receive the care they need. In January 2008, Mobile Medical moved to mitigate this disruption of services by responding to a request from the New Orleans VA Medical Center leadership for a proposal involving mobile surgery units.
These units were to be used to meet a variety of needs and to serve as a temporary surgical facility during the hospital rebuilding process. You will notice on your screen I have brought up an image of the mobile surgery unit in what we call transportation mode. The New Orleans VA issued a solicitation on FedBizOpps on May 2009 for mobile surgery units. This solicitation was subsequently canceled and redirected to the General Services Administration (GSA) Schedule. It should be noted that while Mobile Medical was in the process of contracting with GSA, code compliant mobile surgery units did not exist on the GSA Schedule. As a result of this action, companies with GSA contracts responded but none of them, including the one to whom the GSA solicitation was ultimately awarded, met the VA criteria for a history of producing and deploying regulatory compliant mobile surgery units.
In addition, Mobile Medical learned that its proprietary company confidential information provided as part of its January proposal had been released to over seventy GSA Schedule holders. Quoting from the attached summary of Mobile Medical's Federal legal action, which is in your packet, “Judge Horn clearly found that the VA's actions were improper and the attempted modification was beyond the scope of the GSA Schedule program. An agency placing an order under the GSA schedule program may not simply send out a request for quotation (RFQ) as, in her words, a ‘solicitation feeler,' evaluate quotes for items that do not exist on anyone's GSA schedule contract, and then hope a selected contractor can convince the GSA a modification is within scope of their existing contract by the time the agency places an order. Such an end run, which occurred in the case, violates even the most basic requirements of fair and open competition for Federal contracts.”
As a small business working in a HUBZone during difficult economic times, the last thing our company ever expected would be the need to sue the U.S. Government for actions taken during a procurement process. It should be noted that the legal costs alone with this process have run Mobile Medical in excess of $300,000. Clearly, oversight is necessary to ensure that other small businesses, like Mobile Medical, do not encounter this type of situation.
Standing in stark contrast to Mobile Medical's experience in New Orleans is our very positive experience serving the needs of veterans at the VA Medical Center in Muskogee, Oklahoma. I am going to bring up a few images as we kind of go through that will represent some of the interior of the mobile surgery unit as well as some of these projects.
The leadership at the Muskogee VA Medical Center from the Director to the Contracting Officer, Facilities Engineering, and surgical teams, should be commended for their work on this model project. In this forum I am happy to do that today. During a recent customer visit, a member of Mobile Medical's Board of Directors, Retired Air Force Surgeon General Paul K. Carlton, learned from VA officials that this facility is saving over $9 million in construction costs by closing their operating rooms for the duration of the renovation period rather than phasing in their renovation. Quoting Dr. Carlton in his report to Mobile Medical, “the renovation project began in 2008 with strong leadership. After researching alternative options, the medical center closed five operating rooms and the project began using two mobile surgery units,” which you see being delivered and installed at the facility on your screen. “By doing this they are shaving $9.3 million off the original construction quote for the project, even after spending $3.6 million to lease the mobile surgery units.” The medical center is also avoiding another $14 million that would have gone to local hospitals to carry the surgical center's case load during the renovation, for a total savings of just over $23 million. Included in your packet is that full report. Those savings are attached in the executive summary and we urge Members to note that the Senate Military Construction Veterans Affairs Subcommittee has also included language in its report to the Senate, Report 111-115, urging the VA to utilize qualified mobile surgical units in OR renovation projects where such utilization clearly offers savings.
A final example of a successful project is the VA Medical Center in Miami, Florida. Miami is currently utilizing six mobile surgery units during a full operating room renovation project. And this will just give you a quick summary of the actual images from Muskogee, and now into the Miami project.
While the Miami project was also challenged through the contracting process, again strong leadership was the key. Dr. Seth Spector, Chief of Surgery, has kept the project moving forward and in August of this year, Miami was able to turn their operating rooms over to the Army Corps of Engineers for renovation, while continuing to provide full surgical services to the veterans of the Miami service area.
While 5 minutes, and I apologize for running a bit over, is a short time to share with you all of the successes and weaknesses in the VA contracting process, I am sure you will find our supporting documentation compelling. I look forward to any questions you may have, and thank you for your time this morning.
[The prepared statement of Mr. Munroe appears in the Appendix.]
Mr. MICHAUD. Thank you very much. Mr. Newell?
STATEMENT OF DEREK NEWELL, MPA., MPH
Mr. NEWELL. Mr. Chairman and other Members of the Subcommittee, on behalf of Robert Bosch Healthcare, I thank you for the opportunity to provide testimony. I am the President of Robert Bosch Healthcare, and Bosch which makes the T-400 and the Health Buddy systems, provides remote patient monitoring services to the Veterans Administration, which allows veterans to remain at home and get adequate care while they are in their homes. We have been doing this since 2003 and currently we have over 30,000 veterans who use our systems, which represents about 70 percent of the total telehealth and remote patient monitoring systems used by the VA. The population we serve suffers from chronic illnesses like congestive heart failure, diabetes, hypertension, and post-traumatic stress disorder. The Health Buddy and the T-400 systems collect patient data and vital signs, send those back to clinicians. They check for, the system automatically checks for out of bounds indicators and alerts physicians and nurses to possible deterioration and veterans' health status. And that prevents the exacerbation of the veterans' systems and alleviates high levels of usage of the emergency room by some of these veterans.
These technologies have demonstrated positive results in improving the health care of our Nation's veterans population and in reducing costs. There was a study published last year that showed a 25 percent reduction in inpatient days and a 19-percent reduction in hospital admissions for those veterans that were using our system compared to similar veterans who were not using our systems. The VA has been a visionary in building this technology, and improving it, and working with the vendor community to ensure that this segment of the health care delivery system within the VA is expanded.
Regarding improvements in the procurement process, between the time I was invited to this Committee and today, the VA has published a request for procurement (RFP) for the procurement of our devices and for remote patient monitoring devices. And we applaud the transition of the procurement to the Denver Acquisition Center. So there have been some improvements that I was going to recommend that have already occurred, so I am applauding the folks within the VA for doing that. This move will integrate and mainstream procurement practices for home monitoring technologies, including ours as well as our competitors. The purchasing was previously done through individual Veterans Integrated Service Networks (VISNs) through a national contract through the, through the prosthetic center at the VISNs, which results in a high degree of variability between the facilities and how they would procure and their purchasing practices. Another challenge that has been rectified was that our devices, while prosthetics is good at buying wheelchairs and other types of devices that are not connected to technology systems and not connected to the Internet, the purchasing practices did not allow for the payment of services and other technologies required to operate our systems, such as the servers that exist within the VA's firewall. They only, they buy a computer and they want it to connect but they do not want to pay for the back end. Or they have, they do not have a mechanism to pay for that. They did not, they do now.
While we compliment the VA's innovation to date, we believe there are a number of ways that Congress could assist the agency in improving the procurement process to expedite greater use of remote patient monitoring technology. Based on our experience, I suggest the following enhancements that would improve contract and procurement processes in the VA. These apply specifically to remote patient monitoring but may be able to be used in other areas.
One is preferred partners. In our particular situation often increased numbers of vendors would increase competition and reduce prices for the VA, which is a State objective of the procurement process. However, when each vendor must comply with installing duplicate sets of servers and security requirements to make our systems work, but there is no guarantee of volume in terms of purchase of the devices, having too many vendors may actually cause them to amortize the cost of the back end over too few units which would have the opposite effect of raising prices. So we would suggest that the VA pick a fewer number of partners, preferred partners, maybe two or three, in areas where there are fixed cost infrastructure requirements associated with technologies that get deployed to the home. Currently in the contract they are going to pick up to six vendors. I think that three would probably be more appropriate.
Targeted innovation. Recently the VA has started communicating to partners about its vision of veterans' health needs and priorities. However, this could still be improved. Better education and funding, targeted innovation with preferred partners, would enable us to respond in a more timely manner to the VA's needs and to be partners in finding solutions. At present, a majority of our information comes to us when there is a solicitation, which is once every 5 years. Only then do we have concrete knowledge of their vision, and their plans and their goals, and the specific number of units that they might buy. And as you can imagine, in a company we would need to know what kind of volumes before we would make significant investments.
Two more smaller elements that could help the contracting process and the Federal Supply Schedule (FSS) contracting process, moving back to a single point of contact for contract partners would allow more efficiency. Currently we interact with a variety of FSS contract staff which creates a constant learning curve for them and is a challenge for us. Greater sharing of information between the VHA and other Federal health care agencies would expedite the adoption of telehealth as well as expedite the adoption of best practices, not just for our technology but for other technology. Keeping information about the quality of care improvements and cost savings that can be made under wraps can present a challenge when you are trying to disseminate effective best practices.
Mr. Chairman and Members of the Committee, we believe these few but concrete specific actions would go a great distance to support the VA's efforts to expand the use of our technologies and other innovative technologies. In this regard, we admire the VA's efforts to date and hope that our years of experience in interacting with the agency as a private vendor will be useful to the Committee. We are proud to be partnered with the VA in improving the quality of care and reducing the costs of health care for our veterans. I appreciate this opportunity to testify and would be happy to answer any questions you may have.
[The prepared statement of Mr. Newell appears in the Appendix.]
Mr. MICHAUD. Thank you very much, Mr. Newell. Mr. Moss?
Mr. MOSS. Good morning. Chairman Michaud, Ranking Member Brown, and Members of the Committee, my name is Linc Moss. I am Senior Vice President and Chief Operating Office of Ramtech Building Systems. Ramtech is a vertically integrated design-build commercial modular building construction firm based in Mansfield, Texas. I am testifying today on behalf of the Modular Building Institute. MBI is a not-for-profit trade association that was established in 1983 that serves companies involved in the manufacturing and distribution of commercial factory-built structures.
I appreciate the opportunity to speak to the Committee on ways to improve contracting with the Department of Veterans Affairs. Throughout the construction industry, there is a concern with the VA as to the solicitation of construction projects that call for a delivery system referred to as Design-Bid-Build. This traditional project delivery method is often more costly and less efficient than other delivery methods and its restrictive nature prohibits alternate forms of construction, such as permanent modular, from being able to participate in the bidding process.
Over the past decade, the use of Design-Build has greatly increased in the United States making it one of the significant changes in the construction industry. The Design-Build method streamlines project delivery through a single contract between the government agency and the contractor. This simple but fundamental difference not only saves money and time, it improves communication between the stakeholders and delivers a project more consistent with the agency's needs. It also allows for all sectors of the construction industry to participate.
The Design-Build project delivery system offers the VA a variety of advantages that other construction delivery systems cannot. Typically under the Design-Build approach, an agency will contract with one entity for both design and construction of the project. By greater utilization of the Design-Build delivery system, the VA can achieve these goals: faster delivery, greater cost savings, improved quality, a single source of responsibility, and reduction in administrative burden.
As our Nation prepares for an influx of returning warriors, it is imperative that we are able to provide them with the services and facilities that will help them assimilate into civilian life. By adopting the Design-Build approach, the VA could provide various facilities in a compressed timeframe while ensuring that the product delivered meets the missions and various quality expectations.
Design-Build also allows for other sectors of the construction industry that are often excluded from Design-Bid-Build projects to compete and bid on VA projects. Alternate design offerings, such as modular construction, tilt wall, pre-engineered steel, would be able to participate in VA solicitations if they were issued using a Design-Build delivery system. Numerous permanent modular contractors such as Ramtech have performed services for the VA in the past, but because of the limited amount of Design-Build solicitations the opportunities are severely restricted. However, in those cases where Ramtech did perform on projects the customers were extremely satisfied as our building met mission requirements and exceed quality expectations. In fact, one of the projects was in Congressman Brown's area, and it was a clinic at Myrtle Beach.
By greater utilizing the Design-Build delivery system in the Department of Veterans Affairs construction policy, the VA would greatly increase the amount of projects that alternative construction contractors could participate in. Let me emphasize that alternative construction methods, such a permanent modular are not always the solution, as there is no one perfect building system for every application. However, by expanding opportunities for them to be part of the process, the Federal Government could be assured that it gets the best value by seeing all options before awarding a contract.
Another possible advantage is the fact that one of the missions within the Department of Veterans Affairs is the ability for the VA to support service-disabled veteran-owned small businesses. Because the Design-Build methodology typically relies on a single source for both design and construction of the project, Design-Build contractors often partner with architectural and engineering firms to assist in the design of the project. This fact facilitates partnering between service-disabled veteran-owned small business (SDVOBs) and construction firms similar to Ramtech. In the permanent modular construction field, the relationship with a contractor such as Ramtech means the SDVOB partner will get approximately 60 percent to 70 percent of the building delivered and installed by the Design-Build firm while the SDVOB partner performs the site work, utility connections. Often SDVOBs do not have the logistical capabilities to site build the entire building, but have the ability to perform other critical functions that comprise 30 percent to 40 percent of the overall construction project.
In conclusion, contractors that rely on Design-Build delivery system have, and continue to overcome, obstacles when it comes to working with the Department of Veterans Affairs. While businesses such as Ramtech are anxious to compete, the current trend of Design-Bid-Build projects issued by the VA severely prohibit that participation.
On behalf of MBI as well as Ramtech Building Systems, I thank you for your time. We will be happy to answer questions.
[The prepared statement of Mr. Moss appears in the Appendix.]
Mr. MICHAUD. Thank you very much, Mr. Moss. Mr. Wise?
Dr. WISE. Thank you for the opportunity to speak this morning. My name is Jay Wise, Dr. Jay Wise. I am the President and CEO of Wise Knowledge Systems. Wise Knowledge Systems has produced and deployed the medical technology called Knowledge Based Expert Systems, KBES. We call it KBES. I am going to abbreviate this to save some time. I am going to have to leave at 11:00, Mr. Chairman, period, so I have got to go. But I want to share with you some things that have to do with acquisition in my experience almost daily for the last 6 years with the VA.
The KBES technology is an interesting tool. It is a decision support technology that keys on entire domains of knowledge. Our cardiac model can assimilate knowledge instantly from 10,000 cardiac surgeons and put it on a particular patient. This has resulted in extraordinary savings in cost and some extraordinary care improvements down the road. I am going to kind of zip ahead a little bit.
Dr. Paul Tibbits, Deputy Chief Information Officer of the VA, we met with him and he said that he was aware of the success of Wise Knowledge Systems Smart Tool deployed in active military operations for the Navy and the Marine Corps and wanted to find a place for it at the VA. I was then sent to visit with a Ms. Lloyd at VHA. Ms. Lloyd's remarks were, “The VA is broken. KBES might be a very good thing for the VA, but that would mean we would have to work and people at the VA will not work.” Dr. Tibbits then said that yes, Ms. Lloyd is right, the VA is broken, and nobody around here wants to work.
Dr. Tibbits then edited and published with our group a very detailed capability assessment of Knowledge Based Expert Systems for his office, for the VA, for the medical mission of the VA. It was altogether the most glowing analysis we have ever had, and we have been tested, quite literally we are on permanent exhibit at the Smithsonian. So this is not a new thing.
Following that, Dr. Tibbits said that Ms. Wendy McCutcheon, a person working in one of the acquisition offices, was now the sole authority to acquire medical things for the VA, this one person. And Ms. McCutcheon said that, “She did not see any particular value in it,” and we should start the whole process over. I asked them if the fact that I was a veteran-owned small business had any bearing on any of this with the GSA. They said, “No, we will not use the GSA, they are not helping us.” That is a direct quote.
On February 23 I spoke again with Chairman Filner, and he invited me to this hearing. That is my testimony. It is quite short. I will give you my summary now, all right?
Since 2004 Wise Knowledge Systems has attempted to provide Knowledge Based Expert Systems to the VA. KBES has received very positive technical reviews as an advanced modeling and simulation decision support technology from each and every point of assessment and testing that it has been sent. That would be all of them. In the Navy, in the Marine Corps, at the U.S. Department of Defense (DoD), at VA, and in the private sector. Wise Knowledge Systems believe there is an important ethical issue for the health and medical care of American veterans being crippled by arrogant leadership, thus, making the VA fail in part to keep its promise to deliver state of the art medicine and health care to American veterans.
Once a medical technology has been tested, evaluated, praised, deployed, and what else, nonresponse is unacceptable. One does not do that. And one does not say that the reason we are not going to have some is because the VA is broke and nobody around here wants to work.
It is an unfortunate part of our American history that our government made and intentionally broke virtually every treaty with American Indian tribes. These treaties or agreements were made by our government knowing they would not be kept. The explanation for this fraudulent manipulation was often Indians were not people, they are not quite human beings. One wonders if some of the VA leadership, and that is in my written testimony, you can read who is what, one wonders if some of the VA leadership maintaining the status quo of failing to provide these tools when they know and have published that it is state of the art, feel that our young people in uniform are also not quite people, not quite human beings, that their families are not quite human beings. I do not know.
It is clear to me and to my team that the vast majority of individuals at the VA are sincerely dedicated to American veterans and do want to work and work hard. Wise Knowledge Systems recommends installing and supporting qualified individuals who have the experience and expertise to actually evaluate these sorts of things for our veterans. We recommend the VA do the right thing, honor your contract with the veterans.
I want to thank all of you all for having this hearing and giving our experience a voice. I am here for a little while to answer any questions you may have. I am sorry, Chairman, but I must leave at 11:00. I have an engagement, so.
[The prepared statement of Dr. Wise appears in the Appendix.]
Mr. MICHAUD. Thank you very much, Mr. Wise, for your testimony. And we should be done by then, but if not, feel free to just get up and leave. Mr. Clair?
STATEMENT OF JAMES A. CLAIR, M.P.A., M.S.
Mr. CLAIR. To Chairman Michaud, to Ranking Member Brown, and Members of the Subcommittee, thank you for your kind invitation to discuss the Department of Veterans Affairs procurement practices and specifically how the VA might benefit by incorporating certain cost containment strategies within their pharmacy benefit management and nursing home care programs. My name is Jim Clair, I am the Cheif Executive Officer of Goold Health Systems, and I am accompanied today by Lorraine Lachappelle, a registered nurse, and Goold Health Systems' Director of Community Assessments.
Goold is a national health care management company that specializes in meeting our clients' specific health care objectives with a special emphasis on cost containment. However, at all times, we are driven by evidence-based medicine and achieving clinically effective outcomes. In the interests of time, I am skipping forward to page three of my prepared remarks and will concentrate on three specific cost containment strategies that we think would benefit the VA.
Number one, medication management. The U.S. Department of Health and Human Services recommends medication therapy management (MTM), a program that sets out to ensure optimum therapeutic outcomes, reduce the risks of side effects when using medications, and must be coordinated as part of a care management plan. Goold Health Systems expands upon MTM by using predictive modeling to analyze pharmacy and medical claims data to measure the probability of exceeding set cost parameters for high cost users and complex medical conditions. Problematic patients are ultimately placed in an intensive benefit management program or a chronic pain management program. We utilize regression analyses that correlate chronic conditions with total drug cost. We then identify individuals who would benefit from our targeted interventions. Once in IBM or chronic pain management the patient is linked to one physician prescriber and one pharmacy dispenser for management of complex medical conditions and chronic pain issues, ensuring that those patients receive appropriate drug therapies. We provide educational materials and monitoring services to those individuals to help them better understand their medical conditions as well as work with them on medication adherence and potential drug interactions.
We also work with their providers to help ensure that optimum clinical outcomes are achieved. Savings accrue to our clients because of the intensive involvement of the provider, the patient, and the GHS clinical team. Examples would be narcotics use, asthma, and COPD.
Other examples of medical management strategies that we believe would benefit the VA are formulary management, including 15-day supply limits. GHS performs extensive analyses to identify drugs that have high discontinuation rates shortly after the onset of therapy. It was reasoned that limiting the number of day supply of these first scripts would result in savings from reducing waste. About 30 drugs were identified that meet our criteria. These drugs tend to have high discontinuation rates due to either significant side effects or relative lack of efficacy. Targeted drugs for this effort include long acting narcotic stimulants, psychiatric medicines, urinary and continence products, and smoking cessation drugs.
Another example of formulary management is dose consolidation. Many existing drugs now only need to be taken once per day. There is a considerable amount of savings available if these drugs are not allowed to be used more frequently without good clinical cause. Examples of targeted dose consolidation are Zyprexa and Risperdal, two anti-psychotic drugs that have allowed our State clients to save over 1 percent of their pre-rebate expenditures annually by aggressively pursuing dose consolidation.
The second cost containment strategy I would like to discuss is pharmacy program integrity, the definition being that it should ensure that our tax dollars are not put at risk through fraudulent violations of the rules or abuses of the system. It should ensure that appropriate payments are paid only to legitimate providers for services only to eligible beneficiaries. Like many other health care managers, Goold Health Systems has significantly expanded our program integrity efforts over the last few years. The National Healthcare Anti-Fraud Association recently estimated that 3 percent of the health care industry's expenditures in the United States are due to fraudulent activities. This calculates to an annual amount of approximately $51 billion.
In a recent analysis for one of our clients we created a “monthly outlier report” on pharmacy expenditures and trends. The analysis was performed for each drug filled in the previous month. A review of the average amount spent per drug, and the average quantity per day supply based on quantity limits was undertaken. Those drug claims that fell outside of established guidelines were flagged for audit. This resulted in claims being reviewed as a result of improper use of override codes and subsequently many of these outlier claims were reversed. For this one client with a pharmacy budget of approximately $200 million, small certainly by VA standards, we expect the results of the specific audit to yield between $500,000 to $1 million in savings.
Two other examples of pharmacy program integrity review would include automatic early refills. The VA is heavily reliant on mail order. It is important that the mail order provider be monitored to ensure that mail order pharmacies wait to ask for the patient to ask for their medication to be refilled. This does not preclude a mail order pharmacy from making outgoing calls to a patient if they would like their next dose of medication sent. But it would not allow a mail order pharmacy from automatically sending the prescription to them in all cases.
A second example being something called near duplicates. Each medication intended for human use is assigned a number called an NDC, a national drug code. It is a unique product identifier that, for example, distinguishes an Oxycodone ten milligram tablet from an Oxycodone twenty milligram tablet, a generic medication. Near duplicates can occur with generics with a different NDC of the same drug, same strength, is used a few days after that patient's first prescription was filled. In many cases, this is an appropriate fill due to the legitimate loss of medication. However, there can also be billing errors or inappropriate dispensing such that these claims should be reversed. Monitoring utilization at this level, this granular level, can yield additional savings to the VA if it is not being done now.
The third cost containment strategy I would like to discuss is something called long-term care assessments, and it is the reason that Ms. Lachappelle is with me. Through the early 1990's, nursing facility costs in one of our client's States were increasing at annual rates far exceeding the general inflation rate, or even the health care cost inflation rate. Eligibility determinations for Medicaid nursing facility care were determined by the provider, leading to much higher utilization rates than otherwise supported by independent review. As a result, Maine State government instituted an independent, objective Maine Medicaid eligibility screening process with the following objectives: to create a single entry point for medical functional eligibility assessments for long-term care programs; to increase consumer participation and control; to educate consumers about in home long-term care programs and other alternatives to nursing and residential facility care, the most expensive level of care; and to identify and address caregiver needs; to reduce the long-term cost of services by requiring greater emphasis on rehab and health promotion; and to reduce the number of unnecessary admissions to increase the number of discharges from and decrease the length of stay in nursing facilities.
Within strict time parameters set by our client, the GHS screener's job is to provide an accurate prescreening to determine the need for medical functional assessment, maintain the waiting list, and refer consumers to appropriate nurses. More importantly, when an evaluation is indicated the Goold Health Systems registered nurse conducts an accurate, objective medical functional eligibility assessment using the automated medical eligibility determination tool in a way that is always based on sound clinical judgment and in compliance with appropriate policy. We employ about 35 nurses Statewide to do this work, who work with a laptop, portable printer, and cell phone.
In State fiscal year 2010, we performed over 15,000 assessments. The State share of the medical nursing home expenses in 2010 are more than 35 percent lower than their State fiscal year 1994 in nominal non-inflation adjusted dollars. This is a result of policy changes made by the government and the long-term assessment process that we conduct. Comparing where the unmanaged nursing facility budget was headed to where it actually is today has yielded annual State savings that exceed $100 million.
Mr. Chairman, the VA is a very effective provider of important pharmacy and medical benefits to our country's veterans. The cost strategies that I have discussed above have been proven to be very effective in containing health care costs for our Medicaid clients. We believe that these clinical management approaches can assist the VA in further containing costs. Thank you again for the opportunity to testify. My colleague and I would be pleased to answer questions you or the Committee may have.
[The prepared statement of Mr. Clair appears in the Appendix.]
Mr. MICHAUD. Thank you very much, Mr. Clair. I want to thank all the panelists for your testimony this morning. It has been very enlightening and I look forward to your answering some of the questions. I know Mr. Wise has to leave at 11:00. I do not know if anyone has any questions for Mr. Wise? So any time you want to leave, feel free. We might have questions once we get going, but I just wanted to check first.
Once again, I want to thank everyone for coming. I have a couple of questions. Mr. Newell, you mentioned, the Buddy and the components that you have at your company and how you are working with the VA system. Do you work also with Federally-qualified health care clinics and rural hospitals? And if you do, are there any problems associated with rural areas, such as that system not working in very rural areas where they might not have cell phone service? Or can you expound on that a little bit?
Mr. NEWELL. Yes, I can. Our systems work great in rural areas. There is a challenge in a rural area with getting the system to the person and getting it set up at times, because it is a rural area. So by definition the logistical challenges of getting the systems to the location and set up are still there. But we have solved those. Our system works on a plain old telephone line. So as long as there is POTS (plain old telephone service) line availability we can deploy the system, and most areas have POTS lines. We also have a cellular modem, which we can attach externally to the Health Buddy or to the T-400 system, and that will allow it to communicate via whatever cellular network is available in the area. So if there is any cellular network available at all, we can connect to it.
It is very effective for rural health. It is being used, our T-400 system especially is being used for the home-based primary care project within the VA. We also have a video system, which allows veterans in rural areas to have a video camera in their home and allows the doctors to assess them without bringing them in to the VA medical center. Not for obviously extremely serious conditions, but as part of their home-based primary care initiative, they are allowed to do that. So it has had huge success. We have a project in Alaska, which is not with the Veterans Administration with our T-400 system that has been exceedingly successful. And the biggest success in rural areas is the cost of transport of getting somebody who does have an exacerbation from the location to the facility, and that can save tens of thousands of dollars, especially in cases like Alaska where they have to be flown in.
So we have had a huge amount of success in rural areas. And it is a huge application for rural areas. I would say we are very under-penetrated in terms of the number of people who could benefit from it. Thank you.
Mr. MICHAUD. Thank you. My next question is, Mr. Clair, you mentioned that by utilizing some of the work that you have done in different States, VA may be able to save money. The estimated cost for prescription drugs in 2011 is $4.8 billion. That is a good deal, the VA negotiated for lower cost prescriptions. My concern, however, is on utilization within the VA on the drug system. How the VA is bigger than a lot of the States. How would you be able to help the VA? Can you narrow that down? Or in a small pilot program? And what potential do you think there might be for cost savings within the VA pharmacy benefits program?
Mr. CLAIR. Thank you, Mr. Chairman. The first thing that we do when we work with one of our clients is get the actual drug utilization data. It is very important, as I think all of the Members of the Subcommittee know, that the VA has a very effective pricing strategy. They purchase very well. They have very good network and communications and distribution systems. But reviewing the utilization data is very important. And what we would be interested in doing is some, is getting some subset, a region, a State, an area, to be defined by the VA in which we would get pharmacy claims and medical claims over a period of time. Hopefully, at least 12 months worth of data. Load that in and start to have my clinical team of doctors and pharmacists and nurses and data analysts reviewing that in order to identify savings opportunities specifically.
Mr. MICHAUD. Thank you. I do not want to elaborate on nursing homes because of my displeasure with VA on how they deal with reimbursement for State Veterans Nursing Homes. It is my understanding that the cost of nursing homes within the VA system is much higher than at Veterans Nursing Homes. When you have worked with nursing homes, how much savings were you able to achieve?
Mr. CLAIR. It is significant. The issue specifically is that if you do not have, in effect what we are employed to do is be a gatekeeper into the nursing home facility itself. And if there can be a support system that allows one to stay in their home based on their acuity and their emotional state, etcetera, you are diverting people away from the nursing home level of care and that saves appreciable amounts of money. My calculation in State fiscal year 2010 is that the savings to one State client was over $100 million. So in effect, nursing home expenditures go down. You reinvest some of those savings into the community level of care, but overall your net savings to the VA would be significant.
Mr. MICHAUD. Thank you. Mr. Brown?
Mr. BROWN OF SOUTH CAROLINA. Thank you, Mr. Chairman. Thank you, gentlemen, for being here today. Mr. Munroe, in your testimony you state that the New Orleans VA solicitation was redirected through the GSA schedule. What reason did VA give you for this move?
Mr. MUNROE. As you know, there are a number of different procurement methods that the VA can use. The original redirect was to facilitate supposedly ease of contracting. And certainly a VA contracting officer's discretion is to use whatever contracting method he or she feels best serves. The challenge that we have with that is when you redirect to a method that does not have a solution, you cannot then go try to create that solution on the GSA, for example. So there were a number of things that happened in that process. Our biggest concern in that process is, if you are going to use the GSA schedule, use it for what it is worth, or for what it is supposed to be used for. Go there, identify the product that exists on a Federal Supply Schedule, and procure it. If it does not exist on the Federal Supply Schedule, you cannot then go back to GSA and say, “Here are all the requirements that I have. Let us solicit in an open forum everybody who has a GSA contract and see if they can t
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