Good morning Chairman Michaud, Ranking Member Brown, and Members of the Subcommittee.  Thank you for inviting me to discuss the Veterans Health Administration (VHA) Contracting and Procurement practices.

Acquisition reform is a central piece of the Secretary’s charge to fundamentally change the Department of Veterans Affairs (VA) in ways that will transform it into a 21st Century organization that is people-centric, results-driven, and forward-looking. 

VA is in the process of developing a strategic roadmap to guide this acquisition transformation, while ensuring that we always remain focused on satisfying Veterans’ needs and customer service expectations, while controlling costs.  A central part of this effort is establishing an Integrated Operating Model for the Department to provide a strong management infrastructure across functional work domains.  This will ensure that service delivery requirements are fully satisfied, necessary innovation and improvements are achieved, and accountability is fixed for performance outcomes at all levels throughout the Department.  A top initiative under the Integrated Operating Model is the Department’s Acquisition Transformation initiative.  VHA fully embraces the Secretary’s transformation vision and the implementation of this Integrated Operating Model.

VA is committed to providing the most advanced, creative, and innovative technologies to meet the needs of our Veterans.  Within VHA, our health care experts are directly involved in patient care and provide input on current practices, while developing technical knowledge to drive the selection and purchase of new technologies.  As new technologies become available, VHA staff members from clinical, logistics and acquisition disciplines form a team to carefully review potential applications before determining which advances to adopt.  VHA leadership is committed to obtaining the most advanced and innovative technologies while improving the guidance, oversight, and business processes associated with contracting and procurement in the delivery of services to our Veterans.

My testimony today will cover VHA’s recent reorganization of contracting and procurement processes, highlighting the strengths of our program.  I will also touch on issues of particular interest to the Subcommittee, including the use of purchase cards at VHA medical centers.  Finally, I will conclude with a brief discussion of how VA uses innovative technologies to better serve Veterans.

Reorganization of VHA Acquisitions

VHA continues to transform and improve its acquisition operations.  This year we have implemented a new acquisition business model that promotes centralized decision making and decentralized execution.  VHA has realigned its acquisition staff under a centralized structure with three regional offices.  These regional offices will concentrate on running an acquisition organization with a deliberate approach to training and oversight.  The four major focus areas of our organization are:

1. Customer and stakeholder satisfaction;
2. Operational regional service area offices;
3. Performance monitors; and
4. Seamless transition.

VHA’s primary goal in reorganizing its acquisition operations is to transform into a customer-focused organization through the effective and innovative use of acquisition policies, procedures and processes to provide the best possible care to our Veterans and reduce the risk of patient safety.  Veterans Integrated Service Network (VISN) Directors and the Network Contract Managers will collaboratively prepare Customer Service Agreements.  The agreements will focus on establishing customer service measures that meet the intent of regulations established in the Federal Acquisition Regulation (FAR) and Veterans Affairs Acquisition Regulation (VAAR) while simultaneously providing excellent customer service and patient care.  VHA leadership has communicated clear expectations for each acquisition organization and provided appropriate training to staff to ensure they are competent and effective leaders within the organization. 

All acquisition personnel previously reporting to the VISN or Medical Center Directors have now been realigned under the Procurement and Logistics Office (PL&O).  This Office has created three Service Area Offices based on geographic location:  Pittsburg, PA, Minneapolis, MN, and Sacramento, CA.  VHA has created several goals for these Service Area Offices:

• Achieve cost savings of 3.5 percent in fiscal years 2010 and 2011, as identified in the Office of Management and Budget’s (OMB) Improving Government Acquisition Initiative;
• Enforce standardization of contract requirements; and
• Establish staff as business consultants and value-added team members for VHA. 

To achieve the cost savings goal, VHA will leverage its buying power by combining procurements across the country to obtain more favorable pricing and discounts.  VHA also intends to reduce the administrative costs associated with Interagency Acquisitions, for example the requirements sent to the Army Corps of Engineers, by bringing these services back into VHA.  VHA has further stepped up efforts to decrease the use of sole source and other high-risk contracts, focusing instead on increasing competition and securing better prices.  This reorganization will help ensure fiscal responsibility for the Department and for the American taxpayer.  This structure allows the VHA PL&O to drive organizational standardization and individual performance, while promoting direct responsibility and accountability through a professional certified workforce.

VHA’s reorganization also included developing quality assurance and compliance programs to promote standardization and greater compliance with Federal regulations and policies.  The quality assurance program is designed to plan, implement, monitor, identify and correct processes.  It establishes checks and balances as required by the VA Office of Acquisition and Logistics Information Letter 001AL-09-02, Integrated Oversight Process, dated June 19, 2009.  The overall goal is to implement an oversight process that is efficient in how time and resources are allocated and effective by holding acquisition professionals responsible for building quality into the acquisition process.

The VHA Operations Quality Assurance Office provides direct oversight to VHA acquisition activities and conducts yearly site visits to Service Area Offices.  The Quality Compliance Office provides the Chief Procurement Office a comprehensive assessment of the entire acquisition program, not just individual procurement actions.  The compliance program’s key elements include:  (1) organizational management; (2) human capital; (3) acquisition planning and information management; and (4) contracting.  The goals of the quality compliance program are to ensure compliance with VA policies, procedures and regulations; determine if the processes are helping us achieve our stated objectives; validate our processes and discover “best practices” to improve our business model; and establish an ISO9001:2008 Quality Management Standards organization.  ISO9001:2008 is a family of standards for quality management systems developed by the International Organization for Standardization.   Combined, the Quality Assurance and Quality Compliance programs will provide oversight necessary for VHA to become a world-class professional acquisition organization.  In sum, this reorganization improves oversight, performance, and customer service, and ensures VA policies and procedures are followed.  All of this contributes directly to achieving the Department’s mission and improving patient care.

Purchase Cards

As part of the overall VHA acquisition reorganization, VHA is establishing a centralized purchase card program under the Network Contract Managers.  VHA’s PL&O has implemented VISN Purchase Card Manager and Purchase Card Coordinators to monitor all credit card transactions within a VISN.  These coordinators previously reported to their own facility.  Reporting to centralized Network Contract Managers increases oversight of the facility level.  Under the existing structure, most purchase card coordinators fulfill this responsibility as a collateral duty and do not report to an acquisition professional.  Full-time, dedicated VISN Purchase Card Managers and Purchase Card Coordinators will conduct daily reviews of transactions, increase the number of audits and other reporting mechanisms for oversight, and will be dedicated to monitoring the purchase card program.

Based on an audit of VHA government purchase card practices issued in 2008 by VA’s Office of the Inspector General, VHA implemented training to approving officials on using the revised approving official checklist to ensure cardholders maintain adequate documentation to support their purchases.  On February 18, 2010, the Deputy Under Secretary for Health for Operations and Management mandated that all purchase card approving officials receive this training.  Each VISN Purchase Card Manager submitted written certification when the training was complete.  Moreover, to monitor the appropriate use of purchase cards, VHA Handbook 1730.1 requires the Facility Director to perform an annual review of the Purchase Card Program and provide certification of the program to their respective VISN Director by June 30 of each year.  The Handbook also requires the VISN Purchase Card Program Managers chair an annual review team and conduct site reviews at each facility within their area of responsibility.  Managers conduct reviews using several audit guides in addition to the requirements identified in the 1730.1 Handbook.  VHA’s P&LO is developing standard operating procedures that address cardholder audits and site reviews, and these tools will be the standard practice for all VISNs.

Health Care Resources

VHA provides care to Veterans directly in a VHA facility or indirectly through either fee-basis care or through contracts with local providers.  This strategic mix of in-house and external care provides Veterans the full continuum of health care services covered under our benefits package.  VHA health care resource contracting is accomplished under the provision of VA Directive 1663, “Health Care Resources Contracting.”  VA’s Directive 1663 further implements provisions of Public Law 104-262, “The Veterans Health Care Eligibility Reform Act of 1996,” which significantly expanded VA’s health care resources sharing authority in title 38 United States Code (U.S.C.) sections 8151 through 8153.

VHA medical center directors and VISN directors determine when additional health care resources are required.  It is VHA policy to provide Veterans care within the VA system whenever feasible.  However, there are times when VHA is unable to provide care within the system.  For example, VHA may have difficulty recruiting a qualified clinician.  In these cases, the medical center director must first consider sending patients to another VHA medical center.  Contracting for necessary services will only be considered if other options within VHA are not appropriate or viable.  If contracting for services is required, a competitive bid is the first option considered.

There are two principal avenues to contract for health care services:  conventional commercial providers and academic affiliates.  VHA’s academic affiliates (schools of medicine, academic medical centers and their associated clinical practices) provide a large proportion of contracted clinical care both within and outside of VHA.  All non-competitive VHA health care resource contracts $500,000 or more and competitive contracts over $1.5 million are reviewed through a thorough process that includes the Office of General Counsel (for legal sufficiency), VHA’s Patient Care Services (for quality and safety), VHA’s Office of Academic Affiliations (for affiliate relations assessment), and VHA’s PL&O (for acquisition technical review for policy compliance). 

VHA exercises its responsibility to provide quality contracted care to Veterans through several clinical and administrative oversight mechanisms.  This includes credentialing and privileging, quality and patient safety monitoring, and specific quality of care provisions included in the contract itself.  Facility directors are responsible for ensuring that these oversight mechanisms are consistently and effectively applied to all in-house contracted care.  All applicable VHA quality and patient safety standards must be met for medical services provided under contract in a VHA facility.  Ensuring quality standards for VHA contracted care outside of a facility is more difficult, but VHA includes language in contracts that allows for industry standard accreditation or certification requirements, clinical reporting, and oversight.  The Office of Acquisition, Logistics, and Construction is in the process of developing policy to implement Federal Acquisition Certification (FAC) for Contracting Officers’ Technical Representatives (COTR).   The new guidance will requires training to maintain or be designated as a COTR.  This will further help ensure health care staff are well-trained to manage important health care contracts.

VHA Logistics

VHA’s P&LO also develops and fosters best practices in logistics for VHA.  Through the VHA Acquisition Board, P&LO develops the annual VHA Acquisition plan that forms the basis for VHA’s acquisition strategy.  This strategy seeks to procure high quality health care products and services in the most cost effective manner.  P&LO develops and implements a comprehensive plan for the standardization of health care supplies and equipment.  This includes developing and administering clinical product user groups.  P&LO is also responsible for improving supply chain management within VHA, which includes establishing and monitoring logistics benchmarking data.  P&LO serves as the liaison for logistics staff in each of the 21 VISNs.

VHA’s supply chain processes utilize the Integrated Funds distribution Control Point Activity, Accounting and Procurement (IFCAP) module that includes a Generic Inventory Package (GIP).  The GIP system fully integrates and allows for a seamless relationship between purchasing and expendable supply inventory.  Use of GIP allows logistical managers to automate inventory practices that track expendable items from purchase until use by the end user.  VHA tracks over 1,300 inventories consisting of 928,816 line items.  The inventories include medical, surgical, dental, imaging, and laboratory supplies, as well as engineering and environmental management supplies.

 VHA classifies equipment as non-expendable or expendable and tracks this equipment in the Automated Engineering Management System/Medical Equipment Reporting System (AEMS/MERS).  For AEMS/MERS, this includes tracking the location of equipment, maintaining ownership, and submitting a work order as needed.  VHA currently tracks over 17,000 equipment lists, which make up 2.1 million pieces of equipment.  Through the 3rd quarter of fiscal year 2010, VHA has inventoried 13,000 of these equipment lists, ensuring that equipment is found and being used properly.  The remaining 4,000 lists are expected to be inventoried in the 4th quarter of 2010. 

VHA continues to make improvements to the lifecycle management of equipment and expendable supplies.  These improvements have included updating policies and procedures over the last 2 years, providing new training programs for logistical staff, improving oversight through management reports on equipment, and strengthening communication channels with stakeholders in engineering, bio-medical engineering, and information technology.  

Medical Equipment in VHA

VHA has approximately $5 billion worth of medical equipment in service at more than 1,400 sites of care with over 750,000 discrete devices in hundreds of different categories.  VHA centralized the responsibility for medical equipment maintenance, including all equipment in all clinical departments, within Biomedical Engineering (BME).  BME provides corrective maintenance, periodic maintenance and training, and education to ensure safe, high quality care.  BME works directly with clinicians, logisticians and acquisitions staff to facilitate the strategic purchasing of equipment.  BME strategically identifies equipment due for replacement, conducts market research, defines functional requirements with clinicians, writes specifications and statements of work, leads in the technical evaluation of proposals and is the contracting officer’s technical representative (COTR) on contracts.  When combined with our logistics and centralized procurement functions, a VISN-focused BME program is allowing VHA to improve its maintenance and technology management, realize cost savings, and strategically lead VHA to provide the best health care possible to our Nation’s Veterans.

Conducting Business with VHA

VHA’s mission is to honor American’s Veterans by providing exceptional health care that improves their health and well-being. VHA will continue to use and support new and innovative technologies to enhance the quality of life for Veterans.  Providing service, supply and construction acquisitions are central to VHA’s success in meeting its mission.  We purchase these goods and services on national, regional, and local levels.   Acquisitions are accomplished by sealed bidding, negotiation, or simplified acquisition procedures.  Purchases are accomplished through the use of mandatory sources such as VA’s Federal Supply Schedules Parts 65 and 66.  A significant portion, however, is acquired from sources obtained through the publication of solicitations in the Federal Business Opportunities (FedBizOpps), commercial advertising, or any other accepted means that will provide the procuring activity with a sufficient number of responsible bidders and offerors to ensure full and open competition.  The most suitable, efficient, and economical procedure will be used, taking into consideration the circumstances of each acquisition. 

Conclusion

Mr. Chairman, this concludes my statement.  Thank you again for the opportunity to speak about VHA’s reorganized contracting and procurement functions.  Our recent reorganization establishes more accountable business practices that allow VHA to continue to provide the highest quality of care for our Veterans at the best rate of return for the American taxpayer.  I am prepared to respond to any questions you or the members of the Subcommittee may have at this time.