VA reworks outsourcing report; says it will show cost savings

Saying poor data made outsourcing seem less cost-effective than it is, the Veterans Affairs Department is reworking a report to Congress on outsourcing decisions made by the Veterans Health Administration in 2002.

The revised report, due to Congress by July 23, comes after a lengthy exchange between VA staff and Reps. Lane Evans, D-Ill., and Darlene Hooley, D-Ore., over the accuracy of savings figures in the original study. VA officials said poor guidance provided by VA headquarters to VHA field offices resulted in numerous mistakes that the department intends to correct.

"The end result of the combined data call for [fiscal] 2002 did not produce the desired quality of data, as recognized by your staff," VA Secretary Anthony Principi wrote in a July 2 letter to Evans.

The VA sent the original report to the House and Senate Veterans Affairs committees on March 18.

"I think we never should have released this report until we went back and identified the significant input errors," said Dennis Duffy, principal deputy assistant for policy and planning at the VA, in an interview with Government Executive.

One mistake the VA intends to correct is the claim that the VHA saved $56,824 by outsourcing a handful of employees at a VA laundry facility in Amarillo, Texas. When pressed by Evans' staff, VA officials admitted that this claim was based on faulty math and compared the average salary of all VA employees at the Amarillo facility-which is higher than the average salary earned by laundry workers-with the cost of hiring contractors.

"The details that were provided in that case were just flat wrong, and the revalidation will put the correct detail in there with the true cost and true cost savings," said Steve Gorfine, business operations liaison at the VHA. But Gorfine said the Amarillo contract did generate savings and that the VHA had no plans to cancel the contract.

Duffy and Gorfine said they expect the new report will show that the VHA generally saved money through outsourcing, except in cases where the agency contracted for scarce medical services, which often are more expensive in the private sector. The original VHA report found that 35 percent of all of the agency's outsourced contracts lost money, and 27 percent achieved no cost savings. These figures include outsourcing for both scarce medical and other services.

Even without considering contracts for scarce medical services, Linda Bennett, a policy analyst with the American Federation of Government Employees, said the original report showed that more than half of VHA's outsourcing decisions failed to save money.

"Even when broken down between contracts for scarce medical specialties and other contracts, the findings are still dismal for proponents of outsourcing administrative and auxiliary services for veterans health care," she said.

Bennett said the VA should cancel contracts if outsourcing efforts are losing money. "If the competitive outsourcing initiative is allegedly to make the government more efficient and save taxpayers money, then the VA should be willing to terminate contracts that lose money and to contract work back in," she said.

Gorfine said some VHA offices might consider whether to "contract-in" outsourced work when contracts come up for renewal, but said the agency is not planning to bring large numbers of jobs back in-house.

"You'll have a couple of contracts that may be reviewed on a more in-depth basis to see if it makes sense to continue; [offices] may think about how they can do [the activity] less expensively with in-house staff," he said.

Gorfine and Duffy also attributed data problems to a decision to expand the scope of the original outsourcing report to include contracting for services beyond scarce medical services, which had not been included before, they said. VA decided to request figures on all outsourcing at VHA in 2002 to prepare for data requests related to the Bush administration's competitive sourcing initiative.

The outsourcing efforts reflected in the report were undertaken in the normal course of VA operations, not to meet the administration's competitive sourcing goals, they said. Under federal law, the VHA cannot hold public-private job competitions under Office of Management and Budget Circular A-76 unless Congress funds the competitions. On Monday, the House Appropriations Committee is expected to consider a request to let VHA tap up to $75 million to fund its competitive sourcing program through 2004.

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