Input:
	Background

VA serves veterans of the U.S. armed forces and provides health,  pension, burial, and other benefits. The department’s three operational  administrations—VHA, Veterans Benefits Administration, and National  Cemetery Administration—operate largely independently from one  another. Each has its own contracting authority, though all three also  work with national contracting organizations under the Office of  Acquisition, Logistics, and Construction for certain types of purchases,  such as medical equipment and information technology. VHA, which  provides medical care to about 7 million veterans at 170 medical centers,  is by far the largest of the three administrations. These medical centers  are organized into 18 VISNs, organizations that manage medical centers  and associated clinics across a given geographic area. Each VISN is  served by a corresponding Network Contracting Office. Figure 1 shows  the organizational structure of the procurement function at VA.

		MSPV-NG Program

For over a decade, each of VA’s 170 medical centers used VHA’s legacy  MSPV program to order medical supplies, such as bandages and  scalpels. Many of those items were purchased using the Federal Supply  Schedules, which provided medical centers with a great deal of flexibility.  As we reported in 2016, this legacy program, however, prevented VHA  from standardizing items used across its medical centers and affected its  ability to leverage its buying power to achieve greater cost avoidance.  Standardization is a process of narrowing the range of items purchased to  meet a given need in order to improve buying power, simplify supply  chain management, and provide clinical consistency. For example, a  hospital network might find that it purchases 100 varieties of bandages,  but might ultimately determine—with input from clinicians—that it can  narrow those choices down to 10 varieties to fill most needs, which would  provide greater consistency and allow the hospital to negotiate lower  prices. In part because the legacy MSPV program limited standardization,  VHA decided to transition to a new iteration, called MSPV-NG.
VHA launched the MSPV-NG program in December 2016 but allowed a  4-month transition period. After April 2017, medical centers could no  longer use the legacy program. MSPV-NG now restricts ordering to a  narrow “formulary”—a list of specific items that medical centers are  allowed to purchase. VA has had a formulary in place for pharmaceuticals  since 1997, and many leading hospital networks rely on a similar  formulary approach when it comes to purchasing their own medical  supplies. VHA policy requires medical centers to use MSPV-NG—as  opposed to other means such as open market purchase card  transactions—when purchasing items that are available in the formulary.  Figure 2 illustrates the program structure and key participants involved in  the transition to MSPV-NG.
VA’s primary MSPV-NG program goals are to:
Standardize requirements for supply items for greater clinical  consistency.
Achieve cost avoidance by leveraging VA’s substantial buying power  when making competitive awards; VA set a goal of achieving $150  million in cost avoidance in 2016 through a supply chain  transformation effort, of which MSPV-NG is a primary part.
Achieve greater efficiency in ordering and supply chain management,  including a metric of ordering 40 percent of medical centers’ supplies  from the MSPV-NG formulary.
Involve clinicians in requirements development to ensure uniform  clinical review of medical supplies.
VHA gave responsibility for developing and implementing MSPV-NG to its  Healthcare Commodity Program Executive Office (program office), an  organization within VHA’s Procurement and Logistics Office. According to  documentation, the program office and SAC, a VA-wide contracting  organization, identified several steps to allow for a successful transition to  MSPV-NG. These steps included the following:  1.  Identify and develop requirements – Determine which types of  medical supplies should be made available to medical centers via the  MSPV-NG formulary and their key characteristics. The program office  was responsible for this aspect of the transition.  2.  Award contracts and establish agreements – SAC was responsible for  awarding distribution contracts to a select number of prime vendors  within certain geographic areas to deliver supplies to medical centers.  SAC was also responsible for awarding contracts and establishing  agreements with suppliers that provide the products themselves,  which set prices for individual items.  3.  Implement MSPV-NG at medical centers – MSPV-NG orders are  placed by ordering officers—members of the logistics staff at each  medical center that are delegated authority by SAC contracting  officers to place orders for medical supplies. Each medical center’s  most frequently purchased items—referred to as their core list—vary  based on the type of care provided, local preferences, and other  factors.

		Leading Practices for Organizational Transformation Efforts

We have previously reported that organizational transformations (such as  MSPV-NG) require careful planning and implementation to be  successful. For instance, one leading practice is for leadership to set  clear implementation goals and a timeline to achieve them. Likewise,  communicating a strategy and progress to stakeholders—as well as  seeking feedback—is a hallmark of successful organizational  transformations. We have reported that at the center of any serious  change management initiative are the people. Thus, to facilitate success,  is to recognize the “people” element and implement strategies to help  individuals maximize their full potential in the organization, while  simultaneously managing the risk of reduced productivity and  effectiveness that often occurs as a result of the changes. Building on the  lessons learned from the experiences of large private and public sector  organizations, the key practices and implementation steps that we  identified in our prior work can help agencies transform their cultures so  that they can be more results oriented, customer focused, and  collaborative in nature. Standards for Internal Control in the Federal  Government also identify related principles, such as the importance of the  tone from the top and ensuring that data used in decision-making are  reliable.

		Supply Chain Practices Identified by Selected Leading Hospital Networks

Leading hospital networks we spoke with have similar goals to VA in  managing their supply chains, including clinical standardization and  reduced costs. In managing their supply chain efforts, the leading hospital  networks we identified take consistent approaches to drive change and  achieve savings. These hospitals reported they analyze their spending to  identify items purchased most frequently, and which ones would be the  best candidates to standardize first to yield cost savings. These hospitals  also acknowledge that this is an iterative process and do not attempt to  standardize all categories of medical supplies at a single time, but instead  prioritize categories of supplies based on the potential for standardization.  The hospitals’ supply chain managers establish consensus with clinicians  through early and frequent collaboration on supply chain standardization.
These hospitals also continually involve clinicians in determining key  supply characteristics and evaluating potential items, understanding that  clinician involvement is critical to the success of any effort to standardize  their medical supply chain. For example, a supply chain official from one  large hospital we spoke with stated that selecting an item that does not  meet clinician needs could damage clinician buy-in for future efforts, so  they take great care to be thorough in taking clinician input into account.  Supply chain officials from these leading hospitals have reported positive  results from these efforts, such as increased cost savings and the  potential for improved patient care.
By tackling a few specific categories at a time and communicating with  clinicians on an ongoing basis about the outcomes of these processes  and the decisions taken, these hospitals are able to achieve efficiencies,  including significant cost savings in some cases, while maintaining buy-in  from their clinicians. Figure 3 depicts the key steps that selected  hospitals’ supply chain managers reported following when standardizing  their medical supply chains, including the critical role of clinicians  throughout the process.

		Emergency Procurements

The Federal Acquisition Regulation (FAR) generally requires agencies to  contract using full and open competition, but permits contracting without  full and open competition in specified circumstances, such as when the  agency’s need for supplies or services is of unusual and compelling  urgency. The VHA Procurement Manual describes an emergency as a  situation—such as response to fires or floods—where delay in award of a  contract would result in financial or physical injury to the VA or a veteran.  The manual also states that neither a lack of advance planning nor  concerns about a need to obligate funds before the end of the fiscal year  are valid justifications for an urgent or emergency procurement request.
For needs that cannot be met through MSPV-NG, medical centers submit  purchase requests to their local VHA contracting office—the Network  Contracting Office. The contracting office provides medical centers with  expected lead times for various types of procurements, which can be from  days to months, depending on the complexity of the requested item.  However, if a medical center has an urgent need that must be met more  quickly than the expected lead times, the customer submitting the request  can identify it as an emergency. The purchase request is entered into two  VA data systems, the Integrated Funds Distribution Control Point Activity,  Accounting and Procurement and VA’s Electronic Contract Management  System (eCMS). The medical center designates the priority level of the  request as:  1.  Emergency: life threatening cases, emergency physical plant repair,  and requires acquisition action within 24 hours;  2.  Special: urgent, non-life threatening, and requires acquisition action  within 72 hours; and  3.  Standard: all other cases and requires acquisition action within 40  days.
Incoming requests are screened by Network Contracting Office managers  and assigned to individual contracting officers, who must prioritize  emergency requests over other pending contract actions. Figure 4  illustrates the typical process for submitting and awarding an emergency  procurement.

	VHA’s Implementation of MSPV-NG Program Has Not Yet Achieved Its Goals

VHA’s implementation of the MSPV-NG program—from its initial work to  identify a list of supply requirements in 2015, through its roll-out of the  formulary to medical centers in December 2016—was not executed in line  with leading practices. Despite changes aimed at improving  implementation, the agency continues to face challenges that have  precluded achievement of program goals. Specifically, VHA lacked a  documented program strategy, leadership stability, and workforce  capacity for the transition that—if in place—could have facilitated buy-in  for the change throughout the organization. Furthermore, the initial  requirements development process and tight time frames contributed to  ineffective contracting processes. As a result, VHA developed an initial  formulary that did not meet the needs of the medical centers. VA made  some changes in the second phase of requirements development to  address deficiencies identified in the initial roll out, namely by increasing  the level of clinical involvement. However, VHA has not yet achieved its  goals for utilization and cost avoidance.

		VA Lacked an Overarching Strategy for Implementing MSPV-NG

VA did not document a clear overall strategy for the MSPV-NG program  at the start and has not done so to date. According to program office and  SAC officials responsible for developing and executing the program, no  document existed at the outset of the MSPV-NG program that outlined  the overall strategy. About 6 months after our initial requests for a  strategy or plan, an official provided us with an October 2015 plan  focusing on the mechanics of establishing the MSPV-NG formulary.  However, this plan was used only within the VHA Procurement and  Logistics Office and had not been approved by VHA or VA leadership.  Leading practices for organizational transformation state that agencies  must have well-documented plans and strategies for major initiatives  (such as MSPV-NG) and communicate them clearly and consistently to  all involved—which included VHA headquarters, the SAC, and all 170  medical centers. Without such a strategy, VA could not ensure that all  stakeholders understood VHA’s approach for MSPV-NG and worked  together in a coordinated manner to achieve program goals. This is also  in contrast to the practices of several leading hospital networks we met  with, which placed an emphasis on designing and communicating a  strategy and governance structure for their medical supply  standardization efforts before making any changes to purchasing. If VA  continues to move forward with MSPV-NG without an overarching  strategy that it communicates to all stakeholders to ensure they  understand VHA’s approach for MSPV-NG, VA will continue to face  challenges in meeting program goals.

		Leadership Instability and Staffing Shortages Were Obstacles to Effective Implementation of MSPV- NG

Leadership instability and workforce challenges also made it difficult for  VA to execute its transition to MSPV-NG. Due to a combination of budget  and hiring constraints, and lack of prioritization within VA, the program  office, which has primary responsibility for implementing MSPV-NG, has  never been fully staffed and has experienced instability in leadership. As  of January 2017, 24 of the office’s 40 positions were filled, and program  office officials stated that this lack of staff affected their ability to  implement certain aspects of the program within the planned time frames.  Our work has shown that leadership buy-in is necessary to ensure that  major programs like MSPV-NG have the resources and support they  need to execute their missions. We have also previously found that  leadership must set a tone at the top and demonstrate strong  commitment to improve and address key issues. However, leadership of  VHA’s Procurement and Logistics Office changed frequently during the  implementation of MSPV-NG, and two of its leaders, the Chief  Procurement and Logistics Officer and the Deputy Chief Logistics Officer,  were serving in an acting capacity. A similar instability in leadership  affected the program office itself. Since the inception of MSPV-NG, the  program office has had four directors, two of whom were acting and two  of whom were fulfilling the director position while performing other  collateral duties. For instance, one of the acting MSPV-NG program office  directors was on detail from a VISN office to fulfill the position but had to  abruptly leave and return to her VISN position due to a federal hiring  freeze. Without prioritizing the hiring of the program director position on a  permanent basis, this lack of stability could continue to affect execution of  MSPV-NG.
Moreover, VA’s Chief Acquisition Officer (CAO), whose responsibilities  include oversight of VA acquisition programs such as MSPV-NG, is  serving in an acting capacity and is not a “non-career employee.” By  statute, VA is required to appoint or designate a non-career employee as  the agency’s CAO. VA provided information to show that since 2009, VA  has designated career employees as “acting” CAOs rather than  appointing or designating non-career employees to the CAO position. As  we reported in 2012, clear, strong, and effective leadership, including a  CAO, is key to an effective acquisition function that can execute  complicated procurements like MSPV-NG. By appointing a CAO in a  non-acting capacity, VA could improve the effectiveness of its acquisition  function. During our 2012 review, VA indicated that it sought to establish  an Assistant Secretary for Acquisition, Logistics, and Construction, who  would serve as VA’s CAO. In connection with the current review, VA’s  Office of General Counsel cited a statutory limitation on the number of  assistant secretaries that may be established within VA as the reason it  has not established that additional assistant secretary position. VA’s  Office of General Counsel indicated that the agency was considering  requesting, in the reform plan that VA was required to submit to the Office  of Management and Budget in September 2017, a change to the statute  that limits the number of VA assistant secretaries. However,  subsequently, VA’s Office of General Counsel indicated that the plan will  not include such a request. By not appointing or designating a non- career employee as CAO, VA will continue to be noncompliant with the  statute. Figure 5 summarizes the history of leadership changes in these  positions, which are all currently filled in an acting capacity.
Further, according to officials, leadership vacancies at medical centers  and competing demands on logistics staff time made implementation of  MSPV-NG more challenging at the selected VISNs and medical centers  we visited. For instance, longstanding vacancies in the Chief Supply  Chain Officer positions existed at one of the VISNs and its medical center  that we visited. The VISN-level position was vacant for about 4 years,  with Chief Supply Chain Officers from individual medical centers filling in  for periods of time, according to the current Chief Supply Chain Officer,  who took the position in January 2017. In one medical center within that  VISN, the local position was also vacant for several years, according to  the current Chief Supply Chain Officer, who took the position in 2016. He  stated that he found that the staffing of the office had suffered in the  absence of a leader, leaving it poorly-equipped to execute the transition  to MSPV-NG. Medical center logistics staff also had several other major  transformation efforts to manage alongside the MSPV-NG transition, such  as implementing a new system for managing equipment. Several Chief  Supply Chain Officers we interviewed stated that these additional  demands made it challenging for their staff to implement the MSPV-NG  program.

		The MSPV-NG Initial Requirements Development Process Had Limited Clinician Involvement and Did Not Prioritize Categories of Supplies

The MSPV-NG program office initially developed requirements for  medical and surgical supply categories—identifying items to include in the  formulary—based almost exclusively on prior supply purchases, with  limited clinician involvement. The program office concluded in its October  2015 formulary plan that relying on data on previous clinician purchases  would be sufficient and that clinician input would not be required for  identifying which items to include in the initial formulary. Further, rather  than standardizing purchases of specific categories of supplies—such as  bandages or scalpels—program officials told us they identified medical  and surgical items on which VA had spent $16,000 or more annually and  ordered at least 12 times per year, and made this the basis for the  formulary. Officials said this analysis initially yielded a list of about 18,000  items, which the program office further refined to about 6,000 items by  removing duplicate items or those that were not considered consumable  commodities, such as medical equipment.
In 2015, the program office also took the lead in developing requirements  for these 6,000 items. In documentation, and as confirmed by agency  officials, we found that the program office did not solicit input from  clinicians for most items and did not prioritize categories of supplies.  Instead, the program office relied on historical purchase data to set  requirements across medical and surgical categories because officials  said they thought this would provide a good representation of medical  centers’ needs. This approach to requirement development stood in sharp  contrast to those of the leading hospital networks we met with, which  relied heavily on clinicians to help drive the standardization process and  focused on individual categories of supplies rather than addressing all  categories simultaneously.

		Initial Requirements Development and Tight Time Frames Contributed to Ineffective Contracting Practices for Initial Formulary

Based on the requirements developed by the program office, SAC began  to issue solicitations for the 6,000 items on the initial formulary in June  2015. From June 2015 to January 2016, medical supply companies  responded to only about 30 percent of the solicitations. As a result,  according to SAC officials, they conducted outreach and some of these  companies told SAC that VHA’s requirements did not appear to be based  on clinical input and instead consisted of manufacturer-specific  requirements that favored particular products instead of broader  descriptions. Furthermore, SAC did not solicit large groups of related  items, but rather issued separate solicitations for small groups— consisting of 3 or fewer items—of supply items. This is contrary to  industry practices of soliciting large groups of related supplies together.  Therefore, according to SAC officials, some medical supply companies  told them that submitting responses to SAC’s solicitations required more  time and resources than they were willing to commit.
By its April 2016 deadline for having 6,000 items on the formulary, SAC  had been working on the effort for over a year and had competitively  awarded contracts for about 200 items, representing about 3 percent of  the items. Without contracts for the items on the formulary in place, VA  delayed the launch of the MSPV-NG program until December 2016. To  continue the legacy MSPV program through the new launch date, SAC  awarded bridge contracts—short-term sole-source contracts—to its  legacy prime vendor contractors for a second year. We previously  reported that bridge contracts had resulted in higher costs to the  government. In part because of these costs, SAC officials stated that VA  leadership did not view a third set of bridge contracts for the legacy  MSPV program as a viable option. As a result of the pressure not to miss  the revised December 2016 deadline, which VA documents we reviewed  stated would have been “catastrophic,” SAC abandoned its original goal  of using competitive procedures and relied instead on a non-competitive  strategy for placing most of the items on the MSPV-NG initial formulary.  Starting in August 2016, SAC established 175 limited source blanket  purchase agreements with Federal Supply Schedule vendors to complete  the initial Phase 1 formulary. While this approach enabled the MSPV- NG program office to establish the formulary more quickly, it did so at the  expense of one of the primary goals of the MSPV-NG program— leveraging VA’s buying power to obtain cost avoidance through  competition.
We previously reported that a senior VA procurement official said VA  could save 30 percent, on average, on the prices available under the  Federal Supply Schedules when awarding competitive contracts that  leveraged VA’s buying power under the legacy MSPV program. The  discounts VA obtained from these limited source agreements were  generally much less. We reviewed a non-generalizable sample of 10  randomly-selected limited source blanket purchase agreements and  found that most items (332 of the 376 items covered by these  agreements) were discounted 5 percent or less. Competition is the  cornerstone of the acquisition system; its benefits are well established,  including saving the taxpayer money. As shown in figure 6, the non- competitive agreements awarded in the last few months before the launch  of MSPV-NG accounted for approximately 79 percent of the items on the  January 2017 version of the formulary.

		Initial Formulary and Unclear Communication Contributed to a Lack of Medical Center Buy-In for MSPV-NG Implementation

Once VA’s MSPV-NG initial formulary was established in December  2016, each medical center was charged with implementing it. Previously,  medical centers had hundreds of thousands of items they could obtain  through the legacy MSPV program. In order to transition to the new  formulary—consisting of around 6,000 items at launch—the program  office directed medical centers to determine if items they had ordered in  the past could be fulfilled by the formulary. To do this, each medical  center’s Chief Supply Chain Officer—the head of the logistics office—was  to review their center’s core list of previously ordered items to try to  identify matches on the MSPV-NG formulary in three different categories:  1.  Direct matches – For some items, the exact same item a medical  center had been purchasing was available in the formulary. Identifying  these matches may not necessarily be simple, as the names and  identification numbers were not typically the same.  2.  Potential clinical equivalents – Many items that were no longer  available under the MSPV-NG formulary had close matches on the  formulary. However, because these were not exactly the same, work  was required to ensure that they were clinically equivalent—in nearly  all cases, this required clinician input. Clinical Product Review  Committees at each medical center, which are comprised of clinicians  and others, are responsible for approving new supplies before they  are introduced to a medical center.  3.  Items without matches – Finally, there were some items that medical  centers had been purchasing for which logistics staff were not able to  identify a clinical equivalent in the MSPV-NG formulary. In these  cases, logistics staff sought non-MSPV methods of obtaining the  same items they had previously purchased—usually via purchase  card transactions and, in a few cases, via requests to their local  contracting office to award new contracts for the items.
Figure 7 shows the typical process for identifying MSPV-NG matches for  core list items at individual VA medical centers, as described by logistics  officials at the selected medical centers.
According to logistics officials we spoke with, the MSPV-NG formulary  matching process was challenging for the selected medical centers, and  they had varying levels of success, in part, due to incomplete guidance  from the program office. The MSPV-NG program office provided some  guidance, including a tool for identifying direct matches, but three of the  Chief Supply Chain Officers at the selected medical centers stated that  they did not find it very helpful, in part, because it only included matches  for the highest-volume items. Based on our discussions with the MSPV- NG program office and selected medical centers, as well as our review of  communications provided to medical centers, the program office provided  various emails and held conference calls, but did not provide complete  guidance to summarize the steps medical centers should take to execute  the matching process. Without complete guidance, each selected VISN  and medical center approached the process somewhat differently. One  medical center devoted a great deal of effort to matching items early on,  had completed its review, and determined its purchasing strategy for  nearly all core list items before the transition period was complete. Others  devoted less attention to this and planned instead to rely on purchase  cards to continue buying the same items they had purchased under the  legacy MSPV program, which works against VA’s goal of leveraging  buying power through MSPV-NG.
The amount of clinician input on the matching process varied among  medical centers in our review, in part, because the various  communications from the program office did not provide complete  information on how to involve clinicians and Clinical Product Review  Committees at medical centers. While the program office asked medical  centers to involve clinicians, it did not specify a process for how to do so,  and centers were left to develop their own approaches. For example, in  one selected VISN, the Deputy Chief Medical Officer became involved  with the logistics office coordination effort and obtained active  participation from clinicians at each medical center, who formed working  groups to review potential clinical equivalent matches. In other VISNs and  medical centers, there was little concerted effort to involve clinicians at  this stage of the process, and only a few clinical equivalent items were  reviewed and matched with clinical input. Without effective matching to  the formulary, VA cannot achieve the MSPV-NG utilization rates it needs  to meet the program’s goals. Without complete guidance, these centers  may be unable to effectively match their core lists to the MSPV-NG  formulary and, thus, increase their utilization of it.
The MSPV-NG formulary also continued to change while the medical  centers were working to match their core list items, which made the  process more challenging. Several clinicians and logistics staff at the  medical centers we visited expressed frustration about the frequency by  which items were being added and deleted on the formulary and the  impact it had on their purchasing strategies. Our analysis found that in  April 2017, 690 items were added to the formulary, but, in June, 628  items were deleted. These medical center officials also noted that they  had not received any communications from the program office or SAC  regarding why items were being added and deleted, and were unsure  why the changes were taking place. SAC and MSPV-NG program office  officials stated that these continuing changes stemmed from several  factors, including elimination of duplicate items from multiple vendors and  addition of other items identified as necessary by VHA or medical centers.  In some cases, medical center officials told us that that they were less  willing to expend effort on the matching process because the formulary  was a moving target. Without visibility into or an understanding of the  criteria used by the program office on its process for adding or removing  items on the formulary, medical centers will likely continue to face  challenges in matching their items to the formulary. See Table 1 for the  number of items added and deleted from the formulary from January to  July 2017.
Many medical centers were unable to find direct matches or substitutes  for a substantial number of items on their core lists, which negatively  impacted utilization rates for the initial formulary. In October 2015, the  program office estimated that the items on the initial formulary would  meet 80 percent or more of the medical centers’ needs. However,  according to SAC, as of June 2017, only about a third of the items on the  initial version of the formulary were being ordered in any significant  quantity by medical centers, indicating that many items on the formulary  may not be those that are needed by medical centers. Senior VHA  acquisition officials attributed this mismatch to shortcomings in their initial  requirements development process as well as with VA’s purchase data.
VA set out a target that medical centers would order 40 percent of their  supplies from the MSPV-NG formulary, but utilization rates are below this  target with a nationwide average utilization rate across medical centers of  about 24 percent as of May 2017. Instead of fully using MSPV-NG, the  selected medical centers are purchasing many items through other  means, such as purchase cards or new contracts awarded by their local  contracting office, in part, because they said the formulary does not meet  their needs. These approaches run counter to the goals of the MSPV-NG  program and result in VA not making the best use of taxpayer dollars.  Specifically, Chief Supply Chain Officers—who are responsible for  managing the ordering and stocking of medical supplies at the six  selected medical centers—told us that many items they needed were not  included in the MSPV-NG formulary. As discussed above, the difficult  transition process also created a lack of clinician desire to find substitutes  on the formulary. As such, we found that these six medical centers  generally fell below VA’s stated utilization target that medical centers  order 40 percent of their items from the MSPV-NG formulary. As shown in  figure 8, among the six selected medical centers we reviewed, one met  the target, while the remaining five were below 25 percent utilization. The  one facility that met the target, Hampton VA Medical Center, is  categorized by VA as a smaller, less complex facility, and had fewer  items to match, which could contribute to its higher utilization.
The utilization rate is VA’s primary metric for the success of MSPV-NG— broad usage of the formulary is necessary for VA to meet its goals of  more efficient supply purchasing, standardization, and cost avoidance.  Utilization is calculated by dividing the purchases made via MSPV-NG by  the total purchases under the medical supply budget category. This is the  same metric used under the legacy MSPV program, and most medical  centers were meeting the 40 percent target prior to the transition to  MSPV-NG. Officials stated that the current metric does not provide  enough information and, as a result, VHA is in the process of preparing a  new metric to more precisely assess MSPV-NG use and effectiveness,  and has begun conducting routine surveys of its medical centers to obtain  their feedback on MSPV-NG.
Greater utilization of MSPV-NG is essential to VA achieving the cost  avoidance goal of $150 million for its supply chain transformation effort.  Under the legacy MSPV program, the National Acquisition Center tracked  cost avoidance achieved by comparing prices for competitively-awarded  MSPV supply contracts with prices available elsewhere. However, VHA  officials stated that they are not currently tracking cost avoidance related  specifically to MSPV-NG. VHA officials told us they plan to use a new  cost avoidance metric that compares total supply spending for VHA as a  whole across fiscal years. This new metric, however, does not measure  whether cost savings are being achieved specifically through MSPV-NG.  Officials stated the broader metric was more useful than measuring cost  avoidance specific to MSPV-NG.
VA’s practices are in contrast with those of the leading hospitals we met  with, which maintain detailed, item-level data on cost avoidance and use  them to inform future supply requirements and contracting. These  hospitals we interviewed reported substantial cost savings from their  standardization efforts. For example, the director of supply chain  management at one leading hospital network stated that it achieved a  goal of $100 million in cost savings on medical supplies in the first 2 years  of their standardization effort, and an additional $35 million annually in the  several years since. This hospital achieved these results despite its  purchasing power being less than VA’s. Without calculating cost  avoidance attributable to MSPV-NG, VHA cannot assess whether the  program is meeting its goals, nor can it use cost avoidance data to guide  future MSPV-NG requirement development and contracting strategy  efforts.

		VA Encouraged Greater Clinical Involvement in the Second Phase of Requirements Development, but Faced Further Staffing and Schedule Constraints

In Phase 2 of MSPV-NG, the program office has taken some steps to  incorporate greater clinical involvement in subsequent requirement  development, but both its requirements development and SAC’s  contracting efforts have been hampered by staffing and schedule  constraints. Work on Phase 2 began while medical centers were  implementing Phase 1 and beginning to order from the MSPV-NG  formulary. Figure 9 shows key dates in the concurrent requirements  development, contracting, and implementation processes for Phases 1  and 2.
In the fall of 2016, the program office began to establish panels of  clinicians—including physicians, surgeons, and nurses working in the  medical centers—to serve on MSPV-NG integrated product teams (IPT)  assigned to the task of developing updated requirements for the second  phase of the formulary. The IPTs were to review categories of medical  supplies such as operating room surgical supplies and patient exam room  instruments and supplies. According to VA officials and our analysis, this  revised approach was based on a recognition that more robust  mechanisms were needed for incorporating clinician input, in part,  because VA had sought information on best practices from leading  hospital networks, and because of shortcomings with the Phase 1  requirements that became apparent in the contracting process. Similar to  the analysis performed in support of the initial formulary, the MSPV-NG  program office analyzed updated data on medical center supply  purchases to generate a list that had grown from the 6,000 items  established for the initial formulary to a new total of about 9,900 items for  these new IPTs to review.
The program office set a March 2017 deadline to complete this second,  IPT-based phase of requirements development—VHA ultimately met this  compressed timeline, but in a rushed manner that limited the impact of  the clinical involvement. Program officials said they had difficulty  recruiting clinicians to participate, and the program office’s first IPTs were  not established until the fall of 2016. In December 2016, slightly more  than half (20 of the 38) of the IPTs had begun their work to review items  and develop updated requirements. Many of the remaining IPTs were still  looking for additional clinicians to participate. Program officials said they  received assistance from the Assistant Deputy Under Secretary for Health  for Administrative Operations in December 2016. According to program  officials, this involvement proved critical in successfully recruiting staff to  participate in some of the remaining IPTs, which were then able to make  progress in reviewing each item in the formulary.
However, the program office did not provide training for the IPTs on how  to carry out their work until late January 2017, about 2 months before the  IPTs were scheduled to complete the development of all medical and  surgical requirements. Further, staff on the IPTs had to complete their  responsibilities while simultaneously managing their regular workload as  physicians, surgeons, or nurses. By early March 2017, the IPTs still had  about 4,200 of the 9,900 items to review. Faced with meeting this  unrealistic time frame, the MSPV-NG program office had 9 IPT members  travel to one location—with an additional 10 members participating  virtually—to meet for 5 days to review the remaining items. Members told  us that this time pressure limited the extent to which they were able to  pursue the goal of standardizing supplies, and that their review ended up  being more of a data validation exercise than a standardization review.
In addition, the program office attempted to pursue standardization across  all supply categories rather than those with the greatest potential for  standardization and cost avoidance and continues to lack a strategy for  doing so going forward. Standards for Internal Control in the Federal  Government state that management should define what is to be achieved  and who is to achieve it, how it will be achieved, and the time frames for  achievement. In addition, this approach runs counter to how leading  hospitals standardize their supply chains by tackling individual categories  one at a time and obtaining deep clinician involvement. Without a strategy  for how best to prioritize these items by category for future phases of the  requirement development process, these IPTs will be limited in fully  contributing to VHA’s goals of more efficient supply purchasing,  standardization, and cost avoidance.

			VA Plans to Replace Limited Source Blanket Purchase Agreements, but Faces Challenges Doing So Before They Expire

SAC’s ongoing Phase 2 contracting effort also faces an unrealistic  schedule. The SAC plans to replace the existing Phase 1 limited source  agreements with competitive awards based on the Phase 2 requirements  generated by the IPTs, but it may not be able to keep up with expiring  agreements. Because they were made on a non-competitive basis, the  Phase 1 limited source blanket purchase agreements were established  for a period of one year. In order to keep the full formulary available, the  SAC director said his staff must award several hundred contracts before  the Phase 1 limited source agreements expire later this year. However,  the SAC director stated that doing so will be difficult because his staff  must award between 200 to 250 contracts in a 3-month period from the  end of September 2017 through December 2017. To adhere to this  ambitious schedule, each of the 15 contracting staff on the MSPV-NG  team would need to award between 13 to 17 contracts within 3 months,  equaling one contract per staff member every 5 to 6 days, which is  significantly faster than SAC’s typical pace. SAC officials acknowledged  that it is unlikely that they will be able to award the 200 to 250 contracts  by the time the existing limited source agreements expire. According to  SAC officials, they are in the process of hiring more staff to deal with the  increased workload. Further, the SAC division director told us that they  cancelled all outstanding Phase 2 solicitations in September 2017 due to  low response rates, protests from service-disabled veteran-owned small  businesses, and changes in overall MSPV-NG strategy. SAC is still  assessing alternative approaches, which poses additional challenges for  replacing expiring agreements by December 2017.
For cases where limited source agreements expire without new contracts  in place, SAC officials said they intend to use a different type of  agreement called a distribution and pricing agreement as a stopgap. They  stated that the use of these agreements with suppliers who have existing  limited source agreements would prevent items from falling off the  formulary. However, like BPAs, the agreements are not contracts—the  supplier informally agrees to continue to sell its products to VA at the  same price and terms. SAC officials stated that VA has not used these  types of agreements previously, and they pose a risk in that the supplier  is not required to perform and VA has no remedy if the supplier opts to  end the agreement or raise the price. These agreements also do not  allow VA to achieve its goal of achieving greater cost avoidance through  supply standardization and competitive contracts. Despite the unrealistic  time frames and the risks of the stopgap approach, VA has not developed  a plan for how to mitigate these risks, established an achievable schedule  for making the competitive Phase 2 contract awards, or prioritized the  various categories of supplies. Establishing such a plan would help  ensure that VA is better positioned to mitigate risks and prioritize supply  categories that are most likely to yield cost avoidance.

		VA Is Revising Its Approach to MSPV-NG

VA is currently revising its approach to MSPV-NG requirement  development to adopt a model that focuses on clinician-driven sourcing, a  key step that leading hospital networks reported following in standardizing  their medical supply chains. The MSPV-NG program office continues to  refine its strategy for requirement development and is seeking greater  clinician involvement in future requirement development efforts, which it  refers to as clinician-driven sourcing. For example, program officials said  they plan to involve VHA’s national clinical program offices—groups of  clinicians at VHA that provide national policy and leadership within their  clinical specialty—to obtain greater buy-in from senior clinical leaders and  to implement a more structured approach for identifying clinicians willing  to serve on integrated product teams. This approach, if implemented  effectively, could mitigate some of the prior challenges in recruiting  clinicians to participate. However, these efforts are in their early stages,  and the MSPV-NG program office has not outlined whether or how it will  use input from these clinical groups to prioritize its requirements  development and standardization efforts. Without input from these  national clinical program offices, VA will continue to be challenged to  focus on supply categories that offer the best opportunity for  standardization and cost avoidance.
Senior VHA and MSPV-NG program officials also told us each VA  medical center was expected to use a standing committee, known as the  Clinical Product Review Committee, to review new items to include on the  formulary and to evaluate opportunities to streamline the formulary  through standardization. This approach will likely require additional effort  on the part of the MSPV-NG program office to implement, as some  centers’ clinicians said the Clinical Product Review Committees were not  operating as intended.
VA is also exploring major changes in its contracting strategy for MSPV- NG. Specifically, MSPV-NG program office and SAC officials plan to  replace the current contract and formulary process with a new contract  where the vendor would not only provide distribution services, but also  develop the formulary. In October 2017, VA sought information from  industry on their capabilities to support such a program. VA stated that its  target completion date for this new MSPV-NG contracting strategy is  December 2018. To date, VA has provided only limited details on this  potential new approach, thus, we cannot assess whether it has the  potential to address the shortcomings with the current MSPV-NG  approach described in this report.

	Frequent Use of Emergency Procurements Impacts VHA’s Ability to Strategically Manage Its Acquisitions

Some emergencies are to be expected, as VHA operates one of the  largest health care systems in the country. However, VHA designated a  substantial number of its procurements in fiscal year 2016 as  emergencies, and we found that it frequently uses emergency  procurements to buy routine supplies and on-going services that do not  warrant the emergency designation defined in VHA guidance. Among the  18 contract actions we reviewed from three VISNs, we found instances of  emergency procurements caused by shortcomings in planning, funding,  and communication. These emergency procurements strain the capacity  of VA’s acquisition workforce and put the government at risk of paying  more than it should for goods and services.

		Emergency Procurements Account for Almost Two Billion Dollars’ Worth of VHA Contract Obligations

Based on our analysis of VA data, we found that emergency  procurements accounted for approximately 20 percent of VHA’s overall  contract actions in fiscal year 2016, with obligations totaling about $1.9  billion. As shown in figure 10, we found that the percentage of requests  designated as emergencies varied across the 19 VISNs.

		Some Selected Procurements Identified as Emergencies Stemmed from Lack of Planning, Communication Problems, and Other Factors

We selected a non-generalizable sample of 18 contract actions  designated by customers as emergencies. Most of these contracts were  not awarded on a competitive basis, and half cited the unusual and  compelling urgency exception to full and open competition. Table 2 shows  instances in which the 18 contract actions were awarded without  competition, those that cited unusual and compelling urgency as the basis  for use of non-competitive procedures, and our observations on the main  contributing factor to designating these procurements as emergencies.
Additional information on each of the contributing factors follows.

			Planning Challenges

VHA guidance specifies that neither a lack of acquisition advance  planning nor concerns about a need to obligate funds before the end of  the fiscal year are valid justifications for an urgent or emergency  procurement request. However, among our selected contract actions, lack  of planning by customers was a principal contributing cause, leading to 7  of the 18 contract actions being procured as emergencies, resulting in  some non-competitive awards to the incumbent vendor for the same  requirement. For instance, one medical center procured medical gas on  an emergency basis through consecutive non-competitive contracts. The  initial contract was terminated because the company was not licensed by  the state where services were being provided, which led to a 3-month  emergency contract being awarded to a different vendor. This was  followed by a series of non-competitive bridge contracts to that incumbent  vendor over a 3-year period. In another case, a medical center routinely  procured custom surgical packs through consecutive emergency sole- source purchase orders. The contracting officer’s representative told us  the medical center may be paying more for custom surgical packs  ordered on an emergency basis than it would under a competitive, long- term contract.

			Funding Issues

Funding uncertainty also contributed to three awards being designated as  emergencies. For example, one medical center submitted an emergency  request to outsource patient laundry due to funding uncertainties for  repairs of on-site, VA-owned and operated laundry equipment. The  contracting officer’s representative stated that the VISN could not provide  funds to repair the equipment, leading to a series of last-minute  emergency requests, a few months at a time, for contracted patient  laundry services to prevent a gap in service.
At another VISN, a large amount of funding became available late in the  fiscal year, which led to an emergency request to purchase postage to  ensure the funding was spent before it expired at the end of that fiscal  year. The contracting office issued an order for $890,000 worth of  metered mail postage, which medical center staff told us would cover 1 to  2 years of usage.

			Lack of Communication

We found that shortcomings in communication between customers and  contracting offices also contributed to eight awards made on an  emergency basis for routine items. For one of the contracts in our review,  a medical center resubmitted a request in January 2016 to purchase  equipment for a new operating room that had previously been submitted  as a standard request months earlier. However, the contracting officer’s  representative at the medical center told us that no action was taken by  the contracting office, and he did not receive a response for 6 months.  The medical center then upgraded the request to an emergency since the  operating room was scheduled to open in June 2016. The contracting  officer’s representative noted that delays procuring the equipment past  the scheduled opening date would delay the opening of the new operating  room and possibly result in the rescheduling or cancelling of procedures,  affecting patient care. After the order was upgraded to an emergency, the  equipment was ultimately delivered before the operating room was  opened.
In another case, an inventory manager routinely submitted emergency  purchase requests for cardiac catheters as a strategy to manage stock  levels. The reason he cited was that he was uncertain how long it would  take the contracting office to fulfill standard requests. He stated that the  contracting office’s time frames for standard orders are unpredictable,  and more consistent communication about the expected delivery date of  any given order would reduce his need to place emergency orders. He  noted that being able to plan around delivery dates was important for  maintaining stock at designated levels for the various types of catheters  used in the cardiology department. Figure 11 shows a medical center  stock room and designated stock levels for one type of catheter. The “L”  indicates the standard stock level, and “R” indicates the level of stock at  which refill is needed. Ordering officers use these levels to inform when  they should place orders.

		Overreliance on Emergency Procurements Can Drive Up Costs and Overtax the Workforce

In addition to being contrary to VHA guidance, overuse of emergency  procurement requests has negative effects on the overall operation of  VA’s procurement system. In reviewing the 18 selected contracts, we  identified two primary effects—the potential for increased costs and  increased burden on the contracting workforce that could take resources  away from other important efforts.

			Increased Costs

As noted above, half of the contract actions we reviewed (9 out of 18)  cited unusual and compelling urgency as the basis for the use of non- competitive procedures. When unusual and compelling urgency exists, an  agency may limit competition to the firms it reasonably believes can  perform the work in the time available. In all nine cases, however, there  was no competition at all, which puts the government at risk of paying  more than it should for goods and services. Promoting competition— even in a limited form—increases the potential for quality goods and  services at a lower price. We have previously reported that competition in  contracting is a critical tool for achieving the best return on investment  and that it can improve contractor performance and promote  accountability for results.

			Burden on the Contracting Workforce

Emergency procurement requests must be processed quickly, and  contracting officers have limited ability to question the validity of an  emergency request. Nevertheless, many of the contracting officials we  spoke with that had responsibility for our 18 selected contracts told us  they generally communicate directly with the requestor to clarify the  requirement and assess the nature of the request. As stated in the VHA  procurement manual, contracting officers generally must process  emergencies within 5 days or less. However, the manual acknowledges  that different Network Contracting Offices assign different time frames to  priority categories. For instance, officials from all three selected Network  Contracting Offices told us they generally process emergencies  immediately. Several contracting officials we interviewed stated that,  because they do not have clinical expertise, they infrequently question the  medical center staff customer about whether their request is truly an  emergency. Even if they work with customers to reach a compromise,  such as purchasing a smaller quantity to fill just the immediate need,  emergencies still require immediate attention and result in deprioritizing  other tasks. The impact on the contracting officer workload can be  exacerbated by low staffing levels. For example, none of the three  Network Contracting Offices we visited were staffed to their authorized  levels. Table 3 shows the number of emergency actions processed by  each selected Network Contracting Office in fiscal year 2016, along with  staff levels.
We have previously reported that when contracting officers process  frequent and emergency small-dollar transactions, it reduces their ability  to plan ahead and take a strategic view of procurement needs. Several  of the VA contracting officials we spoke with noted that regularly  processing emergency contracts and extensions affects their ability to  work on bigger-picture efforts, some of which would reduce workload. For  instance, one contracting officer stated that awarding emergency contract  extensions has prevented him from competitively awarding more than 40  lab contracts. In these cases, the contracting officer stated that he instead  extended the period of performance of the non-competitive contracts to  the incumbent vendors. In addition, emergency contracts are generally  awarded for short periods of time—often 1 year or less—while  competitive contracts often have terms of 5 years. According to some  contracting officers we spoke with, this can result in contracting officers  spending much of their time tending to a large number of short-term  contracts, instead of a smaller number of fully-competed contracts with  longer periods of performance.

		Better Planning and Management of Contracting Strategies May Help Reduce Emergencies

We found that greater planning and coordination between medical center  and contracting staff can help to leverage VA’s buying power by  employing principles of strategic sourcing—a process that moves away  from numerous individual procurements to a broader aggregate  approach—and thereby reducing the need for emergencies. For  example, inventory managers responsible for two of the selected cardiac  catheter contracts in our sample stated that managing catheter inventory  was difficult because of the unpredictability of the needs, the high cost of  the items, and the long turnaround times from their respective contracting  offices. As a result, they had to place frequent emergency orders to keep  stock at safe levels. One inventory manager noted, however, that there is  no longer a need to place emergency orders for catheters because the  SAC has since put in place a purchasing agreement that enabled her to  place orders directly, without requiring involvement from the contracting  office. In addition to reducing contracting office workload, the supply  technician said this agreement greatly reduced the amount of work  required to place an order and allowed her to more effectively maintain  her inventory with short and predictable turnaround times. She also stated  that the agreement protected against the frequent price increases she  experienced when purchasing the catheters on the open market through  the contracting office. The agreement also reduced workload for the local  VISN contracting office. In analyzing eCMS data on awards from fiscal  years 2014 through 2016, we identified several types of goods and  services that were repeatedly purchased on an emergency basis through  stand-alone contract actions. This suggests there may be additional  opportunities, at both the VISN and national levels, to reduce  emergencies by making supplies and services available through more  efficient, competitively-awarded contract vehicles. In addition to reducing  burden on logistics and contracting staff, reviewing existing spending to  find opportunities to leverage buying power is also in line with strategic  sourcing best practices.
MSPV-NG is one such contracting mechanism for procuring routine  supplies, and a more strategic approach to developing requirements for  the formulary could help avoid some emergency procurements. Our  analysis of VA eCMS data found that many awards designated as  emergencies were for medical-surgical items, some of which could likely  be purchased through MSPV-NG. Figure 12 shows the number of  medical-surgical procurements designated as emergencies within each  VISN in fiscal year 2016.
Within our sample of 18 contract actions, we found several instances of  reoccurring emergency procurements for medical-surgical supplies, such  as custom surgical packs and catheters. Procuring routine supplies on an  emergency basis defeats the objectives of MSPV-NG to leverage VA’s  large buying power and make the process of ordering supplies more  efficient and transparent. However, while data on emergency  procurements are available, VHA’s Procurement and Logistics Office  does not currently analyze this data to identify items frequently purchased  on an emergency basis to determine whether such items could be  referred to SAC to be added to the MSPV-NG formulary. In addition, local  VISN Network Contracting Offices have also not used available data on  emergency purchases to identify items frequently purchased on an  emergency basis. Steps by VHA’s Procurement and Logistics Office and  individual VISN contracting offices to review such data and identify  opportunities for leveraging MSPV-NG or other national contracts could  help VA achieve greater efficiency. Purchasing medical supplies through  individual emergency contract actions is much less efficient than using  MSPV-NG; moreover, by making numerous individual procurements at  the local level and not leveraging its aggregate buying power, VA is  paying more for items than it needs to.

	Conclusions

Any major organizational change requires a solid strategic plan that is  communicated with stakeholders, stable leadership, and stakeholder  involvement and buy-in. VHA was missing all of these elements when it  rolled out the MSPV-NG program, which presented obstacles to effective  implementation and buy-in and affected the program’s ability to meet its  goals. Moving forward, without an overall strategy that is communicated  to all stakeholders and enhanced leadership stability, VHA will likely  continue to face these challenges. In addition, in the initial requirements  development process, VHA relied on prior purchase data—rather than  clinician input—and did not prioritize categories of medical supplies, both  of which veered from practices employed by leading hospital networks.  Once the initial formulary was established, medical centers faced  challenges matching supply items to the formulary and took varying  approaches, in part, due to incomplete guidance on key aspects of the  process and frequent changes in the items on the formulary. Providing  complete guidance and communicating the criteria and processes for  adding or removing items from the formulary would help centers more  effectively match items to the formulary, thereby increasing utilization,  which as of May 2017 was below VA’s established target. Further,  because it does not calculate cost avoidance attributable to MSPV-NG,  VA cannot accurately measure the extent to which the program is  contributing to its overall cost avoidance goal.
VA made changes during the second phase of requirements  development, in particular to encourage greater clinician involvement.  However, the program faces an unrealistic contracting schedule and has  not yet developed a plan for how to manage or mitigate the associated  risks.  Establishing such a plan is essential for risk mitigation, and supply  category prioritization could help VA target those categories most likely to  yield cost avoidance. In addition, while the program is planning to involve  national clinical program offices to obtain greater clinician buy-in, it has  not outlined whether or how it will use input from these groups to prioritize  its requirements development efforts. Without such input, VA will continue  to face challenges focusing on those supply categories that offer the best  opportunity for standardization and cost avoidance. Further, VA is  considering another major change in its MSPV program in which the  prime vendor may absorb some of the work currently conducted by SAC.   However, VA may face challenges in this new approach until it addresses  the existing shortcomings in the MSPV-NG program, such as the absence  of a documented overall strategy, insufficient clinician involvement in the  requirements development process, and lack of medical center buy-in.
Meanwhile, among the 18 contract actions we reviewed, we found  shortcomings in planning and communication that led to medical centers’  overreliance on emergency procurements to obtain routine goods and  services—some of which could be made available via MSPV-NG— bypassing effective contracting practices like competition. These  emergency procurements can be a particular drain on resources,  especially those of contracting officers who must respond immediately to  fulfill emergency orders. Identifying opportunities to more strategically  purchase frequently purchased goods and services—both at the local  levels and nationwide through the MSPV-NG program—could help  minimize these workforce challenges and minimize costs.

	Recommendations for Executive Action

We are making 10 recommendations to VA.
The Director of the MSPV-NG program office should, with input from the  Strategic Acquisition Center (SAC), develop, document, and  communicate to stakeholders an overarching strategy for the program,  including how the program office will prioritize categories of supplies for  future phases of requirement development and contracting.  (Recommendation 1)
The VHA Chief Procurement and Logistics Officer should take steps to  prioritize the hiring of the MSPV-NG program office’s director position on  a permanent basis. (Recommendation 2)
The Secretary of Veterans Affairs should assign the role of Chief  Acquisition Officer to a non-career employee, in line with statute.  (Recommendation 3)
The Director of the MSPV-NG program office should provide complete  guidance to medical centers for matching equivalent supply items, which  could include defining the roles of clinicians and local Clinical Product  Review Committees. (Recommendation 4)
The Director of the MSPV-NG program office should, with input from  SAC, communicate to medical centers the criteria and processes for  adding or removing items from the formulary. (Recommendation 5)
The VHA Chief Procurement and Logistics Officer, in coordination with  SAC, should calculate cost avoidance achieved by MSPV-NG on an  ongoing basis. (Recommendation 6)
The MSPV-NG program office and SAC should establish a plan for how  to mitigate the potential risk of gaps in contract coverage while SAC is still  working to make competitive Phase 2 awards, which could include  prioritizing supply categories that are most likely to yield cost avoidance.  (Recommendation 7)
The VHA Chief Procurement and Logistics Officer should use input from  national clinical program offices to prioritize its MSPV-NG requirements  development and standardization efforts beyond Phase 2 to focus on  supply categories that offer the best opportunity for standardization and  cost avoidance. (Recommendation 8)
The VHA Chief Procurement and Logistics Officer should direct VISN  Network Contracting Offices to work with medical centers to identify any  opportunities to more strategically purchase goods and services  frequently purchased on an emergency basis. For example, offices could  do this by analyzing existing data. (Recommendation 9)
VHA Chief Procurement and Logistics Officer should analyze data on  items that are frequently purchased on an emergency basis, determine  whether such items are suitable to be added to the MSPV-NG formulary,  and work with SAC to make any suitable items available via MSPV-NG.  (Recommendation 10)

	Agency Comments and Our Evaluation

We provided a draft of this report to the Department of Veterans Affairs  for review and comment. VA provided written comments on a draft of this  report. In its written comments, reprinted in appendix II, VA concurred  with all of our 10 recommendations.
In its response to our recommendation that VA assign the role of Chief  Acquisition Officer to a non-career employee, as required by statute, VA  stated that it is unable to implement the recommendation without  congressional action and requested closure of the recommendation. We  asked VA officials what congressional action they believe is necessary to  follow the recommendation. The officials told us they believe the CAO  position should be assigned to an assistant secretary, but that the number  of assistant secretaries within VA is limited by statute. We decline to close  this recommendation. VA should assign the role of CAO to a non-career  employee, as required by statute. If VA maintains its view that it cannot  meet this requirement without congressional action, then VA should  request the specific congressional action that VA believes is necessary.
VA provided technical comments on the draft report, which we  incorporated as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the Secretary of Veterans Affairs, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-4841 or by email at oakleys@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. GAO staff who made key  contributions to this report are listed in appendix III.

Appendix I: Objectives, Scope, and Methodology

You requested that we examine the Department of Veterans Affairs’ (VA)  transition to the Medical Surgical Prime Vendor-Next Generation (MSPV- NG) program and the extent to which the department contracts for good  and services on an emergency basis. This report addresses the extent to  which: (1) VA’s implementation of MSPV-NG was effective in meeting  program goals, and (2) Veterans Health Administration (VHA) awards  contracts on an emergency basis for routine supplies and ongoing  services, and what impact, if any, these awards have on VHA’s  acquisition function.
To review the extent to which implementation of MSPV-NG was effective,  we reviewed policy and guidance related to the program. We obtained  and analyzed the MSPV-NG program’s formulary development plan,  which explained the program’s rationale for pursuing its initial  requirements development approach. We also obtained and reviewed  additional program documentation, including communications to medical  centers and other stakeholders, briefings, and training and tools provided  to medical centers. We interviewed leaders in the VHA Procurement and  Logistics Office and Healthcare Commodity Program Executive Office  (the program office for MSPV-NG), as well as other staff involved in  planning and executing aspects of MSPV-NG. We also interviewed VA’s  Chief Acquisition Officer during the development of MSPV-NG, cognizant  Office of General Counsel staff, and others regarding the program. We  also interviewed supply chain managers from four leading hospital  networks regarding their medical supply management practices. We  selected the hospital networks because they were identified by an  industry study as having leading supply chain practices.  During  interviews, we asked each of these supply chain managers a standard set  of questions about processes followed to standardize their hospital  networks’ supply chain. VA had also identified two of these hospital  networks as having leading supply chain practices and used the industry  study to identify these hospital networks. We used this information from  the leading hospital networks to compare the key steps—identified by  each of the four hospital networks—followed in standardizing their  medical supply chains to those steps that VA followed when implementing  the MSPV-NG program. We also confirmed these key steps with the  leading hospital networks.
We conducted site visits at a non-generalizable selection of three  Veterans Integrated Service Networks (VISNs), and two medical centers  within each selected VISN:
VISN 6: Durham, North Carolina
Durham, North Carolina VA Medical Center
Hampton, Virginia VA Medical Center
VISN 8: St. Petersburg, Florida
Tampa, Florida VA Medical Center
Gainesville, Florida VA Medical Center
VISN 22: Long Beach, California
Long Beach, California VA Medical Center
San Diego, California VA Medical Center  The VISNs were selected primarily based on highest total contract  obligations in fiscal years 2014 through 2016 and representation of  multiple geographic areas and prime vendor contractors. The first site  visit to VISN 22 was also chosen based on the rollout schedule for the  graphical user interface, an IT system related to MSPV-NG. The final site  visit to VISN 6 was also chosen as the VISN with the highest percentage  of contract actions designated as emergencies over the fiscal year 2014  through 2016 period. The selected medical centers in each VISN were  chosen based on our review of VA Electronic Contract Management  System (eCMS) data on emergency procurements within each VISN  (see  below) and geographic proximity to the VISN office location. At each  selected VISN, we interviewed the Chief Supply Chain Officer and other  members of leadership. At medical centers in each selected VISN, we  met with the Chief Supply Chain Officer, ordering officers, other logistics  staff, clinicians involved in the MSPV-NG transition, and on-site  representatives of the prime vendor contractors.
We evaluated MSPV-NG program office status briefings and integrated  product team training briefings, which documented the planned role of  clinicians in the Phase 2 requirements development process. We  interviewed VHA Procurement and Logistics Office leadership, other  MSPV-NG program office staff, and integrated product team managers  and clinicians about the evolution of the program office’s requirements  development approach, including the role of clinicians in preparing item  descriptions and evaluating items. Three integrated product teams were  selected for interviews based on those that covered the greatest number  of items, as well as for diversity of types of medical supplies. We also met  with members of additional integrated product teams during site visits to  the selected medical centers.
We obtained and analyzed the Strategic Acquisition Center’s acquisition  strategy for MSPV-NG supply contracts and discussed its evolution with  the Center’s acquisition staff. We analyzed the MSPV-NG formulary as of  January 2017 to determine what acquisition instrument was used to add a  particular item to the formulary, how the cumulative total of items by  award type changed from fiscal year 2014 to fiscal year 2017, and when  certain MSPV-NG items would be removed from the formulary because  the underlying acquisition instrument had expired. We also analyzed the  contents of the formulary monthly from January to July 2017 to determine  the number of items added and deleted each month. We determined that  the MSPV-NG formulary data were sufficiently reliable for the purposes of  our reporting objectives. For the formulary data, we corroborated the  supplier’s name, award number, award type, and the award’s effective  and expiration dates with data in the Federal Procurement Data System- Next Generation. We were also able to corroborate the total number of  items on the January 2017 MSPV-NG formulary through other  documentation, such as program briefings. To determine the level of  discounts obtained by the MSPV-NG program office, we randomly  selected 10 limited source blanket purchase agreements. We reviewed  each agreement and compared the price for each item on the supplier’s  price list with the item’s Federal Supply Schedule price. We obtained and  analyzed the current MSPV-NG indefinite delivery, indefinite quantity  solicitations and the Defense Logistics Agency’s documentation on  distribution and pricing agreements. We also reviewed related prior GAO  reports and relevant parts of the Federal Acquisition Regulation.
We obtained information on the metrics used by VA to assess the  performance of MSPV-NG, primarily the utilization metric, which is  calculated by VA based on budget object code spending data from the  financial system and MSPV-NG spending data. We obtained data on the  performance of the six selected medical centers for May 2017 and July  2017. We also interviewed officials responsible for maintaining this data  to gather information on processes, accuracy, and completeness, as well  as on planned changes in the metric. We found the utilization metric data  to be sufficiently reliable for our purposes.
To assess the extent to which VA has awarded contracts on an  emergency basis for routine supplies and ongoing services, and the effect  on VA’s acquisition function, we obtained and analyzed VA and VHA  policy and guidance documents, reviewed relevant parts of the Federal  Acquisition Regulation, and reviewed prior GAO reports. We obtained  eCMS data for fiscal years 2014 through 2016, and analyzed these data  to determine the number of actions designated by customers as  emergencies, the percentage of actions designated as emergencies in  each VISN, and the total obligations attributed to these actions. We also  calculated the number and value of all actions designated as  emergencies in selected Product and Service Codes related to medical  supplies and services for fiscal year 2016. We determined that these  eCMS data were sufficiently reliable for the purposes of determining the  extent of emergency procurements by reviewing information on system  controls and conducting validation of data, including tracing selected  information to source documents for the contracts that we selected.
We selected a non-generalizable sample of 18 contracts from the three  selected VISNs. The selection was based primarily on:  contracts designated by the customer as emergencies in eCMS data; use of the term “emergency” or “urgent” in the description field; high dollar value; and
Product and Service Codes for services and medical supplies.
We obtained and reviewed the contract files for each of the selected  contracts, which are also stored in eCMS, including signed awards,  limited competition justifications, work statements, and other documents.  We compared key information, such as extent of competition, against  data reported in eCMS. We interviewed the requesters—in most cases  the contracting officer’s representative—for all selected contracts. We  also visited Network Contracting Offices for each of the three selected  VISNs and interviewed leadership at each location, as well as the  contracting officials responsible for each selected contract. Finally, we  met with a Strategic Acquisition Center contracting officer to discuss a  related contract award.
We conducted this performance audit from November 2016 to November  2017 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Appendix II: Comments from the Department of Veterans Affairs

Appendix III: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the individual named above, Lisa Gardner, Assistant  Director; Emily Bond; Matthew T. Crosby; Lorraine Ettaro; Michael  Grogan; Jeff Hartnett; Katherine Lenane; Teague Lyons; Roxanna Sun;  and Colleen Taylor made key contributions to this report.

Output:
Why GAO Did This Study

VA medical centers spend hundreds of millions of dollars annually on medical supplies and services. In December 2016, VA instituted a major change in how it purchases medical supplies—the MSPV-NG program—to gain effectiveness and efficiencies.
GAO was asked to examine VA's transition to the MSPV-NG program and its use of emergency procurements. This report assesses the extent to which (1) VA's implementation of MSPV-NG was effective in meeting program goals, and (2) VA awards contracts on an emergency basis. GAO analyzed VA's MSPV-NG requirements development and contracting processes, and identified key supply chain practices cited by four leading hospital networks. GAO also reviewed a non-generalizable sample of 18 contracts designated in VA's database as emergency procurements with high dollar values; and met with contracting, logistics, and clinical officials at 6 medical centers, selected based on high dollar contract obligations in fiscal years 2014-2016 and geographic representation.

What GAO Found

The Department of Veterans Affairs (VA) established the Medical Surgical Prime Vendor-Next Generation (MSPV-NG) program to provide an efficient, cost-effective way for its facilities to order supplies, but its initial implementation was flawed, lacked an overarching strategy, stable leadership, and sufficient workforce that could have facilitated medical center buy-in. VA developed requirements for a broad range of MSPV-NG items with limited clinical input. As a result, the program has not met medical centers' needs, and usage remains far below VA's 40 percent target. VA also established cost avoidance as a goal for MSPV-NG, but currently only has a metric in place to measure broader supply chain cost avoidance, not savings specific to MSPV-NG. Also, starting in June 2015, VA planned to award competitive contracts for MSPV-NG items, but instead, 79 percent were added using non-competitive agreements. (See figure.) This was done primarily to meet VA's December 2016 deadline to establish the formulary, the list of items available for purchase through MSPV-NG.
The roll-out of MSPV-NG ran counter to practices of leading hospitals that GAO spoke with, which highlighted key steps, such as prioritizing supply categories and obtaining continuing clinician input to guide decision-making. VA has taken steps to address some deficiencies identified in the first phase of implementation and is considering a new approach for this program. However, until VA addresses the existing shortcomings in the MSPV-NG program, such as the lack of medical center buy-in, it will face challenges in meeting its goals.
Medical centers often rely on emergency procurements to obtain routine goods and services—some of which could be made available at lower cost via MSPV-NG. Sixteen of the 18 contracts in GAO's sample were not competed, which puts the government at risk of paying more. For instance, one medical center procured medical gas on an emergency basis through consecutive non-competitive contracts over a 3-year period. VA policy clearly defines emergency actions; however, inefficiencies in planning, funding, and communication at the medical centers contributed to emergency procurements, resulting in the contracting officers quickly awarding contracts with no competition.

What GAO Recommends

GAO is making 10 recommendations, including that VA expand clinician input in requirements development, calculate MSPV-NG cost avoidance, establish a plan for awarding future competitive contracts, and identify opportunities to strategically procure supplies and services frequently purchased on an emergency basis. VA agreed with GAO's recommendations.