IG Says VA Underestimated Health Records Project Costs by Up to $2.6B

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An audit showed Veterans Affairs didn’t properly account for physical infrastructure costs for its new $16 billion electronic health record system.

The Veterans Affairs Department’s $16 billion effort to deploy a new commercial electronic health record system will likely cost between $1 billion and $2.6 billion more than estimated, as the department failed to account for physical infrastructure costs during the planning stages, according to the inspector general.

VA has been working on the latest EHR program since 2018, when then-acting VA Secretary Robert Wilkie signed a contract with Cerner to provide its commercial records management software to the department. The procurement followed a similar move by the Defense Department in 2015 to contract with the Leidos Partnership for Defense Health, which includes Cerner’s EHR product.

“In preparation for the system’s deployment, VA medical facilities need significant upgrades to their physical infrastructure, such as electrical work, cabling, heating, ventilation, and cooling. These upgrades are critical to successful deployment of the new system and are likely to cost billions of dollars,” the IG wrote in the latest report.

“However, none of the eight quarterly reports submitted by [the Office of Electronic Health Record Modernization] as of January 2021 included physical infrastructure costs in the program’s life cycle cost estimate, despite all but one of them containing language indicating that physical infrastructure costs were included. In fact, the only infrastructure costs the life cycle cost estimate included were related to information technology infrastructure,” the report states [original emphasis].

The IG notes accurate cost estimates are critical for both the program managers who have to ensure they have sufficient funding in the right areas and Congress, which appropriates that funding.

As of July 2020—a few months before the first deployment and just one month before VA resumed its EHR rollout, which had been paused to focus on the pandemic response—program managers had developed two long-term cost estimates.

“The [IG] team evaluated the estimates using VA and Government Accountability Office cost-estimating guidance, which states that to be reliable, the estimates should be comprehensive, well documented, accurate, and credible. Neither estimate reviewed fully met these four characteristics.”

The IG warned that current estimates are likely far too low, offering three pieces of evidence to support that claim:

  • Formal cost estimates differed significantly from a subsequent higher draft estimate that relied on more detailed information.
  • Estimates were partially based on physical infrastructure upgrade cost estimates for VA’s first facilities to implement the new system, which were found to be significantly lower than actual needs dictated.
  • Statistical projections made by the audit team suggest that VHA’s two formal estimates for physical infrastructure costs, dated June 2019 and November 2019, may be underestimated by as much as $1 billion and $2.6 billion, respectively.

“The lack of reliable cost estimates was caused in part by insufficient planning at the outset of the program,” the report states. “OEHRM leaders stated that at the beginning of the program the focus was on the EHRM contract and the system itself, rather than infrastructure.”

Staff told the IG that infrastructure was not even a consideration until almost six months after the contract with Cerner was signed.

The IG also noted VA never sought an estimate from an independent third party, “as required by VA financial policy.”

The report states that VA personnel have “taken proactive measures” to catalog infrastructure needs at all future sites.

“Completing these assessments and developing site-specific plans based on individual site conditions will be imperative to developing a reliable cost estimate,” the IG wrote.

But cost estimates aren’t the only area where VA failed to properly plan with regard to infrastructure.

Prior to postponing the rollout to help with the COVID-19 response, VA officials had already delayed the initial deployment to finish building the system, which had been set to go live as a minimum viable product. Clinicians also requested more time before go-live, specifically asking that the system be more fully developed so users could be trained on the full EHR.

An April 2020 IG audit found that even if the system had been fully developed by March 2020, infrastructure at the first launch site—Mann-Grandstaff VA Medical Center in Spokane, Washington—would have been insufficient.

Further, the audit showed VA officials knew the medical center did not meet infrastructure requirements and was not on track for the March 2020 deployment.

The system successfully went live at Mann-Grandstaff on Oct. 26.

In its latest report, the VA IG made five recommendations, all of which were accepted by VA leadership. VA officials submitted action plans with 12-month target dates sufficient to meet all five recommendations.

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