VA lowballed health record modernization costs, watchdog says

In a newly released report, the inspector general at the Department of Veterans Affairs indicates that the $16 billion cost estimate for the switch to the Cerner electronic health record system doesn't incorporate billions of dollars in needed physical infrastructure costs.

The public release of the report, the first of two to focus on hidden costs in the Electronic Health Record Modernization (EHRM) program, comes in week 10 of a 12-week strategic review of the program  -- a review that was announced on March 19 by agency chief Denis McDonough.

According to the report, VA may have underestimated physical infrastructure upgrade costs by as much as $2.6 billion. The second report will cover cost estimates related to IT infrastructure upgrades. Physical infrastructure covers climate control, ventilation, cabling and electrical work; IT infrastructure includes computer hardware and networking gear.

Currently, the costs of the overall project are split cross different budget lines. The EHRM effort has its own line in the VA appropriation, to cover the costs of the $10 billion software contract with Cerner over the course of the 10-year period of performance, as well as $4.3 billion for IT infrastructure and $1.7 billion for program management, totaling just over $16 billion.

Additional infrastructure costs are being borne by the Office of Information and Technology and by the Veterans Health Administration. The IG report's key finding is that it is not really clear how much over the initial $16 billion the additional infrastructure needs will cost. It could be an additional $3 billion, but it could be more.

The Office of Electronic Health Record Modernization didn't include physical infrastructure costs in its estimates, according to the report, "because VHA was responsible for upgrades to medical facilities,"  and it had been told by VHA's chief financial officer that the responsibility of reporting physical infrastructure costs fell to VHA.

VHA's cost estimates are characterized in the IG report as not well-documented, not reliable and not credible. VHA's infrastructure upgrades are not supported by any special appropriation -- they come from the medical facilities budget. This creates the potential problem of VHA having to pay for the difference between estimated cost and actual cost out of other funds "or risk jeopardizing the system's deployment schedule."

"This was already going to be the most expensive electronic health record overhaul in America," Rep. Mike Bost (R-Ill.), the ranking member of the House Veterans Affairs Committee, said in an emailed statement. "Now we know VA has been underestimating it by at least $3 billion. VA must be upfront with Congress about the true costs of this effort. That is why I have been calling for the ongoing strategic review to include a complete, updated cost estimate."

The Cerner system is under review because of productivity issues at Mann-Granstaff VA Medical Center in Spokane, Wash., the initial go-live site. Some of the problems -- prescription mixups, issues with the patient portal and staff training issues -- were reported in a March 17 letter to McDonough from Rep. Cathy McMorris Rodgers (R-Wash.).

One big question the review will have to answer is should the Cerner program go forward or be scrapped.

"The problem they're running into right now is that as a result of implementing the new system in Spokane, productivity is down," Roger Baker, former VA CIO, told FCW in an email. "It's hard to justify spending to Congress that's going to drive down productivity. They've got to figure out if there is a better than break-even point, and should they proceed ahead."

Baker, who has estimated the true 10-year cost of the electronic health record replacement program at about $30 billion, said that the key advertised benefit of the news system -- full interoperability with the Defense Department's own Cerner system -- have been oversold.

"VA and DOD were never going to use the exact same system. The business processes are different. As those two systems started to vary, there was going to be drift," he said. Additionally, the Cerner approach doesn't solve the issue of community care interoperability -- a key element of VA care under recent legislation that expands veteran access to private sector providers.

"Local providers are going to be much more important in veteran care than DOD facilities," Baker said.