More Underestimated Infrastructure Costs Could Raise VA EHR Price Tag $2.5B

The full cost of the Veterans Affairs Department’s new commercial electronic health record system—originally pegged at $10 billion, then revised up to $16 billion—could be $2.5 billion to $5.1 billion higher than currently estimated, according to unaccounted for infrastructure needs included in two separate inspector general reports.

The VA has been working with Cerner for nearly three years to deploy a commercial EHR system, launching the first instance of Cerner Millennium last October at the Mann-Grandstaff VA Medical Center in Spokane, Washington. In the run-up and after launch, the IG, Government Accountability Office and other watchdogs repeatedly warned of insufficient infrastructure support and planning, including the likelihood of cost overruns.

The IG released a report earlier this year that found cost estimates for EHR-related physical infrastructure—such as electrical work, cabling, and heating, ventilation and cooling—were underreported by $1 billion to $2.6 billion.

A new report released Thursday looked at cost estimates for IT infrastructure—including system interfaces and end-user devices like desktops and laptops—using documentation maintained by the Office of the Electronic Health Record Modernization, or OEHRM, the central office managing the EHR system rollout at VA and the related program at the Defense Department, MHS Genesis. There, the IG found a previously unidentified estimated cost deficiency of $2.5 billion.

The two totals show VA could be underestimating total infrastructure costs by upward of $5.1 billion. Taken together, these estimates would bring the total lifecycle cost to more than $21.1 billion, more than twice the original $10 billion estimate. However, the two audits were conducted independently, and the IG did not look at both cost areas together, an official told Nextgov.

“The OIG found that the [total infrastructure] estimate of about $4.3 billion was not reliable, and a lack of complete documentation made it difficult to determine the accuracy of estimates, in itself a problem,” the report states. “Furthermore, the OIG determined that VA did not report to Congress other, critical program-related IT infrastructure upgrade costs totaling about $2.5 billion, thus underreporting the program life-cycle costs by a significant amount.”

The $4.3 billion estimate was first put to Congress in December 2018 and again in August 2020, though neither cost breakdown “fully met the characteristics of being well-documented, comprehensive and credible,” the IG said.

The report notes that the August 2020 estimate included “significantly more details” but still fell short, particularly with regard to documentation. That said, the IG noted VA is making progress in this area and in January 2021 “began making improvements to the cost model used to develop the estimates.”

As of the report’s release, it was unclear where that extra funding would come from.

While OEHRM is focused on managing the rollout, infrastructure costs—including the $2.5 billion still needed—are the responsibility of the Veterans Health Administration and VA’s Office of Information Technology. All parties appear to agree on this, but no formal cost allocation agreements have been signed.

“The OIG found there is an increased risk of insufficient funding to complete the upgrades because OEHRM lacks formal agreements with OIT and VHA to commit these entities to funding the $2.5 billion in upgrades OEHRM expects them to contribute,” the report states. “Although there was a general understanding that OIT and VHA will pay for some IT infrastructure upgrades necessary to deploying and sustaining the new electronic health record system, establishing formal agreements would help clarify who will fund the upgrades and reduce the risk that OEHRM may need to incur these costs if OIT and VHA are unable to fund those upgrades.”

Many of these issues could have been identified and remediated early on with an independent cost analysis, the IG noted, which is required by VA financial policy but was never ordered.

“The lack of reliable cost estimates was also caused, in part, by OEHRM staff prioritizing competing demands,” the report states. “Furthermore, OEHRM lacked procedures for staff to follow when developing these estimates.”

The independent cost estimate was one of six recommendations from the IG, as well as:

• Reassess the cost estimate for program-related IT infrastructure upgrades and refine it as needed to comply with cost-estimating standards.
• Develop procedures that align with VA cost-estimating guidance.
• Ensure costs for all IT infrastructure upgrades needed for the program and funded by OIT and VHA or other sources are disclosed in program life-cycle cost estimates presented to Congress.
• Formalize agreements with OIT and VHA to identify the expected funding contributions from each entity.
• Establish procedures that identify when life-cycle cost estimates should be updated and ensure those updates are disclosed in the program’s congressionally mandated reports.

OEHRM officials agreed with all six recommendations and provided action plans. The OIG was good with most of those plans, though the sixth fell short as “the response does not address how VA will ensure updated estimates are disclosed in the program’s congressionally mandated reports.”

Members of the House Veterans Affairs Committee said Thursday they would be holding hearings on the two infrastructure reports in the coming weeks.

“It is clear from these reports that the cost estimate for VA’s EHRM project was vastly underestimated by the previous administration and that there are significant failures with the current staff training program,” Committee Chair Mark Takano, D-Calif., said in a statement Thursday. “I appreciate the work of the inspector general in identifying these issues, and I’m grateful that VA has acknowledged them and plans to offer our Committee greater transparency.”

Takano and Technology Modernization Subcommittee Chair Frank Mrvan, D-Ind., said VA Secretary Denis McDonough has been invited to testify at the July 21 hearing.

“Based on these reports and my previous conversations with VA, I continue to have serious concerns about the management of the EHRM program—including the lack of clarity around life-cycle costs, failures in staff training, and inadequate change management practices,” Mrvan said.

Biden administration officials appear to be aware of issues with the EHR program rollout, with McDonough launching a 12-week “strategic review” of the program after his confirmation. That review wrapped last month and, last week, McDonough said the program would continue but that changes were afoot.

“We’re very close to finalizing changes to the EHR deployment effort to ensure that we come in on time, on budget and—most importantly—provide the best care for our vets and the best experience for our providers,” he said during a June 30 press conference. “I assure you that we’ll have further announcements on this soon.”