Background 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.  However, as we reported in 2016, this legacy program 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, such as buying 10 varieties of bandages instead of  100, in order to improve buying power, simplify supply chain  management, and provide clinical consistency. In part because of the  legacy MSPV program’s limited standardization, VHA decided to  transition to a new iteration, called MSPV-NG. The transition to MSPV-NG has been a major effort, involving the MSPV- NG program office, stakeholders from the VHA’s Procurement and  Logistics Office and VA’s Strategic Acquisition Center (SAC)—a VA-wide  contracting organization—and logistics and clinical personnel at every  medical center. The program also includes hundreds of new contracts  with individual supply vendors and a new set of prime vendor contracts to  distribute the supplies. VA’s goals for the MSPV-NG program include (1) standardizing  requirements for supply items for greater clinical consistency; (2)  demonstrating cost avoidance by leveraging VA’s substantial buying  power when making competitive awards; (3) achieving greater efficiency  in ordering and supply chain management, including a metric of ordering  40 percent of medical centers’ supplies from the MSPV-NG formulary;  and (4) involving clinicians in requirements development to ensure  uniform clinical review of medical supplies. 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. 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. 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. These hospital networks 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.  The hospitals’ supply chain managers reported establishing consensus  with clinicians through early and frequent collaboration, understanding  that clinician involvement is critical to the success of any effort to  standardize their medical supply chain. By following these practices,  these hospital networks have reported they have achieved significant cost  savings in some cases, and the potential for improved patient care, while  maintaining buy-in from their clinicians. 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 early 2015, through its roll-out of  the formulary to medical centers in December 2016—was not executed in  line with leading practices. 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. Further, 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 and has yet to achieve utilization  and cost avoidance goals. VA made some changes in the second phase  of requirements development to address deficiencies identified in the  initial roll out. Key among these was to increase the level of clinical  involvement, that is, to obtain input from the doctors and nurses at VA’s  individual medical facilities. Despite changes aimed at improving  implementation, the agency continues to face challenges that prevent the  program from fully achieving its goals. VA’s Lack of an  Overarching Strategy and  Leadership Instability  Were Obstacles to  Effective Implementation  of 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. About 6 months after our initial  requests for a strategy or plan, a VHA 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  reasonably ensure that all stakeholders understood VHA’s approach for  MSPV-NG and worked together in a coordinated manner to achieve  program goals. In our November 2017 report, we recommended that the  Director of the MSPV-NG program office should, with input from 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. VA agreed with this recommendation and reported it would  have a strategy in place by December 2017. Leadership instability and workforce challenges also made it difficult for  VA to execute its transition to MSPV-NG. 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.  Due to a combination of budget and hiring constraints, and lack of  prioritization within VA, the MSPV-NG program office has never been fully  staffed and has experienced instability in its 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. In  addition, 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  regional health network to fulfill the position, but had to abruptly leave and return to her prior position due to a federal hiring freeze. In our November  2017 report, we recommended that VHA prioritize the hiring of a MSPV- NG program director on a permanent basis. VA agreed with this  recommendation and indicated a vacancy announcement will be posted  by the end of 2017. 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 items  to be included 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 from  previous clinician purchases would be a good representation of medical  centers’ needs 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 those items 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. This approach to  requirements development stood in sharp contrast to those of the leading  hospital networks we met with, which rely heavily on clinician input to help  drive the standardization process and focus on individual categories of  supplies that provide the best opportunities for cost savings. 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 competitive solicitations for the 6,000 items on the initial  formulary in June 2015. Medical supply companies had responded to  about 30 percent of the solicitations as of January 2016. As a result,  according to SAC officials, they conducted outreach and some of these  companies responded 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 of supply  items—consisting of three or fewer 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 established  competitive agreements for about 200 items, representing about 3  percent of the planned items. Without contracts for the items on the  formulary in place, VA delayed the launch of the MSPV-NG program until  December 2016 and SAC began establishing non-competitive  agreements in the last few months before the launch of MSPV-NG. As  shown in figure 1, these non-competitive agreements accounted for  approximately 79 percent of the items on the January 2017 version of the  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. Initial Formulary Did Not  Meet Medical Center  Needs, Resulting in Low  Utilization of MSPV-NG  and a Missed Opportunity  to Leverage VA’s Large  Buying Power Once VA’s MSPV-NG initial formulary was established in December  2016, each medical center was charged with implementing it. According  to logistics officials we spoke with at selected medical centers, they had  varying levels of success due, in part, to incomplete guidance from the  program office. Without clear guidance, many medical centers reported  they were unable to find direct matches or substitutes on the MSPV-NG  formulary for a substantial number of items they routinely used, which  negatively impacted utilization rates for the initial formulary. In our  November 2017 report, we recommended that the Director of the MSPV- NG program office provide complete guidance to medical centers for  matching equivalent supply items. VA agreed with this recommendation  and indicated it would provide this guidance to medical centers by  December 2017. 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  were not 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 had set a target that medical centers would order 40 percent of their  supplies from the MSPV-NG formulary, but utilization rates were below  this target with a nationwide average utilization rate across medical  centers of about 24 percent as of May 2017. Specifically, Chief Supply  Chain Officers—who are responsible for managing the ordering and  stocking of medical supplies at six selected medical centers—told us that  many items they needed were not included in the MSPV-NG formulary.  As such, we found that these six medical centers generally fell below  VA’s stated utilization target. As shown in figure 2, among the six selected  medical centers we reviewed, one met the target, while the remaining five  were below 25 percent utilization. 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 contribute to VA not  making the best use of taxpayer dollars. 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. In our November 2017 report, we  recommended that the VHA Chief Procurement and Logistics Officer, in  coordination with SAC, should calculate cost avoidance achieved by  MSPV-NG on an ongoing basis. VA agreed with this recommendation  and reported it would develop a new metric to measure cost avoidance by  June 2018. VA Continues to  Encounter Requirements  Development and  Contracting Challenges as  It Works to Address  MSPV-NG Shortcomings In Phase 2 of MSPV-NG, the program office has taken some steps to  incorporate greater clinical involvement in subsequent requirements  development, but both its requirements development and SAC’s  contracting efforts have been hampered by staffing and schedule  constraints. In the fall of 2016, the program office began to establish  panels of clinicians to serve on MSPV-NG integrated product teams (IPT)  assigned to the task of developing updated requirements for the second  phase of the formulary. Program officials said they had difficulty recruiting  clinicians to participate. We found that slightly more than half (20 of the  38) of the IPTs had begun their work to review items and develop  updated requirements by the time the MSPV-NG program launched in  December 2016. Staff on the IPTs had to complete their responsibilities  by the end of March 2017 while simultaneously managing their regular  workload as physicians, surgeons, or nurses. By early March 2017, the IPTs still had about 4,200 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. VHA ultimately met this  compressed timeline, but in a rushed manner that limited the impact of  clinician involvement. In our November 2017 report, we recommended that the VHA Chief  Procurement and Logistics Officer use input from national clinical  program offices to prioritize its requirements development and  standardization efforts beyond Phase 2 to focus on supply categories that  offer the best opportunity for standardization and cost avoidance. VA  agreed with this recommendation and stated it is in the process of  finalizing guidance that will detail the importance of involving the national  clinical program offices in MSPV-NG requirements development and  standardization efforts. The SAC plans to replace the existing Phase 1 non-competitive  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 due to an unrealistic schedule. Because they were made  on a non-competitive basis, the Phase 1 agreements were established for  a period of 1 year. In order to keep the full formulary available, the SAC  director said the staff must award 200 to 250 contracts before the Phase  1 agreements expire later this year. SAC officials acknowledged that it is  unlikely that they will be able to award the contracts by the time the  existing 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 canceled 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. In our November 2017 report, we recommended that 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. VA agreed with  this recommendation and indicated it has developed a plan to mitigate the  risk of gaps in contract coverage with short- and mid-term procurement  strategies to ensure continued provision of medical and surgical supplies  to VHA facilities. The department also stated that it plans to replace the  current MSPV-NG contract and formulary process with a new approach  where the prime vendor would develop the formulary. However, VA will  likely face challenges in this new approach until it fully addresses the  existing shortcomings in the MSPV-NG program. Chairman Roe, Ranking Member Walz, and Members of the Committee,  this concludes my prepared statement. I would be pleased to respond to  any questions that you may have at this time. GAO Contacts and  Staff  Acknowledgments If you or your staff have any questions about this statement, please  contact Shelby S. Oakley at 202-512-4841 or OakleyS@gao.gov. In  addition, contact points for our Offices of Congressional Relations and  Public Affairs may be found on the last page of this statement. Individuals  who made key contributions to the report on which this testimony is based  are Lisa Gardner, Assistant Director; Emily Bond; Matthew T. Crosby;  Lorraine Ettaro; Michael Grogan; Jeff Hartnett; Katherine Lenane; Teague  Lyons; Roxanna Sun; and Colleen Taylor. This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. 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VA spends hundreds of millions of dollars annually on medical supplies to meet the health care needs of about 7 million veterans. To provide a more efficient, cost-effective way for its medical centers to order supplies, the VA established the MSPV-NG program. The program's goals include involving clinicians in requirements development, leveraging buying power when making competitive awards, and consolidating supplies used across medical centers. VA began developing requirements in early 2015 and launched the program in December 2016. This testimony summarizes key information contained in GAO's November 2017 report, GAO-18-34 . Specifically, it addresses the extent to which VA's implementation of MSPV-NG has been effective in meeting program goals. GAO analyzed VA's requirements development and contracting processes, and identified key supply chain practices cited by four leading hospital networks. GAO also met with contracting and clinical officials at six medical centers, selected based on high dollar contract obligations in fiscal years 2014-2016 and geographic representation. 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 did not have an overarching strategy, stable leadership, and workforce capacity that could have facilitated medical center buy-in for the change. VA also developed requirements for a broad range of MSPV-NG items with limited clinical input. Further, starting in June 2015, VA planned to award competitive contracts, but instead, 79 percent of the items available for purchase under MSPV-NG were added through non-competitive agreements. (See figure). As a result, the program did not meet the needs of medical centers, and usage remained below VA's 40 percent target. (See figure.) VA has taken steps to address some deficiencies and is developing a new approach to the program. However, VA will likely continue to face challenges in meeting its goals until it fully addresses these existing shortcomings.