VA should shut down plans to insource critical medical supply distribution

The Department of Veterans Affairs’ Denver Logistics Center (DLC) recently embarked on a plan to “insource” the warehousing and distribution of continuous positive airway pressure (CPAP) devices and related supplies — at least one million veterans depend on these critical medical supplies each year. And while VA believes that insourcing medical supplies will improve care to veterans, it has not adequately studied its ability to deliver these medical supplies as effectively and efficiently as the private sector.

As we discuss in this article, there is a very real risk that the VA’s insourcing plan will degrade veteran care, while at the same time growing government and overlooking other aspects of the VA’s healthcare system that are in much greater need of attention.

There is little debate that the VA’s healthcare system needs improvements. As it’s regularly in the news, the system has been plagued with inefficiencies and shortcomings that too often result in sub-optimal care (and worse) for our nation’s veterans. With all of the sacrifices they have made for us, we as a nation can and must do better in providing healthcare for our veterans returning from active duty.

Laudably, the VA has recently adopted a mission to modernize its healthcare system. The VA’s mission would give veterans more choice, which should improve the VA healthcare system and the care our veterans receive.

In parallel, through an Office of Management and Budget’s November 2017 memorandum, the Trump administration announced a policy to reduce the size of the federal workforce and “outsource to the private sector when the total cost would be lower.” These twin goals — improving the VA healthcare system by providing more choice to veterans and relying on the private sector — are a perfect marriage to getting better healthcare to veterans in the most medically and cost effective means possible.

Reliance on the private sector makes sense given budgetary concerns and because, in many respects, the healthcare solutions available in the private sector far outpace those that the VA itself could provide. The VA currently is able to obtain healthcare goods and services from a wide variety of contractors.

Additionally, the private sector healthcare solutions available to the VA include many small businesses that are owned by veterans (VOSBs). In recent years, Congress has rightly found that veterans “have been and continue to be vital to the small business enterprises of the United States.”

However, lawmakers have also noted that the government “has done too little to assist veterans, particularly service-disabled veterans, in playing a greater role in the economy of the United States by forming and expanding small business enterprises.” As a result, Congress has mandated that the VA provide first priority in its award of contracts to VOSBs, a mandate the Supreme Court affirmed in its 2016 decision in Kingdomware Technologies, Inc. v. United States.

VA mission

The VA is charged with two important missions: To take care of our veterans and to provide contracting priority for small businesses owned by our veterans. Against this backdrop, the VA’s recently-announced plan to significantly expand its in-house medical supply distribution business simply does not make sense.

As noted above, the DLC intends to insource the distribution and warehousing of hundreds of CPAP devices and related medical supplies. To execute this plan, which was announced late last year, the VA must obtain facilities and hire personnel so it can warehouse and distribute these products to veterans.

Currently, these critical medical supplies are cost-effectively warehoused and efficiently distributed to veterans by VOSBs—a true win-win for the VA’s twin missions. The current system best serves the VA’s missions, and it is the most cost effective and expeditious means of ensuring our veterans receive the medical supplies they need, thanks to the existing network of warehouses and modes of delivery, customer service, and fulfillment operations of the VOSBs that currently provide these medical supplies to at least 1 million veterans each year. These veteran-owned contractors working with the VA provide same-day order processing and “just-in-time” delivery to veterans within two to three days.

The VA has not released any information to indicate it has analyzed what its insourcing plan will cost taxpayers or whether it can provide the same service and delivery expectations to ensure no degradation in the care to our veterans who need these critical medical supplies. In an industry day presentation last year, VA officials stated that their insourcing plan was based on an anecdotal study of only two VA offices. Even more concerning, the perceived benefits of the plan that the VA touted to industry did not include cost savings – indicating VA does not expect its plan to save any money for taxpayers.

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The VA’s industry day presentation also touted that insourcing will decrease wait times for veterans, yet the agency is proposing to use a small staff in one centralized warehouse and distribution center. This approach will surely result in longer wait times for veterans compared to the current private sector system that has multiple warehouses and distribution centers across the country, and more staff.

Indeed, the VA has not released any analysis or a detailed plan to demonstrate if or when it will be able to match, let alone beat, the private sector’s same-day order processing and two to three day delivery to veterans. It is highly unlikely that VA could even match these private sector benchmarks for the foreseeable future. The VA’s plan will undoubtedly struggle to handle the high volume of customer service calls as well.

Misguided goals

The VA’s insourcing plan is misguided because it was apparently based on a very narrow review of only two VA offices, and therefore underestimates both the VA’s ability to do this work in-house as well as the significant efficiencies the VA (and veterans) are already realizing from the current private sector system. The VA’s plan is even contradicted by its industry day presentation, which actually recognized that the current private sector system is working well and efficiently.

In this time of budgetary constraints, it is not good government for the VA to expand its workforce and obtain warehouses and a distribution network to duplicate a private sector system that is currently functioning very efficiently and effectively through VOSBs — particularly given that the VA has not done a fulsome analysis of the current system, the cost impact, or its ability to match or improve on veteran wait times.

The VA’s goal of improving veteran healthcare is necessary and admirable, but the VA should not sacrifice cost and efficiency for the appearance of improvement. Insourcing should not be used when it will increase costs or degrade service — and insourcing certainly should not be done when it will be more expensive and less effective, as it surely would be here. Indeed, where there is little room for improvement, insourcing is not the right decision for the VA or the veterans it serves.

And, when insourcing takes business away from VOSB contractors, the VA would also undermine the Congressional mandate that it maximize its contracting with VOSBs. This means the VA’s insourcing plan, if it moves forward, would be a lose-lose for the VA’s mission and the veterans it serves.

Any excess funding would be better directed to true need areas in the VA’s healthcare system, such as by hiring physicians and clinicians specializing in sleep medicine and more staff members at veteran healthcare facilities. This makes more sense than spending precious taxpayer resources for the VA to obtain warehouses and distribution facilities and hire people to work in them. Having more healthcare providers that can treat veterans clearly is a more beneficial use of VA resources than hiring warehouse workers.

As the saying goes, if it’s not broken, don’t fix it. The current system for distribution of CPAPs and related medical supplies, which is done by veterans to veterans, is one aspect of the VA’s healthcare system that is actually working well for our veteran patients and veteran small business owners.

Therefore, the VA should drop its plan to insource this part of its healthcare system and it should continue to rely on veteran business owners to provide these necessary medical supplies to our veterans.

Jonathan Williams and Julia Di Vito are attorneys with Piliero Mazza PLLC, a law firm in Washington, DC that represents government contractors. Piliero Mazza represents contractors that will be negatively affected by the VA’s plan to insource the distribution of medical devices and supplies as discussed in this article.

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