without negotiating the best discount rate vha cannot be assured it receives the best value for prosthetic limbs. we noted that taking action consistently negotiated discount rates should in no way compromise the quality of prosthetic limbs. in addition prosthetic staff should conduct evaluations to ensure prosthetic labs are operating as effectively and economically as possible. we found officials suspended the review of labs in january, 2011. after reviewing only nine of 21 nationwide. as a result the prosthetic labs were unsure of its inhouse fabrication capabilities and generally lack the information needed to know if the labs were operating effectively and efficiently. our second report provided a

comprehensive perspective of the suitability of vha's management policies and procedures. we reported that strengthening va medical centers management of inventories will reduce costs and minimize risks of supply expiration and disruptions to patient care due to supply shortages. for almost 60% of the inventory prosthetic items, vamc's did not maintain optimal levels. for approximately 93,000 items we estimated inventories exceeded current needs for about 43,000 of these items. and inventories on hand were too low for another 10,000 iemts. this situation occurred because va medical centers did not apply basic inventory practices and techniques. for example we found that vamc's

did not reset emergency stock levels and systems for over 90% of the prosthetic items. in conclusion until vha improves the acquisition and contract administration practices used va will not have sufficient assurance that its practices are effective or economical. improvements and accountability for these inventories needs strengthening. vha needs to remain committed to replacing its existing inventory systems with a more modern system by 2015. we are pleased to see that va is responding to the issues we identified in our reports and that they agreed with our recommendations. va is adopting practices to ensure the financial stewardship of the funding needed for prosthetic care. chairman johnson, my colleagues

and i will be happy to answer any questions. >> we will now begin with questions. and i recognize myself for five minutes. did the inspector general use the va's definition for prosthetic in recent audits? >> we looked at the definition and i believe in the inventories we really didn't find any real problems with it because it was defined and we could then apply it against the purchases we reviewed. >> your testimony mentions that overpayments generally occurred because vha paid vendor invoices that included charges in excess of prices agreed to in the vendor's contracts with va. did you find any reason as to why or how the va purchasers failed to obtain best value even with a contract in place? >> well, the question on the best value led to the contracting officers not trying to negotiate discount rates.

the problem with the overpayments was because the invoices that were being received were not receiving adequate review by those prior to certification for payment. so they were not looking at the invoices in relationship to the terms of the contract. >> you also discussed how va purchasing agents following the terms of the contracts would not compromise the quality of the prosthetic limbs. would the quality decline if purchasing agents followed their training? >> no. i don't see any reason for it. >> do you know why prosthetic and sensory aid service suspended its review of labs last year after reviewing only nine visns? >> you have that one.

>> my understanding is that at the time they made that decision they weren't -- they weren't sure what the need was for conducting those reviews. there was a change in leadership and i think that they probably just decided that they weren't getting enough information from those reviews to continue them. >> okay. why is there such wide spread failure to use ecms? >> ecms is not considered user friendly. it does take some training. we have actually had some of our staff get the training. it is difficult to put information in. what we have found through many of our reviews is that contracting staff use it as a shell. they'll put the basic information in but won't put all the information in to give you a good understanding of the contract actions that lead to

award and then through contract closeout. >> okay. will the va be able to effectively recover money that it overpaid to vendors? >> yes, they will. because these overpayments were in excess of the contract terms. and we do believe the 2.2 million is a conservative estimate. so i think that va -- the vha staff and dr. beck took action immediately to recover the overpayments. the moneys can be reprogrammed for more prosthetics care in va. >> and do you think overpayments will cease in the near future? >> we would like to see a more rigorous review of invoices against contract terms throughout all of va. i think that there is the knowledge now that there is a

systemic problem. and i think more attention will be brought to that based on the discussions we have had with the va officials. >> okay. turning to the d.o.d. does the department of defense use any mechanism similar to section 2133 of title 38 for its acquisition of prosthetic appliances? >> no. >> do you know whether or not d.o.d. has procurement statute that allows it to procure items and disregard any other provision of law? >> no. it does not. we have researched that and there is no similar provision in the d.o.d. >> are there instances where d.o.d. doesn't document procurements whether on or off contract? >> none that i'm aware of, sir. >> i think that is all of my questions. i will yield to the ranking member for his questions. >> thank you, mr. chairman.

when you look at the va what do you think are the best steps that they can take to provide better care in this area? when you look at how things are done on d.o.d. side what are some of the tips you can give us to operate better? >> again, the d.o.d. and v.a. has a significantly different population as far as the number and the location. we have the advantage that we are treating the newly wounded that have not been out for a long period of time and can provide the unified care in our facilities so we don't need to rely on a large nationwide network. the approach that we found very successful was embedding the contract officers within our facility which is something the va is now proposing or looking to do. what that did was it allowed our providers to have more time to work with the patients and gave

us the appropriate authorities to do the contracting side and making sure we were hitting all of the requirements and meeting all regulations. >> is d.o.d.'s definition of prosthetics as broad as the va's? >> no. the d.o.d. definition of prosthetics is an artificial substitute for a missing body part determined to be necessary by secretary of defense because of significant conditions resulting from trauma, abnor malities and disease and limited to artificial limbs, eyes, voice, ears, nose and fingers. >> so by that definition biologics would not be included in that? >> no sir. >> can you explain why the use of blanket purchase agreements and indefinite quantity ensure the best value when acquiring

prosthetics? >> these are small business set aside competitive contracts that provide the d.o.d. to look at the cost and make assessment and select the sole source to provide at the best value to d.o.d. >> this would be for ms. halliday. do you have any opinions as a result of what you have looked into as to items the va may be including in the definition of prosthetics that may be better suited for search s outside of section 8123? >> there was a large inventory of prosthetics when we looked at the medical centers. i think va really has to take a look at which items are not unique but just standardized

that you would use on a regular basis and that would be -- take a review to do that. i understand that the vha is moving in that direction. there is just so many. i think when it is unique like a limb, an arm or extension there are very specific requirements. and it has to be taylilored to e veterans needs. when we get into the prosthetics inventory within the medical center there are many items that can be standardized. >> thank you. thank you mr. chairman. thank you, mr. chairman. ms. halliday, i have a couple of questions concerning the overpayment. you said on average there was like a $2300 overpayment. was this systemic through all the hospitals you checked? or were there some hospitals

paying the right amount and others weren't? i'm trying to figure out if this is across the board. >> i believe what we said was a 23% error rate in overpayments. we looked at the contracts within the visns and all of the actions to buy the limbs and it was systemic across all 21 network offices in va. >> so the purchasing agents didn't look at the contracts at all? is that the impression that you get? >> the impression we got was that the contracting officer's technical representatives were not doing a good job of reviewing the invoices once they are submitted by vendors before they are certified for payment. clearly the vha called a handbook requires them to do some review of those invoices

against the contract terms and that wasn't happening. >> was there some difficulty -- you mentioned that the software is difficult to use or to call up these contracts. should the people have this at their finger tips as they are doing this? it seems to me that they would be having these contracts available to them and they should know all of this as they were doing these reviews. >> you could get transparency for all the contract actions if you had a good dedication to using the cms system and you would be able to find out much more about the progress and what the contract was and the terms and be able to do reviews much quicker and better. >> is there a defined training level with the competency requirement for the people that do these reviews that includes something like that? are you aware of that? >> yes, there are.

the kotares which is a technical rep, there is training for that. it takes them through a process where they are delegated the responsibilities. the contracting officers will lay out the responsibilities to review such things as the invoices. because normally they come into play much more after the award of a contract. so they are looking at that contract administration piece. >> so since your investigation has anyone changed the way they are doing business here? or is this going on the way it is. is anyone being reprimanded for not following the rules? >> at this point i would have to say it is too early for us to assess that. the department has accepted our recommendations in the report and they are moving forward on some 18 different recommendations to tighten up the controls associated with

what we saw as weaknesses in the contract administration. we would have to give them time to get all of those controls in place and then we would come back in at a later date and assess the effectiveness of their actions. >> is there a timeline for that? >> normally we give the department a year after we have issued an audit. i believe our audits were issued in march of this year. so we'll be looking to do some testing and follow up work within the next year. >> i would be happy to see that report. >> okay. >> thank you. i yield back the remainder of my time. >> i thank the gentleman for yielding back. >> just to follow up more on payments. how is the government going to go to getting back what has been overpaid? >> could you ask that question again, sir? >> i overheard you say that we acknowledge that money has been

overpaid because the officers weren't scrutinizing before they were certifying. folks got paid something. i think at one point the subject was touched on if we are going to walk away from it. i believe we are pursuing reimbursement. >> it is the responsibility of the contracting officer to make the final determination on funds and set up bills of collection and work with the vendors to recoup those moneys. >> and what if -- if there is a possibility that it might be difficult to recoup the money because someone don't want to pay it back? >> i think that the pressure to maintain on going business is really what brings about a cooperative relationship between the vendor and va.

our thanks to the panel you are now excused. i invite the third panel to the witness table. on this panel we will hear from mr. philip, assistant deputy under secretary for health or administrative operations in the veterans health administration accompanied by dr. beck, chief consult isn't for rehabilitation services, director for audiology and speech pathology in the veterans health administration. also accompanied by mr. doyle, chief procurement logistics officer and mr. ford herd.

your complete written statement will be made part of the hearing record and you are now recognized for five minutes. >> chairman johnson, ranking member dawnally and members of the subcommittee. thank you for the opportunity to speak about delivering quality care for veterans in need of these items. i'm accompanied by dr. beck and active chief consulting in prosthetics. also mr. doyle and mr. ford herd, the associate deputy for the office of acquisition and logistics. va has been engaging in reform for the business processes. we are taking great care to ensure that these changes improve the accountability of these purchases while maintaining the high quality of care and clinical decision

making critical to health care. enhancing access and taylilorin devices will be our chief priority. i would like to outline how we are exercising our procurement operations. first va is transitioning the authority to purchase prosthetics from clinical support to contracting staff. the authority to select the most appropriate device remains with a clinical provider and the veteran. technologies and equipment must be highly individualized. we are making this transition to bring our practices more in line with federal and va acquisition regulations. while these regulations generally require full and open procurement section 8123 authorizes va to limit competition when physicians require specific devices or equipment for patient care.

and authorize limiting competition under these circumstances. if the secretary elects to youz this manning all applicable requirements must be followed. when products are generally available competitive procurements may be more appropriate. va has pursued national contracts for these types of items achieving cost savings and standardize and define commodities where appropriate. when we can purchase products, devices or supplies that are available and interchangeable we will comply to ensure we are obtaining the best price possibility. vha will develop a catalog of such items to facilitate better decisions. we are increasing the number of audits to identify best practices and conduct better oversight to ensure we are realizing the best value. as we gather more data on how

changes are working we can continue to refine and simplify our processes. we are using new templates, check lists and justifications and improving the communication between staff and leadership so we have a comprehensive view of our procurement activities. we will correct noncompliant contracts as required by the far and institute collection activities when warranted. we are better defining our policies and guidance to the field. strengthening our training programs and increasing oversight and audit functions. we are directing our facilities to reconcile physical inventories without creating supply shortages. we are advising our standards for facilities to apply at least one manager to become a certified va supply manager. in conclusion vha's prosthetics and sensory aid service is the

largest and most comprehensive provider of prosthetic devices and sensory aides in the world offering a full range of equipment and services. va supports prosthetics care by promoting ground breaking research and training a highly qualified staff and pursuing accreditation of all eligible laboratories in va's amputation system of care. we are improving our oversight to better utilize the resources we have been appropriated by congress as we serve america's veterans. however, we must always ensure our processes do not adversely effect our ability to provide veterans with high quality, individualized prosthetic services they have earned. we appreciate the opportunity to appear before you to discuss this important program. my colleagues and i are prepared to answer your questions. >> thank you and we'll begin

with questions. i will recognize myself for five minutes. is a procurement official responsible for documenting a procurement is authorized as outlined in the far 6.2? >> yes, they are. >> would the procurement official also be required to document the technical health care and other factors supporting this decision through justification and approval for other than full and open competition in the contract file? >> we expect that the contracting official will document the basis for the sole source justification. in using 8123 as we develop the templates the basis for that is clinical indication as in a physician's prescription so noted or a veteran choice. >> so the short answer is yes.

>> yes, sir. >> why did deputy to secretary's letter in march cite section 8123 and further stated that the va is not required to document waivers from the federal supply schedule? >> i believe the deputy secretary's letter was with respect to some specific acquisitions cited in the incoming correspondence and explaining why we did not have to cite or provide a prior waiver request was noted as the reason of not requiring the prior waiver from contract, sir. >> many physicians at the va are part time employees. and in this capacity can promote companies with which they are associated as consultants. through section 8123 these physicians can direct sole source contracts.

are va physicians required to disclose any outside partnerships that can create an ethical or moral dilemma for va? >> they are absolutely required to do so, sir. >> you know va's new policy for purchases over $3,000, approximately 5% of biologics cost more than $3,000. so your policy will have minimal bearing on 95% purchased. can you describe how your policy will effect the other 95% purchased? >> well, i don't actually have the specific cost breakout for the biologics themselves. but the $3,000 threshold was noted that it was 97% of the cost would be below $3,000. the number is north of 50% of all purchases are greater than $3,000 and cost. it's the number of transactions is the 3% number.

in terms of the biologics themselves our expectation is that we're asking in this policy moving forward that we document that a waiver was requested. and that part of what we hope to achieve from this and we expect to achieve from this is that we'll collect information about why fss is not being selected as a source for biologics or other items or national contracts and be able to attenuate practice in the field, as well. >> numerous contracts reviewed show purchasers splitting contracts in order to remain under a specific threshold for purchase. in one case 12 purchases went to the same company for the same product. why is vha not aggregating their

purchases to properly follow the far and var and to be compliant? >> it is not appropriate to split transactions to remain below a threshold. if that is occurring that is not a condoned practice. >> okay. what, then, would the vha do to stop that? >> monitor the action and ensure that -- every purchase card holder who is committing a transaction below 3,000 has a supervisor who is supposed to be watching and monitoring that. they should be looking for split transactions. that is an inappropriate action. i would request taking that item for the record to research it. >> i appreciate you recognizing

that, sir. we have page after page of examples of that kind of thing so i would hope that the vha would take that issue very seriously because we on this committee do. why are some prosthetic items purchased using guidelines and procedures instead of section 8123? >> initiate the discussion. 8123 and far var are not as much in conflict as seems in discussion today. within 302-5 there is reference to other statutory authority. the question is under what conditions does the physician apply a product or does the source weigh in as justification for sourcing a particular item.

that is the scenario in which 8123 is used. va over a number of years has been awarding national contra contracts. there are well over 50 contracts for supplies. some of the more high performing being within the assistive audio devices. there are roughly 600 contracts throughout the country for local regional contracts. all of those are precompeted, price negotiated, as well. the use of 8123 the way we use it is for the source justification for other than full and open when it is a physician prescription or a veteran choice. >> i might have additional questions but i will yield. >> when it comes to exercising discretion under the statute