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Proposed VA Rules Broaden Authority To Purchase Health Care Services, Ease Procurement Requirements

In 1996, Congress enacted the Veterans' Health Care Eligibility Reform Act, which, among other things, authorized the Secretary of the Veterans Administration (VA) to enter into agreements with health care providers (including health care plans, insurers, organizations, institutions, entities, and individuals who furnish health care resources) in order to share health care resources with or receive them from such providers. Health care resources include not only hospital care and medical services but also health care support, such as laundry services, and administrative resources. Previously, the VA's authority to share resources was limited to sharing specialized medical services primarily with affiliated hospitals and medical schools.

Under this authority, the VA may acquire commercial services or the use of medical equipment or space from any source under "streamlined procedures" without regard for any law or regulation that would otherwise require the use of competitive procedures. Commercial service is defined broadly as "a service that is offered and sold competitively in the commercial marketplace, is performed under standard commercial terms and conditions, and is procured using firm-fixed price contracts." "Use" of equipment or space is not the same as a lease, and the equipment to be used need not be located at a VA facility.

In addition, the VA may acquire commercial services, the use of medical equipment or space, and research from any institution affiliated with the VA, including medical practice groups and other entities associated with affiliated institutions, blood banks, organ banks, or research centers, on a "sole source" basis without a written justification.

On November 9, 1998, the VA issued a proposed rule implementing the simplified acquisition provisions of the Act. Many of these provisions were proposed but not adopted in the re-write of FAR Part 15. The notable variances from the FAR are:

  • The proposed rule exempts acquisitions below $100,000 from regular notification requirements, and modifies the publication requirements for acquisitions in excess of that amount by 1) requiring only public announcement using a medium designed to obtain competition to the maximum extent practicable, 2) modifying the required content of the announcement, and 3) limiting time requirements to "reasonable time."
  • It allows use of the RFP process for any acquisition regardless of dollar amount.
  • Under the proposed rule, competition for commercial services or use of equipment or space using the RFP process, regardless of amount, need only be to the "maximum extent possible" instead of "full and open competition."
  • It exempts these simplified acquisitions from FAR's acquisition planning and market research requirements, although a team must be formed to prepare an acquisition plan and do market research.
  • The proposed rule provides an alternative procedure for procurements using a multiphase negotiation technique, which would allow exclusion of vendors after a down-select based on initial submissions.
  • It permits contracting officers to indicate to one or more offerors a price, contract term or condition, commercially available feature, or other requirement that will have to be met or improved upon for the offeror to remain competitive.
  • It also permits the contracting officer to engage in auction techniques by posting prices received, electronically or otherwise, and allowing offerors to revise their prices based on the posted information, provided the contracting officer does not disclose the identity of the offeror whose price is disclosed.
  • The proposed rule emphasizes the contracting officer is the source selecting official.

What is the impact of these new rules? First, the VA's acquisition of commercial services will more closely resemble commercial buying practices. Second, the VA may exercise its increased purchasing power by acting as the procuring agent for affiliated institutions, acquiring more resources than the VA needs and charging a fee to affiliated institutions that share them. In that event, the VA market should increase in importance as the responsibility for acquiring health care resources shifts from affiliated institutions to the VA. Given the change in rules, and the emphasis on information exchanges, vendors will need to stay actively in touch with VA personnel responsible for resource-sharing acquisitions. Additionally, the VA is taking a fairly aggressive view of its purchasing authority. Thus, vendors who historically have not done business with the VA may find themselves government contractors.

At the same time, the lack of restrictions on the VA's acquisition of services or use of equipment or research from affiliated institutions may make that method of acquiring resources attractive to the VA, which would increase the importance of vendor relationships with the affiliated institutions. For example, if the VA and an affiliated hospital agree the VA will acquire use of the affiliated hospital's radiology equipment, instead of buying or leasing new equipment itself, the affiliated hospital is the key customer for the vendor. Therefore, it is essential that vendors keep informed about VA sharing agreements.

This Bulletin is for general informational purposes only and should not be considered our legal advice as to any particular set of facts, nor does this Bulletin represent any undertaking to keep recipients advised as to all relevant legal developments. This Bulletin may be considered advertising under the rules regulating the legal profession

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