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[H.A.S.C. No. 107–6]



FOR FISCAL YEAR 2002—H.R. 2586






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JUNE 21, 2001


For sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2250
Mail: Stop SSOP, Washington, DC 20402-0001



JOHN M. McHUGH, New York, Chairman
LINDSEY GRAHAM, South Carolina
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JIM RYUN, Kansas
ROB SIMMONS, Connecticut
JO ANN DAVIS, Virginia
ED SCHROCK, Virginia
W. TODD AKIN, Missouri

VIC SNYDER, Arkansas
BARON P. HILL, Indiana
SUSAN A. DAVIS, California

John D. Chapla, Professional Staff Member
Thomas E. Hawley, Professional Staff Member
Michael R. Higgins, Professional Staff Member
Edward P. Wyatt, Professional Staff Member
Debra S. Wada, Professional Staff Member
Nancy M. Warner, Staff Assistant

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    Thursday, June 21, 2001, Fiscal Year 2002 National Defense Authorization Act—Departments of Defense and Veterans Affairs Sharing of Medical Resources


    Thursday, June 21, 2001



    McHugh, Hon. John, a Representative from New York, Chairman, Military Personnel Subcommittee

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    Snyder, Hon. Vic, a Representative from Arkansas, Ranking Member, Military Personnel Subcommittee


    Clinton, Rear Adm. J. Jarrett, M.D., PHS, Acting Assistant Secretary of Defense for Health Affairs

    Garthwaite, Thomas L., M.D., Undersecretary for Health, Department of Veterans Affairs


Clinton, Adm. J. Jarrett

Garrick, Jacqueline, ACSW, CSW, CTS, Deputy Director, Health Care, The American Legion

Garthwaite, Thomas L.

McHugh, Hon. John

Snyder, Hon. Vic

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[There were no Documents submitted for the Record.]

[The Questions and Answers can be viewed in the hard copy.]

Mr. McHugh
Mr. Ryun
Dr. Snyder


House of Representatives,
Committee on Armed Services,
Military Personnel Subcommittee,
Washington, DC, Thursday, June 21, 2001.

    The subcommittee met, pursuant to call, at 10:00 a.m. in room 2212, Rayburn House Office Building, Hon. John M. McHugh (chairman of the subcommittee) presiding.


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    Mr. MCHUGH. Good morning. Let us begin. I want to welcome y'all here this morning. I particularly want to welcome the new Ranking Member. This is the first—although he has been hard at work at the issues, this is the first time he has had to join us with actual Chair and Vice Chair and Ranking Member responsibilities. The gentleman, of course, from Arkansas, Dr. Snyder.

    I want to welcome as well our distinguished guests. There can be truly few nobler activities than providing health care support to men and women of our armed services.

    We are going to join here this morning and talk a bit about that kind of important goings-on between the two agencies, what we can do to better foster cooperation between the two and what we might do to assist as a legislative body in ensuring that that kind of cooperation continues into the future.

    Pardon me. I am having a little trouble with my voice this morning. This is the day of the baseball game, and we have been out practicing each and every morning.

    Today we will focus our attention on the extent or the lack thereof of resource sharing between these two Departments and, of course, from the witnesses that are here this morning to speak on their behalf.

    In response to rapidly increasing costs of the health care benefits managed by the Department of Veterans Affairs (VA), and the Department of Defense (DOD), in 1982, the Congress enacted the VA and DOD Health Resources Sharing and Emergency Operations Act. Since then, VA and DOD have pursued opportunities to share health care resources through local agreements, joint ventures, national sharing initiatives and other collaborative efforts.
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    As both providers and receivers of services, local VA and DOD officials have identified benefits that result from that sharing program. Nevertheless, the modest scale of these efforts, even 20 years later, continues to beg several questions. Why hasn't more been done? What impediments stand in the way of more resource sharing? Why are the Departments not more fully exploiting apparent resource sharing opportunities? This is particularly troubling when we are all working to fully fund both the Defense and Veterans health programs.

    We must also keep in mind the primary missions of the two agencies. Each has certain niche areas of health care for which they are recognized as the Nation's experts. Unlike the Veterans Health Administration (VHA), however, large numbers of Department of Defense medical personnel must be prepared to deploy as complete medical units or individuals on very short notice to virtually any location on the planet. Certainly no action should be taken that would jeopardize the Department of Defense's ability to execute that primary mission.

    However, there is some concern that the readiness caution may have been used in some, and I believe some would suggest used in perhaps many, circumstances; and the real reason for not moving forward on sharing initiatives was bureaucratic inertia or simple stovepiping of decision-making. Our colleague, Mr. Kirk's, example of the capital asset evaluations undertaken by the Navy and the VA in its North Chicago district I believe offers a glaring example of the two agencies' stovepipe mentalities in their respective capital reinvestment programs.

    Today we will explore some of the reasons for the relatively minuscule amount of resource sharing. I hope we will also hear some ideas on how to increase the level of sharing across the two systems. So welcome, gentlemen. We look forward to your testimony.
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    Before we turn to that part of the hearing, as I mentioned, we are welcoming today the Ranking Member to his first formal hearing; and I would certainly be happy to yield to the gentleman for any opening comments he might have.

    [The prepared statement of Mr. McHugh can be found in the Appendix.]


    Dr. SNYDER. Thank you, Mr. Chairman. It is good to be here.

    I don't have any, after your very good statement. I think this is about the best and most cost-effective way of delivering quality health care to veterans, military retirees and their families and preserve choice for those patients, and I look forward to hearing from our two witnesses.

    [The prepared statement of Dr. Snyder can be found in the Appendix.]

    Mr. MCHUGH. Mrs. Davis, would you have any opening comments? Fine. Today, we have one panel of witnesses representing the Department of Defense and the Veterans Health Administration. To my left—I hope that is where they sat—we have Thomas L. Garthwaite M.D., Undersecretary for Health, Department of Veterans Affairs; and he is joined at the table by Rear Admiral J. Jarrett Clinton, Public Health Service, Acting Assistant Secretary of Defense for Health Affairs.
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    Gentlemen, as I mentioned, thank you for being here and testifying this morning. We look forward to your testimony, and I have—he does not, Mr. Ryun also passes.

    We are all anxious to hear from you, so, without further ado, I would certainly yield to Dr. Garthwaite. We do have your full statement. Both of you gentlemen's testimony has been recorded in its entirety into the hearing record. So for the convenience of everyone, yourselves included, if you could summarize those, I think it would help expedite matters.

    Mr. MCHUGH. So, Doctor, good morning.


    Dr. GARTHWAITE. Mr. Chairman and members of the committee, thank you for convening this hearing and asking us to testify. Although our two agencies have substantively different missions and substantively different health care needs, we have found many of our common interests and have developed an agenda based on the principle of mutual benefit.

    In February of 1998, the Assistant Secretary of Defense for Health Affairs and the Undersecretary for Health formed the DOD/VA Executive Council. That Council oversees and facilitates a robust agenda of joint initiatives that are detailed in Dr. Clinton's and my written statements. Having participated in the entire process, we have worked hard and accomplished a great deal. However, I believe we can and should do more.
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    One fertile area for change is the coordination of benefits. The recently announced President's Task Force to Improve Health Care Delivery for Our Nation's Veterans will examine the interaction of our two systems and will recommend actions to improve services to veterans. We look forward to working with the task force and to receiving their recommendations.

    I believe it will be difficult for them to avoid an analysis of the interplay among VA/DOD and Medicare. Today's veteran is often eligible for several Federal programs. This often leads to redundant and poorly coordinated care. We need to align all the programs, and I believe we can do so in such a way that it does not reduce anyone's benefits. In fact, benefits might be expanded with the improved efficiencies.

    Another fertile area for increased cooperation is in the joint planning and operations of facilities in certain geographic areas. We have detailed our successful joint ventures in our testimony, yet we are not at a stage yet where our planning is integrated. The VA Capital Asset Realignment for Enhanced Services, or CARES initiative, is an emerging, needs-based analysis of current and future capital assets. At my insistence and with the ready cooperation of Dr. Clinton and the Department of Defense, the CARES contractor must include DOD assets in their analysis of options for VA capital asset realignment. We certainly must do that alignment of capital assets, but I believe we could also go well beyond capital assets to pilot other new ways of providing incentives and then freeing local facility leaders to integrate care and to work cooperatively. Along these lines, Dr. Clinton and I recently formed work groups on benefits coordination, joint facility utilization resource sharing and financial management to recommend actions to further facilitate sharing between the Departments.

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    In summary, we have come a long way on an even longer journey in VA/DOD sharing. We readily embrace bold new steps to improve access, quality and efficiency of services that VA and DOD provide to military veterans, retirees and their dependents. Mr. Chairman, that concludes my remarks; and I welcome your questions.

    Mr. MCHUGH. Thank you very much, Doctor.

    [The prepared statement of Dr. Garthwaite can be found in the Appendix.]

    Mr. MCHUGH. Dr. Clinton.


    Admiral CLINTON. Mr. Chairman, we are pleased to have this opportunity to present the Department of Defense's views on current and future opportunities for health care sharing with the Department of Veterans Affairs. Partnering between our two organizations has resulted in the growth of sharing from a few agreements in earlier years to hundreds today. We have enjoyed many successes, achieving a full range of sharing activities from the construction of joint medical facilities to the joint use of various clinical and support activities.

    I am most encouraged by our joint contracting for pharmaceuticals. To date, we have jointly awarded 44 pharmaceutical contracts with projected annual cost avoidance of about $70 million. Additionally, 39 proposals are under proposal or under review for contracting, and another 21 proposals are in further exploration.
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    Also promising are a number of clinical projects, including patient safety reporting and clinical practice guidelines. Further cost-effective use of joint facilities continues to be a success story. I reviewed all of these last week with our services, who are pleased in the progress that we are making and made some suggestions about promises for the future.

    Our current sharing agreements and issues have been sustained through major changes in the Veterans Administration and the DOD health care systems. We continue to shape our respective health care systems for the future and have agreed that our partnering is best strengthened through joint efforts that are of mutual benefit.

    The advantages of sharing agreements, joint facility utilization and clinical collaboration are apparent. But the evolving environment of Federal health care and recent changes in policy and benefits call for a continued reassessment of additional opportunities of mutual benefit. This assessment should identify opportunities for increased coordination, while assuring efficiency and good stewardship. In this regard, we need to identify appropriate reimbursement levels that are cost-effective for the government and take into account the important beneficiary choice of the site where they receive their care.

    Mr. Chairman, we have hundreds of sharing agreements in place. Some are bartering arrangements under which a facility exchange services in kind. Other are based on cash reimbursement for services rendered by one facility to another. We are redoing all of these sharing agreements to ensure that the reimbursement process is working fairly, both in terms of the appropriate level of reimbursement and the processes for actual payments made for the exchange of services.
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    The challenges we face are substantial. We are dealing with different missions and different benefits and benefits that are constantly changing. Most recently, we are working with the VA as we develop our implementation plans for new TRICARE contracts and for TRICARE/Medicare eligibles that become a part of our program in October of this year.

    My responsibilities to DOD are to enhance the military beneficiary satisfaction levels while prudently controlling medical care costs per beneficiary. We need the best value for medical care throughout the Nation.

    My vision for the future of VA/DOD sharing efforts includes further clarification of our mutually dependent roles, simplification and standardization of our business practices, involving the VA in our regional health care planning efforts, including the role of the new generation of the TRICARE contracts.

    As DOD continues to develop a model of empowered lead agents, we must develop opportunities to increase the collaboration at the local level—that is, the lead agent and the Veterans Integrated Service Network (VISN), level—to ensure that what we are talking about makes sense at the local level, not just with the conversations in Washington.

    The Federal partnership should also include the Department of Health and Human Services (HHS) and their committees in the Congress as a part of our overall strategy. Specifically, enabling our DOD/VA facilities to become certified Medicare providers would go a long ways towards resolving many of the coordination of care issues that we have noted and Dr. Garthwaite noted again this morning.
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    We are looking forward to participating in the task force, which was originally outlined in the National Security Presidential Directive. We are building on the efforts of our DOD/VA Executive Council working groups and have addressed such areas as pharmaceuticals, information management and clinical collaboration. Dr. Garthwaite has already noted that we initiated new working groups, financial management, benefits coordination, geriatrics, joint utilization resource sharing.

    Mr. Chairman, Dr. Garthwaite and I share a common vision of quality health care for our men and women who serve our country and their families and those who have served us so honorably in the past. We meet regularly on a range of issues, and we are cochairs of the DOD/VA Executive Council, which includes the Surgeons General and the senior members of the VA health team.

    While each of us must ensure that our health care system is capable of meeting the demands of our missions, we will continue to develop a creative approach to respond to the challenges and take the leadership in ensuring that our field staff understand this commitment to collaboration that is expressed so vigorously at the Washington level.

    I would like to take this opportunity to wish Tom the very best, as he departs the Veterans Health Administration. Tom, you have been a great professional and a great friend, and we wish you well.

    Dr. GARTHWAITE. Thanks Dr. Clinton.

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    Admiral CLINTON. Thank you, Mr. Chairman.

    Mr. MCHUGH. Thank you, Dr. Clinton.

    [The prepared statement of Admiral Clinton can be found in the Appendix.]

    Mr. MCHUGH. Certainly, Dr. Garthwaite, the members and myself and all of us echo the sentiments of Dr. Clinton and wish you the best and thank you—.

    Dr. GARTHWAITE. Thank you very much.

    Mr. MCHUGH. —for your service.

    I mentioned the word readiness. As a member of the Armed Services Committee, that is a very important part of the equation of our thought process and in the decisions that we make, whether it is in health care or a myriad of other areas. I think it is important before we understand what we can do to better understand what we at least should not do.

    Dr. Clinton, I am wondering if you could perhaps summarize for my benefit some of the readiness issues and the process of developing that state of readiness that preclude working with the VA in any kind of joint sharing. Do you think there are some areas, because of the readiness portion of it, that you just would not be able to work in a partnership with VA itself?

    Admiral CLINTON. Mr. Chairman, in a year of discussing this issue, the constraints of medical readiness has never been raised once in any conversation with me in multiple discussions at the military treatment facility (MTF), level or clinic and hospital level or at the Washington level. I am sure there are times when that might be the case, but I don't think that is the issue. The issues we have identified—I think we recognize the need to work more vigorously on the facility side. That is not a readiness issue.
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    I think the message is not sufficiently clear in the field. That includes our lead agents, which is our regional manager structure, and I have a sense that that is also the case with the VISNs, which is the VA's regional structure. I think both of us need to be sure that the field understands our eagerness. We are not dictating that such and such a facility must do something with someone else. That really is a local decision. But I think the spirit of cooperation needs to be instilled by the leadership, and we will take that on.

    An example, I am hearing more and more about exchanges and collaboration that have nothing to do with what we have been talking about or suggesting. For example, yesterday I learned that Bremerton, our Navy facility in Washington, and Madigan, our Army facility in Washington, are buying their food services off the VA contract and saving modest amounts of money, but they add up to almost a hundred thousand dollars per year, because we can get a better discount with a VA food service contract in that area than they can with the Defense procurement process.

    You know, we never said, ''Share food.'' We never said, ''Share laundry,'' but it is the people working together that are identifying these issues. Readiness has never been raised as a significant constraint. I think there are a thousand things we might do before we touch on something and someone says, that is really going to hurt our readiness capability.

    Mr. MCHUGH. So you don't have any experience where the readiness concern has precluded a cooperative effort with your—.

    Admiral CLINTON. It has never been raised with me, and it hadn't crossed my mind. I think there are so many things to do. I will acknowledge there is probably a theoretical constraint someplace, but at the moment nothing comes immediately to mind.
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    Mr. MCHUGH. Thank you.

    Admiral CLINTON. What we are talking about predominantly is outpatient service, inpatient service, special services, sharing pharmacies, sharing space, sharing provider capacities. Sometimes that is awkward. Sometimes we are going to have to think through the clinical implications.

    I shared with Dr. (Vic) Snyder some experiences we had when I recently went to the North Shore Chicago VA at our Great Lakes facility, where we have strikingly different missions with young recruits. Our principal hospitalization at Great Lakes on the Navy side is predominantly mental health. Kids come to boot camp, and they are in real psychiatric difficulty. We need to make fast assessments of them, make the determination whether it is something we can resolve and get them into the Navy or whether they need to be stabilized and get them back home. It is a fast-moving process.

    The VA's mental health capacities at the Chicago facility are considerable. It is a different kind of patient, different kind of time span, average length of stay is more like 60 days. Ours is more like 10 days. Can we do something joint there? We probably could, but it probably means that both sides have to recognize that let us work this together in space and in capacities and recognize the particular missions of the VA and their population and our requirement to deal with young folks who are in some stressful condition and may have come in more stressed than we recognized into boot camp and we need to resolve that. That is not a readiness issue.

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    Mr. MCHUGH. Well, I appreciate your response. You obviously raised a particular case in North Chicago that has served as a poster child, if you will, of the need to work together. But I am going to defer pursuing that until, hopefully, we can be joined by Mr. (Mark) Kirk, who represents that area and who has visited there and who has some pretty heartfelt opinions on that.

    Dr. Garthwaite, you heard Dr. Clinton, your colleague, talk about never hearing the word readiness used as a barrier to cooperation. Have you ever heard the word used?

    Dr. GARTHWAITE. No, not in that regard.

    I would make a point that an advantage of facilitating sharing and, therefore, use of VA facilities allows us to keep active a significant number of beds, which—part of which are part of a backup contingency plan for times of war or for internal disasters or acts of terrorism.

    So, you know, if we began to—the fewer veterans and patients that we have to see in the VA health care system, it is hard for us to keep those beds open, and I think it begins to call into question the number of beds that would be available in the time of an emergency. The good news is we hadn't had to test that theory, but, in terms of planning, I think that is a significant issue.

    Mr. MCHUGH. I appreciate that.

    Dr. Garthwaite, your testimony in a number of different places talks about the difficulties that the TRICARE system provides for your agency in a pretty broad range of cooperative efforts. In fact, you say at one point, prior to TRICARE, it was easy for local officials to develop an agreement to share health care resources, and then go on to explain that with TRICARE, the opposite is true. Given what I—from my rather thin knowledge of this issue is, the focus of all of the sum of savings through work-sharing agreements coming through, as the General Accounting Office (GAO), put it, 75 percent of the savings realized to date comes from—I believe it is just 12 facilities.
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    That is kind of a frightening thought, that it used to be easy, and it didn't happen that well, and now it is harder. So I kind of worry about the future. But what is it about TRICARE and what can or what is being done in your opinion to facilitate the continuance of that program in a way that becomes less of a barrier to cooperative sharing?

    Dr. GARTHWAITE. My belief is that we—we used to—both the VA and DOD, to some extent operated what most of America really operated, which are hospital systems. We have tried to provide care more broadly—more outpatient care, more preventive care. For DOD, that meant they had to try to provide that in a lot of different places. People couldn't get to MTFs for their treatment, and so they had to begin to provide that throughout the country and did that through contracts, TRICARE, managed care contracts, essentially.

    In the past, it was very easy for a hospital commander and a VA facility director then to set up a sharing agreement. It was somewhat easier, and I think that is what that testimony refers to.

    As TRICARE came into being, VA wasn't positioned to provide primary care; and a lot of the places that DOD needed it, we didn't have the resources or the capacity. Where we did have some capacity and specialized treatment and diagnostic procedures, we found that the tendency was for the TRICARE providers to negotiate an agreement for primary care, and then there were natural referral patterns in those communities to other specialists and other more advanced diagnostic procedures. So it became relatively hard in most areas to kind of break into that.

    I think we are making some progress. Again, the numbers are small, but they are trending in the right direction in terms of our case use of TRICARE. But, again, it is small in comparison to the total scope of what the two Departments expend.
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    We have tried to keep the incentive local to work out arrangements by allowing all the money that is generated to stay locally. We found certainly that financial incentives are among the most powerful, even within government, and so that I think has had people optimistically sign up for TRICARE—to be TRICARE providers. We have 137 VA Medical Centers out of 176 that have signed TRICARE agreements. But, in the end, not a huge amount of patient work is generated, although it is turning in the right direction.

    Mr. MCHUGH. Dr. Clinton, I would be interested in your response on that generally, but, in particular, with a new round of TRICARE management contracts coming up, what, if anything, do you see being done to work with the VA in resolving whatever issues are soluble?

    Admiral CLINTON. Mr. Chairman, the TRICARE concept was created because the Department of Defense and the Congress believed that we needed to have vigorous cost containment in our medical care budget. Indeed, the supplement you are talking about provides a large chunk of money, which was this year's requirements to deal with that managed care contract and some additional support.

    Those contracts were designed to be at risk in terms of the managed care contractors, so they are vigorously moving around their area, trying to find the best buy, and they were not given any specific instructions that you ought to go here or go there. They were expected to find the best buy, and we all thought that the marketplace would sort of work that out.

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    We have found instances in which VA hospitals are reluctant to enter into a bargain down from the Medicare market rate, say, to 80 percent of that rate. They think that, you know, we had an old national standard which we agreed to reimburse at a national rate, but the TRICARE construct made it a local issue, not a national issue.

    So we have two things going on. We have national reimbursement rates for things such as spinal cord and blind and brain injuries. That is not an issue.

    What is an issue is how do we sort out the next generation of TRICARE contracts? Now, we are just at the beginning of that process. It is unlikely that there are going to be just the same kind of contracts that we did in the past, the notion of at-risk isn't as vibrant as it was 5, 7 years ago when we started this process; and we are thinking of better, flexible ways to create that contract. But we are not there yet. We are just starting that process this summer. We will ensure that we work out a way so that VA has a way to discuss with us their value and their participation in our program.

    What we need to understand, though, from the Congress is, are we expected to get the best value, or are we supposed to give the best value plus something for the VA? That is a tough one. That is a real tough one. It strikes me that most of this is a local issue, and where we have seen the cooperation at the local area it works out reasonably well.

    When we find that someone on our side or someone on the VA side finds it too difficult or doesn't want to collaborate, it doesn't work. So, first of all, the contracts will be more flexible. We are, however, expected to keep that bill as low as possible. You know our bill, and you know the constraints, both from the Department as well as from the Congress. So there is a real tension there.
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    I faced the same problem with members of the American Medical Association last week in Chicago. They are saying, ''You know, you are pushing too hard. You are making us go 80 percent of the Medicare rate, and Medicare is already too low, and now your contractors are pushing us further.'' Well, that is the marketplace.

    So if we just look at this from an economic standpoint, it makes good sense. But somehow we need to find the right way to deal with our Federal partners and being sure that they are at the table as we negotiate these region by region, local area by local area, and I think we can find that.

    We don't have the same rigid construct in the past where we were focusing entirely on the most and the best value, but there is a conflict. We will need to find a way to work that through. We need to have heart-to-heart discussions between our managed care contractors, whoever they may be, and the VA facilities about what they can offer.

    I think there has been a concern that because VA had a limited amount of primary care that that was constrained. I don't think that is the case at all. I think indeed, for example, the Air Force system is predominantly primary care. They are not looking for primary care. They are needing the special services that may be offered in an area by a VA facility and a VA with a Medical Center.

    So there are a number of tensions there, and I think we can work that through. I think we have a clear understanding of what we are trying to push, but I recognize it was probably a challenge in the past. Those are the contracts we are working under, probably for the next two years until we get the new generation in place.
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    Mr. MCHUGH. Dr. Garthwaite, does that make you feel better?

    Dr. GARTHWAITE. Sure. I think in the past, you know, we also had some problems with billing that we have put substantial resources into. We have exceeded our billing goals by over a hundred million dollars in the last year, and we have gotten much better generating bills and complying with documentation required to generate good billing. So I think that will also work well as we work with the Department of Defense.

    That has been an issue in the past. We would send bills that were relatively atypical for the TRICARE providers, contractors to deal with. But I think we have come around to much more industry standard bills that they can deal with much better. So that should help.

    Admiral CLINTON. We have just exchanged some correspondence to clarify the billing processes of bills that haven't been paid. They were sent to the wrong place—sometimes the contractor, sometimes the military facility. I think we have that straightened out in a work group that is working it through.

    I think both of our organizations have challenges, and it may be that our billing challenge is one of the problems that we would have to resolve before the Congress, and HHS would be willing to consider it as Medicare providers. We do not bill the same way. We don't account the same way. And while I think that is the right thing for the Federal Government, I recognize we are going to be challenged to meet the reporting requirements of HHS for the Congressional oversight committees. But I think it is a channel that we ought to step up to and sort through.
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    Mr. MCHUGH. Thank you. I have a number of other questions, but my colleagues have been very patient so I will yield to the Ranking Member, Mr. Snyder—Dr. Snyder actually. We are in a room of doctors this morning.

    Dr. SNYDER. Thank you, Mr. Chairman. This is kind of a magic moment for me, Mr. Chairman, because I can say any stupid thing I want to and people will say, ''Oh, he is new to the committee; he will learn.'' But—I have to take advantage of that.

    Let me ask you a question. I am curious, how often do you all—the two of you personally get together and talk about these issues in the last year?

    Dr. GARTHWAITE. About every couple months.

    Admiral CLINTON. In two ways. One, we are in common professional meetings. We meet together privately, and we meet through the VA/DOD Executive Council meetings, and we pick up the phone.

    Dr. SNYDER. All right. Are you all both in agreement about the number of sharing agreements that are currently in effect? I think one of you has number 717 in your written statement, and is that the number, or do you have a number of 834? I am told that there is a discrepancy between the actual number of local sharing agreements that you all consider—.

    Admiral CLINTON. In general, I am not comfortable at all. I don't think—there is a common database that is managed by the VA, and I would argue, in the spirit of being totally cooperative, that we either need to be a part of that database and have access to it or let it be done by an accounting firm. But somehow we need to have confidence. If they are going to keep the books, it is inevitable that our staff are going to count something and then be off one. And then we spend your time and our time saying, why are we off one? That is ridiculous. We need to find a way and find a third party to be an accountant for these agreements so that we have that base. This is, I think, just consuming too much angst, that it shouldn't occur.
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    Dr. SNYDER. I mean, it may be if the numbers I was given are correct, that you are not off one. You are actually off like 15 percent. In your judgment about how many contracts are actually—.

    Admiral CLINTON. That is true, because they change the definition of what is in it. One year they include TRICARE contracts. The next year they take them off, and we get rid of old contracts because they aren't being used. And the number doesn't reflect that. It is absolutely an inadequate accounting system.

    Dr. SNYDER. Yes. Dr. Garthwaite, I wanted to ask you one of those—I don't know, I guess it is a Dwight Eisenhower question, you know, the end-of-the-career kind of question. As you look—in your assessment as a person who—the door is about to swing behind you as you leave. As you look ahead at the potential for this VA/DOD sharing, do you see this as—and I mean with some practicality here, do you see it as a real opportunity for us? Do you see it as something that is going to be kind of like shoving strained peas down a baby or is it something that we should just abandon? I mean, how does it—you can choose your own more colorful metaphors if you would like.

    Dr. GARTHWAITE. It will be hard to improve on that one, I think.

    You know, I have been in—on the Executive Council from its very beginning, actually before. We began to meet talking about we should work together to make progress in VA/DOD sharing. And I remain an optimist. I really do believe we have made significant progress. When I look at the things we have done, I think we worked through them well.
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    I guess the hardest thing is that there is a lot of change in leadership, you know. Second Undersecretary Jarrett is probably the third—or I think fourth, maybe more than that, Assistant Secretary for Health Affairs in five years. Surgeons General change relatively rapidly. So you rely on staff a lot for continuity, and by the time that you get educated on the complexities of some of these issues and begin to make progress, there is often change. I think that is a barrier, to be honest.

    I think that there are compelling reasons to move forward. I think for the first time since I have been there, there is direct and personal involvement of the Secretary. So I think now at the highest level of government there is really a need.

    The other thing I would say that encourages me is that we are beginning to get some data that show that there is a lot of redundancy and opportunity. Certainly we have generated some of that ourselves, and we had some studies looking at the interrelationship between VA and Medicare that show that. So that I think the data will also drive this joint sharing and coordination of benefits as well. So I remain pretty optimistic that a lot can be done.

    I do think it is hard work. Just because running these two large agencies in and of itself is, you know, more than a full-time job. So carving out the time and energy to entertain better cooperation and finding mutual things and then overcoming all the resistances and barriers, I assume that is kind of like the baby pushing the peas back out of their mouth—is—you know, it is just hard to find the time and energy to do that sometimes. But I believe we have made a lot of progress. I really do.

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    Dr. SNYDER. How much in terms of—if you have a VA facility close by to a DOD facility—you mentioned the problem of national leadership, the changeover and so on. If you have a committed local leadership at the two DOD facilities, DOD and VA, how much restriction is there either statutorily or the policies of you all's respective organizations? How much restriction is there on their ability to put together fairly major local sharing agreements?

    Dr. GARTHWAITE. It would probably be better answered by someone who has experienced that. From my perspective, whatever we can do in Washington to expedite that, it is our principle to expedite it. So we try as hard as we can to break down any of those barriers. I think there is always some hesitancy to try to take on things that are in statute or regulation, so that I am sure there is resistance a little lower in the organization, although we have certainly made it clear that we want to expedite any of those sharing agreements, at least at the higher levels.

    We have—part of these committees that Jarrett and I have just formed is to learn from each individual experience so that places where we have combined—and I think good sharing agreements to understand what are their barriers and to identify those and work on those. So we have been attempting to do that.

    I think both Jarrett and I have been out to a couple different facilities—I was in Tripler Army Hospital, and he has been at several—where we have identified some commonalities, and there hasn't been a process where we roll all those up to a national level and see what we can do to break those down, and that is what we are about to undertake as well. If that makes sense.
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    Admiral CLINTON. I think the other point I would make is that health is local. If we had a hypothetical city where there is a major VA with a medical school and we had a major teaching hospital medical treatment facility, there is probably a limited degree to which either one is going to need the other, because they are both big schools, each with teaching programs.

    On the other hand, at Nellis (AFB), we are in the same building. At Elmendorf (AFB), we are in the same building. In Chicago, we are talking about things in which we don't have two tertiary hospitals. We have two community hospitals, one with one kind of patient and one with another kind of patient; and we have found ways to make it work.

    So there are many more opportunities in which we can work than perhaps in places in both our freestanding huge tertiary medical schools, each with a teaching program, one with a medical school, one with our own training program, there may be limited opportunities.

    Dr. SNYDER. My question, though, was if you have that at the local level and those two leaders are aggressive about wanting to do something, are there limits on their ability to get it done?

    Admiral CLINTON. Only the limits of the human condition.

    Dr. SNYDER. Yeah. Okay. Thank you, Mr. Chairman.

    Dr. GARTHWAITE. The thing that came up that Tripler just had that struck me was that if they want to share a person, it is relatively hard to figure out how to pay that person and account for their time. So they really get down to these relatively small but very tangible issues, and they have to be done fairly so that everyone believes that it is true sharing, it is not taking advantage; and I think that is the tension that I felt at that facility.
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    Admiral CLINTON. I think that is really quite real, and I was encouraged by what Congressman Kirk and I saw in Chicago recently, in which they have a zero-based reporting system. That is to say, when the Navy hospital does something, they say, well, if they charged Medicare it would be this amount of money. They put it on the books. And the VA does something jointly, and they say, well, if we charged Medicare, it would be this amount of money. And they reconcile the books on an annual basis so that they have an equal exchange, which is a lot easier way to sort of reconcile the bartering process. There is no money, and it doesn't show up in these financial accounts as shared resources, but it is a good bartering, and it is the beginning I think of a solid relationship there.

    So I think they built that process based on the experiences that we have had in other institutions where we found the awkwardness that Dr. Garthwaite has just described. A little hard to figure out what is a fair barter, so we created our own currency. We call it Medicare accounting principles.

    Mr. MCHUGH. The vice chairman of the committee, Mr. Ryun.

    Mr. RYUN. Thanks, Mr. Chairman.

    I would like to, first of all, thank Dr. Garthwaite and Dr. Clinton for coming today and testifying before our committee, and I would like to direct my question to Dr. Garthwaite. I have the Second District of Kansas, which is full of lots of veterans. In fact, within my district is the Eastern California Health Care System, which serves as a primary health care center for roughly 104 veterans. I have VAMCs in Leavenworth and Topeka. And one of the questions that we continue to have from our veterans is regarding Medicare subvention, especially our World War II veterans. They feel very frustrated by the fact that they can't see the same VA doctor with regard to nonservice-connected medical concerns. What is being done or what can be done to help correct that particular problem?
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    Dr. GARTHWAITE. We have had both the House and the Senate approve different versions of a Medicare subvention for the VA. They approved one for the Department of Defense several years ago. But never—it has never come out of conference or made it into law. And I think part of that is there is at least some resistance to—from what used to be the Health Care Financing Administration (HCFA), and the centers for Medicare and Medicaid, to—in that they view this as an attempt to get money from the Medicare trust fund.

    I am not sure I see it that way, because veterans who would bring those dollars to the VA already have the opportunity to spend those dollars in the private sector, and we were willing to—well, we had signed an agreement with them, a Measure of Effectiveness (MOE), with HCFA, to provide the care at less than the going rate because we felt that we had to open the hospitals anyway. We were providing it on a margin.

    So I think my sense is that the way to approach this is to step back from that and say, for a given subgroup of veterans, the highest 100 percent service connected or the nonservice connected, what are their current benefits that cross all the Federal programs, what—and how would you define a benefit package that made sense, and then how would you incorporate the maximum choice of use?

    I think that if you would begin to approach it that way, you—it doesn't become, then, a raid on the Medicare trust fund if he says, we are spending this amount of money; we are at risk for this amount of health care. How do we define the benefit so it is clear and simple and easy to use and has maximum choice for the patient and that they don't lose benefits? And then how do you then go about getting the payers and providers within the government to work in a cooperative way to maximize the coordination of the care so better quality care is rendered?
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    I think that is—personally, I think that is the way that you have to go to get there. Because to just bring Medicare dollars to the VA appears to be just an added expense, at least from the Congressional Budget Office (CBO), and from HCFA.

    Mr. RYUN. Interesting that you bring that up. Because during one of our earlier hearings that we had this year, our subcommittee heard from Medicare, proposing to charge DOD for just the fees in terms of the claims processing. Now, do you think that is part of the process or a part of the problem with regard to a barrier in terms of Medicare subvention and the cost involved in it?

    Dr. GARTHWAITE. Yes.

    Mr. RYUN. A substantial barrier or—.

    Dr. GARTHWAITE. I would probably have to look at the numbers better, but I think it is likely to be—to me, the big barrier is the sense that, by opening up, that more—that dual eligible veterans will get more care.

    Because I think what we—because we have only been able to integrate the VA and HHS database, the HCFA database for one year—we are stuck in privacy issues right now—but we—but in doing that, if you look at the veterans over 65 that use the VA health care system, 95 percent of them have Medicare, and 56 percent of those use both systems. Some use only VA—more use only VA than just use Medicare, but most use both systems for some of their care. They get hospitalized in both. They do outpatient care in both. But you have—and they—.
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    And I have had veterans tell me in town hall meetings that they don't tell, because they are afraid they might lose a benefit here or there or, you know, they don't want anyone to know they are kind of taking advantage of the VA's good drug benefit, don't want to lose that, that they are reticent to tell that they are getting care in the other system. Well, that is not good quality to not know, and it seems to make sense to me to step back from all that, not say ''We just want your money.'' We want to really coordinate the benefits and the care, and I think there is significant savings.

    Mr. RYUN. Thank you for your time. Mr. Chairman, thank you.

    Mr. MCHUGH. Ms. Davis—oh, she is gone. Mr. Kirk.

    Mr. KIRK. Thank you. Pleased to see both of you, and certainly we were very happy to welcome—I think it is the Admiral or Dr. Admiral Clinton, North Chicago (VAMC). We are home to what I hope will be a real symbol for this kind of cooperation in this Administration, having built the Nellis facility, which I think is a model for health care in this area, and having some of the other health care facilities in partnership with the Air Force and the Army. We are sort of hanging out there with the VA/Navy cooperation. And having a large VA Medical Center next to a large Naval hospital, which under our current plans needs to be replaced in the 2006 to 2008 time frame, it gives us a real opportunity.

    You both know the institution that I am talking about well. I was looking at a hearing record from Senator Percy in 1981 who mentioned the need for synergy between these two institutions, and I am glad we are finally picking up where Senator Percy left off.
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    We have a situation right now, as you well saw, with the four wards empty at the North Chicago VA that are at the current state of the art, sort of mid-1990s. The taxpayers spent $110 million bringing that facility up. Meanwhile, we have got a Navy hospital that at best I would call sort of early 1970s technology. Any barriers that you see in being able to utilize state-of-the-art, unused VA space between the two of you for some care that the Navy could do at that facility?

    Admiral CLINTON. You recall our major hospitalization there is mental health, and the requirements aren't very great. I think it was not more than in the order of 10 or 11 beds per day that are actually filled with our mental health patients. These are kids who are disturbed and they got into a boot camp. So we have to either sort it out—it is transient and we can fix it and get on with a career in the Navy or need to go home.

    It would seem to me that if we get the psychiatrists together we might be able to create an appropriate ward in the VA hospital to take care of these kids. We need to move fast. The average hospitalization for our mental health patients is something in the order of 10 days. It is the quickest estimate. Make a determination. Make a decision. That is a different style than is appropriate for the VA patients, who are there usually a month or so, six weeks, and resolving some long, lifetime mental health problems.

    Could you find an amenable position? I am sure we can, but it means both sides and all the psychiatrists are going to have to work toward recognizing we have two populations and we need to work together to do it. Now that is not going to fill up very many of those beds. Ten out 120 isn't very much of a cut on it.
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    I think the one constraint I think we see that we need to sort through is that the VA hospital has been precluded from doing surgery more than—that is for patients greater than—less than 24-hour surgery. It is a special kind of surgery. We have a little bit of that, not a lot, and while the technology is there, the operating rooms have limit in space in terms of using—having enough space to handle all the equipment that would go with laparoscopic surgery, for example. The ICU staff haven't dealt with complex surgical cases, so there are a lot of things that would need to be sorted out clinically to make that work well.

    I think, even if we did it, we are not going to fill up 120 beds. We both have more beds than we need. We both do not have the right size of a hospital that we need. And I think your vision of looking at what is the right size for a 2008 kind of facility and moving toward that, which would be ambulatory surgery and outpatient oriented and a few beds, that still leaves the VA with an awful lot of beds. Hopefully, the arrangements they have talked about with the State VA organization is an opportunity for that.

    I agree. It is great beds. The beds aren't the only issue. It is staff. It is patient loads. It is new requirements for larger surgical suites to handle today's technology. Those are all some of the constraints that folks have to work through.

    Dr. GARTHWAITE. I would agree with Jarrett's assessment—Dr. Clinton's assessment. I thought it was interesting that the contractors under our CARES process, all their options for North Chicago essentially were a combined—or sharing arrangement. We have taken great strides to not try to influence their recommendations, to allow it to come in with—based on the best data they can collect and the best assessment outside experts and health care might come up with. They come to that conclusion. So our goal is to work through making it work.
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    Mr. KIRK. Mr. Chairman, I think we have got a real potential for a win here in combination where we will be able to see it.

    Two other questions, one locally on this and then nationally. As we move forward with a combined facility, we definitely have a model at Nellis Air Force Base. Is the development of the requirements, literally the architectural drawings and needs assessment, is that model the one we would use for a Navy/VA facility of this kind?

    Dr. GARTHWAITE. I would suggest we would want to make sure that we looked at today's blueprint and today's design for Nellis.

    I think early on that the challenge was that it was designed a little more for the kinds of things that were typical of Air Force personnel and their families, and veterans that came in had a lot of different chronic diseases as opposed to obstetrics and orthopedics and pediatric and things.

    So there was some evolution, I guess, with the terms of how Nellis ran the services provided. So it is much—I would say, yes, it provides a great blueprint, but we have to look at the modified blueprint, not the original.

    Mr. KIRK. I would just say, Mr. Chairman, that as we move forward with aging military hospitals, that we redesign them across the country with potentially veterans needs—if there are any new veterans hospitals. I wouldn't think we would, but if we would, that we would also think about the military family, the whole sort of doing away from the MTF model to a Federal model seems to be the way to go.
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    One last thing. You two represent very large pharmaceutical purchasing operations, which are separate, one based in, I think, Philadelphia and one based in Chicago. Is there a synergy there as well?

    Admiral CLINTON. I think it is an absolutely superb synergy. That is where we have gotten our greatest savings. As we have noted in our testimony, we have 40 joint contracts. We have contracts that will soon expire, and, as soon we do, our pharmacy staff is ready to put them into joint. We just purchased a nonsedating antihistamine. That sounds like a mouthful, but it is the antihistamine that doesn't make you get sleepy. It is very expensive. We bought it jointly for almost 40 percent less than we would have to buy it if we bought it independently or patients had to buy it at retail prices.

    We have got a transaction data system that absolutely is fantastic. It keeps track of our pharmacy activities around the world.

    Admiral CLINTON. We just started in April. It is extraordinary. We both have national mail orders. We have got staff working absolutely today trying to look at whether the VA refill pharmacy concept might be used by our MTFs that have a big pharmacy refill capacity.

    Now, at the present time, the VA mail order system, as I understand it, is up to capacity, so they will need some more space. But I find our people working together side by side. We might be able to transfer and include the VA system in the pharmacy transaction data system. It would be a marvelous accomplishment.
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    The fact they are in two different cities is immaterial. That is not the issue. Staff are going where they need to go. They work electronically. The teams work together when we do the purchases. We have a group in San Antonio that is a part of it, people in Washington and the people in the VA system. But the fact that they are officers some place does not preclude the cooperation and the great contracts we have done together.

    Dr. GARTHWAITE. I would totally agree with Dr. Clinton, who has really said it well. It is good to have an opportunity to quote the General Accounting Office who said, ''The DOD and VA have made important progress, particularly in this past year, to increase their joint procurement activities.'' I like to have those positive quotes.

    Just in regard to the point you made about working together in the future and in other joint areas, our contract for Capital Asset Realignment, which is going to assess all our network, demands that the contractor consider all the DOD facilities in the area for joint solutions, and DOD has been part of that discussion and plan. So they will be looking in each of our facilities for opportunities similar to North Chicago.

    Mr. KIRK. Thank you, Mr. Chairman.

    Mr. MCHUGH. Thank you Mr. Kirk. Mrs. Davis.

    Mrs. DAVIS OF VIRGINIA. Thank you, Mr. Chairman. Gentleman, I apologize that I didn't get to hear your testimony, but I tried to look them over. I was in another committee hearing. I hope when I ask you a question it is not something you have already answered. The question is for both of on you.
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    First of all, I represent the First District of Virginia, which is very heavy military and veterans and retirees. First, I want you to tell me how you think you would feel or how you think it would affect the DOD sharing arrangement if there were another round of Base Realignment and Closure (BRAC), what type of challenges that would present, if any.

    Admiral CLINTON. On BRAC, I don't think I am in a good position to understand what the Department is doing. The medics follow the generals and the Secretary in making determinations about that.

    Mrs. DAVIS OF VIRGINIA. I wasn't asking if there is going to be another round of BRAC. If there is another round of BRAC, what challenges would it present for the DOD and VA sharing agreements?

    Admiral CLINTON. It hasn't been a problem. We have set up special services when retirees are suddenly disenfranchised from a military hospital if it closed. We set up special arrangements for a pharmacy. But now our benefit program has so enveloped everyone that I don't think it would be a major challenge. We have good relationships with managed care contractors so if suddenly a 100-bed hospital was no longer there we can include the managed care contractor in that activity.

    From our standpoint, I think that we can accommodate it. We are just waiting for the word. In many cases a retiree population continues; and we already have an obligation to that retiree population, whether they are under 65 or over 65.

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    Mrs. DAVIS OF VIRGINIA. So you send them to the private hospitals close by or do they have to go to military facilities?

    Admiral CLINTON. No, they have an entitlement to Medicare. They are not required to do it in a specific place. If they are close to a military treatment facility, they probably want to do that. They are not required to do that. And increasingly the choice issue is a major concept of what we are trying to accomplish in DOD. They could go to the VA or they could to the managed care contractor network. Or they could simply go where they wanted to go and send their bill in because it is an entitlement.

    Mrs. DAVIS OF VIRGINIA. They can do that now?

    Admiral CLINTON. That is correct. I think we can accommodate it.

    It certainly would help to have enough years to think it through carefully and to talk through and be sure they understand their benefit, but the way the benefits are designed in the Department of Defense this is an entitlement that goes across the entire age bracket, across everything, pharmacy, long-term care. We will design it to make it work whether there is an MTF there or not. An example is Dallas. We do not have any facilities in Dallas. Most of our beneficiaries use the VA. In fact, if you look at the charts, that Dallas VAMC is doing a fantastic job of managing the care for our military beneficiaries. We don't have anything close to Dallas.

    Mrs. DAVIS OF VIRGINIA. How about you, Dr. Garthwaite? Any comment?
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    Dr. GARTHWAITE. I can. If there were military base closures and there were a VAMC nearby, it could impact us in a sense of increasing our workload. I think that would be fine. I think places like Dallas that have provided services that retirees see as of high quality and easily accessible and are happy with—so, I mean, that would be our goal, is to, if a gap were to exist, to try to help fill that same beneficiary population.

    Mrs. DAVIS OF VIRGINIA. And, Dr. Garthwaite, you mention in your testimony that VA has expanded its participation in TRICARE. Could you tell me whether you think the CHAMPUS Maximum Allowable Charge (CMAC), rates are set at an adequate level for VA and are the reimbursement rates set differently for VA than for normal contractors?

    Dr. GARTHWAITE. Same rates.

    Mrs. DAVIS OF VIRGINIA. Do you think they are adequate?

    Dr. GARTHWAITE. Does any provider think the rate is adequate? My sense is folks think they are fair because we see continued efforts at becoming providers from our facilities. In part I think that is the incentive we gave them to keep the money locally. Would they want more? Of course, but are they reasonable? Do they cover the expenses? I think they do.

    Mrs. DAVIS OF VIRGINIA. I tell you, the way you answered Congressman Ryun's question—because I have had the same complaints from veterans and retirees from my areas, that they can't be treated at the VA hospital unless it is military related and service related, and I liked your concept of let's step back and see what's best for the retiree for the veterans. I think we can do something about that.
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    I hear probably from my veterans more than anyone, and they just don't feel they are getting the treatment. It takes too long for them to get an appointment. You know, I hear from some of them it takes them a year to get an appointment at their VA hospital. I guess that is you.

    And, you know, we have got a new facility that just opened in Fredericksburg—and granted it is not a full-service facility, because they were struggling with that and they thought they were going to have a full-service facility. We will get there. We have private citizens that will provide transportation for them so they can still go to Richmond. But they have a hard time understanding—and I hear you all saying they are going to get their service, but it is difficult for them to get it, and I guess I am looking for answers on that.

    Dr. GARTHWAITE. I might just add that all veterans are eligible for care in the VA as of a couple of years ago when an eligibility reform passed, and we have to make a yearly decision on whether to enroll all veterans or to restrict enrollment based on largely the budget and resources available. Our data shows increasingly that veterans, especially in the higher income categories, are seeking VA care because of our generous pharmacy benefit. So if you have an illness and you have a lot of expensive medications and you have eligibility for VA, you come to get in.

    That I think has in a way begun to overwhelm our capacity to get them through an evaluation and get them onto our roles, and I think that is why the waiting times have been problematic. In the last year or two, we have had an increase in enrollment I think in the last year and a half from about 400,000 to 1.2 million, if my memory serves me. So there has been a rather dramatic increase in enrollment.
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    In a study by the Inspector General (IG), in Florida, approximately—it was 411 out of 949 patients that were higher income and were getting prescriptions came specifically for—to try to take advantage of that pharmacy benefit. They had other doctors and other insurance, but it didn't cover very expensive drugs.

    Mrs. DAVIS OF VIRGINIA. I hope I can use the caveat of Dr. Snyder that I am new on the committee, so if I ask something dumb forgive me. But you limit your enrollment, is that what you just said, that you have to determine the budget—.

    Dr. GARTHWAITE. We don't. The eligibility reform law that Congress passed and the President signed about 1986, 1987—yes, 1986, I am pretty sure—it allows us to enroll all veterans in priority order.

    Mrs. DAVIS OF VIRGINIA. How is priority order determined?

    Dr. GARTHWAITE. It is in statute. Priority 7 is high income nonservice-connected veterans.

    Mrs. DAVIS OF VIRGINIA. I wasn't here then, so I don't know.

    Dr. GARTHWAITE. Right. So the Secretary has to make a determination each fall—late summer, early fall—whether or not to enroll through all priorities or to restrict enrollment along that priority scheme.

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    Mrs. DAVIS OF VIRGINIA. So if a veteran does not get enrolled and they have a service-related—.

    Dr. GARTHWAITE. Service connected are the first priority. They almost certainly will be enrolled.

    Mrs. DAVIS OF VIRGINIA. So the veteran may not be able to use a VA hospital, is that what I am hearing?

    Dr. GARTHWAITE. Correct. Today they can, but I cannot predict this year's decision yet.

    Mrs. DAVIS OF VIRGINIA. They may not be able to tomorrow.

    Dr. GARTHWAITE. Right. And we tell them that very clearly in our letters when we enroll them.

    Mrs. DAVIS OF VIRGINIA. So what do they do for their free health care?

    Dr. GARTHWAITE. Well, veterans—my understanding of the law is that veterans do not have an entitlement to care in the VA health care system. And my belief is that lawyers have told me that even the highest service connected are not truly entitled by the language of the statute. I think politically and reality based they are entitled. They are always going to get care. But it is not written with the ''shall'' kind of language. It is written with the ''may'' kind of language. Bottom line is that we treat all the service connected-100 percent, 50 percent, 10 percent. The lowest priority are nonservice-connected veterans who have incomes above a certain threshold, around 20 some thousand dollars a year.
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    Mrs. DAVIS OF VIRGINIA. That is not much of an income.

    Dr. GARTHWAITE. I agree.

    Mrs. DAVIS OF VIRGINIA. So, again, where do they go for their health care if they are not in the enrollment?

    Dr. GARTHWAITE. Well, many of the veterans in Priority 7 who are over 65, 90 percent of them have Medicare, so they have access to health care. Now they may have other insurance and the lower income they may have eligibility for Medicaid.

    Mrs. DAVIS OF VIRGINIA. I thank the Chairman.

    Mr. MCHUGH. I thank the gentlelady.

    As you were responding to Mr. Kirk's question about pharmacy benefit, I think your comments beg the question why don't you just merge the two systems? Why do you continue to maintain two individual systems where you strive to cooperate and share in savings but why don't you just come together as one?

    Admiral CLINTON. Now that is an issue where the readiness issue might come in.

    Mr. MCHUGH. Okay. I was going to help you understand that there are readiness—please expound on that.
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    Admiral CLINTON. In essence, if we had a major contingency, we need the capacity to provide our medical, surgical supplies and pharmaceutical very rapidly. We need in a sense then to have active group of pharmacists and logisticians that can respond to that. That doesn't prevent us from doing a lot of things, so it is not a reason not to do things together, but it is a reason to say let's just do one.

    An example that I have worried about a great deal is concern about the management of an Anthrax incident outside the United States. I have spent hours and hours and hours working with our pharmacists and clinicians and logisticians to know that we have the right antibiotics reasonably close to respond to anything that might happen. This is particularly the case when we do not have enough Anthrax vaccine right now. We know we have a potential, and I depend very much on the logisticians and pharmacists and so forth to think through those issues. Where is the stuff? How do we move it? We need that capacity. So we will sustain that. But that doesn't prevent us from doing all kinds of cooperative things.

    So I would only say it is not a constraint, but I don't think that means and I would really argue we do not do it the same. We should not combine it. That doesn't serve our purposes well, and I am not sure it serves either one of us well. What I think is we need more complementary and supplementary assistance, and the pharmacy is one of our best examples of that.

    Mr. MCHUGH. Well, I appreciate your comments. As that issue arose, the concern or the push-back, that I was pleased to hear you confirm was a readiness issue there. I also should say, I asked you to expound. You did not. You expanded, and I appreciate it. Doctor, do you have any comments on that issue?
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    Dr. GARTHWAITE. I think they are along the lines of what Dr. Clinton already said. In a sense, they have to have—DOD has to have the capability of moving their health care around without a lot of discussions. I think there is probably some added expense in terms of training and a variety of other things in terms of getting ready for those logistical issues and details, and I think it also requires a real sense of command and control when you are talking about those kind of emergencies.

    For us, we are delivering quite a different kind of care, and it is predictable. So we hire all civilians and a lot of professors, and we have quite different methods that we use to convince them to go the direction we want to go, which do not have much command and control. We have a lot of convincing and so forth, which is actually a strength. And I see it not as a weakness.

    In the end, we have researchers and teachers that help advance knowledge and teaching and education and research. That is not to say that DOD doesn't do that, but that is more of our strength, and you would lose that if you tried to merge the two systems because you would be stuck trying to provide all of the emergency readiness and command and control and ability to move people at a moment's notice and provide training and things that just have to be done.

    They may not be the interest of that person. They have to be learned, and they have to be ready for us. We take advantage of the interest of the researchers and professors to deliver care and advanced medical knowledge. I think you would lose those two strengths if you tried to merge those two cultures.
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    Mr. MCHUGH. Thank you both. Dr. Clinton, I am sure you heard Dr. Garthwaite speak about some privacy issues that have evolved in his agency's attempting to deal with Medicare and the merging of the data bases. It seems to me that is going to be an important part of your challenge on TRICARE For Life. Are you running into that same constraint or barrier at this point?

    Admiral CLINTON. I think it would be a challenge, but I think our most immediate problem with the new Health Insurance Portability and Accountability Act (HIPAA), requirement is to sort out the means by which DOD has by agreement agreed to provide to the VA specific laboratory, radiology, hospital discharge, pharmaceutical records to the VA for those individuals who are then approaching the VA for some disability or benefit determination. We had this started and well under way until the HIPAA thing came down on us suddenly in April, and now we are having to pause and work through our General Counsels on both sides to understand the privacy issue.

    In essence, we cannot move personally identified medical information from one place to another without that individual's consent. Well, you would think that we could sort that out. We will sort that out, but it will be more complicated. And rather than just have a large movement of information, which we might have done between our two agencies a year ago, we cannot do that as easily today. We will get it done.

    On the other hand, the TRICARE For Life I think is a challenge more to our managed care contractors in that they need to—we need to work with them, and we will work through the process in which a claim is submitted to Medicare and then that claim with information is moved then to TRICARE who becomes a second payer.
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    So, again, it is the movement of personally identified medical information, and we need to work through the various ways to ensure that the patients understand that we need their consent to get the second part of their bill paid. So this is an issue that all America is grappling with, and every organization that delivers medical care is indeed very worried about it. I am sure it will drive up our bills considerably because there is an enormous administrative burden associated with it. Irrespective of the merits of it, that is what the new regulations require.

    Is it workable? Of course it is workable. It is going to take time. It is going to take more money.

    Mr. MCHUGH. Thank you, Dr. Clinton. You spoke about in your testimony the importance of working with HHS. At this point, I will say I am interested in the development, as I understand it, that the President's task force does not bring HHS into the room as a player in terms of what opportunities could be pursued between your two agencies. I would be interested in your comments about the efficacy of having them at the table. How important are they? And if you have any insight as to why they were apparently excluded in the formal task force I would be interested in hearing those.

    Admiral CLINTON. In one of the earlier meetings that Tom and I attended at the Old Executive Office Building, they were represented. How the task force finally sorted it out was an issue that was predominantly handled by the White House, and I was not involved in those conversations.

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    The good news is that I understand that the nominee for the co-chair is Gail Wilensky. She was the Administrator of HCFA. She knows precisely what the issues are. And I think whether they are at the table or not there will be a very vigorous discussion about the statutory requirement that states that the Medicare trust funds shall not disburse funds to Federal agencies, and that means they can't pay a DOD hospital for an over 65-year-old patient, and they can't pay the VA for an over 65.

    We can talk about HHS, and that is the polite way for me to perhaps introduce the issue, but the authority lies with the Congress to make that determination. So I think we at the technical level need to work with our cohorts at HHS, and we have done that. We had a subvention project. It had a lot of strength, a lot of patient satisfaction and enormous administrative burden; and the Congress basically said, this will come to an end unless you can come to an agreement with HHS. We were not able to do that. So our plan is that will terminate. It isn't that it will terminate. It will be that we are wrapping it up to something larger managed by the Department of Defense.

    But to get back to this issue, obviously Medicare and the people who have jurisdiction over this are going to say you need to have better accounting procedures for the way you account for score, bill, et cetera, and manage your quality assurance systems. Ours are slightly different. The VA's are slightly different. For us to really get the support of Congress, and I think that is the final determination, we are going to have to have a lot of discussions about how we make a Federal benefit out of these separate triparted Federal benefits.

    It could be done, but I think it would take many years to sort out the implementation and probably some years for the Congress to sort out how do you reconcile the accrual fund that we have, the VA's accounting system, the Medicare trust funds. I know it is very complicated. At the working level, working with HHS, that is not an issue. We work with them all the time. We worked with them very extensively in working with TRICARE For Life. That has gone very well.
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    They have talked to us about demonstration projects that we might pursue. For example, they say, ''Why don't we think about a demonstration project where some large medical facility of the Department of Defense manages hip fractures for a large city and Medicare people would be channelled towards this place,'' and we, who put a lot of attention onto orthopedic issues, might manage that.

    That has potential, and we will pursue that. But that is a tiny step of what we are talking about.

    Why can't we be a Medicare-certified provider? I know of some administrative reasons, and I know there are some accounting reasons, and I know there are jurisdictional issues. So I think we all would have to work together on it.

    I think Gail Wilensky is absolutely a fantastic nominee for that position because she has managed HCFA and she has been involved with advisory commissions to the Congress about these issues. All that is to say that I think she will bring people to the table whether they are signed up in one name or whether she is seeking out their advice.

    Mr. MCHUGH. I certainly share your admiration of Dr. Wilensky, as I deeply admire Jerry Solomon, her co-chair, not just a former Member and colleague but a good friend who has a passion about veterans and military interest in general. I hope that is true.

    Dr. Garthwaite, do you have any insights on that particular issue?

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    Dr. GARTHWAITE. No, I don't think I would add any more to what Dr. Clinton has said.

    Mr. MCHUGH. Okay. Thank you. Dr. Snyder.

    Dr. SNYDER. Thank you, Mr. Chairman.

    Dr. Clinton, you referred to in your testimony also about Allegra, the testimony-wide joint purchases you all have done in the nonsedating antihistamine. One of my staff members tell me when they visit sites at the local levels when there are major purchases that there is not quite that coordination because the contracts you are talking about are really the system-wide type of thing. How do you see that kind of purchasing coordination at the local level and specifically with regard to fuel and energy costs?

    I mean, you almost—well, not Dr. Garthwaite because he is leaving, but you also lay awake at night worrying about what is happening to fuel and energy costs with your budget. How much coordination or how much thought is going into those kinds of sharing arrangements in terms of fuel and energy and major purchases?

    Admiral CLINTON. Most of our hospitals are managed by the base in terms of their fuel and energy costs. So I am sure we are going to get the bill one way or the other, but it has not been an immediate issue.

    You recall the classic Navy facility has a great big steam plant, and they pump steam all the way around the Navy base. Well, that is the old way of doing it. But those current issues, particularly in the West Coast and Northwest, have not come to my attention. So I can't answer it. I think it is something that the line command and our installations deal with more than our medical facility in an immediate sense. So I don't have an easy response to your question.
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    We have found in those places, and I would take the Northwest as another example, Ken Farmer—Brigadier General Ken Farmer is our lead agent there. As they work with all three services they explore all contracting possibilities; and, as I noted earlier, they were using the VA contract for food, and I know that they were getting a better discount than the Federal contract that they can get out of Washington by going through local agreements, piggybacking on a VA contract or piggybacking on another contract they have.

    I think what we need to instill and be sure the field understands is that, in addition to the things we can do from Washington, let's make sure everyone examines every buying possibility where we can piggyback on someone else's contract just because of sort of the unusual and whole matrix of contracting procedures. Just look for best buys. That is exactly what Ken Farmer and the rest of his group has been able to do, and I think that there is not enough of that.

    Dr. SNYDER. I think when this comes to energy, too, there is a level of experience and sophistication in terms of how do you find the best buy that may not adapt well to the changing personnel. Do you have any comment, Dr. Garthwaite?

    Dr. GARTHWAITE. Do we have a co-generation of power with one of our partners, an academic partner in Tennessee. We are exploring a thing with the Navy in North Chicago. And we have worked very hard to equip our older facilities with automatic switches and lights and things that limit the amount of electricity that we have use.

    It has gotten so bad now that one of the main conference rooms out at 810 Vermont, if you don't move around in a meeting the lights go out. At a few of the required meetings you have to get up and wave your arms to get the lights back on.
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    But I think that gives you are an idea of the extent—we take it very seriously. We worked very hard to limit the use and to see where we can to find partners to generate electricity where that is cost effective.

    Dr. SNYDER. I am making a speech at 12:30 in a hotel downtown that has the same kind of thing. I have asked them to disconnect it before I start speaking.

    I wanted to ask Dr. Garthwaite, and I have talked before about Hepatitis C. You all, in terms of your Vietnam-era veterans, whether they are military retirees or folks like me that were just in for a few years, they are all aging at the same pace. How much sharing of information, resources, research dollars has there been with regard to the issue of Hepatitis C? Or do you not see this?

    Dr. GARTHWAITE. Not a lot. The studies that Dr. Clinton—and I know he can amplify this. My understanding of those studies is that those leaving the service demonstrate a very low incidence of Hepatitis C at this point in time. So it seems to be less their problem than our problem in that large numbers of veterans have Hepatitis C. By that doesn't seem to be true of the active military. Is that fair?

    Admiral CLINTON. That is correct. The serum sample analysis that we did, published in Lancet, about the beginning of this year, 0.48 percent positive, very low.

    Dr. SNYDER. How does that relate to your Vietnam-era age veterans? The numbers I know are getting smaller, but I know they are there.
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    Admiral CLINTON. Well, this is the limitation. What we have is a sample while they are on active duty. If they are not a retiree, then we wouldn't even have them back. So we lose it, and then we have to rely on the sample surveys that the VA might undertake.

    What we were trying to determine is, does this track all the way back to their active duty life or is it something that occurs late in their active duty life or in the process of reentering the civilian sector? And I think we are in general agreement that something is happening probably as they reenter the civilian sector.

    Dr. SNYDER. My last comment. I want to make a comment, Dr. Clinton, that you and I talked about this yesterday, this 80 percent business. As you know, I have picked up some frustration both in my community but also other parts of the country about good providers out there who are feeling economic pressure to have to bail out on seeing military retirees, and they are not at all interested in doing that or seeing the military community. You know, if I am going to have a surgery, I am not going to do it by bid.

    And I think there are other factors there. Part of it is patient choice, and a lot of our veterans/retirees do prefer the VA system. They do prefer certain providers who may not necessarily be the ones willing to take the 80 percent.

    There could be other factors about why some doctors take that. One factor may be one hospital who owns private physician clinics may be trying to drive another hospital out of business and will go for a market share and will take the loss, while a small group of privately owned physicians cannot sustain that kind of a loss. So I know that in the future you are going to be looking at some other factors than just the bottom line.
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    Admiral CLINTON. We will seek more flexibility in contracting and realize that at-risk alone sets up some unintended consequences. We are going to look specifically into the instance that you mentioned yesterday.

    And in further clarification of our comments yesterday, in the event that there is a savings, the savings is enjoyed both by the government and the contractor. So it is not just that the contractor is out there aggressively hustling to line their pockets. This is really a joint sharing. That is really the concept of at-risk 5, 7 years ago. We are going to modify that, and we will look into the specifics of what you are concerned about.

    Mr. SNYDER. Thank you both for being here. Thank you, Mr. Chairman.

    Mr. MCHUGH. I thank the gentleman. Gentlemen, just a few more, I hope, brief questions. Let's return to the issue of the task force. First, the comments more than the questions. I think this is an important exercise. I commend the President for having the initiative to put it into place, and we all look forward to the product of that study. But the recommendations that we expect to come out of it are some two years away from a final report. I trust that we are not going to—and by ''we'' I mean your two agencies—are not going to go into a hold pattern on all of the options that seem so logical out there that exist and that you have commented on here this morning awaiting that two-tier process. So let me make it a question. Can I be assured that won't occur?

    Admiral CLINTON. It absolutely will not occur. We have our Executive Council that has a schedule of events. We put it down when documents to us are due and we signed some more of them this week. So we are going to move ahead.
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    I assume we will have some things shaped by that group, and perhaps we can help shape some of the issues by telling them where we are making good progress and where we foresee constraints. So I am going to assume that it is there, but it shouldn't deter us in our energy in moving along with what we know needs to be done. We are at the implementation level, too; and I am sure they will be thinking through policies and some of the things we are talking about today. I think it is highly complementary but certainly not a substitute.

    Dr. GARTHWAITE. Absolutely. I would concur with that. And I would note that the continued momentum I think of the committee and some of the subgroups were forming, and I would add for the Department of Veterans Affairs our Secretary chaired a commission on looking at the relationship between VA and DOD and has an intense interest in making progress in this area.

    Mr. MCHUGH. Speaking of the task force again, Dr. Clinton, you just mentioned how you are going to be there at the table guiding them. Are there any specific issues that you hope to have addressed as that process unfolds?

    Admiral CLINTON. We haven't been queried on that. I think we ought to talk about this need to improve our reimbursement capacity. I think we need to work out some specifics. But clearly a way—for example, do we pay VA at the marginal cost of the next visit or we pay full reimbursements? What were the full costs of that? It is a complex health economics question, and we could at least share with Dr. Wilensky some of the things we are talking about and get their views on that. There are other things on Information Management/Information Technology (IMIT), where I think we need to see what might be done.
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    I think it is easier, again, to see where we might be in 10 years. Our systems are being designed to be world-wide connectivity. The VA computerized medical record system that I saw in North Chicago is absolutely first rate. It exceeds what we have in our hospitals, but it doesn't connect anything. They have a requirement to take care of their patients in that facility. They are gradually going to be expanding and we are gradually going to be honing in on improving our computerized medical record system. So I think we will get there.

    The common architecture for both systems is the same, but, again, our missions are different. I need to know what is happening in Sigenella, Italy. The VA does not need to know that. We have opportunities to pull that together, and our staff are doing that and our advanced technology development for IMIT are working together. They are in different cities, but that doesn't make a difference when PCs and other computerized systems are working together. I think IMIT resource, how to reconcile accounts, I will put it that way rather than resource sharing, how to reconcile accounts between our two systems, I think, are very important issues to sort through. Thank you.

    Mr. MCHUGH. Thank you. Doctor.

    Dr. GARTHWAITE. I think the hardest thing to get large organizations to change is to align the incentives with your goals. Because, usually, the incentive—the reason you are not getting the results you want are that, for some reason, someone doesn't see that the incentive is there to do that. So I think that is the real challenge. And what is the incentive to promote sharing? I think that is what we have tried to struggle with at the Executive Council, and I think fresh eyes asking that question will be helpful as well.
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    Mr. MCHUGH. Well, you must be prescient, because that was going to be my final comment, that perhaps one of the areas that ought to be explored is a way by which an incentive system could be inculcated into the process.

    I think, by the way, that that is important as well in terms of your two agencies dealing with your various facility commanders and those directors and responsibilities. I don't disagree with the concept that the delivery of health care should be modelled on a local basis. I think the variety of needs, the differences of community profiles are such that that is probably the better way to do it. But I do think in areas such as this—and, Dr. Garthwaite, you mentioned the financial incentive of allowing savings to stay at home is important as well. Because the status quo is a very powerful force to those who have no reason to change or no incentive to do that. So I was going to wrap up my comments on that area. So thank you for leading me in.

    I would go for a final statement to the ranking member. He has passed. Well, gentlemen, we have been here for well over an hour and a half. Usually, we have two or three panels comprised of three or four or perhaps five witnesses, and we do not keep them here that long. So I appreciate your patience.

    Obviously, this is an important area. I know that all of us are not just appreciative of your being here but for helping us to better understand the kind of efforts that are afoot. I hope you take away from this meeting not just a sense of support but a sense of deep concern that the issues we have discussed here today continue to be pursued, and certainly something that Congress not just needs, but I hope will, in fact, tend to in the future.
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    I would note as well, as we have done in the past, we do have a number of other questions to pose to you. If you would please, at your earliest opportunity as you receive those, respond in writing. We would very much appreciate that, to make those a part of the record as well so we can have a full accounting.

    I would also note that I have been asked to accept a written statement for the record by The American Legion on this topic, who obviously has deeply held concerns. Without objection, that is so ordered.

    [The information referred to can be found in the Appendix.]

    Mr. MCHUGH. With that, and a final thanks to both of our esteemed witnesses and best wishes to Dr. Garthwaite, the meeting is adjourned.

    [Whereupon, at 11:39 a.m., the subcommittee was adjourned.]