Page 1       TOP OF DOC

House of Representatives,
Subcommittee on Health,
Committee on Veterans' Affairs,
Washington, DC.

    The subcommittee met, pursuant to call, at 10:07 a.m., in room 334, Cannon House Office Building, Hon. Clifford B. Stearns (chairman of the subcommittee) presiding.
    Present: Representatives Stearns, Peterson, and Rodriguez.


    Mr. STEARNS. Good morning, everybody. The Subcommittee on Health of Veterans' Affairs will come to order.
    I want to thank all of you, of course, for being here, and a special thanks to Dan Winship, one of our witnesses, for his heroic effort getting here from Chicago.
    Members of our committee will be meeting soon to adopt recommendations on the fiscal year 2000 VA budget. Given the deep flaws in the budget, I am confident the committee will work together in a bipartisan manner to fight for a very substantial increase in the fiscal year 2000 VA medical care funding.
    What we have learned today, however, is that VA will continue to face severe budget problems beyond the year 2000 unless it does a better job of managing its capital assets.
 Page 2       PREV PAGE       TOP OF DOC
    Last year, as a new chairman of this committee, I was troubled by VA's funding request for major construction projects, those costing more than $4 million. As a result, I asked the GAO to review and analyze the VA's capital asset planning process and to evaluate its construction priorities and alternatives to construction. GAO's testimony today provides the response to my questions, and, my colleagues, it is a compelling testimony.
    GAO found that VA is spending one of every four medical care dollars caring for buildings. They warn that VA is likely to spend billions of dollars over the next 5 years to operate hundreds of unneeded buildings.
    A second important witness, Dr. Winship, has appeared before this committee many times as Associate Chief Medical Director of the VA health care system. Today he appears as the Dean of the Stritch School of Medicine of Loyola University in Chicago, and I want to highlight a key point of his candid testimony when he says, ''The VA health care system...is hampered by aging facilities not well repaired, updated and maintained over the years due to the lack of funds appropriated for that purpose, and by mandates from headquarters in Washington to keep facilities open and their staffing levels up even though activities have drastically diminished and moved to other, more appropriate venues.''
    My colleagues, it is important to note that Congress has required VA to conduct strategic, coordinated network planning in managing capital assets. Today's testimony suggests that VA has largely ignored that directive.
    These are challenging times for all of us and for the VA health care system. In making that point in a joint hearing last week, I told members of the Veterans of Foreign Wars that we need to embark on a bold new plan for the veterans' system. With that in mind, I intend to work on legislation to reform VA's capital asset management policies and to refocus VA's mission, to put more emphasis on serving veterans rather than serving unneeded buildings.
 Page 3       PREV PAGE       TOP OF DOC
    GAO and Dr. Winship both prescribe tough medicine to cure a systemwide problem. Let me emphasize this morning that these needed changes cannot be realized quickly. They would not solve the fiscal year 2000 budget problem, but the necessary planning must start soon to avoid even greater problems in the future years.
    So I look forward to our witnesses this morning, but, of course, before calling the panel, I would like to call upon the acting ranking member from Minnesota, my good colleague, Mr. Peterson.


    Mr. PETERSON. Thank you, Mr. Chairman. And I have a statement from the ranking member, Mr. Evans, to be made part of the record.
    Mr. STEARNS. Unanimous consent, so ordered.
    [The statement of Hon. Lane Evans appears on p. 28.]

    Mr. PETERSON. And I will be brief. I commend you for holding this hearing. I think we are focusing in on something that is a very valid concern and something that I have been struggling with out in my area. I have got a district that is huge, and people have a hard time, you know, getting to medical care. We can see in our district a lot of the money is going into capital assets, and we need to be maybe looking at providing more access for people out in outpatient kind of situations. So I think it is very valid for us to be looking into this question and looking down the road, and I think your comments about the budget, you know, from what I am hearing and seeing in some of these budget meetings that I have been going to, I think we may be heading for a train wreck with the budget, not only in the VA but in the whole situation. So it is going to be a tough budget fight, and we need, in my opinion, more resources in the VA to take care of the commitments that we have made. Clearly, if those resources are getting sucked up by capital assets where it is not really appropriate or needed, that is something we ought to be looking at.
 Page 4       PREV PAGE       TOP OF DOC
    I commend you for holding the hearing and look forward to hearing from the witnesses.
    Mr. STEARNS. I thank my colleague. And as he pointed out, with veterans we have an obligation because of not only what the recruiters said when they hired them, but because these individuals were promised these benefits and they have made the highest sacrifice. So perhaps they are a little bit different than a lot of other folks that are coming to the budget process asking for more money. So I thank you and others in a bipartisan fashion. We are here to try and make the argument and hopefully get the Speaker and others to agree with us.
    If the first panel would come forward, Mr. Stephen Backhus, and Mr. Paul Reynolds of the General Accounting Office and Dr. Daniel Winship, the Dean of Loyola University, Stritch School of Medicine.
    Let me start with Mr. Backhus. Why don't you go? You are right in the middle. You go ahead with your opening statement, please.

    Mr. BACKHUS. Thank you. Good morning, Mr. Chairman and members of the subcommittee.
    I am pleased to be here today to discuss VA's management of its health care assets. Last year, I testified before this subcommittee about the progress of VA's health care system transformation and challenges it faces as its role evolves. At that time last year, I suggested that VA's asset management decisions may represent the most significant and contentious challenge that it faces. Since then, Mr. Chairman, we have taken a closer look at VA's capital asset planning and budgeting processes, as you requested. And in doing so, we visited 92 VA locations, along with headquarters and the 22 network offices. We discussed planning and budgeting issues with over 400 VA officials. We reviewed hundreds of planning documents. We reviewed industry asset management practices. So my comments this morning are based on all of these efforts as well as the results of a series of GAO reviews that have focused on ways VA could improve the efficiency and effectiveness of its health care delivery system.
 Page 5       PREV PAGE       TOP OF DOC
    In summary, I want to say that VA has made significant progress in transforming its delivery system to better serve veterans. We commend Dr. Kizer and Dr. Garthwaite for their vision and their courage which have already reaped great benefits to veterans and taxpayers.
    VA's health care system is without a doubt on an unprecedented journey of change, as Dr. Kizer so often notes, a journey, I should say, though, that still appears to be in its early stages.
    I wish I could tell you today that VA's capital asset planning and budgeting processes will provide the greatest benefits for veterans in years ahead with the least investment risk to taxpayers. But, unfortunately, I cannot. From my viewpoint, VA's asset planning indicates that billions of dollars might be used to operate hundreds of unneeded buildings over the next 5 years or more. Moreover, capital budgeting appears to be driven more by the availability of resources within VA's different appropriations rather than the soundness of the investments.
    My written statement describes ways that VA could address these concerns, but, in general, let me highlight them here.
    We are recommending that VA develop asset restructuring plans—and I will describe those momentarily—and also refine its central budgeting process for high-cost investments; and, thirdly, to use a process similar to this or its principles for a larger share of its investment decisions, meaning VA's less expensive investments.
    In addition, we offer for your consideration several ways that Congress could facilitate VA's asset restructuring efforts. These include restructuring VA's appropriation into a single capital investment appropriation, authorizing new sources of investment funding, such as asset disposal proceeds or asset restructuring savings or investment returns.
    In our view, VA's development of restructuring plans should be its highest asset management priority. Wise budgeting choices begin with sound planning decisions. Capital asset plans, when done properly, provide road maps that let everyone know where you are going and, most importantly, provide the opportunity for all interested parties to participate.
 Page 6       PREV PAGE       TOP OF DOC
    Today it is unclear where VA's asset planning is headed or what VA's portfolio of assets will look like when VA's journey of change is completed. Moreover, it is unknown how much of an investment will be needed to ensure that veterans are served in assets that meet industry standards. In this regard, effective management of VA's assets is not an inconsequential undertaking.
    VA owns an incredibly diverse portfolio of health care assets, including over 4,700 buildings and 18,000 acres of land. Of these, over 1,800 buildings have operated already for more than 50 years, which is the period that is generally considered to be the useful life of a building. About 1,600 of its buildings have historical significance that complicates maintenance and disposal. And 1,200 of the 4,700 are used to deliver health care.
    VA's plans indicate that assets will continue operating at all 181 locations where it is now over the next 5 years, essentially as it does today, a situation that we find unthinkable.
    I believe the VA should restructure its assets for two reasons: first, and obviously, there is lots of money to save; but, more importantly, the savings can be used to enhance veterans' health care benefits.
    We estimate that VA will spend approximately one of every four health care dollars operating and maintaining its assets. This cost of ownership could be as much as $20 billion over the next 5 years. Those costs are paid from the same funding source, VA's medical care appropriation; thus, one less dollar spent on bricks and mortar is one more dollar that can be spent on health care services for veterans.
    So how can they achieve this objective? By doing market-based assessments of veterans' needs and assets and comparing the life-cycle costs of asset ownership to alternatives for meeting veterans' needs at lower cost.
    OMB encourages this approach, and State and private organizations have found that using such processes yields positive results.
 Page 7       PREV PAGE       TOP OF DOC
    VA has several appealing alternatives, including consolidating services, partnering with others, purchasing care from others, and replacing obsolete assets with modern ones. VA should explore these alternatives in every market where it owns assets, about 106 markets nationwide.
    Over the last week, we have shared our views with VA officials, and from my perspective, we appear to be in general agreement that the issues to be addressed are not whether to make major asset management changes but, rather, how plans should be developed, how budget decisions should be made, and what the VA needs to implement these plans.
    In that regard, I would suggest that VA needs perhaps a little more courage, but a lot more cooperation from the stakeholders. In my view, VA should seize the opportunity to reduce the significant amount of funds used to operate and maintain needed assets and reinvest such resources to enhance veterans' health care benefits.
    This concludes my statement, Mr. Chairman. Mr. Reynolds and I will be happy to answer any questions you or other members of the subcommittee may have.
    [The prepared statement of Mr. Backhus appears on p. 32.]

    Mr. STEARNS. Thank you.
    Dr. Winship, do you have an opening statement?

    Dr. WINSHIP. Mr. Chairman and members of the subcommittee, I am Dr. Daniel Winship, Dean of the Stritch School of Medicine of Loyola University Chicago, which is affiliated with the Hines VA Medical Center in Chicago. I am pleased to be invited to discuss the issues of consolidation, mission change, and realignment of VA medical facilities with you.
 Page 8       PREV PAGE       TOP OF DOC
    The VA health care mission has never faced greater challenges than it does right now. Repeated budget reductions for many medical centers leads to extremely difficult management decisions and reduction in service.
    As health care delivery evolves rapidly, the VA is caught up, appropriately, in the shift from in-hospital to ambulatory services. This cost-effective strategy, as well as those of consolidation, appropriate mission change, and realignment, comprise a centerpiece of the bold view and plan of Dr. Kizer to modernize the VA health care enterprise.
    This rationalization of the operations of the VA health care system is hampered by aging facilities, mandates from above to keep facilities open and their staffing levels up even though their activities have drastically diminished.
    Efforts to develop appropriate ambulatory sites of care are inhibited by an inability to free up funds sequestered in hospital budgets. Consolidation and integration of programs and facilities are blocked by constituents and their elected representatives who fear that integration of facilities and programs will impose hardships on the veteran community by requiring some veterans to travel longer distances for services.
    The medical school affiliates fear a loss of teaching and research programs for which they rely heavily on their VA partner. The idea of sharing these precious clinical, educational, and research resources between two or more medical schools is anathema, but it should not be.
    This picture appears to me to be one of an increasingly dysfunctional system of health care delivery. The decline in inpatient occupancy and the closure of beds continues, but the necessary, consolidations, mission changes, and realignments needed lag unacceptably far behind.
    I wish now to focus on the VA health care scene in Chicago as I see it. I will present my thoughts as ''a 30,000-foot view.''
 Page 9       PREV PAGE       TOP OF DOC
    Of the four VA medical centers in Chicago, two have been declared to be consolidated, and integration of their programs inches forward. All four facilities remain intact, however. They in the past represented enormous capacity for inpatient care, now much smaller. The total currently operating hospital beds for these four facilities numbers 1,262, 80 percent occupancy, a capacity which a few years ago could have almost been handled by one facility.
    There are another 1,436 beds for long-term care. Three of the hospitals maintain robust general, comprehensive programmatic and staffing structure, with duplication and redundancy. All three are within a geographic area less than 15 miles across and share a common patient service area.
    Nine community-based outpatient clinics are now operational, and this is a promising start.
    Meanwhile VISN 12 has sustained severe budgetary reductions over the past 3 or so years. The President's straight-line budget bodes ill for this portion of the system. Mandated pay raises, increased programmatic development, in conjunction with actual dollar loss, will profoundly affect the ability of this group of four facilities to carry out their missions, especially while they are also attempting to perform the near-impossible by keeping all four viable and operational.
    By any objective measure, from the 30,000-foot view, Chicago does not need four VA medical centers. I am confident it could do fine with three, perhaps even two, as recommended by the GAO last year. The VA can take a lesson from other health care systems in the rationalization of care. Savings gained by real elimination of duplication and redundancy can be applied to developing other venues for care. Replacing an archaic, decrepit, inefficient delivery system with a new, better, cost-effective one, access and quality will improve.
    What do the four affiliated medical schools have at risk if my view is accepted? They will feel loss of a partnership for education, research, patients. They will encounter fears from constituencies who see the threat of change but not the future possibilities for better programs. But if they buy in, and persevere, working out Dr. Kizer's vision for the future of the VA, the result will be more appropriate venues for care, education, and research, availability of funds newly freed up to accelerate the shift to ambulatory care, and better support of the remaining streamlined facilities. The alternative is continued and increasing dysfunction and programmatic erosion.
 Page 10       PREV PAGE       TOP OF DOC
    The capable VA staff must be allowed to let go of old practices which will ultimately lead to the demise of the system and to become as nimble and efficient as they need to be.
    Mr. Chairman, this concludes my prepared statement. I will be happy to answer any questions you or members of the subcommittee may have. Thank you.
    [The prepared statement of Dr. Winship appears on p. 50.]

    Mr. STEARNS. Well, Dr. Winship, thank you very much, and I appreciate your candid comments. I think we all agree that some of these old practices have to be stopped, and we have got to do it. But how do we do it with a bureaucracy that is in place and when you point out that a lot of the VA administrators are mandating for them to keep up even while their business is declining? And so that is our challenge.
    Let me go to Mr. Backhus. Can you turn to your report on page 11? And let me just call my colleagues' attention to that. Just explain ''VHA's 40 Multiple-Location Markets.'' We should establish for the record from you that what you are saying is that the Northeast and Midwest are expected to experience larger populations decline, and the black circles are what?
    Mr. BACKHUS. Multiple markets are a reference to those geographic areas where VA has two or more large medical facilities. It could be up to as many as nine, as low as two.
    Mr. STEARNS. Okay. So when I look at these black circles, all that is saying is that this is where multiple facilities are located.
    Mr. BACKHUS. Correct.
    Mr. STEARNS. And following up, Dr. Winship indicated that in Chicago there are four and we could downsize to three. Are you also arguing that in markets like New York and Boston and LA that what Dr. Winship is saying could be extrapolated too?
 Page 11       PREV PAGE       TOP OF DOC
    Mr. Backhus, I am asking you.
    Mr. BACKHUS. I am sorry.
    Mr. STEARNS. What he provided his opinion on for Chicago, I am trying to see can that be extrapolated for Boston or——
    Mr. BACKHUS. Obviously, you know, we did a similar analysis last year in Chicago exclusively, and as you heard him say, we did conclude that at least one hospital there could be closed. We haven't done that kind of a detailed analysis of the other 40 that are multiple locations. We think that is what needs to be done, and our belief is, based on the number of buildings at these locations and the costs that are invested in trying to maintain these facilities, that there are quite a number that are unneeded. And the conclusion will be that several of them aren't necessary.
    Mr. STEARNS. I am trying to pin you down, and maybe it is not possible. But he is saying that 25 percent of the facilities in Chicago are not needed and we would be more efficient and nimble and able to provide better service. Do you think that is possible to be true, that 25 percent in Boston and New York and LA are in the same category?
    Mr. BACKHUS. Yes, absolutely.
    Mr. STEARNS. So we are establishing this morning that we have 25 percent in these large cities, particularly in the Midwest and the Northeast, where 25 percent of overhead is bogging the system down, and if we had that money, we could give it to Mr. Peterson in his State and others for outpatient clinics so that the veterans wouldn't have to go across a State, and he could do a better job of providing more money.
    Mr. BACKHUS. We would wind up putting facilities closer to where veterans are, more state of the art.
    Mr. STEARNS. Okay.
    Mr. BACKHUS. Much more efficient.
 Page 12       PREV PAGE       TOP OF DOC
    Mr. STEARNS. Dr. Winship has used the words ''archaic, decrepit, and inefficient'' to describe the VA's delivery system, and the indication is it is being threatened with demise if realignment isn't accomplished immediately. So I guess the situation is dire. Is there some type of timetable you are talking about? Either one of you, if you could comment on that.
    Dr. WINSHIP. I think it is dire. And my colleagues, the deans of the medical schools who are affiliated with VA medical centers, as a group, with rare exception, believe it is dire. In fact, that group of people, who are the ones who really interact on a very regular basis and have the view a little bit from outside the VA, watching what is taking place, believe that Dr. Kizer's plan is the right plan, stating generally, that when it began that there was a window of opportunity which was a few years long, perhaps 3, perhaps 5, maybe a little longer, and that window is getting on now and is closing—and, in fact, what my colleagues are seeing and talking about a lot is that the dysfunction of their portion of the system, as I have stated about what I see in our area, is really very sizable and very troublesome. And the concern is that the VA is headed into decline from which it cannot recover, unless it can go ahead and make the changes to bring it into a very efficient system, which Dr. Kizer has talked about. So I believe it is dire.
    Mr. BACKHUS. It is dire and it is urgent.
    Mr. STEARNS. What does ''urgent'' mean?
    Mr. BACKHUS. That they need to get on——
    Mr. STEARNS. How soon? How soon? I mean, give me a time. He has mentioned at one point we talked about 5 to 7 years. Now Dr. Winship is saying it is down to something like 2 to 3 years before the system might be at a point that we have lost it. Am I putting words in your mouth?
    Dr. WINSHIP. No. That is essentially correct.
 Page 13       PREV PAGE       TOP OF DOC
    Mr. STEARNS. Would you agree that it is 2 or 3 years?
    Mr. BACKHUS. I do not think I am going to be that precise. I think it may wind up taking that long, perhaps, or——
    Mr. STEARNS. To change it.
    Mr. BACKHUS. Yes.
    Mr. STEARNS. Yes, sir?
    Mr. REYNOLDS. I believe 2 or 3 years until the kind of changes that need to take place are well underway.
    Mr. BACKHUS. I would agree with that.
    Mr. STEARNS. You would. You would agree with that.
    We also have Mr. Reynolds, Paul Reynolds.
    Mr. REYNOLDS. Correct. If I could point out that at a budget hearing before this committee a couple weeks ago, some of the witnesses were pointing out what problems the fiscal year 2000 budget was going to have for them, and essentially, as I understood their remarks, they were saying they would be facing difficult choices between a dollar spent for the assets and the operation and maintenance versus a dollar for the health care for veterans. So by that standard, if that budget goes forward, it seems dire sooner rather than later.
    Mr. STEARNS. One last question before I close. Mr. Backhus, the VA closed a hospital in California several years ago because of its vulnerability to earthquakes. Would you comment on the recent report that identified almost $2 billion in VA seismic construction needs?
    Mr. BACKHUS. Well, this is certainly significant. Obviously, facilities that need that kind of maintenance and improvement or repair to meet standards are going to move quite high on the list of projects that should be funded.
    It may well not be, though, the kind of facilities where the VA needs to be in the next 10 to 15 to 20 years. I think this may force the issue at VA, or should, anyway, toward them deciding where it is they need to be in doing market kind of planning and assessments. They are going to have to make a decision whether these facilities that require the $2 billion in seismic improvement are where they need to be and, if not, then act to close those particular facilities while they still can, while it is still safe.
 Page 14       PREV PAGE       TOP OF DOC
    Mr. STEARNS. I think that is a very important point. We funded a hospital in Puerto Rico for $50 million to help them with their seismic construction needs, and yet I think before we allocate this money in the construction budget, we have to follow along with what you folks are saying. Is that hospital already over 50 years old? And then we would be better off either building a new one or closing it and consolidating.
    Mr. BACKHUS. Correct.
    Mr. STEARNS. Well, let me have my ranking member, Mr. Peterson.
    Mr. PETERSON. Thank you, Mr. Chairman.
    Mr. Backhus, I want to commend you and your folks for the work you did here. It looks very comprehensive and very helpful.
    On page 23 of your handout, these five general categories and 20 decision criteria and so forth, has that been implemented? Is that actually—that is what they are doing in the VA? You are shaking your head, Mr. Reynolds.
    Mr. REYNOLDS. Yes, that is the criteria that was used to prioritize the projects that were put into the fiscal year 2000 budget.
    Mr. PETERSON. So that has already been done, and they have gone through that.
    I think I am persuaded that you are on the right track here. My question is how you are—I think the constituent groups out there are going to be a big problem with a lot of what you are talking about. But, frankly, we are also going to be a big problem. Have you thought about how you are going to get around us? I mean, I guess what I am asking, have you thought about setting up like a BRAC type of a situation? Because I really think that it is going to be problematic if you get into actually trying to do what needs to be done. You are going to have everybody protecting their turf, and you know how it goes.
    Mr. BACKHUS. We have talked about that at length, and I don't think we are at this point inclined to suggest that a BRAC is necessary. Not at this time.
 Page 15       PREV PAGE       TOP OF DOC
    There is a significant case, I think, that can be made, a compelling case that can be made through this market assessment and planning that can persuade members, unions, and medical schools that services can improve, efficiency can improve, there are ways to satisfy the concerns of employees who might be affected, and that medical school requirements in research and training can still be accomplished—probably better.
    Mr. PETERSON. Yes. I guess I am looking at it from a little different perspective. I represent an area way out in the middle of nowhere, and Fargo, for example, which you have identified as one of these single markets, is sitting there—I think it is probably 25 percent empty or more, because they don't have the money—they have got the patients; they don't have the money to bring the patients in and serve them. So what they do is shut down the wing, and I don't know how much money we are spending, you know, maintaining that, heating it.
    I can tell you the patients are out there, but they don't have the budget to do it. So I guess I don't understand in that particular situation what you would do because if you close that hospital, then people are going to have to drive 400 miles to get to the nearest hospital. You can't really realistically block off one wing of it because it is all attached. So I think you have got some problems in there where you have got too much capacity, but I don't know exactly what you do about it.
    Mr. BACKHUS. There clearly are VA facilities in locations where they are the only facility, where there aren't good alternatives. We recognize that, and we note that those are limitations to what VA can do. It is not a perfect world.
    Mr. PETERSON. Has anybody gone through and taken a look at this, these types of situations which really are not reconcilable and those which are that you are looking at? I guess to some extent, this information about the multiple facilities and so forth gives us some of that information where you have got a bunch of hospitals close together. Has that been quantified?
 Page 16       PREV PAGE       TOP OF DOC
    Mr. BACKHUS. This is exactly what we are suggesting needs to be done.
    Mr. PETERSON. It hasn't been done yet?
    Mr. BACKHUS. It hasn't been.
    Mr. PETERSON. Okay. And why? Because they are afraid of the political flack they are going to get if they put that on paper, or what?
    Mr. BACKHUS. Well, that has been the case in some instances in the past. That is part of the problem, for sure. But the other parts is that I think traditionally each of the locations has been—the incentives have been to keep each facility open.
    Mr. PETERSON. Has it ever been looked at from a standpoint of giving these VISNs the opportunity to keep the money within their VISN if they save it on capital equipment? In other words, I would imagine part of the concern is that even if they do it, they need to do, some of the other money is going to get sucked up, and they are not going to really get it.
    Has it been looked at, that they can look at their situation and if they can save capital money in their area, then they can use that money and it is not going to go to some other place in the VA? Has that ever been looked at?
    Mr. BACKHUS. I think the VA has a proposal on the table now to do just that, and we support that.
    Mr. PETERSON. Is that with capital—I know they are doing some of that. Is that with capital assets?
    Mr. BACKHUS. Yes.
    Mr. PETERSON. And that is what they would do that it. Okay.
    Mr. BACKHUS. We think that it can even go further than what they are proposing, though, in that there are opportunities to use other kinds of—or establish a revolving fund that includes even more money from different sources to allow them to establish——
 Page 17       PREV PAGE       TOP OF DOC
    Mr. PETERSON. Have efficiencies and be able to use it so they have got some incentive to do it.
    Mr. BACKHUS. Exactly.
    Mr. PETERSON. That is part of the process that is being established?
    Mr. BACKHUS. They are proposing that.
    Mr. PETERSON. But it hasn't been implemented as well.
    Mr. BACKHUS. Correct.
    Mr. PETERSON. And this is kind of parochial, but you had Minneapolis on the multiple list. I mean, the Minneapolis hospital is pretty much one facility, it looked like to me. Where are these other facilities? What is it? Is it a veterans' home or what?
    Mr. REYNOLDS. Well, that example really shows one of the difficult things VA has to first come to grips with, which is exactly what are their target markets. That is a situation where reasonable access for medicine may be a certain distance; reasonable access for surgical services may be a little bit more distant; reasonable access for mental health services might be a little longer. And so what VA needs to do is to define their markets and what is reasonable access.
    They have done that for community clinics based on hearings this committee held a couple years ago; 30 minutes, 30 miles is what they have decided with the community clinics. They really need to do that for all their other markets, for special emphasis markets, and once they have done that, then we will truly know what the markets are and then look at the inventory of assets to decide how best to meet those needs.
    Mr. PETERSON. Mr. Chairman, we have to vote, but if I could just—is there—do you have the information some place? You say 1,200 of these facilities are used for actual medical care and the rest are support and whatever else. Have you got this broken down as to how many dollars of the capital budget is used for the 1,200 that are medical care, how much is for support, so we can see—I mean, it seems—these buildings that are—these other 3,700 or whatever they are must be smaller facilities and probably are not near as much of a burden as the rest.
 Page 18       PREV PAGE       TOP OF DOC
    Have you got that information so we can kind of see what dollar amounts we are talking about, not just the number of buildings?
    Mr. BACKHUS. No.
    Mr. PETERSON. Or how many square feet we are talking about? Is there any way to get that?
    Mr. REYNOLDS. Well, the problem with the dollars and why we are estimating that it is one out of four dollars is because VA doesn't keep the information that way, so it is not readily available.
    One of the things that we would like to see would be that breakdown so that exactly the kind of information you need to make decisions would be available, and hopefully VA after this hearing may start looking at their budget a little differently and trying to get a better handle on what the true costs of asset ownership are.
    The square footage we have. We can provide you information on the breakdown of square footage for those buildings.
    Mr. STEARNS. The gentleman from Texas—we are going to go vote, and when we come back, if the panel will be patient, we will be back shortly and reconvene. At this point we will take a break for the vote.
    Mr. STEARNS. The Health Subcommittee will reconvene.
    The gentleman from Texas, do you have some questions?


    Mr. RODRIGUEZ. Thank you very much, Mr. Chairman.
 Page 19       PREV PAGE       TOP OF DOC
    First of all, I would just want to kind of share, I guess, some of my concerns from my area, and let me know—I have been told never to ask a question unless I know the answer. In some of these cases, I don't know the answer. But I do find myself in—I represent 13 counties, San Antonio and south, and I have a major hospital there. And then there is one 60 miles north in Kerrville, and yet when I go south, I go 13 counties south, about 200-something miles, and then I get Congressman Hinojosa, Congressman Ortiz, in Corpus that has about half a million people, has no facilities at all. Then you have Hidalgo down in the valley with no facilities at all. And I know my predecessor had been working on trying to get some clinics, and we finally, I think, made some breakthroughs in getting a clinic in Alice, TX, and a couple of others. And we have established another one in San Antonio, but it is not—it wasn't build with veterans' money. It was built with the university money there, and I think they provide some of the services.
    As I hear in terms of—there is a push right now to close the Kerrville one, and, of course, you have got the two Senators and about two other Congressmen supporting that. I guess I am trying to say there is a need for services in certain areas, and it is not being met, and yet it seems like—I mean, when I see four hospitals in a facility, I think anywhere where there should be more than two, I think we need to look at it real seriously. And I was just wondering whether you might want to make some comments on that, and also on the fact that we were supposed to have been moved to allow veterans to begin to just go to a private physician and get taken care of and then a billing structure, and I know the San Antonio was a pilot study. I don't know where we are at on that or how successful that has been.
    I just wanted to throw that out and get some feedback from you.
    Mr. BACKHUS. Well, I don't know that I can answer your question about this particular facilities. I am not familiar in detail with those facilities. However, you are asking questions that sound like they are the kind of questions we always ask when we go out and look at these things. Why are hospitals there? What is the workload? What is the demand? What does the future look like? What are the alternatives for health care for veterans in that area?
 Page 20       PREV PAGE       TOP OF DOC
    I will let Paul here answer in a minute, but I think that that is what obviously needs to be addressed. This is what we are suggesting here that the VA do on a market basis. For that area of the country and that market, they should—they probably can't now, but probably need to be able to be in a position rather quickly to tell you exactly what the best alternatives are for health care in that area.
    Clearly, if we were to build the VA today, it wouldn't look like it does. These facilities are old, and they were built a long time ago for different needs, in a different environment, somewhat even different missions, I suppose. So it doesn't square with necessarily where veterans live today and what other health care options are available to them. That is why in our opinion there has to be a reassessment, a restructuring, of this whole health care infrastructure by market. And you have a market there that clearly needs to be assessed and addressed.
    Mr. REYNOLDS. I believe what we are trying to say is that Kerrville may be like a lot of other ones we have seen. We didn't visit Kerrville, I don't believe, but we saw places that were more thinking along the lines of the way they were built and operated over a number of years. And I guess with this market-based approach, we are saying we need to look at each market and decide what is the best way to serve veterans. And we are looking for creative solutions, and if the solution, say, in a place like Kerrville might be a smaller outpatient clinic, as they did in Martinez, CA, and then use the money for community clinics, for the primary care, that may better serve the veterans.
    We feel like the market-based assessments we are calling for will let everyone know what is best in each market.
    Dr. WINSHIP. Congressman Rodriguez, if I may comment, I believe that a very important concept here is to use the clinic approach for this very large underserved population, not just in South Texas but wherever the populations are, and not—pouring more money into the VA Medical Center at San Antonio, good as Jose Coronado is, is not going to result in better care for those people. It just isn't going to do it, or, similarly, Kerrville.
 Page 21       PREV PAGE       TOP OF DOC
    But to find a way to make that shift of funds, but not to build those clinics in those areas to serve just as feeders to the big tertiary centers, that is the problem that we continue to have, I think, is the concept of using those as feeders now so we can maintain the structure of the tertiary centers but, rather, develop those as almost comprehensive health care programs that have everything except what is just needed and absolutely required in a centralized area, tertiary center.
    I believe that that is the conceptual approach that is going to have to be used to solve the problem you are talking about, and not building hospitals down in Harlingen or wherever, but to create a much broader network that is almost autonomous, that can do all the work that is necessary except for just a little bit of it that requires a centralized program.
    Mr. RODRIGUEZ. It is also my understanding that the VA is supposed to come up with some kind of report to assess what they have been doing in reference to the cost and all that. Do you have any indications? I think it is supposed to come up in the next few weeks or so, or a month. Do you know anything in terms of their recommendations?
    Mr. REYNOLDS. The cost of their asset needs?
    Mr. RODRIGUEZ. Yes, I think so. I don't know what they call it, but I know it is a report in terms of cost and everything that they are doing to see how they can bring that down.
    Mr. REYNOLDS. They have a number of different reporting requirements. One is commonly referred to as the Section 204 report, and that is supposed to highlight their high-priority investment projects, and that is coming available right now.
    They also have a capital asset plan which they prepare, and that goes through a lot of their asset needs. It also gets into the community clinics and says where they are. It also talks about the other asset-related costs, non-recurring maintenance, minor projects. So I believe they have got a draft of that, and it will be coming up soon.
 Page 22       PREV PAGE       TOP OF DOC
    Mr. RODRIGUEZ. Let me ask you again—and I will give you the Texas experience, and let me know—you know, because I had sent some letters regarding the VERA and the distribution of resources because I was looking at the hospital in San Antonio, and I saw that even per patient there was about a $1,000 disparity between my hospital and other hospitals in Texas. And that is per patient. So it was a pretty significant amount of resources in terms of disparity from one region in Texas to the other.
    What I gathered was that it was the administration there in Texas that basically distributed the money in a different manner that allowed for that to occur, or mainly because of where the hospitals were located that caused that disparity to happen.
    Is that similar in other States, or do you find that? Or have you looked at that at all?
    Mr. BACKHUS. Variances within——
    Mr. RODRIGUEZ. Within the State, after the resources are filtered down, I think that there is some leeway that those States have in terms of the resources. You know, after looking at the data, I found that disparity in Texas between my region and the rest of the State.
    Mr. BACKHUS. Well, there is flexibility, once each of the VISNs receives their budget, to distribute that among their VISN as they see fit. That does vary from VISN to VISN. I think that is fairly common.
    Mr. REYNOLDS. It is up to each of the 22 networks. About a year ago, maybe 18 months ago, we looked at that because a lot of people were saying that VERA was causing things to happen at certain locations. And when we looked into it, we found that VERA is allocating money to the 22 network directors. They then used their own approaches, and so it really was unfair to blame it all on VERA because they were not using the exact VERA model to transfer down. They were using other models.
 Page 23       PREV PAGE       TOP OF DOC
    Mr. RODRIGUEZ. So that after the money got down there, you know, certain areas—it was apparent to me that certain areas in Texas were getting more than my area, in proportion to the number of veterans and the services.
    Mr. REYNOLDS. Yes. What it comes down to, I guess, is each network director would have to explain what their model is, what it is based on, what is important, and how they distributed the money. So each would have their own explanation of the rationale for the distribution of the VERA money that they got for that network down to the local level.
    Mr. RODRIGUEZ. Thank you.
    Mr. STEARNS. I thank my colleague.
    Just in conclusion, we have heard your statements, and, Mr. Backhus, the example of the Martinez, CA, hospital closure, I think provided a good prototype or a pattern or a paradigm of a win-win model for how VA can deal with unneeded facilities. Wouldn't you agree?
    Mr. BACKHUS. Absolutely.
    Mr. STEARNS. So as Dr. Winship said, pouring more money into some areas is not going to provide better service. So we have a bill here we are working on that, without a base closure operation, we are trying to figure out how to get the VA, the VISN directors, and others to make these important decisions. And as Mr. Peterson pointed out earlier, Members of Congress are going to fight like heck for their district.
    So, would you, just in conclusion, want to amplify on what you think the type of bill coming through Congress which would either help the Administration, help the VISN directors, to get the patient care that we need and get these obsolete hospitals disposed of and the money used more efficiently?
    Mr. BACKHUS. Well, the first thing is to—I don't want to sound like I am repeating myself here, but I guess to some extent I will have to. The VA needs to determine for each of the health care markets that they are operating in to produce a plan that outlines specifically where it is they think they need to be functioning over the next——
 Page 24       PREV PAGE       TOP OF DOC
    Mr. STEARNS. So Congress could mandate and say you shall provide a plan to Congress by such a date.
    Mr. BACKHUS. Yes, I think that would be helpful to require market-driven plans by a certain date, and that those plans specify the expected workload in those areas, the alternatives that are available in those areas, and based on that conclude what is the most—or propose what is the most efficient and effective health care delivery system in those markets. That includes not just, obviously, their own hospitals and their own medical facilities, but those that—the care that they could purchase, partnering that they could do with other Federal agencies like the Department of Defense, or potentially leasing space from other locations, and it should emphasize, I think, ambulatory outpatient care.
    Mr. STEARNS. Dr. Winship, is there anything you would suggest?
    Dr. WINSHIP. Well, it is along the same line. I believe that one of the most cogent questions that has been asked in this entire hearing today was by Congressman Peterson about, well, what are you going to do with us? Because it is the issue of turf and it is the issue of protecting that turf that I think really is and has been a major barrier to making these kinds of changes.
    So whatever the legislation has, if it has the rational programmatic areas that will permit agreement by the Members of Congress where they can live with that within their districts, with the goal of actually improving the health care not just of their district but of their district and the surrounding ones, and using that then as the template for creating the autonomy that is required, I believe, to achieve that nimbleness which we were talking about, to do exactly what Congressman Rodriguez is talking about in South Texas, multiplying that around the country, using a mechanism like was used at Martinez, multiplying that around the country, I think that there is some chance for success of that—in fact, likelihood of success of that. That is difficult.
 Page 25       PREV PAGE       TOP OF DOC
    Mr. STEARNS. Well, if we can set the incentives correctly so that when you shut down an unneeded hospital and you say to that Member of Congress, okay, we are shutting it down, but we are keeping the funds within your congressional district or we are keeping it within your county or city, and those funds will be used in turn to provide better care, then I think the trade-off would be to his advantage and he might be able to say back to the constituents, look, you know, we may be shutting down this hospital in Chicago, but we are taking the funds with outpatient care, we are going to renovate and increase our facility capability at the other three hospitals. And maybe that as an incentive would do it.
    Dr. WINSHIP. Well, that would probably help, but with all due respect, it may well be, in order to get to South Texas for the needs that Congressman Rodriguez is talking about, perhaps taking some of the funds from Kerrville would not be allowed to do that if it has to remain in that district. I am not sure, you know, what that district looks like here.
    Mr. STEARNS. I see your point.
    Dr. WINSHIP. But I think the requirement is going to be that it serve the veterans primarily rather than serving a congressional district primarily.
    Mr. STEARNS. Mr. Reynolds, anything you would like to add?
    Mr. REYNOLDS. I think I would second the incentive notion that you just put forward. I believe that the bill should have incentives for creative solutions. There was one thing, when we looked at their investments now, most of the major investments were within the construction that has been there for several decades. Martinez is an example of what I would call a creative solution, and so, too, is northern California. And in that regard, I think what really made northern California be accepted so quickly was the plan was a good plan and a plan that could easily be demonstrated to benefit veterans of northern California by spreading the care out among Sacramento and other areas closer to where they live rather than having a large hospital built at Travis Air Force Base. Keeping the money sounds like a very good idea.
 Page 26       PREV PAGE       TOP OF DOC
    The other thing that I would put forth is as an incentive let the plans go forward as they are ready, which would—the people who are more forward thinking and are more—want to get on shouldn't be penalized by having to wait for some of those that may take longer. And so if someone gets a plan and it is a good plan and it gains rapid acceptance, they should probably be given the green light to go forward rather than waiting.
    Mr. STEARNS. Well, I want to thank you for your attendance, and also, Dr. Winship, for your perseverance in coming down. Now we will have the second panel. Have a good day, gentlemen.
    Mr. STEARNS. We have Dr. Garthwaite again. Nice to have you back. We have Charles Yarbrough, Chief Facilities Management Officer, and Mr. Mark Catlett, Deputy Under Secretary for Budget.
    Gentlemen, we appreciate your waiting, and at this point, I guess, Dr. Garthwaite, you will open with your opening statement.

    Dr. GARTHWAITE. Thank you, Mr. Chairman, for having the courage to take on one of the most challenging issues facing the Department of Veterans Affairs and Congress.
    Just a few years ago, Kaiser Permanente health care system finished building several new hospitals and in the end occupied only one of them as soon as they finished the construction. By the time we finished our facilities in Detroit and West Palm Beach, the way health care is delivered had changed, and we had more beds than we needed.
 Page 27       PREV PAGE       TOP OF DOC
    In retrospect, the capital planning processes of Kaiser and of the VA were inadequate to deal with the rapid change and the powerful forces that are shaping health care today. Kaiser Permanente, like VA, is in the difficult position of simultaneously operating and reshaping a large health care system in the midst of profound environmental changes in biotechnology, surgical techniques, and infomatics. If there is a lesson from their experience and ours, I believe it to be that whatever you do with regard to capital assets, you should build in the maximum flexibility.
    In the past 3 years, we have evolved from a centralized, long-cycle capital planning process focused on large inpatient facilities to a network-initiated, shortened-cycle process emphasizing the capital needs of our rapidly evolving health care system. Like GAO, we believe that we have made progress in improving our assessment and prioritization of major projects and in tying them to our strategic plans, but we believe that capital planning in health care is a necessity without any science and that we have much to learn and much to improve.
    We are learning by experience. In three geographic areas, we have undertaken comprehensive asset planning analysis. That is northern California (or Martinez), Boston, and in Chicago. We have learned from these efforts and agree with GAO that additional asset restructuring plans based on objective data and analysis are appropriate in other areas of the country. We also relearned and agree with GAO that the intense interest from veterans' groups, unions, medical schools, and elected representatives complicate our capital planning.
    While we believe that we have made progress in review of major projects, the bulk of our capital investments are in the minor and non-recurring maintenance programs. The current challenge is to make short-term operational decisions while evolving a long-term strategic vision. I am not sure if ''long-term'' is a term that makes any sense in health care planning; however, I use it advisedly.
    Specifically, we are asking how do we ensure that we don't sink money into buildings we vacate in a few years as all these things change rather rapidly. While we cannot guarantee the future, Dr. Kizer and I see a need to subject these minor and NRM decisions to additional review and discussion.
 Page 28       PREV PAGE       TOP OF DOC
    Therefore, we will promptly institute a new process that will parallel processes we are using with success in reviewing other major decisions that we make relating to major policy decisions, to money that is distributed not through the VERA model, and to changes in the deployment of our executives.
    In short, minor and NRM projects with programmatic implications will be submitted to a subcommittee of our VHA Policy Board. Enhanced guidance and criteria will be developed and will include an assessment of the future of the affected program within the network. The recommendations of the subcommittee will be forwarded to the Policy Board for review and approval.
    We believe that the additional step of criteria-based review and presentation to 40 other executives will minimize the chance of investment without the clarity of strategy and will continuously teach our executives the importance and complexity of the capital asset decisionmaking process.
    We have a variety of other initiatives that we are proposing or have ongoing within the Department with regards to capital assets. One of those is an initiative to improve our capital asset portfolio by increasing our flexibility and incentive to dispose of property that is no longer needed to meet our needs. This proposal would allow the VA to dispose of these properties—including land, structures, or any equipment associated with the property—by sale, transfer, or exchange, and to reinvest the bulk of the proceeds into the system. The pilot would be restricted to 30 dispositions over its 5-year life.
    As previously discussed, VA's capital portfolio is large and consists of over 22,000 acres of land, 4,400 facilities, and nearly 1,200 locations. Disposal is currently a cumbersome and lengthy process, with limited benefits to VA. We propose to deposit all proceeds of disposals after deductions into a capital asset fund that will be available to be reinvested into the system's capital requirements.
 Page 29       PREV PAGE       TOP OF DOC
    Because these resources will directly benefit VA programs, I urge the committee to support this initiative.
    Another initiative which has helped us to restructure our extensive capital assets to the benefit of both veterans and taxpayers is the continuing use of the Department's Enhanced-Use Leasing Program.
    The Department has used this authority to consolidate operations and dispose of unneeded facilities, to collocate VBA space onto VA Medical Center grounds, to obtain child-care services, expand parking facilities for veterans and employees, and to redirect operational funds from managing golf courses into direct medical care. In doing so, these leases have achieved significant cost savings, have enhanced employee recruitment, have added substantial private initiative to the Department's capital assets, have provided new long-term sources of revenues, and have created jobs and tax revenues for local economies.
    While the program has achieved some level of success, it has limitations, namely, market demand, compatibility issues with VA and its requirements.
    A final initiative that I would mention is the Department's use of Energy Savings Performance Contract Program. In short, a private contractor updates the facility with energy saving technology. The savings from utility charges are shared between VA and the contractor until the contractor's cost of the upgrades is covered. VA has completed seven projects at various medical centers, and a total of 92 medical centers have awarded contracts under this program. We intend to continue emphasizing this program as a means of upgrading energy-consuming aspects of our facilities, and I think it is a real win-win.
    Mr. Chairman, our objective is to ensure that VA capital assets are utilized in ways that bring the greatest value to the Department at the lowest cost. We believe the initiatives I have discussed will help the Department in moving forward in that area.
    This concludes my opening statement, and my colleagues and I welcome your questions.
 Page 30       PREV PAGE       TOP OF DOC
    [The prepared statement of Dr. Garthwaite appears on p. 54.]

    Mr. STEARNS. Well, let me thank you. Let me compliment you on your presentation this morning and for talking about your central office reform in which you are going to do oversight on capital assets. We didn't see that in your original testimony, and so we appreciate your revision and making that initial step to understand how significant this is. And with that in mind, it is my understanding that in the 1999 Network Plan for Chicago there is $22 million in planned minor construction spending with projects in each of the four hospitals in Chicago over a 3-year period. In light of Dr. Winship's testimony and the GAO, my question to you is: Do you agree with Dr. Winship, and do you intend to implement this new program you talked about for Chicago?
    Dr. GARTHWAITE. I think we agree that our assets in Chicago need to be assessed and restructured, and, in fact, we agreed with the GAO report that suggested that we could operate in less than the number of facilities that we had, but suggested that we should have a comprehensive review of all assets to look at how we could restructure it to the maximum benefit of veterans in that area. So the answer, I think, to your question about do we need to rethink is yes. The assets in Chicago. We are very much supportive of that effort.
    I think at least some of the capital planning issues in Chicago are related to long term nature of construction. Much of what we do in capital asset planning takes a fair amount of time to move through the pipeline, and some things were put in the beginning of the pipeline, I think, before some of these other decisions were made. I think, in fact, one of the challenges and one of the reasons I used the Kaiser Permanente example in my opening testimony is that they thought they would need more hospitals than they ended up needing when they actually built them. I think we have the same problem.
    We will not just look prospectively with this committee. We will take a look at anything that we can adjust with the committee as well. That is the intent.
 Page 31       PREV PAGE       TOP OF DOC
    Mr. STEARNS. Mr. Yarbrough, you seem like you would like to participate. Any additional comments?
    Mr. YARBROUGH. Not so far as the construction of the minor program is concerned. I don't have any jurisdiction there. I am aware of it and see the need to examine the assets that are used in the minor program, but I don't have any jurisdiction.
    Dr. GARTHWAITE. The bind that one gets in is that we must deliver care. without presupposing the result of an objective group looking at what are the proper steps to take in Chicago. One then either has to freeze and not make any changes, even though some of them have relatively short return on investment, or one has to presuppose what is going to happen and quit investing in certain areas which then raises the question as to how open and how fair the analysis that is going on really is. So it is a bit of a bind. You really need the vision of where you are headed as quickly as possible.
    Mr. STEARNS. I can't put you really on the spot here. I understand. But I think what we are trying to make is a larger statement here that we had GAO and Dr. Winship who said that the demise is 2 to 3 years, and after that you are dealing with a patient that is dying and that we have got to do something pretty quick here, such as consolidation, mission changes, facility realignment, and yet we have this money being spent in hospitals that they even know intimate details on that they said is not in the best use as one of these facilities over 50 years here. I don't know.
    So I guess my question—two questions are: One, do you agree with the assessment of what you heard this morning with the GAO and Dr. Winship? Do you agree with that?
    Dr. GARTHWAITE. Fundamentally, yes.
    Mr. STEARNS. Fundamentally. Okay. In your testimony, you mentioned the words ''major policy implications'' will be used for your making your decision process. Just explain to me what you mean by major policy.
 Page 32       PREV PAGE       TOP OF DOC
    Dr. GARTHWAITE. I am saying that we will use for capital assets a similar process to what we now use for policy decisionmaking, which we have a Policy Board where we lay out the options in advance of the meeting, give people adequate time to read the back-up material and so forth.
    Your point I think might be a valid one. If you are trying to say that if we are making policy decisions, why isn't capital policy part of the existing Policy Board process I think it is an artificial line that we have drawn between capital asset discussions and other kinds of policies. Probably it is relative, and we should not think that way anymore.
    Mr. STEARNS. Amen.
    Mr. Catlett, let me ask you this: In light of the testimony you have heard and this better oversight on this capital asset spending—be honest this morning—do you think we are going far enough? Do you think there is something else that you think we should be doing in this area of oversight of capital asset spending? You should know it better than any of us. You are serving as the Under Secretary of Budget.
    Mr. CATLETT. The Deputy Assistant Secretary for Budget. You are right, sir. I have been around a long time. I have seen change. I think we are moving in the right direction. I think your interest in this hearing will add impetus to that. I think it is important.
    I know that your staff, at least, has been frustrated with the way we have dealt with the authorization process for major construction and leases. The indication that you have made today about changes in that process I think will be helpful, particularly focusing on the planning component. As GAO has said—whether they call it a restructuring plan or we call it a business plan, laying out how you will provide services and where the services are needed over a future period, whether that is 3 years or 5 years. I know Dr. Garthwaite is concerned that 5 years is way beyond the range of what you can foresee with the pace of change in the industry.
 Page 33       PREV PAGE       TOP OF DOC
    But, yes, a long-winded answer, I apologize for that, but I think we are moving in the right direction, and anything we can do to improve the ability for us to put a business plan on the table will be helpful. The stakeholders will object because it is change in some cases, or more importantly, that we haven't explained the change well enough to show the benefit of what we are proposing.
    Mr. STEARNS. Would you suggest an aspirin or radical surgery? I mean, are we on some kind of emergency feeling of you and others here? Are we just looking for slight movement here? Are you ready for bold new strokes and something that you are going to propel this?
    Dr. GARTHWAITE. I would say I think radical surgery is probably indicated; however, in medicine, we always get the consent before we do surgery, and the problem we have had with these issues is getting the consent.
    Mr. STEARNS. All right. My colleague from Texas?
    Mr. RODRIGUEZ. Let me know, Dr. Garthwaite, if I misquoted you or not, but I gather that—we talked about the sale of VA capital. I think you mentioned the words it would be limited benefits. But based on GAO, they indicate that we are talking about maybe $5 billion. So I gather that what GAO has and what you assess in terms of what you might be able to sell is two different things.
    Dr. GARTHWAITE. Right. They are talking about a theoretical maximum. We are talking about essentially a pilot program as part of our budget initiative for this year. We put forward a pilot to gain the administration's support of it.
    Mr. RODRIGUEZ. Have you identified the areas of the pilot?
    Dr. GARTHWAITE. We would allow people to apply from anywhere in the system.
    Mr. RODRIGUEZ. So people have to apply to sell——
 Page 34       PREV PAGE       TOP OF DOC
    Dr. GARTHWAITE. They would say: We believe we have an asset which we don't require to deliver services in this area, and we would like to turn those assets to other uses to deliver services, and we would like to sell this off, we think we have a buyer, or whatever, or we would like to get it in shape to sell off and then use those assets for something different.
    Mr. CATLETT. Mr. Rodriguez, could I add something?
    Mr. RODRIGUEZ. Yes, sure.
    Mr. CATLETT. I just want to speak to your reference to the $4 or $5 billion that GAO has mentioned. As Dr. Garthwaite said, that is the universe of funds that we spend on maintenance. They are not implying that there is that much savings to be had if we would do everything perfectly. There is certainly savings within that $4 or $5 billion, but, one of the problems with making these changes is that a large part of that savings will be reduced staff because most of the maintenance costs of our facilities, as with our direct care, is staffing. And so those are the hard choices that we have to make, and you don't make those changes quickly and overnight in terms of dealing with your partnership with your unions, your employees who have been with you for a long time. So that is another major factor in this and one of stakeholder groups that has to be understood and evaluated.
    Most importantly, I just wanted to make sure—that it is understood that the $4 or $5 billion isn't a potential savings. That is what we spend on maintenance of our facilities now as estimated by GAO.
    Mr. RODRIGUEZ. You mentioned also the leasing and that you wanted to look at enhanced leasing. Do you already have some of the power or some of the laws that are already there to allow you to do that?
    Dr. GARTHWAITE. We would need help—yes. We do have legislation for enhanced-use lease. We don't for this disposal pilot project. We would need legislation.
 Page 35       PREV PAGE       TOP OF DOC
    Mr. RODRIGUEZ. You would need legislation?
    Dr. GARTHWAITE. For the asset disposal part. But for the enhanced-use leasing, we are currently doing that. When is that legislation up?
    Mr. YARBROUGH. December 31, 2001.
    Dr. GARTHWAITE. So at the present time, we have continued authority to do that, and continue to try to use that to its maximum benefit.
    Mr. RODRIGUEZ. I was told—and I am going to go back to my hometown in terms of the pilot on allowing a veteran to be able to go and reach out and see a physician and then I guess bill back. Do we have any feedback on that particular pilot program in terms of how that has been cost-effective or not? Because I have heard about it for the last year and a half. I don't even know if it is even in operation now.
    Dr. GARTHWAITE. I would have to get you specific information about your specific area, but in general terms, we for years have given out fee basis cards to service-connected veterans, and they take those cards and go to their own physician, a non-VA physician and receive care, and we pay those bills.
    With the restructuring of the VA, we have looked at a lot of different methods of delivering care other than VA owning the assets, and we have entered into agreements with primary care physicians to take a panel of VA patients and to be essentially their physician, doctor, health care system, for a fixed rate over a period of time.
    In most cases, if we can keep the communication going well enough and select well enough and have enough selection in those areas, those have been well received. They are especially well received because they are often much closer to home, and so the opportunity to get care much closer to home is helpful.
    There are a lot of technical issues of negotiating contracts, of getting the right balance of care, finding the right providers. But I would say overall our experience has been positive from the veterans' perspective.
 Page 36       PREV PAGE       TOP OF DOC
    Mr. RODRIGUEZ. As you move in that direction—I know the military has what we call the A-76 studies that are done. Do you all have something similar to that?
    Dr. GARTHWAITE. Certainly.
    Mr. RODRIGUEZ. You do?
    Dr. GARTHWAITE. Yes.
    Mr. RODRIGUEZ. Is it more or less the same?
    Dr. GARTHWAITE. Right. That is OMB Circular A–76. Exactly the same.
    Mr. RODRIGUEZ. So you do it in the same approach in terms of assessing what is more cost-effective, either leasing out or sourcing out or doing it in-house, that kind of thing?
    Dr. GARTHWAITE. Correct.
    Mr. RODRIGUEZ. I just want to get a picture, I guess from you, in terms of the next 3 to 5 years. How do you foresee or what do you envision? Because, you know, from our perspective, I still see a great need for access to services, at least from my region, and we continue to get—you know, I mentioned certain of my counties that double in size during the winter with the winter birds coming down, snowbirds—they are not birds. These are actual people, by the way, that come down, and a lot of them are veterans and are accustomed to a certain kind of service in the North that they don't have access to in the South.
    So what do you envision in terms of hopefully what direction that we would be going that we would have the VA within the next 3 to 5 years?
    Dr. GARTHWAITE. I think we see continued evolution of what we have attempted to do over the last 3 years, and that is to rationalize and consolidate our referral, tertiary care, large-city facilities. And as we do that and as we extract other efficiencies and savings moving from inpatient to outpatient, better buying decisions and so forth, to take those dollars and invest those in community-based outpatient clinics, whether we own them or whether we contract for them, in areas closer to where veterans are.
 Page 37       PREV PAGE       TOP OF DOC
    We have taken some national cuts at the veterans data. Whether or not we are hitting all the pockets of veterans who are underserved by our current geographic dispersion of facilities—and I think we are hitting most of them—we have significantly decreased the average distance a veteran has to drive to get to services. We need to continue to focus in on very specific areas and continue to enhance our planning efforts, not only, as the GAO said, I believe, not only in primary care but also in mental health and other specialized services.
    We also have a variety of telemedicine initiatives that we think we can take the expertise and ship it electronically close to where the veterans live.
    So I think we believe that health care is local; we believe that most of it should be delivered in the community. And if we can leap all the hurdles in the way, we will continue to move in that direction.
    Mr. RODRIGUEZ. You mentioned that you would be doing some of the same things you have been doing the last 3 years. Can I ask you more or less how much you might have saved in the last 3 years or how much access you have provided?
    Dr. GARTHWAITE. Well, I don't know if I can tell you how much we have saved or provided. We have approximately 300,000 additional veterans getting service than they were getting. We have done that on what would be a fixed budget, essentially, so it has a buying power that continues to diminish. I think there is a nice chart in the independent budget that shows the buying power of the VA health care funds.
    We have improved customer satisfaction. We have improved surgical mortality and morbidity. We have improved survival rates in three of our common medical diagnoses and preserved or not allowed to deteriorate, kept it constant, in six others.
    So we have done a variety of things that I think have been positive. One of the key pieces, we have opened a couple hundred, approximately, community-based outpatient clinic access sites which have been well received, implemented universal primary care and a variety of other things that have changed the system.
 Page 38       PREV PAGE       TOP OF DOC
    Mr. RODRIGUEZ. And we thank you for the clinics. When I first got on, I think the person who talked to me assumed that I was just from San Antonio and didn't realize I had 13 other counties going all the way to the Mexican border. He looked at me straight and said: We can assure you that every veteran is no more than—I think he said 60 miles away from the nearest facility. And I said, well, let me show you some counties that are 200-something miles away. I know that that has improved somewhat because we got a clinic that is supposed to be opening up in Alice and a couple other areas.
    Dr. GARTHWAITE. Things do not often go as fast as you would like. I have used many times, in trying to make the point to people, that you can't drive 320 miles from Brownsville, TX, to San Antonio to have your blood pressure checked. It is simply not an adequate health care system, and I think that was a compelling argument for many to help with the changes.
    Mr. RODRIGUEZ. Thank you.
    Mr. STEARNS. Thank you. I thank my colleague.
    Let me conclude with one question and perhaps get a commitment from you today, Dr. Garthwaite. You have heard the GAO and Dr. Winship talk about the facility redundancy in the VA system. In fact, 40 locations they mentioned around the country this facility redundancy exists. And he talked about Chicago in particular.
    Will you commit today to do an analysis of all the other areas that are in the GAO report and provide this committee the results of this analysis at a certain date?
    Dr. GARTHWAITE. Yes, I think we believe we are trying to do some of that already, and I think we just have to define exactly what you mean by analysis. What we did in the Martinez area and what we have done in Chicago and Boston has ended up being fairly expensive. There were contractors involved. There were actually three contractors in Boston. There was a fairly large contract in Martinez. And I don't recall exactly how much we are spending in Chicago.
 Page 39       PREV PAGE       TOP OF DOC
    I would say that to learn from those, to enhance our ability to look that way at every part of every network, that is our intention and we will commit to do that.
    Mr. STEARNS. So you will commit to the analysis of these other 40 locations?
    Dr. GARTHWAITE. Absolutely. And we think we are already doing it, but not with the degree of precision and knowledge and expertise that we probably need to do it.
    Mr. STEARNS. But you are saying you don't have the money to do the analysis that you have done before?
    Dr. GARTHWAITE. The three that they are using as examples, if I committed to do that, we would have to make some significant other savings, which we are already being challenged to do, to be able to have contractors look at every one of those particular areas. So really, all I am suggesting is that it is a matter of degree and timing, but we want the answers as much as the GAO or you do.
    Mr. CATLETT. Mr. Stearns?
    Mr. STEARNS. Yes, sir?
    Mr. CATLETT. If I could add——
    Mr. STEARNS. Sure, because we are just trying to establish some training of events here and to get you folks galvanized, because the legislation that we are thinking about is—and that is the second to the last question, Dr. Garthwaite, whether you think the legislation that I have suggested is going to be credible. Go ahead.
    Mr. CATLETT. I was just going to add as another suggestion we can work with your staff. Some of this funding to do this analysis is similar to activities that we have funded within the construction accounts in the past. It is a line item called advance planning funds. There is not enough there currently, I believe, to do that type of study at 37 other locations. But, again, it is an idea. If you are looking at what to do in an authorization or what to do in an appropriation recommendation, again, clearly, this is a capital asset plan, to me, which is an appropriate use of advance planning funds. It can make a difference in terms of the speed at which we can move on this type of planning activity.
 Page 40       PREV PAGE       TOP OF DOC
    Mr. STEARNS. My gut feeling is if a third party did it, it would be more credible than if it came within your office, I mean, just from perception-wise.
    Mr. CATLETT. Right.
    Mr. STEARNS. So the funds should be provided for you folks to do this third-party analysis, and it would be well worth the investment if we came back and found all this information and it was credible. I think your suggestion of an appropriation authorization is something we should take into consideration.
    Mr. CATLETT. I am just saying a funding source may exist now, but I am sure as well there is not enough money to do 37 more of these studies, if I could count 3 being completed of the 40.
    Mr. STEARNS. Maybe you could give us an idea how much money we need.
    Mr. CATLETT. Yes.
    Mr. STEARNS. Are you prepared to do that today?
    Mr. CATLETT. No, sir. But we can soon.
    Mr. STEARNS. Okay. Well, we will assume that that will be something you will give us a rough estimate for the committee here.
    Mr. CATLETT. Yes, sir.

    (The information follows:)
    The estimate for contractor support at 37 of the 40 VA markets with more than one medical center as define by GAO is $35 – $40 million. This would provide the type of analysis and study of our options for the provision of health care to veterans that was provided in the northern California review done several years ago. The authority to fund these contracts within the Major Construction account is being reviewed with our General Counsel.
 Page 41       PREV PAGE       TOP OF DOC

    Mr. STEARNS. That we can give to the full committee, and I know both Mr. Stump and Mr. Evans would appreciate that, and I think they would see the argument.
    I think the concluding question is: With the type of legislation that we are envisioning, do you have any suggestions on—do you think the idea is appropriate to somehow—we don't have a base closure because we are concerned about that might even make it in a different venue here. But I am open to suggestions here.
    Dr. GARTHWAITE. I would like to see us rethink the approaches we have taken in the past and to look for creative new ways to line up the forces with where I think we all know we need to go. So the simple answer is I would like to think a little longer on it, but I think it is headed in the right direction, and I think that we would like to continue the discussion about seeing what can be done.
    Basically, we are interested in achieving not only the plans but the actual actions that are necessary. We have had significant resistance in the past, and I think you are getting at the issue of how do we get through that resistance. We are very much in favor of that.
    Mr. STEARNS. Line up the forces, Darth Vader. (Laughter.)
    Well, I want to thank all of you for your time and your candidness. And, gentlemen, is there anything you would like to add?
    Mr. RODRIGUEZ. No.
    Mr. STEARNS. We appreciate your coming, and the committee will stand adjourned.

    [Whereupon, at 12:08 p.m., the subcommittee was adjourned.]