Page 1       TOP OF DOC

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

    The subcommittee met, pursuant to call, at 9:30 a.m., in room 340, Cannon House Office Building, Hon. Cliff Stearns (chairman of the subcommittee) presiding.
    Present: Representatives Stearns, Cooksey, Gutierrez, Evans, Kennedy, Doyle, and Peterson.
    Also Present: Representative Snyder.


    Mr. STEARNS. Good morning everybody. The Veterans' Health Subcommittee hearing on legislative proposals will convene. And to start off, I have an opening statement, and then I'll call on my colleagues.
    In meeting recently with representatives of major veterans organizations, the number one concern I heard was VA health care funding. That concern also comes across loud and clear in our committee's report to the Budget Committee on the VA fiscal year 1998 medical care budget.
 Page 2       PREV PAGE       TOP OF DOC
    Our expression of concern, of course, was based largely on the Administration's unprecedented reliance on the so-called third-party collections to meet its budget needs for fiscal year 1998. There are many problems with this concept, not the least is that it asks for an appropriation of some $600 million less than the Department acknowledges is needed.
    I know many of my colleagues share my frustration with that budget and the Administration's implicit message that Congress will be to blame if it does not pass legislation to allow VA to retain third-party collections.
    Our committee is on record as recommending that the VA medical care funding needs in the amount of $17.6 billion be met through appropriations. Nothing has caused us to change that position. We are also on record as supporting retention of medical care cost recoveries as a mechanism to provide the VA with a new revenue stream.
    With those considerations as our framework, we take up a draft bill today to allow VA to retain third-party collections.
    The Department has set a goal of developing sufficient new revenues so that 10 percent of its funding would come from non-appropriated funds. In that connection, we will also take testimony today on H.R. 1362—a bill which many of our members have co-sponsored. That bill would establish a demonstration program to test Medicare reimbursement for VA care provided to certain Medicare eligible veterans.
    Veterans have long advocated such a reimbursement plan, and it is time that this concept get a fair test. We welcome testimony on this important measure.
    As we develop legislation to help address critical VA funding issues, we take note of the many changes underway in the VA health care system today. Among these changes we're seeing VA shift from a hospital-based system to one which relies increasingly on outpatient care. With that, we're also seeing some very real and disruptive downsizing. This raises some serious personnel issues, and we also look forward to testimony on a draft bill to address one of those issues.
 Page 3       PREV PAGE       TOP OF DOC
    We have three panels of witnesses this morning to offer views on these bills. But before we go on to our first panel, I'd like to recognize my friend, Mr. Gutierrez, the ranking member, for an opening statement.


    Mr. GUTIERREZ. Thank you so much, Mr. Chairman. Thank you, Chairman Stearns, for convening this hearing to discuss Medicare and third-party reimbursements, and VA physicians' special pay legislation. The importance of these issues for the future of veterans' health care in our Nation cannot be overstated.
    As the members of this committee know, the Department of Veterans Affairs has identified the collection of Medicare and third-party reimbursements as an important source of income to meet the future needs of veterans throughout America. It is part of their 30–20–10 plan. The VA intends to make up 10 percent of this funding from non-appropriated sources such as Medicare and third-party payments.
    I was pleased that this committee agreed that fiscal year 1998 was too soon to depend on these reimbursements to make up for decreasing appropriations. However, the support of this committee, the Committee on Ways and Means, and both houses of Congress, is required for the VA to gain the authority to collect these non-appropriated resources. Prompt action is needed on the legislation we will discuss today.
    The Chairman and I have discussed—are both original co-sponsors of H.R. 1362, the Veterans' Medicare Reimbursement Demonstration Act. H.R. 1362 is designed to enable the VA to provide care to Medicare eligible veterans without further burdening the existing VA health care infrastructure.
 Page 4       PREV PAGE       TOP OF DOC
    I am particularly pleased that this legislation will establish a fee for service structure instead of a managed care system. VA outpatient clinics are already extended beyond their designated capacity. Managed care may only contribute to more strains on the VA's outpatient system. The fee for service approach prevents this possibility while ensuring that Medicare eligible veterans may still use their benefits at a VA medical facility.
    In addition, this legislation may also save the Medicare Trust Fund 5 percent per year for services performed by the VA during the life of this demonstration project. This is a fact seemingly overlooked by CBO.
    While I recognize the complexities inherent to Medicare subvention, the need to find additional resources for the VA to meet its obligations to veterans mandates that we make this option work. The best way to gauge the effects of subvention is by implementing this demonstration project. Third-party reimbursements are vital as well.
    Currently, the VA has the authority to collect these payments, but is unable to retain a majority of these premiums. Instead, they are returned to the U.S. Treasury for deficit reduction under pay as you go restrictions.
    I am hopeful that this committee and the 105th Congress will realize the need to allow the VA to keep these precious dollars. If we are truly committed to a more efficient, cost effective, and user friendly VA, then we must adequately fund the system throughout this period of transition. This is the most important and most responsible step we can take for the men and women who served and sacrificed in the Nation's armed forces.
    I look forward to hearing from the panelists today addressing these issues.
    Thank you, Mr. Chairman.
    Mr. STEARNS. Thank you.
    Dr. Cooksey, would you have an opening statement?
 Page 5       PREV PAGE       TOP OF DOC
    Dr. COOKSEY. No.
    Mr. STEARNS. Okay. We also welcome Dr. Snyder, if he has some opening comments. He is not a member, as I understand, of the panel, but he is certainly welcome to participate.
    Mr. SNYDER. I wanted to thank you, Mr. Chairman, for letting me sit in on this hearing. You even have my name here and decaf coffee. I'm ready to roll. Thank you very much.
    Mr. STEARNS. Thanks for your interest, and we welcome your participation.
    With that, we'll start with panel number 1. We have Paul Van de Water, Assistant Director for Budget Analysis, Congressional Budget Office. Paul, we'll start with you first.



    Mr. VAN DE WATER. Good morning, Mr. Chairman, members of the subcommittee. I am pleased to represent the Congressional Budget Office in this morning's hearing.
 Page 6       PREV PAGE       TOP OF DOC
    My testimony, as you indicated, will explain CBO's assessment of the budgetary effects of two pieces of pending legislation. The first is H.R. 1362, the bill to provide for Medicare subvention. The second is the draft legislation to allow VA to spend amounts it collects from designated third-party payments and user fees. From a budgetary point of view, the two proposals have several features in common.
    First, both proposals would allow some VA medical care to be financed through direct or mandatory spending rather than through annual appropriations. In the case of H.R. 1362, VA would be given authority to spend money it collects from Medicare. In the case of the other proposal, VA would be allowed to spend the money it receives from certain nongovernmental sources.
    Second, the additional mandatory resources provided to VA could either supplement or supplant existing discretionary spending, with the outcome depending on the result of future appropriation action.
    Third, even if the additional mandatory spending did allow for lower discretionary appropriations in the future, the current budget enforcement rules do not allow a reduction in one category of spending to offset an increase in the other.
    In the interest of time, Mr. Chairman, my oral remarks will focus on H.R. 1362, and I assume the full text of my statement will be printed in the record.
    One of the legislative goals of H.R. 1362 is that the demonstration project would establish not increase either VA's or Medicare's costs. In theory, VA would continue to pay for the care it would provide under current law to beneficiaries eligible for Medicare. And Medicare would continue to pay for people currently receiving care in the private sector.
    Medicare's costs would experience no net change, it is intended, because lower payments to private-sector providers would offset payments to VA. Similarly, VA's net costs would remain the same because the receipts from Medicare would be matched by higher outlays for the care it would provide to extra patients.
 Page 7       PREV PAGE       TOP OF DOC
    In practice, however, we think that assuring budget neutrality for Medicare would be difficult to achieve for three reasons.
    First, although VA provides some services that are not covered by Medicare, the bill nevertheless includes those services in calculating VA's maintenance-of-effort level.
    Second, even if that oversight were corrected, VA could understate the amount of its current and future workloads that was attributable to the targeted veterans.
    And third, adjustments to the required level of effort provided in the bill could allow further shifting of costs from VA to Medicare in later years.
    The likely outcome, therefore, would be higher Medicare costs. Determining how many Medicare beneficiaries receive care from VA is difficult enough in the short term. But that uncertainty only grows over time as populations change and the availability of discretionary funds varies.
    VA and HHS also face different incentives and access to information. It would be difficult for the General Accounting Office, or any other auditing agency, to determine the financial outcome of the demonstration project. It, too, would need to rely on estimates and assumptions about events and behavior that would have been different under current law.
    As introduced, H.R. 1362 would probably raise Medicare's costs by $50 million a year or more. Because VA could count services that are not covered by Medicare toward its maintenance of effort, the cost could even exceed the cap set in the bill for Medicare's expenditures. Medicare would pay to private providers or VA for the costs of covered services that are provided and funded through VA under current law.
    If the bill's language were modified to focus the maintenance-of-effort requirements only on services covered by Medicare, the bill would cost roughly half as much.
    In conclusion, Mr. Chairman, both proposals would increase mandatory spending and would be subject to the pay-as-you-go procedures established in the Budget Enforcement Act. Those increases in mandatory spending would allow discretionary authorization to decline by the same amount. Whether discretionary savings would actually occur, however, would depend on annual appropriations action.
 Page 8       PREV PAGE       TOP OF DOC
     Thank you, Mr. Chairman.

    [The prepared statement of Mr. Van de Water appears on p. 62.]

    Mr. STEARNS. Thank you.
    Our next speaker is Dr. Kenneth W. Kizer, Under Secretary for Health, Veterans Health Administration, Department of Veterans Affairs.
    Good morning and welcome.


    Dr. KIZER. Good morning, Mr. Chairman, members of the subcommittee. I want to thank you for your efforts to advance proposals to authorize a Medicare pilot project, as well as the VA retention and use of MCCR funds. These proposals would significantly aid our efforts to restructure and improve the veterans health care system—efforts that you alluded to in your opening comments.
    The President's proposed 1998 budget would permit VA to better serve veterans, as well as serve somewhat more veterans over the next five fiscal years. However, achieving these goals is contingent upon the legislative changes that are under consideration today.
    The President's budget includes important goals for VA: to reduce our per patient expenditures by 30 percent, increase the number of patients treated by 20 percent, and, as you noted, obtain 10 percent of our operational budget from non-appropriated sources by the year 2002. And while I think most would agree that these are aggressive goals, we believe that they are certainly consistent with what is occurring in other integrated health care systems and that they are realistic targets.
 Page 9       PREV PAGE       TOP OF DOC
    Assuming that Congress will enact the legislation to authorize Medicare reimbursement and the retention of MCCR funds, we really do believe that we can cut costs, treat more veterans, and become less dependent on appropriated funds over the next 5 years.
    I have provided a more formal statement, which contains a more detailed analysis of the Subcommittee's MCCR and Medicare pilot proposals and the changes that we suggest might be made in those bills, and in the interest of time, I am going to briefly comment on these proposals.
    I'd also like to note here that I am not in a position to comment on the physicians' retirement proposal, other than in passing.
    First, your draft bill to allow VA to retain and use MCCR recoveries is very similar to the Administration's proposal, and our recommendations for change are largely technical. I understand that the recently concluded budget negotiations include this source of funding for the VA, although we haven't seen the exact language yet.
    Consequently, enactment of this legislation is really foundational to our ability to treat the number of veterans that we are projecting for fiscal year 1998 and beyond.
    Secondly, we support enactment of H.R. 1362, assuming that the changes that are discussed in the formal statement can be effected. As you know, the Department has been working with HHS and OMB for almost 2 years now to design a pilot project for Medicare reimbursement. With the strong support of the President, we transmitted to Congress in October of 1996, and again in February of 1997, a draft bill that was acceptable to both VA and HHS.
    Since February, a working group of VA and HCFA officials has been negotiating a memorandum of agreement, which would specifically detail how this project would operate. And while the current draft of this agreement hasn't been formally endorsed by all parties, the working group has reached agreement in principle on all of the major issues and is currently working on a few of the more technical details. We're confident that agreement on this can be completed very soon.
 Page 10       PREV PAGE       TOP OF DOC
    An important change that I would note here to H.R. 1362, that we recommend is to permit VA to obtain Medicare reimbursement on both a fee for service and a capitated basis. We'll be ready to implement a managed care demonstration project for Medicare reimbursement by January 1st of 1998, and we believe that we really should test both models from the outset.
    We also think that we need to have the authority to continue the pilot while the Administration and Congress consider the results of that pilot, because if we didn't have that capability would almost certainly disrupt the individual patient care with potentially untoward consequences.
    Again, we thank you for moving forward on this legislation, and we look forward to working with you and the committee staff on some of the details.
    On the third measure, I would note that there are currently statutory financial penalties that discourage VA physicians and dentists from retiring before December 31, 1999, and that your draft language addresses this issue. I would also note that the penalties that currently exist do work against our efforts to restructure and downsize, where appropriate, VA's workforce and to optimize the number of primary care providers that we utilize.
    We are currently working with the Administration to review the draft, because this does have implications that go beyond the Department of Veterans Affairs. When that review is completed, we'll forward the Administration's views to the committee.
    Let me just conclude my remarks very quickly to express my strong disagreement with the CBO's financial analysis. We have been working with the Administration for over 2 years to design a Medicare pilot project that would not result in shifting of care covered by VA appropriations to Medicare. Your bill also has provisions that are aimed at guaranteeing that this does not occur.
    Given the very explicit language of your bill and the stated intent of all parties that have been involved in developing this proposal, it is really—I guess the best I can say—mystifying how CBO can assume that 100 percent of our efforts in this regard will fail, and that there will be a $50 million or greater increase cost due to the pilot project.
 Page 11       PREV PAGE       TOP OF DOC
    Achieving this would require, in reality, that all participants involved in this effort—VA, the Department of Health and Human Services, OMB, the Government Accounting Office, as well as a private contractor—would basically have to violate the law. And while on the one hand I am flattered, in a sense, that CBO believes that we might actually be able to pull something like this off, I think it simply lacks any semblance of credibility.
    Instead of using this forum—and noting that the red light is on, I'm not going to point out the inadequacies and the limitations of the CBO analysis—which I understand that they have informally acknowledged—I would like to note that the VA, and I suspect HHS and HCFA as well, would like to work with the CBO to improve the soundness and the legitimacy of their present analysis.
    With these comments, I will conclude and look forward to working with you to gain enactment of these important proposals.

    [The prepared statement of Dr. Kizer appears on p. 71.]

    Mr. STEARNS. Thank you.
    Our next panelist is Kathleen Buto, Associate Administrator for Policy at the Health Care Financing Administration.
    Welcome, Kathleen.


    Ms. BUTO. Good morning, Mr. Chairman, and members of the subcommittee. And I am very pleased to be here to discuss the President's legislative proposal, as Dr. Kizer has.
 Page 12       PREV PAGE       TOP OF DOC
    We call this the Medicare subvention proposal. This means that Medicare payment for care provided to Medicare beneficiaries will be recognized in federal facilities. The President has expressed strong support for the Medicare/VA subvention demonstration that will provide needed—and this project will provide needed information on its effects.
    The project will be conducted by my agency, the Health Care Financing Administration, within the Department of Health and Human Services and the Department of Veterans Affairs jointly. Under this demonstration, Medicare will pay for health services in the VA system for certain individuals who are eligible for both Medicare and veterans benefits.
    We believe that we can test efficient ways to provide quality services for these beneficiaries at selected sites, and at the same time protect the Medicare Trust Funds.
    Currently, there are about three million veterans over age 65 who meet the Category ''C'' requirements. They are veterans who have neither a service-related disability nor sufficiently low income to receive VA care on a high priority basis, but have dual eligibility from VA and Medicare. In the past, both programs have provided access to health care for them. We hope that a Medicare subvention model will increase access to quality for these individuals with administrative efficiencies for both programs.
    HCFA has been working with VA for 2 years, as Dr. Kizer noted. In these collaborative design efforts, we have really two imperatives from the health care financing perspective. One, protect beneficiaries, and two, protect the Medicare Trust Funds.
    As you know, the Medicare trustees have just reported that Medicare's hospital insurance Trust Fund will be exhausted in the year 2001. The Administration is committed to balancing the budget, extending the solvency of the Trust Funds, and keeping benefits available for all Medicare beneficiaries. Thus, the design of the demonstration will include strategies to prevent further depletion of the Trust Funds.
    HCFA and the VA are now working on the memorandum of agreement, which will spell out the operational details of the demonstration, including that VA must maintain its current level of financial effort rendering health services to dual eligibles before it can receive Medicare payment.
 Page 13       PREV PAGE       TOP OF DOC
    Agreement has been reached on many of the details for managed care. After the VA has met its level of effort in a demonstration area, Medicare would pay a capitated amount equal to 95 percent of what we pay private HMOs, after excluding some of the costs that are not relevant in the demonstration. These excluded costs would be such things as medical education, disproportionate share, hospital payments, and capital that are already provided under VA's appropriation.
    Medicare would pay the fee for service sites in our demonstration 95 percent of current fee for service rates, after removing some of the costs I just mentioned. At the end of each year, HHS and the VA would reconcile and correct any payment discrepancies, and the VA would allow audits by HCFA and the HSS inspector general.
    If found that Medicare costs are more than they would have been without the demonstration, the two departments will take corrective action, including, for example, repayment, adjusting payment rates, or terminating the demonstration. In addition, a cap would be placed on total Medicare payments to VA for each demonstration year.
    The demonstration will expand beneficiaries' freedom of choice. They can use their Medicare eligibility to obtain care from the VA, or they can obtain care from civilian providers. VA providers also must adhere to Medicare's conditions of participation for quality and other quality standards, and provide the complete range of benefits that Medicare provides in the HMO model.
    We believe that we've taken all possible steps to protect beneficiaries, the Trust Funds, and VA from harm. There will be a rigorous evaluation. I won't go into it. But we're going to answer a number of questions about the pilot and whether or not the impacts and costs that we anticipate really are what play out when we have the demonstration.
    At the end of 3 years, we will see how the coordination between our two programs improves efficiency, access, and quality for dually eligible beneficiaries.
 Page 14       PREV PAGE       TOP OF DOC
    Mr. Chairman, the bill that you have introduced, H.R. 1362, is similar to the Administration's bill, but not identical. There are significant differences between our bills. First, H.R. 1362 would authorize a fee for service model demonstration in three VA regions.
    The Administration proposes to conduct both a fee for service in four sites—a pilot project—and a managed care model in either four sites or one VA region, for a total of about eight sites. Thus, H.R. 1362 would actually involve a much larger geographic area of commitment with correspondingly greater financial risk to the Medicare program and would not include a managed care model.
    Second, H.R. 1362 sets Medicare payment rates at 95 percent of amounts paid by Medicare to the private sector. Our bill sets payments at 95 percent of private sector payment, after excluding costs associated with direct and indirect medical education, and so on, as I've already described. These would be covered by the VA appropriation.
    Third, H.R. 1362 reduces the VA level of effort in future years to account for changes in veterans' eligibility resulting from the Veterans' Health Care Eligibility Reform Act of 1996, and our bill does not adjust the level of effort. Also, your bill calls for a report on the managed care demonstration by March 1, 1999, whereas we propose to proceed with that model.
    Recognizing that the red light is on, I'm going to conclude my remarks by just pointing out that there are similarities between our proposals that will allow us to work together to reach agreement.
    Thank you.

    [The prepared statement of Ms. Buto appears on p. 80.]

    Mr. STEARNS. Thank you.
 Page 15       PREV PAGE       TOP OF DOC
    Before we start, we have the ranking member of the full committee, Lane Evans, and I certainly want to give my good friend Mr. Evans an opportunity for an opening statement before we start the questioning.
    Mr. EVANS. Mr. Chairman, I would just submit it for the record.

    [The statement of Hon. Lane Evans appears on p. 58.]

    Mr. STEARNS. Thank you.
    Let me start with my questions. Let me just start with the CBO, Mr. Van de Water. And I have great respect for CBO, and I look to them for many answers. So I'm just trying to better understand your opening statement.
    You mentioned the three ways that the veterans hospitals could shift costs, which would create a $50 million deficit per year, and you mentioned the third one was shifting VA medical costs, because they are already doing it and so they'll shift it back. The second, you said there is a workload within the VA hospitals which would make it. And then, the first one was what? What was the first reason?
    Mr. VAN DE WATER. All of the reasons, Mr. Chairman, have to do with identifying the current VA level of effort. They are basically three different ways of looking at the same thing.
    As Dr. Kizer's prepared statement indicated, and Ms. Buto's as well, there are significant problems in estimating current VA spending for the targeted veterans who are participating in these demonstrations. And Dr. Kizer, in his written statement, also indicated that there are several elements of H.R. 1362—which is the bill we were asked to focus on—that are not in the Administration's proposal and that would heighten the difficulty of assessing the VA's current level of——
 Page 16       PREV PAGE       TOP OF DOC
    Mr. STEARNS. The real first question is: between the Administration's bill and our bill, which one would be less costly?
    Mr. VAN DE WATER. The Administration's bill goes farther than H.R. 1362 to address the issues that we have identified, so the Administration's bill would be less costly.
    Mr. STEARNS. But at this point, you can't say how much less costly. You just feel intuitively that the Administration's—and remember now, just for the members here, the difference between the Administration and our bill—the general intent is the same.
    It's just, as I understand it, Ms. Buto, the number of sites, and instead of having—you have fee for service plus HMO or managed care. So you have that nuance. Is that true?
    Ms. BUTO. That's true. Number of sites is one of——
    Mr. STEARNS. And how many sites do you have?
    Ms. BUTO. We have a total of——
    Mr. STEARNS. Eight?
    Ms. BUTO (continuing). Probably eight.
    Mr. STEARNS. Eight. And we have three.
    Ms. BUTO. Yours has three geographic areas, and we understand that may be a number of sites. It looked like a much broader geographic spreading. It may be our misunderstanding, and you've just intended three sites.
    Mr. STEARNS. Okay. Well, we put a cap on this.
    I think, Mr. Van de Water, what you're saying basically is the VA hospitals will see this demonstration as the ability to cost shift. Isn't that sort of the summary of your reasons? They'll figure out a way to——
 Page 17       PREV PAGE       TOP OF DOC
    Mr. VAN DE WATER. That could well be the result.
    Mr. STEARNS. Okay. So what we're doing is going to incentives here. Is there incentives in place to make this a cost savings?
    Now, as I understand it, Medicare is going to give a 5 percent discount for the VA to do these services. So isn't it in the best interest of the Veterans' Hospital, at least for the demonstration, to make this work and not cost shift? And, in fact, don't you think if I was an administrator, or you were an administrator, wouldn't you say, ''golly, let's get this thing to work,'' you know, at least during the pilot project?
    Mr. VAN DE WATER. The problem isn't the lack of incentives, Mr. Chairman. The problem is trying to identify this maintenance of effort. As Dr. Vladeck, the administrator of HCFA, said in testimony that he gave before the Ways and Means Committee last year, the VA health care system, in his words, is not very sophisticated and is not very far along in being able to estimate its existing level of effort with regard to the targeted veterans for whom this demonstration would provide.
    As we work with VA, if we can reach some understanding as to what the current level of effort is, and if we think that the demonstration would assure that VA continued to provide that maintenance-of-effort level, then no costs would attach to the proposal. But——
    Mr. STEARNS. Well, that's what we're trying to do. You're citing here the reasons why you think there will be a cost overrun, it will cost above the cap, and we're trying to find out which are the reasons that we can correct, either through the Administration's bill or our bill, because I think honestly that the Administration and Congress and the Veterans' Hospital, and the veterans, all want this VA subvention bill. So what we have to do is incorporate your ideas, if we think so.
    But when you say the VA hospitals are not sophisticated, wasn't that public testimony on the basis of fee for service? It was managed care they were talking about and not the fee for service, because they understand fee for service after all of these years, but they're not sophisticated in terms of managed care. Isn't that true?
 Page 18       PREV PAGE       TOP OF DOC
    Mr. VAN DE WATER. VA is not collecting fees for most of the care that it delivers, so I wouldn't use that terminology.
    Mr. STEARNS. Ms. Buto, do you mind commenting on what specifically the CBO says is wrong with this bill in terms of how it will create cost overruns?
    Ms. BUTO. Yes. I actually——
    Mr. STEARNS. Because what you explained in terms of your accounting measures in your administration, it sounds like you'd be able to monitor this pretty carefully.
    Ms. BUTO. There were two things that I think the CBO testimony pointed out that our bill directly addresses that H.R. 1362 doesn't address or addresses in a different way. Let me just mention what they are.
    The first one has to do with removing medical education and some of the kind of funding that Medicare pays that are capital funding for facilities that are covered by the VA appropriation. We would take that out of our payment, so that some of the issues of, if you will, duplicate payment by Medicare would be removed under our proposal.
    The other issue which was raised, which is not particularly in our bill but which we are discussing in the memorandum of agreement, is that in, for example, our DOD subvention proposal and memorandum of agreement we do not pay for the non-covered costs that Medicare, in a benefit package, doesn't cover, like drugs. We don't cover certain benefits.
    Again, we would take those out. I think CBO specifically raised the issue in its testimony about counting those in the level of effort when, in fact, they are really not comparable to what Medicare would be spending. So those two differences are the kinds of things which I think there is room for improvement as we try to work these numbers. They are pretty easily defined.
    The harder question is the one that Mr. Van de Water raised of getting good data on how much are we spending on the people who are going to be using the demonstration, the Category ''C'' eligible individuals. We don't have very good information on that, and that is going to be the reason we want to reconcile at the end of the year, to see what actually was spent and try to figure that out more precisely. That's why we have some of those requirements in the bill.
 Page 19       PREV PAGE       TOP OF DOC
    Mr. STEARNS. Okay. My time has expired. We can make those changes, the two changes—Congress can—that the Administration is suggesting to get a better bill. So I thank you.
    And now I'll recognize the ranking member, Mr. Gutierrez.
    Mr. GUTIERREZ. Thank you very much. I just want to follow up, Chairman Stearns, because I think this issue needs some clarification.
    Mr. Van de Water, you indicated in your testimony that you believe that H.R. 1362 would give the VA incentives to provide more uncovered, and presumably inappropriate, care to Medicare eligible targeted veterans, taking additional resources from Medicare Trust Fund beyond what this bill would authorize. Is it really CBO's contention that the VA would resort to providing unnecessary care to game the system by the VA?
    Mr. VAN DE WATER. Absolutely not, Mr. Gutierrez. That was certainly not our suggestion. We were focusing on the issue that Ms. Buto raised of distinguishing between services that VA provides that are covered by Medicare and those that are not.
    The services that VA provides that are not Medicare-covered services are surely appropriate services. But if VA were to substitute that type of service for services that are covered by Medicare, and were allowed to count that against its maintenance-of-effort requirement, then there would be a substitution of costs from VA to Medicare. However, there would be no issue of any inappropriate services being delivered.
    Mr. GUTIERREZ. Do you think that we can work these differences out so that we could come up with more certain numbers and more certain strategies? And what kinds of things can we do to accomplish that?
    Mr. VAN DE WATER. I think that certainly most, if not all, of these differences can be resolved. As Ms. Buto indicated, the issue of distinguishing between services covered by Medicare and those not covered is addressed in the memorandum of understanding that the Administration is developing. It was not addressed in H.R. 1362, but that should be taken care of.
 Page 20       PREV PAGE       TOP OF DOC
    In terms of the adjustments to the maintenance of effort that are allowed in H.R. 1362, those adjustments could be deleted, as they are in the Administration bill.
    Also, in terms of determining what the current maintenance-of-effort amount is, we would be happy to work with both VA and HCFA to try to clarify what that level is. But, to quote Ms. Buto, we don't have very good information, and that is precisely the problem. But we will work as hard as we can to get these differences resolved.
    Mr. GUTIERREZ. Dr. Kizer, well, we know that the CBO believes if this subvention legislation is enacted the VA will underestimate the level of health care that it has been providing to Medicare eligible veterans, almost so that it can shift health care expenditures to Medicare Trust Fund.
    I mean, sometimes I read it, and I know Mr. Van de Water would probably take exception, but it's almost as though the people at the CBO believe that you folks over at the VA are going to do some pretty underhanded stuff. And given your earlier comments, maybe you could just shed some light on what this committee should know about what the CBO is saying about what you're going to do, so that we can help clarify who is on first and who is on second, and just what is going on here.
    Dr. KIZER. Let me try to respond to you in a couple of ways. One, I think our initial reaction in reading their testimony was that we were considerably offended, because the absolute clear implication of their statement is that we would commit fraud, and that is just wrong!
    There is absolutely no intent to do this. And perhaps we may have overreacted to their words. After hearing Mr. Van de Water, his comments provide some level of reassurance that maybe that wasn't what they were saying. Maybe it was based on something else. But I think we need to continue these discussions.
    Second, I guess I would note that all of the points contention, or at least all that we understand are points of contention or disagreement, here are things that seem like technical details that we can work out in a way that would reassure everybody, and that would provide the requisite comfort level that would be necessary to pursue this.
 Page 21       PREV PAGE       TOP OF DOC
    And just two other points. The third one is that it's our belief, our strong belief, that this pilot would not only be beneficial to veterans and would allow them some increased freedom of choice, but that it would also be salutary to the Trust Fund, because while, as Ms. Buto has noted, VA would be paid 95 percent less a number of other things, so that the net amount would probably be closer to 90 percent of what would be paid to the private sector. This would equate to a substantial savings to the Trust Fund.
    And finally, the last point I guess, is having run the Nation's largest Medicaid program for a long time, I have considerable confidence in the ability of the HCFA auditors, as well as GAO auditors, to uncover and find any little potential that someone might be claiming something that is not what they are entitled to. It certainly was never my experience running the MediCal program that anything at all got by the auditors.
    Mr. GUTIERREZ. Thank you. Well, I'm not going to follow up, because I know there are other people, and we've got a couple of doctors here that can help figure this out for us also.
    But I would just like to finish by stating that, Mr. Van de Water, certainly I know that members of the committee want to continue to work with you over at the CBO so that we can gain better service for health care for our veterans in terms of working on the numbers. And I appreciate your comments earlier in response to my initial question.
    You know, it wasn't only my reaction, but the reaction of the staff as we evaluated the comments made by the CBO in response to this. We kind of share the sentiments of the people at the VA that a reading of it can be interpreted as less than favorable in terms of the intentions and what they would do under circumstances.
    So thank you so much, Mr. Van de Water, for being here. I really look forward to working with all of you.
    Thank you, Mr. Chairman.
 Page 22       PREV PAGE       TOP OF DOC
    Mr. STEARNS. Thank you. Dr. Cooksey.
    Dr. COOKSEY. Thank you, Mr. Chairman.
    Let me preface my remarks by saying that I have some concerns about this whole concept of subvention. I assume that you, Dr. Kizer, were in the military during the Vietnam period also. You're a physician.
    Dr. KIZER. That's correct on both counts.
    Dr. COOKSEY. And, you know, during that time period, the people in the executive branch of government, from 1963 through 1969 at least, at best were dishonest with the American public, and certainly with those of us in service. And possibly, at worst they were derelict in their duty.
    And so I am concerned about a concept where you're not appropriating the money to the veterans that they deserve. I think that the veterans should have the money appropriated. Period. End quote. And not depend upon some questionable economic device or mechanical device.
    But that said, it is my understanding that the Veterans Administration expected to move into a managed care concept, and you really haven't, as we alluded to earlier, been involved in managed care. Most of us that have been in the private sector have not been in managed care as much as you have in California.
    But how will they make this transition and make it work and make it, number one, provide quality of care for the veteran?
    Dr. KIZER. A couple of things. One, I would just note that the philosophical perspective that you advance is one that I couldn't disagree with. I guess part of the problem in that regard is that the reality and what we philosophically might both agree to may be in some conflict here, that is, there seems to be a conflict between philosophy and the budget realities of the future.
 Page 23       PREV PAGE       TOP OF DOC
    From a quality of care perspective, let me say that having worked in the private sector and worked with large managed care companies, as well as overseeing the care that is provided by private hospitals, I have no doubts at all that the care that is provided in the VA is absolutely on par with what is provided in the private sector.
    And if you consider things like the JCAHO accreditation scores, you note that the VA is significantly higher than the private sector. That is not to say that problems don't occur, and that human errors don't occur, however, in the aggregate, VA care is of very high quality.
    Also, it is, I think, of note that some of the things that we have put in place in the last 2 years as far as our evolving comprehensive approach to quality care management is increasingly being viewed by others as really a model of what or how one should approach quality in a large system. That begins with things such as accreditation and credentialing, and then puts in prospective measures like clinical guidelines, and ends with detailed evaluation. This is a full, comprehensive approach to quality of care. And I'd be happy to talk with you in more detail about the specifics of this, should you want to.
    Dr. COOKSEY. Good. Well, you know and I know that, as physicians, quality of care should be the determining factor in the direction of health care and not cost of care. When you have quantity of care, the physicians are involved and you are concerned about the welfare of the patient. When you have quality of care, you have bureaucrats, you have business people, you have MBAs, and they don't always really understand what quality of care is.
    So I feel very strongly that it should be quality of care that is our criteria. When we have quality of care, it will ultimately result in a reduction of cost, because that is a proven principle. It's there. It's known. It is unquestionable in my mind.
    Another concern I have——
 Page 24       PREV PAGE       TOP OF DOC
    Dr. KIZER. Let me just, if I could, interject one thing.
    Dr. COOKSEY. Sure.
    Dr. KIZER. Because I agree with that. The one unique opportunity that the VA has here, and it's something that we're trying to capitalize on, is applying managed care principles in an environment where the for-profit motive is not the driving factor.
    As I think you well know, what is occurring in the private sector and what is of concern increasingly to the public, as well as elected officials, is how managed care principles are being distorted or taken down the wrong path, because they are being driven too often by a for-profit motive, which sets up a whole different mindset than applying those same principles in an environment where the driving force is quality of care.
    I think the VA has the opportunity to utilize some of these principles in an environment that is not driven by returning another penny of earnings to the shareholder at the end of the quarter.
    Dr. COOKSEY. One other quick question. In looking over Dr. Spagnolo's testimony, it is my impression that the administrators of the hospitals are going to have a lot of latitude to make some—really arbitrary decisionmaking in their reduction in force of their staff. What protections are there to protect physicians who might otherwise be willing to stand up and say, ''Look, there is a problem with quality of care''? And they know that if they stand up and speak out and do what is best for the veterans, they may be a victim of this RIF process under this rather arbitrary decision system.
    Dr. KIZER. Well, a couple of things. One, the decisions are not arbitrary; the basis for making the decisions are really driven by things like needing more primary care practitioners, as opposed to specialists, in certain areas. As we look at merging and consolidating some of our facilities, we can get more out of some of the existing workforce. And so the decisions are not in any way arbitrary. They are predicated on some goals and directions aimed at improving the quality of care that we provide.
 Page 25       PREV PAGE       TOP OF DOC
    The other thing—and I think it really can't be ignored—is that as civil service employees, the level of protection that is afforded, and the rules by which reductions in force have to be accomplished, are very clearly specified and stated in law. The protections that are afforded to our employees in general, including physicians, go way beyond anything that you would find in any other setting.
    Dr. COOKSEY. Thank you.
    And thank you, Mr. Chairman.
    Mr. STEARNS. Thank you.
    Dr. Snyder, do you have any questions?
    Mr. SNYDER. Yes. Thank you, Mr. Chairman.
    Mr. Van de Water, you may have said this in your written statement, but do you have any opinion on this issue of should the subvention study include the capitated part of it?
    Mr. VAN DE WATER. CBO does not make recommendations for or against particular pieces of legislation. So——
    Mr. SNYDER. Are you satisfied that if the capitated part of it is included that the resources are there, and the framework, to do an adequate study of both the capitated and the fee for service?
    Mr. VAN DE WATER. We have not seen the memorandum of understanding to which Ms. Buto referred. We would assume that the appropriate provisions were being made, but I can't vouch for that because we have not been involved in those discussions to date.
    Mr. SNYDER. Thank you. Dr. Kizer, as I talk among committee and staff, I think this issue of the capitation in the Medicare subvention study is a pretty big issue with this committee. A few questions on that.
 Page 26       PREV PAGE       TOP OF DOC
    If we don't do the capitated part of the study and just do the committee's bill with the fee for service, what impact down the line does that have on your 30–20–10 plan?
    Dr. KIZER. A priori it wouldn't have any specific impact. What you would lose, though, is the opportunity to do an assessment of that question. And I think if you're going to give the idea of subvention a fair test, you need to look at both options.
    And, of course, as Ms. Buto and, I think, I may have noted, there are many provisions in the agreement that should it not be working, either from a fiscal point of view or a quality of care point of view, we could stop the test at that point. But we do not expect that would happen.
    I think if you're going to adequately test Medicare subvention, you need to look at both models, particularly insofar as the rest of the country is so rapidly moving to managed care. It's something we need to look at.
    Mr. SNYDER. You're currently taking some third-party payments that go in the general treasury. Is that all fee for service, or do you have any capitated contracts around the country?
    Dr. KIZER. It's the reimbursement from the private payers, and it's essentially all on a fee for service basis.
    Mr. SNYDER. I think Mr. Gutierrez made the comment in his opening statement, and I've heard this criticism also and have talked with at least one hospital administrator, there is some concern that the managed care aspect of it, the capitated part of it, may increase the volume of patients, that it will cause some problems with higher priority veterans getting the same level of care. Do you have some comments on that?
    Dr. KIZER. One of the things that has been very clear, I think both in policy and in some of the program changes, is that we view our commitment and our mission to take care of those veterans first and foremost and above any other operating requirements. Indeed, in the new veterans equitable resource allocation methodology, the reimbursement from appropriated funds is solely targeted to Category ''A'' veterans, or those who have higher priority for access to VA health services. I think that should, and certainly for our administrators certainly does, send the message that Category ''A'' veterans are our first and foremost priority.
 Page 27       PREV PAGE       TOP OF DOC
    I think it is important to understand that insofar as there are lots of fixed costs built into providing health care, and if there is excess capacity in some areas, then VA could take care of a certain number of higher income patients for very small marginal costs that would bring some revenues with them, and enhance our ability to take care of more of those Category ''A'' veterans who don't have access to other health care.
    So, it basically becomes a win-win for both higher income veterans who might choose to be taken care of at the VA and Category ''A'' veterans who may not have access to other sources of care.
    Mr. SNYDER. If I am a VA hospital administrator, and I see this plan coming down the pike—and put yourself in the posture of you're going to be the hospital administrator—what problems is this study going to create for me as a hospital administrator at a busy VA?
    Dr. KIZER. The problems, in my mind, would largely be logistical. That's why, as we have worked with HCFA, in reviewing initial site selections we have identified facilities in our current array of assets that are more prepared than others to do this as far as the sophistication of their cost accounting systems, their billing systems, their utilization management, and other things, which are all essential. Those improvements are being put in place in all facilities, however, some are more advanced than others at this time. As part of the site selection criteria, those are the sorts of things that are being looked at.
    So I don't know that there are any a priori things that would cause me great concern, other than the fact that the level of accountability that will be required, from a quality of care as well as from a fiscal and other perspectives, may be ratcheted up a notch higher. But it's happening everywhere in the system anyway, and it's really just a matter of timing.
    Mr. SNYDER. Thank you, Mr. Chairman.
 Page 28       PREV PAGE       TOP OF DOC
    Mr. STEARNS. Thank you. Mr. Peterson.
    Mr. PETERSON. Well, we have a vote. I apologize for being late.
    Mr. STEARNS. Okay.
    Mr. PETERSON. I had another——
    Mr. STEARNS. That's fine.
    Mr. PETERSON. So I don't know what has been asked, so I think I'll just pass.
    Mr. STEARNS. Well, I think what we'll do is come back after we vote, and we'll do another round of questioning, just for 2 minutes. Because, you know, I think what we're trying to do is come up with ways we can improve the bill, and the Administration has pointed out some good ways. And hearing the testimony of Ms. Buto has given us some ideas, too.
    So we're going to come around for another 2 minutes after we vote, so I appreciate your patience.
    The subcommittee is adjourned temporarily.
    Mr. STEARNS. We'll reconvene the hearing on the Subcommittee on Health and continue our questioning with Mr. Peterson.
    Mr. PETERSON. Thank you, Mr. Chairman, and again, I apologize for being late and hope that I am not rehashing some ground that has been covered.
    But what I am concerned about is this estimate, Mr. Van de Water. Could you explain to me again how you came up with this $50 billion? In talking to some other members, they weren't totally clear on all of the points that——
    Mr. VAN DE WATER. Certainly, Mr. Peterson. The issues, as Dr. Kizer indicated shortly before the recess, are indeed somewhat technical. That is a good way of describing them. But they are important for determining the budgetary effect of the proposal.
 Page 29       PREV PAGE       TOP OF DOC
    The single most important issue affecting the $50 million estimate for H.R. 1362 is defining what types of services are counted in assessing whether VA is meeting its maintenance of effort requirement. VA provides certain medical care services that go beyond the package of benefits that is covered by Medicare—for example, long-term care and pharmaceuticals, to name just two.
    To the extent that VA is providing those types of services to the targeted veterans, those should not be counted towards the maintenance of effort requirement, because they are not services that Medicare would have been providing to those patients.
    This is a matter that is easily rectified. Ms. Buto indicated that it is addressed in the draft memorandum of understanding that is being developed between HCFA and VA. However, it is not yet a provision of H.R. 1362, and we were asked to address that particular bill.
    Mr. PETERSON. So how much of the $50 million is that?
    Mr. VAN DE WATER. Probably about half of that.
    Mr. PETERSON. Okay. And you think that that can be fixed, meaning that there's a way——
    Mr. VAN DE WATER. Yes.
    Mr. PETERSON (continuing). To fix this legislation——
    Mr. VAN DE WATER. Yes.
    Mr. PETERSON (continuing). So that the cost can be eliminated?
    Mr. VAN DE WATER. Actually, I misspoke. At least half of the $50 million is attributable to the factors that have already been identified this morning that are easily fixed.
    Mr. PETERSON. Okay.
    Mr. VAN DE WATER. The definition——
 Page 30       PREV PAGE       TOP OF DOC
    Mr. PETERSON. That was what I was trying to get at in asking these questions, is there a way that we can address this issue so we—because I think if we end up with a $50 million cost, we're going to have problems. And we have to have some way or another to figure out how to get around this.
    Mr. VAN DE WATER. As I indicated earlier, Mr. Peterson, I think all of these problems are potentially fixable, and the Administration in the testimony this morning has already indicated ways that could resolve at least half of that issue.
    Mr. PETERSON. But the other half that is not——
    Mr. VAN DE WATER. The other half, as I say, is potentially resolvable, but it involves further discussions in terms of these data that Ms. Buto indicated are not in very good shape at this point.
    Mr. PETERSON. So you can't—nobody can give us an indication of how we could address the other $25 million?
    Mr. VAN DE WATER. It can be resolved through discussions between HCFA, VA, and ourselves to try to clarify what the current level of effort is.
    Mr. PETERSON. But it's going to take some time, in other words. You don't have an answer right here today?
    Mr. VAN DE WATER. It can't be resolved this morning, no.
    Ms. BUTO. If I could just make a comment. I think one of the reasons for the cap in our proposal is to specifically address that. In other words, once expenditures reach the level that people agree is appropriate given the population, they would be capped. That will ensure that no more money, no more cost if you will, goes into the program. That will assure—it's like an insurance policy.
    Mr. PETERSON. One other thing—after having gone through this budget situation and gotten this surprise on Thursday night that all of a sudden CBO found $225 billion, or whatever it was, you know, and having sat through all of these meetings where they were arguing between OMB and CBO, does OMB look at bills like this one? And do they agree—is there an agreement between OMB and CBO on this bill, or not? Can anybody answer that?
 Page 31       PREV PAGE       TOP OF DOC
    Mr. VAN DE WATER. I certainly can't speak for the Administration, but I have not seen its estimate of H.R. 1362. And indeed, I think your panel agrees that on some of the issues that distinguish H.R. 1362 from the Administration proposal——
    Dr. KIZER. I would just note that OMB has been an intimate partner throughout the discussions with HCFA. They have looked at this, and everything else we do, with a very high power microscope, as far as fiscal implications. While I can't comment as far as their agreement with CBO, I can assure you that they have looked at this with a lot of resolution and are as confident as HCFA that there are provisions in there that will protect the Trust Fund.
    Ms. BUTO. Just to clarify, we do not have an administration estimate on H.R. 1362, and we don't have one on our bill until we complete the particulars that we're still working out, such as the cap, and so forth.
    Mr. PETERSON. Okay. But the net—the probable result of that will be that there will be some massaging of this legislation, and whatever the final—whatever OMB gives you is going to say that it's cost neutral. That's going to be the result of this.
    Ms. BUTO. Again, we are trying to work out the details of what we think the cap should be. In other words, what we project we'll be needing to spend for this. The issue will be, then, how it is scored. So it is sort of a two-step process, and it will be iterative. Our obvious goal is to try to make it cost neutral to the Trust Fund, but we'll have to go through that process to find out.
    Dr. KIZER. Well, I think, to answer your question more directly, a basic tenet of this discussion from the outset, starting 2 years ago, is that it has to be budget neutral. Indeed, we believe that it will not only be budget neutral but that it will create savings for Medicare.
 Page 32       PREV PAGE       TOP OF DOC
    Mr. PETERSON. My time is just about up. What is this cap? You say you're going to cap it.
    Ms. BUTO. We're going to put——
    Mr. PETERSON. Is that going to have the impact of cutting some people out of this, or limiting it? Or what is this cap?
    Ms. BUTO. No. The cap applies to Medicare payments to the VA for this demonstration. And what it means is we will estimate how much medicare will be reimbursing the VA for these services. And it is sort of, as they say, an insurance policy or an upper limit for what we will pay. But no, people will continue to get services. Many of these people are getting services now through Medicare.
    Mr. PETERSON. But it will limit the amount of the people that can go into the demonstration project.
    Dr. KIZER. That's correct. Another way of looking at it is by setting a cap that limits the number who can participate in the pilot.
    Mr. PETERSON. Okay. Thank you.
    Thank you, Mr. Chairman.
    Mr. STEARNS. Thank you.
    Now I'll continue with just 2 minutes, another round quickly, of questions.
    Dr. Kizer and Ms. Buto, what are your views on the recommendations of the Non Commissioned Officers Association that military retirees should be a targeted priority under VA medical care subvention legislation? And what do you think the selection criteria for this demonstration project should include for the location of participating facilities?
    So you've got sort of two questions in one, if you would be so kind as to address that.
 Page 33       PREV PAGE       TOP OF DOC
    Dr. KIZER. The selection criteria, as far as sites, include a whole host of things, such as the ability of the potential designated sites or the robustness of their cost accounting systems, their billing utilization management, and all of those infrastructure things that exist.
    It would include things such as what is the overall market, health care market there as far as penetration of managed care, other things, what are the socioeconomic demographics of the population, and what would be the demand. And there's quite a number of other things that we'll be happy to articulate in more detail.
    As far as the preference of one group or another, our first and foremost priority has been to make this an option for those persons who are both veterans and Medicare eligible, and meet the fiscal criteria that have been noted earlier.
    As far as prioritizing among those veterans who are Medicare eligible, the pilot would not do that. And indeed, I think there may be some philosophical reasons why that might not be appropriate to try to prioritize. What we'd like to do is to make it an option and open for those who would choose to get their care at the VA facilities.
    Mr. STEARNS. Ms. Buto.
    Ms. BUTO. I wouldn't add very much to what Dr. Kizer said, except to say that one of the issues of the capacity of the system, that the system is already being taxed. And it probably is not as good a candidate as one which has more capacity and more ability to provide both outpatient and inpatient services.
    Mr. STEARNS. I'd like both of you, if you would, to submit for the record your site criteria, so that we have it in writing and we have the testimony. But if you might give us more details, Ms. Buto and Dr. Kizer.
    Dr. KIZER. I'd be happy to.
    Mr. STEARNS. So, Dr. Kizer, you, briefly, don't agree with the Non Commissioned Officers Association that military retirees should be the targeted priority, is that my understanding?
 Page 34       PREV PAGE       TOP OF DOC
    Dr. KIZER. Well, I think it would not be appropriate for us to designate a veteran as—or because they belong to one organization or another, as having higher priority than others. We have set criteria as far as meeting some threshold things, income and other criteria such as that.
    Ms. BUTO. The other thing to mention about that is that we are undertaking a similar pilot project, or we intend to, with the Department of Defense involving military treatment facilities. Military retirees are obviously the group we're looking at there. So there will be opportunities, both in this demonstration and in the DOD subvention demonstration, for participation.
    Mr. STEARNS. Okay. My time is up. Dr. Cooksey.
    Dr. COOKSEY. Thank you, Mr. Chairman.
    Ms. Buto, we've got something going on with HCFA that is of concern to the medical professional's practice expense issue. Hopefully, you're not involved with that. But, you know, HCFA was given a mandate by the 104th Congress, our predecessor, to come up with a solution by January 1.
    The model that they chose—the question there, you know, was not responded to. There was a poor response. As a result, they have really chosen at one point to use what we consider a flawed model to determine what the solution should be. The methodology, the idea of saying, ''Well, we don't really have an accurate way of evaluating this, but we'll do this because even though it's not accurate, we've got to do something by this deadline.''
    Now, what can you do to assure me that nothing is going to be done like that for our veterans, or against our veterans, or to the detriment of our veterans?
    Ms. BUTO. Let me comment on that first. We do have a deadline, but the methodology really involved convening 15 physician panels to tell us what the direct cost to their practice was. We had 15 different panels, different specialties, and so on.
 Page 35       PREV PAGE       TOP OF DOC
    The issue around the survey had to do with indirect costs, which were 45 percent of the payment. And almost any business, including Medicare, has to figure out indirect costs using some kind of a formula. What we hoped the survey would do was to help us make it more specialty specific, and we're looking at some ways to do that.
    But it is achievable, we believe, in the timeframe we have. We're working toward that, and we hope within the next, really, few weeks to have a proposed rule out with plenty of time over the next year or so to refine the values and to look at things like whether we ought to make changes in them. So I think—and I know Congress is considering whether we ought to phase them in rather than doing them all at once. And there are a number of things going on to look at the issue that you raised concerns about.
    So, you know, I guess I would differ with you a little bit about whether or not this is a flawed process. I think the reason concern is around the fact that it is all happening at once. There is no transition, no phase in, as well as some of the issues of the methodology.
    On this one, on the VA subvention demonstration, we're really talking about well established payment system models—the inpatient payment system under the fee for service, as well as the RVS system, whatever fee schedule we use, and other supply systems as well. And our capitation method, which is based off of fee for service, will be used in the capitation or the HMO side of the demonstration.
    One of the things to point out about these different methods is that they are really just payment methods, so that the capitation method under the managed care model allows the VA to take the whole Medicare set of dollars, if you will, and manage those dollars and use them appropriately to bring in more primary care, more outpatient services, etcetera.
    It is hard to do that under fee for service, because most money gets paid for inpatient services. If you don't have an inpatient admission, the VA is not going to get dollars for that foregone admission. And so they have a hard time converting that money into more services. The managed care capitation approach allows them to use that more flexibly, and that's really the idea behind trying it out under the demonstration.
 Page 36       PREV PAGE       TOP OF DOC
    But to answer your question, the methodologies are well established. They're what we're using now and have been using for many years.
    Dr. COOKSEY. Well, the net result, though, whether you're in the private sector, the public sector—and I hope it does not happen with the veterans—if the dollars are not there to pay the cost of running the system, health care is not delivered. I don't want that to happen to our veterans.
    Ms. BUTO. And we don't want that to happen to any Medicare beneficiaries, veterans or other individuals. And we do a yearly report as does the Physician Payment Review Commission, and an assessment and survey, to figure out where or if there are any access problems related to beneficiaries getting necessary care. Neither we nor the PPRC have found that there are access problems related to these payment systems as yet.
    And obviously, we need to do more in the area of managed care to see what is going on. We're planning to do a survey of beneficiaries to find out if they are satisfied in feeling like they have access to needed services. That is the kind of thing, and the quality protection we would build into the demonstration model.
    Dr. COOKSEY. Thank you.
    Thank you, Mr. Chairman.
    Mr. STEARNS. I thank the member. Dr. Snyder.
    Mr. SNYDER. Thank you, once again, Mr. Chairman.
    Mr. Van de Water, a brief answer if you would, please. Following up on what Mr. Peterson had to say trying to resolve the second half of the $50 million, is it fair statement to say that what you're talking about is you all sitting down as analysts and researchers and administrators and probably through your memorandum of agreement being able to work out the bulk of that, not talking about a rewrite of the bill or major changes in the bill, is that a fair statement?
 Page 37       PREV PAGE       TOP OF DOC
    Mr. VAN DE WATER. It might well be necessary to reflect some of——
    Mr. SNYDER. Some of that.
    Mr. VAN DE WATER (continuing). Some of this in the legislation, yes.
    Mr. SNYDER. Okay. Thank you.
    And, Ms. Buto, again I want to go back to this managed care aspect, the capitated part of it, because I think that is an issue for some members. We're talking now about extending managed care capitation to the VA system. But is it not a fair statement to say that we're still doing some struggling with Medicare capitation in the private sector? I mean, you must have some ongoing discussions about rates and fees. I mean, I'm certainly hearing from my physician friends that the facts aren't in on that yet.
    Ms. BUTO. Medicare pays HMOs and Medicare under a formula. We really don't get to negotiate. In fact, the President's budget essentially asks for more authority to do some of that purchasing, but there is a formula that is in the statute.
    The negotiation you're talking about occurs when the HMO takes that total capitation payment, if you will, and they say then to a physician group, ''Okay. We're going to negotiate a fee with you.'' And there has been some dissatisfaction at that level.
    We just issued this year a regulation that talks about what kind of physician incentive arrangements managed care plans can have, what kind of indemnity or insurance they have to provide to make sure the physician does not feel at risk in ways that would damage the quality of care. These are complicated rules, but they give us better assurance that that relationship will be protected, the physician will be able to provide the needed care.
    There have been a number of other things put out lately, sort of mammography area—the breast cancer surgery area, where there was concern about outpatient breast cancer, and so on—these kinds of protections that we have supported and put into Medicare as well.
 Page 38       PREV PAGE       TOP OF DOC
    Mr. SNYDER. And, Dr. Kizer, I want to give you a chance to say anything you want to about the managed care aspect of it. The issue comes up that—and maybe it's a criticism of the 20 percent part of the 30–20–10 plan, which is VAs are busy enough, the lines are long enough, the waits are long enough. Won't the managed care part of it just exacerbate those particular problems? And then any other comments you have on the managed care.
    Dr. KIZER. Actually, no, I think the managed care aspect would enhance our ability to deal with that, because it really reinforces the fiscal incentives to optimize the location and venue of care. And, you may not know, but one of the things that we have done over the last 18 to 24 months is put in place managed care principles in the VA. For example, we have now sited or are in the process of siting 90 new community-based outpatient clinics, which are having a very beneficial effect as far as decreasing waiting times and increasing access. Likewise, as we pursue other things like increasing the amount of surgery that is done on an ambulatory basis, we're seeing waiting times drop, productivity increase, and overall quality of care improve, as reflected and measured by rates of complications and other things.
    So again, really, the opportunity that exists here, and which we feel so strongly about, is being able to operationalize some of these principles in a way where the return on investment, if you want to think of it in those terms, is really the quality of care, the improved access to care, and the increased value of the health care that is provided. It is not driven by solely fiscal motives, but how we can get the most health care return out of the dollars that we have.
    And we think that a managed care model is certainly something that we need to test, as well as a fee for service model.
    Mr. SNYDER. Thank you, Dr. Kizer. I think I agree with you, by the way. I just wanted to give you the opportunity to make your cases here.
 Page 39       PREV PAGE       TOP OF DOC
    Thank you, Mr. Chairman.
    Mr. STEARNS. I thank the member. Mr. Peterson.
    Mr. PETERSON. Well, I'm trying to figure out how this is all going to work. You know, we have been—our group, the blue dog Democrats, have been working on this budget and Medicare, and we know enough about this to be dangerous. But I have become convinced, you know, that where we need to go is get away from this managing things with price controls and getting to some kind of competition model and opening up the system and Medicare so people can have choices, and so forth.
    And apparently, we don't really know what is in the budget agreement. Nobody will really tell us. They say that it's along the lines of what the blue dogs put together, but we'll see.
    But anyway, my question is, I'm trying to understand how this is going to play out. If we get what was in there, you know, we're going to raise the AAPCC in the rural areas, and we're going to I think maybe set up a climate where we're going to get—actually get some choice and get some things happening.
    So what I'm trying to figure out listening to all of this is, how is this actually going to work? Beyond the demonstration, how is this going to phase in and how quick would we get to the point where the VA would be a complete choice that somebody could make just like an HMO or whatever else? Number one.
    And, number two, have you folks been in the loop on whatever is being done down there with Medicare? Are you at the table? And is this going to get to be part of the deal? Maybe this is above your pay grade.
    But, you know, we're having a meeting this afternoon, our group. We're not going to give up on this Medicare thing. We are going to—if they go off in the wrong direction, we're going to do our own bill and try to force them back to where we think they ought to go. And so I'm just kind of trying to get the lay of the land here in kind of broad terms of how this is going to fit in, and where this is going, and is there some way that we could be helpful to get where we need to go.
 Page 40       PREV PAGE       TOP OF DOC
    Ms. BUTO. The folks in our Department and at OMB who are working on the Medicare budget are working on this as well. It's all part of the same package. So you can be assured that everybody who is working on this is in the loop on the broader Medicare issues. That's why we built in so many protections, as you can tell, in the methodology. So there is that issue.
    We don't—on the issue of expanding choice and raising the floor for HMO payments, we think this is very consistent with that overall approach. That approach really goes to the question of fairness in the HMO payment. And we think this will—and increasing choice, and we think this will go very much in the same direction.
    This is a pilot project, so we're not saying when it will actually become a regular option. That's the point of the pilot is to figure out how to make it work in a way that could be looked at.
    Mr. PETERSON. I guess the one concern I have is: are you putting so many safeguards and so many caps on it that it maybe won't work?
    Ms. BUTO. We don't think so. We think it's quite viable this way.
    Mr. PETERSON. Well, I hope that that is, in fact, the case. It sometimes——
    Ms. BUTO. The alternative is that there is a bigger drain on the Trust Fund, and it is one that we think is not appropriate.
    Mr. PETERSON. Thank you.
    Mr. STEARNS. I thank the member.
    I want to thank panel one for your patience while we interrupted with a vote, and I appreciate sincerely your coming here this morning.
    And now we'll take panel number two.
 Page 41       PREV PAGE       TOP OF DOC
    Dr. KIZER. Thank you, Mr. Chairman.
    Mr. STEARNS. Good morning to the panel number two, which includes John Vitikacs, Assistant Director of the National Veterans Affairs and Rehabilitation Commission, American Legion; Joe Violante, Deputy National Legislative Director, Disabled American Veterans; Richard Wannemacher, Jr., Associate National Legislative Director, Disabled American Veterans; Dennis Cullinan, Deputy Director, National Legislative Service, Veterans of Foreign Wars of the United States; and Colonel Charles C. Partridge, U.S. Army (Retired), Legislative Counsel, National Military and Veterans Alliance.
    Gentlemen, I want to welcome you, and we look forward to your opening statements.



    Mr. VITIKACS. Chairman Stearns, members of the subcommittee, good morning. The American Legion appreciates the efforts of the subcommittee for initiating measures to generate new non-appropriated revenues for the Veterans Health Administration. Topics under consideration today are critical to the future of the Veterans Health Administration.
 Page 42       PREV PAGE       TOP OF DOC
    The American Legion supports the concepts underlying the pilot Medicare subvention program and the draft bill on the recovery of third-party receipts. The Congress must create and test new funding streams to provide creative solutions to VHA's funding predicament. The proposals under consideration present a sincere effort to strengthen, support, and sustain an essential national resource.
    Mr. Chairman, the measures contained within H.R. 1362 should be applied as appropriate to both acute hospital and chronic long-term care and community-based treatment programs. Once a veteran qualifies for VA health care, all public and private payment options should be considered. The American Legion suggests incorporating both fee for service and a management care model in the Medicare subvention program. It is important to measure patient satisfaction with each model and the relative cost savings.
    The American Legion appreciates the recent House Veterans' Affairs Committee recommendation to include a funding increase of $641 million above the President's fiscal year 1998 VA medical care budget request. The American Legion is concerned about the uncertainty of VHA attracting sufficient new revenues to offset a no growth budget as proposed by the Administration for the period fiscal year 1998 through fiscal year 2002.
    Still, the issue before the subcommittee is what new proposals must be tested and applied to solve VHA's long-standing funding concerns. The American Legion urges that the final legislative recommendation also includes the concepts contained in the GI Bill of Health. The GI Bill of Health grasps the understanding that the VA health care system can no longer rely on federal appropriations to ensure its long-term survival.
    The GI Bill of Health, together with the Medicare subvention and third-party legislation, advances the goal of providing a continuum of health care services to all veterans while allowing the system to collect and retain payments for the service it renders. Concurrently with the federal appropriations process, these proposals can have a tremendous impact in making the VHA system financially sound.
 Page 43       PREV PAGE       TOP OF DOC
    A recent study mandated by Public Law 103445 entitled ''Feasibility Study,'' transforming the Veterans Health Administration into a government corporation, arrived at many of the same conclusions and offered similar recommendations as the American Legion's GI Bill of Health.
    In addition, the American Legion strongly supports H.R. 335, a commission on the future of America's veterans. H.R. 335 authorizes an advisory board of experts and stakeholders to review proposals for the future of VHA and to develop a comprehensive program to test and evaluate new solutions to old problems.
    Beginning October 1 of this year, VHA plans to start a pilot enrollment program for veterans as required by the recently passed eligibility reform legislation. Adding two million service disabled veterans who are not currently using VA care to the existing 2.7 million system users will add further concerns to an already overburdened system. It is, therefore, extremely critical that new VHA funding sources are approved and in place by the start of the eligibility reform enrollment system.
    With regard to the draft bill on VA physicians' and dentists' special pay issues, we request having our complete statement on this matter entered into the record.
    Mr. Chairman, that completes my statement.

    [The prepared statement of Mr. Vitikacs appears on p. 86.]

    Mr. STEARNS. So ordered. Colonel Partridge.


 Page 44       PREV PAGE       TOP OF DOC
    Colonel PARTRIDGE. Thank you, Mr. Chairman. We appreciate the opportunity to present the views of the National Association for Uniformed Services and the National Military Veterans Alliance.
    We have worked on Medicare reimbursement or subvention for quite some time, and just to put it in perspective, it took less time for the Manhattan Project to produce the atomic bomb in World War II than it has to even get started on this. So we really appreciate you holding this hearing.
    We support Chairman Stump's H.R. 1362 to establish a demonstration project. We would prefer that we not have a demonstration and move directly into it and perhaps in phases. But given the constraints by the CBO and Health Care Financing Administration, this is probably the best we can hope for, and we support the bill. We particularly like the fee for service model that this bill represents.
    Our members look at the Medicare benefit as a benefit they've paid into so when they reach their appropriate age they have a Medicare benefit, and those who are retired have a military medical benefit. They'd like to take that Medicare benefit and use it wherever they can. If they want to use it downtown, fine. They would like also to be able to use it at the VA Hospital. So we like the philosophy behind that.
    Concerning the demonstration, we would like to see the evaluation periods shortened, perhaps to 6 months, so that they can—so it will be an ongoing evaluation. And once the kinks are worked out, once everybody is convinced it is going to save money—and we're convinced it will save money—it's going to save the Health Care Financing Administration money, and it will help the VA do its job, then we could go ahead and implement it.
    The Department of Veterans Affairs estimates some 500,000 veterans die in the United States each year. Every year that we delay this, there are some of those veterans who are dying who could otherwise use their benefit in a VA hospital and are not able to do it.
 Page 45       PREV PAGE       TOP OF DOC
    We also recommend that cost sharing be waived for retired veterans. Based on the point I made earlier, based on Exhibit B, which would be part of the record, we believe that is justified. Many of these veterans have Medicare Medigap policies. In that case, the VA would continue to bill those Medigap policies for those who have it.
    Regarding the third-party collection effort, we strongly support a bill to revise the way the third-party collection effort is being made. Our basic point is that the money should be collected as close to the point of service as possible. It should be used as close to the point of service as possible, and, of course, the VA should improve its procedures for collecting these fees. We believe fees should be collected for inpatient services, outpatient services and prescription drugs. If a capitation model is approved, of course, capitation funding should be provided.
    We believe collection on this basis would more closely resemble the free enterprise system which seems to work very well, and we would like to see—we just believe it would improve the operation and the energy of the VA medical facilities. And we strongly support your provision to exclude these funds from any OMB estimates relative to required appropriations.
    This should be rigidly enforced, and it has got to be monitored, because if it's not monitored somehow or other the comptrollers are going to take this into account and cut the appropriations.
    Thank you very much, Mr. Chairman, for the opportunity to present our views.

    [The prepared statement of Colonel Partridge, with attachments, appears on p. 90.]

    Mr. STEARNS. Thank you, Colonel.
 Page 46       PREV PAGE       TOP OF DOC
    Next is Mr. Cullinan.


    Mr. CULLINAN. Thank you very much, Mr. Chairman, and members of the subcommittee. On behalf of the 2.1 million men and women of the Veterans of Foreign Wars, I thank you for requesting our participation in today's most important legislative hearing relative to the VA health care system.
    As you are aware, the VFW has played a strong and active role through the years toward ensuring that all of this Nation's veterans have ready and timely access to top quality VA health care. Thus, we are highly gratified at being included in today's hearing.
    Before addressing today's initiatives individually, allow me to unequivocally state that the VFW is committed to seeing the Congress fully fund the VA health care system. At this juncture, only full appropriation support can ensure sufficient funding to provide all eligible veterans with high quality care. Additionally, VA has now set about the Herculean task of transforming itself from an inpatient centered hospital system to an outpatient-oriented provider of modern health care.
    While the efficiencies inherent therein will certainly save tax dollars in the long term, an infusion of capital up front is needed to bring it about. Appropriation support must not be allowed to flag at this critical point in time. It is for this reason that the VFW has championed the causes of both Medicare subvention and retention of third-party insurance collections for VA, but not to take the place of full appropriation support.
    The rapid aging of the veteran population, together with increased utilization under eligibility reform, has made the need for additional non-appropriated dollars even more critical. Thus, the VFW enthusiastically supports the thrust of two initiatives under discussion today as they move towards achieving these priority goals.
 Page 47       PREV PAGE       TOP OF DOC
    The first bill we will specifically address today is H.R. 1362, the Veterans' Medicare Reimbursement Demonstration Act of 1997. Calling for VA facilities to be selected from three separate geographical areas, with at least one near a closed military medical facility, this legislation takes advantage of the fact that VA is uniquely qualified to carry out such a demonstration project.
    With the world's largest integrated medical system, VA is a direct provider of medical care, not merely a referral agent or a payment conduit, as is the case with most other federal medical programs.
    While this bill would have the immediate benefit of directing desperately needed additional dollars into the VA system, it would also offer the most accurate picture of what effect Medicare subvention in the main would have on the Trust Fund. The VFW strongly believes that cost effectiveness of VA medical care will result in significant net savings to the Medicare Trust Fund.
    H.R. 1362 represents an excellent opportunity to prove this point, while bolstering the VA system in the process. It enjoys strong VFW support.
    Next under discussion is the draft bill to provide for the retention of third-party collection by VA. While strongly supporting this initiative, we note it would effectively create a third-party retention demonstration project of limited duration. We would, of course, prefer to see the enactment of legislation making such authority permanent.
    We are also troubled that this proposal would have the unobligated balance remaining in the fund after the demonstration project's termination be deposited in the general Treasury fund as miscellaneous receipts to go towards deficit reduction. Given VA's critical need for additional dollars, and the veterans' already considerable sacrifices on the budgetary front, we hold it to be only prudent and fair to provide that all unobligated collections remain within the VA health care system.
 Page 48       PREV PAGE       TOP OF DOC
    Last under discussion today is draft legislation to lift the application of otherwise applicable financial penalties to certain retirement eligible VA physicians and dentists who hold positions which would not be retained because of changes in staffing arrangements. The VFW concurs that this draft proposal could help VA meet its new staffing requirements by facilitating the voluntary retirement of these highly compensated individuals. We have no objection.
    Mr. Chairman, this concludes my written remarks. Once again, I thank you on behalf of the men and women of the Veterans of Foreign Wars. I'll be happy to respond to any questions you may have.

    [The prepared statement of Mr. Cullinan, with attachment, appears on p. 100.]

    Mr. STEARNS. I thank the gentleman.
    I'm going to go to Mr. Joe Violante, who is Deputy National Legislative Director of the DAV. And I think he'll introduce the other individual.
    Mr. VIOLANTE. Thank you, Mr. Chairman, members of the subcommittee. It is my pleasure this morning to introduce the newest member of DAV's legislative staff who will be presenting our views this morning.
    Richard A. Wannemacher, Jr., is a combat Vietnam veteran who was appointed Associate National Legislative Director in August 1966. Dick joined the DAV's professional staff as a national service officer at the Buffalo, New York office in 1978, working there until 1980 when he was transferred to the DAV office in Albany, where he served as supervisor. In 1995, Dick was transferred to the National Service Office in Washington, DC, where he served as assistant supervisor until his current appointment.
 Page 49       PREV PAGE       TOP OF DOC
    A native of the suburb of Buffalo, Dick enlisted in the U.S. Navy in 1967. While serving in Vietnam with the Navy's River Division 593, he received multiple shell fragment wounds to his head, chest, and arm, due to an enemy satchel charge explosion. He was retired from the Navy in 1969 due to his service-connected disability.
    Dick earned an Associate Degree in Business Administration from Erie Community College, a Bachelor's Degree in Environmental Studies from Buffalo State College, and pursued a graduate degree in studies in business at Canisius College in Buffalo. Dick was our state commander of Department of New York in 1992 to 1993, and he is currently a member of DAV's Chapter 4 in Silver Spring, MD, where he serves as chapter service officer and legislative chairman.
    Mr. Chairman, I'll now turn this over to Mr. Wannemacher. Thank you.
    Mr. STEARNS. Thank you, and welcome, Mr. Wannemacher.


    Mr. WANNEMACHER. Thank you, Mr. Chairman. Members of the subcommittee, good morning.
    As an organization of more than one million service connected disabled veterans, DAV has special interest in maintaining the strong health care delivery system to care for veterans' medical needs. If the VA health care system is to remain a viable provider of care for this Nation's veterans, it must have adequate resources and must maintain and make necessary improvements to its infrastructure.
    The DAV, therefore, supports legislation to permit VA to keep and use collections from third parties and Medicare to strengthen the system and make it better able to meet the health care needs of an aging veterans population at a time when delivery of health care is undergoing radical reforms throughout the private and public sector. This presents a formidable challenge for VA—one that would require full support from the Congress.
 Page 50       PREV PAGE       TOP OF DOC
    It only seems logical that VA should have every incentive for optimum and efficient collection from third-party payers. It also seems logical that VA should be able to keep and invest these collections back into the system. Therefore, Mr. Chairman, the DAV fully supports your draft bill to authorize VA to retain third-party payments.
    Similarly, the DAV fully supports H.R. 1362, which would authorize demonstration projects for the collection and retention of Medicare payments. It is to be hoped that the substantial portion of third-party collections would revert to the collecting facility to ensure equitable distribution and stimulate local incentives for maximizing collection efforts.
    Because the VA health care system has operated with restricted funding levels for years, and because it must modernize as a cost of providing health care in the most effective, efficient, and state-of-the-art manner, these third-party and Medicare collections must be made available to the VA to supplement full appropriations, however.
    Unfortunately, this Administration's budget would use these funds to replace reduced appropriations. Not only is that objectionable because it will not allow VA to enhance its ability to provide health care in a modern setting, it is objectionable because it involves several unacceptable risks. First, VA collections have been falling in recent years, and projections may be too optimistic.
    Second, relying on collections to replace appropriations when the passage of authorizing legislation is not assured could very well leave VA with totally inadequate appropriations and without the availability of third-party collections, which would be disastrous under any reasonable prediction.
    The full committee's views and estimate discussed these dynamics, and the unavoidable doubts VA's plan raises. I can only say that DAV fully agrees with the committee's views and estimates.
    In addition, even assuming passage of the necessary legislation—and that may be a large assumption—and that all elements of the VA plan are fully realized, the overall funding request is inadequate in our view. The Administration's budget would increase health care funding only 5.4 percent over 5 years.
 Page 51       PREV PAGE       TOP OF DOC
    As the Senate Veterans' Affairs Committee observed in its views and estimates, even with legislation you are currently considering, the funding streams would not even be sufficient to cover the cost-of-living adjustments for VA's 225,000 plus employees, estimated by VA to be $387.9 million for fiscal year 1998 alone.
    Therefore, Mr. Chairman, while we fully support these bills and efforts within the committee to provide VA with this much needed funding, these monies must be in addition—not in place of—full appropriations and adequate funding for VA health care, must be assured independent of this very worthy effort.
    In closing, Mr. Chairman, I would like to say that the DAV appreciates the concern, support, and dedicated efforts this subcommittee and the full committee have shown in dealing with this difficult issue.
    That concludes my report, Mr. Chairman, and I would be happy to respond to any questions you or the members of the subcommittee might have.

    [The prepared statement of Mr. Wannemacher, with attachments, appears on p. 107.]

    Mr. STEARNS. Thank you, Mr. Wannemacher, and we are certainly delighted to have you testify. And, of course, congratulations on your new position.
    I think this is for all of you at this point. The question would be: the committee is trying to understand how much demand would be anticipated with this program, and maybe you might give me what you think. Specifically, higher income veterans have been unable to get care from VA in the past and have gotten care elsewhere. When you throw in the higher income veterans together with everybody else who is Medicare eligible, what do you think would be the demand we can anticipate in this demonstration program?
 Page 52       PREV PAGE       TOP OF DOC
    And we can just start from my right and just go to the left, if you don't mind.
    Mr. VITIKACS. Mr. Chairman, that seems to be the hundred dollar question. I believe that there has to be—the demand is going to be relative to the incentives that veterans will have to come to the VA for their health care as opposed to the private sector. As I understand it, there will be—VA is going to be developing very specific health benefit packages, which may have some certain services included that would not generally be available under the Medicare program.
    In the private community, there will be a pharmaceutical benefits package as well. So it really depends, the answer to that, on the incentives——
    Mr. STEARNS. Good point.
    Mr. VITIKACS. (continuing). That veterans will have to come to VA.
    Mr. STEARNS. If you develop an HMO package which includes all pharmaceutical drugs, and those individuals are pretty healthy and might have a high deductible, they might have access in greater proportions than others.
    Mr. VITIKACS. And I think the bottom line is what is it going to save the veteran out of his pocket, if anything. It's something else to look at.
    Mr. STEARNS. Okay. Colonel.
    Colonel PARTRIDGE. I think the first issue is going to be which hospitals are going to do it. There are some hospitals out there, such as Grand Isle, NE and others, that veterans—that retirees and veterans are trying to get in. And if a site is selected like that, I think you'll have very good response.
    I think one of the problems has been that over the years retired veterans have been turned away from these hospitals, so it's going to be a matter of attracting them back in. And I think that is where the publicity and the type of package come into play. I think the deductible and co-payment, unless they have a Medicare supplement, will help attract them in. And the pharmacy benefit will help attract them in, because there is no pharmacy benefit under Medicare.
 Page 53       PREV PAGE       TOP OF DOC
    So I think a package something like that will be very attractive.
    Mr. VITIKACS. Mr. Chairman, if I might, I am following up on the gentleman's question. If these Medicare veterans do have Medigap insurance policies, and under the MCCR collection criteria today VA can forego the out-of-pocket co-payment from Medicare eligible veterans with Medigap insurance. So perhaps this would be an added incentive that that Medigap payment to VA can substitute for the out-of-pocket co-payment, and that would be a tremendous incentive.
    Mr. STEARNS. Okay.
    Mr. CULLINAN. Mr. Chairman, I would say that I would have to agree with Colonel Partridge that in those areas where there is a significant retiree population, that you'll have very good participation right off the bat. For the rest, let me say we believe that VA is a provider of quality health care, and there is a movement afoot within VA to not only improve the quality of the care it provides, but its image as well.
    But in order to attract the higher income insured veteran into the system, it is going to have to get that underway. In other words, the VA is going to have to be enabled to open itself up to these veterans, and then we believe the word will get out. As you put together an HMO-like package, including pharmaceuticals and the like, we believe veterans will turn to VA. A number already do for certain types of care.
    You know, VA is expert with respect to cardiology. I, too, am from Buffalo, New York, and I happen to know up in that area that if you have a problem with your heart and you can get into VA, you'll certainly do it, because the care level is so high. So that's a contributing factor as well.
    And I would add one other thing with respect to the waiver of co-payments and the like. The VFW is of the opinion that all veterans, everything else being equal, are equal, are alike, and we believe that they should all be treated equally regardless of duration of service. So we would certainly like to see any co-payment and the like waived, but for all veterans—all veterans participating in the program.
 Page 54       PREV PAGE       TOP OF DOC
    Mr. STEARNS. Okay. Mr. Wannemacher.
    Mr. WANNEMACHER. I'd have to agree with the other three commenters as far as what the benefits package is. The Department of Veterans Affairs currently is developing a standard benefits package throughout the Nation, and it's a nice package. It includes pharmaceuticals, prosthetics, and all acute care, and special surgical procedures. So what is in the benefit package is paramount.
    I don't really know if we could make any estimates, though, as to the exact figures. We'd have to examine the whole package. But I think a good examination of the benefits package, and also the Administration's Medicare subvention program that they're looking at, as well as yours, Mr. Chairman, would go a long way in being able to get those analytical figures.
    Mr. STEARNS. Mr. Violante.
    Mr. VIOLANTE. Mr. Chairman, I don't know that I have much more to add to that, other than there is a lot of factors that need to be considered, and obviously the packet is one. And I tend to agree in those areas where there are a large number of retirees, since our government has let them down in other ways, that they might be interested in using the VA facilities. Other than that, I really don't have any estimates.
    Mr. STEARNS. Thank you. And my time has expired. Dr. Cooksey.
    Dr. COOKSEY. Thank you, Mr. Chairman.
    Let's say these two pitchers had the funding for the veterans. One of them has the funding for the veterans. Which one would you rather have for the funding for the veterans for next year, for these programs—this pitcher or this pitcher? No takers?
    Colonel PARTRIDGE. No takers.
    Dr. COOKSEY. Well, this one has nothing in it. That's my concern.
 Page 55       PREV PAGE       TOP OF DOC
    You know, it looks to me that there is a very valid reason to be concerned that there is not—that these projected collections are overly optimistic. And unless we have the appropriations there, you know, for the veterans' hospitals, it is not going to happen.
    My next question: how would the veterans' group like to have the same health care system that the members of the bureaucracy have, that the postmen have? And yes, that most of the members of Congress have—the FEHBP as a model?
    Mr. VITIKACS. I presume we'll go left to right.
    That's what the GI Bill of Health, the American Legion proposal addresses, and that is the VA developing a very specific defined health benefits plan that mandatory veterans would receive their care through VA if they choose through appropriated dollars. And the current Category ''C'' discretionary veterans would be able to utilize the VA system by bringing with them their own various health payment plans.
    So yes, to answer your question, veterans would enjoy having the knowledge of specifically what they are eligible to receive, what array of services, what array of benefits, and if they're not included in the ''shall provide'' category of care, that they be able to still utilize the VA health care system on a choice basis with their own health benefit coverage.
    Colonel PARTRIDGE. Military retired veterans are the only federal employees who lose their guaranteed benefit provided by—guaranteed by the Government at age 65. Correcting that injustice has been a long-time objective of ours.
    There are a couple of bills out there. Representative J.C. Watts and Representative Thornberry have introduced two bills that would resolve this problem, and we think it is a great step in the right direction. We believe that that is the answer for the veteran with 20 or more years of service who served until retirement. And we strongly support that.
 Page 56       PREV PAGE       TOP OF DOC
    We think it would help the VA as well, because, once again, they could use that benefit in a VA hospital. Just take the plan. That would be very simple, to collect it just like they do other third-party collections.
    The CHAMPUS program, which Congress designed in 1967 to be the equivalent of FEHBP, has essentially been destroyed by the Department of Defense. They have used it as a cash cow to fund other programs.
    Thank you for the question.
    Mr. CULLINAN. Dr. Cooksey, I would first say that the VFW very much appreciates your comments earlier and just now with respect to the appropriations pitcher. We certainly want to see one that is full enough to fill every glass that needs to be filled.
    With respect to the other part of your question, at our national convention often times the subject of the health benefits available to others—the Federal Government and, indeed, in the Congress—comes up. And I can tell you that our membership would have a keen interest in being afforded the same health benefits package as the Congress.
    Unfortunately, we can't usually guarantee them that that's what we're going to get them, but yes, indeed, they would love to have that.
    Mr. WANNEMACHER. Doctor, I think you have to look more at what the VA health care system has done for the world and for the veterans who became disabled in defense of a free and democratic America.
    The Veterans Administration health care system is the largest educator for health care practitioners throughout the world. The research that is provided by the VA health care system helps throughout the world as well. The VA also serves as a backup in national disaster for the Department of Defense.
    And most importantly, the Veterans Administration, in today's model under the direction of Dr. Kizer, provides quality, cost effective health care. And if you and your health care provider can be guaranteed this same package that veterans enjoy today, then maybe you should look at the VA health care system for health care.
 Page 57       PREV PAGE       TOP OF DOC
    Dr. COOKSEY. That's a good response, and I appreciate that.
    And I, too, know that there are some veterans' hospitals and some veteran hospital physicians that are providing good health care. There are problems there in certain hospitals and certain situations, like there are in the private sector. But the ultimate goal is to bring the quality of care up for everyone, and particularly individuals with service connected injuries, particularly individuals like you.
    I mean, I saw the area where you were from the backseat of an F–4, and I was glad I was not down where you guys were. You know, and you deserve very special consideration. And I have veterans in my area that in many cases have nothing else. Veterans that are our age that have nothing else to turn to except to the veterans' hospital. They are either unemployed, unemployable, or, in a low income situation, and they need it. And I think that is an option.
    I do think that Chairman Stump's bill is the best we can look for under the current circumstances, and it's sort of the situation that Congressman Peterson is in.
    I don't know the details of this budget bill yet. I've been to a couple of meetings. But I want to make sure that the veterans that have service connected injuries do not get short changed in the budget shuffle. If they were all veterans in that budget shuffle, they would be better off.
    Thank you, Mr. Chairman.
    Mr. STEARNS. Thank you. I thank the member.
    Mr. Gutierrez.
    Mr. GUTIERREZ. Yes. Mr. Chairman, I first wanted to apologize to all of the panelists for having arrived late. I'd like to ask one question of Mr. John Vitikacs of the National Veterans Affairs and Rehabilitation Commission.
    I am curious about your proposal for the VA state Medicaid subvention project. Would you tell me how you would establish such a project that would work?
 Page 58       PREV PAGE       TOP OF DOC
    Mr. VITIKACS. Well, I would be more able to define a more broad concept as opposed to specifics. We have many veterans today who are Medicaid eligible, and they are, in fact—fall into the ''shall provide'' care category within VA on both an inpatient and outpatient basis. Now, most recently, on the outpatient basis with eligibility reform.
    We're only raising the question here: is there perhaps greater cooperation possible—is greater cooperation possible between the VA and state governments to provide services to those who would qualify under the state Medicaid program? And without having specific details to address your question, primarily we'd just like to put this issue on the table for further review and discussion.
    We think that there is—if we're going to look at all sources of potential non-appropriated funding for the VA system, that this can be something that can be examined the same as the other proposals that we're addressing today.
    Mr. GUTIERREZ. I think, Mr. Chairman, if we might officially make an official inquiry to the Veterans Administration about how they see this working—you know, the possibility of something modeled after what we're doing at the federal level at the state level, just to see how they might view that—any, you know, holes that—you know, valleys, things that we might have to overcome. But how we could do that, because I think it's a great idea, and I'm going to go share it with some of my good friends in the state legislature. I think it's great. And, you know, sometimes we forget about all of the states and the Medicaid program.
    Thank you so much for raising the issue. I think it's a valuable one.
    And once again, Mr. Chairman, to you, to members of the subcommittee, and to the panelists, my apologies for having returned so late. Thank you so much.
    Mr. STEARNS. I thank the member. Dr. Snyder.
 Page 59       PREV PAGE       TOP OF DOC
    Mr. SNYDER. Thank you, Mr. Chairman.
    Mr. Vitikacs, your statement—the American Legion makes a very strong statement—in fact, a very awkward one I think—in support of including the managed care as part of the demonstration project. Are most of the veterans groups in agreement with that, or is that a detail that has not been——
    Mr. VITIKACS. I can just speak to our own organization, that we feel, as we heard in the testimony this morning, that to conduct a fair assessment of veteran preferences, patient satisfaction, as well as relative cost savings in a demonstration fee for service program versus a managed care model, that if we're going to take time and effort to develop a demonstration program, let's make it as broad as possible, and evaluate more than just one approach.
    Mr. SNYDER. Right.
    Colonel Partridge, I think you made the Manhattan Project comparison.
    Colonel PARTRIDGE. Yes, sir.
    Mr. SNYDER. Do you have any comments on this managed care aspect?
    Colonel PARTRIDGE. We have no problem. We think it would probably be a good idea to test the managed care piece of this. Our experience has primarily been with the Department of Defense effort, where the only thing they are testing is managed care. And we just seem to be running head long into a managed care environment, and that's why we were delighted to see this bill had the fee for service piece. That's our view. We would have no objection to doing the other as well.
    Mr. SNYDER. And Medicare has, I think, made a very strong guarantee that there will always be a fee for service option.
    Mr. Cullinan, you made a comment about HMO models, so I assume that you are in support of the managed care part of it. Do you have any comment there?
 Page 60       PREV PAGE       TOP OF DOC
    Mr. CULLINAN. Yes, sir. By force of national resolution, the VFW calls for all veterans who avail themselves of VA health care to be provided with a full continuum of health care. And that certainly embraces the managed care.
    Mr. SNYDER. So you would support the concept of the study of both at this point?
    Mr. CULLINAN. Both the concept, the study, and the reality.
    Mr. SNYDER. The reality. I understand. The Manhattan Project metaphor, once again.
    Mr. CULLINAN. Right.
    Mr. SNYDER. And I guess my concern, going back to your Manhattan Project metaphor because I like it, that if we don't do the managed care study now, and then 2 or 3 or 4 years down the line we start thinking, well maybe we need to move into managed care, we will have put ourselves back in another Manhattan Project when it may be the investment of time, recognizing that, you know, it may not work out. And it may be time to do it.
    Mr. Wannemacher, do you have any comments there?
    Mr. WANNEMACHER. I'd have to agree with what the others have said. If you're going to look at the subject, you'd better look at the whole subject.
    Mr. SNYDER. Yes. And then a question for the man from the American Legion. This discussion about if we're going to have some hospitals that are so busy right now that, as we increase our participation by the goal of 20 percent over 5 years, we're going to have some problems. I guess your thoughts—and I think the goals of the VA, too, about more outpatient care and some outreach facilities for better geographic access—that is going to take care of part of that problem down the line if we move in that direction. Is that——
    Mr. VITIKACS. If the question is what criteria should be developed, certainly, we want to look at the rural health care facilities.
 Page 61       PREV PAGE       TOP OF DOC
    Mr. SNYDER. Right.
    Mr. VITIKACS. We want to look at the full service facility. That's the urban highly affiliated tertiary care facility. We're going to have a broad array of VA hospitals included in the ultimate study, as well as what other topics were mentioned this morning, and that is the management ability of cost accounting utilization management, socioeconomic demographics, as well as veteran demographics. So I think we need to really not exclude anything but include all of the available options.
    Mr. SNYDER. And I assume it's a fair statement to say, also, that you all—if this bill passes, and we all hope it does in some form, that you all are going to be monitoring this also from your perspective.
    If I could just make one final comment. I spoke at an American Legion auxiliary—the Women of the American Legion—a couple of weeks ago, and brought up the topic of Medicare subvention and mentioned the word and got a lot of heads nodding in the audience. So somebody has been doing their work out there.
    And I'll just make the comment, I don't know how easy a sell this is going to be to get these bills through Congress, but I sure hope you all are prepared to not just educate the Veterans' Committee, as I know you will be, I mean, you need to go out there and really work on the rest of Congress with whatever the final version.
    Thank you very much.
    Thank you, Mr. Chairman.
    Mr. STEARNS. I thank the gentleman.
    I think we are completed.
    I'm just curious, does anyone know how we got the word ''subvention'' for this? (Laughter.)
    I know when it first came to me and I heard it, and the veterans were telling me in town meeting, I went back and I said, ''How did they come up with subvention as a word?'' I mean, I could come up with some more appropriate terms.
 Page 62       PREV PAGE       TOP OF DOC
    But at any rate, I want to thank——
    Dr. COOKSEY. Mr. Chairman?
    Mr. STEARNS. Yes?
    Dr. COOKSEY. I can assure you it was not a physician that came up with that term. I bet it was a lawyer. (Laughter.)
    Mr. STEARNS. I thank the panel.
    Mr. STEARNS. We'll now welcome the third panel, Dr. Samuel Spagnolo, President, National Association of VA Physicians and Dentists; Chuck Burns, National Service Director, AMVETS; Kelli Willard West, Director, Government Relations, Vietnam Veterans of America; John Bollinger, Deputy Executive Director; Paralyzed Veterans of America; and Larry Rhea, Deputy Director of Legislative Affairs, Non Commissioned Officers Association.
    Let me welcome the distinguished panel, and I think we'll start with Dr. Spagnolo and his opening statement. And I appreciate everybody sitting through the other two panels and their patience. And I think you heard the same information that we did, so you have the benefit of what they said.
    So with that, let me open up.


 Page 63       PREV PAGE       TOP OF DOC

    Dr. SPAGNOLO. Thank you, Mr. Chairman, and members of the subcommittee.
    I, too, sat through this morning's session and found it very interesting. And actually, before I make my remarks, my only comment, I guess, having listened to all of that is that I'm very sure now that 30 years ago I made the right decision to be a physician and not an administrator.
    But with that being said, I am honored to be here and appreciate the invitation. I have served the health care needs of the veterans for nearly 30 years. It seems like a long time, and I guess it has been. And I come to you today as President of the National Association of VA Physicians and Dentists. I am very proud to represent this organization. These are dedicated men and women who are committed to improving the health care of America's veterans, those veterans who have put their life at risk to serve this country.
    I also, this morning, found it somewhat interesting again to be receiving what seems to be a mixed message from the Administration: ''We want to bring in lots of new patients, but we also want to fire all of the doctors.'' And that seems to me a bit strange. So think about that a little bit.
    NAVAPD is very pleased that you have put this draft bill on the agenda this morning and are trying to address some of the needed changes in Public Law 102–40. As you are well aware, this is the first time in the history of the VA that the VA has plans to eliminate physicians and dentists.
    This is being done under a very new directive, which has been titled 5111, and which gives very broad authority to hospital administrators to fire physicians and dentists. Under this new authority, there are many facilities around the country that are bracing themselves for major reductions. Long Beach, for instance, has been told they're going to lose 15 percent of their physicians and dentists across the board. At what price are we going to destroy 15 percent of those people and destroy their careers?
 Page 64       PREV PAGE       TOP OF DOC
    I recently wrote that this directive, 5111, and the atmosphere of secrecy in which these reductions in force have been planned, has fostered distrust and sparked a wave of rumors, all of which have undermined physician morale. It's a very serious situation.
    More than a year ago, I wrote Under Secretary Kizer, and I suggested to him an alternative to these firings—a very simple solution. Let's do something to suggest and improve the possibility for voluntary retirement. This would eliminate the need perhaps for all of these firings.
    Let me also state that NAVAPD is not necessarily opposed to the elimination of some positions, and we're not suggesting that some reduction in Title 38 personnel, at certain facilities, is unreasonable. The VA is caring for less patients. There is a lot of redundancy in the system. And there may be certain places where reduction in force may be an appropriate thing to do. We are saying that these things should be voluntary and not result in firings.
    The current draft legislation is a first step. We are very supportive. However, it does not include the provision of voluntary leaving. Simply striking Section C, under paragraph 2, would restore back to the physician the right to make their own retirement decisions. NAVAPD thinks this is a fair way to do it. In fact, we think it's the right thing to do.
    I appreciate the opportunity to come here. I thank you very much for taking a look at this critical issue for the physicians and dentists, and I'd be happy to work with you further on a draft bill.
    Thank you very much.

    [The prepared statement of Dr. Spagnolo, with attachment, appears on p. 112.]

 Page 65       PREV PAGE       TOP OF DOC
    Mr. STEARNS. I thank you.
    And Chuck Burns is next.


    Mr. BURNS. Thank you, Mr. Chairman. I'll be very brief. I am not going to gild the lily with anything additional. I think it is obvious that all of the VSOs are strongly supportive of this legislation.
    AMVETS, in conjunction with the independent budget, DAV, PVA, VFW, has been supporting and calling for initiatives such as these for several years. We support the idea that VA has to evolve to meet the needs in a new health care environment. Medicare reimbursement, retention of third-party collection, and user fees meet the objective of supplementing VA's budget.
    We are adamantly opposed, however, to these dollars being used to offset federal appropriations that are required to cover the cost of anticipated increase in workload at VA. They should not be used as substitute funding by OMB as contained in the Administration's request to straight line VA appropriations through the year 2002. By straight lining the VA appropriations, we feel the Administration is, in essence, gambling with the health and well being of millions of veterans.
    Regarding Medicare reimbursement, obviously, we are in agreement with our fellow VSOs in that this is a good idea. It would offer low priority veterans an opportunity to use Medicare to reimburse their VA care, thereby saving federal tax dollars. The only thing keeping this optimal program from taking effect is the complicated rules for scoring such legislation, as we heard earlier this morning.
 Page 66       PREV PAGE       TOP OF DOC
    Retention of third-party collections, obviously, again VA should be allowed to retain the additional revenues veterans bring into the system. We believe that VA headquarters should eliminate its centralized medical care cost recovery office and authorize VA networking directors to contract for their cost recovery efforts as in the private sector.
    We believe that allowing VA to retain the cost of care from third parties will ensure a fully supported recovery effort. With the additional funds, VA would be able to enhance care for current users and increase access for low priority veterans.
    AMVETS is also supportive of the notion that if VA is permitted to collect and retain third-party funds, it could begin treating the veterans' adult dependents. Obviously, additional people in the VA system would provide additional resources and would enhance care available to high priority veterans. It also creates choice.
    And we believe that this should be examined as a new business opportunity under which VA could control treatment of dependents and ensure their ability to pay before service was rendered. We caution that this should not be done so as it reduces services or quality of care to veterans.
    We strongly urge Congress to authorize Medicare reimbursement for higher income veterans and their dependents, and retention of third-party reimbursement for current veteran users, new veteran users, and veterans' dependents. VA must change to survive, and we view some recommendations and prescription for changes as proof that VA concurs with many of our past recommendations.
    Mr. Chairman, I would ask that my written statement on lifting the application for certain retirement eligible veterans be made part of the record.
    This concludes my statement, and I appreciate the opportunity to testify.

    [The prepared statement of Mr. Burns appears on p. 119.]
 Page 67       PREV PAGE       TOP OF DOC

    Mr. STEARNS. So ordered. Thank you.
    Mr. West? Ms. Kelli, excuse me.
    Ms. WEST. That's quite all right.
    Mr. STEARNS. Ms. Kelli West.


    Ms. WEST. Right. Good morning, Mr. Chairman, and members of the subcommittee. On behalf of Vietnam Veterans of America, I appreciate the opportunity to be here and discuss these very important issues.
    We believe that the Medicare reimbursement bill and the MCCR reimbursement bills are, in combination with eligibility reform passed in the last Congress, probably the most important health care legislation coming before this committee in recent history.
    We support both of the bills, and in the interest of being brief, I'll just raise a couple of comments about the bills.
    With regard to the MCCR reimbursement legislation, we would recommend that the committee, either in the legislative language or in committee report language, make some recommendations to the VA about how reimbursement and collections should be split between the local facilities and/or the VISN and VA's national objectives.
    I don't have any specific percentage in mind as to what we feel should be kept at the local level. But we do feel very strongly that a large portion, as large as possible, be retained at the local level so that incentives for improving services and collecting the reimbursements will be in place.
 Page 68       PREV PAGE       TOP OF DOC
    With regard to the Medicare reimbursement legislation, there are two provisions that we feel could be improved upon. We're concerned that excluding high income Medicare eligible veterans is, first of all, restricting their choices, and also may not give an accurate read on the pilot project. Similarly, imposing a $50 million per year restriction on the Medicare payments may exclude some veterans from participating in the project and may, again, skew the data on costs and participation.
    We do want to raise, in this forum, a concern we have raised before regarding how all of these changes are affecting specialized services, including post traumatic stress disorder and substance abuse treatments. We don't disagree entirely with VA's objectives of shifting these to more outpatient-based treatment modalities, but we are concerned that inpatient treatment should not be totally eliminated. There are certain veterans for whom that kind of therapeutic setting will be the only method appropriate for treating their complex multiple problems.
    A case in point is the homeless veteran population. If a homeless veteran has a substance abuse problem, in combination with a post traumatic stress disorder situation, they don't have anywhere to serve as a respite while they are receiving only outpatient treatment. So we're pleased that this subcommittee has put on your oversight agenda monitoring those changes, and we urge you to be very vigilant, as we intend to be.
    In closing, I'd just like to, as many of my colleagues have done, commend the House Veterans' Affairs Committee for your foresight and caution with regard to the budget recommendations of the Administration. We agree wholeheartedly that if this legislation passes to bring the new revenue streams into the VA, these revenue streams should not be used to offset the federal appropriation.
    The core purpose of the VA serving service connected disabled veterans and low income veterans has to maintain federal priority, and that can only be done with secure funding.
 Page 69       PREV PAGE       TOP OF DOC
    I'd be happy to respond to any questions. Thank you.

    [The prepared statement of Ms. West, with attachments, appears on p. 123.]

    Mr. STEARNS. I thank you. John Bollinger.


    Mr. BOLLINGER. Thank you, Mr. Chairman. I'll be brief and would request that my written statement be included in the record.
    Mr. STEARNS. So ordered.
    Mr. BOLLINGER. PVA strongly supports the proposed legislation that is before us today. We think it's a good idea, and we have encouraged passage of legislation like this for some time now.
    We have heard a couple of times this morning that the general intent of both the Administration's bill and this legislation is the same. I think maybe it would be helpful to you as you proceed with this legislation if I could perhaps tell you at least a couple of our concerns in regards to the Administration's bill.
    First, we would hope that this pilot project that you're proposing wouldn't lead to legislation beyond H.R. 1362 that would be used to replace appropriated dollars for VA health care. And I think Dr. Cooksey said it extremely well earlier on today. In our support over the years for this kind of legislation, it has always been with the caveat that these collections would supplement and not be used to replace an adequate appropriation for VA medical care.
 Page 70       PREV PAGE       TOP OF DOC
    As we testified earlier this year, we are very concerned with the Administration's proposal, which banks very heavily on funds from reimbursements instead of using appropriated funds. This is extremely troubling when you consider that Congress hasn't passed such legislation in the past.
    It is troubling when you consider that the proposed cuts in appropriated funds will extend up through fiscal year 2002, and that it comes at a time when VA will be treating an increasingly elderly population, and also at a time when these funds are going from—already scarce funds are going from the northeast down to the south at a time when VA is trying to restructure itself. So there are a lot of things coming together here that makes this very worrisome from our point of view.
    The other thing I'd like to say is that the—just in regards to the current status of the budget negotiations. It has really placed us in kind of a worst case scenario, because on one hand, if VA does get legislation to keep third-party payments as recommended by the Administration, we have been asked to consider covering that loss to the deficit reduction by agreeing to accept several billions of dollars in cuts in other programs for disabled veterans. And we find that pretty difficult.
    Two quick other things. I think one of our concerns is VA's ability to collect this money—I think, historically, the track record hasn't been very good. Collections have actually fallen. I know that the incentives aren't there, but collections have actually fallen in the last couple of years, and the costs of collection have risen. So no question, we think it's a gamble to rely solely on that money to support VA health care.
    And finally, just let me say that, Mr. Chairman and members, that PVA members use this system. This is a system we rely on. It's not like going down to the doctor on the corner and getting a prescription. We use the VA for pharmaceuticals, for over-the-counter supplies, rehab., sustaining care, long-term care, acute care. The majority of our members use the VA. We rely on it to get up in the morning, to go to work, to take our kids to school, to do all of those things that perhaps a lot of people take for granted.
 Page 71       PREV PAGE       TOP OF DOC
    So it's a system very important to us, and it's a system that we don't want to gamble on as far as these third-party and Medicare reimbursements are concerned. So we support that proposal, but we want to see the appropriated money there to ensure that the VA is able to deliver quality care.

    [The prepared statement of Mr. Bollinger, with attachments, appears on p. 132.]

    Mr. STEARNS. I thank the gentleman.
    We are going to temporarily recess and reconvene after—I have a car downstairs, so we'll be back shortly.
    Mr. STEARNS. Well, thank you for your patience. I think we'll reconvene the Subcommittee on Health, and we have Larry Rhea is next on the panel number three.
    And, Larry, thank you for waiting.


    Mr. RHEA. Thank you very much, Mr. Chairman. I appreciate your patience and attention to this issue this morning. It is encouraging to all of us.
    We are pleased to be included among the list of witnesses asked to provide comment and testimony on these measures today, and we thank you very much for having us here to do just that.
 Page 72       PREV PAGE       TOP OF DOC
    In short, Mr. Chairman, the Non Commissioned Officers Association supports the two measures that deal with health care receipts for VA. And since the association does not have a position on the physician pay draft legislation that you're taking a look at, we decline any comment on that particular bill.
    I think it is important though that I say NCOA supports H.R. 1362, and I could leave it there. But I think there is one or two things that I maybe need to comment upon. First of all, I wish Dr. Cooksey was here. I certainly would like to thank him for his comments relative to the appropriations. They're right on the mark with what NCOA has said for many, many years.
    And that is, if veterans have earned VA health care as a result of their military service, then we shouldn't have to be going through all of these gimmicks as far as funding and everything else. If they, in fact, have earned it as a result of military services, appropriate and adequate appropriations should be provided, and we shouldn't have to rely on Medicare or third-party receipts, or charging some veterans and not charging the others. It doesn't make any sense to us.
    But the other compliment that I would like to extend is also to Dr. Cooksey and Dr. Snyder here. Even before we left for the short break there, Mr. Chairman—and to get to this point of being anchor on the last panel, you usually have only the Chairman and the ranking member present. Okay? Now, I know that is out of necessity and required, but it is also as part of an interest on the part of you particularly.
    The Non Commissioned Officers Association, Dr. Snyder, and to Dr. Cooksey, even though he is not here now, your presence here for the length of this hearing indicates a real interest in this issue, and for that we are sincerely grateful and we appreciate it very much.
    Also, Mr. Chairman, I want to thank you for your question to Dr. Kizer and Ms. Buto in relation to the military retired veterans. And I think Dr. Kizer's response was something along the lines that it would be inappropriate to set priorities for the demonstration's project. Ms. Buto brought up the point that there was a similar demonstration project planned for the Department of Defense that would, in effect, take care of the military retired veterans.
 Page 73       PREV PAGE       TOP OF DOC
    And I noticed a lot of heads in the room at that time shaking up and down in agreement when, in fact, they should have been shaking in disagreement with what those two individuals said. And frankly, I was disappointed in Dr. Kizer's response, because it ignores several things.
    The entire VA health care system is, in fact, a system of priorities. H.R. 1362 that we're discussing this morning specifically targets certain individuals. And it seemed pretty clear to the Non Commissioned Officers Association that somebody who was responsible for drafting the legislation had in mind the military retired veteran in the selection of site facilities for the project, because the measure specifically states that one of the sites selected shall be in the vicinity or within the catchment area of a military treatment facility that was closed as a result of base closure and realignment.
    So it seems to me that somebody had given some thought to the military retired veteran in this particular bill, and we appreciate that because surely our view recognizes the plight that these veterans have been suffering for a long, long time.
    In regards to Ms. Buto's comments, though, that the DOD piece on Medicare reimbursement would take care of the military retired veterans is simply incomplete at best. Today, only about 25 percent of military retired veterans have access to military treatment facilities. Under the proposed DOD legislation, less than one-third of the military retiree veterans would benefit from that.
    So our request of you was simply, in view of the fact that BRAC was included, and it appeared to us that the retired veteran was a target, we are simply asking you to make that explicit in this legislation.
    We included in our testimony comments on the cost recovery draft legislation, and the requested waiver of co-payments. Our comments are in our written statement, which you have indicated would be a part of the record. I would ask that your attention be devoted to that request of ours.
 Page 74       PREV PAGE       TOP OF DOC
    And I thank you very much, Mr. Chairman.

    [The prepared statement of Mr. Rhea appears on p. 138.]

    Mr. STEARNS. Thank you, Mr. Rhea. And as you pointed out, it will be a part of the record. And any questions that the members wish to answer can be put in the record and given to the panel, and then replies can also be returned.
    And I think we asked the question, you know, about military retirees being priority, because we wanted to hear for the record what they had to say.
    I think we're finished with the panels. Both myself and the other members will proceed with our questions.
    I have a general question for all of you, which is: deciding where to locate these particular sites. Dr. Spagnolo had mentioned one particular hospital he is concerned about. Maybe the priority should be for us to look at hospitals. Maybe that is one priority. As I say, which hospitals should the demonstration project be located at which would benefit a hospital that perhaps is suffering some downgrading? I mean, I don't know.
    But let me just start from right to left with Mr. Rhea, if you would comment on that, on how you think the site selection should occur.
    Mr. RHEA. I think one site was mentioned. I believe it was Mr. Partridge from the National Military and Veterans Alliance mentioned a hospital in Nebraska where veterans, including military retired veterans, are pushing the doors down to try to get in.
    Selection of a site such as that might not work to our advantage, and I say that because even under this legislation these veterans that we are trying to attract are the lowest priority as far as treatment within VA. So I would suggest that we would look at facilities that would have the capacity.
 Page 75       PREV PAGE       TOP OF DOC
    Maybe some that are not utilized to their full capacity right now, look at facilities that have a capacity to handle increased people. Because if this is an option, the first time one of these people comes there, endures a long waiting line, or waits 2 months for an appointment, I simply don't think that they are going to stay with it too long when they have other alternatives.
    Mr. STEARNS. Mr. Burns.
    Mr. BURNS. I'll agree with what has been said earlier in terms of siting these demonstration facilities and just emphasize the fact that wherever they are, they have got to be a full service facility. It can't just be an outpatient clinic. It can't just be a cardiology unit. It has got to be a full service facility capable of treating the needs of all of the veterans in that area.
    And I think, if I heard Dr. Kizer's response this morning, the one element that he left out that I was amazed to hear was the veterans population in a certain area. I didn't hear that at all. I think rural health care, the VA consideration, definitely needs to be demonstrated.
    I know in my home state of Tennessee we're fortunate to have four VA facilities there, and an excellent facility in Nashville that is affiliated with Vanderbilt University, and another one just 30 miles down the road in Murfreesboro that literally they are knocking the doors down in the rural areas of Tennessee to get into.
    And again, I would like to put in a plug for at least one of these areas being in a rural area of the country.
    Mr. STEARNS. Dr. Spagnolo.
    Dr. SPAGNOLO. Well, I would agree with the comments already expressed. We haven't looked at this critically within our organization. We'd be delighted to go back and take a look at this. But I think if you're going to do these demonstrations, you're going to have to look at infrastructure and need, so we would be happy to come back to you with some more information if you'd like.
 Page 76       PREV PAGE       TOP OF DOC
    Mr. STEARNS. It would be nice to have the perspective of the National Association of VA Physicians and Dentists for the record, if you don't mind. That would be good.
    Dr. SPAGNOLO. I'd be happy to.
    Mr. STEARNS. Ms. West.
    Ms. WEST. Sure. Vietnam Veterans of America doesn't have specific recommendations on which sites should be selected. But I would suggest that the broadest diversity of types of facilities be utilized. As my colleague from AMVETS indicated, test rural, urban, highly concentrated veteran populations, perhaps less concentrated veteran populations, areas where there are high levels of older veterans and also younger veterans.
    I think the broader experience we can glean from the demo. projects, the more useful the data will be for future planning.
    Mr. STEARNS. Thank you. Mr. Bollinger.
    Mr. BOLLINGER. Mr. Chairman, thank you. My recommendation would be for the three sites to cover the range of all specialized services that the VA provides now. So blind rehab., spinal cord injury, mental health, post traumatic stress, all of those specialized services, so that you're sure that you cover all of those. For example, there are 22 spinal cord injury centers, so I would hope that at least one, if not two, of the sites would include spinal cord injury facilities along with the tertiary care that supports them in this project.
    Mr. STEARNS. Thank you.
    Dr. Spagnolo, just a quick question on the physician pay bill. Do you feel the bill, as it is structured now, denies retirement eligible physicians the right to retire? In other words, do you feel, as the bill is written now, it should be improved?
    Dr. SPAGNOLO. Yes. As I noted in my comments, it primarily permits those physicians who get targeted for being fired the option, then, to retire without losing their benefit.
 Page 77       PREV PAGE       TOP OF DOC
    Mr. STEARNS. So if——
    Dr. SPAGNOLO. We would like to strike that and just let any of the physicians who are eligible to retire, just let them retire. That's our concern.
    Mr. STEARNS. Okay. All right. My time has expired.
    Mr. Gutierrez.
    Mr. GUTIERREZ. Thank you, Mr. Chairman.
    Well, first, I'd like to just state my belief that enabling local VA medical facilities or VISNs to retain a percentage of the Medicare and third-party reimbursements that they collect is something that I think the subcommittee should seriously consider. I think it is an important part of building greater efficiency and local control, certainly incentives into the system.
    Ms. West raised the issue and I'd like to just state for the record that I am pleased that she did so.
    And then I have one question to Dr. Spagnolo. I'd, first of all, like to assure you that this committee recognizes some of the serious concerns about physician and dentist morale, and the implication it has for quality of VA care. And I wanted to differ with you on one point, however.
    The legislation would allow VA to use voluntary separations as a means of reducing the physician workforce. Tenure would protect many of the physicians and dentists that this legislation would affect. Voluntary separations could alleviate the need for reductions in workforce for those with less tenure, in particular, services of facilities that require downsizing. In other cases, physicians or dentists would still have to choose retirement but will receive the benefits of special pay.
    What we don't want to have happen, I think, is our most valued and experienced physician staff taking a retirement option when the VA still needs them. And so I just wonder, maybe you could share with us your view on how we can adjust the legislation to ensure that the VA retains the physicians that it needs in the areas and the specializations that it needs them in and the experience.
 Page 78       PREV PAGE       TOP OF DOC
    Dr. SPAGNOLO. Well, I'm not sure how to answer that very straightforwardly and simply, because there seems—there were about five different kinds of questions there. And I don't think any of them have a real simple answer. I just think that we need to make this workable, clean, doable, and rapidly doable—because we don't have time, frankly, to argue over the next 6 or 8 months. I've already waited a year just to get this far, and when Dr. Kizer could have probably done this easily a year ago.
    I don't think you are going to lose the most valuable people in the system, provided you make it a system in which they want to work. But the way this is being done is making it a system where nobody wants to work, and you're going to have trouble recruiting people if you continue to do this.
    So let those people, who want to retire, retire. As far as I know, there are no other government agencies in which if you've put in 30 years of service in the Government—some of our physicians have 40 years in with the Government—that you can't retire, because you don't meet the 15-year requirement in the special pay law. So they have only 13 years perhaps in with the VA, and they can't retire. It doesn't make any sense. You have your 30 years in, and you want to retire, let's allow them to retire.
    When the original bill was made, the original law 8 years ago, these provisions were slipped in. It's not clear why they were even put in at that time. They didn't belong there, and they really, I don't think, had much to do with recruitment and retention. So let's make it clean. Let's make it simple. Let's get it done. And let's move on, then, to really doing what we're all here to do, and that's improve the quality of care for the veterans. The more this drags out, the more I fear that that is going to be in jeopardy.
    Mr. GUTIERREZ. Thank you, Dr. Spagnolo.
    And thank all of the members of the panel. I really appreciate your patience and waiting through the morning to give your very valued testimony.
 Page 79       PREV PAGE       TOP OF DOC
    Thank you very much, Mr. Chairman.
    Mr. STEARNS. I thank the member. And Dr. Cooksey.
    Dr. COOKSEY. Let me ask you, does anybody know, are there any tentative lists, proposed lists, of three areas, three regions for the facilities? Does anybody know? That answers my question.
    Dr. Spagnolo, how many MDs, DDSs, DOs, are in the system that you are representing?
    Dr. SPAGNOLO. Well, as you know, there are more than 15,000 physicians and dentists in the whole system. We represent, at the moment, nearly 3,000 of those people, in terms of paying members. We feel we represent them all, but some pay——
    Dr. COOKSEY. So 15——
    Dr. SPAGNOLO (continuing). Some pay their dues and others don't pay their dues.
     Dr. COOKSEY. Okay. So 15 percent of 15,000.
    That's all. Thank you, Mr. Chairman.
    Mr. STEARNS. I thank you. Dr. Snyder.
    Mr. SNYDER. Thank you, Mr. Chairman.
    The same question I asked before, please, for Mr. Bollinger and Ms. West and Mr. Rhea and Mr. Burns—the issue of capitation. As you know, I think almost everyone on our committee, on the full Veterans' Committee, is a co-sponsor of 1162. But it does not have a provision in there for the study, including the capitation part of it.
    And I think we've had 100 percent agreement from the other VSOs today that we need to include that. If you all could make a comment on that, please.
    Mr. RHEA. Certainly, the Non Commissioned Officers Association would have no objection at all to including it in there. And it probably would be very valuable to do so.
 Page 80       PREV PAGE       TOP OF DOC
    Mr. SNYDER. Thank you.
    Mr. BURNS. I'll go along with that, and just state that AMVETS believes that you cannot have a viable demonstration project without including some capitation in it.
    Dr. SPAGNOLO. No. I have no comment on that.
    Ms. WEST. I'd agree with my colleagues that we're going to be able to gain the most valuable information from the demonstration project if it looks at a whole range of issues, including managed care capitation.
    Mr. BOLLINGER. And we'd be interested in that analysis as well.
    Mr. SNYDER. Thank you, Mr. Chairman.
    Mr. STEARNS. Thank you, Dr. Snyder.
    I want to thank all of the panelists for their patience to wait through our votes and wait through panels one and two. And we look forward to taking and looking and reading your testimony, and see if we can incorporate some of your ideas.
    And I just hope that under the 105th Congress we can move this forward. You can see some of the controversy here, and we're going to have to convince our colleagues at CBO, in the case of the Medicare subvention, that there is a way to solve some of their concerns. And we're going to work on that.
    So with that, without any further testimony, the subcommittee is adjourned.
    [Whereupon, at 12:59 p.m., the subcommittee was adjourned.]