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

    The subcommittee met, pursuant to call, at 10:10 a.m., in room 334, Cannon House Office Building, Hon. Cliff Stearns (chairman of the subcommittee) presiding.
    Present: Representatives Stearns, Cooksey, Gutierrez, and Peterson.
    Also Present: Representative Evans.


    Mr. STEARNS. Good morning. The Subcommittee on Health will come to order.
    The subcommittee has from time to time stepped back and attempted to look into the future and to assess whether the VA health care system is moving in the right direction.
    In examining the future role of the VA health care system, we have certainly understood that that future will be closely tied to changes in medicine and the medical marketplace. Research breakthroughs in the development of technology which we cannot even foresee may markedly alter medical practice, yet uncertainty about the future and the need for VA to be flexible and adapt to change should not diminish the need for strategic planning.
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    Likewise, it is critical that we explore and pursue avenues to gain consensus on key policy questions that will confront us in the years ahead.
    Should the VA open its door to veterans' dependents? What should be VA's role in meeting the long-term care needs of aging veterans? How should VA best deploy its vast capital infrastructure?
    We have discussed some of these questions in the past. I have found it interesting to review those discussions in the record of prior hearings on the future of VA health care. In that review I detected, for example, a growing consensus over the last decade that the VA health care system needed to change.
    Just 2 years ago one of the major veterans' organizations testified in this hearing room on the future of VA as follows:
    ''All of us interested in preserving a viable VA health care delivery system acknowledge change is required. Frankly, a radical change is needed. The entire movement, screaming for reform of VA, is motivated by the singular recognition it has been an inefficient, inflexible health care delivery system.''
    A review of the testimony being presented this morning would suggest that we may no longer have the degree of consensus that we had even a few years ago. But despite some substantial differences in views among those testifying today, we need to foster and focus this dialogue. I hope this morning's hearing takes us at least that far.
    The issues we face in VA health care are not easy ones, but as diverse views are expressed this morning, we should remember that we are all united by a common concern: providing for the well-being of veterans. Maintaining that focus should help illuminate our inquiry and ease the task ahead.
    With that, I will yield to my ranking member, Mr. Gutierrez.

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    Mr. GUTIERREZ. Mr. Chairman, I ask that my complete statement be included in the record, and I would like to make one last point, and that is, the veterans of America are solely responsible for the world in which we have fewer veterans. The peace we enjoy today is their peace. Our veterans' sacrifices have reduced the threats to our Nation. If there are fewer veterans of war in the future, it is because of the victories won by the veterans of today; and we should keep that in mind as we change our health care system, to make sure that we provide service for them all.
    I would like the complete text of my opening statement included in the record so we can hear from the panelists.
    [The prepared statement of Congressman Gutierrez appears on p. 38.]

    Mr. STEARNS. Without objection.
    At this point we will move to the first panel, Mr. Steve Robertson, Mr. Robert Carbonneau and Mr. William Warfield.


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    Mr. STEARNS. And we will start with Mr. Robertson.


    Mr. ROBERTSON. Thank you, Mr. Chairman. I would like my full text to be submitted for the record.
    Mr. STEARNS. Without objection.
    Mr. ROBERTSON. Mr. Chairman and members of the subcommittee, the American Legion appreciates the opportunity to share its vision for the future of the Veterans Health Administration. Today, for about 3 million veterans, especially those with severe service-connected disabilities, VA serves as their life support system. Millions more would like to have access, but limited resources preclude access.
    Thanks to the work of this committee and VA's progressive leadership, positive changes have occurred. The American Legion believes it is important to have a clear vision for VHA beyond the strategic planning period.
    For most of its existence, VA medical care has been entirely dependent upon Congress for funding through the appropriations process. The results of placing VA on a strict budget are rapidly becoming apparent. Each division seeks every opportunity to save resources, collect third-party reimbursements and develop new resources. The current paradigm is that reducing costs will make the system work much better while trying to serve more veterans. Unfortunately, in many cases VA has no reliable long-term treatment outcome data to support the drastic reductions in inpatient care.
    VHA's reliance on the medical care cost recovery leaves the system in a precarious position. If recovery projections are inaccurate, VHA will be forced to seek supplemental appropriations or ration care.
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    The American Legion supports VA's reform efforts as long as the quality, timeliness and accessibility to care are not compromised. VHA must continue to lead in specialized services.
    Mr. Chairman, what is Congress's long-term view for the VHA. What kind of system does Congress think would work best for VA and veterans? The American Legion has offered the GI Bill of Health as a blueprint to prepare VA health care for the 21st century. The first goal is to open VA to all veterans. Public Law 104–262 was a valiant attempt towards that goal, but the term ''within existing appropriations'' forced VA to further prioritize veterans into seven subcategories. Obviously not every veteran will have access.
    The American Legion believes that it is possible for all veterans to have equal access in VHA by the following simple principle. If a veteran qualifies for care, access to the VA is at no cost to the veteran. Otherwise the veteran is responsible for reimbursing VA for his medical care treatment.
    Using that same philosophy, the GI Bill sees an opportunity to expand access to the VA health care to all dependents of veterans. Adding family members to the VA health care system will strengthen the system and enhance the patient mix to meet the health care needs of all veterans.
    The second goal is to allow VA to collect and retain all third-party reimbursements, copayments, deductibles and premiums. The GI Bill of Health calls for subvention from Federal health care insurance programs. This proposal offers greater opportunity for coordination and cooperation among the Federal health care programs. Congress wisely decided to allow VA to retain third-party reimbursements, but reduced the annual discretionary appropriations by an arbitrary collection goal.
    The discretionary appropriations are designed to fund health care for priority veterans. Third-party reimbursements comes from treatment of nonservice-connected veterans. Third-party reimbursement should be used to supplement the discretionary appropriation rather than be calculated as an offset.
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    The GI Bill of Health calls for an annual open enrollment system. When the veteran enrolls, he identifies his or her funding source.
    The third goal is to increase the access points to VA medical care. Public Law 104–262 granted VA this authority, and the American Legion strongly supported that provision. The American Legion envisions VA as the world's largest integrated health care network. VA's network would include Federal and private sector health care providers.
    This coordinated approach would move access to health care physically closer to a veteran's residence. This would help strengthen the rural hospitals and health care clinics.
    The fourth goal is to strengthen, improve and preserve all of VA's specialized services by offering them to veterans who currently may not have access to these programs.
    The GI Bill of Health offers the opportunity to meet the veterans' needs in these disciplines and generate new revenue sources.
    Mr. Chairman, it is time for comprehensive legislation to develop a long-term strategic plan for the VA health care system. The plan must develop a financially viable means to meet the health care needs of the entire veteran community rather than the 10 percent that it currently serves.
    All government health care systems are in jeopardy and face economical problems that require creative and visionary solutions. The GI Bill of Health is designed to provide a workable, fiscally responsible solution for the VA.
    Mr. Chairman, that brings us to the final question. If we build such a network, will veterans choose VA? The American Legion believes the answer is a resounding yes. The American Legion believes it is too important to the future of VHA not to conduct a pilot demonstration program of the GI Bill of Health.
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    That concludes my remarks, and I am prepared to answer questions.
    [The prepared statement of Mr. Robertson appears on p. 41.]

    Mr. STEARNS. Thank you. Mr. Carbonneau.


    Mr. CARBONNEAU. Mr. Chairman and members of the subcommittee, I am Bob Carbonneau, Executive Director of AMVETS. I am pleased to be here today as chairman of the Fiscal Year 1999 Independent Budget Policy Council representing the Office of Independent Budget.
    Also supporting me at this hearing today is Dick Wannemacher of the Disabled American Veterans, Richard Fuller of the Paralyzed Veterans of America, and Dennis Cullen of the Veterans of Foreign Wars should be joining us shortly.
    For the past 12 years our organizations have published a yearly in-depth analysis of the budget needs of veterans' programs, benefits and services. Through this collaboration, we also present updates and policy recommendations on a wide range of issues affecting the present and future course of veterans' programs.
    ''The Future of the VA Health Care System'': As you know, this is an issue of intense interest for our organizations. Hundreds of pages have been dedicated in previous independent budgets attempting to map the future of VA health care. The Federal Government and VA have spent tens of millions of dollars on studies and commissions. The results have been a lack of implementation, or worse, only partial implementation or being eclipsed by rapidly changing political or budgetary forces. In fact, it is the politics surrounding the operation of the VA health care system coming from either the administration, the Congress or the VA itself that steers the course of where VA is from one year to the next. From this standpoint, strategic planning is regularly overtaken by tactical events.
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    Third-party reimbursement: Allowing VA to keep third-party reimbursement was finally approved 2 years ago, but the original proposal designed to give VA a much-needed alternative funding mechanism was short-circuited. Some saw the proposal as a way not to enhance VA funding as we had intended, but to offset needed routine increases in the Federal appropriation to support VA health care.
    Even worse, with the VA health care appropriation frozen under the terms of last year's balanced budget agreement, VA is also failing to meet what we feel is its overly optimistic third-party collection totals. This is a classic example of what started out as a grand idea having been twisted and only partially implemented as intended.
    Health care eligibility: In the same vein, for years we had called on the Congress to reform and standardize VA health care eligibility. The old eligibility rules designating which veteran got what care, and when and why, were both inefficient and embarrassing in light of the reform sweeping the rest of the Nation's health infrastructure.
    Eligibility reform came our way, too, but again only partly as originally intended. Again, the appropriation was capped third-party reimbursement falling short, and the newest wrinkle arose, enrollment.
    Enrollment was never part of our recommendations for eligibility reform, but became the political trade-off to enforce the policy that only so many veterans could get into a VA hospital as there were dollars to provide that care. This was done because of what we feel were grossly inaccurate cost projections by the CBO. In these instances, what started out as a major plan for reform was greatly influenced by changing political winds and budget trends.
    The lesson learned from these two policy changes alone is that both the veteran service organizations and the Congress should be very careful in promoting any more major changes in the system.
    At a minimum, we need to see where the changes we have already made bring us over the next few years before we take additional steps to reform. In other words, let's take time to evaluate these major changes and use this period to tweak and fine-tune.
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    What does the future look like for VA health care? We don't even know what the present has in store on many fronts. Dr. Kizer's plan for a decentralized VA with 22 VISNs is still in its growing stages. Dr. Kizer recently said that without additional funding sources, the VA soon would, quote, ''hit the wall.''
    As that happens or if it begins to happen, a VISN could respond differently to shrinking resources affecting quality or quantity of health care.
    The biggest question mark facing the short term is the impact on enrollment. Scheduled for completion in just 3 months, the enrollment process places an entirely new dynamic in the provision of veterans' health care. Capped budgets and limited enrollment certainly bring enormous pressures to find solutions. While billions of dollars are being made available for other Federal programs, the Congress has greatly restricted additional appropriated dollars to support the VA.
    Third-party reimbursement has reached its limits. Medicare reimbursement, if enacted in its present form, would not bring substantial additional resources into the system, at least for the time being. In response, VA managers have been told to seek efficiencies wherever they can through contracting, downsizing and shifting resources.
    We have long supported the drive to efficiencies; however, we never envisioned shifting of services being done in such a severe budget climate and certainly would not envision what impact this would actually have on the VA's traditional mission in caring for the specialized needs of the veteran population.
    This process is producing disturbing trends, showing degradation of the VA inpatient mission and specialized services such as spinal cord injury and long-term care to name just a few.
    It seems my time is at the end, and I will just wrap it up if I could.
    We are concerned that fiscal priorities may drive managers to enter into sharing agreements with their eye on the dollars generated and not the benefit of the veteran patient. This can be dangerous.
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    Mr. Chairman, innovation is not wrong, but innovation for the wrong reasons, sheerly to shore up flagging budgets that replace the Federal Government's responsibility to provide health care for veterans is unacceptable. From the track record we have seen, good ideas and good intentions in designing innovation in VA health care funding and services have not always turned out the way that they were originally intended.
    There are still 26 million veterans in the United States today. Despite the dwindling number, the majority are still in need of health care and are at the peak of use of the system. Over the years, even with its faults, the VA health care system was designed to meet the specialized needs of this patient population. It was not designed to be all things for all veterans and all things for all nonveterans at the same time.
    The system is in serious transition. The solution, based on past history, is to be patient and to monitor changes already made. The VA must stay focused on its primary mission. You, the members of the committee, and we, the veteran service organizations, must continue to be flexible in the efficient delivery of services but adamant that the quality of care is always paramount. We must also keep in mind that from a budget standpoint, veterans' health care is a Federal Government responsibility. The cost of war, military readiness, veterans' health care must not be programmed to failure.
    Let's work through the major reforms already implemented and see where it takes us. As most of you know, the independent budget members are not at all pleased with recent developments in the Congress that seem to send the message, particularly in an election year, that transportation issues are far more important than the commitment to America's veterans.
    Mr. Chairman, that completes my statement.
    [The prepared statement of Mr. Carbonneau appears on p. 47.]

    Mr. STEARNS. Mr. Carbonneau, your entire statement will be part of the record if there are portions that you didn't include in your oral testimony.
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    Mr. Warfield.


    Mr. WARFIELD. Thank you. The VVA is pleased to present testimony regarding our vision for the future of VA health care. I would like to just give you an overview and summary of our testimony on the reform measures.
    Eligibility reform: VVA considers this legislation a landmark in creating much-needed reform and flexibility to the VHA. It has helped to modernize and improve efficiency by removing arcane and unworkable statutory barriers to outpatient care. The enrollment requirements for each veteran who uses or intends to use the VA health system are reasonable. We are still working in close cooperation as part of the VHA and VA, as a working group, to make sure that initial misinformation and erroneous information has been corrected and clarified. We feel that it has.
    We have some serious problems and concerns with the draft enrollment regulations which have been submitted to the Department that are now under review. Those concerns deal mostly with clearing up specific, defined priorities within the seven eligibility categories.
    We have expressed our recommendations to VHA on the need to expand some of the basic medical benefits in the package, for instance, the need for emergency room care. Prescription and medication coverage needs to be defined better.
    Second, decentralization for VISNs: While these revolutionary changes in putting into place 22 stand-alone VISNs have created several important advantages and efficiencies in the delivery of Medicare, they are a double-edged sword in terms of ensuring consumer input and accountability. Our experience with VISN Management Assistance Councils, or MACs, has been inconsistent and often fragmented.
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    Additionally, and most importantly, VHA has so far not been able to develop a workable and effective management information and data processing system. Under these adverse circumstances, VA's top management, Congress, this subcommittee and veterans, as well as taxpayers, may not have any way of knowing how well or how poorly each VISN and the facilities within it are functioning.
    Funding problems: VA's long-range goals may not be realistic or attainable, especially due to the shortfall in VA discretionary appropriated dollars. The budget for health care is frozen over the next 5 years by the budget agreement, at about $17 billion.
    We have serious reservations about VA's capacity and ability to officially collect third-party payments from private health insurance providers. The VA goal to increase collections by 10 percent through MCCF is overly ambitious since the cost of collection rates are higher than normal, and again VA is having difficulty in shifting from a no-charge-for-service policy to a complex new cost-of-recovery.
    During this vital transition period, which we believe will take much longer than originally programmed, our question will be: Will Congress and the administration be willing and able to protect the critical levels of funds required through the appropriated dollars to maintain our minimal care?
    For the future aspect of VA, our future patient base, we believe if current demographic trends continue, 60 percent of community hospitals and over 80 percent of the VA hospital beds may not be needed in the next 15 years. The veteran population has been on the decline since 1980, and by year 2010, it is expected to total 20 million, roughly one-third less than 1980.
    In addition to fewer veterans seeking treatment, VA medical care may further decline due to the expansion in Medicare use by older veterans. In an April GAO study, elderly veterans', age 65 and above, usage of VA hospitals dropped by 50 percent between 1975 and 1996. This change in demographics of the veteran population will dictate a change in the menu for care and services offered.
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    By the year 2010, 42 percent of the veteran population, some 9 million people, will reach 65 and older. Therefore, VA should be moving in the right direction, which they are, to expand adult day-care and other senior services. Also by 2010, 6.4 percent, about 1.3 million veterans will be females. They must become more efficient and attractive in meeting the needs of women veterans.
    The fifth point I would like to make is more emphasis on prevention and wellness. As medical technologies have advanced, the burden of disease has shifted from acute episodes of illness to chronic diseases which are now the leading cause of long-term disabilities.
    This year alone an estimated 35 million Americans will suffer some form of chronic disability. Fifty-two percent of severely and chronically disabled people are over the age of 65; an even higher percent are also veterans. The VA of the future should increase life-style intervention to lower risk factors for disabilities among the elderly and near-elderly. Examples are depression and mental health screening, exercise therapy, good nutrition, smoking and alcohol use cessation and reduction. The main goal should be that of disability prevention so as to maximize a person's well-being, independent living and overall quality of life.
    VA should also be moving toward the treatment of chronic disease. In the past, VA's biggest concern for health care was on acute care directed towards curing the disease or fixing the injury, then moving on to the next problem. Today, the biggest concern facing health care providers is chronic care management.
    Our conclusion: On the whole, VVA feels that health care is evolving in the right collection. We are anxious how and if the commitments will be met, especially the downsizing trend and the severe cuts and transfers of VA dollars for other purposes made by Congress this year, and the even greater reduction contemplated in the President's budget and by the House and Senate budget resolution.
    This concludes my statement. I will be pleased to answer any questions. Thank you, Mr. Chairman.
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    [The prepared statement of Mr. Warfield appears on p. 53.]

    Mr. STEARNS. Thank you, Mr. Warfield.
    Just for the record, I would like it to be known that Dick Wannemacher of Disabled American Veterans is here with us to help answer questions; and Richard Fuller, Paralyzed Veterans of America, is also here; and I want to thank them also for their time and for participating.
    I thought I would go to this area concerning tobacco funds for the VA, and I think Mr. Carbonneau just indirectly referred to it.
    The VA estimates that it spent about $3.6 billion in fiscal year 1997 to treat tobacco-related illnesses and will spend $20 billion on that care over the next 5 years; and this is a question for all three of you.
    In your view, should the tobacco settlement, if it ever comes before Congress and gets passed, be used in part to help the VAs and in what way? Research? Direct benefits? Lump sum? What would be your position on this, and what do you think that the committee should be recommending?
    Mr. ROBERTSON. Mr. Chairman, I think the question is whether or not veterans should be service connected for tobacco-related illnesses because of their service in the military. If that is the case, they are entitled to medical care for their service-connected condition. That is the issue.
    The tobacco settlement is an entirely different subject. How that money is used, I don't care. What I do care about is that the veterans that serve this country, that developed a medical condition—a medical condition—are compensated and treated for that condition. That is the promise that was made to the veterans in title 38, U.S.C. That is the promise that was made.
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    Now, I know that we have broken our promise to military retirees, but this is one that The American Legion is absolutely going to hold you to.
    Mr. STEARNS. So you are saying, forget the tobacco settlement, forget there is anything involved here? You are just saying, the veterans are committed under that title, if it is service connected, to take care of the veterans; and so this is divorced from the tobacco settlement in your opinion?
    Mr. ROBERTSON. Yes, sir, I think it is. The American Legion has a position that the VA should pursue part of that tobacco settlement to assist in the treatment of these veterans. We don't object to that part. What we are objecting to is turning our backs on the veterans who have tobacco-related conditions as a result of their addiction to nicotine while on active duty.
    This rhetoric, just because you started smoking in basic training and now 40 years later you are entitled to the benefit, is false. You have to prove that you were addicted to nicotine during the time of active duty.
    Mr. STEARNS. This is a health subcommittee, it is not a benefits subcommittee.
    I think what you are not saying that the tobacco settlement is irrelevant; you indicated that the tobacco settlement is something that should be pursued. Is that yes or no?
    Mr. ROBERTSON. Yes, that is true.
    Mr. CARBONNEAU. I agree. It should be pursued, but if memory serves me correctly, the biggest customer, if you will, of the tobacco companies for years was the Federal Government. And it is the Federal Government's responsibility on health care issues. If we can go over to—in the tobacco settlement and get money for health care, that is fine, but we still view it as a Federal Government responsibility.
    Mr. STEARNS. You are saying that the Federal Government is the largest purchaser of tobacco products?
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    Mr. CARBONNEAU. From some of the figures that I have seen over the last several months, the tobacco industry, the largest customer was the Federal Government in purchasing and supporting the tobacco industry.
    Mr. STEARNS. What was the Government doing with the product? Were they then reselling it or giving it away?
    Mr. CARBONNEAU. You have to remember they were in C rations. They were provided at low cost to the veterans serving. They were in commissaries. They were provided at lower prices throughout the world for years and years and years. The Federal Government was a major player in that.
    Mr. STEARNS. Mr. Warfield?
    Mr. WARFIELD. Yes, Mr. Chairman. I would like to refocus the question on the impact on health care.
    A veteran—it does have an effect on veterans' health care. If the present language was signed into law, it declares that a veteran's willful misconduct makes the veteran ineligible for not only benefits but could be declared ineligible for health care because he or she were a smoker, we have a concern regarding that, and I would like to commend Dr. Kizer's visionary fairness.
    In today's Washington Post, Dr. Kizer makes note of his concerns over—in a memo saying that he does not believe that it is willful misconduct and that VA will have a great deal of problems in denying health care on that basis. I think he is absolutely right.
    And finally, I don't think the issue is the debate over tobacco versus—smoking versus nonsmoking. I think the internal congressional debate should be to permit taking money that belongs in the veteran baseline away from this committee and granting it to another committee that doesn't have anything to do with veterans' funding, the Transportation Committee, to use the money inappropriately.
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    I think this subcommittee could appropriately use the money for health care benefits.
    Mr. STEARNS. When you say ''benefits,'' what do you mean?
    Mr. WARFIELD. Improving the quality of health care from smoking. Agent Orange could be classified in certain conditions, and being denied as a smoker a benefit for Agent Orange.
    Mr. STEARNS. I would like to ask Mr. Wannemacher or Mr. Fuller if you have any comments that you would like to make.
    Mr. WANNEMACHER. I would concur with all three presenters with regard to the settlement. And after reading the memo from—in the Washington Post extract, we agree that willful misconduct would lead to denial of health care benefits for veterans, and this is something that is appalling; and that's why we fully support the technical corrections amendment with the proper language, and we also support Senator Rockefeller in his move to remove the VA's money from the transportation bill.
    Mr. STEARNS. Mr. Fuller?
    Mr. FULLER. Yes, Mr. Chairman. I would like to add and underscore that it is obvious, as the debate over the tobacco settlement goes forward, that there are lots of entities both in the Federal Government and State government and even the private sector who are trying to get their hands on part of this money.
    The Independent Budget is very clear that the VA should receive a part of this tobacco settlement for health care purposes, health care purposes only.
    As you probably know, Senator McCain on the Senate side has already offered a successful amendment to the legislation that is going forward over there which would provide $3 billion of the settlement to go to veterans' health care. He has used a very general rubric on what health care is in order to give flexibility to use it for health care research or other purposes. I would like to add that for the record.
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    Mr. ROBERTSON. Even if this money were received from the settlement, unless the veteran is service connected for that condition, he or she may not have access to the system to receive the treatment.
    With the priority system, 1 through 7, if I was a smoker while I was in the military and now I am discharged and I have no service-connected disability, I am in priority group 7. I don't have access to that money. But the way—under the current enrollment system, I may never step foot in a VA hospital. That is where people have lost in this debate. The ''hook'' that gets this tobacco-related illness into the VA system for treatment is the service connection; and I believe there is a logical way to approach determining who can file the claims and who can't.
    Mr. STEARNS. Let me ask each of you to answer, yes or no: Does your organization support the Rockefeller amendment, Mr. Warfield?
    Mr. WARFIELD. Yes, sir.
    Mr. STEARNS. So you understand what it is?
    Mr. WARFIELD. Yes.
    Mr. STEARNS. Mr. Wannemacher?
    Mr. STEARNS. Mr. Robertson?
    Mr. ROBERTSON. Absolutely.
    Mr. STEARNS. Mr. Fuller?
    Mr. FULLER. Absolutely.
    Mr. STEARNS. Mr. Carbonneau?
    Mr. CARBONNEAU. Yes.
    Mr. STEARNS. So there is unanimous agreement here about the Rockefeller amendment. We have looked at it, staff and I; in fact we have drafted legislative language and we are just trying to be sure we understand it and be sure that you folks understand it before we go forward. But it is interesting, and I appreciate your comments.
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    Is there any reason to limit settlement payments to a 5-year period?
    Mr. ROBERTSON. No.
    Mr. WARFIELD. No, sir. I see no reason to limit.
    Mr. STEARNS. Mr. Fuller?
    Mr. FULLER. No.
    Mr. STEARNS. Before I yield to the distinguished ranking member, let me just move to the American Legion's GI Bill. I would like each of you to indicate whether you support the bill, and if not, whether there are specific elements which you can or cannot endorse.
    It is nice to have folks from so many organizations here, VSOs, and I would like to hear just briefly on this.
    Mr. Robertson, why don't you start?
    Mr. ROBERTSON. Yes, sir, I would support the American Legion's GI Bill 100 percent. I think it is the best plan going. It is the only plan going.
    Mr. STEARNS. We give you the lead-off.
    Mr. Warfield?
    Mr. WARFIELD. Yes. If I had unlimited, omnipotent powers and I were czar, I would support it. But we have to work within the system. If we could, somewhere in the future, move toward an ideal system, that would be fine; but right now I don't think that it is necessarily realistic.
    Mr. STEARNS. Some of our research indicates, Mr. Robertson, that some of your colleagues don't support it. There is some hesitation, and that is what I am trying to find, if there are any portions that not all groups agree with.
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    Mr. Wannemacher?
    Mr. WANNEMACHER. As the independent budget in the testimony stated, with enactment of 104–262 and the reengineering being made by VHA and Dr. Kizer is progressing. We have to give VHA an opportunity to work things out. The third-party collections (MCCF) is currently collecting 31 percent of the billed amounts. Because of as unacceptable billing, VHA must be able to have proper accounting systems and collections tools. By putting in the core groups that are in the GI Bill of Health, and offering insurance policies to nonveterans and dependents, how can we expect the Veterans Administration to bill, collect and spend those monies efficiently? We have concerns over that aspect of the proposal. And, for those reasons we are withholding endorsement of the American Legion's GI Bill of Health.
    Mr. STEARNS. Mr. Carbonneau, what about the cost in this——
    Mr. CARBONNEAU. I am going to let Mr. Fuller answer that.
    Mr. FULLER. Thank you, Mr. Carbonneau.
    I think that the cost is unknown at this point; I think that there are many things in the GI Bill of Health which are similar or identical to things that the Independent Budget has recommended for quite some time.
    I think the scope of it, going back to what the Independent Budget testimony was today, is somewhat troublesome in light of the fact that VA is still trying to cope with the changes that it has right now, rather than imposing more monumental structure on the system at the present time.
    Mr. STEARNS. That is the problem we face up here. If the thing has a very high cost, there is a possibility that there would be cost shifting here, and the cost that will go for one program will hurt another program; and with limited dollars, we are all trying to find ways to make sure that there is not this problem.
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    Mr. Carbonneau, go ahead. Do you want to answer anything?
    Mr. ROBERTSON. Mr. Chairman, I would like to point out one thing about the GI Bill. Almost every element of the GI Bill has already been implemented in some phase or another. We have an enrollment system. We are treating VA dependents in VA facilities currently. We do collect and retain third-party reimbursements.
    The only thing that we have not done is offer a defined benefit package that could be purchased by somebody who has no insurance coverage at all, and I understand that because the ultimate reform bill, that VA is now developing a defined benefit package for the people in various categories as to what they are going to have. A lot of elements of the GI Bill are already being tested, but not to the full magnitude of our proposal.
    Secondly, I think TRICARE is exactly a classic example of what has happened—of what we are trying to do. DOD ran into a problem similar to what VA was doing, but they broke their promise to their veterans and said, we are going to create this separate health care system to take care of you. The American Legion wants to make sure that the promise made to the veterans is not broken.
    Mr. STEARNS. In your demonstration project, you might think about testing your plan at 20 to 40 VA medical centers. You might consider in some way to move that into a focused pilot program. That is just a thought.
    What we need is some evidence that this is not going to be costly, because I think most people like the program and want to implement the program. We just get worried about the cost, and so it is just a thought.
    Mr. ROBERTSON. Yes, sir. We are worried about the cost, too, and that is why we came up with the concept of veterans actually paying for their health care. If they are not completely covered under some Federal health care coverage program, we have TRICARE, Medicare, Medicaid, whatever, if they have no coverage at all, we expect them to pay for it out of their pockets. And if their dependents are coming into the system, their dependents have to pay for it.
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    It is just like any health care industry out there in the private sector. The only difference is, we are not trying to make a profit. We are not going to have to have a golden parachute for Dr. Kizer when he leaves.
    Mr. STEARNS. How much is that parachute?
    Mr. ROBERTSON. It is a hell of a lot more than I am making.
    Mr. STEARNS. Let me go to the distinguished ranking member for questions.
    Mr. GUTIERREZ. I thank this opening panel and I suggest that we spend some time, Mr. Chairman, just dealing with the tobacco-related illnesses of veterans. We must get to the core of the issues and we need to invite some people in to provide testimony. Clearly we are hearing a lot of debate and concern.
    We obviously have to look at it, in all seriousness, because the Government handed tobacco out free to members of the armed services with enlisted men and women. And I don't know if they did the same in the private sector, but they said you could have 10 minutes off to smoke cigarettes. They even gave them a break so they could smoke. We gave them the cigarettes and gave them time off, and it was part of the regimen of military service.
    And I know we must also talk about disabilities in terms of compensation, as well as the need for medical treatment for those tobacco-related disabilities. I don't know of any major health care insurance plan that denies anybody health care coverage because people smoke.
    They may deny you a life insurance policy or charge you more money for one, but every Member of Congress who smokes and contracts cancer or some other disease, will be covered for this problem and so is everyone else with insurance coverage in the work force.
    So I don't know how you can distinguish between veterans and the rest of the American population. As far as I know nobody gave us free cigarettes and time off to smoke them. I think it might be a good idea to debate this complicated issue. It is an area the American public needs a lot of information about.
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    Having said that, I would like to ask Mr. Robertson: The GI Bill of Health would expand access to VA health care to nonpriority veterans and their dependents. Is there any concern that drastically expanding the system in this fashion would compromise the VA's ability to focus care towards veterans who are most in need?
    And, in addition, the VA possesses virtually no experience at treating young people. How will the VA be able to offer them proper care, given their lack of experience? Could you just examine these couple of questions for us?
    Mr. ROBERTSON. I would like to address the most important aspect of that question, and that is our service-connected veterans. They will always be the number one concern of The American Legion and should always be the concern of the VA.
    The concept that we have is expanding, based upon supply and demand. As you increase your enrollment base and more people are in the system, the health care needs have to be expanded through contracting of services, through sharing agreements, whatever mechanisms the VA is using to expand its network so that there should be minimum waiting time, the quality of care should be maintained, and the timeliness of service should be comparable to that of the private sector. That is how you attract people to your system, if you are better than the other guys.
    We would hope that with the expanded base, we will be able to expand the network to where the veterans will be able to go and receive their care in a timely manner, quality care.
    As far as taking care of children, when you contract out services, that is what you do. You are contracting because there may be services that you are not able to provide. So contracting pediatric care or OB/GYN care should not create a problem. For years the VA contracted out OB/GYN services because they didn't perform them within their facilities. So I think it could be done quite easily.
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    As a matter of fact, I think it would complement the problems being faced by TRICARE right now with veterans that are in areas where there is no TRICARE provider close to their physical location. Right now I think it would be complementing DOD's health care programs. I think it would be complementing Medicare. HHS, they have been trying to get people into managed care programs. I think that would solve that problem.
    I think it would help the rural health care problem. I think there are a lot of good ideas in this package. It is just a matter of being willing to change your thinking from inside the small box that VA currently operates in and go out into the rest of the world, like the rest of the health care industry.
    Mr. GUTIERREZ. Thank you, Mr. Robertson.
    Mr. Carbonneau, it has been our general contention that the Government, Congress and the administration, are currently failing our Nation's veterans. We are making policy to meet short-term budget restraints and not in the interest of providing the best-quality care. I think this is dangerous, and I feel it will lead to serious problems in coming years. We seem to have forgotten the VA's mission as we rush to create a new VA in the image of the private health care industry.
    Mr. Carbonneau, I know that you have examined the effects of recent reforms. Nevertheless, I fear if the supporters of veterans' programs cannot develop a vision that preserves the VA and its mission of caring for veterans in need, privatizers, downsizers and government accountants will pursue the dismantling of the VA system.
    In your view, what can I and other supporters of a strong VA health care system do to preserve the VA in the long term?
    Mr. CARBONNEAU. As I mentioned, for 12 years we have been putting out the Independent Budget, and in that document, in the executive summary, it just outlines where we are going and what we think the vision is.
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    Dr. Kizer brought with him many—when he came, brought many new innovative ideas, thinking outside of the box, doing things that we had wanted to see for a long time. With that come adjustments that need to be made.
    The system is a very large system, and it takes a longer time to turn around the system or to get it focused and to provide services in a more efficient setting and to turn the system around.
    I think, as our statement says, the politics is what has been the problem. We have had good intentions. We have had compromise on eligibility reform that we didn't like from a veteran service perspective. And in those compromises have been some of the problems that have developed. They need to be tweaked and overcome.
    But we need to, I guess, use our Independent Budget as a blueprint—it is a good one—for the future of the VA and in what we view as the four service organizations that make that up and the 50-some-odd that endorse it, what we view as a good blueprint for the future.
    Mr. GUTIERREZ. In Chicago, my hometown, the VA inpatient substance abuse programs have been eviscerated because of the budget constraints. If you can, describe the problems that members of AMVETS have perceived in specialized services and what you have seen or heard around the Nation in different service networks, describing specialized services and their degradation or improvement as you see it.
    Mr. CARBONNEAU. I am going to refer that to Richard Fuller.
    Mr. FULLER. Indeed, Congressman, that has been one of our concerns through the recommendations of the Independent Budget regarding the future of the VA working with Dr. Kizer and his particular reforms.
    The core of the VA health care system is specialized services. The VA was established to take care of the specialized needs of disabled veterans. Out of that history has grown a remarkable record in such areas as blind rehabilitation, long-term care, mental health and substance abuse.
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    Unfortunately, a lot of these types of services are very expensive, and when you get into this private sector model of do more with less and take care of more people with less money, you get down to the level of what is known as ''bottom-dollar medicine.''
    At this particular time, if you look at the private sector models, the first things that they go after are the expensive outliers, your expensive specialized services.
    We have had good dialogue with this committee in recognizing the importance of these programs and putting actual language in the eligibility reform legislation requiring VA to maintain its capacity to provide these services. Likewise, we have had a very good dialogue with Dr. Kizer on this issue, as have the blinded veterans and others who have a stake in these specialized programs.
    Where we have to remain constantly vigilant, however, is with 22 VISNs and the different policymakers at that particular level, we need to watch very carefully. As the dollars shrink, so does the potential commitment to this specialized mission of the VA and these services begin to erode and disappear. I can assure you that Paralyzed Veterans of America and the Independent Budget are very concerned about this and will work with you to address your problems, too.
    Mr. GUTIERREZ. My time is up. I just wanted to thank the rest of the members of the panel.
    Mr. Warfield, good to see you again.
    I would like to apologize to the second panel and to the members of this committee. I have a meeting with Mr. Gephardt in—well, a minute ago. I am going to have to ask to be excused from the rest of this hearing. I will try to get back as quickly as possible.
    Mr. STEARNS. Mr. Peterson.

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    Mr. PETERSON. Thank you, Mr. Chairman. I want to commend all of our witnesses and I think that they, the issues that they brought forward are very relevant, and I agree with most everything that they have put forward.
    I would like to ask any of you that want to respond, one of our witnesses on the next panel Marjorie Quandt, from the Commission on the Future of Health Care, I don't know if you have looked at this, but they have this chart here which says that most of my district and a good part of the country will not have enough veterans to support a VA hospital in the year 2010, 2015.
    I don't know if you have looked at this or not. I think that all of the discussion we are having about the short term is relevant, but in my district I am already having a lot of problems with the distances. It takes 7 hours for people to drive from one end of my district to the other.
    To be honest with you, in this day and age, the way this whole system works, it is not a particularly conducive situation to have to drive that far and then sit there for 5 hours to get in; and if you have a certain kind of condition, what are you going to do? You have to keep coming back time and again.
    I guess what I have been kind of struggling with is thinking about where we are going with this situation? We are moving; they are going to open up an outpatient clinic in one of our towns, which will help; but as we move through this whole thing, are we going to get into a fight between people that want to keep the bricks and mortar and keep the business in their town versus moving to outpatient? And how are we going to manage all of that?
    I am concerned that as we move through this thing that those of us that are in the sparsely populated parts of the country are going to get left out somehow or another. I am sure everybody is going to say that will not be the case, but they told us that with deregulation we would not get left out, and we did. We have been down this road with a lot of different issues.
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    I am concerned that as the resources are limited and as we try to move through this thing, those of us that are out in the rural areas are going to get the short end of the stick; and the political clout that is in California and Chicago and Florida and places where they have larger populations is going to overwhelm us.
    My question is, are you folks concerned about that and are you talking about that within your organizations?
    Mr. ROBERTSON. Absolutely. Having spent 7 1/2 years in Minot, ND, I can identify with your problem. That is part of the idea of our health care network. A network can be expanded or contracted, based upon your need, not necessarily requiring bricks and mortar where you are delivering the health care. So if you have a rural part of the State that has a health clinic, the VA can assist in getting the veteran into that facility. If he needs more major—the veteran needs more major medical care, they will keep moving him closer to where that service can be provided.
    One thing I want to caution you about, this projection of what the veterans' community is going to be like in 2010, if you would have asked a Congressman in 1919 what the veterans' population would be like, he would have probably told you, we just fought the war to end all wars.
    Right now I think that the national threat, the proliferation of nuclear weapons, and as many places as we have troops stationed right now maintaining the peace, the chances of a war to break out, much like Desert Storm, is realistic. And had Saddam Hussein used weapons of mass destruction, chemical-biological warfare weapons on a large scale, you could immediately have hundreds of thousands of service-connected veterans pounding on your doors asking for health care.
    So when you are trying to develop a health care plan for the future of the VA, you can't just look at the existing population. You have to look at it in the global picture of what we are doing national security-wise, foreign relation-wise right now.
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    I tell you that I am not—I would love for the membership of the American Legion to go to zero because our membership requires wartime veterans. That is what our membership requires. I would love to go out of business because there are no more wartime veterans. That is our goal. But we have to be realistic. You can't do your strategic planning in a little bitty picture.
    You have to look at what is happening around you. And Desert Storm is a classic example of why we need something like the GI Bill of Health, because of the health care problems that the veterans had coming back. Had the GI Bill been in place, every one of those veterans could have walked up to a VA hospital and said, I want to be treated today. They could have enrolled. They could have been enrolled before they deployed. And instead of having their health care coverage canceled by their businesses while they were on active duty, rather than having their families have to travel hundreds of miles to go to a DOD medical facility, those problems would have been resolved.
    I think that we need to look exactly like you are saying well ahead into the future. And how we are going to be able to adjust this, we think that the GI Bill is the right approach.
    Mr. WANNEMACHER. In enactment of 104–262, when Congress gave the Veterans' Administration the ability to enhance sharing agreements and enhance leases and reaching out and bringing the Veterans' Administration to the veteran, that was a global vision to better care for veterans' health care needs. It does not take bricks and mortar. It takes a commitment of the U.S. Government to say, Veterans, when you become disabled, there is going to be a system in place for you. It may not be the stereotype VA-provided doctor or full-time employee physician, but it is someone whom the Veterans' Administration has contracted with to provide your health care. And that is what the veterans' organizations asked for when 104–262 became law, and that is what we continue to support also.
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    Mr. PETERSON. Thank you, Mr. Chairman.
    Mr. STEARNS. Let me just follow up on Mr. Peterson.
    Ms. Quandt, who is on the second panel, former Executive Director of the Commission on Future Structure of VA Health Care, Department of Veterans Affairs, believes that the VA should at some point—I am asking your opinion on this—sell highly unused hospitals, which are very costly to maintain, and reinvest in new, modern outpatient facilities. Are there circumstances that would make this idea acceptable?
    I would like to go from the right to the left.
    Mr. Warfield, yes or no?
    Mr. WARFIELD. I do partially agree. I think that is incrementally what the Dr. Kizer plan is for integration. For instance, there have been 4,200 beds that have been closed in the mental health and substance abuse treatment. Then there is a transition program for intermediate or domicilic care. I think that that is what is already happening, by attrition and by the change in need and demand for services.
    Mr. PETERSON. Mr. Chairman, before the rest of them answer, that is part of my question.
    You say that that is the way we are going to go. We are going to have a hell of a fight if you are going to try to close Fargo and Rapid City and all these other places that are on this chart. And I guess my question is, along with what the Chairman is asking, how is it going to work?
    I think the people in Fargo are—I understand what you are saying, but they are going to fight like crazy to keep that hospital. The same thing in Rapid City. How is this going to work? If we in fact have this fight and if we are going to move this way, how is this going to play out?
    Mr. ROBERTSON. From the GI Bill of Health standpoint, I will tell you, because of the military retirement community that is in the Fargo, ND, area, I think that the patient population, since it will be more than just service-connected veterans, will justify the facility staying open for many years. Would there be a decision somewhere——
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    Mr. PETERSON. You don't agree with the chart?
    Mr. ROBERTSON. No, sir, I don't.
    Mr. FULLER. I would like to add that Marjorie Quandt was the chair of one of those commissions that we talked about in our testimony that cost millions of dollars. And at this point, even though she is a very articulate spokesperson for the view—for her own views and the views of commission, the results of the commission really didn't go anywhere.
    I would also like to state that it is a great idea to go out and sell your assets. But once you sell your assets, they are gone. Then what do you have for it? Potentially, in light of what OMB has done to us over the past several years, if all of a sudden VA comes up with money in one pot, they are going to offset our appropriation in the other. So I think you are being penny wise and pound foolish.
    Putting all of the money into outpatient care is cost-effective for people who are ambulatory. What will happen when a veteran needs specialized inpatient care, which has been allowed to degrade. You don't have a whole system there anymore?
    Mr. STEARNS. Would anyone else like to comment on Ms. Quandt's statement to sell unused hospitals because they are costly?
    Mr. ROBERTSON. Mr. Stearns, under our GI Bill of Health proposal, the VA would become a business, for lack of a better comparison. So if that is a business decision that would have to be made that the veterans would be better served by selling one facility and maybe increasing the contract agreements with another health care facility, that may be the most business-sound decision to make rather than plowing money back into bricks and mortar.
    But I think that it would—that the American Legion would want to thoroughly investigate whether that facility should be closed. Right now the only procedure we use is earthquakes.
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    Mr. WARFIELD. Our experience in the Federal Government with the sale of assets, whether loan assets or tangible assets, has been catastrophic. We have lost hundreds of billions of dollars in selling those assets and not, as my colleague said, I agree with that, and not getting any beneficial return for it. I would say that is a very bad recommendation.
    Mr. STEARNS. Well, gentlemen, I thank all of you for your participation. Without any further comment, we will move to the second panel.
    Ms. Chenoweth was here and wanted to ask questions, but she could not stay because she was managing a bill on another committee. We are offering her the opportunity to ask questions, and we will put them in as part of the record and get replies for her. Without objection, so ordered.
    [The prepared statement of Congresswoman Chenoweth appears on p. 40.]

    Mr. STEARNS. We appreciate the patience of the second panel: Dr. Kizer, Under Secretary of Health, Department of Veterans Affairs; Mr. Stephen Backhus, Director of VA Affairs and Military Health Care Issues; Richard Krugman, a doctor, Dean of the University of Colorado School of Medicine, representing the Association of American Medical Colleges; and Marjorie Quandt, former Executive Director, Commission on Future Structure of VA Health Care.

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    Mr. STEARNS. I want to welcome the second panel, and at this point, let me open up for your opening statements. We will start with Dr. Kizer. I want to thank you again for coming, and his energy and perseverance in trying to help veterans with the administration; and all of us are very respectful and interested in your opening comments.


    Dr. KIZER. Thank you, Mr. Chairman.
    I am pleased to be here this morning to continue the dialogue that we have been having over the past several years regarding the future of the veterans' health care system. Indeed, I think it is probably a very opportune time to again focus on this, since it was done 2 years ago when Mr. Hutchinson chaired the subcommittee, and so much has changed in veterans' health care over the past 2 years. Indeed, I think I can say without reservation that there is no other health care system in the country that can match the extent of change that has occurred in veterans' health care since we launched our reengineering effort in late 1995.
    My written testimony includes considerable detail to exemplify that point. I trust that my full statement will be included for the record.
    Mr. STEARNS. Without objection, it will be made part of the Record.
    Dr. KIZER. I would summarize by emphasizing that the VA continues to be in rapid evolution, just as American health care everywhere is in rapid evolution or rapid transition. There is not yet anywhere in this country, indeed anywhere in the world, a health care system that fully satisfies all of the needs or demands for access, quality, user service or user friendliness, and cost.
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    I think VA is wrestling with many of the same problems that everyone else in health care is wrestling with. The difference, though, is that the size of the VA sometimes magnifies the problems that everyone is having.
    In this regard, I would also note that in addition to being the largest fully integrated health care system in the United States, the VA is also the most complex health care system in the world because of our multiple missions. These are missions which are, at the same time, complementary to each other, but they also do compete with each other at times and set the stage to be conflictive with each other as well.
    I would make one other point in this regard, it is so often not appreciated how much the public at large benefits from the VA, whether it is in the training of health professionals, or the research that is done, or caring for the homeless, or responding to national disasters, or pioneering better ways of managing chronic illness. While those things all certainly benefit veterans, they also benefit the public at large in many ways.
    Let me turn my focus, in the time that remains here, to some comments about the future. As I look at the future, I believe that the veterans' health care system will continue to evolve along the lines that we have been pursuing for the past 3 years. I also believe that we are very well positioned to expand services, should policy decisions so dictate, as well as funding sources be made available to support any increases.
    The issue that we will continue to have to address, as will the rest of health care today, is providing good health care value. As we have discussed before, VA has operationalized or defined health care value as being the composite of achieving easy access, high technical quality, good service satisfaction and optimal patient functionality at a reasonable cost. With that in mind, I see the VA health care system evolving in three general directions.
    First, I see the VA getting better at what it now does; that is, getting better at taking care of service-connected and poor veterans in a system that not only provides current state-of-the-art medical care, but also that trains tomorrow's health care providers, and one that researches and pioneers tomorrow's health care solutions. Finding better ways of caring for VA's population of chronically ill, older and poorer veterans will ultimately result in better care for all Americans.
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    In pursuing this direction, I think that I would also underscore, and I think that we have been consistent in the direction given, that we have to pursue five key principles as we pursue this direction.
    First, I would echo some of the comments that were made earlier this morning by the first panel that we have to be constant in our focus on providing for the special needs of veterans, whether this is providing for spinal cord injured veterans or providing prostheses or blind rehabilitation or treating PTSD or environmentally related conditions; whatever, we have to maintain that constant focus on providing services for the veterans and services that often are not readily available in the private sector.
    I think in that regard it is also worth noting that over the past couple of years, while we have increased our performance in a number of ways, we also are treating more patients in our specialized programs. Last year we treated 19 percent more homeless than we did 2 years before, 8 percent more substance abuse or psychiatric patients, 20 percent more blind rehabilitation patients, so we actually are maintaining that focus and indeed expanding care in these areas.
    One other point I would make in this regard is that we have to concentrate on managing care and not cost. I think we have to especially concentrate on managing care for complex chronic conditions that are so prevalent in VA's population, but are increasingly prevalent in the public at large.
    I think that as we look at the resurgence of double-digit inflation in the health care sector, it is becoming increasingly clear that the biggest failure of managed care has so far been that it has focused too much attention on managing cost and not actually improving care. Too often managed care companies, in their efforts, have addressed only the symptoms of the ills that afflict private health care. They have not addressed the basic pathology of fragmented care, provider-focused and user-unfriendly services, redundant and excess capacity, and other things. Managed care has not done enough to make care more coordinated, more convenient and more coherent, i.e., actually managing care in a way that it improves outcomes.
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    I will forgo some of the other comments I was going to make in that regard and just conclude by commenting on the two other directions I see the VA moving in.
    The second of the three directions is that I see VA taking in or taking care of more or a larger number, an increasing number of the military-related family, whether it is higher-income veterans or more active duty personnel or more military dependents and retirees in contrast to the past. However, I see this occurring largely because of the service that is provided. I think these new users of the system will have options, but they are increasingly choosing the VA because they see the VA as providing superior service.
    The foundation has been laid for much of this already in agreements and arrangements that are ongoing with DOD and TRICARE.
    Finally, a third direction that I see VA health care going is having an expanding role in providing for the public's good by using the VA's existing infrastructure and our unique array of assets to address more general public needs. I think this will take a variety of forms in the future, whether it is preparing—at the one end of the spectrum, preparing a local public service agency to better respond to the threat of terrorist actions involving weapons of mass destruction or, on the other end, of providing services to other publicly funded health care beneficiaries.
    In contrast to some who might see this as a threat to the future of the VA, I see it really as helping to ensure the future of the VA by the relationships that would be established, and increasingly making a population that has not had as much exposure to or who is less familiar with the military and veterans' issues appreciate the strengths and the value and the benefits of maintaining a publicly funded health care system that has as its primary mission providing care for the men and women who have served this country in the military.
    With that, let me stop.
    Mr. STEARNS. Mr. Backhus.
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    Mr. BACKHUS. Good morning, Mr. Chairman. Good morning to you, Mr. Evans and Mr. Cooksey. I am pleased to be here today to discuss the future health care role of VA. My comments this morning will focus on how VA's system transformation is progressing and what challenges VA faces as its role evolves.
    The information we are presenting is based on the series of studies we have conducted over the past several years to identify ways to improve the efficiency and the effectiveness of VA's health care system. During the course of our work, we have visited dozens of VA medical facilities, spoke with hundreds of administrative and medical staff, many veterans and, of course, the veterans' service organizations.
    In summary, VA has made substantial progress in transforming its health care system to compete more effectively with other health care providers in order to become the veterans' provider of choice. For example, VA's 22 service delivery networks have made hundreds of restructuring decisions, including consolidating administrative and clinical services, shifting care from inpatient to outpatient or residential settings, and purchasing care from other providers.
    These initiatives have enabled VA to avoid over $1 billion in unnecessary expenses, savings that have provided critical financing needed to further improve the system's overall accessibility and quality of care.
    In addition, the networks are planning to develop and implement additional efficiency initiatives over the next 5 years. But VA faces several challenges before completing its transformation. Of these, VA's decisions regarding existing infrastructure may be the most significant and contentious.
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    For example, VA has spent hundreds of millions of dollars over the last decade constructing and renovating inpatient capacity. Some of this capacity is no longer needed because of its decreasing reliance on inpatient service. Meanwhile, VA continues to serve veterans in other locations using aged and deteriorating buildings that will require billions of additional dollars to renovate or replace.
    VA's decision to consolidate inpatient medical care at fewer locations is complicated by such challenges as VA's longstanding relationships with medical schools for education and research and with the DOD for contingency medical support.
    In our view, VA's future success in fulfilling its health care role, as envisioned by recent eligibility reforms, depends in large part on its ability to transform its current delivery infrastructure into an integrated system of VA and private sector providers, which may be more attractive to new users, especially those already insured, who could provide VA with an additional source of revenue.
    VA's strategy also suggests to us that it will ultimately purchase much more health care from the private sector providers than it does now and deliver care using its existing infrastructure predominantly in those areas where private sector alternatives are not available or where VA is an acknowledged leader.
    VA's success will also depend on its ability to overcome several other management and implementation challenges. These challenges include designing an enrollment system, establishing new provider networks, developing and awarding potentially complex health care service contracts, improving collections from other health insurance that veterans and others have, and developing a system sufficient to capture critical cost access and quality information for managing and evaluating system performance.
    If, as some have suggested, VA's competitive role is expanded to include not only the current veteran population but also veterans' spouses and dependents, the challenges facing VA will be even greater. For example, VA will have to either provide or arrange care for populations and medical conditions that it has little experience dealing with, such as pediatric or maternity care.
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    In conclusion, Mr. Chairman, we are encouraged by VA's progress to date and support its efforts. However, it is essential that VA address its infrastructure and other management challenges. If VA is ultimately unable to overcome these challenges, it is conceivable that VA could have to limit enrollment among lower-income veterans, and this could include those with the greatest need, because many of them have no other health care alternatives.
    Mr. Chairman, this concludes my statement. I will be glad to answer any questions you or any other members of the subcommittee may have.
    [The prepared statement of Mr. Backhus appears on p. 65.]

    Mr. COOKSEY (presiding). Thank you, Mr. Backhus.
    Dr. Krugman, you are next.


    Mr. KRUGMAN. Good morning. I am Richard Krugman. I am Dean of the University of Colorado's School of Medicine, and I am here today to present testimony on behalf of the Association of American Medical Colleges. I would like to use this time to extend my written remarks, Mr. Chairman, which could be put into the Record, with your permission.
    Mr. COOKSEY. Without objection.
    Dr. KRUGMAN. The points I think I would like to make are that the health care system in the United States is under significant change. As others have testified to here and as the GAO report testifies to, throughout the United States, as care is more and more managed, populations of patients who are basically well or who are basically young or who basically have less complex disease are being gathered into groups to be cared for by entities that are happy to take their insurance coverage and provide an overview of care to them that is not very complicated.
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    On the other hand, the Veterans' Administration and many of America's medical schools and public hospitals find themselves caring for, historically, populations of patients who are older, who are sicker and who have much more complicated conditions. So in that environment, where competition is occurring and the populations of patients that we are historically dealing with are more and more isolated, it is even more critical that America's medical schools work with the Veterans' Administration and the VISNs' systems to be sure that these historic populations will get the care that they deserve.
    In that regard, our situation in Colorado and in many other parts of the country may provide some examples of things we can do together that are relatively easy and also provide some examples, as my written remarks have, of some things that are hard to do because of regulation or because of bureaucratic difficulties on both sides of the street. This is not just a VA problem.
    For this to work and for us to be able to work together, we think that we need to engage in intensive and frequent communication. That is not just between the medical schools, the university hospitals and the Veterans' Administration hospitals in our communities, but the entire VISN network and the MACs. In our area, we are participating in that regard.
    We need to develop an agenda of problems and mutual goals and objectives. We need to work collaboratively to see if there are opportunities we could share. We have examples of our brokering a relationship between the Cheyenne VA and an affiliated family medicine residency in Greeley, Colorado, for example, both of whom were looking for a place to provide primary care to their populations. Neither of them had a big enough population to be able to support the overhead for the populations they were serving, but combined, they could do that.
    We have the same in Denver where we have put a primary care clinic at the former Fitzsimmons Army Medical Center in place where the Veterans' Administration and University Hospital and University Physicians, which is our practice plan, provide care to the populations that we are serving, sharing the overhead and sharing the costs of that environment.
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    Those types of collaborations, I think, are ways that we can move forward together and assure that our health care missions will be successfully completed.
    In education and research, we have the same opportunities to collaborate. Dr. Kizer has already alluded to the link we have had in education through the years. A substantial portion of our medical student, nursing student, dental student and resident education takes place at not only the Veterans' Administration facility in Denver but throughout our VISN network. Medical education is increasingly community oriented, and we find a partnership between the facilities in our VISNs and our area health care education center system, which helps the veterans' facilities recruit and retain physicians to their system, provide them continuing education. And the best continuing education is actually to have a medical student or resident working with you for a month or two and then keep that educational focus in the community which, from our point of view, in our medical school, is where most education is going to go. As hospitals gradually shrink, the population base in hospitals is no longer an adequate supply of educational material, if you will, for our students and residents.
    Finally, in the research arena, we have the same opportunity as we have in the clinical arena to collaborate. Research equipment is very expensive. We have the opportunity to share with our VA colleagues this research equipment. We share populations of patients for studies on health care outcomes, which are increasingly important if we are going to be sure that we are providing quality of care.
    In all of these arenas, I think, the opportunity for medical schools and Veterans' Administration hospitals and VISNs to work together is there. Our goal should be to work together and to do this in a way that assures that we don't either step on each other's toes or trip over each other. And in the future I think if we pay attention to some of the regulatory difficulties that keep us from doing pretty obvious things out in the community, we will continue to provide the best possible care for veterans and the best possible education and research for our system.
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    In the spirit of moving toward problem-oriented learning rather than lectures, I will conclude my remarks at this time and wait for the questions.
    [The prepared statement of Dr. Krugman appears on p. 73.]

    Mr. COOKSEY. Thank you.
    Miss Quandt, is that the correct pronunciation?
    Ms. QUANDT. Yes, sir.


    Ms. QUANDT. Mr. Chairman, you have invited me to discuss my vision of the future of the VA health care system.
    First, let me say my vision is not the vision of the Commission on Future Structure of Veterans Health Care. It is based on my experience in the VA, looking at what is happening in the private sector and in other countries with health care.
    Also, I would say this about that commission report: It made it much easier for Dr. Kizer to start the major changes he has brought about in the veterans' health care system.
    I prefer to emphasize my vision of the electoral branch of the Government's commitment to veterans and DOD beneficiaries. By that, I mean sustained support, not the yo-yo effect one sees during periods of military conflict followed by dwindling resources until another conflict occurs. It has been all too easy to ignore the fact that the injuries and illnesses from war require treatment for more than half a century.
    The statement about veterans' benefits in the 1999 budget is a staggering admission. The budget does not report the full size of these obligations and, in my opinion, it shirks the duty of putting veteran care elsewhere than in discretionary funding.
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    It is even more amazing to me that while this discussion of the budget listed veterans' requirements for comp, pension, education and loans, it completely ignored health care. There is a time coming when VA work load will eventually force the VA into the position of being what I call a bill-payer, rather than a direct provider. This should also be a concern for DOD. Forcing large work loads to the private sector will leave it without necessary medical manpower in time of war. If the dissatisfaction with 5-to-9-month tours of duty for those in the medical reserves is true, causing them to resign, DOD is doubly at risk.
    On January 15, I appeared before the Congressional Commission on Servicemember and Veterans Transition Assistance to discuss forecasts for the 21st century. Participants were to answer the question: Will the benefit programs in place today meet the needs for tomorrow's veterans? My conclusion was that if both VHA and DOD continue on their present paths, that servicemembers and veterans will be ill served by their country.
    I concluded that the two systems must be aligned much more intimately than they are now and that, by 2015, the VHA program will be subsumed in DOD because of the small veteran population. I based that on the fact that military casualties transferred to VA from the Gulf War were totally unlike those that came from the Vietnam conflict. In fact, when you look back now at Gulf War syndrome, it is a series of what are conditions or symptoms which can largely be treated as outpatient, not as inpatient.
    Further, if you look at the current conflicts in this world of ours, we may well have a nuclear war and there may be no veterans returning or very small numbers. So there are certain what-ifs that one can look at.
    It is often difficult to obtain accurate figures about the two health systems. One set leads me to believe there are 20 million beneficiaries between DOD and VA. Twenty million potential enrollees is as large as Oxford Health and Kaiser-Permanente together. They are the two largest HMOs in the United States. Even if I take the lesser figure of 6 million, this is still, by U.S. standards, a large health program. The beauty of DOD and VHA is, it represents the only full spectrum of care.
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    Between the two programs, there are at least 331,000 full-time equivalent employees, representing the full gamut of health care. My working arrangement would permit DOD to take over all your emergency-urgent, acute and some primary care in both systems. VHA, in return, would take over primary care, certain specialty care, especially rehabilitation and sustained care. Staffs from both systems would be assigned where needed. Thus DOD physicians or nurses will be staff in VA facilities, and VA staff would serve in DOD hospitals and clinics.
    If you look at the map attached to my report, which has already been discussed, you will note 19 States where VHA will not have enough work load to support hospitals in 2010–2015. It is preferable that in these States there be additions to outreach clinics, community-based clinics and the use of contracting for or purchasing hospital space. VHA-DOD professional staffs would seek privileges at local hospitals to keep control of care within the federal health system. In the other States, the VHA and DOD medical staffs would move back and forth and provide a full range of care.
    I need to tell you what my vision does not involve. It does not involve attracting more category A veterans and their dependents. It does not involve category C, rich veterans. It does not involve subvention of Medicare or reliance on MCCR. My vision adheres to the amount of coverage VHA has received. Historically, back 20 years, it was never funded to cover more than 10 percent of the total veteran population. MCCR is drying up and Medicare will continue to ratchet down its payments. A Clinton lite plan to enroll all veterans and their dependents is an idea whose time has disappeared.
    Furthermore, all the plans to attract category A and C veterans and obtain Medicare funds pit a wonderful Federal health care program against a gigantic private sector market. Nor do I know of any tenet in law which generally allows the Government to compete with private industry.
    GAO, in its study, would allow private practice physicians to treat veterans in VA facilities. This also flies in the face of the market system locally, and I think in very small communities would not be accepted.
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    I am not concerned about displaced VHA employees. Health economists say that for every $2.1 billion saved, 22,000 health care workers lose their jobs. However, the great majority are picked up by contractors or other programs in the community.
    I am very concerned that VA does not have the authority to sell unneeded, unused physical plants. If it had the proper authority from Congress, it could sell those, invest the capital funds received and use those funds for whatever level of care was needed.
    My vision is not to save bricks and mortar, but to combine the two Federal programs to have a modern, efficient, managed care program which will fulfill the goals of readiness, patient care in war and peace, education and research.
    Thank you.
    [The prepared statement of Miss Quandt, with attachment, appears on p. 100.]

    Mr. COOKSEY. That was a wonderful statement, very direct, very candid, without political considerations. We need more of that. It is very refreshing.
    Ms. QUANDT. Thank you.
    Mr. COOKSEY. I would note that it was from a woman and maybe we need more women up here testifying. Very good. Thank you.
    I don't necessarily agree with all of it, but it was a good statement. I agree with a lot of it, though—most of it.
    Dr. Kizer, you have looked at the costs that VA incurs in smoking-related illnesses, I understand. What do you project these costs to be for the Veterans' Administration?
    Dr. KIZER. A lot.
    Mr. COOKSEY. A lot, I agree. Any numbers, ballpark figures?
    Dr. KIZER. I think that the staff have provided previous estimates of the potential exposure depending on the number of veterans affected. I have not been involved in developing the methodology for doing that. I would only say that depending on how many are treated and exactly what they are treated for, it is likely to cost billions of dollars.
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    Mr. COOKSEY. Five, 10, 50, 100?
    Dr. KIZER. I think the lower end there is certainly consistent with current projections.
    Mr. COOKSEY. Okay. There has been some discussion about the tobacco manufacturers bearing some of the cost of the VA care for veterans. Is there not also a case made for that industry's providing money for research to the Veterans' Administration, and do you think this is a good option or a viable option?
    Dr. KIZER. I think there are many viable options where any funds that accrued from that settlement could be wisely used to support veterans' care and which, in turn, would benefit the public at large.
    Mr. COOKSEY. Okay. Do you think that the VA is in a position to carry out some of this research, for example, with your population? Do you think your population in the VA hospital and your current staffing would allow you to carry out this research that would shed some light on methods of—well, what tobacco does and, of course, quite frankly, you and I know that we have known a lot of what tobacco will do since 1962 and beyond that, but methods of getting people to stop smoking, discourage people from starting, and so forth.
    Dr. KIZER. As you know, there is a plethora of information about the untoward effects of smoking. Certainly one of the—one of many potential research opportunities that exist in the VA would be how you control this addiction or curtail this addiction in a population that is very severely addicted.
    There is no question that nicotine is every bit as addictive, if not more so, as cocaine and heroin and other drugs of that type, and that this is an addictive disorder. We have many veterans who are addicted and continue to support their unhealthy habit. And certainly, if funds were made available to research ways of curtailing or dealing with that addictive behavior, we have a population that will provide many opportunities to investigate it.
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    Mr. COOKSEY. Do you consider it a physiological addiction or a psychological addition, tobacco?
    Dr. KIZER. I think that pushes the definitions or the distinctions between those two. There is unequivocal evidence that it is both physiological as well as psychological. At some point it becomes hard to distinguish, when you are dealing with neurochemistry, what is the difference.
    Mr. COOKSEY. Dr. Krugman, what about you, do you think it is a physiological——
    Dr. KRUGMAN. I concur with Dr. Kizer's statement. I think it is both.
    Mr. COOKSEY. Veterans' Administration, VA hospitals have made some quantum leaps in this transition from inpatient to outpatient care. The period when we were all in medical school, Dr. Kizer pointed out in our earlier meetings that he was in the first grade when I was in medical school. So Dr. Krugman, maybe your hair is not quite the right color, but it is getting there. I assume you were in medical school in the 1970s.
    Dr. KRUGMAN. Actually the 1960s.
    Mr. COOKSEY. Good, those were my years. Anyway the VA hospital has made some major changes in moving from inpatient to outpatient. Some of the veterans' service organizations are concerned that the move is being done too fast and going too far too fast and that maybe the cost-cutting is taking precedence over quality of care.
    I liked your statement, Dr. Kizer, that we really should put the emphasis on quality of care and not just cost of care, because that has been one of the shortcomings of managed care, these CEOs, the bean counters, the CPAs that run these organizations have in most cases not been involved in taking care of patients. They take care of financial statements. That is coming back to haunt them now.
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    But do you think that this perception by the VSOs that you are moving too far too fast is a proper perception, or do you think it is just a PR problem that the Veterans' Administration has?
    Dr. KIZER. I would respond several ways. One, the VA has all kinds of PR problems, so I am sure there is an element of that. The VA is universally unsuccessful at PR.
    Second, I think that in many ways the rapidity of the change—and it has been very rapid, and I think it is certainly unprecedented in the history of the VA and is even unparalleled by private sector standards, but I think that it is only a warm-up for the type of change that is going to have to occur in the future.
    When we look at the sort of technological interventions, gene therapy, and other things that are in the pipeline and that are going to be reality in a very short period of time, I think what we all have to get used to in health care is continuous, very rapid and, in fact, tumultuous change. That is just the world that we live in.
    VA was pretty quiescent for a long period of time. We have catch up to do—I think we have done that; we are moving in the right direction. But change is just part of the future scenario, not only for the VA but all of health care.
    The last thing I would note in that regard, though, is that too often overlooked, when we talk about changing the VA, is how quality of care has changed in the VA. If you look at any of the standard indices that are used to track quality of care in the private sector, what you see is that the VA is now superior on all of those measures and that we have made incredible progress in improving quality of care in VA in a short period of time that certainly rivals others' performance, and now have a very good record to speak to in that regard.
    It is of interest that increasingly we are being contacted by other entities to assess what we have done in that regard to benefit other large organizations on how they can pursue quality management.
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    Mr. COOKSEY. And I would support your statement. I know that I have one VA hospital in our area and it is, the administrator there is really an outstanding administrator. They did a good job. Of course, I am an eye surgeon, but I have been into their eye clinic. They have some equipment there, some instrumentation that I wish we could have in our clinic and could afford in our clinic. It is really state of the art.
    Dr. Krugman, what is your response to that, to the question? Do you think that the VA hospital is making these changes in an expeditious manner and what, how can those changes work to the advantage of the medical schools and the medical schools work to the advantage of the veterans, not the Veterans' Administration but to the veterans? I am a veteran, and someone has to speak up for the veterans.
    Dr. KRUGMAN. Well, I think what we are learning in the health care system, and certainly schools of medicine have learned this, is that the whole focus of what we need to concentrate on now are populations of patients in addition to just taking care of the individual patient. That is still a very important part of what we do. So the bedside teaching and the bedside care of veterans in the VA hospitals will always be important.
    But as those numbers decrease—an increasing proportion of what we are going to do is in the community, in places such as ours; VISN 19 is Colorado, Wyoming, Montana, places with very few people and a lot of miles in between them and lots of miles between situations, between facilities—we have felt the need to work together to create networks of care focusing on those populations, linking physicians in those in the VA system. And many of them are our clinical faculty in the medical schools as well.
    And we really do this, we really do this together because we, with our small population, with our great distance and with the increasing cost of caring for fewer people within the hospital settings, it really is critical for the VA and the medical schools to work together to be sure that the care is met. Key to that is the development and access to primary care in the communities where the veterans are, as well as primary care for the populations that we care for.
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    I should tell you, sir, that our strategy to survive in Colorado has been to focus on caring for populations of patients that we have been historically linked to. We actually are the health plan, part of the health plan for TRICARE and we take—we are the network manager, our medical school and university hospital, for the TRICARE program in Colorado.
    We also operate a Medicaid HMO to care for the Medicaid patients in our area, and many of those Medicaid patients in our statewide system are linked to veterans or dependents of veterans and many are in the veterans' system.
    So I think we need to provide the best care for veterans. Those of us, as I said at the beginning in my statement, who have historically cared for these underserved populations and these very complicated populations need to work together so we can do it most efficiently.
    Mr. COOKSEY. Miss Quandt, commenting on his statement, referring to your map——
    Dr. KRUGMAN. We are the white State in the midst of all of that.
    Mr. COOKSEY. That is what I was referring to. How would you take his medical school and his unique position and take care of these veterans in these surrounding States that are x-ed out basically?
    Ms. QUANDT. In all the surrounding States x-ed out, where there are some military hospitals there would be a VA-DOD presence. Where there is no DOD hospital, there would be a joint VA-DOD community clinic. Dr. Krugman's medical school could be affiliated with those clinics.
    Since the affiliation currently does go up to Wyoming, this map does not stop that. In fact, I can see that this plan, which uses clinics, then going out and purchasing service at very strictly negotiated rates in the private sector, could allow medical schools to move out and away from their traditional university hospital. It would not be unlike what WAMI did.
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    Mr. COOKSEY. What who did?
    Ms. QUANDT. WAMI, Washington, Alaska, Montana, Idaho, in which they moved residency out in rural areas.
    The same thing could apply in these States, whether it is Colorado, whether it is a medical school that survives in South Dakota or some other State.
    Dr. KRUGMAN. We have affiliated residencies serving both in Caspar and Cheyenne, Wyoming, in addition to 10 community residencies in Colorado.
    Mr. COOKSEY. Good. Well, my personal comments, I am concerned about the tobacco issue. I think that the tobacco issue, once it was brought up, once the lawyers became involved, it has been—everybody has been piling on and everyone sees this big potential pile of money. And it seems like everyone is trying to get money out of it; it is almost as if it is an unlimited supply of money that is going to solve all the problems.
    I think that some of the groups that hope to benefit from this really need to look—stop and look at it and know that it is not an unlimited supply of money and that the money may never materialize.
    The money is not, the money is not just going to come down like manna from heaven. It is going to come from additional taxes. It is not going to come from the reserves of the tobacco companies, because some of those would probably bankrupt some of these plaintiff attorney plans that are actually implemented.
    But it has almost become distorted to a certain extent.
    I am pleased with the changes that you, Dr. Kizer, are leading in Veterans' Administration. They are good changes, and they ultimately will work to the benefit of the veterans. I feel very strongly that the veterans, that the veterans that have combat-related injuries or diseases should have whatever it takes to take care of them forever and ever.
    In my particular congressional office, 35 percent of my staff's time in the district—and I have really three offices—is spent with veterans' issues; 35 percent is spent with Social Security disability issues, so 70 percent of the time is spent with disability issues. And for those people that come in with combat-related injuries, I have personally taken care of them over the years—blinded veterans with war injuries, and most of them, really all of them pro bono treatment, and I think we should continue to do that.
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    On the other hand, there are people that come to our office with great expectations that were maybe injured when they fell off the back of a pickup truck at Fort Polk between the Korean war and the Vietnam war and between the Vietnam war and the Persian Gulf war, and those are legitimate injuries.
    But then there are those that have problems not related to their time in the service or any injury or disease that they acquired in the service, but because they are a veteran, they have great expectations, and they have to understand that the first obligation is to those injured in war and have diseases that they acquired during that time period.
    I am also concerned that we have a lot of duplication of health care services in this country and that there is duplication in the urban areas, and yet we don't have adequate treatment in the inner city urban areas. There are a lot of low-income people that don't get health care when they should, and some of those are veterans, and some of the rural areas are deprived of health care.
    So it is a complicated problem with no simple answers. Managed care is not the total answer. Tobacco is certainly not the total answer, the tobacco settlement.
    It will require a lot more time and thought and creative thinking and candid statements like all of you have given this morning, and particularly you, Miss Quandt.
    I have no other comments or questions. Do any of you have any last comments?
    We appreciate you being here today. The testimony was outstanding.
    The committee is adjourned.
    [Whereupon, at 12:05 p.m., the subcommittee was adjourned.]