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House of Representatives,
Subcommittee on Health, joint with
Subcommittee on Oversight and Investigations,
Committee on Veterans' Affairs,
Washington, DC.
    The subcommittees met, pursuant to call, at 9:30 a.m., in room 334, Cannon House Office Building, Hon. Cliff Stearns (chairman of the subcommittee) presiding.
    Present: Representatives Stearns, Everett, Moran, Cooksey, Hutchinson, Gutierrez, Clyburn, Kennedy, Doyle, Peterson, Carson, and Snyder.
    Also Present: Representative Lane Evans.

    Mr. STEARNS. On behalf of my colleague and friend, Terry Everett, Chairman of the Oversight and Investigations Subcommittee, I welcome all of you to this important joint hearing today.
    All of us involved with health care policy are acutely aware of the dynamic nature of the health care marketplace. In the private sector, market forces have been powerful levers for change. In the face of market challenges, hospitals have increasingly turned to mergers and alliances.
    The VA has been a bit slow to transform itself. Long after the private sector had embraced primary cares as a core business, VA has remained entrenched as a hospital-based system. Until 1995, VA had not consolidated a facility in some 15 years. Since then, however, VA has initiated 19 consolidations involving 40 VA medical facilities. With such steps as approving VA's proposed reorganization and adopting a sweeping eligibility reform measure in the 104th Congress, this committee has given Dr. Kizer critically needed tools to transform the VA health care system.
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    In my view, VA should continue to consolidate facilities where that process will improve patient care and achieve greater efficiency. Several witnesses this morning cite the complexity and difficulty of integrating two or more hospitals, even when they have the same corporate identity. The private sector has certainly seen such efforts fail altogether. The process through which VA integrates facilities is vital, however.
    In holding this hearing this morning, we want to review the record of the VA's past efforts and the promise of the future. We seek to understand better the process by which VA facility integration is initiated, analyzed, planned, and carried out. And most importantly, my colleagues, we seek to explore whether there are opportunities for significantly improving these efforts.
    We are fortunate this morning to have an outstanding group of witnesses who bring wide-ranging expertise to the table. Several of our panelists, representing both private sector and public, have participated in the development of integrated health care systems as consultants, strategic planners, system architects, and administrators. We will also have the benefit of hearing from important stakeholders.
    I want to thank our witnesses in advance for their testimony, and look forward to their insightful discussion.
    I particularly want to thank my friend Terry Everett for co-chairing this joint hearing, and invite his opening statement at this point.
    [The prepared statement of Chairman Stearns appears on p. 45.]

    Mr. EVERETT. Thank you, Chairman Stearns. I want to thank you in welcoming those attending our joint hearing today, and I also want to thank you for calling this hearing and making it joint with the Subcommittee on Oversight and Investigations which I chair.
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    I associate myself with the Chairman's remarks. Consolidation and the integration of VA medical centers is occurring around the country, and is a matter of major interest to stakeholders involved in each one. First and foremost, veterans and their organizations, and also local communities, including VA employees and the elected representatives in Congress. Other stakeholders may be present in some scenarios as well.
    Under the best of circumstances, these processes have the opportunity to get ''stuck in the mud'' in complex planning tasks, in implementing the integration of management, administration and clinical functions, and in communication with stakeholders.
    While it is hopeful, it isn't ''mission impossible''. It may look that way sometimes, and achieving success in facility integration does present real challenges to the VA Administrators and managers responsible for them.
    Mr. Evans, Ranking Democrat Member of the full Committee, and I will be in Montgomery, Alabama to follow up this hearing with a field hearing on the planning and formation of central Alabama Veterans' Health Care System. It will consist of Montgomery and Tuskegee Medical Centers. We will examine the same issues as the apply to central Alabama that we are examining here today, planning and implementation, cost-benefit analysis, communication with stockholders, and reinvestment of savings from improved facilities and efficiencies for the benefit of veterans and better use of tax dollars.
    What we are really trying to do, though, through these hearings, as Chairman Stearns has stated, is find out if there are ways that these consolidations and integrations can be significantly improved.
    I look forward to hearing from our witnesses today on this important issue, and I thank you again, Mr. Chairman.
    Mr. STEARNS. I thank my colleague. The Ranking Member of the Health Subcommittee, Mr. Gutierrez, opening statement?
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    Mr. GUTIERREZ. Thank you very much, Chairman Stearns and Chairman Everett, and my Ranking Member, Mr. Clyburn, for convening this very timely hearing to discuss one of the most important issues confronting the Department of Veterans Affairs Health Care System.
    Facility integration and consolidation will affect veterans throughout America. Currently, it is affecting veterans in my community. This process, these reforms and transformations will greatly affect the manner in which veterans receive their care, where veterans access their care, and how these medical services that millions of veterans depend on are provided.
    In this era of fiscal constraint, the VA has been compelled to develop a more efficient and cost-effective health care structure, while maintaining an adequate level of services. This is by no means an easy task, and has been accomplished with varying degrees of success.
    The era of restructuring will most likely continue for the better part of the next decade in many regions of our nation. A decentralized VA system based around 22 service networks has been charged with implementing these visions of change.
    As we know, the experiences of these regional systems has been varied, and we are only now beginning to learn from these episodes. I have learned first-hand about this process and what it means for our veterans.
    In my hometown of Chicago, the integration of one of our nation's largest veterans health care networks is presently underway. The Chicago experience may offer some lessons for other regions and teach us all about how we can make integration process work better in the future in Chicago and elsewhere.
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    Unfortunately, I don't believe that at this time the Chicago model provides us a clear alternative to duplicate. I have followed this issue closely, and have yet to see a strategy for assuring that the Chicago area veterans will continue to receive the services, benefits, and care that they have earned and deserve.
    We still don't know what the Chicago VA will look like in 2 years, 5 years, or further into the future. Rumors and speculation have been widespread, but a clear plan for the future has been absent.
    When I first became involved in this process, I was concerned that the VA was moving unilaterally to implement an unjustified consolidation of Lakeside and West Side Hospitals. My main concern was that nuances had been provided to the veterans community about the needs and potential effects of this dramatic reform. The VA simply has not been able to answer our questions about the proposed consolidation. The VA has not been able to financially justify all of the actions that it is taking. The VA has not justified why an incorporation of this nation was warranted to enhance services to veterans.
    The effects on adjacent communities, affiliated medical and VA employees remain similarly undeterminate. What I want to see is a sensible, inclusive, forward-looking process that answers these vital questions before consolidation occurs; a process that establishes goals and feasible options to achieve and a timetable in which to achieve them; a process that systematically responds to the concerns of veterans, stakeholders, community leaders, and elected officials.
    To date, I do not believe that a comprehensive process has been developed. The VA has made some progress on achieving these goals, however. Stakeholders and veterans communities in Chicago have been afforded an increasing ability to voice their concerns and ensure that their needs are considered as integration proceeds. However, I feel that fundamentally the process in Chicago still needs to be strengthened.
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    I still have not seen a vision of the future of veterans service and care in Chicago. I have yet to see a clear plan of how service and access to veterans in my community will improve and expand. This is the only goal that matters.
    I realize that this is a difficult process, but our veterans deserve a vision, a blueprint that guides our action. A vision of a better VA where our veterans are the first and foremost constituency, and their interests determine the bottom line.
    This hearing is important not only for how it affects Chicago and any single network. This is also about health care of our veterans, that they've earned and deserve in VA facilities in Florida, Boston, Los Angeles, and anywhere the process of change has begun. We owe our veterans answers to the questions.
    I am hopeful, Mr. Chairman, that today will be one more step in achieving that important goal in getting us those answers. I look forward to working with the VA in order to accomplish these goals. Thank you, Mr. Chairman.
    Mr. STEARNS. I thank my colleague, and now we'll hear from the Ranking Member on Oversight, the gentleman from South Carolina, Mr. Clyburn.

    Mr. CLYBURN. Thank you very much, Chairman Stearns, Chairman Everett. I wish to commend both of you—and Ranking Member Gutierrez, for calling this important hearing. I will try to keep my remarks brief since we have a number of witnesses before us today.
    In my view, this morning's hearing will help provide some much-needed background into how the VA plans for the consolidation and integration of hospitals and medical services. Although some people in this room may not want to believe it, the changing nature of the health care industry may soon dictate some form of integration or consolidation is necessary to ensure that we are serving the needs of our veterans in the best and most efficient ways.
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    The broader concern, and a concern that the GAO has made quite clear in the written testimony it provided to our subcommittees in advance of this hearing, is that the VA needs to have a well developed plan in place before any of these consolidations or integrations take place. VA should be careful not to undertake such activities unless it has crafted a clear and comprehensive plan, and unless the health care benefits to our veterans are clear.
    I look forward to this morning's testimony, and I wish to thank all three of you for calling this hearing.
    [The prepared statement of Congressman Clyburn appears on p. 47.]

    Mr. STEARNS. I thank the gentleman. I would like to also recognize now for an opening statement, if he'd like, Mr. Lane Evans, the Ranking Member on the full Committee. Mr. Evans.

    Mr. EVANS. Thank you, Mr. Chairman. I appreciate the opportunity to speak, and I congratulate both Chairmen and the Ranking Members for holding this important hearing. I associate myself with most of the remarks made so far, and have a lengthy opening statement I'd like to place in the record.
    Mr. STEARNS. So ordered.
    [The prepared statement of Congressman Evans appears on p. 49.]

    Mr. STEARNS. Is there any one of my other colleagues who would like to have an opening statement?
    [No response.]
    Without further ado, we will have the first panelists come forward.
    Dr. Kenneth Kizer, Under Secretary of Health, Department of Veterans Affairs; Dr. Joan Cummings, Director of Veterans Integrated Service Network, Department of Veterans Affairs. And for the benefit of my Members, Dr. Cummings is in the 12th Region. There are 22 Regions, and that Region, I believe, includes much of Wisconsin and Illinois. Dr. Christopher Terrence, Chairman, Integration Coordinating Committee, VA Chicago Health Care System, Department of Veterans Affairs; Jim Goff, Director of Palo Alto Division, VA Palo Alto Health Care System, Department of Veterans Affairs; and Dennis Smith, Director, Baltimore Division, VA Maryland Health Care System, Department of Veterans Affairs.
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    I want to welcome all of you, and I thank you very much for your time, knowing how busy you are. At this point, we will proceed with Dr. Kizer.

    Dr. KIZER. Good morning, Mr. Chairman. I welcome this opportunity to discuss with the subcommittees this particular strategy that the VA has been utilizing to better serve its patients.
    In my brief opening comments, I want to do two things. First, I would like to provide some context for these integration efforts and for some of the more facility specific comments that will be made by other witnesses on this panel. And, second, I would like to quickly overview the generic process being utilized to implement this strategy.
    I think you and others have already commented on the really revolutionary nature of change that's going on in health care today, and the different models of service delivery that are being pursued. The model that is being pursued, probably most widely, is the integrated service network or integrated delivery system, which VA is pursuing as well. However, and certainly in the private sector, these integrated service networks are taking a myriad number of forms and are developing in quite a number of different ways in response to all the various antecedent conditions that prompt their genesis.
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    In the VA health care system, hospital and other facility integrations, as well as the clinical and support service integrations, are part of the larger Veterans Integrated Service Network (VISN) integration strategy aimed at providing more accessible, more reliable and more consistently high quality health care for as many patients as we can provide for with the resources that we have available.
    Having said that, there are five specific generic purposes that we are trying to achieve with each of these facility integrations; these purposes apply to the 40 facilities that have already and/or are currently in the process of integration. These purposes are: (1) to increase access to care; (2) to increase the predictability and consistency of high quality care being provided; (3) to optimize the utilization of physical plant and other assets, including personnel resources—i.e., to capitalize on the strengths of each of the facilities that are involved; (4) to modernize VA health care. (Comments made this morning already indicate that the VA is playing some catch-up as far as modernizing its health care system and, as we try to modernize VA health care, we need to look at our administrative practices and our clinical and care management strategies, as well as the physical assets supporting care delivery.)
    And, finally, (5) the fifth generic goal or purpose of our integration efforts is to reduce unnecessary costs, to increase efficiency and, in particular, to free-up dollars that historically have been spent on administration and redirect those dollars into direct patient care.
    I think having noted these five generic purposes that our integration strategy involves, it's important to also note a few contextual things to provide some background for these efforts.
    The first thing I would note in this regard, as I already mentioned, is that facility integrations are really part of a larger network-based integration strategy. As we have discussed previously at many hearings, the basic operating structure of the organization is now the VISNS. Although care is delivered at specific sites and at facilities, facility integrations should not be viewed as an end product. These integrations are merely part of a larger process aimed at providing the continuum of care that people so often talk about, but which is, in fact, so rarely actually achieved.
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    Also, as the VISNs develop integrated service networks, it is important to realize that what a facility may do at a point in time may change because of larger network efforts. For example, two facilities may be considering consolidation of their laboratory services or their radiology services and how consolidation or integration may improve those services, while there may be a VISN-wide review of a delivery strategy of new technology that may affect these same services. For example, in some networks where integrations are going on, there's also efforts underway to implement teleradiology. While the radiology service may integrate or consolidate at those two facilities in a matter of months or a year down the road all for good reasons teleradiology initiative progresses, and that integration may be superseded by a larger effort to integrate radiology over the entire network as opposed to just at those two facilities.
    Similar situations exist for numerous other services that range from food service or laundry to all the other things that go into supporting a health care activity like a hospital.
    A second point of context that's important to note, is that despite literally hundreds of these mergers, consolidations, integrations having occurred in the private sector, there has not yet been a single process, or template, that has been devised that addresses all of the issues that are associated with the circumstances that prompt those integrations.
    Indeed, if we look at the 40 facilities involved in the 19 integrations that have occurred or are occurring in the VA from the perspective of whether they are rural, urban or suburban facilities; whether they are tertiary care or non-tertiary care; whether they are academically affiliated or non-academically affiliated; whether they provide general acute care, psychiatric care or extended care; or whether they are small or medium or large in size we find that by looking at just these five variables, there are no two integrations that are the same. Each of the 19 that we have pursued so far involve a different set of circumstances and different conditions at the involved facilities. So, it has been difficult in our experience, as well as in the private sector, to define a process that fits all of the varying circumstances involved with integrated facilities.
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    I also would note that these integrations have to be viewed within the context of all the change that is occurring outside of those facilities and in their regions that make this a living, evolving process that can't be viewed from just a single point in time. And while I know that there is a desire to look 5 years, or even 10 years, into the future, nobody in health care today that I know of views 5-year planning, and certainly not 10-year planning, as at all realistic. The nature of health care is changing so rapidly today that most people look in terms of 1 or 2 or 3 years down the road. There are just so many things that are changing so rapidly that it's impossible to make viable plans for 5, 6, 7 years into the future.
    Another contextual point I would note—and I see that the red light is on, so let me try to wrap this up quickly—but another contextual point that I think is important to put on the table is that we are committed to having a high degree of stakeholder involvement and participation in the decisionmaking process. Quite simply, if we are going to honor this commitment, it's pretty hard to have predetermined outcomes. If we are going to actually have an open and participatory process, it is hard to have predetermined outcomes where the stakeholders actually have a significant role in shaping what those outcomes are going to be.
    Mr. EVERETT. Mr. Chairman, I ask unanimous consent that the Doctor be given an additional 5 minutes.
    Mr. STEARNS. Any objection to giving Dr. Kizer an additional 5 minutes?
    [No response.]
    Without objection, so ordered.
    Dr. KIZER. Thank you, sir. I will actually try to wrap this up in less than that and not usurp any more time.
    Let me just shift gears a little bit. We think that, to date, the results of the integrations have been substantial. VISNs report well over $50 million worth of savings, and that they have been able to make quite a number of significant enhancements and expansions to care, and add clinicians as opposed to administrators and supervisors.
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    Recognizing where the science of this process is, if you will, and the lack of a single process or template that is followed elsewhere, we have tried to provide guidance to our facilities and we have tried to inform ourselves as we go forward in this process. After the first half-dozen integrations were pursued, we compiled a notebook, a guidebook if you will, and we disseminated that. Now, after another year of experience, we are currently compiling the data and providing additional guidance to the field.
    It has been my intent, however, to not put in place any sort of process that is unnecessarily prescriptive. Recognizing all the variables that go into play, a rigid bureaucratic process that could stifle the creativity and innovation that are so important for these efforts to work.
    I have in my prepared comments indicated what the general five-phase process is that we are utilizing, and what a few of the steps are underneath that. This process will be part of the guidebook being developed for field use, which will provide additional detail regarding the steps and the planning efforts that need to go into future integrations of entire facilities.
    I would also note that in recognizing the absence or the dearth of literature that exists in this regard, I have requested our HSR&D activities to engage in a systematic assessment and evaluation of these efforts, they are currently in the process of investigating the integrations that took place between January 1995 and September 1996.
    Let me close by just saying that, so far, integrating our treatment facilities has produced very tangible benefits for expanding care. These integrations have allowed us to increase services and functions, and we believe they are a very valuable tool to be used in pursuit of a network integration strategy.
    These changes, not surprisingly, have produced anxiety and some concern, indeed, in some cases, resistance by some of our stakeholders. The one concern that I hear most often expressed is the erroneous perception that the integration is a precursor to closure of one of the involved facilities when, in fact, the integration is being pursued to improve the viability of the facilities and hopefully obviate the need for closure at some point in the future—i.e., so that we can continue to provide services at these facilities with the resources that we have.
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    I recognize that the process is not perfect. Certainly, experience in the private sector has been variable. We are trying to improve our process, as I have noted very briefly here and we certainly welcome suggestions from the GAO, from private consultants, from the Committees or from others, on how we can improve our process even more as we go forward, since we see this strategy as something that we will continue to employ for quite some time to come. Thank you.
    [The prepared statement of Dr. Kizer appears on p. 61.]

    Mr. STEARNS. Our next panelist is Dr. Joan Cummings. Welcome.

    Dr. CUMMINGS. Thank you, Chairman Stearns and Chairman Everett and members of the subcommittees. I'd like to thank you for the opportunity to discuss the integration of the Chicago Health Care System, the Lakeside/North Side Divisions.
    I'd like to again state, as Dr. Kizer said, that the integration is just one element of a larger network strategy really aimed at accomplishing five principal goals, and I'll relate these. Two specifically network, one is increasing the access over the next 5 years. We would like to increase access to veterans in Chicago so that we are able to see 28,000 more veterans than we currently do. To do this, we need to establish care sites that are easier to access than the present hospitals we have. For example, we would like to see veterans in the West Side Austin area, very low access now, by establishing a community-based clinic there. To do that, we're going to have to shift resources from established places to the new community-based outpatient clinics.
    Second, we'd like to modernize the VA healthcare system, as has been mentioned. We have major needs in our VISN for investing in fiber-optic infrastructure and computers. Again, these kinds of savings that link us and increase our efficiency are only found by developing savings and efficiencies in other areas so that we can redirect the resources into allowing us to practice the current state-of-the-art, both medical practice and technology, which really means that today health care has really become primarily an ambulatory activity and in settings far more than just in our hospitals.
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    Our third goal is optimizing utilization of our capital assets. We need to maximize the cost-effectiveness of our services. We must eliminate unnecessary duplication or redundancy of services and technology, consolidate low-volume specialty services, coordinate resource decisions better, increase telemedicine usage, and achieve better economies of scale and productivity wherever feasible. For example, one of our Chicago inpatient surgical services has an occupancy rate of about 30 percent. A generally accepted standard in health care is that this should be about 85 percent.
    We need to reduce costs. The cost of VA health care in Chicago has been substantially higher than in most of the rest of the nation. We must use our resources as effectively and efficiently as possible. Even in the absence of any budget imperatives, our VISN needs to realign clinical and administrative programs to reduce their resource consumption. The goal here is simply to bring VISN 12 into better alignment with VA costs elsewhere. A significant part of the problem in this regard is the over-utilization of VA inpatient care in the Chicago area. I want to stress that costs are being reduced by making our programs more efficient, not by diminishing the quality or amount of care we provide Chicago area veterans. We have in this VISN decreased our length of stay—bed days of care—by such a degree that we have closed 1,688 acute care beds across our VISN which are no longer needed. These recovered resources will be utilized to provide better, more accessible care to larger numbers of veterans particularly in the outpatient setting.
    The fifth goal is to ensure consistently high quality care. We are trying to ensure that VA provides consistently high quality care throughout the Network as well as throughout the system. This will require more standardization of our services and better utilization of resources, including the elimination of certain low-volume services, and we need to do this more effectively than in the past.
    I would also like to take this opportunity to reaffirm my believe that both the Lakeside and West Side Divisions are essential. If we are going to achieve the five goals I just mentioned, we need to change how we provide these services, what the facilities provide, and how they are linked and coordinated.
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    I have serious concerns about suggestions that the integration process should be delayed until a complete master plan is available, and I'd just like to touch on that briefly, if I may.
    Since the decision to administratively integrate the two facilities occurred, we set up an Integration Coordinating Committee, which you'll hear more of later, that had not only representatives from those directly involved in the two divisions, but from all the medical schools in northern Illinois and from VA staff outside of the two divisions, as well as a Stakeholder Council of all of our major stakeholders to get input and receive input to that Integration Coordinating Committee.
    And I'd like to give a couple of examples of some of the things that have happened in this integration that I believe are reasons to be pleased with its current success and look forward to better successes.
    Part of the plan that this Integration Coordinating Committee did was to re-evaluate what's going on. As you all know, there are long-time construction plans. We have resubmitted all of those to the Integration Coordinating Committee and work groups to evaluate whether in the changing VA they are still necessary.
    As an example, there were two angiography suites that were actually in progress at the time this committee met to replace angiography equipment at both divisions. We developed a plan to look at these with data for the workload, the procedures done. The Integration Coordinating Committee and the work group decided there was no justification for two, and also decided that there should be one for the Chicago area and it would serve the needs of the veterans—and this is at a cost avoidance of $1.25 million, which was the cost of the equipment and the cost of the contract. In addition, it allowed us to delay any default on the contract or unreasonable delay in implementation.
    There are other similar issues facing us, including ordering a replacement cardiac cath equipment, where the Integration Coordinating Committee and its work groups are making significant recommendations as we go forward in how to handle this.
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    The two divisions have eliminated 108 positions during our hiring freeze. Many of these were eliminated either through the buy-out or attrition in the expectation of the work groups recommending a smaller number of employees and less supervisors.
    Normal turnover has generated some vacancies which have been left unfilled in anticipation of the same outcomes. If we are not allowed to integrate and the work groups are not allowed to make their recommendations, we are ending up with longer-term vacancies that are more difficult to provide adequate service with.
    We are facing and in the middle of a reduction-in-force and a staffing adjustment in our VISN. Because of the integration, we have been able to avoid some separations. If we have to stop and we do these as separate integrations, the reduction-in-force may go far deeper into both divisions and affect far more employees.
    Eleven out of the 33 groups are finished and have had their recommendations in. One of them is a recommendation from Nutrition and Food Service for consolidation of food services at one place and eliminating the other kitchen. That recommendation is in the process of planning to implement. Again, if we were delayed, we would end up still functioning with two kitchens and lose the savings that would accrue to us from that.
    And, finally, all of our minor construction and NRM projects are being sent to the ICC for their review, to review that in view of the overall mission that's been developed for this new VA Chicago Health Care. Going back to those original plans and doing those projects without this review I think also would cost us additional funds and would make our budget challenge more difficult to accept.
    We plan to proceed with the Coordinating Committee and the stakeholders and keep them informed as much as possible, and I thank you very much for the opportunity to present this overview.
    [The prepared statement of Dr. Cummings appears on p. 68.]
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    Mr. STEARNS. Thank you. Dr. Terrence.

    Dr. TERRENCE. Good morning, and thank you for this opportunity to discuss the Integration Coordinating Committee of the VA Chicago Health System. At its first meeting, the Integration Coordinating committee decided that we would proceed in forming chartered work groups with the approval of the Medical Center Director. These groups were service specific and were charted with developing a proposal for integrating specific services. The goal of the group was to produce a health system that would maintain the quality or enhance the overall service to the veterans while minimizing the costs inherent in operating two hospitals with similar missions in close proximity.
    The Committee decided to start with services that were relatively noncontroversial in order to prove that the process was valid and could be accomplished in the context of the VA Chicago Health System.
    When a group completed its proposal, the proposal was submitted to the Integration Coordinating Committee for its review and subsequent recommendation to the Medical Center Director. The proposal was also reviewed at the Stakeholders Advisory Group by the chairmen of the various chartered work groups. The recommendations from the Stakeholders Advisory Group were brought forward to the Integration Coordinating Committee in order to provide maximal input into the deliberations of the Integration Coordinating Committee.
    In order to keep the staff at the two divisions up-to-date on the process of the Committee, we have used a number of formats to achieve this goal. The Chair of the Integration Coordinating Committee has had four town hall style meetings at the Lakeside and West Side division. These meetings had two goals; first, to present the activities of the Integration Coordinating Committee and, second, to seek information from the staff at the two divisions concerning the future process of the Integration Coordinating Committee.
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    These meetings were extremely well attended and had a of information brought forward. There also have been regular updates of the progress of the Integration Coordinating Committee in the VA Chicago Health Newsletter. Also, the committee's minutes are put on the hospital computer system available for all those who have access, and they are also placed in the libraries at the two divisions.
    By July of 1997, over half the work groups will have presented their recommendations to the ICC. Up until now, most of the recommendations have been forwarded to the Medical Center Director with little changes. A few have been referred back to the service work groups for more information. As one can see, the process is very time consuming, but the Committee believes that it is very worthwhile in that it involves the maximum number of people in the proposing process. Until the inception of the Integration Coordinating Committee, there was very little active participation by the two divisions in coming up with joint plans as to consolidation.
    As of this date, the ICC has approved the goals and mission statement for the VA Chicago Health Care System. The ICC recommended the consolidation of audiology and speech pathology, chaplain, dental, environmental management, hospital based primary care, information resources management, neurology, nuclear medicine, nutrition and food services, pharmacy, police, and many others. In addition, the Committee has also recommended the replacement of angiography equipment at the West Side division, and the replacement of the cardiac catheterization equipment at the Lakeside division. The Committee also approved the integration of pathology and laboratory medicine services.
    In the next few months, we will complete the large service work groups. This will include such services as medicine, surgery, psychiatry and nursing service. Although these are the largest services to be dealt with to date, I think the Committee has built up a track record of accomplishment that will allow us to deal with the thorny issues of affiliation interests and placement of bed service facilities. In order to facilitate the process among the bed service working groups, the Medical Center Director and I have been meeting with the Chairs of the bed service chartered work groups such as medicine, surgery, psychiatry, and nursing on a monthly basis to facilitate interservice planning that will be necessary for a coherent proposal.
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    In order to review what we have done in the Committee, there will be a proposal brought forward in the July meeting to develop measures of the integration process. We expect either in the Committee or in the various work groups to propose to the medical center management the types of measures that should be done in the future to ensure that the integration has achieved its stated goal of maintaining the quality and enhancing the access of care for veterans in a cost-effective manner. I expect these measures will include the usual quality management activities, but I expect the work groups to also recommend very service specific measures.
    In summary, I believe the Integration Coordinating Committee of the VA Chicago Health System has worked very diligently in setting up a process and framework for the integration of two tertiary care hospitals. This Committee would have never been successful without the support of the four medical school Deans, the union representatives who have contributed greatly, the Chair and members of the stakeholders group and other veteran service organization representatives.
    Thank you, Mr. Chairman, for the opportunity to present this brief overview of the Integration Coordinating Committee of the VA Chicago Health System.
    [The prepared statement of Dr. Terrence appears on p. 80.]

    Mr. STEARNS. Thank you. Mr. Goff.

    Mr. GOFF. Thank you, Mr. Chairman and members of the subcommittees. It's a pleasure to have the opportunity to tell you about the positive experience of consolidating and integrating the Palo Alto and Livermore VA Medical Centers.
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    As has been stated earlier, there are really two reasons to do this. The driving one, as far as I'm concerned, is always to improve the quality and quantity of patient care. Obviously, you want also try to save some resources or redirect them to help with the first effort.
    In Palo Alto and Livermore, there was a history that went back to about 1989 when Livermore was affiliated with Stanford. Palo Alto had been affiliated before then. Since then there has been discussion, although no action, and no one really believed it was going to happen, about consolidating these two facilities.
    When I came to Palo Alto, I was given three charges by the Regional Director. One was to get our hospital built, which is of some interest to you, and another was to fully integrate the Menlo Park and Palo Alto campuses which, although operated as a single facility, really functioned as two separate ones. And the third was to consolidate the Livermore and Palo Alto VAs.
    Those three things have all been accomplished. Essentially, we did the latter when the Director left at Livermore and the Regional Director was able to put in a Director who understood going in that his charge was to integrate those facilities.
    We were proceeding along about a 2-year plan to do that when he (the new Director) took the buyout and I was made Acting Director there. That sped things up, which was both good and bad. It was good because we were able to make it happen faster. It was bad because the system really wasn't ready to respond to an integration proposal. And being the first one doing anything is always a little difficult.
    Among the things we did to make this happen that were of particular importance, we involved the unions early on. Even as the Director were meeting, we got the unions together with management and had them involved from the beginning.
    We also involved the other stakeholders from a very early point in time, and I think these two things were key to us not having major problems.
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    Following are some of the actions that I think are important to a successful consolidation, I think we have to develop a single management and do that early in the process, and we did that. You have to have a lot of communication, and that's not just from the staff but from the Director. We had town hall meetings, retreats, one-on-one meetings with people, lots of interaction, and that has to be ongoing.
    And in that process, you have to tell people things they don't want to hear sometimes, but I think it's important that you do that.
    We, as I mentioned, developed a labor-management partnership which has actually been recognized as one of the better ones in the country, and we did that even before the consolidation. With the unions at both places, we got together and had a common partnership agreement.
    We also, at the time, promised that we wouldn't conduct a RIF in conjunction with the consolidation. We did stick by that, but later on budget concerns did force us to conduct a RIF. It was not because of the consolidation, and the unions understood that because they had been involved from the beginning.
    One of the things, as I said earlier, you want to demonstrate is improvement in patient care. As I was preparing for this, I got a letter just the day before yesterday from a veteran that probably explains it better than anything else. It says, ''I am writing to tell you how pleased I am with all the new improvements at the Livermore VA. There is so much less waiting, the appointments are on time and are much improved. I am really impressed by the telephone care program. It makes things much easier now to make a trip to the hospital. I have been using the VA health service for about 10 years, and this is the best it has ever been. I am not much for writing letters, but this is one time that I thought I'd better write''. I thought that probably said better than I could say what the results have been and what you want to get out of a consolidation.
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    There are some important things that have to be done that aren't easy to do. You have to integrate your databases, your computers, your fiscal systems, your telephone equipment. You have to worry about mundane things like name changes and station numbers and organizational charts and informing people that you now have one organization where there used to be two, that there's going to be one report instead of two, and congressional correspondence has to be directed properly—lots of things that don't come to mind immediately when you begin this process.
    And it's particularly important you be sensitive to the employees, especially the mid-level managers because they are the ones who can subvert this thing, but they are also the ones usually most impacted by the consolidations.
    In summary, while each integration is unique, I believe that the things I mentioned are probably common to all. And we had some things going for us like advanced planning and a common affiliation. We also had radically different cultures, long-standing rivalry between the two places, the administrative delays because we were the first and the large versus small facility issue. Some of the results were that we saved immediately 78 FTE and about $5 million including significant contract hospital savings, more veterans were served, waiting times reduced, access to care was improved, and quality was improved. We have now a seamless referral process and efficiency is better. We've done more care with reduced budgets. We are actually treating more veterans now than we did before with the two separate facilities.
    Livermore has a new lease on life. The issue has been raised about people worrying about one of the facilities being closed. That could have happened to Livermore had the consolidation not taken place.
    Palo Alto has the advantage of having an expanded primary care base. And remember that all this has taken place while lots of other changes are going on in the VA system that have already been mentioned here, and it's very hard to sort out what is cause and effect. I'm asked often with the consolidation—exactly how much did you save, exactly what did the changes cost in the way of morale and other stuff. You cannot sort that out from the other things that are happening in the system.
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    In summary, I'd just say that consolidation is not an end in itself, it's a means to the greater end of improved service to veterans, and I think if we keep that in mind as we do these consolidations, we will be successful. Thank you.
    [The prepared statement of Mr. Goff appears on p. 83.]

    Mr. STEARNS. I thank the gentleman.
    Mr. Smith.

    Mr. SMITH. Good morning, Mr. Chairman, members of the subcommittee. It is my pleasure today to share with you the Department of Veterans Affairs' experience with integrating the VA Medical Centers in Maryland. There are five of these facilities. The Baltimore VA Medical Center, which is a tertiary care facility that has 163 acute operating beds, and is affiliated with the University of Maryland Medical School. The Fort Howard Medical Center is a subacute and rehabilitation facility that has 154 hospital operating beds. It operated a 47-bed nursing home until 1996 when we closed it and opened the new Baltimore Nursing Home located at Loch Raven Boulevard. The third facility is the Perry Point VA Medical Center, which is a psychiatric long-term care facility with 305 hospital beds, an 80-bed nursing home, and a 25-bed domiciliary. The Cambridge Outpatient Clinic is located on the Eastern Shore of Maryland and approximately 92 miles from the Baltimore facility. We accommodate approximately 17,000 outpatient visits there a year. And, finally, the Baltimore Rehabilitation and Extended Care Center, which is a free-standing 120-bed nursing home that we opened in August of 1996.
    The Maryland integration process was approved March 17, 1995. Our integration was one of two that involved three medical centers. In July of 1995, the senior management of the Baltimore and Fort Howard Medical Centers merged, and in November of 1995 the Perry Point facility joined the integration. That was really the beginning of the integration.
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    I came to the integration process about 4 months into its start, and I identified five things that we needed to do in our process to get the integration moving forward.
    The first thing was to improve the stakeholders involvement in what we called our Executive Council, which was the main body that was overseeing the integration.
    Second, we needed to develop a written communication plan, as was mentioned by Mr. Goff, a very important part of the integration process.
    Third, I did not feel that our current organizational structure would be sufficient to manage the integration process. We redesigned our organization to include service lines.
    Fourth, we needed to develop a strategic plan, which we did, that identified areas where we could improve our medical care to our veterans, reducing beds and consolidating services.
    And, fifth, I thought we needed to take a business planning approach to all of the above. When we decided that we wanted to look at an area to consolidate, we developed a business plan before moving ahead.
    Major accomplishments. The primary goal of the integration, as was said, is to improve patient satisfaction, improve access, increase efficiency, and enhance quality. These goals were the driving force behind designing and implementing a new integration organization, and every accomplishment through the process can be directly associated with one of these goals. Although we had many accomplishments, our major accomplishments were in the areas of program consolidations, cost savings and reinvestment, staff reductions, organizational redesign, and stakeholder involvement.
    Some of these accomplishments include reducing our FTEE by 297, closing 232 inpatient beds, redirecting our emphasis from inpatient to outpatient, opening a 120-bed nursing home, opening 32 substance abuse transitional beds, and opening 25 domiciliary beds. We did all this while receiving the highest scores at all three medical centers for our Joint Commission Accreditation. Our average score was 95. We also did it while meeting all the target performance measures set out by Dr. Kizer and exceeding four of the six incentive measures. We avoided any major opposition from employees, veterans groups, unions, affiliates, and congressional delegates.
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    We believe our intense efforts dedicated to communicating with our stakeholders during this process was instrumental in the success of our integration. Many mediums and techniques were used for this communication. For example, newsletters 800 toll-free hotline numbers, electronic mail, work groups, open forums, and individual meetings with constituents such as congressional members and unions.
    In addition to the financial benefits associated with the accomplishments mentioned above, the VA Maryland Health Care System has transformed itself into a modern business entity capable of delivering quality services that meet community standards and address business trends.
    The savings generated through the integration process has enabled us to manage budget constraints without the need to implement reductions-in-force. More importantly, health care services available to our veterans have been enhanced tremendously due to the creation of a seamless continuum of care managed by one executive team.
    In conclusion, we have accomplished a minimum cost-savings of approximately $15 million, reduced full-time equivalent employees by 297 while simultaneously expanding and improving patient care services to our veterans.
    We have enhanced the continuum of care to veterans, reduced duplication of services, enhanced quality, shifted program emphasis from inpatient to outpatient. We believe our efforts have met the intent of the integration in a means that is mutually beneficial to our stakeholders. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Smith appears on p. 91.]

    Mr. STEARNS. Thank you. I'll start with my first question for Dr. Kizer.
    The GAO appears to take the view that the VA would benefit from developing discussing with the stakeholders—for the Members, the stakeholders, I understand, are the associated interest groups with the hospital, veterans union, teaching hospital-associated and, I might add, that includes the Members of Congress. Their position is a very detailed integration plan should be presented to the stakeholders. That's what the GAO is saying.
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    I guess the question is, do you agree?
    Dr. KIZER. Let me respond to that in a couple of ways because we actually have some experience now pursuing that approach as well. First, we have made a judgment that there was a necessity to move forward and implement many of these changes which, frankly, for lack of a better term, were no-brainers. There were a lot of changes that needed to occur that would enhance care and improve efficiency, so the judgment was made to move forward with these (recognizing that there was no agreed upon process anywhere at the outset) and refine the process as we moved forward. We have divided the potentially integrating facilities into three tiers. First, would be those that we thought would be relatively easy to accomplish and which were expected to be straightforward and which would quickly produce benefits and give us experience. A second tier, which we are now working with, which would be those facilities perceived to be more difficult to integrate for a variety of reasons. And then, finally, there is a third tier that is felt to be even more difficult and which we will hopefully approach at sometime in the future.
    Having said that, I also would go back to a philosophical position. We felt that the stakeholders should be involved in the decisionmaking process and in the development of the plans. That is the tact that we have taken. We have tried to involve all of the stakeholders, whether they are academic affiliates or the veteran service organizations or others, in the development of these plans. That is, not surprisingly, sometimes a messy process because of the variable needs and desires of different people for information, the various positions that they come with, the vested interests that they represent, and all the other things. Again, we philosophically felt they should be involved in from the beginning, as opposed to delivering them a detached plan that would appear as a fait accompli with stakeholders not being involved in its development.
    The third point I would make is that we have looked at the suggested approach in the case of Boston. A decision has not yet been made as to whether or not we are going to pursue integration, although everyone agrees that it should be done. We utilized an outside consultant to actually do a lot of work and develop a detailed plan, and they developed a recommendation. At this point, I now have two stacks of letters from advocates for the Jamaica Plains facility in Boston, and the Brockton/West Rocksbury facility, and the stacks of letters are about equally high, one recommending that we go with the consultant's plan, and the other stock from those who say that the consultant's detailed plan doesn't make sense. And so we will have to work through that process.
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    So, I'm not sure, frankly, that developing a plan without the stakeholders' involvement actually speeds up the process or makes it any more expedient than involving the stakeholders from the beginning.
    Mr. STEARNS. VA could probably develop a theoretical plan that represents what the VA thinks the outcome should be, and then discuss it with stakeholders, and say this, in our opinion, is the best way to do this. You seem to say that you would not want to present that theoretical plan to the stakeholders and say to them, okay, here's what we think in detail, what do you think, even knowing they were resistant. I mean, you seem inclined not to want to develop and present a theoretical plan to them.
    Dr. KIZER. I think it really goes to the level of detail. In all of the integrations that we have pursued, we have started with some generic goals, some of which I discussed, and then amplified them in the specific situation with some of the specific goals that we felt would be achievable. However, we wanted other people's involvement and participation in that process to see if our thinking made sense before we actually got down to the implementation details.
    One of the things that we have found, and I think members of the subcommittees can probably comment on this as well, is that when we do go out and say we think this is what may make sense, the next thing I receive is a letter from a member saying that the VA has decided to do this (whatever ''this'' is) without the benefit of any stakeholder involvement and you question how can VA come to this conclusion without involving people in the process?
    Even though it may be simply a musing, or maybe a little bit more than a musing, and it would appear that the proposal combine these services would make sense, people tend to translate that into a decision or determination that that is what is going to be done, even when it is presented as just a consideration or something that we want to work through in detail. I know that you can appreciate the sensitivity in dealing with the various interests that are involved in the process and how they may take even very tentative bits of information and come to conclusions that may not be sound, or at least not at all what you intended.
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    Mr. STEARNS. I understand. I can appreciate the delicate balance that you have.
    Mr. Goff, is there anything you would want to add just briefly to this? I understand from staff that since you've been very successful in the consolidation process in your experience, you might just add a few comments.
    Mr. GOFF. Our experience was, as I said earlier, the first one and, in our case, a decision was made up front that we were going to consolidate. Once that decision is made, then the involvement of the stakeholders is extremely important in deciding how you're going to do it.
    If you're going to involve them in making the decision in the first place, as Dr. Kizer was just discussing, that was not our experience, so I can't comment on that part of it.
    Mr. STEARNS. I thank you.
    Dr. KIZER. Let me just add one thing because there's a nuance here that may be useful to put on the table. There is really two aspects of the integration that have to be viewed. One is what is often called in the private sector the ''functional'' integration, which is the management integration, which is the decision that we have generally, in the case of Palo Alto and others, made when it made sense to merge or integrate the management of the facilities. And then there is the much more difficult process, the one that people have much more interest in, concerning how the care is actually going to be provided, how the various clinical services will be apportioned, and how that will sort out.
    So, there is an administrative or management phase, and then a clinical or clinical service phase, which is the one that typically, in the private sector and in our experience, takes about 12 to 24 months to sort through all of the details.
    Mr. STEARNS. My time has expired. Mr. Gutierrez.
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    Mr. GUTIERREZ. Thank you very much. Welcome, Dr. Kizer and Dr. Cummings, and to the rest of the panel, very interesting testimony this morning.
    I guess the coordination of all of the different groups is probably one of the most critical and essential components and, as we began this process, particularly in VISN 12, I remember being at meetings both here in Washington and in Chicago, where preliminary questions were being asked—basic kinds of questions were being asked—and very few, if any, answers were being given to those questions, so that it wasn't a question of even what is the whole plan that the VA has, but what is the plan. And the plan usually centered around, well, we're going to integrate Lakeside and West Side, and where it makes sense to integrate things and where there is cost-savings, we're going to do that. And someone would say, well, can you give us five specific examples of areas that you're going to look at and, really, there weren't a lot of answers coming back as that process began.
    And much has been said about the stakeholders and the involvement of the stakeholders. And I don't remember, and I'm sure you'll refresh my memory, that there was a lot of involvement of those stakeholders because those stakeholders were kind of running around the city of Chicago from congressional office to congressional office, and from Senator to Senator, and from place to place, saying will you help us, we'd like to get some answers. And so we asked for the GAO report that will hopefully come out by the fall of this year to let us know what's going on in Chicago because it's a very serious process.
    As a Member of Congress, people ask me, when I present legislation, ''Well, Congressman, what is the impact of your legislation on this population in three years, in five years, in ten years'', ''Congressman, you have to be very specific when you introduce this legislation in terms of what its ramifications for everything else are''. And as Members of Congress, we kind of say, ''Here's our legislation''. Here it is for the public. The newspapers get it. All the different groups get it. Everybody gets to take it apart, criticize it in open and in public, and then we have hearings and we move forward, and I guess that's my basic point, both Dr. Cummings and Dr. Kizer, that when we say, well, we'd like to see a little more and we'd like to know a little more, I guess it is in part based on our own experience about how we go about telling people what we're going to do. I know that complicates matters.
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    Let me say that I think that the process of communication has greatly improved and is greatly enhanced, at least in my experience in the city of Chicago. And, you know, I know that Dr. Cummings specifically—not you, Dr. Kizer, so much because you get it here in Washington, DC, so you get to meet with the fine, distinguished congressmen from the Illinois Delegation, including myself—Dr. Cummings gets it a little rawer over there back in Chicago with everybody coming together from the community, and so she has quite a different experience.
    So, let me just ask, as we look back at how we did it—you know, where we're at in this process—is there anything we could have done better? What are those areas that we could do better, and what have we done to correct them in this very immediate phase because I know you can't tell me where we're going to be next year. Dr. Cummings, if you would.
    Dr. CUMMINGS. Thank you. Actually, I'm very pleased with that question because I think that there are some things that we've learned from this, and I think Dr. Kizer's comment about the management structure, when we made the decision to work towards the integration of management, what I would have done is to have both the Integration Coordinating Committee and especially the Stakeholders Council, start earlier.
    I think one of the key success pieces for the integration in West Side and Lakeside that I think is going reasonably well, has been the Stakeholders Council. It's chaired by a national representative member of one of the service organizations, it includes congressional folk, staffers, it includes service organizations, community people, and that contribution to the openness of the so-called ''functional'' thing when you begin to decide where do you put an angiography suite, how do you consolidate labs, I think has given us a view that has given the whole process credibility.
    So the biggest thing I would have done is at the time we were looking at the decision to administratively integrate West Side and Lakeside under the same management, I would have put together that Stakeholders Council up front, even when we had not maybe had as much of a decision because I think the question, in Chicago certainly, when we began as the VISN started to identify areas that needed addressing through data, when we began to look at our occupancy rates and our utilization of inpatient services, we did not get very far into that process before a lot of stakeholders got very, very interested in it.
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    So we really had had no ability to collect the data before the stakeholders got it, and my concern, I think what I would do is, one, to enhance that and start it earlier.
    Mr. GUTIERREZ. So, before we start the process, we get everybody involved and we tell them we're going to start the process, and we're going to figure this thing out together, because I think, Dr. Cummings, maybe you've hit it on the nail. If you start something and then everybody who is affected—or a lot of people, not everyone—but a lot of people that are affected find out about it and then they come and they say, well, what are you going to do, and you say, well, we're just starting to try to figure that out ourselves, I can see how people—you know, it can get very confusing for everybody and very tense for everybody, so I think that's good.
    Mr. Chairman, I'm going to ask unanimous consent that the Members' statements and follow-up questions and answers be made part of the hearing record because I have some questions that I'm going to submit to the panelists.
    Mr. STEARNS. Without objection, so ordered.
    Mr. GUTIERREZ. And, secondly, Mr. Chairman, I just want to end by saying thank you once again, and I'd like for all of us to go to Chicago. With all deference to our fine, distinguished guests here from other States, I'd like to go to Chicago to see where this process is working, and have the Members of the committee here from the veterans community and all the stakeholders about how this process is working out there, so that we can get some more exchange out in the field before the report comes out, so we're not prejudiced by the GAO report. We've got something of our own out in the city of Chicago, and I welcome you all there. Lunch is on me, anyway, for all the Members.
    Mr. STEARNS. Thank you, appreciate the invitation.
    The committee is going to adjourn and reconvene after the vote which is on the House Floor, and I appreciate your indulgence.
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    Mr. STEARNS. We'll reconvene the joint hearing of the Health and the Oversight and Investigations Subcommittees.
    Mr. Peterson, would you like to have your questions?
    Mr. PETERSON. Thank you, Mr. Chairman. I appreciate all the witnesses' testimony.
    Dr. Kizer, as you probably are aware, we are in the process of starting to look at an integration in Minnesota, including a hospital in my District of Minneapolis, which a lot of my folks view as the enemy, so you've got problems to start with with that whole deal. And I've been briefed by your folks out there, and the process has been kind winding up here a little bit.
    But to be real blunt about it, you've got big problems out there because the entire veterans community, so far, is pretty much united against this idea. The veterans service officers are extremely concerned about it. I think almost everybody now has taken an official position against it. And I'm not sure that's the right reaction, but there's a lot of different things involved in this.
    My concern is that if this process—I've been told by your people out there that as we work through this, that you're going to bring all of these people onboard before we move ahead with this, and I think, frankly, if we don't bring these people onboard it isn't going to work. So is that, in fact, how this process is going to work? Are we going to work through this and get everybody comfortable with it before we move ahead with it? Can I get that assurance from you as well as from your people out there?
    Dr. KIZER. As you know, the decision has not been made. Indeed, even a recommendation from the network director has not been made. They are in the exploratory phase of determining whether this is something that programmatically, managerially, politically and otherwise makes sense and is feasible to do.
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    I was out there for a field hearing in Minneapolis a couple of months ago, and had the opportunity to discuss the issue with some people, and I know that there are significant feelings and emotions on the subject, not unlike a number of other places. And I think, as other witnesses would testify, that's generally the first reaction in all cases. What the process has to do is work through some of these issues, including involving the stakeholders in the process.
    But they have to, first, view it as something that's going to be fair and open, and that integration is not a precursor to closure of one of the facilities, and then they have to gain some comfort that there really is an opportunity to expand services, and to address some of the problems and deficiencies that may exist with the current array of services. Notwithstanding the good job they may already be doing, they can do better, and that's something that the VISN Director and stakeholders have to work through. At the point where the positive benefits for the veterans of both communities can be demonstrated I think you actually can move forward in more of a planning mode. But at this point in your district VA staff are still out working with stakeholders and exploring the possibilities.
    Mr. PETERSON. Well, I think I appreciate that. I think your folks have an idea where this is going, and they've relayed that to me.
    One of my other concerns is that if this thing proceeds, as I understand they've envisioned it, at least at the administrative level, they would be opening up some kind of outpatient facility in St. Cloud and then the hospital would be in Minneapolis. That's all well and good, you know, and it may make some sense, but my concern, and I think the concerns of the people that live further out, is how can we be assured that that is going to be maintained, and that someplace down the road that outpatient is going to be eliminated and we're going to end up being a nursing home and a psychiatric hospital, and then people have to travel to Minneapolis. That is a big problem because we have such a huge State.
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    So, say that this thing goes through, what assurance do we have that this is going to be the situation for the long-term, if that's something you can answer.
    Dr. KIZER. Well, there are a couple of things. First, these are questions that have to be addressed during the process of developing the plans, and second, not knowing whether they are even going to recommend consolidation, I am somewhat in a compromised position as far as what I can say about the long-term plan.
    Mr. PETERSON. Well, you've been through this with some other facilities and, when they are completed—I mean, what assurance do we have that that's going to then hold, or that you're not going to come in in another 5 years, because of budget pressure or whatever, and then decide that you've got to do some more. What assurance do we have that this is going to last for 20 years?
    Dr. KIZER. Well, I think we have probably the same assurance that we are going to have an adequate budget, same assurance that you are going to give me that you're going to keep our funding at a level that we can provide all those services.
    Mr. PETERSON. I don't know if they'll let me do it.
    Dr. KIZER. Well, if you can speak for the Congress, and I can take that to the bank, then okay. I am not sure that I can do that. I mean, that's basically the dynamic that we have to deal with. We don't generate our own funds, even though we're trying to actually diversify our funding base.
    Mr. PETERSON. I understand what you're saying, but that's also the concern of the people out there. I mean, we go through this, and then if the budget cuts come—politically, we can't sustain against Minneapolis. They've got four Representatives and we have one. That's part of the problem that we've got to deal with here. I know we've got some difficult issues to work through.
    One other thing before my time runs out, in your testimony you talked about there being four facilities where there were problems, out of the 40. What were the problems? Were they problems like this——
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    Dr. KIZER. There are four facilities or two integrations that have been most visible, Lakeside and West Side in Chicago, and then the two in Mr. Everett's District in Alabama, Montgomery and Tuskegee, which we are currently in the process of working through. I guess I referenced those figures to indicate that if, overall, we are looking at 40 facilities, and four of them have been difficult or more difficult than others, the flip side of that is about 90 percent of them have gone pretty well. Overall the process, as Mr. Smith and Mr. Goff had discussed, has worked quite well. There are interests and issues that have to be worked through, but, by and large, the end result has been very positive. Back to the question you asked before, perhaps the assurances that your constituents need to hear are some of the lessons and some of the advantages that have accrued from places where the process has gone to completion and they can actually see how services have been expanded and increased and how access and timeliness have been improved. I think that's part of the dialogue that needs to occur over time.
    I think your comment also goes to another point that was raised by Mr. Gutierrez earlier about when you start saying things and putting a plan out, how that immediately engenders a response by the affected parties, and that is a very fine line to walk as to how much information, and when do you provide the information so as not to polarize people before you even have a chance to present your case.
    Mr. PETERSON. Thank you. Thank you, Mr. Chairman.
    Mr. STEARNS. Thank you. Mr. Everett.
    Mr. EVERETT. Thank you, Mr. Chairman. Welcome, Doctor, you and your staff. Let me just comment briefly on something that's already been said, and that is that I'm not sure we can compare the mergers and integrations in the private sector to those of VA. As a substantive matter, I guess you could do that, but I would like to point out that it has been pointed out that the sensitivities involved are not necessarily the same, and I recognize that you recognize that also.
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    How would you define a successful integration outcome?
    Dr. KIZER. I think a successful integration outcome would be defined as to whether those five generic goals are met. Have we actually increased accessibility to care? Can we show that the consistency and the predictability of the care is better than it was before? Have we improved the timeliness of care? Are we better utilizing by demonstrable data that the facilities have more productivity and they are achieving better results, and other things that are listed as far as those five generic criteria.
    Mr. EVERETT. I know this is a little bit elementary, but I know you have devices for measuring that, and would you describe some of those measuring performance devices, or devices for measuring performance that you just described?
    Dr. KIZER. Sure. The measures range the gamut, depending on what specific variable you are looking at. If you are looking at access, for example, you can look at the timeliness—i.e., how long do people have to wait to get a scheduled appointment. How long do they have to wait to see a caregiver when they arrive at a facility, and other sorts of timeliness issues which are all part of accessibility.
    When you look at the quality of care, there are a whole host of things. For example, you can look at surgical outcomes and the expected-to-observed complication rates, whether they be post-operative bleeding, post-operative infection, et cetera, are better or worse than they were before. Again, you can go down a whole host of specific measures that look at the quality of care.
    We also look at customer satisfaction. As you know, 2 years ago we put in place customer service standards and now we are routinely measuring and monitoring those things. We can track whether our patients, our users, are more satisfied with the care by how they rate the service that they receive. There are basic measures and monitors that are used in the industry, and what we've tried to do is make ours the same as in the private sector so that you can actually do the comparisons to see whether the care that is received in the Veterans Health Care system is on par with what is received in the private sector, if not better.
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    For example, customer service standards. We use the Picker Institute's instrument that's used throughout the private sector; many of the other measures that we use are the same as are used elsewhere in the industry.
    Mr. EVERETT. Dr. Cummings, would you have anything to add to that?
    Dr. CUMMINGS. I think the other piece is, certainly from our VISN perspective specifically is, how do you handle the budget that you're living with because I think another measure is not just are you performing the services to the satisfaction of the veteran, but are you using your resources in a way that reach and access those individuals that you've not reached in the past.
    We, through some of the earlier savings and some of the things that have been done with the integration, are going to be able to fund and open a clinic in Chicago Heights which will be run by the VA Chicago Health Care System. Without some of the savings such as avoidance of the angiography suites and the lab consolidation, it's very unlikely that we would be able to put these community-based outpatient clinics in the undeserved areas in Chicago.
    So, I think you can measure where your resources are redirected to, to see if you are increasing the customers and reaching the different customers.
    Dr. KIZER. In that regard—I forget whether Mr. Goff or others have shown—I know in Texas they were able to show where savings from administrative positions were redirected and could detail exactly how many new physicians, how many new RNs were added, direct caregivers as opposed to administrators, as a result of the savings that were achieved. These are another index along the lines of what Dr. Cummings was saying that how you can assess the success of the effort.
    Mr. EVERETT. Mr. Chairman, that's all I have. Thank you.
    Mr. STEARNS. Dr. Snyder.
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    Dr. SNYDER. Thank you, Mr. Chairman. Dr. Kizer, anything I've learned on this topic I've learned in the last 18 hours, so it's new material for me.
    Would you help me, please, what factor does geography play in all this? Do you have a certain distance where you say we don't even need to think about integrating these two facilities because they are more than 30 miles apart, 80 miles apart, or can you just give me a little background?
    Dr. KIZER. It's not a hard and fast rule and, indeed, some of the easier ones have been further apart. At the one end of the spectrum you would have, say, a Denver and a Salt Lake, and there isn't really anything in between. It's obvious—or at least it's obvious to me—that it doesn't make sense to try to integrate those two facilities at this point in time, even though they are part of the same network.
    In the case of Chicago, one of the more difficult integrations, the facilities are 6 miles apart. Some of the ones that have been easier have been 100 miles apart. So, exactly what is the range is not clear. We have set some targets that, say, generally, we would hope people would not have to travel more than an hour's time to get to a care site. That, of course, is not met in most parts of the country, and historically was not even close, although we're making improvements in that regard. But our target is that people would be able to access a clinic within an hour of their home. In the case of Minnesota and some of the parts of the north central U.S. that are relatively sparsely populated, people travel many hours to get to VA health care right now, and we'd like to be able to establish community-based clinics or other presences in these communities so they our patients didn't have to travel those distances.
    Dr. SNYDER. Tell me about the 100-mile-apart facilities. I assume you had two fairly typical free-standing VA Hospitals, clinics. What did integration mean for that? What is the efficiency? Did each hospital start specializing in certain areas so you didn't duplicate services? Tell me what happened in that?
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    Dr. KIZER. In some cases, what has happened, for example, in some of the facilities that were in the 50–100 mile range, they have had complementary missions. For example, one might have been a long-term care psychiatric facility with limited acute-care and the other was an acute care facility with limited extended care or psychiatric care. By merging them under common management, they will complement the services that they provide to each other. The net effect will be that by pooling the resources, they were able to expand the scope of services that were available to each of the service areas. Before integration they were focusing only on the resources that they individually provided and, as a result, had gaps in those services because they were primarily focused on doing one particular line of service and had a very small presence in the other.
    Dr. SNYDER. So Hospital B may have become a little satellite to help Hospital A provide whatever specialty services they had in that geographic area, is that the way it went?
    Dr. KIZER. I'm not sure I'd characterize it as a satellite, but they merged their resources. One that worked—I forget what the exact distance is, 30 or 40 miles as I recall—in New Jersey. For example, when they pooled their resources the facility that historically was not able to offer neurology and orthopedics and some other consultation clinics, could now provide those services to the population that previously did not have access to those services. By integrating services, veterans are now able to receive services in that community as opposed to having to travel some distance—maybe not a large distance but in New Jersey, where it's fairly congested, even though the miles may not be that great, the time can often be great because of traffic congestion and other things.
    Dr. SNYDER. Thank you. Thank you, Mr. Chairman.
    Mr. STEARNS. I thank my colleague. We thank the panel for testifying, and I think we're completed, and if we have any further questions, of course, as Mr. Gutierrez said, we'll send them to you. Appreciate it, have a nice day.
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    Mr. STEARNS. Our next panel is Stephen Backhus, Director, Veterans' Affairs and Military Health Care Issues, General Accounting Office accompanied by Paul Reynolds, Assistant Director, Health Care Delivery; Paula Widerlite, Senior Director for System Strategy, Adventist HealthCare; James Starr, Senior Associate, McManis Associates; accompanied by Linda Wendt. And I welcome the members of the second panel, and we'll start off with Mr. Backhus.

    Mr. BACKHUS. Thank you, Mr. Chairman, Mr. Everett, other members of the subcommittees. With me today is Paul Reynolds of GAO. He has been working on VA health issues for many years, and has seen many changes not only in health care but in the VA. He has led this particular assignment.
    We are pleased to be here today to discuss our ongoing evaluation of VA's integration of medical facilities. As you requested, I will address the role of facility integrations in reshaping VA's health care delivery systems, and lessons learned from these integrations.
    Our observations are based primarily on our work at four medical facilities being integrated in Alabama and Chicago. We have, however, discussed with VA officials their other integrations, and we've discussed integration issues with several private health care providers and consulting firms, including Paula and representatives from McManis.
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    Facility integrations are a critical piece of VA's overall strategy to enhance the efficiency and effectiveness of health services provided to veterans, and is similar to how the private sector is evolving. Integrations take several forms. It includes unifying management by creating a single team to manage all facilities instead of using separate management teams at each facility; consolidating the service by moving all employees and patients to one facility rather than continuing to provide the service at multiple locations; centralizing unit service by moving some but not all of the employees associated with it to one of the facilities; contracting out some services that VA employees have historically provided; and re-engineering service delivery by designing more efficient and effective ways to meet veterans' needs.
    VA's integrations have generated over $83 million in savings. Veterans benefit from these actions when savings are used to open new clinics, offer new services at existing facilities, or extend operating hours.
    There are, however, inherent difficulties in planning and implementing these integrations. The difficulties stem from the potential adverse impacts on multiple stakeholders such as employees, facility and medical school personnel, and local communities. For example, integrations will likely result in fewer and less convenient employment opportunities for VA and medical school employees, or training opportunities for medical school residents and students. Obviously, with so much at stake, it is imperative that VA carefully plan all aspects of these integrations.
    VA's integration planning approach has many positive features. For example, local facility employees are involved in the planning activities. This appears to be very beneficial in that it expedites the process, includes those most familiar with the operations at each facility, provides stakeholder involvement in the outcomes. But our work indicates four areas where improvements in the process could be made that might yield even better results.
    First, adopting a more comprehensive or strategic planning approach. Essentially, this means assessing the resources needed to meet the expected workload over several years in an entire geographic service area.
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    Second, completing planning on a facility-wide basis before implementing the changes, and being able to answer in detail questions such as how the services will be integrated, how potential changes will affect veterans and employees, why selected alternatives are the best ones available, how much the potential changes will cost to implement and save overall, how VA will reinvest the savings to the benefit of veterans.
    Third, improving the timeliness and the effectiveness of communications with stakeholders at key decision points.
    And, fourth, finding the best mix of planners, balancing those with vested interests with those of independent interests, that will produce the most appropriate decision.
    Mr. Chairman, I know VA is considering ways to improve its planning process that should increase the availability of information at important decision points and result in even better integration decision.
    Towards this end, we encourage VA to follow through with these improvements because the greatest benefits are yet to be realized. Every dollar saved by integrating can be reinvested to better meet veterans' medical needs or serve veterans who might otherwise not be served.
    This concludes my prepared statement. I'll be glad to answer any questions you or Members of either subcommittee may have.
    [The prepared statement of Mr. Backhus appears on p. 99.]

    Mr. STEARNS. Thank you. Ms. Widerlite.

    Ms. WIDERLITE. Good morning. I'm Paula Widerlite. I'm the Senior Director for System Strategy for Adventist HealthCare, and we are an integrated delivery network based here in Montgomery County. Our organization has annual revenues of about $400 million, with about 5,000 employees, and it makes us the second largest private employer in Montgomery County.
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    In 1993, the need to develop a vertically and horizontally integrated and coordinated system of care for the residents of Montgomery and Prince George's Counties in Maryland, was recognized by the leaders of our organization. At that time, there were several governing boards responsible for the two acute care facilities, four nursing homes, a home health agency, and other affiliated health care services. Through a strategic planning process during 1993, it was agreed that those operating units would be integrated and operate under the governance of one board of directors, one president and CEO, and one management team.
    Since that time, the level of integration among those operating units has primarily focused on integrating management support functions, such as finance, information systems, human resources, strategic planning and marketing. However, the objective was to produce a seamless continuum of care of which a major component would be clinical integration. The strategic plan that called for the integration of these operating units was implemented during the period of 1994 and 1995. At the end of 1995, the strategic planning process was initiated again with a planning horizon of another 24-month period. In just that short span of time new critical success factors and goals were identified and a changed course of direction was charted different than that which was set out in 1993.
    The revised strategic plan that was approved by the board of directors in October of 1996 was revised 60 days later in December of 1996 because an important market condition had changed for us and an opportunity had presented itself to our President/CEO who went back to the Board of Directors and asked them to accept a modification to the plan that had just been approved 60 days prior.
    Those sorts of actions, those sorts of market condition dynamics exist almost on a daily basis for the health care industry, particularly in this region. Maryland and the DC marketplace has one of the highest penetrations in the country for managed care, which is the single most important marketplace condition that drives an organization such as ours to develop strategic initiatives to enable it to continue to provide the level of service and standard of care that the community has come to expect.
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    Some of the lessons that we have learned through this journey over the past 4 years have been that there is no one prescriptive method for integration that a health care organization can adopt. We received lots of advice, did lots of research on our integration efforts back in 1993, and over several months quickly found that we needed a much more customized, flexible and responsive approach to restructuring our organization. We have some unique features, being based in the State of Maryland; namely, operating in a rate-regulated all-payor system. So, when we get advice from experts and consultants and read the literature about integration efforts across the country, it becomes painfully obvious to us that those methods may not be effective or ones that meet our objectives.
    In some areas of the country, managed care may be the driving force, in other areas preserving access to high quality, cost-effective services; in others there may be a need to reduce excess capacity, to rationalize services and thereby avoid duplication. Some may even need access to capital to fund improvements. And perhaps others may be facing a combination of all of these factors. The most difficult steps of rationalizing scarce resources and refraining from duplication are seldom, if ever, accomplished in the private sector, and we are proud to have been among the few to achieve that goal.
    Another lesson that we've learned is that the process of integration is just that, that it's a process. It should not be an objective in and of itself. It tends to proceed along evolutionary lines, first beginning with the integration of governance, then management support, then ultimately clinical and physician integration.
    Those first areas of governance and management support functions tend to be, and this could be obvious to some, significantly less complex than the issues of clinical integration. The importance of the process of integration is the participation, input and commitment from all stakeholders in this process. Ultimately, our objective, which is consistent with our mission as a faith-based organization, is to enhance the patient's experience.
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    Also, it may appear to some that as hospitals, nursing homes and hoe health agencies owned and operated by a common organization—that is, the Seventh-Day Adventist Church—integrating should be a relatively simple process. However, on the contrary, coming together to meet the different demands was difficult for us, if not more difficult.
    It was a relatively smooth transition to develop a common mission and vision for our organizations, however, some of our organizations had 100 years of experience of operating independently and, as free-standing institutions, developed independent cultures. The changes that would be required to blend these disparate cultures were challenging for us and, in some regards, continue to be a challenge.
    We've seen some cycles of change concerning integration. First, there was buy-in from the operating units in support of centralization and integration. Subsequently, a wave of a different culture began to emerge where separate identities was valued over a system-wide approach. Communities, physicians, and patients tend to identify with hospitals and not systems of care.
    We remain firmly committed to the notion that an integrated delivery system which enhances a patient's experience is ultimately the most effective care delivery model. To that end, we believe that the network that we've developed meets our needs given the current conditions. We also fully expect that the model will be modified from time to time as necessary, and we're thinking we might need to redefine what it means to be an integrated delivery network.
    Our strategic planning horizons seemingly continue to be shortened from 5 years to 2 years, sometimes down to almost 6 months; however, we will continue the course of aspiring to develop a rational integrated system of care for our community. Thank you.
    [The prepared statement of Ms. Widerlite, with attachment, appears on p. 107.]

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    Mr. STEARNS. Thank you, Ms. Widerlite. It's interesting that you say that, particularly in light of the GAO's comment on the time frame.
    Mr. Starr.

    Mr. STARR. Thank you. Mr. Chairman, members of the subcommittees, thank you for the opportunity to share my experiences and those of McManis Associates regarding the integration and consolidation efforts of Veterans Affairs medical centers. We appreciate the chance to discuss this important topic with Members of Congress, VHA representatives, Veterans Service Organizations and other stakeholders.
    McManis Associates is a management and research consulting company that specializes in the field of health care. We have assisted hundreds of health care institutions evaluate and implement mergers and affiliations across the country. This testimony is based on McManis' experience in working with the private sector and VA health care institutions.
    This country's health care delivery system is undergoing rapid and dramatic changes in both the way it delivers and finances health care in the private and pubic sectors. Today's health care consumers and payers are demanding higher quality and better access for lower costs. In addition, other factors such as the aging population and federal budget constraints have magnified these challenges. Health care providers in both the private and public sectors are seeking innovative solutions to these problems.
    Many of the veterans integrated service networks have explored and implemented integrations or consolidations of their medical centers. These mergers have achieved varying levels of success. McManis has found that there is no one standard approach to integrating medical centers in the VA. Several factors need to be considered—the population served by the medical centers, the proximity of the facilities to each other, the overlap of services, community resources, referral patterns, organizational cultures, and the viewpoints of concerned stakeholders. These considerations dictate how best to proceed in examining the potential integration of facilities.
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    While there is no one right way to conduct an integration, McManis Associates has developed a general process to ensure that these critical success factors are addressed. Our approach to the integration of VA medical centers includes three major phases: an assessment, creation of a VISN and high level plan, and service specific cost-benefit analyses with ongoing implementation.
    The first phase involves conducting an assessment of the overall health care market and organizational performance of the medical centers. This includes determining the current and projected populations served by the medical centers and their corresponding workload, examining referral patterns between the facilities, identifying duplicate and complementary services of the medical centers, and assessing performance data such as cost and quality.
    A critical component of this phase is the involvement of stakeholders such as veterans, employees, affiliates, congressional offices and other key constituents. The goal of the assessment is to determine if integration is feasible and, if so, to what extent. The compelling reasons for integration must be clarified and clearly communicated to all concerned stakeholders to gain their acceptance of the reasons for integration.
    Once a decision has been made to integrate and at what level, a greater degree of detail needs to be outlined. This is the focus of the second phase of integration, creating a VISN for the integrated facilities.
    This involves identifying the specific areas for further study, developing the leadership and governance structure for the integrated facilities, and outlining a high level implementation plan that identifies the scope and timing of integration. Stakeholder buy-in at this stage is vital to moving to the next phase of integration.
    The last phase of integration is the most difficult and requires the greatest level of effort and time. During this phase, specific work groups are established at the direction of the new leadership structure to examine the areas identified in phase two.
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    It is during this stage that specific cost-benefit analyses are conducted that examine the opportunities to improve service and quality, to improve access and reduce costs or redirect savings. As recommendations are made, the leadership structure should move ahead with implementation in a timely manner. This is a key success factor for several reasons: resistance to change increases with time, changes are occurring at such a rapid pace that opportunities may be issued, and we've found that success typically breeds success.
    Through our experience, we've identified several critical lessons. (1) Communicate with and involve stakeholders and employees during all phases of integration. (2) Use an objective third party, either a VA employee that is outside of the network of the facilities being looked at or an outside consultant. (3) Demonstrate progress and results continuously. (4) Have an overall plan to guide specific efforts so that the leaders of the integrated facilities can see the systemic impact of decisions and recommendations being made regarding integration of specific services. And (5) don't expect significant results overnight. We're talking about major changes taking place for employees, for veterans, and for leaders, and it takes time for people to get used to new processes.
    This concludes my prepared statement. Thank you for the opportunity.
    [The prepared statement of Mr. Starr, with attachment, appears on p. 115.]

    Mr. STEARNS. Thank you, Mr. Starr.
    When I look at this, I'm trying to generalize, and let me ask Mr. Backhus, from what you've heard and seen, do you think the VA is on target here in the schedule of the integration? Based upon your recommendations, do you think they should be further along? I'd like you to be objective here and say do we have a problem in terms of the time frame, do we have a problem in terms of results.
    Mr. BACKHUS. I think they've made substantial progress. There are obviously successes that have occurred. I think what we have seen is that there's an opportunity for greater success. What is unclear at this point is whether at this pace the process will achieve the results that VA ultimately needs, and that the veterans need; that is, to expand services to veterans within the confines of the budget situation.
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    Mr. STEARNS. If you had to say, which is more important, the detailed integration plan, the development thereof, or extensive interface with the stakeholders participating in formulating the plan, which would it be? And I'm going to ask this to the folks in the private sector, too.
    Mr. BACKHUS. They go hand-in-hand. The way to engage the stakeholders and to get the buy-in of the stakeholders is to include them in the process. That means to develop and present to stakeholders proposals that can be meaningfully discussed; where there can be a clear understanding of where the proposed integration is headed, and where a debate can occur, if necessary, over the sufficiency of that proposal. And based on that feedback, that input, revisions are made.
    We aren't suggesting here that once a plan is developed it never changes. Clearly, that's not the case. What we're suggesting here is that there are key points along the way, key decision points where the stakeholders need to come together and weigh-in and have input to that process, and it gets progressively more detailed.
    Mr. STEARNS. Ms. Widerlite, in your testimony, you characterized elimination of duplication as one of the most difficult steps in integration, and one that few ever accomplish. Would you elaborate on that observation?
    Ms. WIDERLITE. Well, in the private sector I know there's a lot of integration and consolidation, and I think those two terms are very different. Sometimes we use them interchangeably, but usually what we hear about are hospitals coming together and forming horizontally integrated systems, or vertically integrated systems, and seldom are any services ever taken out, or beds closed or shut down. As a matter of fact, you might find just the opposite, where there is some duplication.
    Mr. STEARNS. Mr. Starr, are you familiar with the GAO recommendations?
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    Mr. STARR. Yes, I am.
    Mr. STEARNS. I'd like you to comment on their overall plan. Do you agree with the recommendations? Maybe you would like to elaborate where you disagree.
    Mr. STARR. Okay. I think that I just want to restate, there are several approaches to conducting integrations of medical centers today, but our experience has shown that involvement of the stakeholders is probably one of the key critical success factors in integrating VA medical centers just based on the constituents involved, the level of political clout that they carry. And involving them from the very beginning we've found has been strongly linked to the success or failure in the future.
    Our approach is to involve the stakeholders right from the beginning, from the very first phase, which is determining if even an integration is feasible. We think it's critical that the stakeholders have an understanding of what the compelling reasons are why this topic was even brought up, is being addressed, and that they be a part of some of those discussions, through interviews, through focus groups, and through other mechanisms to gain their input.
    We also suggest that they become part of the process in terms of developing an overall VISN of what the integration should look like, and what areas should be focused on with more detail, and looking at certain things like surgical services and medical services between the facilities. So, I think that's probably where we differ from the GAO's approach in that respect.
    Mr. STEARNS. Okay. I think we're going to adjourn the joint Subcommittee and reconvene after this vote, and thank you for your patience.
    Mr. STEARNS. The joint Subcommittees hearing will reconvene, and we'll now move to the Chairman of the Oversight Committee, Mr. Everett.
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    Mr. EVERETT. Thank you, Mr. Chairman. Welcome, everybody. Mr. Backhus, can you elaborate on what you mean when you say VA may be more successful if a comprehensive planning approach is used?
    Mr. BACKHUS. Yes, I will. We are of the opinion that in order for the VA to maximize the benefits out of an integration, there is a need to look at all of the services provided in an entire geographic area—if it's Chicago, it's all the hospitals that serve the Chicago area, not just a couple of the facilities—and to be able to identify and project out into future years the resources that they think are necessary to serve that population as it's going to be several years down the road.
    VA is a little unlike, I believe, the private sector in that they know who their beneficiary population is. It's predictable what it's going to be. The demographics of the population are well known and understood. They have an infrastructure in place that is going to be there for some time. There are a lot of factors that make longer-term planning possible here in VA.
    I think that kind of a strategic view, and a more comprehensive planning approach will yield better results in the long-run because everything is being considered and everything is on the table. That is not to say that they can't get where they are with an incremental approach. I mean, it's possible that they will, but it's also possible, in our view, more unlikely that they will unless they consider all things in the beginning that's going to affect them years out.
    Mr. EVERETT. I come from way back when we used to have courses called MBO, management by objectives, and I think it's a pretty good idea. You had literally a roadmap on where you wanted to go. And one of the things that has served me—and last year I was the Subcommittee Chairman on Pensions and Compensations—and when we took up the computer modernization plan and the year 2000 problem, is that VBA had no roadmap of that sort. They had a description of what they wanted to achieve, but they didn't have a roadmap. MBO, you put down how you want to get where you want to, but you have an action and interaction every step of the way on what may happen.
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    Do you see that kind of detailed planning by the VA in this integration process, notwithstanding the suggestion that one is impossible to come up with?
    Mr. BACKHUS. Well, it seems to occur simultaneously I think with implementation, not necessarily in the detail we believe it should be in advance of implementation. And I can think of again our experience in Chicago and in Alabama, where some of the very key questions that I would view, and based on our discussions with several people in the private sector would view, need to be answered prior to implementing integration. Some of the key answered questions are what services specifically need to be integrated, how services will need to be integrated, what are the costs and the benefits of it, what are the specific impacts on employees and veterans.
    The Chicago situation, to me, is this: Implementation is underway, however, it hasn't been determined yet how medicine, how surgery, how psychiatry, and how long-term care are going to be integrated. That's the bulk of the operation, and I would expect to see the details of how those are going to be integrated prior to beginning implementation.
    The answer to your question is, no, the detailed planning isn't done, in my view, prior to implementing, but it's not to say it won't be done before it's all complete.
    Mr. EVERETT. Well, I see my time is running out. The only problem and what worries me is not having that sort of planning done. And in looking at some of these cases, if we move ahead and we do X before it should be done, and then we find out that we've spent $1 million, or $2 million, or $7 million redoing buildings or whatever, and then we find out that X should not have been done, then it seems to me we have wasted a lot of dollars that could be better used for veterans health care. And that also doesn't touch on the fact that we may have perhaps hurt veterans health care in the process of doing that.
    Thank you, Mr. Chairman.
    Mr. STEARNS. Thank you. Dr. Snyder.
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    Dr. SNYDER. Thank you, Mr. Chairman. Mr. Backhus, in your statement or your report on page 2, you say—talking about integration decisions being made incremental on a service-by-service basis instead of waiting until I guess you could do it at one time, I'm not sure I understand that.
    It would seem to me that one advantage of doing it service-by-service, I assume you mean, for example, if somebody decided, hey, we could have a joint laundry facility between two facilities. What's the point of waiting around to try to work out the details of some elaborate health care part of it—I'm over-simplifying it, I think—but also doesn't it make some sense in terms of a gradual kind of change to have—if you're ready to move ahead on one section—not everything is a critical path, I guess is what I'm saying.
    Mr. BACKHUS. Not everything is on the critical path, but most services do affect others. Making decisions and implementing recommendations on a specific services more than likely will limit alternatives that other services have.
    Dr. SNYDER. By your analysis here, doesn't that mean that improvement in the VA health care system, as the years go by, will be one big change after another, that you'll have to wait until they were prepared to move ahead. Here's this big change for this decade, but we need to do other stuff on this service, but we can't do it service-by-service, and wait for the next big change?
    Mr. BACKHUS. I think in most of these—at least the ones I'm most familiar with among the integrations—most of the planning among the different services that are being evaluated can be completed within maybe 6 months of each other. In other words, the critical path is essentially that difference.
    In Chicago, I think I heard today and based on our visits out there, the rest of the planning is going to be finished soon. The recommendations are going to be made from the remainder of the services sometime in the September time frame, a couple of months from now. And while that requires some waiting—July, August and September—it seems that that's not an unreasonable amount of time to be able to mesh all of these together and have the big picture and then proceed.
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    Dr. SNYDER. Ms. Widerlite, I was struck by what you talked about, that you see this as a process of integration, that somehow it has this big climactic end and then it's over, which seems to me to be a little bit in conflict with what Mr. Backhus was just talking about. Maybe that's being in the private sector that you always have to be prepared to adapt to change. Do you have any comments on that?
    Ms. WIDERLITE. Absolutely. Some of the cyclic changes that I referred to in my statement is what we're seeing now that maybe integration isn't meeting the objectives that we thought it was going to meet. Some systems came together, or former systems, to gain market leverage in the marketplace, and to secure contracts with managed care payers, and I would bet that managed care was very happy with the disorganized, fragmented system, and really didn't see anything to be gained by integrated delivery networks. So, if that was the objective, maybe an integrated delivery network isn't functioning the way we thought it was going to be.
    So, we continue to evaluate on a quarterly process, we don't change our overall vision, but on a quarterly basis we evaluate strategies that we set out, sure.
    Mr. BACKHUS. May I jump in again?
    Dr. SNYDER. Sure.
    Mr. BACKHUS. I'm sorry, I didn't mean to suggest that once the Chicago or Alabama integration is complete, that that's the end of it.
    Dr. SNYDER. Maybe that's the way I read that. It made it sound like you can't do anything until you're ready for the one, big, complete integration change, and then that's it. And then I'm not sure, in response to Ms. Widerlite's comments, where that leaves us. It seems like this ought to be an ongoing process adapting to change. And I was talking with Donna Shalala the other day, and she says one of the problems—we all talk about a 10-year Medicare plan—the problem with a 20-year Medicare plan is we don't know what American health care is going to look like in 20 years. And you all are part of the medical system—well, anyway. Thank you, Mr. Chairman.
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    Mr. STEARNS. Thank you, Dr. Snyder.
    Mr. Everett, do you have a follow-up?
    Mr. EVERETT. Thank you, Mr. Chairman.
    McManis, in your statement on the second page, you talked about the three major phases of integration. The third is service-specific cost-benefit analysis with ongoing implementation. How should a cost-benefit analysis be done, and what should it consist of?
    Mr. STARR. A cost-benefit analysis examines looking at basically what it's costing the medical centers to provide specific services—for example, surgical services—what are the costs of providing those services, what are the outcomes that are being achieved by those services at each of the medical centers, and then what would be the benefit, if any, of combining that particular service into either one medical center, closing surgical beds in one place and maybe converting them to ambulatory care beds or what have you. What benefits would be derived from doing that in terms of would there be cost-savings that could be redirected to other areas? Would there be opportunities to improve the quality of care based on declining censuses and things of that factor that impact the quality of a particular medical service?
    So it's really looking at specifically what are the resources required to provide particular service at a medical center, comparing the two, and then looking at what the benefit would be from combining that particular service, or integrating it in some fashion?
    Mr. EVERETT. Thank you. That's all Mr. Chairman.
    Mr. STEARNS. Thank you. Remind all Members and staff that they have the opportunity to submit questions. And we want to thank the members of the panel for taking their time and participation.
    Mr. STEARNS. Now we will have panel number three, Dr. Jordan Cohen, President of the Association of American Medical Colleges, John Vitikacs, Assistant Director, National Legislative Commission, the American Legion. Welcome to you folks, and Dr. Cohen, I'll let you start.
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    Dr. COHEN. Thank you very much, Mr. Chairman, ladies and gentlemen, good morning, or good afternoon now, I'm sorry to say. I am Jordan J. Cohen, President of the Association of American Medical College, and obviously appreciate the opportunity to testify today about a very important issue, the integration of medical facilities within the Department of Veterans Affairs health care system.
    Currently, as I'm sure you know, 139 VA medical facilities are affiliated with 103 of the 125 medical schools in this country. Affiliations, academic affiliations are symbiotic arrangements that benefit not only the VA, but its partner medical schools. While affiliations between the VA medical centers and medical schools greatly enhance the patient care environment at VA medical centers, they also enhance the education and research programs of medical schools. The fact that education requires access to a diverse mix of patients who come to an academic medical center with the expectation that they will receive the highest quality, comprehensive and compassionate medical care; AAMC embraces the VA's primary purpose of providing quality health care to eligible veterans. We embrace it both because it's good for veterans and because it's good for students.
    One of the main reasons for the success of the VA's unique programs for patients with special needs is the infrastructure provided by comprehensive VA medical centers. This common support system is a necessary foundation upon which the VA builds expertise in such specialized areas as cardiac care, long-term care, substance abuse treatment.
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    The new organizational structure of the VA can best achieve its full promise, in our view, by building on the foundation established by the joint medical school-VA partnership. A partnership, as you know, that's been strengthened by more than 50 years of close collaboration.
    The VA intersects our nation's entire health care system at two crucial points, both of which deeply involve the VA's academic affiliations. First, the VA plays a critical role in the education and training of health care professionals who are destined to serve the entire nation, not just the VA system.
    Second, the VA contributes in a major way to advances in medicine through a research program that has an impressive history of success and innovation.
    The future of the VA as a comprehensive, high quality health care system currently faces serious challenges quite similar, as we've heard this morning, to the ones that medical schools and teaching hospitals are encountering as well as the entire system.
    The continued success and vibrancy of both VA medicine and academic medicine in the evolving health care delivery environment depends greatly upon our responses to these challenges over the next few years.
    In response to the imperatives for change, both academic medicine and the VA are moving away from the traditional hospital-based model of health care delivery to one that emphasizes the delivery of care in ambulatory and out-of-hospital sites. Moreover, academic and VA medical centers are establishing new partnerships with other health care providers to increase efficiency, to rationalize resource distribution, and to manage effectively in the emerging health care marketplace.
    Among the many attractive features of the new VISN structure is its emphasis on performance-based evaluation. VISN directors and other key leaders in the new system are informed prospectively about the goals they are expected to achieve and are systematically evaluated at an appropriate time to assess whether or not those goals were achieved.
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    Academic medical centers, I have to confess, have a great deal to learn from this forward-looking management technique. Affiliated medical schools are quickly adapting to the new VISN structure and are exploring new collaborative arrangements with all of the VA facilities and sometimes with other medical schools within their respective VISN. The AAMC is eager to continue to work with VA officials in Washington on national policies that affect the health of veterans and that foster the affiliations between the VA and medical schools. The Association recognizes, however, that decisions regarding the local administration of VA resources are best made locally. Although the task of altering long-standing relationships and forging new collaborations is never an easy one, maintaining a sharp focus on the primary purpose of academic affiliations—to provide health care of unsurpassable quality for our deserving veterans—remains our best guide to continued success.
    I firmly believe the VA's academic partners can play a vital role in securing a strong future for the VA health system. In capitalizing on this potential, I would mention three facts that are especially worth noting: (1) the rapidity and the magnitude of the changes required to implement the VISN structure successfully, (2) the number of new individuals recently recruited to the leadership positions from outside the VA, and (3) the VA's traditional and reconfirmed commitment to maintaining robust education and research programs.
    Given this collection of facts, it seems clear that some special care must be taken to ensure that the inevitable stresses on the long-standing and successful partnership with its medical school affiliates do not hamper achievement of the VA's missions.
    To minimize this possibility, let me conclude by emphasizing two suggestions we'd like to make: (1) Incorporate within each VISN director's annual performance contract specific goals that foster the education and research missions of the VISN, and (2) in keeping with much of what you've already heard this morning, we think we need to establish an explicit and workable mechanism for ensuring routine consultation with the VISN leadership and the academic leadership—that is, the medical school dean and the university hospital CEO, for example—of the medical school affiliates.
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    And the reason for doing that, at a minimum is, first of all, to guarantee timely communication by all parties of information relevant to the strategic and program planning of the VISN and the various affiliates, (2) to ensure optimal deployment of education and research resources, (3) to assess the impact on academic programs of consolidation and restructuring of the VISN's clinical services, and finally, to identify opportunities for cost-effective strengthening of the VISN's clinical services by contractual relationships with one or more of the academic affiliates.
    I appreciate the opportunity to appear this morning and will be happy to answer any questions.
    [The prepared statement of Dr. Cohen appears on p. 122.]

    Mr. STEARNS. Thank you. John Vitikacs.

    Mr. VITIKACS. Good afternoon, Mr. Chairman and members of the subcommittees and staff. First of all, Mr. Chairman, thank you for holding today's important hearing on this subject.
    The American Legion supports the effort to streamline and consolidate the health care services of the Veterans Health Administration when it is in the best interest of veterans. Without a doubt, the present series of VHA mergers and integrations raise issues and concerns that demand accurate answers.
    The American Legion does not oppose VHA's advocacy for streamlining its health care operations and becoming more responsive to veterans and to the American taxpayer. We do, however, have serious concerns about the rapidity with which the present merger and integration process is proceeding.
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    The burden of proof, Mr. Chairman, is on the VA to demonstrate the efficiency and potential enhancement of health care services to veterans through the merger/integration process.
    Some of the proposed mergers and integrations present less concern than others. There is no one model to be applied throughout VHA. Each proposed integration must be tailored to its own uniqueness.
    The American Legion believes that lean medical care budgets require VHA to move precipitously ahead of a preferred merger/integration schedule. And on that note, I would like to say that we heard this morning that VA has saved approximately $85 million through the integration process to date and, of that amount, it's a relatively small percentage of that amount that has been reinvested back into the system. The majority of those savings have simply evaporated due to inflationary and other monetary shortages.
    The merger/integration process, Mr. Chairman, assumes a spirit of cooperation among facilities that have never historically existed. The infrastructure of many medical centers does not support a rapid merger/integration time frame. In many instances, critical information management systems are incompatible, and videoconferencing and telemedicine capabilities do not meet necessary standards.
    Mr. Chairman, how can medical centers plan and achieve a successful integration when they only have a short period to accomplish the task? Many medical centers are struggling to complete a targeted integration by the end of fiscal year 1997.
    When VA's 20–30–10 plan has a 5-year target, why attempt to accomplish the majority of budget savings in the first fiscal year? No wonder there is so much doubt, frustration and confusion among VA employees, veterans, and other significant stakeholders.
    Mr. Chairman, the merger/integration process requires detailed planning. Managers should be able to articulate the process in a comprehensive manner to all affected stakeholders.
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    Today, the decision to merge facility programs and operations is made prior to the development of an integral blueprint on whether the goals of the integration are realistic.
    How this process will specifically improve conditions for veterans remains mostly unanswered. VHA says it will eliminate needless duplication in clinical services and management, improve the quality of care, reduce costs, and ensure that the VA health care system is overall more efficient.
    As veterans advocates, the American Legion thinks these goals are ambitious, ambiguous, and hasty. The American Legion recommends that VISN directors more closely involve the management assistant councils in the merger/integration process—also known as the ''MACc''.
    The Management Assistant Council representatives include veterans service organizations, the area congressional delegation, VA employee unions, and university affiliates. The representation of qualified stakeholder groups is critical to the success of planned VHA mergers and integrations.
    As long as VHA can demonstrate that the quality of care and access to care are improved as a result of a facility integration and not just focus on cost savings, the stakeholder groups will be better informed and more open to the process.
    I would like to lastly close and mention that we are pleased to see that Dr. Kizer is going to take action, as he states in his testimony today, on updating and reissuing specific five-phase guidance to the field. And I think that looking at his approach here in his testimony and what the other witnesses have said today, in particular GAO and the McManis group and the VA Employees Union, that there is a lot of good ideas in all of these statements that really need to be integrated into one comprehensive blueprint. Thank you.
    [The prepared statement of Mr. Vitikacs appears on p. 126.]
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    Mr. STEARNS. Thank you. Dr. Cohen, of the approximately 17 integrations that have progressed substantially or have been implemented so far, have academic affiliations in general suffered or benefited as a result thereof?
    Dr. COHEN. I don't know if I can give you a judgement about that, Mr. Chairman. I think there's been a lot of still-in-process activities, so some of the impacts are not really well known as yet. I think, in general, there is a lot of optimism among the academic affiliates that, with proper consultation, with proper involvement in the ongoing process, that there will be a net benefit. Certainly, there is enormous opportunity. I think everybody appreciates that in the midst of all this change and all this reformation, that there is not only a great deal of concern and anxiety, but the recognition that there is real opportunity for improving the quality of the services, the access to services, and the ability to continue to recognize the importance of the academic missions, the education and research missions in all this, really does open up some real opportunities.
    Just to give you one example, one of the real struggles that almost every medical school in the country is currently engaged in is finding enough ambulatory sites for its education. Most of the education has been riveted in major tertiary hospitals. And there's a recognition, has been for a long time, that a lot of medicine now is occurring in an ambulatory setting, and developing the proper kinds of educational programs in that new and much more complicated and fragmented environment is a real challenge.
    The VA's commitment to try to get into a more ambulatory mode and to involve its services in more accessible ways to its beneficiaries is an opportunity for the medical school affiliates to also involve those kinds of movements in an educational domain. So, that's one example.
    I think, as I say, there's a good deal of optimism, a lot of opportunity, and I think it's too early really to answer your question effectively.
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    Mr. STEARNS. Mr. Vitikacs, you mentioned the word ''hasty'' in your opening statement. Did the American Legion recommend in any instance that a specific proposed integration not go forward? If so, what were the circumstances?
    Mr. VITIKACS. To date, we have not made any specific recommendation on moving forward. We have urged caution. The decisions on the list for already approved VA facilities for integration does not include several that are currently in discussion stages, and that's the Brockton and West Rocksbury facilities and the Minneapolis and St. Paul facilities.
    We basically respond to our stakeholders, the veterans that we represent in these various departments and areas. They have concerns that these integrations are moving forward at too great a speed, and I am only echoing today what we are hearing from our constituents.
    Mr. STEARNS. Well, your constituents are my constituents, and so what you echo is something that I want to fully understand and help you because I think, obviously, the American Legion is very important to Members of Congress.
    That's all the questions I have. Mr. Everett.
    Mr. EVERETT. Thank you, Mr. Chairman.
    Mr. Vitikacs, in your testimony highlights the successful mergers and integrations should include detailed planning and careful implementation. I've seen some of that planning and implementation, and I am not satisfied with it.
    Would you characterize VA's integration efforts that way, that they've done detailed planning?
    Mr. VITIKACS. Just the opposite. I think that there are some integrations that have already occurred that have been done in a detailed way. There are some that I can't make the same claim.
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    I think the integrations that have already occurred—and let me give you some examples—San Antonio in Kerrville, Texas, and Temple, Waco, and Marlin, Texas occurred over a longer period of time. They had more detailed analysis completed before they went forward with the implementation phase. So, those, in our judgment, were based on a sound model. And from what I'm aware, thus far in the State of Alabama is that Phase I might be designed and implemented before they really understand what Phase II will be and how Phase I will affect Phase II or Phase II will affect Phase III. I think those are unsound practices. And from our point of view, we—we heard today that there are certain guiding principles for these mergers and integrations in a VHA document, but how well these principles are being applied and followed through varies from VISN-to-VISN, and I think that's the area that really needs to be focused on, is—I hate to use the word ''micromanagement''—but I think there needs to be an oversight mechanism to ensure that these integrations are being accomplished in a sound manner.
    Mr. EVERETT. I certainly can identify with those remarks. When I suggested that we slow down the process, the response was, you caused us to do that and you're going to cause us to lose money that could be directed toward veterans health care.
    If you've had that same response, how did you respond back to the VA?
    Mr. VITIKACS. I think that the services that the VA is able to provide to the veterans has to take paramount importance here. We see too many veterans falling out of the system when these mergers are progressing too rapidly. Through our National Field Service and our visits to hospitals in the field, in particular we see mental health services really dropping, the number of patient visits. A good majority of the substance programs and PTSD programs and mental health programs are being integrated, being eliminated, moved from one State to another within a VISN. I don't think that's in the best interest of veterans. And specifically your question about the rapidity with which they need to conserve resources, the VA is in a shortage situation as it is. Its budget isn't adequate as it is and, as I said, these $85 million of savings, only a small percentage of that has been reinvested back into the system. So, they are losing money anyway, but I think what we have to do is protect the level of services and programs that are available for veterans. That has to be a paramount concern.
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    Mr. EVERETT. I think you for your testimony. I think we all recognize that there's got to be some changes within the VA. I think it's prudent that we do that in a methodical planned way. Thank you, Mr. Chairman.
    Mr. STEARNS. I thank my co-chair for his participation, and I thank the panel. We've completed what I think is a very necessary and educational hearing this morning. I want to thank the staff on both sides of the aisle for their support and participation. The subcommittees are adjourned.
    [Whereupon, at 12:35 p.m., the subcommittees were adjourned.]