[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
MEDICARE VETERANS SUBVENTION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
JULY 1, 1999
__________
Serial 106-16
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
60-137 CC WASHINGTON : 1999
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia
SAM JOHNSON, Texas JIM McDERMOTT, Washington
DAVE CAMP, Michigan KAREN L. THURMAN, Florida
JIM RAMSTAD, Minnesota
PHILIP S. ENGLISH, Pennsylvania
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
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current publication process and should diminish as the process is
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C O N T E N T S
__________
Page
Advisory of June 24, 1999, announcing the hearing................ 2
WITNESSES
U.S. Department of Health & Human Resources, Robert A. Berenson,
M.D., Director, Center for Health Plans and Providers, Health
Care Financing Administration.................................. 9
U.S. Department of Veterans Affairs, Thomas L. Garthwaite, M.D.,
Acting Under Secretary for Health.............................. 13
U.S. General Accounting Office, William J. Scanlon, Ph.D.,
Director, Health Financing and Public Health Issues, Health,
Education, and Human Services Division; and Stephen P. Backhus,
Director, Veterans Affairs and Military Health Care Issues,
Health, Education, and Human Services Division................. 31
SUBMISSIONS FOR THE RECORD
Evans, Hon. Lane, a Representative in Congress from the State of
Illinois, statement............................................ 8
National Association for Uniformed Services, Springfield, VA,
Benjamin H. Butler, statement.................................. 48
Paralyzed Veterans of America, statement......................... 49
Retired Enlisted Association, Alexandria, VA, Mark H. Olanoff,
statement...................................................... 51
Retired Officers Association, Alexandria, VA, Robert F. Norton,
statement...................................................... 51
MEDICARE VETERANS SUBVENTION
----------
THURSDAY, JULY 1, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:47 a.m., in
room 1310, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
June 24, 1999
No. HL-7
Thomas Announces Hearing on Medicare
``Veterans Subvention''
Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on proposals to allow veterans hospitals and
medical clinics to receive reimbursement from Medicare for providing
care to Medidcare-eligible veterans. These demonstration proposals have
been referred to as ``veterans subvention.'' The hearing will take
place on Thursday, July 1, 1999, in room 1310 Longworth House Office
Building, beginning at 10:30 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be limited to invited witnesses only.
However, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
Current law generally prohibits other government agencies from
receiving reimbursements for providing Medicare-covered services to
Medicare-eligible beneficiaries. ``Subvention'' is the term given to
proposals which would permit the U.S. Department of Veterans Affairs
(VA) to receive reimbursement from the Medicare Trust Funds for care
provided to Medicare-eligible beneficiaries at VA medical facilities.
The VA serves millions of veterans each year in 172 VA hospitals
and 439 VA outpatient clinics. Many of these veterans are eligible for
Medicare, and the medical care provided by the VA to these Medicare-
eligible veterans is not reimbursed by Medicare. The goal of veterans
subvention is to implement an alternative for delivering accessible and
quality care to Medicare-eligible veterans, without increasing the cost
to VA or to Medicare. In principle, Medicare-eligible military retirees
who enrolled in the subvention program would get higher priority at
military facilities than before, permitting them to get Medicare-
covered care from VA, a new alternative to retirees' current Medicare
options. Subvention could allow VA to augment appropriated funds with
Medicare payments and to use excess capacity where it exists. Medicare
might gain because, under veterans subvention, Medicare would pay VA
less than the rate paid to private medicare providers and managed care
plans.
In 1998, the U.S. House Representatives passed H.R. 4567, which
included the Veterans Medicare Access Improvement Act of 1998. The
Committee on Ways and Means approved similar legislation (H.R. 3828) in
May 1998. Under those measures, veterans medical facilities would be
permitted to receive Medicare reimbursement for health care services
provided to Medicare-eligible veterans. The legislation also included a
number of safeguards to ensure the Medicare Trust Funds are unharmed. A
similar demonstration was established for Defense Departments
facilities as part of the Balanced Budget Act of 1997 (P.L. 105-33).
In announcing the hearing, Chairman Thomas stated: ``American
veterans, especially those who are poor and suffer from service-
connected disabilities, should have access to quality health care in
return for their service to our country. Last year, we passed
legislation making veterans subvention possible. This has long been a
high priority for America's vets. It should be a high priority for the
U.S. Congress this year as well''
FOCUS OF THE HEARING
The hearing will focus on various proposals to permit veterans'
medical facilities to receive Medicare reimbursement for providing care
to Medicare-eligible veterans. The Subcommittee will also consider
proposals put forward by the Administration and other Members of
Congress.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
single-spaced copies of their statement, along with an IBM compatible
3.5-inch diskette in WordPerfect 5.1 format, with their name, address
and hearing date noted on a label, by the close of business, Thursday,
July 15, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Health office, room 1136 Longworth House
Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
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Committee.
1. All statements and any accompanying exhibits for printing must
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The above restrictions and limitations apply only to material being
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Note: All Committee advisories and news releases are available on
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materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Thomas. The Subcommittee will come to order. It's,
I guess, appropriate on the eve of the Fourth of July weekend,
to have a hearing assessing the health concerns of America's
veterans. So last year, the Subcommittee designed and passed
legislation which would authorize veterans to receive the full
continuum of Medicare services from hospitals and facilities
operated by the Department of Veterans Affairs.
The key was, of course, creating greater coordination
between the Veterans Administration and Medicare under the
concept of subvention, here veterans subvention.
The Subcommittee's veterans subvention legislation was
passed by the House as part of H.R. 4567 on October 10, 1998.
However, since there was no corresponding action in the Senate
before the end of the 105th, we have got to start this process
all over again.
And since the House's passage of the veterans subvention
bill, there have been some new developments. First, the General
Accounting Office has published a study of a similar subvention
program tied to a Department of Defense health care system for
military retirees. And we'll hear from the GAO today about the
lessons that they have learned and we may need to apply to a VA
subvention.
They are not isomorphic, but they certainly have enough
similarities that would require us to look carefully at the DOD
subvention aspects reported by the GAO.
Second, Health Care Financing Administration and the
Department of Veterans Affairs have been working together and
have recently signed a memorandum of agreement, which specifies
the operating details of any possible veterans subvention pilot
program. However, in order for this demonstration to begin, it
requires congressional action.
So we are going to hear today both from Health Care
Financing Administration and the VA about how they envision
veterans subvention working.
Finally, Senate Finance Committee just, I believe last
week, certain recently, has taken up the issue of veterans
subvention, and we look forward to working with the Finance
Committee and Chairman Roth in moving legislation, since, as I
said, the House acted and the Senate didn't last year.
In the past, when the Subcommittee has designed veterans
subvention legislation, there have been several crucial issues
that we thought ensured the success of the program.
First, was the issue of the whether the appropriate method
of reimbursement is fee-for-service or some sort of capitated
arrangement, and the Senate has moved in a different direction
than we had in the past. And that certainly will be, and should
be a subject of discussion.
Second, there is an issue of whether veterans subvention is
best done at a limited number of sites or whether we have
enough data to justify thinking of triggering a national
program, at least for a particular profile of a veteran.
And third, the Subcommittee wants to know, how does
Congress ensure that the VA continues to maintain its current
level of effort for Medicare-eligible veterans, since every
veteran from World War II is now Medicare eligible?
In an age of flat appropriations, with no accusations being
made, we are very concerned about the limited funds of Medicare
being added the Veterans Administration activities, rather than
being substituted for.
And, finally, a real concern is who the veteran is, which
veterans ought to be allowed access to the program.
Historically, there has been a profile of veterans known as
category A, which were low-income or service-related disability
veterans. Category C would be other veterans.
The other concern that a number of us have is that, in
looking at where the veterans hospitals have been located
historically, where outpatient clinics have been built, and
where veterans reside, there is a real concern about distances
in terms of services that can be provided, and that the old,
traditional structure simply is not adequate to many of today's
veterans needs, especially Medicare-eligible veterans, given
their age, and that that certainly should be part of any
particular program.
And before I yield to the gentleman from California to make
whatever remarks he may make, I would just like to say that I
was saddened by the news story that I found in yesterday's
Washington Post on the Federal page in which Dr. Kizer has
decided not to run the gauntlet a second time in terms of the
abuse that he would be subjected to. And frankly, it is the
Veterans Administration's loss; it is the Clinton
administration's loss, and it is the country's loss that
someone who has been so innovative in solving veterans health
care problems would be subject to such abuse. And there is
clear evidence that he would have been, that his reconfirmation
would have been a painful process that he was not willing to
endure.
That is not in America's best interest, and in my opinion,
certainly not in veterans best interests. And I just wanted to
express my sympathy and concern that if good people like this
aren't able to stay in government, we have got problems.
[The opening statement follows:]
Opening Statement of Hon. Bill Thomas, a Representative in Congress
from the State of California
The issue of providing Medicare health benefits to
America's veterans is a fitting topic for a hearing on the eve
of the Fourth of July weekend. It is an issue that this
Subcommittee has dealt with extensively in the past several
years.
Last year, the Subcommittee designed and passed legislation
which would authorize veterans to receive the full-continuum of
Medicare services from hospitals and facilities operated by the
Department of Veterans Affairs. Creating greater coordination
between the VA and Medicare is known as ``veterans
subvention.''
The Subcommittee's veterans subvention legislation was
passed by the House, as part of H.R. 4567, on October 10, 1998.
However, since there was no corresponding action in the Senate
before the end of the 105th Congress, we must begin anew the
legislative process this year.
Since the House's passage of the veterans subvention bill,
there have been a number of developments:
First, the General Accounting Office (GAO) has published a
study of a similar subvention program being operated for
military retirees as part of the Defense Department's health
care system. We shall hear from GAO today about lessons from
that demonstration which may apply to VA subvention.
Second, the Health Care Financing Administration (HCFA) and
the Department of Veterans Affairs (VA) have been working
together and have recently signed a Memorandum of Agreement
which specifies the operating details of any possible veterans
subvention pilot program. However, in order for this
demonstration to begin, Congress must act. Today, we will hear
from representatives from both HCFA and the VA about how they
envision veterans subvention working.
Finally, the Senate Finance Committee has recently taken up
the issue and we look forward to working with Chairman Roth to
move legislation this year.
In the past, when the Subcommittee has designed veterans
subvention legislation, there have been several crucial issues
to ensuring the success of the program:
First, there is the issue of whether the appropriate method
of reimbursement is fee-for-service or some sort of capitated
arrangement.
Second, there is the issue of whether veterans subvention
is best done at a limited number of sites or whether we have
enough to data to justify thinking in terms of a national
program.
Third, the Subcommittee will want to know how does Congress
ensure that the VA continues to maintain its current level of
effort for Medicare-eligible veterans. In an age of flat
appropriations, the VA might be tempted to shift some costs of
care to the Medicare Trust Funds.
Finally--and this has always been my over-riding concern--
there is the issue of which veterans should be allowed access
to this new program. My own preference has always been to make
low-income veterans the beneficiaries of this new program.
These veterans used to be known as ``Category A'' veterans. In
past years, the Administration has wanted to offer veterans
subvention to Category C--all other veterans. I look forward to
exploring the rationale for the Administration's position.
Chairman Thomas. I yield to the gentleman from California.
Mr. Stark. Well, thank you, Mr. Chairman. I gather this is
largely a repeat of last year's effort, and I would just say as
I did last year, those of us veterans who support the effort
for veterans, think about Bataan, Iwo Jima, I think Dr.
McDermott was probably in both of those battles, but it is
interesting that the Majority, that the Republicans, are mixed
up as they usually are.
Here we are----
Chairman Thomas. Why is that?
Mr. Stark. Well, just because it is strange, here we are
supporting a system that is pure socialism, government
medicine, socialized medicine, for those of us who fought to
keep this country safe from communism. Now, we have free-market
choices for Medicaid beneficiaries and for the poor, we have
free-market choices for immigrants who never fought to protect
our country, and here we are subjecting our veterans to
socialism. I just don't understand it.
Now, I do think the VA and the Department of Defense
hospitals do a pretty good job, but--and I wish that America's
43 million uninsured could be subject to the same degree of
socialism that we subject our veterans to.
But, in a more serious vein, the subvention bill has raised
some questions the Chairman mentioned, quality, for these
veterans. The payments will be less than what we pay the
private sector Medicare HMOs. So maybe the quality can't be as
good.
Maybe we should just contract all this out, and maybe that
would save money. According to the Breaux-Thomas bill, we will
save a lot of money if we go into Medicare+Choice. Well, we
will save some money, Dr. Garthwaite, if we take all your
patients and put them in Medicare+Choice.
I am concerned that this be carefully addressed. Many of
the veterans have Medigap policies. And if they participate in
the demonstration and, for whatever reason, it doesn't work out
for them--transportation might be a great area. If you have got
to go to Livermore, then nobody lives within 100 miles of the
Livermore hospital. I used to live across the street from it,
and you could shoot cannons down the road and never hit a car.
And there is no bus service.
They may decide that is inconvenient and want to go back,
to say, some plan where Medigap--and they may have danger
getting their Medigap, or trouble getting their Medigap
policies back. And I think we should make sure that if they
enter into these demonstrations, and, for whatever reasons it
doesn't work out, they can be made whole with the benefits they
would have had under Medicare.
I look forward to exploring some of these issues and as we
hear about the success of socialized medicine in the United
States.
Mr. Chairman, thank you for holding the hearing.
[The opening statement follows:]
Opening Statement of Hon. Fortney Pete Stark, a Representative in
Congress from the State of California
Mr. Chairman:
I gather this is largely a repeat of last year's effort.
I just have to say, as I did last year, that I am glad that
the Majority recognizes that government involvement in health
care can be good. The VA system, of course, is pure socialism,
and it is interesting to see Members want to expand a socialist
health system, rather than have Veterans use the civilian
Medicare system.
I think the VA and DoD hospitals do a good job, and I just
wish that all of America's 43 million uninsured could be
subject to the same degree of socialism.
These various subvention bills do raise questions about how
we can guarantee quality care for these Veterans, in that the
payment will be less than what we are paying private sector
Medicare HMOs. I am also concerned that veterans who have
medigap policies not be disadvantaged by participating in this
temporary Demonstration project. There is the danger they may
give up their medigap policies, and then have trouble getting
them back at a decent price.
I look forward to exploring these kinds of issues in the
hearing and mark-up.
Chairman Thomas. I thank the gentleman, and I don't
normally respond to the Ranking Member's comments, but last
time I checked my history book, those veterans who fought at
Bataan and Iwo Jima were fighting fascists, and not communists.
But that is OK.
Mrs. Thurman. Mr. Chairman.
Chairman Thomas. That's about as accurate as the rest of
the statement. And we will leave it at that. [Laughter.]
Mrs. Thurman. Mr. Chairman.
Chairman Thomas. Not usually responding to my colleague.
Mrs. Thurman. Mr. Chairman.
Chairman Thomas. I will tell the gentlewoman that normally
the Chairman and the Ranking Member make opening statements,
and any other Member that wishes to make an opening statement
can do so in a written form, but as a new Member of the
Subcommittee, if the gentlewoman has some point to make.
Mrs. Thurman. Actually, it is not a point, but Lane Evans
had asked me if I could put a statement, a letter, that he
would like to have on the record.
Chairman Thomas. Oh, absolutely. Without objection, the
Ranking Member of the Veterans Committee's statement will be
placed in the record.
[The prepared statement follows:]
Statement of Hon. Lane Evans, a Representative in Congress from the
State of Illinois
Mr. Chairman, unfortunately, a very important meeting with
the Administration deters me from appearing before the
Subcommittee, but I want to thank you for holding this hearing
and allowing my statement to appear in the record. Veterans'
Medicare Subvention is an issue that the Committee on Veterans'
Affairs explored in the 103rd, 104th and 105th sessions of
Congress. We have learned much since we began to investigate
the implications of Medicare Subvention for veterans, VA, and
the Health Care Financing Administration. As the Democratic
Ranking Member of the Committee on Veterans Affairs, I want to
articulate the view of many on that Committee.
In the first session of the 105th Congress, many Members
joined me and Chairman Stump in supporting H.R. 1362. The bill
enjoyed unanimous, bipartisan support on the Committee on
Veterans' Affairs which reported the bill favorably to the
House by voice vote on May 21, 1997. As you are aware, the bill
was also referred to your Committee which has primary
jurisdiction, but no further action was taken during that
session of Congress and, unfortunately, the bill was never
considered by the House. When the Senate voted on passage of
the Balanced Budget Act of 1997, however, a provision similar
to H.R. 1362 was included, but later died in conference.
This year the Senate has also moved legislation which
contains a provision similar to one in the Chairman's H.R. 3828
which would authorize VA to serve as a provider to higher
income (Category C) veterans who enroll in Medicare+Choice
plans, but which also allows VA to establish a fee-for-service
option for Category C veterans. The Senate measure, which
passed as part of S. 4, does not include a program expansion
for Category A veterans. Early in this session, Mr. Pickering
and Mr. Moran, who serves on the Veterans' Affairs Committee,
introduced H.R. 1347 which is similar to the Senate measure.
Early in this session, Mr. Rangel, Mr. Dingell and I sent a
letter to Chairman Archer asking him to include Democrats in
developing any legislation to be considered by your Committee.
Our request was simple: if you choose to address Medicare
Subvention in the 106th Congress, please involve us in the
process. We further outlined some key components that would
better assure bipartisan support for such a proposal. Quoting
from the letter to Chairman Archer dated January 26, 1999:
``First, Medicare Subvention should offer VA health care to
Medicare-eligible veterans who have not previously had access
to the system-it should serve as a new option for veterans with
Medicare coverage. Second, we believe legislation should ensure
that Medicare is able to reduce its expenditures for care
received by Medicare-eligible veterans who are treated by VA.
The legislation should not present a significant risk to the
Medicare trust funds, nor should it compromise the funding
Congress provides VA to care for veterans with disabling
conditions related to military service and medically indigent
veterans. VA should certify that it is able to provide care to
Medicare-eligible veterans at a cost not exceeding its
reimbursement from Medicare. If these criteria were met,
Members would have strong incentives to enact VA-Medicare
subvention legislation. We would be pleased to work with you in
developing such legislation.''
Unfortunately, to date, I have not received a response to
that letter and I am not aware of any response made to the
other co-signers.
My point in outlining this history is to convey both the
long-standing interest of the Committee on Veterans Affairs in
this issue and to identify another option, which enjoys
widespread bipartisan support, for your Subcommittee's
consideration. With all due respect, I believe the Senate
passed version of VA Medicare Subvention is a much better bill
than the bill which the House passed as part of H.R. 4567, the
Medicare Home Health Act in the 105th Congress.
Make no mistake, VA desperately needs new sources of
revenue. If the President's Budget is enacted for FY 2000, VA
will enter its fourth consecutive year with no real growth. Our
Committee recommended a $1.7 billion addition to the VA Medical
budget; Democrats recommended an even larger increase of $2.3
billion. I hope that the Appropriators will enhance the funding
we anticipate for FY 2000, but I am seriously concerned about
this prospect if Congress does not break the caps imposed by
the Balanced Budget Act.
Concerned as I am about the prospects for an adequate
appropriation, I am sure many of this Subcommittee's members
share my concern that VA's costs are covered by fairly and
accurately billing the Health Care Financing Administration. As
the General Accounting Office will undoubtedly share with you
today, DOD's experience urges caution in implementing Medicare
Subvention. DOD has had more experience with administrating
contracts for managed care than VA and VA's problems with
billing and collecting from third party insurers are chronic
and severe. The Senate bill would give all of us better
assurance that Subvention was working for veterans, for VA, and
toward the sustenance of the Medicare trust funds. It is a much
more limited bill than H.R. 4567. It is a three-year
demonstration pilot limited to $50 million dollars and 10 VA
sites. The Congressional Budget Office (CBO) scored the bill at
$70 million over the life of the demonstration. If you recall,
CBO scored the provision in H.R. 4567 at $1.7 billion--a very
big difference.
Veterans prefer S.4. I have asked my staff to advise
veterans' service organizations that your Committee is re-
engaging Medicare Subvention. Some veterans' groups have
previously indicated that they have serious concerns that H.R.
4567 would have compelled high-priority veterans who have been
VA beneficiaries to enroll in Medicare and become its
beneficiaries and, therefore, subject to the same premiums and
copayments. Others share my concern that the Office of
Management and Budget may be all too anxious to offset
anticipated revenues from the VA appropriation. Many groups
also express concerns about offering managed care, but not fee-
for service care as an option. In testimony before the Senate
Finance Committee last month, Paralyzed Veterans of America
said,
Medicare-eligible veterans who are not currently receiving
services in the VA must be allowed the opportunity to over come
past VA disenfranchisement [by virtue of income] by
participating on an equal footing with current Medicare
beneficiaries, choosing either managed care or continued
participation in a fee-for-service arrangement.
I share PVA's view that fee-for-service will allow a fair
test. I also share the concern expressed by at least one expert
in the American Geriatric Society's Proceedings, that managed
care does not always allow chronically ill or disabled, elderly
people who rely on specialized care, the best option for their
health care.
I want to urge your Subcommittee to take these concerns
into consideration in identifying the appropriate legislative
vehicle for Medicare Subvention. I want to thank Ranking Member
Stark for keeping me and my staff apprised of the
Subcommittee's proceedings.
Mrs. Thurman. Thank you.
Chairman Thomas. And we have with us Dr. Berenson from the
Health Care Financing Administration. He is the Director for
the Center for Health Plans and Providers at HCFA, and Thomas
Garthwaite, who is the Deputy Under Secretary of Health for the
Department of Veterans Affairs.
Dr. Berenson, any written statement you have will be made a
part of the record, similarly with Dr. Garthwaite. And you may
address us in any form you see fit in the time you have
available.
STATEMENT OF ROBERT A. BERENSON, M.D., DIRECTOR, CENTER FOR
HEALTH PLANS & PROVIDERS, HEALTH CARE FINANCING ADMINISTRATION,
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
Dr. Berenson. Thank you, Mr. Chairman, Congressman Stark,
and other Members of the Subcommittee. I will just give a very
brief opening oral statement. I have provided a written
statement. Thank you for inviting us to discuss our Medicare
subvention for beneficiaries eligible for veterans benefits.
The Veterans Administration and HCFA signed a memorandum of
agreement in May which details how the project would work, and
we are eager to move forward as soon as legislation is enacted
authorizing us to do so.
Subvention has the potential to benefit all parties
involved, most importantly, the beneficiaries who are eligible
for both Medicare and military or veterans benefits. The
Clinton administration strongly supports these demonstrations,
and we are committed to meeting the challenges they present.
We are focusing on two imperatives: protecting
beneficiaries and protecting the Medicare Trust Funds. The VA
demonstration would be modeled on a DOD demonstration that has
been up and running since August 1998. It is important that
they both rely on a coordinated care model. Focusing on
coordinated care will promote higher quality care. It will
limit costs and the administrative burden. And it will provide
consistency between the two demonstrations, permitting us to
learn more about how these demonstrations benefit the
beneficiaries.
Demonstration sites will--must meet all conditions of
participation required of Medicare+Choice coordinated plans,
except for those such as fiscal soundness rules that are
clearly not applicable to the military or to the VA.
The GAO has identified important concerns about the DOD
demonstration, and its estimate of the level of effort that is
critical to protecting the trust funds and ensuring that
taxpayers don't pay twice for the same services.
We are working to address these concerns with the DOD, and
we are heeding the lesson learned in focusing more on data
systems and the level of effort estimate up front as we move
forward with the VA demonstration.
We are committed to learning as much as we can from these
projects. We have hired an outside contractor to assess the DOD
demonstration's impact on costs, access, and quality, as well
as any effects on providers and other Medicare beneficiaries in
the surrounding community. We will have a similar evaluation
conducted for the VA demonstration.
We look forward to working with this Subcommittee, the DOD,
and the VA as we continue. Together we can limit the risks and
ensure top-quality care. And in the end, we should all benefit.
Thank you very much.
[The prepared statement follows:]
Statement of Robert A. Berenson, M.D., Director, Center for Health
Plans & Providers, Health Care Financing Administration, U.S.
Department of Human Resources
Good morning, Chairman Thomas, Congressman Stark and
members of the Committee, thank you for inviting us to discuss
our demonstration for Medicare subvention involving our
nation's veterans. I would also like to thank the General
Accounting Office (GAO) for its valuable evaluation of the
Department of Defense (DoD) subvention demonstration project,
which provided information that is helping us to better plan
for the Veterans Affairs (VA) subvention demonstration.
In recent weeks we have been reminded once again of the
contributions America's veterans have made to our country. We
are committed to working with the VA to see if there is a way
to improve their access to care while protecting the Medicare
Trust Funds. The Clinton Administration strongly supports this
demonstration. I want to update you on the status of these
demonstrations and to explain the need to limit the Veterans
Affairs demonstration project to coordinated care.
The term ``subvention'' refers to Medicare paying for care
provided at military, veterans or other federal facilities to
Medicare beneficiaries. Medicare is precluded by statute from
doing this. The Balanced Budget Act of 1997 authorized a 3-
year, demonstration for military retirees and an implementation
plan for a similar veterans demonstration. Enrollment in the
DoD demonstration began in August 1998, and we signed a
Memorandum of Agreement with the Department of Veterans Affairs
on the VA demonstration in May 1999. These demonstrations
provide the opportunity to assess how a coordinated approach to
subvention might improve efficiency, access, and quality of
care for Medicare-eligible military retirees and veterans. In
implementing the DoD demonstration and drafting the memorandum
of agreement with the VA, we focused on two imperatives:
protecting beneficiaries and protecting the Medicare Trust
Funds.
DOD SUBVENTION DEMONSTRATION
The DoD demonstration has valuable lessons to offer for the
VA project. It creates a DoD-run HMO, TRICARE Senior Prime, in
six sites for military retirees and their dependents who are
eligible for Medicare. The TRICARE Senior Prime Option provides
a full range of Medicare benefits to enrollees. Covered
services include the standard Medicare benefits plus other
TRICARE benefits such as pharmaceutical coverage. Enrollees
agree to receive all covered services through TRICARE. DoD must
spend as much for the care of those in the demonstration areas
as it already spends on them, known as its ``level of effort.''
Prior to this, dually-eligible beneficiaries could only be
treated at DoD facilities on a ``space available'' basis. After
the DoD has met its level of effort, Medicare pays 95 percent
of the rate it pays for Medicare+Choice plan enrollees, minus
medical education, disproportionate share payments, and a
portion of hospital capital payment costs. Medicare payments
are capped at $50 million in the first year, $60 million in the
second year, and $65 million in the third year.
The GAO has raised two important concerns about the DoD
subvention demonstration:
DoD's estimates of its level of effort may be over
or underestimated; and
Data problems and payment issues could make the
demonstration difficult to manage at both the national and
local levels.
We are working with the DoD to address these concerns, and
hiring an outside contractor to help review DoD data and
methodology.
We have contracted with RAND, Inc., to evaluate the DoD
demonstration, including the:
impact on the costs to both the Medicare Trust
Funds and DoD;
whether there is improved access to care;
any change in quality of care provided to the
demonstration population; and
any impact on providers and other Medicare
beneficiaries in the surrounding community.
We expect the first interim report on this evaluation this
month, with a final report in December of 2001. The GAO will
also conduct an evaluation for the HHS Inspector General.
VA DEMONSTRATION
We are working toward implementation of a similar Veterans
Affairs subvention demonstration, in preparation for enactment
of legislation that would be required to authorize
implementation. As with the DoD project, Medicare will pay for
care in the VA health care system for Medicare beneficiaries
who are also eligible for VA health care benefits. We believe
this could provide more access to VA services for veterans,
savings to the Medicare Trust Funds, and administrative
efficiencies to both programs.
The memorandum of agreement between HCFA and the VA is
modeled on the DoD demonstration and, like the DoD
demonstration, relies upon a coordinated care model. Medicare
will reimburse the VA for health services provided by VA in a
coordinated care model to Medicare beneficiaries who are
Priority 7 veterans (generally those without a service-
connected disability who are above the VA income threshold).
Beneficiaries who enroll in the demonstration will be able to
use their Medicare benefits to obtain Medicare coordinated care
services at VA facilities and other sites under contract to the
VA. The VA organization will provide the complete range of
Medicare benefits, and adhere to the conditions of
participation and quality standards required of Medicare+Choice
plans. As with the DoD, the VA will receive Medicare payments
only after it surpasses its current level of effort for dual-
eligible beneficiaries in demonstration site facilities. After
the VA meets its level of effort, Medicare will reimburse the
VA at the rate of 95 percent of county-based Medicare+Choice
capitation rates, excluding medical education, disproportionate
share payment, and a portion of hospital capital payment costs.
As we are able, we will risk adjust payments to take into
account enrollee health status.
We have taken care in designing this demonstration to
protect the Medicare Trust Funds. If Medicare costs are more
than they would have been without the demonstration, Medicare
and the VA have agreed to take any necessary corrective action.
For example, the VA may refund Medicare payments, we may
suspend or terminate the demonstration, or we may adjust
payments. To further insulate Medicare from financial risk, a
``cap'' of $50 million a year will be placed on the total
Medicare reimbursement to VA. Furthermore, the VA has agreed to
open its facilities to audits by HCFA and the HHS Inspector
General.
We have addressed issues the GAO identified in its
evaluation of the DoD demonstration in our planning of the VA
demonstration. For example, as with the DoD subvention
demonstration we plan to base the level of effort calculation
on actual expenditures the VA made during a specified base
period. We are working with the VA to make sure we have the
information we need to make accurate and reliable payments
based upon a valid baseline.
Thus, we strongly believe that we have taken all possible
steps to protect beneficiaries, the Trust Funds, and the VA
from any potential adverse outcomes. And, as with the DoD
demonstration, we will solicit a rigorous evaluation by an
independent evaluator. Over the 3 years of the demonstration,
the independent evaluator will monitor performance and collect
data on:
impact on the costs to either the Medicare Trust
Funds or VA;
whether there is improved access to health care;
any change in quality of care provided to the
demonstration population; and
any effect on local health care providers and
other Medicare beneficiaries in the surrounding community.
Focusing on Coordinated Care
The DoD demonstration is limited to coordinated care by
statute and, for good reasons, we have limited the proposed VA
demonstration to coordinated care. This will:
promote higher quality through better coordinated
care;
protect the Medicare Trust Funds;
limit the administrative burden; and
provide consistency between the two
demonstrations.
Under a coordinated care model, enrollees would obtain all
services from or through the VA. This will ensure that all
needed care is received from the appropriate providers who have
access to patient records and other needed patient information.
We believe it will help ensure that beneficiaries receive high
quality, coordinated care. It will help the VA better
anticipate costs and payment amounts, resulting in better
planning and improved access to care. It also means the
demonstration will more likely remain within the spending caps
established in the memorandum of agreement, thereby minimizing
the likelihood that participation will be curtailed later in
the demonstration. And a coordinated care model also will
better protect the Medicare Trust Funds by removing many of the
unknowns and risks inherent in a fee-for-service model.
Focusing on one model will also minimize the administrative
burden. Our memorandum of agreement with the VA is similar to
the one with the DoD and, our role is similar in both.
Therefore, we can leverage the staff, resources, and lessons
learned between the two projects. But that can only be achieved
with some level of consistency between the two programs.
I would like to alert the Committee that it does take a
long time to implement a demonstration of this complexity. With
the DoD demonstration receiving high-priority implementation
treatment from both HCFA and DoD, it took between 13 and 17
months to deliver services in sites after passage of
authorizing legislation.
Conclusion
Subvention has the potential to benefit all parties
involved--the VA, Medicare and, most importantly, beneficiaries
eligible for both Medicare and veterans' health care benefits.
They should enjoy enhanced choice and improved service, which
is the true ``bottom line'' in this effort. The President
strongly supports this demonstration, and we are committed to
meeting the challenges it presents and learning as much as we
can about what would be necessary to expand such a program. We
look forward to working with this Committee and the VA as we
continue to seek to improve health care services available to
our nation's Medicare-eligible veterans. It is critical that we
limit the risk to VA and the Trust Funds, and ensure top
quality care to veterans. In this regard, we recommend limiting
the demonstration to coordinated care only, and stress the
importance of allowing for about a 1-year implementation
period.
Chairman Thomas. Thank you very much, Dr. Berenson.
Dr. Garthwaite.
STATEMENT OF THOMAS L. GARTHWAITE, M.D., ACTING UNDER SECRETARY
FOR HEALTH, U.S. DEPARTMENT OF VETERANS AFFAIRS
Dr. Garthwaite. Thank you, Mr. Chairman, Members of the
Subcommittee. I want to thank you for the opportunity to
testify on behalf of the Medicare subvention pilot at the
Department of Veterans Affairs.
VA has sought this authorization for a number of years,
because we believe this would be beneficial to both the
veterans who would like to use their Medicare benefits through
the VA health care system and the Medicare Trust Funds
themselves. We greatly appreciate your leadership on this issue
in the 105th Congress.
Medicare subvention is an issue of equity for Medicare-
eligible veterans. In VA's view, veterans should have the
opportunity to use their Medicare benefits at VA health care
facilities if they choose. Moreover, VA believes allowing
veterans to have this option represents significant potential
savings since VA has agreed to provide Medicare coverage
services at a discount.
So that the subvention pilot can be implemented
expeditiously, we have worked with the Department of Health and
Human Services and successfully designed a memorandum of
agreement that establishes a foundation for a VA Medicare pilot
that will serve as the framework of an implementation plan as
we move forward in this effort.
This agreement addresses concerns that have been expressed
in the past about the financial risk of increased cost in
Medicare Trust Funds and VA's capabilities to successfully meet
Medicare requirements and operate as a Medicare provider.
As you are aware, VA has undergone a significant
transformation in our health care structure and our service
delivery in these past few years. The infrastructure and
processes now in place to enable VA to successfully meet--now
enable VA to successfully meet all Medicare requirements.
While training and education will still be required, we
have made enough changes to have the faith that our health care
managers have demonstrated that they can meet the challenges of
the Medicare subvention legislation.
On the administrative side, VA has experience in billing
third-party insurance companies under the medical care cost
recovery program. We do understand that we have some
shortcomings in our documentation and coding, and have
aggressively taken steps to address these concerns.
Necessary changes will be implemented by September 1999,
when we also implement a reasonable-charge billing structure
similar to private-sector providers.
On the clinical side, VA already offers a full range of
services that must be offered under any Medicare Program.
Services are available either directly at VA facilities or
through contractual arrangements, since VA's contracting
authority permits us to provide any services that are required
and not readily accessible.
We have universal primary care, and we practice coordinated
care across the entire continuum of services. I believe that it
is this coordination of care in which we manage the care
itself, not just manage costs, that is critical in our
evolution of health care and is critical in making the managed-
care model that has been proposed successful.
Managed care has not done enough to make the care more
coordinated and more convenient and more coherent, which is
critically important to actually improving health care
outcomes. If we focus on managing care to produce higher
quality, then costs will decrease, for higher-quality care
actually costs less.
The Medicare pilot, which VA and HCFA are proposing, would
be for dual-eligible veterans who are classified as Priority 7;
that is those veterans with higher incomes who have no service-
connected disability or service-connected disability that does
not entitle the veteran to compensation.
Our MOA, memorandum of agreement, includes only a
Medicare+Choice pilot. This is the direction that the VA health
care has gone and has been heading in the last 3 years, and one
which offers the best opportunity to provide comprehensive,
coordinated care for our enrollees. This is also the mode of
health care delivery which Medicare beneficiaries have
increasingly been choosing.
The current MOA does not include a fee-for-service option.
VA's concerns are that adding a fee-for-service demonstration
would limit VA's ability to coordinate all care that veterans
receive and that a fee-for-service demonstration entails
additional data requirements. Implementing both fee-for-service
and coordinated-care demonstrations simultaneously would
introduce greater administrative complexities and resource
requirements.
Nevertheless, as VA has attested to previously before
Congress, including a fee-for-service option is not a deal
breaker for us, it might be tougher, but we would rather get
moving on this because we believe in it strongly.
In conclusion, I am confident both the VA and Medicare will
gain from this pilot experience. I want to assure the
Subcommittee of the importance that VA places on this Medicare
subvention initiative. VA will devote its energy and its
resources to ensuring that the pilot is successful, both for VA
and for Medicare, and that every veteran who comes to the VA
will receive high-quality care.
Again, thank you for the opportunity to appear here today.
I will be pleased to answer any questions you or the
Subcommittee might have.
[The prepared statement follows:]
Statement of Thomas L. Garthwaite, M.D., Acting Under Secretary for
Health, U.S. Department of Veterans Affairs
Mr. Chairman and members of the Committee, thank you for
the opportunity to testify on behalf of a Medicare Subvention
pilot for the Department of Veterans Affairs. VA has sought
authorization for Medicare reimbursement for a number of years
because we believe this would be beneficial to both the
veterans who would like to use their Medicare benefits through
the VA healthcare plan and, importantly, to Medicare and the
Medicare Trust Funds.
Medicare Subvention is an issue of equity for those
Medicare-eligible veterans who can use their Medicare benefits
at Medicare-certified health care providers in the community,
except at VA healthcare facilities. In VA's view, this
represents significant potential savings since VA has agreed to
provide Medicare-covered services at a discount, and we welcome
the opportunity to test if the savings can be realized.
VA and the Department of Health and Human Services
successfully designed a Memorandum of Agreement (MOA) that
establishes the foundation for a VA Medicare Subvention pilot
and will serve as the framework of an implementation plan as we
move forward in this effort. This agreement addresses concerns
that have been expressed in the past about the financial risk
of increased cost to the Medicare Trust Funds and VA's
capability to successfully meet Medicare requirements and
operate as a Medicare provider. When I discuss the MOA in more
detail, I will cover the safeguards that have been included to
protect the Trust Funds.
First, however, I would like to address concerns about VA's
ability to be a Medicare provider, by describing the
fundamental transformation that the VA healthcare system has
undergone in the last four years. I know that some of you are
already aware of this transformation. However, for those who
may not be as familiar with the VA healthcare system, I hope
this gives you a new perspective on VA.
In 1994, VA was a hospital centered healthcare system that
had not kept pace with the changes in healthcare that were
occurring in all of American healthcare. VA recognized that it
had become an outdated, unresponsive, and inefficient
healthcare system that could better serve its patients. To
address these issues, the veterans healthcare system initiated
a systemic and systematic effort to fundamentally re-invent
itself. In the process, the Veterans Health Administration
(VHA) has become the largest fully integrated healthcare system
in the nation, delivering a full continuum of services. The
effort has involved reengineering VHA's operational structure,
streamlining its processes, implementing ``best practices,''
improving information management, reforming eligibility rules,
expanding contracting authority, and changing the culture of VA
healthcare. I can tell you today, without reservation, that no
other healthcare system in the U.S. can match either the extent
or rapidity of change that has occurred in the veterans
healthcare system since our reinvention effort was launched in
late 1995.
To illustrate the nature of VHA's transformation, let me
cite a number of facts and figures that attest to the nature of
the improvement that has occurred:
VA's now approximately 1,100 sites of care
delivery have been organized into 22 Veterans Integrated
Service Networks (VISNs) and these networks are now the
system's basic operating unit.
Beginning with about 10 percent of VA patients
enrolled in primary care in 1994, universal primary care has
been implemented, as well as universal telephone triage of
``call centers.'' In a recent survey, almost 90 percent of
patients could identify their primary caregiver.
Since September 1994, 54 percent (28,195) of all
acute care hospital beds have been closed.
Compared to FY 1994, annual inpatient admissions
in FY 1998 decreased 32 percent (288,398 fewer admissions),
while ambulatory care visits increased by 35 percent (10.3
million increase for a total of 35.8 million outpatient visits
in FY 1998).
From October 1994 through September 1998, bed days
of care per 1,000 patients decreased 62 percent--from 3,530 to
1,333.
Cumulative levels of staffing have decreased 12
percent (25,073) since 1994, even though we provided hands-on
care to 520,000 (22 percent) more patients in 1998 than in
1994.
Ambulatory surgeries have increased from 35
percent of all surgeries performed in FY 1995 to about 75
percent of all surgeries now. Associated with this has been
increased surgical productivity and reduced mortality.
A new capitation-based resource allocation
methodology (the ``Veterans Equitable Resource Allocation''
system) has been implemented and validated. This has brought
much needed financial discipline to the system.
Customer service standards have been implemented,
customer satisfaction surveys are being routinely performed,
and management is being held accountable for improving service
satisfaction. Statistically significant improvements have been
documented. In FY 1998, 65 percent of all patients, including
psychiatric patients, reported the quality of their care as
very good or excellent.
A pharmacy benefits management program implemented
in FY 1995, which includes a national formulary, has produced
an estimated $347 million in annual savings simply on the
purchase of pharmaceuticals.
Other elements of a Commercial Practices
Initiative are yielding tens of millions of dollars of savings
in the acquisition of medical and surgical supplies,
prosthetics, equipment and maintenance, renal dialysis, and
support services. (Indeed, a number of GAO reports have
documented VA's marked savings in this regard compared to
Medicare.)
Over 270 new community-based outpatient clinics
(CBOCs) have been sited, or are in the process of being sited,
from savings achieved in other areas. Many of these are by
contract with private providers.
Major initiatives have been launched to increase
care management, end of life care, pain management, use of
clinical guidelines, and home care.
A multi-dimensional, process-and outcome-focused
quality of care accountability framework has been implemented
to ensure the consistency and predictability of high quality
healthcare being delivered everywhere in the VA system, and VHA
has been designated as a national laboratory for healthcare
quality management by the National Partnership for Reinventing
Government.
Universal pre-admission screening and admission
and discharge planning have been implemented, along with many
other ``infrastructure'' and processes changes, such as a
universal semi-smart identification and access card.
Significant improvements in the quality of care
have been demonstrated, and in a number of areas, VA's
performance is significantly better than that of the private
sector.
I am proud of these accomplishments and anticipate that VA
will continue to make significant gains as its transformation
matures. I believe these changes demonstrate that the
infrastructure and processes are in place to enable VA to
successfully meet all Medicare requirements. Training and
education will be required at our pilot sites so that our
healthcare providers and administrators become fully
knowledgeable about specific Medicare requirements. However,
the success that VA healthcare managers have demonstrated in
meeting the challenges of the past four years shows that they
are up to the Medicare challenge. Implementation of the
demonstration will require us to address a number of important
administrative issues. HCFA's knowledge and experience in this
area will be helpful in addressing the issues and setting an
implementation timeline.
VA already offers the full range of services that must be
offered under any Medicare program. The services are available
either directly at VA facilities or through contractual
arrangements. VA's contracting authority permits us to provide
any services that are required and not readily accessible. VA
has experience in billing third-party insurance companies.
Through internal reviews we have become aware of some
shortcomings in our documentation and coding, and we have taken
aggressive steps to address these concerns. Necessary changes
will be implemented by September 1999, when we also implement a
``reasonable charge'' billing structure similar to private
sector providers. We are able to generate the Medicare required
UB92's and HCFA 1500's, and implementation of our Decision
Support System in all our facilities gives us an enhanced
capability to track costs.
On the clinical side, we have universal primary care, and
we practice coordinated care across the entire continuum of
healthcare services. I believe that in the coordination of
care, we must manage care, not costs. It is becoming
increasingly clear that the greatest failure of managed care
has been that it has focused on managing cost, without actually
improving care. Too often, managed care companies have
addressed only the symptoms of the ills that afflict private
healthcare; they have not addressed the basic pathology of
fragmented, provider-focused and user-unfriendly services, and
redundant and excess capacity. So far, managed care has not
done enough to make care more coordinated, more convenient and
more coherent (i.e., to manage care so that is actually
improves outcomes). If we focus on managing care to produce
higher quality, then costs will decrease, for I believe that
higher quality care actually costs less.
The importance of coordinating a patient's entire care is
one reason that I advocate a Medicare+Choice model for the VA
Medicare Subvention pilot. Through this model we can be sure
that we have a well-managed, well-coordinated approach to our
veterans' healthcare needs. VA's current use of coordinated
care puts us in an excellent position to successfully operate a
Medicare+Choice plan. In addition, VA's high proportion of
elderly mirrors the population that would enroll in a VA
Medicare+Choice plan.
The Medicare Subvention pilot which VA and HCFA are
proposing would be for dual-eligible veterans who are
classified as Priority 7--that is, those veterans with higher
incomes who have no service-connected disability or a service-
connected disability that does not entitle the veteran to
compensation. If VA is unable to treat all eligible veterans
because of resource constraints, Priority 7 veterans would be
the first to be cut off from care. Although we have been able
to offer healthcare services to this group of veterans in FY99,
this is subject to an annual determination. The authorization
for these veterans to bring their Medicare benefits to VA would
assure them access on a continuing basis and improve equity of
access during the duration of the demonstration. In many cases,
Medicare subvention would allow VA to treat veterans who
otherwise would be getting either fragmented care or no
healthcare at all.
Historically, the Priority 7 veterans have made up a
relatively small proportion of those who use the veterans
healthcare system--about 3 or 4 percent. Although the numbers
have increased in recent years and continue to increase under
our current enrollment process, the proportion of users is
still slightly below 10 percent. Costs associated with the care
of this group of veterans have been less than that of the
higher priority groups since they tend to use fewer and less
costly services. Nevertheless, both VA and HCFA realize that
appropriated dollars have been spent to provide care for this
population. For this reason, the Memorandum of Agreement
contains a provision to establish a Level of Effort (LOE) which
represents what VA has spent in the past to deliver Medicare-
covered services to these veterans. Payment from the Medicare
Trust Funds will be made only after the LOE is reached.
Although it is difficult to make precise LOE calculations, the
estimates will be based on the cost data that are available.
Because of the relatively small numbers of Priority 7 users, VA
does not anticipate that the LOE will represent a substantial
amount at any one pilot site.
Our MOA includes only a Medicare+Choice pilot. This is the
direction that the VA healthcare plan has been heading over the
past three years and one which offers the best opportunity to
provide comprehensive, coordinated care for our enrollees. This
is also the mode of healthcare delivery which Medicare
beneficiaries have increasingly chosen. The adoption of this
approach does not preclude establishing a pilot in a rural
area. I believe a rural site should be given consideration as
it could provide some valuable insights for both VA and HCFA.
Adding a fee-for-service demonstration would limit VA's ability
to coordinate all care that veterans receive. A fee-for-service
demonstration entails additional data requirements.
Implementing both a fee-for-service and coordinated care
demonstration would introduce greater administrative
complexities and resource requirements.
Several things should be said about the various concerns
that have been raised in regard to risk to the Medicare Trust
Funds as a result of the pilot. First, this is a limited pilot.
The MOA is proposing that the demonstration be limited to eight
sites or two Veterans Integrated Service Networks (VISNs). In
addition, the cap on the reimbursement from the Trust Funds is
$50 million annually. This does not mean that the risk to the
Trust Funds is $50 million, as this represents compensation for
services that VA is providing and that Medicare would have to
reimburse any other Medicare provider to provide healthcare
services to these same veterans.
Moreover, there are provisions in the MOA that provide
additional protections to the Trust Funds. In addition to the
``cap'' on Medicare payments, there is the level of effort
calculation, an annual reconciliation with the LOE, an end of
year reconciliation to assure accurate payments and data
calculations, and a mechanism to make adjustments or even end
the pilot if ongoing analyses and evaluations identify
unacceptable costs to either VA or to the Trust Funds. Beyond
these safeguards, the payment, which VA has agreed to accept,
represents a discount to the Trust Funds compared to private
sector rates. The rate is based on 95 percent of Medicare
normal payments to the private sector, along with exclusion of
DME, IME, DSH, and two-thirds of capital. Compared to the
annual national Medicare Trust Funds expenditures, I believe
the VA Medicare Subvention proposal does not represent a threat
to the Trust Funds, but offers an opportunity to realize
savings. I am confident that both VA and Medicare will gain
from this pilot experience. Our MOA includes requirements for
several studies by the GAO and independent evaluators to
measure the actual impact to the Trust Funds.
In conclusion, I want to assure the Committee of the
importance that the Secretary and I place on this Medicare
Subvention initiative. VA will devote its energy and resources
to ensuring that the pilot is a success--for both VA and
Medicare--and that every veteran who comes to VA will receive
quality healthcare. I am confident that both VA and HCFA have
the desire, resourcefulness and expertise to work together as
partners to achieve the objectives that are embodied in the
Memorandum of Agreement and in the VA Medicare Subvention
pilot.
Chairman Thomas. Thank you, Doctor.
Dr. Garthwaite, what is the mission of the Veterans
Administration?
Dr. Garthwaite. We have four statutory missions, to provide
high-quality health care to veterans, to produce research, and
education, and to back up the Department of Defense in the
national disaster medical system.
Chairman Thomas. That's a statutory answer, but if you were
to go out and tell someone why we still have a Veterans
Administration, what is that the Veterans Administration is
supposed to do that would justify a separate, Cabinet-level
department status?
Dr. Garthwaite. I think that gets to the issue raised by
Mr. Stark as well.
Chairman Thomas. Oh. Does it? Appreciate the observation.
Dr. Garthwaite. I believe that there is a unique VA system
for several very important reasons. One is that veterans have a
higher proportion of certain diseases that are not well covered
in the private sector.
Chairman Thomas. Now how would that be addressed by your
argument that this proposal was going to go to Priority 7, who
are higher income, nonservice-disability veterans?
Probably not meet that test, don't you agree?
Next reason you would tell someone why there is a separate
Cabinet-level department for veterans would be what? And if you
catch my drift, you are going to have trouble finding a second
one that justifies high-income, nonservice disability, as your
reason for continued existence as a separate department at the
Cabinet level.
So why should you be separate? Running a separate health
care system for people who otherwise will be getting health
care, and are in fact doing both HMOs outside and, where
convenient, using the VA, and they have no service-based
disability at all.
What is the justification for your continued separate
existence or entering into an arrangement which draws those
people who would otherwise be mainstreamed by choice into
sustaining your system, which in terms of the core reason for
its existence ought to be to help those people, in my opinion,
to help those people who went in harm's way, sometimes not by
their own choice, who have no wherewithal to get health care
elsewhere because this society promised them we would take care
of them and/or their disability is clearly service related?
Yet virtually the entire thrust of your testimony,
including the gratuitous fee-for-service option that you just
said you would have no problem with, means what you are trying
to do is run a parallel health care system with no rationale.
And now I agree completely with my colleague from
California. There is no reason for us to run, finance, or
maintain a socialist system for higher income, nonservice-
disability folk who just happen to have been veterans.
Dr. Garthwaite. If I could make a point about that, I
believe we maintain the system for the people you describe, for
those that are lower income and for those that have
disabilities related to the service of their country. As we do
that, we are required to maintain a level of services through
both cost and doing enough services to maintain quality. It is
easier to run that system and maintain the services that aren't
provided in the private sector if we have enough patients going
through the system to maintain its vigor.
Chairman Thomas. All you got to do is just open your door
and let anybody use the hospitals that chooses to use them so
that you could compete with all the other hospitals. Then you
could get--if you have quality, people will come to your door.
But I have a really difficult time understanding how you
are going to meet the mission of low-income, service-disabled
veterans with a fee-for-service program. I mean, that group is
the antithesis of folk who would be able to make use of a fee-
for-service program.
Dr. Berenson, where is HCFA? The last time I think we
talked, you folks were not real wild about a fee-for-service
aspect for this, that we were looking at a coordinated care
structure.
Dr. Berenson. Well, we feel very strongly that it would be
a mistake to proceed on a fee-for-service demonstration, that
would be administratively very difficult. But more importantly,
the emphasis of Dr. Kizer and what's happened in the last few
years with the VA has been to promote coordinated care. It is
consistent with the Medicare+Choice Program.
And so we would feel very strongly that it is important
that we demonstrate a Medicare+Choice-type approach and not a
fee-for-service one.
Chairman Thomas. Thank you. And I know you referenced it in
your testimony, Dr. Garthwaite, that the VA has some
shortcomings in its billing and accountability. And obviously
we are going to have the GAO up in a minute, and I think that
is probably, that is kindest way to put as I can think. There
are some shortcomings.
The real problem that a number of us have is your ability--
not that you wouldn't do it--but your ability to demonstrate
that you would not take precious Medicare money and support
higher income, nonservice-disabled veterans and reduce quality
care elsewhere just to maintain what I clearly hear from you is
an outreach program to try to keep people tied to the VA so
that that Cabinet-level department can have a reason for being
in existence.
One of the concerns a number of us have is that the VA is
headed in the direction of the Department of Agriculture, where
every bureaucrat there has a farmer and one dies they cry
because that means you may have to reduce the department. It
doesn't make any sense for you folks to argue, in my opinion, a
fee-for-service without the ability to show where every dollar
that you currently spend is spent for Medicare-eligible
veterans and how any dollar that we or HCFA transfers to you,
would not displace one of those dollars.
Now, how do you mean to respond to the GAO's criticisms,
because, frankly, I believe unless you believe otherwise that
the DOD criticisms are at least equally valid as applied to the
VA. Or do you believe that you have a better accounting system
than the DOD?
Dr. Garthwaite. By the end of this fiscal year, we will
have fully introduced a decision-support system by TSI and in
every one of our medical centers, which gives us a
significantly better handle where each dollar is spent and on
which patients and for which services.
We have been implementing this over the course of several
years. Several of our networks are already up. And each of our
facilities is entering data at the current time.
I believe that we will be in a good position to begin to
meet those needs. Data are always an issue for us, but I think
we get better every day. And I think the DSS will help us do
that. It has been a significant part of our negotiations, how
to do the documentation of that data as well.
Chairman Thomas. I will tell the gentleman, using the
analogies, by the time this is off the ground, that is one of
the reasons folks are required to do preflight checks, so that
you don't see if you have oil pressure when you are off the
ground. I will tell you that, clearly, one of the preflight
checks will be whether or not you can have a clear ability to
determine where costs are, costs centers and dollars allocated,
before you start rolling down the runway.
And it will not be a congressional decision. It will be
accounting experts telling us that you in fact are able to do
that which you cannot do now. We will not, if I have anything
to do about it, go forward with the program that you hope you
will have in place at the time it starts, the kinds of checks
and balances that the GAO report says that you ought to have.
The gentleman from California.
Mr. Stark. Mr. Chairman, before I inquire of the witnesses,
could I inquire of the Chair to see if our understanding is the
same?
Chairman Thomas. If I can respond.
Mr. Stark. My understanding is that this bill, that I guess
we are going to consider for a demonstration, has a $480
million cost, for about 480 over 5 years and about $1.8 billion
over 10 years, in that neighborhood. Are we on the same page?
Chairman Thomas. No.
Mr. Stark. OK.
Chairman Thomas. And this was last year's bill. We don't
have that yet.
I believe the Senate's was about $200 million. I believe
ours was around $300 million.
Mr. Stark. Million over 5 years?
Chairman Thomas. Yes.
Mr. Stark. OK. And we don't have a pay-for as yet, is that
right?
Chairman Thomas. There is no bill. We had a pay-for in the
last Congress, and, as the gentleman well knows, we will have a
pay-for in this Congress. That is one of those preflight checks
that are required.
Mr. Stark. That leads me to my questions. I have a VA study
that suggests that approximately--this is 1996 data, but I
presume it hasn't changed a whole lot--in 1968 we had about
60,000 VA patients over 65 who were also enrolled in Medicare
HMOs. OK. They are going to the Veterans Administration for
treatment but they are also at the same time enrolled in
Medicare HMOs, which are paying the capitated rate for care.
The VA says that the services that the VA provided to these
veterans cost--and should have been covered by the HMOs--cost
the VA $146 million. I don't know whether the Chair is
following me or if witnesses are following me, but we are, the
government is already paying because these veterans are
Medicare beneficiaries, we are paying for their HMO premium.
And yet they are coming back to the VA for treatment, which the
HMO should give them. And somewhere--and these are VA's
figures--about $146 million is falling through the cracks.
My question to the witnesses is, Dr. Garthwaite, is this a
close approximation? And if it is, why aren't we collecting or
billing the managed-care companies for this money?
Dr. Garthwaite. I am clearly aware of the study-analysis
that you indicated. Yes, I think that with some nuances and
discussions we are having with HCFA about the implications of
this and what further things we can do about it, I would say it
is probably pretty accurate. Currently, we rely on the veterans
to tell us if they have additional insurance. So some do; some
don't.
Where we have worked out arrangements with HMOs in one or
two places now in the country, we have been able to bill them
successfully. But mostly we haven't without a prepaid agreement
or arrangement with HMOs. We bill all other insurers for
services rendered under our medical care cost recovery for
nonservice-connected conditions. I think it is a major issue
that we have coordination of Federal benefits.
Mr. Stark. If we required that that be done, that would
take care of paying for this, for a good part of this bill,
would it not?
Dr. Berenson, does HCFA have a problem with this?
Dr. Berenson. Yes. Our staff is actually working with
Elliot Fisher and his colleagues, the group who wrote the
study, where we provided some comments back, where we think
there may be some methodologic problems, but we are not
disagreeing with the thrust of the study. Dr. Kizer and I had
initiated some discussions to try to sort of figure out what is
going on here, but I think it is a legitimate area that we have
to pursue.
Mr. Stark. And there is no procedural reason that we--do
you need legislation to do this or this--I think we may hear
from GAO later that we don't.
Dr. Berenson. No. I don't believe so.
Mr. Stark. You need encouragement. [Laughter.]
Dr. Berenson. Let me just note that there is a general
issue that we are trying to understand now with regard to the
Medicare+Choice Program. Recently, the Inspector General issued
a report that showed that a number of beneficiaries, when they
moved back from Medicare+Choice to fee-for-service have very
high rates of hospitalization. In this situation, when they
have concurrent, dual eligibility, they may be electively going
to the VA hospital on their own for surgery or maybe something
else is going on related to the incentives at the managed-care
plan.
We are engaging in a survey on the first issue to try to
figure out why beneficiaries are dropping out of plans and
getting hospitalized in fee-for-service, and we really do need
to understand whether the beneficiaries are exerting their
choice to do this or whether something else is going on that is
more of concern to us.
Mr. Stark. I have a second pay-for, Mr. Chairman, if this
one doesn't work. And that is, I assume, Dr. Garthwaite, that
you are no longer treating any veterans from the early American
Indian wars.
Dr. Garthwaite. I believe that is true.
Mr. Stark. Because, even though they may have lost those
battles, they found a way to provide pharmaceutical
prescriptions to about, I don't know, 250 million prescriptions
a year, and they are able to sell these drugs at the same rate
you're able to buy them. The Indians are entitled to purchase,
under the Federal Supply Schedule, I think is the technical
term, and because they can't resell them at a profit, they are
charging a script fee of about $9. And, we don't know how much
they are making. This is the Pequot Tribe, I believe, in
Connecticut. Yes.
Now, but for the noneligible, because they also can't sell
at your low rate to nonfederally eligible, which is mostly
Medicaid beneficiaries, but they are doing such a good job and
have such a deep discount that they are able to buy at the HMO
discount rate, which is also substantially below what we have
to pay for these prescriptions.
What about the VA taking a page out of the nations that you
defeated and going in to provide pharmaceutical drugs? I mean,
we are going to help you, is what you are after, help the
veterans. How about you helping us, and opening up--you have a
great pharmaceutical staff. You provide prescriptions, you
purchase them, you are experts in it. You have got all the
pharmacists on staff. The extra overhead of your operating a
mail-order prescription for other Medicare beneficiaries
wouldn't be very much, would it?
Dr. Garthwaite. We would be happy to look at that.
Absolutely.
Mr. Stark. And if you made $9 a prescription, that could
all go toward caring for us veterans. And nonveterans, like my
mother, would be able to get a lower price on her
prescriptions. We would have a win-win situation. You would
make a lot of money providing a great service, and we would
give you extra money for us veterans. And I just--if the
Indians could do it, I surely would like to think that the
Veterans Administration could do it.
Will you take that under consideration?
Dr. Garthwaite. Absolutely.
Mr. Stark. Thank you, Mr. Chairman.
Chairman Thomas. I thank the gentleman. If we could slip a
lottery card into each one of those--[laughter]--then you would
have matched the Indians across-the-board.
Do we want to go vote and then come back, because the bell
just rang? It's 10 o'clock. Somebody could get a short five in,
but you have been shorted on your questions a number of times.
Let's go vote and come back. Good. Because we may have some
followup questions.
The Subcommittee stands in recess.
[Recess.]
Chairman Thomas. The Subcommittee will reconvene.
Does the gentleman from Louisiana wish to inquire?
Mr. McCrery. Thank you, Mr. Chairman.
Gentlemen, the various veterans subvention proposals are
intended to have no net effect on Medicare spending. Is that
correct?
Dr. Berenson. We are working very hard to make sure both by
requiring a level of effort from the Veterans Administration
and putting a cap on how much money would be spent that we do
not open up the trust fund to unanticipated spending.
Mr. McCrery. And the Secretaries of HHS and VA are supposed
to come up with ways to monitor the spending so that we might
know what the effect is, is that correct?
Dr. Garthwaite. Correct.
Dr. Berenson. Yes. That is right, and that is where we will
take advantage of what we are learning with the DOD subvention,
about the need to have the accounting systems in place. But
that is absolutely right.
Mr. McCrery. Well, what happens if the Secretaries conclude
that the program or the demonstration has caused Medicare
spending to increase?
Dr. Garthwaite. There is a cap. It would come into effect
as well. There is a $50 million cap.
Dr. Berenson. We would also have a very formal
reconciliation process that would affect--each year we will
find out what the amount is. And there would have to be a
reconciliation and a reimbursement.
Mr. McCrery. When you say reconciliation, you mean the
capitation amount would be adjusted?
Dr. Berenson. Yes. That is basically right.
Dr. Garthwaite. I think, if you really think about this,
the veterans who would opt to use this could go somewhere else
and have that care as well. We are offering a discounted rate.
So it would have to be someone who otherwise would choose not
to use it because it wasn't convenient and now the VA made it
much more convenient, or some other reason.
Mr. McCrery. Most of the proposals that we are dealing with
require the VA to develop data systems to measure those
Medicare-covered services. Have you got some opinions as to the
existing data infrastructure at VA facilities?
Dr. Garthwaite. Is that for me?
Mr. McCrery. Either.
Dr. Garthwaite. Yes. As I mentioned previously, we have
been hard at work putting into place what we call a decision
support system, which is a computerized tracking system that
relates costs and services and individual patients.
So we have that in place in all our medical facilities and
by the end of this year should have a full year's worth of
data. The next real big issue is getting all of our staff
trained to use the data to make decisions. And so that is what
we are hard at work doing now.
There are some networks that are very far ahead in this and
do it very well. One of the criteria for picking places for the
pilots will be that they can demonstrate that they can use the
DSS system and that it is fully operational in their
facilities.
Dr. Berenson. Yes, from our point of view, we think these
systems are going to be able to accept a capitation payment,
account for level of effort, and collect the basic information
we need to run something like the Medicare Choice Program,
which has encounter data from hospitals which have diagnoses so
that we can do the risk adjuster.
But the kind of systems that would be needed for fee-for-
service billing for us, we don't think that the VA has
capabilities of--right now. We are actually working with
Trailblazers, one of the intermediaries from Texas, to try to
help the VA get up to speed in claims processing so that they
can bill Medigap insurers for services rendered. And we think
it will be awhile before they will have the capabilities, which
is another reason why we have concerns about a fee-for-service
demonstration. We are working with the VA, so that they will be
ready for a capitation-type demonstration.
Mr. McCrery. Thank you. Thank you, Mr. Chairman.
Chairman Thomas. Does the gentleman from Washington wish to
inquire?
Mr. McDermott. Thank you, Mr. Chairman. Listening to you
and the Ranking Member and now the gentleman from Louisiana,
maybe it is time to have a further discussion about a single
health care financing system.
Chairman Thomas. The gentleman's time has expired.
[Laughter.]
Mr. McDermott. I'd like to throw a little bit more wider
net on this whole question of how you count. Until 1997, the
AAPCC, and I am speaking here for Minnesota, Washington, and
Oregon. The AAPCC, adjusted average per capita cost, rate was
determined on the basis of 5 years' worth of historical per
capita Medicare fee-for-service reporting.
Medicare PCC rates also included provisions for medical
education payments and for disproportionate share. With the
advent of the amendments of 1997 and the balanced budget, we
de-linked those AAP rates from local fee-for-service spending
and set a minimum 1998 AAPCC floor rate of $367. We also made a
number of changes to guarantee the minimum annual rate
increases of 2 percent.
We also carved out the medical education component, and
unfortunately, these changes do not address what I think is the
fundamental inequality in the calculations which Minnesota,
Washington, and Oregon face, believing that no good deed goes
unpunished.
I am here to raise our cause again, as I did on the
Medicare Commission. The trouble with that methodology is that
it punishes cost-efficient markets with low AAPCC rates, with
lower increases, while higher priced, inefficient markets
receive increases well above the average.
In 1997, Group Health of Washington, Seattle, from which a
lot of the early data for which--from which people drew the
conclusion that managed care was a good place to go. So we are
looking at something that has been there for 50 years.
Their average rate increase was 3.8 percent. The national
per capita increase was 5.9 percent. So they have been
efficient for 50 years and they are punished, not getting the
national average when you have these changes.
Counties across the State in my State have had increases as
high as 8.9 percent, while for Group Health in King County,
it's 3.8 percent. Currently, every county in Washington State
is below the national average. King County is 8 percent, the
national average. And the Medicare beneficiaries who are
eligible for both Medicare and military Medicare coverage
sometimes receive their care at military facilities. We have a
number of them.
Now that Madigan has been selected as a Medicare subvention
demonstration, this will occur even more often than in the
past. And to simplify the AAPCC calculation for all fee-for-
service costs of a given county are divided by the Medicare
beneficiaries in that county.
You take the cost, you take how many beneficiaries you are
going to divide into it, and that is how you come up with it.
It is a pretty simple--about a fourth grade division problem.
The computation of that AAPCC includes all Medicare
beneficiaries in the denominator. Everybody who is over 65 gets
counted. However, since the facilities provide care to
military-eligible beneficiaries, they do not report Medicare
costs to HCFA. The numerator, that is the amount that is spent,
excludes any cost Medicare beneficiaries receive in those
facilities.
And this results in an understatement of the AAPCC rates
wherever there are military health care facilities. States and
counties with significant military medical presence receive
disproportionally low rates due to the methodological error in
my view. While the national average AAPCC understatement is 3
percent, in King County, it is 4.3 percent, and in Pierce
County, which is Takoma, where Madigan is, 2.6 percent.
Now, I would like to know what the administration's views
are about revising that methodology, both for Medicare
beneficiaries and the cost for all the Medicare services,
including those that receive fee-for-service at the military
facilities in that calculation.
We hear all this talk about HMOs backing out because they
are not getting enough. We hear that they are paid 6 percent
too much. And there is all this stuff. But I know what the
costs are that you don't cover in my State.
I would like to hear how you are going to deal with this.
Or do you intend to?
Dr. Berenson. Specifically, in the demo or more generally?
Mr. McDermott. More generally.
Dr. Berenson. More generally----
Mr. McDermott. The demo is going to be just another
reflection of the problem.
Dr. Berenson. Yes. Well, and more generally, I guess the
President's proposal has a new approach to competitive pricing
amongst the plans in which there will be adjustments for the
cost, and that really should take into the kind of factor you
are raising. In fact, this is relevant to the discussion we had
earlier in not really knowing whether we are double paying or
whether we are underpaying because of underreporting into the
county rates that we are paying.
I guess what I would say is that this is a real issue. The
President's got a new proposal on the table this year for the
Medicare+Choice plans for counties that have been getting lower
increases because they have been efficient. In fact, it is
going the other way. The blends in the BBA finally kicked in
this year. So many of the counties that you have referred to
are in fact getting much higher rate increases than the 2
percent, which the high- payment counties get.
It may not have been soon enough for a number of the HMOs
who are announcing today whether they are staying in or not. It
is unfortunate that it took to the third year of the blend for
it to begin to have an impact. It is a very complicated issue,
but I think we now need to look at the new proposal from the
President to see if we can solve it in that context.
Mr. McDermott. I think that you point out the real problem,
is that today is D-Day. All the HMOs announce today whether
they are going to participate or not. And my reading from our
area has got a lot of people pulling out.
They simply can't do it under the capitation rate that has
been given to the northwest. And that, as I say, good deeds go
punished. In this case, while we continue to put money out in
other places, which may or may not have needs that they can
justify, we actually can show that our costs are not being
paid.
I think it is going to be a big problem. If you don't deal
with this--this would give us a little bit more, or a little
bit more recognition of what is going on.
Dr. Berenson. Well, again, for this year, because the blend
kicked in really at the third year of the 5-year transition,
there are some counties getting as much as 12 or 14 percent.
One county is actually getting an 18-percent increase for next
year's rates. Again, they are starting off of a low base, and
it may not be fast enough for some of the plans.
And I agree with you; it looks like there are going to be
significant numbers of pullouts. And it looks like they will be
occurring in the those counties that are not going to be in the
high-payment counties as far as we can tell. That is a real
problem.
Mr. McDermott. I think, Mr. Chairman, we need really to
look at this issue because it would be unfair to say that the
Medicare+Choice Program isn't working if we have these kind of
methodological things that are built in. And I think you and I
and everybody wants the Medicare system to function
efficiently, and I think we need to look at some of the
wrinkles in it that we may or may not have created--not
intentionally, perhaps, but we just didn't know what the
consequences would be.
Thank you.
Chairman Thomas. The gentleman's points, I think, are very
well taken. Unfortunately, when you run a bureaucratic
structure with administered prices, you only get it right by
accident. And clearly, in your area, it hasn't been done
correctly.
The idea that somehow under that government structure, you
are now going to create a competitive model in which the
government defines what a competitive price is, also in my
opinion, does not get to the heart of the problem.
The premium support model that the Medicare Commission
offered was an integrated plan in which the real labor costs
and medical utilization costs were incorporated in the price
negotiated between plans, not the government with its
arbitrarily drawn number and a plan, which is the reason for a
number of plans dropping, but between plans on the real cost of
offering the health care benefits would produce not only a
product that would make that managed care more available in
more areas of the country but, according to the actuaries, over
the long haul, because of the competitive pricing model of the
premium support and the ability for beneficiaries to choose a
price in which there would be no out-of-pocket cost to them in
a particular area, would wind up also with a savings to the
system.
That, in part, as a public service announcement in
opposition to the gentleman's single-payer system.
Mr. McDermott. Well, I tried, you know, not to get into
going someplace you didn't want to go.
Chairman Thomas. Nor did I, because I do want to reinforce
the gentleman's position because this is exactly the problem
with the current Medicare+Choice situation, compounded by an
area that has had a history of HMO, compounded by significant
military presence. In other words, the government is now paying
twice, and they aren't even being counted once, which is the
real problem with the way in which the structure is currently
arranged.
If, in fact, we could resolve the HMO-VA overlap payment
problem, I think the first thing we ought to do with the money
is direct it to those areas that have been denied because the
money was counted twice and was not credited once. That would
be an immediate corrective factor. For example, a 22-percent
understatement is unfortunately typical of government, but
absolutely unacceptable.
Does the gentleman from Minnesota wish to inquire?
Mr. Ramstad. Well, Mr. Chairman, the solution, certainly,
it is not just Washington State and Oregon that's been so
negatively impacted by the AAPCC formula, but also the third
State which the gentleman mentioned, Minnesota, my own State.
Senator Durenberger, who served with such distinction in
the other body for so long and was truly expert on health
care--still is expert on health care--used to say, and it is
still literally true, that a Medicare beneficiary can receive
2\1/2\ Medicare surgeries at the Mayo Clinic for every one in
Dade County, Florida. That is just crazy. And the formula has
been an unmitigated disaster, not for Washington State, Oregon,
but also for Minnesota.
Today, Mr. Chairman, Medica in Minnesota pulled out of this
market. Several months ago, Blue Cross pulled out of this
market. We are headed for an unmitigated disaster if we don't
take the admonition of the Chairman and make some fundamental
reforms, and I hope that we can address this problem sooner,
rather than later, because too many--the health care of too
many people is at stake. And we don't want our veterans to be
similarly impacted.
Thank you, Mr. Chair.
Chairman Thomas. Any additional Members wish to inquire?
The gentlewoman from Florida.
Mrs. Thurman. Mr. Chairman, I want to get a little bit of
feeling--I have two VA facilities in the district, one in Lake
City and one in Gainesville.
Chairman Thomas. Would the gentlewoman indicate whether
they are VA hospitals or----
Mrs. Thurman. They are hospitals.
Chairman Thomas. The hospitals, not outpatient clinics?
Mrs. Thurman. They are hospitals. Then I do have, though,
several outpatient clinics as well, some of which have just
come online, others have been established for a very long
period of time.
But one of the things that I am hearing from veterans in
the district, and first of all, let me compliment you; I don't
know of another program that has worked as well as our
outpatient. And the biggest problem is they are growing too
quickly and we don't have doctors enough to take care of the
people we have. And it has been successful; it's a good thing.
But where my concern lies, particularly as I know we are
increasing in the VA patients, this personnel, we are hearing
an awful lot of complaints about being understaffed. Because we
have opened up ambulatory centers, we are not getting people to
come from one area of the country down to another.
Can you shed some light on that for us? And is there
anything we can do to help in this? I know we closed some beds,
but personnel are not getting to those places that are opening
and we have a larger caseload, which was part of what we were
doing with the changes.
Dr. Garthwaite. You ask a very complex question, or at
least the answer is complex. There are issues in moving money
as we have changed the way we deliver care, moving personnel
and money. When you go from inpatient to outpatient, you have
to take inpatient-trained nurses and get them trained for
outpatient. And if you go from a central location, a large
hospital in one place, and try to go out in the community, then
you have to either reduce personnel in one area and then add
those resources back in another area.
We have had some budgetary uncertainties with regard to
next year's budget impacts, with regard to inflation. There are
some specific issues in Florida which we have just discussed
and have a recommendation to add some resources back to
Florida. We are working that through the department based on
hurricane and some other formula adjustments.
So I think, for any given situation, it might be hard to
dissect out which specific thing was happening. There are also
issues across the country, which are local with regard to
recruitment of specific types of personnel.
So, in many areas of the country it is hard to find an
orthopedic surgeon, it may be hard to find an occupational
therapist in another area. And so, it is a combination of those
factors, I believe.
Mrs. Thurman. If we do Medicare subvention, is it going to
impact us even more? And are we looking at this as any plan
that we are putting together because it is wonderful to be able
to expand, but it is a whole other thing to be able to provide
the service.
Dr. Garthwaite. Correct. Theoretically, we would be
reimbursed in proportion to the amount of service that we
provided. The challenge for us managerially would be any lag in
ramping up capability if that were to be the case.
The pilots are limited enough; it shouldn't be a problem,
because I think there is always a little buffering capacity in
any large system. But that would be something that we hoped to
learn from the pilots and to guard against----
Dr. Berenson. Yes. I was just going to say, we have in mind
about eight sites.
Dr. Garthwaite. Right.
Dr. Berenson. And so I think we would pick some places that
have or are in a better situation and more likely to succeed
initially.
Mrs. Thurman. Let me ask one other question. And this is
another issue, and it may be taken care of because of some of
the expansion. And I am not sure this is true. But the Medicare
subvention would not go for veterans that are disabled and
service connected.
Dr. Garthwaite. Right.
Mrs. Thurman. So, in some States, where there is a larger
population of those veterans being served, which in fact
Florida is, and we have looked at those numbers, and yet is
still serving thousands of veterans--we have a huge veteran
population, as you well know. So when we talk about the dollars
from Medicare that would help us with this issue with people,
but at the same time there will be hospitals in this country
that will not get the same dollars because they won't be able
to tap in to Medicare because they are serving many of these
people but they are going to be opening up for some other
areas.
To keep in mind that it is a huge--and even our Veterans
Affairs Committee in Florida has talked about this but there
really has not been much or anything significantly done to help
us understand and what potentially is going to happen there.
Maybe more of a statement than a comment.
Chairman Thomas. No, but I tell the gentlewoman that it
goes directly to the heart of a significant portion of the
controversy in that, with the historical mission of veterans
hospitals having been geriatrics, and that they have been
centers of excellence in dealing with burns, paralysis, combat-
related shock and the fatigue aspects, even substance abuse in
a combat-related situation. And so, if in fact, we are going to
maintain a separate system in which we are now funding $18
billion a year, the concern would be that if your primary focus
is going to be a fee-for-service to these higher income,
nonservice-related-disabilities veterans for Medicare purposes,
it is clear that we will have to change many of the fundamental
medical directions of the veterans to be able to really
adequately provide the service the folks are looking for--when,
in fact, a lot of Medicare-eligible veterans are just looking
for places just to fill their prescription drugs and get
outpatient services more along the geriatric line than they are
along the veterans line.
That is why a number of us have real concerns about the
thrust the VA is taking now. It looks like it is simply going
for the bucks instead of meeting what had been a historical
commitment by a Veterans Administration for America's veterans.
Mrs. Thurman. Mr. Chairman, to get to the point of the drug
issue, and I do believe that they are looking, because as
almost all older Americans are looking for a place to buy drugs
at a lower cost----
Chairman Thomas. No. Actually, I meant substance abuse,
but----
Mrs. Thurman. Oh, OK. I thought you meant pharmaceuticals.
Chairman Thomas. No. I meant substance abuse.
Mrs. Thurman. OK. Thank you for clearing that up.
Chairman Thomas. In fact, we ought to just talk about drugs
and we really ought to talk about prescription drugs, although
there----
Mrs. Thurman. Well, if you would like to talk about
prescription drugs, we have a great DOD that we are hoping will
implement something for mail-order across the country,
particularly for those veterans who are not around those VA
hospitals and can't get their----
Chairman Thomas. Well, there are a number of initiatives
that, unfortunately, may not move forward with the departure of
Dr. Kizer, which is too bad.
Now, a final question before we move to the other panel,
unless any other Member has an inquiry: Dr. Garthwaite,
notwithstanding your testimony, which is standard testimony
that this will save money, everybody else tells us, CBO
included, that we have got to include $300 to $400 million for
a 5-year demonstration. I think that fairly up front
demonstration of the fact that nobody else believes it is going
to save money. And you don't have the ability to determine
where and how you are spending your money now, but you remain
adamant that it is going to save money.
I am more than willing to give you the parting shot on how
you resolve these apparent discrepancies.
Dr. Garthwaite. I would like to, first, just say that we
are saddened by Dr. Kizer's departure, as you have expressed,
and would note that I worked side-by-side with him for the last
5 years and that we have carefully attempted to recruit people
who had a common vision with Dr. Kizer's vision. And we believe
that to the greatest extent possible, we will be continuing on
in the same direction that Dr. Kizer set out for the
department.
Chairman Thomas. I just tell, Doctor, that I am tempted to
quote a former vice presidential debate phrase about the fact
that I know Dr. Kizer, and so forth, and so forth.
Dr. Garthwaite. I didn't suggest that I was Dr. Kizer, but
I do suggest that the team that Dr. Kizer helped put together
was recruited based on a common set of shared principles and
hopes for the future.
I would just say that we have capped the amount of money
that can move. We have really not added a new entitlement to
these individuals; we have just added another place they can
take that. If it is more convenient to their home, I suppose
people who otherwise weren't making use of their Medicare would
now make use of their Medicare. But, I think we need to do the
pilot experiment to find out, and I think we have set up
mechanisms by which we will be able to measure whether or not
that is true.
Chairman Thomas. Well, and, of course, that is the proof of
the pudding. I want to thank both of you very much.
And Dr. Berenson, as we move forward, especially with the
provisions that the Senate has now included in the bill, we are
going to need a lot of help to make sure that what the House
and the Senate arrives at is in fact a sound proposal and it
can be tested.
Thank you both very much.
And the next panel, once again a return engagement, for our
friend, Dr. Bill Scanlon, is the Director of the Health
Financing Systems at the General Accounting Office, and I
believe as a resource, Mr. Backhus, who is the Director of the
Veterans Affairs and Military Health portion of the U.S.
General Accounting Office.
Dr. Scanlon, your written testimony will be made a part of
the record. You can address us in any way you see fit in the
time that you have.
STATEMENT OF WILLIAM J. SCANLON, PH.D., DIRECTOR, HEALTH
FINANCING AND PUBLIC HEALTH ISSUES, HEALTH, EDUCATION, AND
HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE; AND
STEPHEN P. BACKHUS, DIRECTOR, VETERANS AFFAIRS AND MILITARY
HEALTH CARE ISSUES, HEALTH, EDUCATION, AND HUMAN SERVICES
DIVISION, U.S. GENERAL ACCOUNTING OFFICE
Mr. Scanlon. Thank you very much, Mr. Chairman, and Members
of the Subcommittee.
We have actually submitted a joint statement, the two of
us, and I would like to summarize it for you this morning.
Stephen Backhus is the director of GAO's Veterans Affairs and
Military health care area. And staff from both his area and my
area are engaged in the evaluation of the DOD subvention
demonstration as is mandated by the Congress in the Balanced
Budget Act.
Subvention, as you have indicated, has the opportunity to
provide an alternative for delivering accessible and quality
care to certain Medicare-eligible veterans and military
retirees, hopefully, without increasing the cost of services
for VA or DOD or to Medicare.
It would allow both of those departments to supplement some
appropriated funds with Medicare payments, and Medicare may
gain if it is able to pay DOD and VA less than it would pay
private providers and as long as Medicare is not paying for
services that VA and DOD previously would have covered.
These favorable outcomes are not guaranteed. There have, as
we have heard this morning, been various proposals made for VA
subvention. And in our written statement, what we have done is
summarize them for you. What I would like to do today is focus
on some of the lessons for the proposed VA subvention that have
emerged from the implementation of the DOD subvention.
First of all, the complexity of establishing a Medicare
managed-care organization strongly suggests that sufficient
lead time be provided to implement a VA demonstration. It took
17 months for all the sites in the DOD demonstration subvention
to become operational, despite considerable efforts by HCFA and
DOD to expedite the process, and despite DOD's experience with
managed care gained from its TRICARE Program. It would be
reasonable, therefore, to allow 12 to 18 months to start a VA
subvention demonstration, especially since VA, unlike DOD, does
not have an established relationship with HMOs that can take on
important tasks.
Second, with subvention, adequate payment methods are
needed to protect the Medicare Trust Funds. Under the rules
established for the DOD demonstration, Medicare does not pay
DOD until it has provided as much care as it had historically
for Medicare-eligible retirees. The reason for this is to
ensure that DOD wasn't paid twice for the same care, once from
its appropriated funds and again by Medicare.
While proposals for VA subvention include a similar
requirement, the DOD experience suggests that operationalizing
this concept involves considerable challenges. Most important
is likely the development of an accurate estimate of VA's level
of effort, which is needed to reduce the chance that Medicare
would overpay or underpay.
Third are data systems. They are critical to both the
determination of payments and the management of programs. A
prompt and thorough review of them with an eye to the needs of
subvention would be immediately beneficial. DOD's data systems
proved to be very problematic in calculating DOD's level of
effort and may further hinder the demonstration sites' ability
to manage care delivery.
In addition, a number of issues are unique to the VA. VA
needs to determine how to make subvention attractive to
sufficient numbers of eligible veterans. At this point, all
veterans can enroll to receive any of VA's comprehensive
benefits, and they still remain eligible to use any Medicare-
covered services available from private providers.
These veterans may see no advantages to being locked into a
subvention managed-care plan and having to forego using other
providers for some Medicare services. VA also needs to take
steps to serve subvention enrollees without unduly crowding out
other higher priorty veterans.
In conclusion, subvention holds significant potential for
giving veterans an additional option for health care coverage,
for giving VA some additional funds, and possible for saving
Medicare money.
However, these outcomes are uncertain. The DOD's experience
indicates that there are challenges to overcome to assure
subvention is a success. Adequate planning and a soundly
conceived design, sufficient, accurate and timely information,
as well as adequate and appropriate incentives are all key
elements. VA would increase its chances of successfully
achieving subvention's goals by taking advantage of DOD's
experience.
This concludes our statement. We would be happy to answer
any questions you may have.
[The prepared statement and attachments follow:]
Statement of William J. Scanlon, Ph.D., Director, Health Financing and
Public Health Issues, Health, Education, and Human Services Division,
U.S. General Accounting Office; and Stephen P. Backhus, Director,
Veterans Affairs and Military Health Care Issues, Health, Education,
and Human Services Division
Mr. Chairman and Members of the Committee:
We are pleased to be here today as you review proposals for
a Medicare subvention demonstration for the Department of
Veterans Affairs (VA). The stated goal of VA subvention is to
provide an alternative for delivering accessible and quality
care to certain Medicare-eligible veterans, without increasing
the cost to Medicare or to VA.
Several VA subvention proposals resemble in many respects
the current Department of Defense (DOD) demonstration.
Medicare-eligible military retirees who enroll in the DOD
subvention program are able to get Medicare-covered services
from DOD. Similar proposals would allow certain Medicare-
eligible veterans to use their Medicare benefits at VA
facilities. Subvention could allow VA, like DOD, to supplement
its funds with Medicare payments. In principle, by paying VA a
discounted rate, the Medicare program might save money, so long
as it does not pay for services that VA previously would have
covered.
Although the DOD and the proposed VA demonstrations are
relatively small, full-scale subvention programs could
significantly affect the Medicare trust funds and the costs of
VA and DOD. The 3-year DOD demonstration involves about 30,000
enrolled retirees and limits Medicare payments to DOD to, at
most, $65 million a year. By contrast, a nationwide DOD
subvention program could potentially involve substantially more
in Medicare payments. In VA, the potential size of a nationwide
program may be even greater. There are about 9 million veterans
aged 65 and older, and nearly all of them are covered by
Medicare.
Favorable outcomes for Medicare, VA, and DOD, as well as
military retirees and veterans \1\ are not, however,
guaranteed. For DOD subvention, the Balanced Budget Act of 1997
(BBA) authorized a large-scale, 3-year demonstration and
directed GAO to evaluate the demonstration's effects on access
to care, quality, and the cost to DOD and to Medicare. We have
recently reported on data quality and payment issues affecting
the DOD demonstration and the potential for Medicare
overpayments.\2\ We will be providing you with further interim
reports on aspects of the demonstration. Our final results will
not, however, be available until several months after the
demonstration ends in December 2000.
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\1\ Military retirees are those who have completed a military
career and are entitled to retirement pay. Veterans include all who
served and who did not receive a dishonorable discharge.
\2\ Medicare Subvention Demonstration: DOD Data Limitations May
Require Adjustment and Raise Broader Concerns (GAO/HEHS-99-39, May 29,
1999).
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Our testimony today focuses on a possible VA subvention
demonstration and on issues that VA subvention raises.
Specifically, we will compare the 1998 House Ways and Means
Committee bill on VA subvention with the Senate Finance
Committee proposal and discuss the unique characteristics of VA
health care that bear on subvention. We will also discuss
lessons learned from the design and early implementation of the
DOD demonstration that may be relevant to the proposed VA
demonstration.
In summary, the 1998 House Ways and Means bill and the
current Senate Finance proposal are similar in that both
provide for time-limited subvention demonstrations in which
Medicare pays VA at a discounted rate to care for veterans who
are aged 65 and older and who are covered by Medicare. However,
there are also significant differences between the two
proposals. For example, the Ways and Means bill includes a
permanent program for veterans in rural areas who have low
incomes or severe service-connected disabilities, while the
Finance proposal would establish two demonstration models--fee-
for-service and coordinated (managed) care--for lower priority
veterans. Under any proposal, subvention holds several
challenges for VA. It will be challenged to attract to a
subvention coordinated care program veterans who currently
enjoy a generous VA benefits package. VA will also need to
strengthen its billing systems to operate a fee-for-service
model and will need to ensure that veterans' access to
services--whether or not they are in the demonstration--is not
reduced. Learning from DOD's experience to date, VA will need
sufficient time to implement a subvention demonstration--
officials at every DOD site told us that establishing the
demonstration was more difficult than they had expected. DOD's
experience also shows that VA payment methods must be carefully
designed and implemented both to protect the Medicare trust
funds and to promote cost consciousness and efficiencies at VA
demonstration sites. Finally, as DOD's experience underscores,
sound data systems are essential for managing and evaluating a
subvention demonstration.
BACKGROUND
Medicare
Most military retirees aged 65 and over are eligible for
Medicare--a federally financed health insurance program for the
elderly, some disabled people, and people with end-stage kidney
disease. Medicare covers about 39 million beneficiaries and
spends about $212 billion a year. Benefits include hospital,
physician, and other services such as home health and limited
skilled nursing facility care. The Health Care Financing
Administration (HCFA) administers Medicare and regulates
participating providers and health plans.
Medicare was originally set up to reimburse private
providers on a fee-for-service basis and to allow Medicare
beneficiaries to choose their own providers without
restriction. A newer option \3\ allows Medicare beneficiaries
to choose among private, managed care health plans. Currently,
17 percent of beneficiaries use Medicare managed care. In fee-
for-service Medicare, beneficiaries must pay a share of the
costs for various services. Most Medicare managed care plans
have only modest beneficiary cost-sharing, and many offer extra
benefits, such as prescription drugs.
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\3\ BBA expanded this option to include plans in addition to health
maintenance organizations and labeled it ``Medicare+Choice.''
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VA Health Care
VA has traditionally provided a comprehensive array of
health services to veterans with service-connected disabilities
or low incomes. Since 1986, VA has also offered health care to
higher-income veterans without service-connected disabilities.
However, those veterans must make copayments for services.
Overall, VA currently registers in its health care system over
15 percent of the total veteran population of 25 million, with
the remaining veterans receiving their health care through
private or employer health plans or other public programs. Many
of the veterans that VA serves also get part of their care from
other sources, such as DOD, Medicare, and private insurance.
The Administration has requested $17.3 billion for VA medical
care in fiscal year 2000. To make up the differences between
appropriated funds and projected costs, VA estimates that, by
fiscal year 2002, it can derive almost 8 percent of the medical
care budget from other sources, such as reimbursements from
health insurers and, if subvention is enacted, from Medicare.
Since the early 1990s, VA has shifted its focus from
inpatient to outpatient care. At the same time, it implemented
many of the principles of coordinated--that is, managed--care,
emphasizing primary care, although many veterans use VA for
only a portion of their care. In 1995, VA accelerated this
transformation by realigning its medical centers and outpatient
clinics into 22 service delivery networks and empowering these
networks to restructure the delivery of health services.
In 1996, the Congress passed the Veterans' Health Care
Eligibility Reform Act that established, for the first time, a
system to enroll veterans. Enrollment is, in effect, a
registration system for veterans who want to receive care.
Currently, registration is continuous--a veteran may choose to
register at any time and start receiving services--although VA
has the authority to limit the enrollment period if it chooses.
The law established seven priority groups, with priority group
1 the highest and priority group 7 the lowest. Priority group 1
includes those veterans with the most severe service-connected
disabilities; priority group 7 includes veterans whose incomes
and assets exceed a specified level and who do not qualify for
VA payments for a service-connected disability. Priority group
7 veterans must agree to make copayments for health services.
Each year, VA determines, on the basis of available
resources, which priority groups will be eligible for VA care
in the coming year. Currently, VA serves all seven priority
categories, but in the future, that will not necessarily be
true. Veterans in any of the priority groups are eligible for
the VA Uniform Benefits Package, a comprehensive array of
services ranging from hospital care to home health.
Veterans remain free to get some or all of their care from
other private or public sources, including Medicare. VA, on the
other hand, is committed to serving all veterans within the
priority groups it has designated for that year, although
capacity varies by region.
DOD Health Care
DOD received an appropriation for military health care of
almost $16 billion in fiscal year 1999. Of that, an estimated
$1.2 billion is spent on the 1.3 million Medicare-eligible
military retirees. Under its TRICARE program, DOD provides
health benefits to active duty military personnel and
retirees,\4\ but most retirees lose their eligibility for
comprehensive, DOD-sponsored health coverage at age 65. DOD
delivers most of the health care needed by active duty
personnel and military retirees through its military hospitals
and clinics. DOD gives priority for care at military facilities
to active duty personnel and to dependents of active duty
personnel and those retirees under 65 who are enrolled in DOD's
managed care program. Retirees who turn 65 and become eligible
for Medicare can get military care if space is available
(called space-available care) after higher priority
beneficiaries are treated.\5\ Some military facilities have
little or no space-available care.
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\4\ We use ``retirees'' to refer to military retirees, their
dependents, and their survivors.
\5\ A partial, unofficial exception to this rule occurs at teaching
hospitals, where aged retirees with serious, persisting conditions are
treated on an ongoing basis, in large measure so that medical residents
can be given the clinical experience required.
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Since the early 1990s, DOD health care has shifted toward
managed care. DOD established its own managed care plan,
TRICARE Prime, which uses military providers, supplemented by a
network of civilian providers. However, it is not available to
retirees aged 65 and over.\6\ TRICARE Prime covers services of
military physicians as well as civilian network providers by
drawing on DOD's appropriated funds and premiums and copayments
charged to some enrollees. In TRICARE Prime, DOD generally
organizes the delivery of care on managed care principles--for
example, an emphasis on a primary care manager for each
enrollee. DOD has gained considerable experience with managed
care, but it relies heavily on contractors to conduct
marketing, build a network of providers, and perform other
critical functions.
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\6\ Active duty members of the armed forces receive their health
care through TRICARE Prime. Dependents of active duty military can
choose among three DOD-run health plans that include TRICARE Prime.
Retirees under 65 can pay a premium and ``buy in'' to TRICARE Prime.
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DOD Subvention Demonstration
BBA established a 3-year demonstration of Medicare
subvention, to start on January 1, 1998, and end on December
31, 2000. Within BBA's guidelines, DOD and HCFA negotiated a
``memorandum of agreement.'' The agreement stated the ways in
which HCFA would treat DOD like any other Medicare health plan
and the ways in which HCFA would treat it differently. The
agreement also spelled out the benefits package and the rules
for Medicare's payments to DOD. After DOD and HCFA signed the
agreement, they selected six demonstration sites. DOD estimated
that it would be able to serve nearly 30,000 of the
approximately 125,000 people eligible for both Medicare and
military health benefits in these areas.
The subvention demonstration made DOD responsible for
creating a DOD-run Medicare managed care organization for
elderly retirees. This pilot health plan, which DOD named
Senior Prime, is built on DOD's existing managed care model. By
enrolling in Senior Prime, Medicare-eligible military retirees
obtain priority for services at military facilities--an
advantage compared to nonenrollees. Senior Prime's benefit
package is ``Medicare-plus''--the full Medicare benefits
package supplemented by some other benefits, notably
prescription drugs.
BBA provides the basic rules by which, under the
demonstration, Medicare pays DOD. First, Medicare is to pay DOD
the Medicare managed care rate, less several adjustments and a
5-percent discount for each enrollee. Second, in order to
receive Medicare payments, DOD must at least match its baseline
costs, or level of effort--that is, devote at least the same
resources as it did in the recent past to providing care to
retirees aged 65 and older. The memorandum of agreement
translates these guidelines into a complex payment system. For
example, it allows any demonstration site to earn monthly
interim payments if its Senior Prime enrollment exceeds a
threshold derived from the baseline level of effort. But at the
end of the year, DOD can only retain a portion of these
payments if that year's costs for the six sites together exceed
the baseline level of effort.\7\
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\7\ These issues are discussed in greater detail in GAO/HEHS-99-39.
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PROPOSALS FOR VA DEMONSTRATION DIFFER BUT SHARE KEY FEATURES
Although several proposals for a VA Medicare subvention
have been developed recently, our analysis focuses on two: a
House Ways and Means Committee bill (H.R. 3828) passed by the
House in 1998 and a proposal adopted by the Senate Finance
Committee on June 24, 1999. While similar in key respects, the
two proposals also differ in several significant ways,
including whether a VA subvention would include a fee-for-
service model and whether a permanent program--in addition to a
demonstration targeting certain veterans--would be established
in rural areas for higher priority veterans. The two proposals
share certain features, including a managed care model (which
the Finance Committee calls ``coordinated care'') for at least
part of the subvention proposal, a demonstration targeting
lowest priority veterans, and a cap on annual Medicare payments
to VA under the demonstration.
H.R. 3828 (105th Congress)
The House bill is distinctive in authorizing both a
permanent subvention program and a demonstration project:
-- The permanent subvention program would follow a managed
care (or coordinated care) model. It would target VA's higher
priority level veterans (for example, people with severe
service-related disabilities or low incomes) in rural areas and
could be continued indefinitely. It would begin with up to
three sites, but more sites could be added after 2003. VA would
have to maintain its level of effort--its historical resource
commitment--to the targeted group of veterans in the sites.
Medicare payments would be capped at $50 million the first
year, $75 million the second year, and $100 million in
subsequent years. No cap would apply if the program were
expanded to more sites, subject to certification by the
Department of Health and Human Services' (HHS) Inspector
General (IG) that VA could measure its costs in a reasonably
reliable and accurate manner.
-- By contrast, the demonstration would be limited to
veterans in the lowest priority level for VA care at no more
than three sites and would deliver services for not more than 3
years. One site would have to be an area previously served by a
military health facility shut down in the military base closing
process, known as the BRAC (Base Realignment and Closure)
process. Unlike the permanent program, no rural sites are
required. Medicare payments to VA under the demonstration would
be capped at $50 million annually. The bill would allow
requiring veterans to pay enrollment fees and copayments that
could vary with income.
For both the demonstration and the permanent program, the
House bill emphasizes that, if practicable, VA should use its
outpatient clinics. However, VA could still contract with
private providers and health plans to supply services as
needed.
The Senate Finance Proposal
The scope of the Finance Committee proposal \8\ is in some
respects narrower--its demonstration is limited to the lowest
priority veterans (priority group 7, higher income veterans who
mostly lack a service-connected disability). In other respects,
it is broader--authorizing a test of two subvention models. The
proposal would require VA to establish, first, a coordinated
care model of subvention and, a year later, a fee-for-service
model. It would authorize a VA subvention demonstration in, at
most, eight sites but would require equal numbers of sites for
the two models. The proposal would allow up to a year for
implementing each model, which would operate for up to 3 years
after enrollment started.
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\8\ The text of this bill is not yet available. Our description is
based on a summary, prepared by Committee staff for the markup on June
24, 1999, of the proposal contained in the Chairman's Mark. The
Committee adopted the proposal.
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Medicare's rules for paying VA would resemble those in the
DOD subvention demonstration: To guard against the same VA care
being paid for by both VA appropriated funds and Medicare, the
proposal would require VA to demonstrate maintenance of its
effort on behalf of the demonstration population. HCFA would
pay VA for the care of veterans in the demonstration only after
VA exceeded its historical spending, or level of effort, for
higher-income veterans.
Common Features of the Two Proposed Demonstrations
The House bill and Senate proposal share certain common
elements. In each, a VA subvention demonstration would include
a managed care (or coordinated care) model and serve certain
higher-income \9\ veterans (effectively, priority group 7) who
are Medicare beneficiaries
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\9\ Those who exceed VA's income thresholds for cash benefits. For
example, the current threshold for a single veteran without dependents
is $22,351.
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--for a limited time period--3 years,
--in a limited number of locations, and
--in compliance with Medicare rules that HCFA applies to
the private sector (although HCFA could waive rules that were
inappropriate for VA).
Regarding Medicare payments to VA,
--HCFA would pay VA at 95 percent of the applicable
Medicare rate paid to private providers or health plans--less
certain exclusions, such as payments for disproportionate share
hospitals and graduate medical education;
--HCFA payments to VA would be limited to a predetermined
annual amount, such as $50 million; and
--VA must meet its previous level of effort in providing
services to Medicare-eligible veterans.
(For a more extensive comparison of the two proposals, see
app. I.)
VA DEMONSTRATION WOULD FACE CHALLENGES CONCERNING PARTICIPATION,
BILLING, AND ACCESS
A proposed VA demonstration holds several challenges.
First, veterans may see no advantage in enrolling in a
subvention managed care plan because everyone eligible for the
demonstration currently has both VA and Medicare benefits.
Second, VA's past difficulties in billing insurance companies
suggest that VA may have difficulty billing Medicare for
services provided to veterans. Finally, if subvention enrollees
prove to be heavy users of VA services, they may crowd out or
limit the access of other, higher priority veterans.
For VA, an important issue to consider is whether veterans
would enroll in a subvention managed care plan that would not
give them significantly more services than they currently
receive from VA and that would restrict their freedom to use
other providers. Priority group 7 veterans-the only ones
eligible for a subvention demonstration-can now obtain all
services in VA's Uniform Benefits Package (although not always
in a timely manner). Like Medicare, VA benefits cover a broad
range, including inpatient and ambulatory medical and surgical
care, certain plastic surgery, and durable medical equipment.
VA benefits are particularly strong, compared to Medicare, in
mental health care, comprehensive rehabilitative care and
services, preventive services, and respite care. The VA benefit
also--unlike Medicare--covers drugs. Copayments are generally
no greater than under Medicare fee-for-service. Additionally,
veterans who are eligible for Medicare can also get care from
non-VA providers--either under fee-for-service or through a
managed care plan--whereas, under subvention, members would be
locked out of other Medicare plans and providers. If it needed
to make subvention benefits more attractive, VA could either
reduce copayments or increase benefits, but these actions would
increase VA's costs.
In the future, however, VA benefits, as well as the number
of priority groups served, may be reduced. Paradoxically, the
less generous the VA package for all veterans, the greater
their incentive to participate in the demonstration because
that would be the only way they could obtain the full range of
VA care. VA is authorized to reduce its Uniform Benefits
Package and stop serving lower priority veterans, including
priority group 7. VA officials tell us that, due to resource
constraints, VA may not serve priority group 7 veterans in the
future and may reduce the benefits covered under the benefits
package. If this happens, these priority group 7 veterans could
only get VA services through a subvention demonstration and,
hence, would probably be more likely to join the VA Medicare
subvention demonstration.\10\ Furthermore, some VA officials
have suggested to us that, to give priority group 7 veterans a
reason to enroll, it may be necessary to exclude them from VA
services--except through the demonstration.
---------------------------------------------------------------------------
\10\ Since many veterans obtain only part of their care from VA,
this still might not be sufficient incentive.
---------------------------------------------------------------------------
Current proposals for a VA subvention demonstration, such
as the Senate Finance Committee's, permit both managed care and
fee-for-service sites. Of the two, fee-for-service appears to
be easier to implement because it only requires VA to submit
claims for covered services to HCFA for payment. It does not
require the veteran to join a VA-operated managed care plan and
forego access to other providers. However, in the past, VA has
had difficulty in collecting from insurance companies because
its bills have not had enough detail (for example, diagnosis,
service, procedure, and individually identified provider).\11\
While VA is moving toward a system that will more closely
approximate private sector billing procedures, its success
remains to be seen.
---------------------------------------------------------------------------
\11\ See VA Medical Care: Increasing Recoveries From Private Health
Insurers Will Prove Difficult (GAO/HEHS-98-4, Oct. 17, 1997).
---------------------------------------------------------------------------
The greatest concern in a VA subvention program--either
coordinated care or fee-for-service--is that subvention
enrollees could consume so many services that veterans in
higher priority groups would be crowded out or their access to
care restricted. This concern is particularly great in the case
of VA, both because of its constrained resources and its
current policy of not denying care to any veterans. VA's budget
has been essentially flat for the last 3 years, and the
President's budget proposes the same amount for medical care in
fiscal year 2000 as was appropriated to VA for fiscal year
1999. However, VA has not only restructured and moved resources
from inpatient to outpatient care; it also increased the number
of veterans served and is considering several expensive new
initiatives, such as a hepatitis C program. One result has been
pressure on resources and, in some areas, increased waiting
times for appointments. Furthermore, according to its policy,
VA does not deny care to any veteran, although veterans may
have to wait longer to obtain the care. In the short term, if
subvention absorbed more resources than a medical facility had
available, waiting times for appointments would probably
increase or care could be limited to certain facilities, which
might be inconvenient for some veterans. It is unclear how much
of an impact increases in waiting times or other types of
decreased access would have on enrollees in the demonstration.
VA would probably try to ensure that access was maintained for
demonstration participants, since their continued participation
increases VA resources.
PROPOSED VA DEMONSTRATION CAN BENEFIT FROM DOD EXPERIENCE
Taking account of DOD's experience in establishing a
subvention demonstration could strengthen proposals for a VA
demonstration. In particular, DOD experience shows that
implementation is difficult and that enough time should be
allowed to undertake the numerous steps needed to get a
demonstration started. Furthermore, an adequate payment method
is essential to protect the Medicare trust funds, and payment
rules need to be as simple and straightforward as possible.
Finally, accurate and reliable data systems are needed to
manage demonstration costs and health care effectively.
A detailed discussion of these issues is in appendix II.
The following summarizes the main lessons from DOD's
experience.
--Time needed for implementation should be recognized.
Officials at every DOD site told us that establishing a
Medicare managed care organization was more difficult and
required more effort than they had expected. Months into the
implementation, they continue to encounter new issues. Even
though the sites took 13 to 17 months after the legislation was
passed to establish Senior Prime, hindsight suggests that the
goals to get it running earlier were unrealistic. If a VA
demonstration is authorized, it should have 12 to 18 months to
implement its plans for the demonstration; both VA headquarters
and sites would need that much time.\12\
---------------------------------------------------------------------------
\12\ The Finance Committee proposal provides a year for start-up
and initial implementation of the demonstration. It also would stagger
the start of the two models: the fee-for-service model would start a
year after the coordinated care model.
---------------------------------------------------------------------------
--Payment methods need careful design and oversight. In any
demonstration of Medicare subvention, adequate payment methods
are needed to protect the Medicare trust funds. The DOD
demonstration stipulated that Medicare would not pay DOD unless
DOD had provided its Medicare-eligible retirees an amount of
care exceeding its historical level of effort for these
retirees. Under a VA demonstration, a similar requirement would
be desirable. An accurate estimate of VA's baseline costs would
reduce the chance that Medicare would overpay or underpay VA
under a subvention demonstration.\13\
---------------------------------------------------------------------------
\13\ The payment rules in the DOD demonstration are, at least in
principle, adequate for the short term but would be undesirable for a
longer-term program. A different payment method, with more
understandable rules and viable for the longer term, would be need to
be developed if the DOD demonstration were extended.
---------------------------------------------------------------------------
DOD and HCFA also encountered difficulties due to (1) the
complexity of the Medicare payment rules for subvention, (2)
the definition and measurement of baseline costs, and (3)
ambiguity about what sites could earn and whether earnings
would be distributed to the sites. As a result of these
factors, many DOD site managers and physicians have largely
disregarded the uncertain gain in financial resources from
possible Medicare payments and have focused primarily on
implementation and patient care issues. Consequently, the DOD
demonstration may not produce the full savings and efficiencies
that are expected from managed care.
DOD's experience can be used in designing a possible VA
demonstration. First, payment rules should give VA and its
sites greater certainty about their earnings. Second, if a VA
demonstration had a level-of-effort requirement, the baseline
costs should be for a period as close as possible to the start
of the demonstration. This would minimize problems of comparing
current and baseline costs. It would also facilitate audits of
the data. Third, sites should be informed in advance what
proportion (if any) of their Medicare earnings would be
retained centrally or regionally.\14\
---------------------------------------------------------------------------
\14\ VA calls the regional level a Veterans Integrated Service
Network, or VISN.
---------------------------------------------------------------------------
--Accuracy of data systems relies on agency commitment.
DOD's experience shows that data systems are a point of
vulnerability for a successful and credible program. Inadequate
data quality can weaken the management of a demonstration and
raise questions about reports of its favorable results. The
extent to which data quality would pose an obstacle to a VA
demonstration depends in part on how the payment rules are
specified. Good data, consistent across sites, would also be
needed to manage and evaluate the demonstration. Data quality
problems would probably vary by site, with some sites having
better data than others. The types of data systems needed would
depend in part on the subvention model that is selected. For
example, in a fee-for-service model, billing systems are
critical. In general, solving data quality problems requires
commitment and follow-through of agency management.
In addition, DOD experience suggests that veterans in a
potential VA subvention demonstration would benefit if VA were
to develop a strategy to inform and assist them with their
options after the demonstration ends. Furthermore, as Medicare
enrollment in managed care plans is shifting to an annual open
season, coordinating enrollment in and termination of the
demonstration with Medicare's open season would help
demonstration participants.
CONCLUDING OBSERVATIONS
Subvention holds significant potential for giving veterans
an additional option for health care coverage, for saving
Medicare money, and for giving VA additional funds. However,
these favorable outcomes are not guaranteed. We have identified
several challenges, based on the particular characteristics of
VA as well as the experience of DOD subvention. If a VA
subvention demonstration were designed to take account of the
issues we have raised, its chance for success would be greater.
In particular, for a managed (or coordinated) care
demonstration, veterans need to have sufficient incentives--
compared to the standard VA benefits--to enroll. For a fee-for-
service demonstration, VA needs adequate billing systems to
ensure that it receives the money it earns. And, as with any
demonstration, it will be important to protect both
participants' and other veterans' access to care. DOD's
experience with subvention to date shows the importance of
sound data systems that consistently and accurately capture
financial and workload data. It also underscores the importance
of straightforward and easy-to-understand payment rules and a
clearly defined level of effort that creates a level playing
field for both VA and Medicare.
Mr. Chairman, this concludes our prepared statement. We
will be happy to answer any questions that you or other Members
of the Committee may have.
GAO Contacts and Acknowledgments
For future contacts regarding this testimony, please call
William J. Scanlon at (202) 512-7114 or Stephen P. Backhus at
(202) 512-7101. Key contributors to this testimony include Gail
MacColl, Jonathan Ratner, Dayna Shah, and Phyllis Thorburn.
Appendix I
COMPARISON OF 1998 WAYS AND MEANS BILL AND 1999 SENATE FINANCE PROPOSAL
ON VA SUBVENTION
Table I.1.--H.R. 3828 (105th Congress) and Senate Finance Proposal
Summary
------------------------------------------------------------------------
Senate Finance proposal
H.R. 3828 (105th Congress) \1\ summary \2\
------------------------------------------------------------------------
What would be authorized and who is
targeted:
--A demonstration project under which A demonstration project
Medicare would reimburse VA for care under which Medicare would
provided to veterans enrolled in reimburse VA for care
Medicare parts A and B who have no provided to veterans
service-connected disability and who do enrolled in Medicare parts
not meet VA's low-income threshold. A and B who have no
compensable service-
connected disability and do
not meet VA's low-income
threshold
--A program under which Medicare would ............................
reimburse VA for care provided to
veterans enrolled in Medicare parts A
and B who have service-connected
disabilities or who are low-income and
who live far from a VA medical center.
How would health care be delivered:
To the extent practicable, VA would use Fee-for-service and
its outpatient clinics to provide coordinated care model
services under the program. VA may consistent with
enter into contracts and arrangements Medicare+Choice
with entities such as private requirements
practitioners, providers, preferred
provider organizations, and health care
plans to provide health care under the
program or demonstration project.
How many health care delivery sites:
--Up to three demonstration project --Up to 4 coordinated care
sites, at least one of which must sites, at least one of
encompass the area served by a military which must be operated in a
medical facility closed pursuant to a predominantly rural area
base closure and realignment act.
--Initially no more than three program --Up to four fee-for-service
sites, but additional sites could be sites, at least one of
designated starting in 2003. which must be operated in a
predominantly rural area
An equal number of sites
would represent each model
When would demonstration or program begin
and end:
--Demonstration would begin Jan. 1, --Coordinated care model
1999, and end Dec. 31, 2001. would begin Jan. 1, 2000,
and end 3 years after
enrollment begins or, if
earlier, Dec. 31, 2003
--Program would begin Jan. 1, 2000, and --Fee-for-service model
may continue indefinitely. would start Jan. 1, 2001,
and end the earlier of 3
years after first
enrollment or Dec. 31, 2004
Would the start of the demonstration or
program be contingent on VA meeting
certain requirements:
Yes. HHS' Office of Inspector General Yes. HHS' OIG must certify
(OIG) must certify that VA and HHS have VA has (1) cost accounting
established a data-matching program to systems for each
identify veterans eligible for Medicare demonstration site; (2)
and entitled to VA benefits and have reliable, accurate, and
performed such a comparison. consistent data across
sites; (3) minimized the
risk that VA appropriations
will be used for
demonstration; (4) the
capacity at each site to
provide benefits to
sufficient numbers of
targeted Medicare-eligible
veterans; and (5)
sufficient safeguards at
each site to minimize
reduction in quality or
access to care to veterans
(participating and not
participating in
demonstration.)
How would an eligible veteran participate:
Participation in the program or Eligible veterans must
demonstration project is voluntary. enroll in the
Enrollment is implied. demonstration. Eligibility
must be verified prior to
receiving services
How much would Medicare pay to VA:
95 percent of amount paid to --Under the coordinated care
Medicare+Choice organization (excluding model, 95 percent of amount
payments for medical education and payable to Medicare+Choice
disproportionate share and capital- organization
related payments to hospitals for --Under fee-for-service, 95
inpatient services). percent of Medicare rate
Payments for medical
education and
disproportionate share
excluded from
reimbursements; one-third
of capital-related costs
included
Would there be a cap on Medicare
reimbursements:
Yes:.................................... Yes; $50 million for each
--For demonstration project, not more year of the demonstration
than $50 million annually for 1999
through 2001.
--For program, not more than $50 million
for 2000; $75 million for 2001; and
$100 million for 2002 and each
succeeding year but no cap if program
expands to additional sites, subject to
HHS' IG certification.
What would veterans be required to pay:
For the demonstration project, veterans (Not specified in the Senate
may be required to pay enrollment fees Finance proposal summary.)
and to make copayments, which can vary
based on income. Fees and copayments
must be consistent with Medicare+Choice
requirements, except as waived by HHS.
Would VA be required to maintain its
historical level of health care services
to Medicare eligible veterans:
Requires that VA and HHS agreement Yes. VA expenditures at any
describe how maintenance of effort will site must exceed an
be implemented in both the established baseline amount
demonstration and program. However, before Medicare
only implementation of the program is reimbursement will occur
conditioned on VA reporting to the
Congress and GAO on steps taken to
prevent reduction in type or amount of
health care services provided. An
agreement entered into by VA and HHS
would determine a base year against
which VA must maintain overall the
level of effort for services.
How would baseline level of effort be
calculated:
VA and HHS would jointly determine a (Not specified in the Senate
base year. VA would report to the Finance proposal summary.)
Congress and GAO on its methodology and
basis for calculating level of effort.
Would Medicare requirements apply:
Yes. Both demonstration project and Yes. Coordinated care
program must meet all requirements of demonstration must provide,
Medicare+Choice plans. (HHS may waive at a minimum, Medicare
any requirement if waiver reflects VA's benefits under
status as a federal agency and is Medicare+Choice rules and
necessary to carry out the program or regulations, unless waived
demonstration project.). by HHS for specific reasons
How would costs to Medicare be monitored:
GAO would report annually on cost Annual reconciliation
increases to Medicare under process to ensure no
demonstration or program. If VA and HHS increase in costs to
conclude that demonstration or program Medicare. GAO must report
has increased Medicare spending, VA annually on the extent, if
must reimburse Medicare and adjust any, to which costs to the
future Medicare payments. Medicare program under the
demonstration have
increased
------------------------------------------------------------------------
\1\ The provisions of H.R. 3828 were incorporated into H.R. 4567, which
passed the House on Oct. 10, 1998.
\2\ The text of this bill is not yet available. Our description is based
on a summary of a proposal titled Chairman's Mark: The Medicare
Subvention Demonstration for Veterans Act of 1999, prepared by the
staff of the Senate Committee on Finance, June 24, 1999. The Committee
adopted the proposal on that date.
Appendix II
EXPERIENCE IMPLEMENTING DOD SUBVENTION DEMONSTRATION
In implementing the subvention demonstration, DOD and HCFA
completed numerous and substantial tasks. DOD sites had to gain
familiarity with HCFA regulations and processes, prepare HCFA
applications, prepare for and host a HCFA site visit to assess
compliance with managed care plan requirements, develop and
implement an enrollment process, market the program to
potential enrollees, establish a provider network (for care
that cannot be provided at the military treatment facilities),
assign primary care managers to all enrollees, conduct
orientation sessions for new enrollees, and begin service. The
national HCFA and DOD offices developed a memorandum of
agreement, spelling out program guidelines in broad terms. They
also developed payment mechanisms, and translated the BBA
requirement that DOD maintain its historical level of effort in
serving dual eligibles into a reimbursement formula.
HCFA accelerated review procedures and assigned additional
staff so that timelines could be met. But these accomplishments
were not without difficulties, and several issues remain that
are likely to impact the demonstration's results. These include
the extent to which payment rules can be made more
understandable and workable and the extent to which DOD can
operate successfully and efficiently as a Medicare managed care
organization.
Implementation Delayed by Several Factors
In view of the steep learning curve that DOD faced--it
started without any Medicare experience--it is not surprising
that the demonstration did not start on time. BBA was enacted
in August 1997 and authorized a demonstration beginning in
January 1998. The first site started providing service in
September 1998, and all sites were providing service by January
1999. Officials at all DOD sites emphasized to us that the
process of establishing a Medicare managed care organization at
their facility was far more complex than they had expected.
They noted several issues that caused difficulty during this
accelerated startup phase, including the following:
--Delayed notification to sites of their selection for the
demonstration.
--Difficulties in learning and adapting to HCFA rules,
procedures, and terms for managed care organizations. For
example, DOD had to significantly rework grievance and appeals
procedures to comply with HCFA requirements.
--Difficulties due to shifts in Medicare requirements. All
sites started planning as HCFA was developing the new Medicare
managed care regulations to replace the rules for the former
risk contract managed care program. Consequently, the sites had
to adapt to changed rules when they were published.
Capacity and Enrollment
Sites vary significantly in (1) their capacity for caring
for Medicare-eligible retirees, (2) how close enrollment is to
capacity, and (3) what fraction of eligibles has enrolled. This
variation suggests that potential demand for a subvention
program is uncertain. Retirees' enrollment decisions reflect
several factors--some, DOD may be able to influence; others,
such as the extent of managed care presence in an area, are
outside its control.
In establishing their enrollment capacity-which effectively
became an enrollment target-some sites were more conservative
than others. Sites' assessment of their resources focused on
the availability of primary care managers--physicians and other
clinicians who both provide primary care and serve as
gatekeepers to specialist care. Additionally, the national
TRICARE office developed a model to show how many enrollees a
site would need to meet its level-of-effort threshold and start
receiving increased resources from subvention, and these
results were made available to sites. Capacity varied from San
Antonio, Texas, the largest site with four hospitals and a
capacity of 12,700, to Dover, Delaware, which provides only
outpatient care in its military health facility and set its
capacity at 1,500.
Many DOD officials and other observers expected that sites
would be deluged with applications and would rapidly reach
capacity, but this did not happen. One site has reached
capacity, but only after several months. Other sites have
enrolled between 46 percent and 92 percent of capacity as of
the end of June 1999.
As table II.1 shows, there is a four-fold difference in
sites' enrollment as a percentage of eligibles in their
catchment areas-from 8 percent (San Diego, California) to 36
percent (Keesler, Mississippi). Several factors may explain
this variation:
--Enrollment in other Medicare managed care plans varies
widely, from one site with a low percentage of eligible
enrollees (San Diego)--where nearly 50 percent of dual
eligibles are in private Medicare managed care plans--to two
sites with higher percentages of enrollees (Keesler and
Dover)--where no one is in managed care because no plans are
available.
--The availability of military care varies. Several sites
emphasized in their marketing that retirees who did not enroll
could not count on receiving space-available care. This
information might spur retirees who prefer military care to
enroll in Senior Prime. At other sites, space-available care
was less of an issue. At these sites, prospective enrollees who
believe that they can continue to receive space-available care
may not see an advantage in enrollment but rather a
disadvantage--especially because enrolling in Senior Prime
locks them out of other Medicare-paid care.
--Sites may differ in the amount of space-available care
they have given in the past and in beneficiaries' satisfaction
with that care. These factors could also affect the decision to
enroll.
--Some retirees expressed reluctance to enroll because the
demonstration is due to end in December 2000. They also noted
that they did not get information about how, after the
demonstration ends, enrollees would transition back to space-
available care, traditional fee-for-service Medicare, or a
Medicare managed care organization.
Table II.1.--TRICARE Senior Prime Enrollment
----------------------------------------------------------------------------------------------------------------
Enrolled Enrolled as
as a a
Enrolled \1\ Capacity \2\ percentage Total percentage
of eligible of
capacity eligibility
----------------------------------------------------------------------------------------------------------------
Madigan Army Medical Center, Wash.:
3,313....................................................... 3,300 100.4% 21,709 15.3%
San Antonio, Tex.:
11,638...................................................... 12,700 91.6% 41,215 28.2%
Naval Medical Center, San Diego, Calif.:
2,879....................................................... 4,000 72.0% 35,619 8.1%
Keesler Medical Center, Miss.:
2,617....................................................... 3,100 84.4% 7,361 35.6%
Colorado Springs, Colo.:
2,823....................................................... 3,200 88.2% 13,689 20.6%
Dover, Del.:
685......................................................... 1,500 45.7% 3,905 17.5%
Totals:
23,955...................................................... 27,800 86.2% 123,498 19.4%
----------------------------------------------------------------------------------------------------------------
Note: Status as of June 21, 1999.
\1\ Includes only people who were 65 years old at the beginning of the demonstration.
\2\ Capacity at the beginning of the demonstration. Does not include capacity for those who turned 65 after the
demonstration started.
Managed Care Issues
The subvention demonstration for military retirees aged 65
and over is a new endeavor that highlights challenges for DOD
to operate as a Medicare managed care organization. The first
is operational--putting in place procedures, organization, and
staff to deliver a managed care product to these seniors. The
second is economic and organizational--creating the business
culture that reconciles delivering services to this illness-
prone population with cost-consciousness.
DOD's reliance on contractors (like Foundation Health and
Humana) has enabled it to accomplish key managed care tasks.
DOD overcame obstacles in launching TRICARE Senior Prime as a
managed care organization. Specifically, to establish and run a
managed care plan requires infrastructure-the ability to market
the plan, enroll members, and recruit, manage, and pay a
provider network. In building Senior Prime organizations at the
six sites, DOD has benefited from its TRICARE Prime experience,
and from its contractors who help with or perform many of these
tasks.\15\ Sites with well-established TRICARE Prime
organizations that had worked with the same contractor for
several years seemed to us to have a sizeable advantage in
establishing Senior Prime. It is not yet known what effect
DOD's extensive use of contractors will have on DOD costs for
Senior Prime. But an expanded, permanent subvention program
would require establishing and monitoring contractors at many
new sites. That would make contractor quality, relationships,
and costs a pivotal and uncertain feature of a potential DOD
subvention program.
---------------------------------------------------------------------------
\15\ The DOD sites relied on the TRICARE contractors for handling
enrollment, claims processing, and network management. They have also,
to varying degrees, assisted with the application, site visit, quality
assurance, and utilization review areas.
---------------------------------------------------------------------------
Payment Issues
DOD and HCFA have devised payment rules to meet the
statutory requirement that Medicare should pay DOD only after
its spending on retirees' care reaches predemonstration
levels--that is, after it has met its baseline, or level of
effort. These rules have added to the difficulty and the
complexity of the demonstration. Furthermore, they have
resulted in Medicare payments to DOD not being immediately
distributed to the sites. As a result, DOD site managers tend
to view DOD appropriations as the sole funding source for all
Senior Prime care delivered at military health facilities; the
managers are likely to consider Medicare subvention payments as
irrelevant to their plans for dealing with capacity bottlenecks
or other resource needs in TRICARE Senior Prime.
The demonstration's payment system requires extensive cost
and workload data--data that are often problematic and
difficult to retrieve and audit. It also involves a complicated
sequence of triggers and adjustments for interim and final
payments from Medicare to DOD.
Interim payments are made to DOD for care delivered at each
site that is above a monthly level-of-effort threshold. A
reconciliation after the end of the year to determine final
Medicare payments can result in DOD returning a portion of
those interim payments if the level of effort for all sites for
the entire year is not reached. DOD would also return Medicare
payments if data showed that the demonstration population was
in better health than that allowed for in the Medicare payment
rates, or if payments exceed the statutory cap ($50 million in
the first year, $60 million in the second, and $65 million in
the third).\16\
---------------------------------------------------------------------------
\16\ The enrollment targets for each site reflect the statutory
caps. Consequently, rebates (from DOD to Medicare) as a result of
payments exceeding the cap are unlikely.
---------------------------------------------------------------------------
Because of the potential for adjustments after the close of
the year, the payment rules create some uncertainty for DOD.
DOD cannot be certain that it will retain all--or even part--of
the monthly interim payments at the end of the year. DOD has
been slow to distribute interim payments to the sites, in part
because some of the money may have to be returned to HCFA. This
creates great uncertainty for DOD sites and means that care
under subvention is currently paid for with DOD's appropriated
funds. The demonstration's payment method differs significantly
from the Medicare managed care payment system, in which
payments are made at the beginning of the month to cover care
delivered during the month.
Based on experience to date with the demonstration, any
payment approach for subvention must be even-handed (that is,
it should favor neither HCFA nor DOD); straightforward and
readily understandable; and prospective (DOD and its sites
should receive payment in advance of delivering care to
enrollees). The demonstration's payment mechanism, which relies
on level of effort, is functional in the short term--although
the calculation of level of effort has weaknesses.\17\ However,
this payment mechanism may not be appropriate over the longer
term for an extended or expanded subvention program. Moreover,
a credible long-term payment system should start with a zero-
based budgeting approach: first, determining the cost to DOD of
providing TRICARE Senior Prime care to dual eligibles and then
deciding how much care will be provided from DOD's
appropriations and how much from Medicare reimbursement.
---------------------------------------------------------------------------
\17\ These issues were discussed more fully in Medicare Subvention
Demonstration: DOD Data Limitations May Require Adjustment and Raise
Broader Concerns (GAO/HEHS-99-39, May 29, 1999).
---------------------------------------------------------------------------
Chairman Thomas. Thank you, Doctor. When we were looking in
the BBA 1997 legislation, at a subvention program, you are
correct, DOD with Tricare seemed to be, interestingly enough,
about a year or 18 months or 2 years ahead of the VA Vision
Program.
You just testified that it looks as though it needs to have
another year to 18 months in terms of maturity, but the VA--the
DOD subvention program has been going for sometime now and they
still have some inadequacies. How comfortable are we that there
has been a understanding of the problems with DOD, principally
on an accounting basis, which the VA would face as well, and
VA's learning curve in terms of what it needs to show before
they could have a similar subvention?
Mr. Scanlon. I think we have learned a lot from DOD in
terms of the problems we face. We have not always mastered the
solutions. In fact, in looking at level of effort in the
reports that we have issued, one of the concerns is to
ascertain more precisely what level of effort really is, it is
impossible, given the data that were available and used by DOD
at the time. And one of the potential options is to change the
data that are used, to recalculate level of effort using more
current data.
We also, I think, have to recognize some very significant
differences between the VA system and the DOD system. While we
have learned in principle the importance of data, and accurate
data, to setting level of effort and to being able to manage
the program, we are starting out with an entirely different
environment in the VA in terms of the challenges or the
barriers or the obstacles that are going to crop up as we try
to actually implement subvention.
Chairman Thomas. Did you look at any of the data, because a
lot of times you have data, but you don't look at it from a
particular conceptual approach? But, clearly, this joint use by
people who are otherwise eligible for the VA system in using
HMOs under a Medicare structure provides us perhaps with a case
study in choice. Did you find anything that popped out at you
as to why a Medicare-eligible veteran would use particular
services from the VA, notwithstanding the fact that they were,
perhaps, getting the bulk of their medical services from an HMO
arrangement, so that we could begin to understand what it was
that they thought the VA had as an advantage? Because, clearly,
one of the main problems with the VA is that more and more
people believe that it does not provide a profile of medical
services that your typical--and especially if the VA
Administration is focusing on a higher income, nonservice-
related injury veteran--could provide.
Mr. Scanlon. Mr. Backhus may be able to answer that more
from the work that they have done, but in terms of subvention
itself, we are now looking at some of the views of persons that
enrolled in the DOD demonstration and those who did not enroll,
and we will be able to have some information on that point, but
I think not in great detail.
We do know that for the general enrollee in a
Medicare+Choice plan, there are times when they do seek
services outside the plan because they may find the provider
more convenient, or the plan--legitimately managing their
care--may say, we do not want to provide you that service.
Now, in the case of a veteran who is able to get that
service for free from the VA--as opposed to individuals who
don't have an additional HMO benefit covering that service--it
is another factor that may play into that decision to use the
VA rather than the HMO.
Mr. Backhus. Mr. Chairman, you----
Chairman Thomas. If you can go out of plan and it costs you
nothing, that may be the ideal health plan.
Mr. Backhus. Mr. Chairman, we have not specifically looked
at that particular issue; however, I do know that from having
spoken with many different VA hospital officials as well as DOD
hospital officials, the same thing happens there by the way.
There are military retirees who are over 65 who have enrolled
in and so forth, and so forth. In many cases, they do approach
the Medicare Choice HMO first for care. They are referred.
That's where the idea----
Chairman Thomas. So, in part, it is either a cost shift, if
you put it in a crass, commercial, economic way, or it is, if
you don't like what we have to offer, this is an alternative
available to you?
Mr. Backhus. Precisely.
Chairman Thomas. The Senate added fee-for-service, which is
not part of the DOD subvention. What is your attitude about
their ability to deal with that issue, if in fact it is
included, notwithstanding the adamant opposition by the Health
Care Financing Administration to go to a fee-for-service beyond
a capitated plan? Can it be done in the same timeframe?
Mr. Backhus. Well, I don't think it can, no.
Chairman Thomas. OK. That is more than enough. Thank you.
Does the gentlewoman from Florida wish to inquire?
Mrs. Thurman. I am trying to read your reports, since we
just kind of got it in our packages this morning. So I am
trying to catch up with this.
But, particularly, I think on page 8 and 9, where you are
kind of talking about in the future of VA benefits and what is
going to happen, can you summarize that for me a little bit of
what you see happening? I am kind of concerned when we are
expanding and now we may be excluding and we might be, with the
Priority 7 and the amount of resources that might be available.
And maybe is some of it just due to the lack of what we put in
our budget to take care of some of these issues as we do this?
Mr. Backhus. Surely. I could try to explain that. VA has
the authority to enroll as many of the seven priority groups as
they think they have the resources to provide care for. This
current fiscal year, fiscal year 1999, VA made the decision
that they could enroll and provide care to all veterans in all
seven groups.
Therefore, that means that every veteran who wants to use
the VA can enroll and begin immediately obtaining care. VA has
to decide every year. There are significant concerns that the
budget request for fiscal year 2000 does not contain sufficient
money to enroll all seven priority groups for next year.
It is not clear at this time what that decision from VA is
going to be, but the implications are that should the VA
decided to enroll all seven priority groups and finds itself
with insufficient money to provide care, then the quality of
that care begins to suffer. Waiting times increase. Particular
care won't be denied but when veterans inquire and try to seek
an appointment, rather than perhaps getting something in 30
days it might be 50, 60, 70.
There are indications this year, at this time, and in some
places, veterans are already waiting half a year to get an
appointment. The crunch for the moment seems to be in primary
care. We all know that there is plenty of inpatient capacity
because these buildings are big and were built many years ago
and it doesn't----
Mrs. Thurman. Would you say that every place, or are there
some geographic areas where that may not be true?
Mr. Backhus. It is clearly varied. Some places are much
better than others, much more capable than others. There's a
capacity----
Mrs. Thurman. Just because of the demographic changes
within a State?
Mr. Backhus. That is what has happened. Historical funding
has pretty much remained constant, yet the veterans, as you
know, have moved to around the sunbelt, and that resource shift
hasn't caught up. And the budget has been flat-lined for the
last several years.
Mrs. Thurman. The budget issue is one that--when you did
and looked at this, particularly from the expansion of services
to all veterans, and then looking at it from the subvention,
but, just as importantly, as we have expanded into the free-
standing clinics, has that helped reduce some of this waiting
or is that potentially something that could be helpful if there
were more of those?
Mr. Backhus. Those are obviously primary care.
Mrs. Thurman. Correct. And you had said those were one of
the larger areas we are having----
Mr. Backhus. That has increased access tremendously for
veterans. It has made the health care closer to where they
live. And it has obviously increased the capacity. It has had a
significant effect on VA's ability to meet that primary care
demand. However, that money has to come from somewhere, and at
the present time we estimate that one in every four dollars, VA
health care dollars, is spent maintaining these large, huge
medical facilities that are, in many cases, more than half
empty.
Mrs. Thurman. But would you consider these then in that
context somewhat cost effective for delivery of service?
Mr. Backhus. Absolutely they are. They appear to be.
Mrs. Thurman. Thank you.
Chairman Thomas. Thank you very much. One of the
difficulties, of course, is that the VA runs a hospital system,
but hospital folks sometimes are not the people making
decisions in terms of how resources are used. And of course one
of the problems is that Congress oftentimes intervenes.
One of the difficulties is that now that the Senate has
placed a fee-for-service aspect in what had been a broad-based
attempt to assist and accommodate, you might look to the fact
that not all VA hospitals are capable of offering a primary
care, broad-based health package, and that if there are
hospitals that are specialty hospitals, they would not be able
to function in the capacity that a capitated plan would
envision them to participate.
And so, I believe there is a degree of motivation in
including a fee-for-service plan to preserve hospitals that
otherwise probably should not continue to be open if in fact
the primary purpose of the Veterans Administration is to
provide service to veterans who can otherwise not get health
care service. That clearly has not been the direction.
The Chair was wrapping up. Does the gentlewoman from
Connecticut wish to inquire?
Mrs. Johnson of Connecticut. No, thank you. I will review
your testimony, though, because it is a subject I am interested
in--just unfortunate that there is no time my schedule for it.
Chairman Thomas. That is true, and frankly, this is not the
first time we have visited the subject. It is probably not
going to be the last.
We are very dependent upon your analysis of whether or not
these departments dealing with billions of dollars can, in
fact, provide an accounting for the money that they spend. That
is the key as to whether or not dollars shifted from the
Medicare Program into either the Department of Defense or
Veterans Affairs can have an assurance that it is being used
for the purpose for which we would be providing it.
And I would continue to rely on you, primarily, the
Congressional Budget Office, but also the General Accounting
Office to answer the question, if in fact, this is going to
save money, how come we have to keep putting money up to pay
for a program that clearly the accounting folks tell us will
cost money?
Thank you very much for your testimony. And the
Subcommittee stands adjourned.
[Whereupon, at 12:24 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of Benjamin H. Butler, National Association for Uniformed
Services, Springfield, VA
Mr. Chairman, The National Association For Uniformed
Services (NAUS) appreciates the opportunity to present this
statement concerning Medicare ``VA Subvention.''
The National Association for Uniformed Services represents
all ranks, branches and components of uniformed services
personnel, their spouses and survivors. Our nationwide
association includes all personnel of the active, retired,
reserve and National Guard, disabled and other veterans of the
seven uniformed services: Army, Marines, Navy, Air Force, Coast
Guard, Public Health Service, and the National Oceanic and
Atmospheric Administration.
The overall purpose of NAUS is to support legislation which
will uphold the security of the United States, sustain the
morale of the Armed Forces, and provide fair and equitable
consideration for all members of the uniformed services.
Medicare Reimbursement
The National Association for Uniformed Services supports
legislation to authorize Medicare reimbursement for heath care
services provided to Medicare-eligible veterans in facilities
of the Department of Veterans Affairs. Senator Jeffords has
already introduced S. 445, which would require a VA Medicare
Reimbursement Demonstration at 10 geographically disperse
sites. We would like to see full Medicare reimbursement
legislation passed promptly for both VA and DoD. If that cannot
be done we would support a demonstration project. However, the
longer we delay full implementation the greater the injustice
to military retirees and eligible veterans.
We are gratified that there is a growing understanding that
offering discretionary veterans an opportunity to use Medicare
to reimburse their VA care creates additional access and can
actually save Federal tax dollars. NAUS believes this is a
common sense proposal and deserves immediate enactment. It is
consistent with efforts to streamline and share Federal
resources, it is politically feasible, and is an excellent way
of identifying savings for the Medicare Trust Fund. Study after
study has shown that military and VA medical facilities provide
significant savings over commercial medical providers which the
veterans would otherwise use.
Some features which we recommend be incorporated into VA
Medicare reimbursement include:
Demonstration Phase. Authority to expand the test after
each 6 month period should be incorporated into the bill. The
Department of Veterans Affairs Statistical Brief, Projections
of the US Veteran Population: 1990 to 2010, states that an
estimated 500,000 veterans die in the United States each year.
Deaths of U. S. World War II veterans presently account for
almost 3 of every 4 veteran deaths and are projected to peak at
380,000 in 2001. A three year demonstration, then a lengthy
review, could result in a delay of up to five years or more
before a nationwide Medicare reimbursement program is in place.
That is too late for these older veterans. They need help now.
As quickly as cost savings are determined, the program should
be expanded.
Cost Sharing. We strongly recommend that cost sharing be
waived for retired veterans. These veterans who served to
retirement, many through 3 wars and the 45 year Cold War, were
promised free lifetime medical care in exchange for a lifetime
of service (See Exhibit B). With the closure of over 58
military hospitals, downsized clinics, a chronically
underfunded Defense Health Program, and cutbacks in personnel,
hundreds of thousands of retired veterans have been abandoned
by their employer, the Department of Defense. These veterans
are the only federal retirees who lose their guarantee of
employer provided health care at age 65. Many of these veterans
have purchased ``Medigap'' policies. The VA has the authority
to bill these policies and we do not object to that. However,
to require this category of veteran to cost-share is wrong and
should not be done. If the retired veteran has a ``Medigap'' or
other policy, continue the current practice of 3rd party
collections; but if he does not have a policy, then the only
party billed should be Medicare, not the retired veteran.
Third Party Collections
We strongly support a bill to revise the authorities
relating to third party collections. We support allowing the
DVA to keep the amounts collected for services provided by DVA
medical facilities. Collections should be made at the level
closest to the point of service for which the charge is made
and the funds collected, in general, should remain there. This
would provide an incentive to the facilities to provide
service, attract patients and to collect for their services.
The free enterprise system has been proven to be the most
efficient means of allocating goods and services, certainly far
more efficient than top down command economics. Collecting
funds at, or close to, the point of service and leaving most of
them there to help fund these services, would energize local
DVA medical facilities, reward efficiency and performance,
provide incentives that mirror the best results of free
enterprise and greatly increase the efficiency of and patient
satisfaction with the DVA hospital system and reduce
administrative costs. The provisions in the draft bill to
exclude these funds from any OMB estimates relative to required
appropriations is absolutely essential, should be rigidly
enforced, and requires constant vigilance.
Finally, the National Association for Uniformed Services
thanks this committee for its support of Medicare
reimbursement, for holding this hearing and its interest and
concern for our service members, their families and survivors.
Mr. Chairman thank you again for giving us the opportunity to
present this testimony today. I will be happy to answer any
questions you have.
Statement of Paralyzed Veterans of America
Chairman Thomas, Ranking Minority Member Stark, members of
the Subcommittee, the Paralyzed Veterans of America (PVA)
appreciates this opportunity to testify, for the record,
concerning the participation of the Department of Veterans
Affairs (VA) in a Medicare subvention pilot program in
cooperation with the Health Care Financing Administration of
the Department of Health and Human Services.
PVA is a congressionally chartered veterans service
organization, representing over 18,000 members with spinal cord
injury or dysfunction, whose mission is to be the leading
advocate for quality health care for our members; promote
research and education addressing spinal cord injury and
dysfunction; ensure the availability of benefits earned through
honorable military service; and to maximize the civil rights,
opportunities, and independence of our members. As a veterans
advocacy group, PVA stands ready to support the veteran
community of more than 25 million men and women to ensure that
each eligible veteran, and his or her dependents, receive the
benefits earned through service to this country.
Our testimony today is an attempt to reflect PVA's broader
role and interest in preserving quality VA health care, not
only for the veterans who are statutorily eligible for
services, but also for the more than 4 million disenfranchised
Medicare-eligible veterans aged 65 and over, who, because of
the limited Medical Care Appropriation and their higher income
level, are not eligible to receive health care services from
the VA.
The delivery of health care has changed dramatically over
the last five years. The intense pressure to control costs,
coupled with the rapid spread of managed care, has had an
impact on every health delivery system in this country,
including VA. As a hospital-based system with an aging
infrastructure and patient population, the VA has not faired
well under the constraints of a global budget capped by the
limitations of the Balanced Budget Act of 1997. Meanwhile, the
rapidly changing health care landscape of the last few years
has made management of VA health care extremely challenging.
Its leadership has worked tirelessly, if not always
successfully, to move the delivery of health care away from an
institutionally-based medical model to a more streamlined
ambulatory care system. The greatest stumbling block to
completion of this necessary revampment has been adequate
resources. It should be noted that change, especially dramatic
change such as system transformation, does not come without
costs and committed investment. VA, unlike the private sector,
cannot issue securities, borrow funds, or merge with other
systems to find needed capital to finance what it needs to
become to adequately serve and attract new veteran workload. It
must rely on prudent management and legislative fixes.
The VA, in P.L. 105-33, the Balanced Budget Act of 1997,
was granted the authority to retain collections from third-
party payers. Although VA collection efforts have met with
mixed success, this legislation has forced VA away from the
outdated practice of averaging costs to the development of
reasonable charges for services rendered to veterans--a
universal billing practice demanded by all insurers and health
plans. It is our understanding that VA will implement its
reasonable charges billing system on September 1, 1999.
VA has more than ten years of experience with shared
services and has worked in partnership with the Department of
Defense (DoD) and with local communities nationwide on a
multitude of contractual arrangements for shared services.
Monies obtained from sharing agreements have been used to
augment and enhance services for veterans, while providing
cost-effective care for DoD beneficiaries. Community
arrangements have also created numerous opportunities to
control costs through the shared purchase of expensive medical
equipment and the development of other shared service
arrangements. P.L. 105-33 enhanced VA's sharing authority.
Together, these programs have laid the groundwork for VA's
potential participation in Medicare subvention--an important
aspect of VA's long term strategy to maintain a comprehensive
and high quality health care system.
Given that managed care is now a permanent and growing part
of the health delivery landscape, it is essential that VA be
able to play in that marketplace. Speaking for PVA and others
in the veteran community, there is qualified support for VA's
participation in the Medicare Subvention pilot. An important
term of participation is that Medicare-eligible veterans must
be offered the same participation opportunities as other
Medicare beneficiaries, especially, the option to choose to
come to the VA under a fee-for-service Medicare pilot, as well
as the managed care pilot.
Previous attempts to legislate VA Medicare subvention have
included a fee-for-service component. It is fitting that
present efforts also include this important provision.
Medicare-eligible veterans who are not currently receiving
services in the VA must be allowed the opportunity to overcome
past VA disenfranchisement by participating on an equal footing
with current Medicare beneficiaries, choosing either managed
care or continued participation in a fee-for-service
arrangement. Currently, the Medicare program allows
beneficiaries the freedom to choose their service arrangement.
Veterans must be permitted the same choice options. Just as
current users of VA health care bring their third-party
reimbursement to the VA, Medicare-eligible veterans should be
allowed to freely participate in the Medicare program, which
they paid into throughout their years of employment.
PVA appreciates the constraints and potential problems that
VA would face under a fee-for-service Medicare pilot option.
However, it is the position of this organization that these
barriers to participation are no greater and, in fact, are very
similar to those posed under a managed care option.
The inclusion of a fee-for-service option, would, as
previously stated, offer choice and equal participation for a
universe of more than 4 million Medicare-eligible veterans who
have been disenfranchised from the VA solely by their income
and the inadequacy of VA appropriations. In addition, the fee-
for-service option would also enable VA to develop comparative
data on the two options.
For either or both options to function successfully,
Congress must require VA to institute data systems to track the
costs and services provided to each eligible participant. This
type of accounting is the accepted standard for successful
health plans; no less should be expected of the VA. One of VA's
greatest failings has been its inability to develop accurate
cost data. This problem has been historically evidenced in its
Medical Care Cost Recovery Program. VA's system of averaging
costs has frustrated not only insurers and health plans, but
has, in some cases, discouraged eligible veterans from using
the system. Fear of being billed for non-service connected
care, which is routinely covered in the community setting, is a
strong deterrent to a veteran living on a fixed income.
We view the current DoD TRICARE Senior Prime program as a
first step in the realization of VA's potential successful
partnerships. VA participation in Medicare subvention appears
to be the next logical step in the provision of comprehensive,
seamless care to veterans.
We understand that VA is very eager to be part of a
Medicare subvention pilot and is willing to participate in a
managed care subvention no matter what the initial cost to the
Department. It is for this very reason that we feel a fee-for-
service component should be added to the pilot. Understanding
that the operation of the pilot must be cost-neutral to the
Medicare Trust Fund, VA would be compelled to demonstrate that
it can market, track, and operate a high quality system that
will attract new users over its current level of effort. Recent
articles on Medicare+Choice point to an undercurrent of
dissatisfaction among providers and consumers in managed care
communities. A VA fee-for-service model will allow for a useful
comparison of what veteran consumers want and will use.
We recognize that at the end of the three-year pilot the
Health Care Financing Administration, VA, or both could view
this effort as not worth sustaining. We urge this Committee to
approve a VA Medicare Subvention program, and to make certain
that this program includes a fee-for-service component.
Statement of Mark H. Olanoff, Retired Enlisted Association, Alexandria,
VA
Mr. Chairman, Mr. Ranking Member, distinguished
subcommittee members, the 100,000 members and auxiliary of The
Retired Enlisted Association (TREA) appreciate the opportunity
to present to you the views of the association regarding the
proposed Medicare Subvention demonstration program to take
place at Department of Veterans Affairs health care facilities.
TREA has long supported the proposal which would allow the
Department of Veterans Affairs to be reimbursed by the Health
Care Financing Administration (HCFA) for treating Medicare-
eligible veterans. In fact, this program was listed as TREA's
number one veterans benefit priority before a joint session of
the Veterans Affairs Committee.
Commonly referred to as Medicare Subvention, this
particular program can accomplish two goals: one, the VA would
benefit by being reimbursed by Medicare for providing care to
veterans who may have received their care elsewhere. Two, it
greatly improves veterans' access to health care. Presently,
many older veterans are severely limited in their health care
options. In particular, military retirees over the age of 65
are forced out of the TRICARE system. These retirees were the
ones who were promised free life-time health care if they
served twenty or more years in the military. Servicemembers
were not told that legislation passed in 1956 and 1966
effectively eliminated that benefit. In fact, recruits up until
1993 were being told of the promise of free medical care in
return for a military career. However, no reference is made to
the reality of base closure and hospital down-sizing and the
impact on retiree health care such events have. Allowing those
veterans to receive their health care at the VA will greatly
expand the number of facilities a military retiree could turn
to for care, thereby greatly improving the health care benefit
offered to those who have served this nation.
TREA is aware of the discussions regarding this proposed
demonstration and whether or not it should be an HMO-style or
Fee-for-Service style program. The members of this organization
urge the members of this Committee, and their colleagues in the
Senate, to pass this test in either form. While this debate
goes on, veterans continue to lose health care options.
Congress needs to act to protect veterans. TREA also urges this
committee to adopt the position of their colleagues in the
Senate which would allow for a three year demonstration to be
preceded by a one year period for administrative set-up. The
experiences of the Department of Defense regarding the
establishment of their demonstration program should be heeded
to ensure that the VA's program runs smoothly. Hospital
certification alone consumed nearly one year of the DoD
program. It is important that lesson be used to provide
Medicare-eligible veterans with this benefit as quickly as
possible.
By establishing this program, in conjunction with the
Veterans Millennium Health Care Act, those who served honorably
in our nation's armed forces can be assured that quality health
care will be available throughout their life. The emergency
care, long-term care, eligibility reform and VA Subvention
proposals will enable TREA, and other veterans service
organizations, to encourage our members to receive their health
care through the Department of Veterans Affairs. For too long
the VA has only offered a partial benefit, discretionary long-
term care, no emergency care program, space available care. The
proposals before Congress at this time guarantee that the VA
will offer veterans a complete package and VA Subvention is,
and will remain, a critical part of that.
Statement of Robert F. Norton, Retired Officers Association,
Alexandria, VA
Introduction
The Retired Officers Association (TROA) is pleased to
submit this statement to the Subcommittee on Health of the
House Ways and Means Committee on Medicare Subvention for the
Department of Veterans Affairs.
TROA is the fourth largest military veterans organization
with nearly 400,000 members. Our membership consists of
veterans and survivors who are retired officers, active duty
and National Guard / reserve officers of the seven uniformed
services and their surviving spouses. Collectively, there are
1.67 million military retired veterans who are eligible to use
VA health care either as ``mandatory'' or ``discretionary''
veterans.
As a founding member of The Military Coalition (TMC), TROA
works closely with the 29 other veterans and military
organizations in The Coalition. TMC represents the collective
interests of over 5 million current and former members of the
seven uniformed services, plus their families and survivors.
TMC's Committee structure includes a Veterans' Committee which
works veterans issues for The Coalition. This Statement,
however, represents the views of TROA alone. TROA does not
receive any grants or contracts from the federal government.
Background
VA Subvention would permit Medicare funds to be used for
Medicare-sponsored services to eligible veterans in VA
facilities. VA Subvention continues to be TROA's highest
veterans' health care legislative priority.
The majority of stakeholders, including TROA, the other 29
members of The Military Coalition, most veterans service
organizations (VSOs), and the Department of Veterans Affairs
(DVA), agree in principle on the need to test using Medicare
funds for the non-service connected care of older veterans. The
problem appears to be in the design of the test and related
cost issues.
Late in the last session of Congress, the Chairmen of the
House Veterans Affairs Committee (HVAC) and the Subcommittee on
Health of the House Ways and Means Committee reached an
agreement to test subvention and to create a new program for
certain veterans living in remote-areas. Under the ``remote
access'' program, the VA would enter into agreements with
health care maintenance organizations (HMOs) and other
providers to provide care for Medicare-eligible veterans with a
service-connected disability, injury, or illness. Medicare
would reimburse the providers for the non-service-connected
care and the VA would reimburse the providers for service-
connected care. The new program would run for three years and,
if successful, would be extended or made permanent. The House
passed the ``enhanced'' VA subvention bill but no action was
taken on a Senate subvention proposal sponsored by Senators
Rockefeller and Jeffords. The Senate bill would have authorized
a subvention test but not a ``remote access'' program for
disabled veterans as in the House bill. In the current session
(106th Congress) a VA Subvention test has been endorsed this
session by key Senate Committees.
The Senate Finance Committee approved a test of subvention
at eight VA hospitals, to be selected jointly by the Secretary
of Veterans Affairs and the Secretary of Health and Human
Services. TROA is pleased to note that the Senate proposal
envisions testing subvention on a fee-for-service basis as well
as the managed-care concept. Under the latter, retirees would
have to enroll and agree to get all their care through the VA
(VA would contract for care it couldn't provide in-house).
Under the fee-for-service concept, the VA would be partially
reimbursed for providing retirees care on a visit-by-visit
basis, without requiring retirees to enroll. The Senate Finance
Committee proposal envisions a four-site test of each concept.
Each test allows the VA and Medicare up to one year for
administrative setup, followed by three years of care delivery.
The managed care program would start during calendar year 2000,
and the fee-for-service test during 2001.
The Need for VA Subvention
The fundamental issue regarding subvention is whether older
non-disabled veterans who are already eligible for Medicare
should be allowed to receive Medicare-sponsored services for
non-service connected care in a VA facility.
Today, many Medicare-eligible veterans use VA health care
for some services and a Medicare HMO for the rest of their
care. The result is inefficiency, duplication of effort, and
inconsistency in providing health care to these veterans. As a
growing trend, this practice may not be in the best interests
either of Medicare-eligible veterans or of the government. A
recent VA study revealed that the number of ``dual-eligible''
veterans--those who receive care from the VA and care from a
Medicare HMO is ``increasing rapidly'' and correlates with
national Medicare HMO enrollment rates in general--18%. The
study showed that:
VA patients covered by Medicare-HMOs already
receive substantial amounts of VA care.
Estimated Medicare payments to Medicare HMOs on
behalf of ``dual-eligible'' veteran patients were $305 million
in one year (FY 1996).
For veterans covered by Medicare HMOs for a one-
year period (FY 1996), VA spending on Medicare services to
those same veterans was $146 million.
Medicare HMO enrollment trends reveal an interesting
pattern when compared to the VA's funding model, known as VERA
(the Veterans Equitable Resource Allocation). VERA is re-
directing VA resources away from parts of the country where
Medicare HMO enrollments are rising significantly. In the
Northeast region, for example, the proportion of Medicare
eligible VA patients enrolled in Medicare HMOs is up
substantially: Massachusetts--3.0% to 12.2%; New York--4.1% to
4.9%; New Jersey--0.6% to 8.3%; Pennsylvania--2.3% to 13.2%.
VERA distributions of VA funds, however, are down
significantly in the corresponding VA service regions (VISNs)
as shown below:
VA Funding Trends in Certain Regions According to 'VERA' (FY 1996--
1999)
Boston (VISN 1)--8.0%
Albany (VISN 2)--5.8%;
Bronx (VISN 3)--6.9%;
Pittsburgh (VISN 4)--2.0%;
Baltimore (VISN 5)--11.0%.
If Medicare funds were allowed to be used in VA facilities,
the VA could provide health care directly to those who
increasingly are turning to Medicare HMOs for care especially
in parts of the country where VA capacity and resources ae
being cut back. Whether veterans would choose VA care over
their Medicare HMOs should be a research question from a VA
subvention test. As important, a test could determine whether
Medicare services can be offered at less cost in a VA setting.
A VA Subvention test would also be useful in parts of the
country where veteran enrollments and VERA distributions are on
the rise. That's because Medicare funds could be used in a VA
setting to pay for the care of the increasing numbers of older
veterans eligible for Medicare. The study noted above showed
that the proportion of Medicare eligible VA patients who are
also enrolled in Medicare HMOs is significant in those areas
where VERA distributions are increasing. The following table
illustrates this:
Percent Medicare-Eligible Veteran Patients Also Enrolled in Medicare HMO
----------------------------------------------------------------------------------------------------------------
% VA Patients
State Also Enrolled in VISN LOCATION VERA INCREASES FY
Medicare HMOs 96-99
----------------------------------------------------------------------------------------------------------------
Arizona.................................... 30.5 Phoenix...................... +16.8%
California................................. 34.7 San Francisco................ +8.8%
Long Beach................... +4.0%
Nevada..................................... 24.8 (3 VISNs overlap)............
Florida.................................... 20.7 Bay Pines.................... +16.1%
----------------------------------------------------------------------------------------------------------------
(Note: VISN areas of responsibility do not correspond with State boundaries). Texas, Washington, Colorado, and
Louisiana also have experienced significant growth in the number of VA patients enrolled in Medicare HMOs and
VERA increases to the corresponding networks.
Authority to test VA Subvention would allow the VA and
Medicare to evaluate whether Medicare funds could be used more
efficiently in VA facilities where Medicare-eligible
enrollments are increasing.
The Retired Officers Association fully supports the concept
of VA Subvention and we urge the Subcommittee and the full
House Ways and Means Committee to approve the parameters for a
VA Subvention demonstration as soon as possible.
CONCLUSION
The Retired Officers Association deeply appreciates the
work of the Chairman and the distinguished members of the
Subcommittee on behalf of America's veterans including military
retirees. They deserve assured and reliable access to Medicare
services in VA facilities when they become eligible for
Medicare.
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