[Senate Hearing 108-]
[From the U.S. Government Publishing Office]



 
 DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND 
        INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                              ----------                              


                         TUESDAY, APRIL 6, 2004

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:02 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond, Shelby, Domenici, Stevens, 
Mikulski, and Leahy.

                     DEPARTMENT OF VETERANS AFFAIRS

STATEMENT OF HON. ANTHONY J. PRINCIPI, SECRETARY
ACCOMPANIED BY:
        JONATHAN B. PERLIN, M.D., DEPUTY UNDER SECRETARY, HEALTH
        VICE ADMIRAL DANIEL L. COOPER (USN RET.), UNDER SECRETARY, 
            BENEFITS
        JOHN W. NICHOLSON, UNDER SECRETARY, MEMORIAL AFFAIRS
        WILLIAM H. CAMPBELL, ASSISTANT SECRETARY, MANAGEMENT
        D. MARK CATLETT, PRINCIPAL DEPUTY ASSISTANT SECRETARY, 
            MANAGEMENT
        RICHARD GRIFFIN, INSPECTOR GENERAL

            OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

    Senator Bond. The Subcommittee of VA, HUD, and Independent 
Agencies will come to order. Senator Mikulski has been 
temporarily delayed, but she is on her way and asks that we go 
ahead.
    This afternoon we conduct a budget hearing on the fiscal 
year 2005 budget for the Department of Veterans Affairs. I 
welcome back the Secretary of the VA, Tony Principi. Mr. 
Secretary, we are very pleased to have you today. We appreciate 
your hard work, your commitment and your compassion as the 
Secretary of VA. In my humble opinion, for what it is worth, 
your record identifies you as the finest VA Secretary I have 
ever worked with and we are proud to have your leadership.
    As you know, there has been a tremendous amount of 
attention on the VA and veteran issues in recent months. This 
is no surprise given the deployment of our military around the 
world to fight the global war on terror and the war in Iraq. 
Today hundreds of thousands of brave servicemen and women are 
deployed across the globe in such unstable regions as 
Afghanistan, Iraq, Kosovo, Bosnia, and Haiti. Unfortunately, 
some of these men and women will return to the States with 
physical, mental, and spiritual wounds that can never be fully 
healed. The VA was created with the central purpose of being a 
safety net for our veterans, and its mission today is probably 
more important than ever. From what I have seen, we are saving 
more lives on the battlefield, but often the lives saved are 
lives of people who have very severe injuries.
    Overall, I strongly believe you, Mr. Secretary, have done 
an outstanding job in meeting the changes and the challenges of 
serving our Nation's veterans. Veterans have no better ally or 
friend than you. As a veteran yourself and a father of two sons 
currently serving in the military, no one can question or 
criticize your commitment or compassion for our Nation's 
veterans. As the Secretary of VA, more veterans are served than 
ever before. During your 3 years as Secretary, the number of 
veterans enrolled in the medical care system has grown by 2.4 
million people and the medical care budget has grown by some 
$7.3 billion.
    You have rightly refocused VA's health care system to give 
priority service to our most needy veterans. You have begun a 
new program that allows some veterans to fill privately written 
prescriptions at the VA. You have reduced the number of 
veterans waiting more than 6 months for an appointment from 
300,000 to less than 20,000, and I expect this waiting list 
will be eliminated within the next month. You have reduced VA's 
inventory of benefit claims by almost 100,000 and you have 
reduced the average processing time from 233 to 187 days. And 
you have made great strides in expanding burial space. More 
important perhaps, you have begun the critical process to 
modernize and rebuild the veterans' health care system that 
will ensure access and quality of care for future generations 
of veterans, as well as the current ones. It is an outstanding 
record and we congratulate you.
    Nevertheless, we still face major challenges, namely, 
providing timely quality care for veterans. During our first 
budget hearing, I told Senator Mikulski I felt like we were in 
the movie ``Groundhog Day'' because our main VA-HUD priorities 
are underfunded year after year and this year is no exception. 
By far the most troubling is veterans medical care funding. The 
budget request underfunds VA medical care and proposes to make 
up for the shortfall by proposing once again to charge new fees 
on veterans seeking care, which are essentially a new tax 
imposed on veterans. These budget proposals were unacceptable 
last year to the Congress and I can almost certainly assure you 
they are unacceptable again this year. We should not be 
balancing our books on the backs of veterans.
    VA medical care is a top priority again of this committee. 
I am committed to ensuring our veterans are not shortchanged, 
especially in time of war. While on duty, we expect our brave 
service members to face dangers on a daily basis. They, 
however, should not expect to face the danger of inadequate 
medical care services when they return from duty.
    I have seen firsthand the scars of combat with visits to 
the Walter Reed Army Medical Center here in DC. I had the 
privilege of meeting injured soldiers like Phillip Ramsey from 
Kansas City, Missouri who recently returned from combat in 
Iraq. It really saddens you to see a young man, any young 
person, with such a personal sacrifice for our country. But I 
am very pleased with the care that the Department of Defense 
was providing to him. But we know that Phillip is going to face 
a lot more challenges when the military discharges him from the 
service and VA enrolls him in their system. We cannot let 
soldiers like Mr. Ramsey fall through the cracks.
    Mr. Secretary, you are at the center of a perfect storm due 
to the overwhelming demand for VA health care services. As I 
discussed last year, this storm was created by a convergence of 
factors mainly created by Congress with legislation that opened 
up health care eligibility to all veterans and expanded benefit 
packages to many. Prior to the enactment of these laws, the VA 
mainly served the most vulnerable veterans, veterans with 
service-connected disabilities, with low income, and veterans 
needing special services, otherwise known as the VA's core 
constituents. The authors of the 1996 act predicted that the 
cost of opening up eligibility would be budget neutral because 
there would be few new enrollees. Wow, did they miss that. 
Reality, however, has demonstrated the opposite as veterans 
seeking care have besieged the VA. Since 1996, the number of 
veterans served by the VA has grown from 2.7 million to 4.7 
million in 2004. Let me repeat myself. Since 1996, the number 
of veterans served has gone from 2.7 million to 4.7 million. 
And VA projects this growth to continue well into the future.
    To respond to this fast-growing workload, we have worked on 
a bipartisan basis to appropriate substantial funding increases 
for VA medical care. The account has grown from $16.5 billion 
in 1996 to almost $28.3 billion in 2004. That is a staggering 
71.5 percent. During the last 3 years alone, VA medical care 
has grown by some $7.3 billion, or 34.7 percent. These massive 
funding increases have resulted in more veterans being served 
and provided with improved quality and accessible care. These 
additional resources have allowed the VA to reduce 
significantly the number of veterans waiting for service. 
Nevertheless, the workload growth continues to overwhelm the VA 
and some veterans, including the core constituents, are still 
being asked to wait for care. I still believe that is 
unacceptable.
    Further, while the VA has made significant progress in 
improving its performance in seeing all patients within 30 
days, recent data indicate that the VA is only able to see 48.1 
percent of new patients within 30 days. That is not good enough 
and we are not out of the storm yet.
    Mr. Secretary, you have taken some significant steps to 
respond to the overwhelming demand such as prioritizing care 
for VA's core constituents and implementing the transitional 
pharmacy benefit program. You have made some unpopular but 
necessary decisions to suspend the enrollment of lower priority 
veterans, the so-called Priority 8's. We would all like to be 
able to serve more but the truth is you cannot serve everyone 
with the resources available and VA's central purpose is to 
provide the care for the core constituents.
    In order to get out and stay out of the perfect storm, we 
need to continue to provide VA with adequate resources. The 
budget request includes $32.07 billion for discretionary 
spending. That level is $1.18 billion, or 3.8 percent more than 
fiscal year 2004. For medical care, the budget request includes 
$29.2 billion, a $904 million increase over 2004.
    I recognize and credit the administration for the 
significant budget increases during the past 3 fiscal years, 
but the 2005 request is simply inadequate. The inclusion of new 
enrollment fees and increased co-payments is especially 
troubling and disappointing since Congress rejected them last 
year. I regard the budget request for medical care as a floor, 
but there is a ceiling due to our other compelling needs such 
as affordable housing, clean water, and scientific research.
    Further, it is clear that the funding level increases for 
VA medical care cannot be sustained without reform of the 
system. A critical component of the system is the Capital Asset 
Realignment for Enhanced Services, or CARES. I fully support 
CARES. It is critical in ensuring VA has the right facilities 
in the right places. We still hark back to the GAO report that 
VA is wasting $1 million a day on unnecessary and under-
utilized medical facilities. That money could be converted into 
direct medical care for 200 new veterans a day.
    You set out on an ambitious 2-year plan to emphasize CARES 
nationally. I appreciate your willingness to listen and respond 
to concerns of Members of Congress. I also recognize the hard 
work done by the Honorable Everett Alvarez who reviewed the 
draft plan and submitted a report last month that addressed 
most, if not all, of the major concerns expressed by Members of 
Congress.
    Despite your progress and efforts, some members still 
oppose CARES and they try to portray it as an effort to hurt 
veterans. This is disturbing to me because I think they have 
misinterpreted, either out of ignorance or intentionally, the 
purpose of CARES. It is not a cost-cutting proposal. And it is 
wrong and unnecessary to worry affected veterans. I urge you to 
get the truth out about CARES. Everybody needs to understand. 
It is a most ambitious effort the Federal Government is making 
to meet the needs of our current veterans.
    The truth about CARES is that it will improve access and 
quality of care. It will result in the construction of new 
hospitals, new clinics, and nursing homes. Under it, the 
Federal Government will invest billions of dollars in 
construction projects and currently you have up to $1 billion 
available to spend in construction funds, and you could make 
substantial down payments on new hospitals, new renovation 
projects, and new outpatient clinics. These are good stories.
    Change is difficult but the VA's health care delivery 
system for serving our veterans is necessary and vital. I 
believe that CARES will be a major part of your legacy because 
of its positive effects.
    And as I said, I am fully committed to funding the health 
care needs of the VA core constituents. We need to ensure 
accountability in performance at the VHA and manage its 
resources responsibly and efficiently. Veterans from Missouri 
and across the Nation have told me about wide performance 
variations that exist among and even within the 21 VISN's. The 
President's Task Force on Improving Health Care last May said 
the VISN structure alters the ability to provide consistent, 
uniform national program guidance in the clinical areas, the 
loss of which opportunities for improved quality, access, and 
cost effectiveness. PTF recommended structure and process of 
VHA should be reviewed and I agree.
    One last item to discuss. Last Tuesday's edition of the 
local paper had an article entitled ``Soldiers of Misfortune'', 
describing the plight of local homeless veterans. I am appalled 
that some quarter of a million veterans on any given night in 
this Nation are homeless. You assumed the chair recently of the 
Interagency Council on Homelessness. I would like to hear how 
you plan to address this problem.
    I look forward to our continued working relationship in 
addressing the needs of veterans. It is going to be a rough 
year. It is obviously clear that it would be much rougher for 
our Nation's veterans if you were not at the helm of the VA. 
You have my personal confidence. I thank you for your personal 
attention and responsiveness to the veterans in my State and 
around the country.

                           PREPARED STATEMENT

    I now turn to my colleague and ranking member, Senator 
Mikulski, for her statements and comments. Welcome, Senator.
    [The statement follows:]

           Prepared Statement of Senator Christopher S. Bond

    The subcommittee will come to order. This afternoon, the VA-HUD and 
Independent Agencies Subcommittee will conduct its budget hearing on 
the fiscal year 2005 budget for the Department of Veterans Affairs. I 
welcome back the Secretary of VA Tony Principi to our subcommittee. Mr. 
Secretary, I am very pleased to have you here today. I appreciate your 
hard work, commitment, and compassion as the Secretary of VA and in my 
humble opinion, your record will identify you as the finest VA 
Secretary ever.
    Mr. Secretary, there has been a tremendous amount of attention on 
the VA and veteran issues in recent months. This is no surprise given 
the deployment of our military around the world to fight the global war 
on terror and the war in Iraq. Today, hundreds of thousands of our 
brave service men and women are deployed across the globe in such 
unstable regions as Afghanistan, Iraq, Kosovo, Bosnia, and Haiti. 
Unfortunately, some of these men and women will return to the States 
with physical, mental, and spiritual wounds that can never be fully 
healed. The VA was created with the central purpose of being a safety 
net for our veterans and its mission today is probably more important 
than ever.
    Overall, I strongly believe that you, Mr. Secretary, have done an 
outstanding job in meeting the challenges of serving our Nation's 
veterans. Veterans have no better ally or friend than you, Mr. 
Secretary. As a veteran yourself and a father of two sons who are 
currently serving in the military, no one can question or criticize 
your commitment or compassion for our nation's veterans. As the 
Secretary of VA, more veterans are being served than ever before. 
During your 3 years as Secretary, the number of veterans enrolled in 
the medical care system has grown by 2.4 million and the medical care 
budget has grown by some $7.3 billion. You have rightly re-focused VA's 
health care system to give priority service to our most needy veterans. 
You have begun a new program that allows some veterans to fill 
privately-written prescriptions at the VA. You have reduced the number 
of veterans waiting more than 6 months for an appointment from 300,000 
to less than 20,000 and this waiting list will be eliminated within the 
next month. You have reduced VA's inventory of benefit claims by almost 
100,000 and reduced the average processing time from 233 days to 187 
days. You have made great strides in expanding burial space. Most 
importantly perhaps, you have begun the critical process to modernize 
and rebuild the VA health care system that will ensure greater access 
and quality care for current and future veterans. Mr. Secretary, your 
record is simply outstanding and I congratulate you.
    Nevertheless, you still face major challenges--namely, providing 
timely, quality health care for veterans. During our first budget 
hearing, I told Senator Mikulski that I felt like we were in the movie 
``Groundhog Day'' because our main VA-HUD priorities are under-funded 
year after year and this year is no exception. By far, the most 
troubling problem is veteran medical care funding. The budget request 
under-funds VA medical care and proposes to make up for the shortfall 
by proposing again to charge new fees on veterans seeking care, which 
are essentially a new tax imposed on our veterans. These budget 
proposals were unacceptable last year to the Congress and they clearly 
are unacceptable again this year. We should not balance our books on 
the backs of our veterans.
    VA medical care is my top priority area again this year and I am 
committed to ensuring that our veterans are not short-changed, 
especially in a time of war. While on duty, we expect our brave 
service-members to face dangers on a daily basis. They, however, should 
not expect to face the danger of inadequate medical care services when 
they return from duty.
    I have seen first-hand the scars of combat with visits to the 
Walter Reed Army Medical Center, here in the District of Columbia. I 
had the privilege of meeting injured soldiers like Phillip Ramsey from 
Kansas City, Missouri who recently returned from combat in Iraq. It 
deeply saddens me to see such a young man make such a personal 
sacrifice for our country. I was pleased with the care that the 
Department of Defense was providing to him but we know that Phillip 
will face more challenges when the military discharges him from service 
and the VA enrolls him into their system. We cannot let soldiers, like 
Mr. Ramsey, fall through the cracks.
    Mr. Secretary, you are at the center of a ``Perfect Storm,'' due to 
the overwhelming demand for VA health care services. As I discussed 
last year, this storm was created by a convergence of factors, mainly 
created by the Congress with legislation that opened up health care 
eligibility to all veterans and expanded benefit packages to many 
veterans. Prior to the enactment of these laws, the VA mainly served 
the most vulnerable veterans--veterans with service-connected 
disabilities, veterans with low-income, and veterans who need 
specialized services--otherwise known as VA's core constituents. The 
authors of 1996 Act predicted that the cost of opening up eligibility 
would be budget neutral because there would be few new enrollees. 
Reality, however, has demonstrated the opposite as veterans seeking 
care have besieged the VA. Since 1996, the number of veterans served by 
the VA has grown from 2.7 million to 4.7 million in 2004. Let me repeat 
that: Since 1996, the number of veterans served by the VA has grown 
from 2.7 million to 4.7 million in 2004. Further, the VA projects this 
growth to continue well into the future.
    To respond to this fast growing workload, we have worked on a 
bipartisan basis to appropriate substantial funding increases for VA 
medical care. In fact, the VA medical care account has grown from $16.5 
billion in 1996 to almost $28.3 billion in 2004. That is a staggering 
71.5 percent increase! During the last 3 years alone, VA medical care 
has grown by some $7.3 billion or 34.7 percent. These massive funding 
increases have resulted in more veterans being served and provided with 
improved quality and accessible care. Further, these additional 
resources have allowed the VA to reduce significantly the number of 
veterans waiting for services. Nevertheless, the workload growth 
continues to overwhelm the VA and some veterans--including VA's core 
constituents--are still being asked to wait for care. That is 
unacceptable. Further, while the VA has made significant progress in 
improving its performance in seeing all patients within 30 days, recent 
data indicates that the VA is only able to see 48.1 percent of new 
patients within 30 days. That too is unacceptable. We are clearly not 
out of the storm.
    Mr. Secretary, you have taken some significant steps to respond to 
the overwhelming demand for VA health care such as prioritizing care 
for VA's core constituents and implementing a transitional pharmacy 
benefit program for veterans on the waiting list. You also made the 
unpopular but necessary decision to suspend enrollment of lower 
priority veterans who have higher incomes and no service-connected 
disabilities--the so-called Priority 8s. Of course, all of us would 
like the VA to serve more veterans, including the Priority 8s, but the 
truth of the matter is that the VA cannot be everything for everyone, 
especially when the VA still has a long ways to go in meeting the needs 
of its core constituents. I emphasize that the VA's central purpose is 
to provide timely, accessible, and quality health care for its core 
constituents. There can be no compromise on this purpose. These men and 
women rely on VA's health care system. They have nowhere else to go.
    In order to get out and stay out of the ``Perfect Storm,'' we 
clearly need to continue to provide the VA with adequate resources. The 
administration's budget request proposes $67.27 billion for the VA, 
including $32.07 billion for its discretionary programs. The 
discretionary funding request is $1.18 billion or 3.8 percent more than 
the fiscal year 2004 enacted level. For medical care, the budget 
request includes $29.2 billion budget for medical care--a $904 million 
increase over the fiscal year 2004 level. I recognize and credit the 
administration for the significant budget increases during the past 3 
fiscal years but the fiscal year 2005 request is simply inadequate. The 
inclusion of new enrollment fees and increased co-payments is 
especially disappointing, especially since the Congress rejected them 
last year. Thus, I regard the budget request for medical care a floor 
but there is a ceiling due to our other compelling needs such as 
affordable housing, clean water, and scientific research. Further, it 
is clear that the funding level increases for VA medical care cannot be 
sustained without reform of the system.
    A critical component of reforming the VA medical care system is the 
Capital Asset Realignment for Enhanced Services or ``CARES'' 
initiative. The budget provides a substantial investment of $524 
million to implement the CARES program. I fully support CARES because 
we cannot continue to pour resources into hospitals that are half-empty 
or exist primarily to serve the research and financial interests of 
medical schools. Further, CARES is absolutely critical in ensuring that 
the VA has the right facilities in the right places so that more 
veterans can be served on a timely basis. According to the General 
Accounting Office, the VA is wasting $1 million a day on unnecessary 
and underutilized medical facilities. These funds are being paid out of 
VA's medical care account. Thus, instead of wasting $1 million a day on 
empty buildings, the VA could provide direct medical care to 200 new 
veterans a day. Obviously, VA must maximize its funds on meeting its 
first and foremost mission of caring for our Nation's veterans. That is 
why CARES is so critical and urgently needed.
    Mr. Secretary, you initiated an ambitious schedule 2 years ago to 
develop a national CARES plan. The process has not been easy but I 
believe that you have made tremendous progress. I especially appreciate 
your willingness to listen and respond to the concerns of veterans and 
Members of Congress. I also recognize the hard work done by the 16-
member CARES Commission, led by the Honorable Everett Alvarez, who 
reviewed the Draft Plan and submitted a report last month that 
addressed most, if not all, of the major concerns expressed by members 
of Congress and veterans.
    Despite your progress and efforts, some members of Congress and 
stakeholders still oppose CARES. Sadly, some portray CARES as an effort 
to hurt veterans. I am frankly disturbed by these sorts of 
characterizations. For example, some folks in the media have portrayed 
CARES as a cost-cutting proposal. This is simply wrong and it 
unnecessarily incites fear and stress among our affected veterans. Mr. 
Secretary, I urge you to get out the truth about CARES. The public and 
stakeholders need to understand that CARES is the most ambitious effort 
the Federal Government is making to meet better the needs of our 
current veterans; and, because of the lack of space currently 
available, it will allow the VA to meet the exploding demand for 
medical care from future veterans.
    The truth about CARES is that it will improve access and quality 
care for our veterans. The truth about CARES is that it will result in 
the construction of new hospitals, new clinics, and new nursing homes. 
The truth about CARES is that it will modernize and address safety and 
seismic problems at existing hospitals to ensure patient safety. The 
truth about CARES is that the Federal Government will invest billions 
of dollars in construction projects, which will boost local economies 
and create jobs. The last point I emphasize is that you currently have 
up to $1 billion in construction funds available to spend now. With 
these funds, you have the opportunity to make a substantial downpayment 
on new hospitals, new renovation projects, and new outpatient clinics 
throughout the nation. These are good stories.
    Change is difficult but in the case of the VA's health care 
delivery system and for serving our veterans, it is necessary and 
vital. The future of VA's health care delivery system depends on a 
modernized infrastructure system that is located in areas where most of 
our veteran population lives. Many VA buildings were built after World 
War II and are not all configured for modern health care delivery and 
some are no longer appropriately located. If we expect today's service-
members to fight with modern equipment and weapons, then why can't we 
expect our veterans to be provided with health care service in modern 
facilities?
    Mr. Secretary, CARES is your biggest challenge today and I am 
confident you will make the right decisions. I believe that CARES will 
be a major part of your legacy because of its far-reaching and 
longstanding positive effects. I am committed to CARES and committed to 
funding it so that we can begin to address as much of VA's 
infrastructure needs as quickly as possible and without delay.
    As I said earlier, I am also committed to funding fully the health 
care needs of VA's core constituents, however, let me say this clearly: 
addressing the health care needs of our veterans is more than a funding 
matter. As I just discussed, CARES is a critical component in 
addressing health care for veterans. Further, management and 
accountability cannot be ignored. With your leadership, Mr. Secretary, 
the VA has made some significant strides in its management, but 
clearly, much more needs to be done. VA especially needs to ensure 
greater accountability and performance consistency at the Veterans 
Health Administration (VHA) and manage its resources more responsibly 
and efficiently. Veterans from Missouri and across the Nation have told 
me about the wide performance variations that exist among and even 
within the 21 Veterans Integrated Service Networks or ``VISNs.'' In 
fact, the President's Task Force on Improving Health Care Delivery for 
VA and DOD (PTF) found last May that the ``VISN structure alters the 
ability to provide consistent, uniform national program guidance in the 
clinical arena, the loss of which affects opportunities for improved 
quality, access, and cost effectiveness.'' Due to these findings, the 
PTF recommended ``the structure and processes of VHA should be 
reviewed.'' I agree.
    Before closing, I raise one more issue that continues to trouble 
me--homeless veterans. Last Tuesday's edition of the Washington Post 
contained an article titled ``Soldiers of Misfortune.'' The article 
described the plight of local homeless veterans and their challenges. I 
am appalled that there are still some 250,000 homeless veterans on any 
given night in this Nation. Mr. Secretary, you recently assumed the 
chair of the U.S. Interagency Council on Homelessness. I would like to 
hear how you plan to address this problem.
    Mr. Secretary, I look forward to our continued working relationship 
in addressing the needs of our veterans. This is going to be a rough 
year--perhaps the most difficult year during your tenure. However, it 
is obviously clear that it would be much rougher for our Nation's 
veterans if you were not at the helm of the VA. You have my personal 
confidence because you have already made many long-lasting and 
meaningful changes to the VA that will benefit millions of current and 
future veterans for years to come. I also thank you for your personal 
attention and responsiveness to the veterans in my home State of 
Missouri. Your recent visit to Mt. Vernon, Missouri with me was much 
appreciated.
    I will now turn to my colleague and ranking member, Senator 
Mikulski for her statement and any comments.

                STATEMENT OF SENATOR BARBARA A. MIKULSKI

    Senator Mikulski. Thank you very much, Mr. Chairman.
    Mr. Secretary, I am very pleased to welcome you. This is 
your fourth year in testifying before this subcommittee and, of 
course, you also served another Bush administration. I want to 
thank you and the people who work for you and all of those who 
staff our VA facilities for the work that they do.
    I particularly want to say thank you for the quick response 
we got on the VA outpatient clinic at Fort Howard. When 
Maryland was hit by Hurricane Isabel, the VA outpatient clinic 
was absolutely devastated and we were told by the locals that 
it would take 18 months to repair. Your quick response really 
helped us and now it is open. I will tell you if you toured 
that community around there, they were terribly hit. So we want 
to say thank you for your responses on Fort Howard, as well as 
on Perry Point. You and I are in absolute agreement on the 
direction to go. So thank you.
    We have such great respect for you, Mr. Secretary. You are 
a combat-decorated Vietnam vet. You continue to serve your 
country. You remember the lessons learned from one war and how 
we need to continue to serve not only our veterans of other 
wars, but those men and women who are now returning from the 
Afghan and Iraqi conflicts.
    While you served your country battling against enemies, we 
know that you are now arm wrestling with OMB over the budget, 
and your appearance before the authorizing committee really 
outlined how spartan this budget is.
    First of all, know that I am going to associate myself with 
the remarks from the chairman and know that I have always had 
two principles for the VA's budget. No. 1, the promises we made 
to our veterans need to be promises kept, while also making the 
best use of the taxpayers' dollars. We need to make sure that 
we do not have waiting lines for veterans. No. 2, issues like 
membership fees if you are a category 7 or increased co-
payments really do not work. I am concerned that this budget 
falls short on these principles.
    We will be able to talk about many of the issues, but we do 
want to acknowledge some of the good things in this budget. We 
want to say thank you for reducing the financial burden on 
former POW's, also on our terminally ill veterans, and also on 
our poorest of the poor veterans. These are very good ideas and 
we want to work with you to support those, and you have been a 
real advocate in this area.
    But what we are concerned about is, No. 1, the whole issue 
of both the money and the outcomes. I understand that you told 
the VA authorizing committee that you needed $1.2 billion more, 
but unfortunately, OMB did not hear you. But we hear you and we 
have got to figure out how to give you the resources you need. 
I am very concerned in the area of shortages, I know that one 
of our outpatient clinics in the Glen Burnie area is full. We 
understand that blind veterans now do not have access to rehab 
programs. These are of great concern to us.
    Now, we have worked on a bipartisan basis to increase VA 
funding every single year, and we need to continue to do that. 
But OMB continues to shut out Priority 8 veterans and wants to 
implement fees. I am not going to go over what the President's 
summary does in the interest of time, but you need to know I am 
concerned about a $250 annual user fee, as well as prescription 
drug co-payments. I look forward to hearing your comments on 
that. I also look forward to hearing about the demonstration 
project you initiated that where someone sees a primary care 
doctor and has a bona fide prescription, say, to manage 
cholesterol or diabetes, that they could get it filled at the 
VA without having to see a VA doctor. We want to make sure we 
prevent waste and abuse, but also I think your own estimate 
said this could be a new way to reduce the stresses on our 
medical profession. We want to know about that and how are we 
doing with the prescription drug benefit and how you are 
managing it. How are you getting discounts? How is it working 
for you?
    Again, I mentioned the waiting lines. The Blind Veterans 
Association told our staff that there are over 2,000 veterans 
waiting up to 1 year for admission to a blind rehab center. We 
would like to hear your comments on that, whether you believe 
that is accurate, but particularly for those who have truly 
been disabled because of the permanent and irrevocable wounds 
of war, what can we do. That will also take me to talking about 
our Iraq men and women.
    We are concerned also about another waiting time, which we 
have been working on for over a decade, in claims processing. 
We want to know the status. Have we reduced the waiting time 
and the waiting lines? We understand that in this budget we are 
talking about reducing over 500 staff in the Benefits 
Administration. This work to reduce the claims processing has 
been such a longstanding one that started with the VA-HUD 
Subcommittee under Bush One, Clinton, and now you. We would 
hope that just as we get it on track, we are not having a self-
imposed derailment of the progress that has been made.
    Also, we are concerned and puzzled by how OMB continues to 
insist that VA medical funding be focused on outsourcing 
studies. We know that our subcommittee rejected a $75 million 
outsourcing study, and we understand that OMB is trying it 
again and we will be discussing this with you.
    When we take a look at our returning Afghan and Iraq 
veterans, we want to be sure that we are ready for them. They 
are coming back with new types of injuries. For those of us who 
have been to Walter Reed, it is tough. I do not have to tell 
you and others at the table how tough it is. They have been 
injured in body, in mind, and in spirit. We have to make sure, 
when they leave Walter Reed and go back to the community, we 
are ready to receive them. We understand that the prosthetic 
injuries are significant and severe because of the types of 
attacks after the battle of Baghdad. Therefore, we are 
interested in where we are on meeting those kinds of needs but 
also in the area of research.
    We know that research has had a bit of a rocky road during 
this last year, and yet we believe that it is in VA medical 
research which often gives such practical research in patient 
care, patient rehabilitation, breakthroughs in new technologies 
that are truly rehabilitative that will benefit our veterans 
who have been so severely injured and at the same time, it will 
ultimately benefit the larger American population who will face 
this.
    These are the types of things we look forward to having a 
discussion with you about. We thank you and your team at the 
table.
    Senator Bond. Thank you very much, Senator Mikulski.
    Since our chairman of the full committee is here----
    Senator Stevens. Senator Shelby was here first.
    Senator Bond. All right. Senator Shelby was next in line.
    Senator Shelby. I will defer to the chairman, if he wants 
to.
    Senator Stevens. No.
    Senator Bond. Everybody is doing that these days.
    Senator Shelby. Absolutely.
    Senator Bond. It makes a lot of sense.
    Senator Shelby. It makes a lot of sense to all of us 
members, does it not?
    Senator Bond. Yes. We each get a point. Thank you.

                 STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Senator Bond. Thank you, Mr. 
Chairman.
    I ask first that my entire statement be made part of the 
record.
    Senator Bond. Without objection.
    Senator Shelby. And I have a few comments. I will try to be 
brief.
    Mr. Secretary, welcome to the committee. We all appreciate 
you personally, but more than that, we appreciate what you and 
your staff do. You are a very principled Secretary.
    Your testimony, Mr. Secretary, points to a number of 
different initiatives that are underway within the VA to 
improve the benefits claim process. I applaud the work you and 
your staff have done to reform this system and will support you 
as you continue this work.
    I am pleased to see funding requested in this budget for 
the virtual VA project, compensation and pension evaluation 
redesign project, the training and performance support systems 
project, and the veterans service network. Would you discuss in 
your testimony the tools these programs will give you to 
improve the claims process and how this budget helps you to 
accomplish your goals there? We all know you continue to face 
challenges in the claims area, and based on the correspondence 
that I receive as one Senator, some of these challenges are 
basic and fundamental. Customer service seems to be a 
persistent problem.
    I have seen two very recent examples. These are 
representative of a large majority of the letters I get from 
veterans about their experiences with the Montgomery, Alabama 
VA regional office.

                 COMPENSATION AND PENSION CLAIM PROCESS

    One gentleman went to the Montgomery regional office to 
inquire about disability benefits he might qualify for and 
establish a claim in December of 2003. He refiled the same 
claim four times in less than 3 months because it continued to 
be lost. Once he returned to follow up 2 hours after having 
refiled and was told there was no record of his claim.
    Secondly, a lady wrote the Montgomery regional office on 
January 27 about DIC benefits. To date she has received no 
response.
    A common refrain I hear is that ``the mission of the VA 
regional office seems to be to make the process as difficult, 
confusing, and frustrating as possible to discourage anyone 
from seeking benefits or compensation.'' I know that is not 
your tone and that is not your mission. But how do we overcome 
this?

                            MEDICAL RESEARCH

    The VA's own document, getting into medical research now, 
Appropriation Requirements by Strategic Goal, indicates a need 
for 2005 funding at $460 million for the direct cost of the VA 
research program, the same level recommended by the independent 
budget and the friends of VA medical care and health research. 
The budget request is $20 million below last year's level of 
$405 million. I am concerned about this funding cut. Would you 
discuss that during your research funding discussion?
    I also see that VA anticipates very large increases in the 
amount of non-VA Federal and private funding for VA 
researchers, $60 million and $50 million, respectively, a 14 
percent increase in non-VA sources. Why the sharp increase next 
year when you only anticipate a 4 percent increase this year? 
Is it really appropriate to put the VA in the position of 
depending on other agencies or the private sector to fund 
research important to veterans?
    During the time of war, which we are in now in Iraq, and 
one that is generating large numbers of injuries, Mr. 
Secretary, if you are not already, should you not be looking to 
increase rather than reduce the research program? If VA 
research is funded at the requested level, what areas of 
research will be cut? We would be interested in that. If 
provided with additional funding, what areas of research would 
VA add or expand? I believe these are relevant questions.
    And now concurrent receipt. To what extent is the VA 
working with DOD to implement the concurrent disability payment 
and combat-related special compensation programs? This CDP and 
CRSC program workload has not had a negative impact on the 
claims operations I hope.

                           PREPARED STATEMENT

    Mr. Chairman, I know those are a lot of questions and I 
hope the Secretary will see fit to discuss these during his 
time to talk. Thank you.
    [The statement follows:]

            Prepared Statement of Senator Richard C. Shelby

    The President has requested $67.7 billion for the Department of 
Veterans Affairs for fiscal year 2005. This includes $35.6 billion for 
entitlement programs and $32.1 billion for discretionary programs.
    The fiscal year 2005 request for VA Medical Care is $27.1 billion, 
and it also projects $2.4 billion in collections. This is a 4.1 percent 
increase over the fiscal year 2004 enacted level. Given the increase in 
the number of veterans using the VA health care system, I am pleased to 
see this increase but strongly feel the VA needs greater resources to 
adequately meet the health care needs of our deserving veterans. 
Experts agree, including the VA's own Undersecretary of Health in 
testimony given last year, that the VA needs funding increases on the 
order of 15 percent a year to maintain current medical care services.
    I am disappointed this budget cuts funding for VA Medical and 
Prosthetic Research. The direct cost and research support accounts are 
both funded at $384.7 million, a $20 million and $30 million cut 
respectively. I believe these cuts are harmful to the VA's core mission 
of providing the best medical care possible to our veterans. I plan to 
address this issue with Secretary Principi and hope the subcommittee 
will take action in the fiscal year 2005 bill to provide additional 
funding for both VA Medical Care and VA Medical and Prosthetic 
Research.
    While, in my opinion, this budget again falls short in total 
funding for our veterans, it does include important initiatives like 
the Capital Asset Realignment for Enhanced Services (CARES) program 
that will take major steps to construct new facilities across the 
country to improve access for our veterans. This budget includes $1.2 
billion for benefits management as well as a number of programs that 
seek to continue this administration's efforts to improve and 
streamline the veteran's benefits claim process. It also includes $455 
million to improve the VA burial program. Eighty-one million dollars is 
provided for cemetery construction, expansion and improvement. I am 
pleased that advanced planning funding is included for a new national 
cemetery in Birmingham.
    I look forward to working with Chairman Bond and Senator Mikulski 
on this bill and will continue to do everything I can to support the VA 
and our veterans in Alabama and across the Nation.

    Senator Bond. Thank you, Senator Shelby.
    Chairman Stevens.

                    STATEMENT OF SENATOR TED STEVENS

    Senator Stevens. Thank you very much, and I would ask that 
my complete statement appear in the record, Mr. Chairman.
    Senator Bond. Without objection.
    Senator Stevens. It is nice to be with you again, Secretary 
Principi, and your colleagues. I am aware of the recent VA-
released report called Capital Asset Realignment Enhanced 
Services, which I understand you call CARES, which recommends 
the reallocation of capital assets necessary to meet the demand 
of veterans' health care over the next 20 years.

                          VA LEASES IN ALASKA

    The commission reviewed the VA leases in Anchorage that are 
due to expire in 2007 and the Army provided space at the 
Bassett Army Community Hospital in Fairbanks. It is my 
understanding that the report proposes a joint venture between 
the VA and the Air Force to construct a new building next to 
the Elmendorf Hospital and the report also discussed VA space 
for the Bassett Army Community Hospital in Fairbanks. Upon 
completion of that new facility, the VA outpatient clinic will 
gain an additional 1,100 square feet for a total of 3,000 
square feet as part of the construction, which is very much 
needed in the interior of Alaska.
    I do hope that you will join us in moving ahead with some 
of these projects. I keep hearing from veterans in Alaska 
regarding their concerns over the funding of veterans health 
care. We all do here in the Congress, and I think this 
committee hears more than anyone about it. We will do all we 
can to maximize funds for health care in 2005 and work with you 
in that regard. Until the new Medicare legislation is fully 
implemented in 2006, many senior vets are turning to the VA as 
an alternative source of medical coverage partially due to the 
prescription drug benefit, a problem that is addressed by our 
new bill but will not really crank in to providing real 
assistance until 2006. I would ask that you take a look at the 
problems that are listed in my comments concerning the State as 
a whole, Secretary Principi.

                          SOUTHEASTERN ALASKA

    I do, in the interest of time, want to ask you to respond 
to this question. I must go to another hearing. But I am 
concerned about southeastern Alaska, which was not covered by 
your report, as I understand it. The regional hospital which is 
owned by the city and borough of Juneau operates the Juneau 
Recovery Hospital. It is a State-licensed and accredited 16-bed 
substance abuse facility. The veterans of the southeast are not 
covered by the VA for the services they obtain from that Juneau 
Recovery Hospital, and it is my understanding they must leave 
Alaska if they seek aid in getting treatment for their alcohol-
chemical dependency treatment. I am told that last year that VA 
told the Juneau Recovery Hospital that it was not interested in 
contracting for services from that facility and that leaves no 
alternative for southeastern Alaska veterans but to leave 
Alaska to fly 900 miles south to obtain treatment.

                           PREPARED STATEMENT

    I think most people do not understand our distances. Mr. 
Secretary, I know you do and I know that you will do all you 
can to try to deal with that problem. But clearly, we have I 
believe the highest per capita population of veterans in our 
population. Although we are a small population State, we have 
an enormous number of veterans and they live in very remote 
areas. It is very difficult to care for them now as they are 
aging and they need a lot of attention. I would hope that 
somehow or other we would work out something in terms of this 
contract care concept and let them have an opportunity to 
obtain treatment in Alaska. It costs a lot of money to fly to 
Seattle for a doctor's appointment and it is just impossible 
for many of them. Many of them are my age. I know the problems 
that they face, and I would like to help them if I can.
    So thank you very much, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of Senator Ted Stevens

    Thank you very much, and I would ask my complete statement appear 
in the record Mr. Chairman.
    It's nice to be with you again Secretary Principi. I am aware of 
the recently released CARES (Capital Asset Realignment for Enhanced 
Services) report, which recommends the reallocation of capital assets 
necessary to meet the demand for veterans' health care services over 
the next 20 years. With respect to Alaska, the commission reviewed the 
VA leases in Anchorage, due to expire in 2007, and the Army-provided 
space at the Basset Army Community Hospital in Fairbanks.
    The report mentions a proposed joint venture between the VA and the 
Air Force to construct a new building adjacent to the Elmendorf 
Hospital. This new facility is expected to increase primary care space 
by 75 percent, specialty care space by 100 percent, and mental health 
space by 100 percent.
    The report also discusses VA space at the Bassett Army Community 
Hospital in Fairbanks. The Army is constructing a new hospital facility 
scheduled for completion in fiscal year 2005. The VA community-based 
outpatient clinic will gain an additional 1,100 square feet for a total 
of 3,000 square feet as part of this construction.
    With the Alaska Market outgrowing its leased space in Anchorage and 
continued constraints common to Veterans throughout Alaska, I ask you 
to join me in ensuring these projects move ahead as expeditiously as 
possible.
    I continue to hear from veterans in Alaska regarding their concerns 
with the level of funding for Veterans Healthcare. I am fully aware of 
the funding issues you are currently facing as you run the Nation's 
largest integrated health care system, and recognize that this is an 
issue not limited to Alaska. My colleagues and I will do all we can to 
maximize funds for VA healthcare in fiscal year 2005. However, it is my 
understanding that there are many individuals who continue to use the 
VA as a primary source of medical care, even though they have access to 
alternative sources of medical coverage. I understand this may be 
partially due to the prescription drug coverage provided by the VA that 
some plans don't provide. Until the new Medicare legislation is fully 
implemented in 2006, that is also true for many senior vets. The 
unnecessary burden this puts on a system already overwhelmed with high 
priority cases must be an issue worth reviewing.
    Last year the VA notified the Alaska delegation that it planned to 
move the administration of veterans benefits (but not health care) to 
Salt Lake City, consistent with the implementation of the VAMROC (VA 
Medical and Regional Office Center) Plan. VA staff in Alaska assured my 
office that the proposed move would not result in any personnel 
transfers or layoffs in Anchorage and that the move was intended to 
result in more efficient and timely processing of claims for veterans 
benefits. This has been successful.
    Alex Spector, Director of the VA in Anchorage, and Douglas 
Wadsworth, Director of the VA Regional Office in Salt Lake, tell me 
that the percentage of rating claims pending over 6 months has been 
reduced from 39 percent to 26 percent, and that as of February, the VA 
has already successfully rehabilitated 23 veterans through its 
Vocational and Rehabilitation & Employment Program, compared to a total 
of 31 veterans in fiscal year 2003.
    I thank you again for all your hard work on developing a special 
physician payment system for veterans' health care in Alaska. Your 
leadership has preserved access to healthcare for our veterans. That 
system helped us gain a special physician rate in Alaska for Medicare 
and TRICARE beneficiaries last year when the Medicare Modernization 
legislation was enacted.
    I am concerned about Southeast Alaska issues that are not covered 
in the CARES report. It's my understanding that the Bartlett Memorial 
Hospital, owned by Juneau, operates JRC, state licensed and accredited 
16-bed substance abuse facility, providing treatment of alcoholism and 
drug dependency. JRH offers many services including: intensive 
outpatient, inpatient rehabilitation, partial hospitalization and 
continuing care.
    One last additional issue I would like to raise is regarding our 
Veterans in Southeast Alaska. These veterans are not being covered by 
the VA for services they obtain at the Juneau Recovery Hospital (JRH) 
and must leave Alaska if they desire the VA to cover their alcohol and 
chemical dependency treatment. JRH has negotiated with the VA office in 
Anchorage since 2002 in order to obtain a contract for services. In 
March, 2003, JRH was told that the VA was not interested in a contract 
for services.
    This leaves no alternative for Alaskans but to travel 900 miles 
south to obtain treatment. Most people don't understand our distances 
in Alaska, and I know you do, and will do all you can to help with this 
problem.
    We have the highest per capita population of veterans, Mr. 
Secretary, and they live in remote areas, making it difficulty to care 
for them as they age. I hope we can we work out something in terms of 
this contract care treatment, so they can obtain treatment in Alaska. 
Many of them are my age and I would like you to join me in helping 
them.

    Senator Bond. Thank you very much, Chairman Stevens. We 
appreciate your being here.
    Secretary Principi. If I can, I would like to briefly 
answer the question. You are absolutely right about this. We 
have an extraordinary opportunity to share with the Air Force 
at Elmendorf and with the Army up at Wainwright. It is 
critically important that we move forward very quickly on the 
new outpatient clinic at Elmendorf because our lease is 
expiring and they do not want to renew it because they have to 
expand. So we have to do that. It is just a great partnership.
    The same up at Wainwright. That is coming along well with 
the new hospital up at Wainwright. We will continue to cement 
that bond between the military services and the VA in Alaska.
    Not as well as you, Senator, I have been to Alaska so many 
times I understand the extraordinary difficulty of commuting 
back and forth for veterans, and I will look into that contract 
in southeastern Alaska to see if there is something we can do 
to keep veterans close to their home and not have to transport 
them all the way down to Seattle.
    [The information follows:]

       Contracting Out Services for Southeastern Alaska Veterans

    Southeast Alaska veterans currently receive primary care both at 
the VA Clinic located in Anchorage and through fee basis care in their 
home community. Veterans who are 50 percent service-connected (SC) and 
higher are authorized for fee care in their home community. Also, any 
veteran enrolled in the VA system who meets the medical criteria for 
emergent care, obviating the need for hospitalization, is also 
authorized care in their home community. Veterans who are less than 50 
percent SC, or are non-service connected (NSC), are offered primary 
care at the VA Clinic in Anchorage. Veterans who meet the VA 
Beneficiary Travel guidelines are provided travel to Anchorage for 
appointments.
    The Alaska VA Healthcare System had a vendor outreach meeting in 
Juneau, AK, on April 6, 2004. Thirteen individuals representing nine 
provider groups were present. A separate meeting occurred with the 
Family Practice Clinic. The purpose of the outreach was to update 
vendors about the Alaska fee basis program, answer questions, and talk 
about possible partnerships with the VA. Although a formal proposal for 
contracting care was not presented, it did not appear as though any of 
the participants were particularly interested in contracting with VA, 
given the quality measures, referral processes, and clinical data 
requirements required in a healthcare contract with VA.
    VA is willing to further explore contracting with providers in 
Southeast Alaska, as well as pursuing other possible options that would 
be a cost effective solution and alleviate travel to Anchorage for 
southeastern Alaska veterans. It should be noted that the availability 
of specialty care is very limited, not only in Southeast Alaska but 
throughout the State. VA appreciates the inconvenience to patients who 
need to travel outside Alaska for care, and attempts to minimize that 
inconvenience to the extent possible within available resources.

    Senator Stevens. Thank you very much. I am going to offer 
to take the whole committee to Alaska, and I am going to start 
at Ketchikan and put them on a ferry and take them up through 
southeastern by how veterans get between places because that is 
the least expensive way to travel. Then I am going to take them 
up to Anchorage and let them travel by train up to Fairbanks, 
and then we will fly around in some small planes from village 
to village to village and let them see how it works.
    When Senator McClellan was chairman of this committee, I 
was a younger Senator. He did that for me and we went up there 
and spent 10 days and there was not a request I made for the 
next 2 years that was denied.
    Secretary Principi. Well, we have allocated an additional 
$10 million to Alaska for contract care in the community 
because of the needs up there and we will continue to look at 
it, Senator.
    Senator Stevens. Thank you very much. Thank you, Mr. 
Chairman.
    Senator Bond. Senator Domenici.

                 STATEMENT OF SENATOR PETE V. DOMENICI

    Senator Domenici. I was just going to tell Senator Stevens 
he does not have to take me up there. Whatever you want, you 
can have. You do not have to take me up on the trip. I have too 
many other trips to take. Just believe me.
    Mr. Chairman, let me just have a couple of minutes and I 
will insert my remarks.
    First, I want to thank you, Mr. Secretary. I think they are 
saying your name wrong, but they say mine wrong also. I tell 
them my name is Domenici and they say, no, it is not. It's 
Domenici. So I have to take them home to Italy and let them 
talk to my relatives. But your name is Principi.
    In any event, let me say I have three issues and I am just 
going to cover them very quickly.

                               TELEHEALTH

    One has to do with telehealth. As you know, for a long time 
I have been interested in enhanced access of care for rural 
veterans. Establishing more community-based outpatient clinics 
is one way that the VA and Congress have worked together to 
reach these areas. In fact, my home State of New Mexico now 
operates 11 such clinics for rural veterans. I believe Congress 
and the VA should work together to improve the use of 
technology for serving rural veterans. In particular, we can do 
much more in the area of telehealth and telemedicine.
    What is the current state of the VA telehealth, and what 
legislative initiatives would you recommend to improve that?
    It is my understanding that VA is implementing a telehealth 
pilot project to provide medical services in remote parts of 
eastern New Mexico. I would like you to describe that for the 
record if you do not have it ready, if you would do that for 
us.
    [The information follows:]

                               Telehealth

    VA is recognized as a leader in the field of telehealth. VA's 
former Telemedicine Strategic Healthcare Group has been incorporated 
into a new Office of Care Coordination (OCC) and the term telehealth is 
increasingly being used in VHA rather than telemedicine. These changes 
recognize that implementing telehealth is more than a technology issue. 
It involves embedding telehealth and other associated technologies 
directly into the care delivery process and that it now involves many 
different professionals. VA is undertaking telehealth in 31 different 
areas. OCC is supporting all these areas but is focusing particularly 
on those where there is particular need. It is therefore designating 
lead clinicians in the areas of telemental health, telerehabilitation 
and telesurgery. VA is formalizing guidance for the development of 
telehealth, with a particular emphasis on the community-based 
outpatient clinic in relation to major areas of veteran patient need. 
This has commenced with the following:
  --Telemental health,
  --Teledermatology,
  --Telesurgery (enabling remote pre-op and post-op assessments),
  --Teleretinal Imaging for diabetic retinopathy, and
  --Telerehabilitation.
    Teleradiology is a major associated area of need where VA is 
seeking to work to bring resources at a local level into an 
interoperable infrastructure and create a national system. Such a 
system, if developed, will enable sharing of resources and acquisition 
of services when local difficulties with recruitment and retention of 
radiologists create challenges to delivering care. OCC is working to 
support VHA's Chief Consultant for Diagnostic Services in this endeavor 
and to make sure that the various areas of telehealth practice 
harmonize with respect to such processes as credentialing and 
privileging. This will facilitate working with the Department of 
Defense.
    In recognition of the demographics of the veteran population and 
the rural and underserved areas in which veteran patients often live VA 
is placing a particular emphasis on developing care coordination that 
uses home telehealth technologies. The rationale for this program is to 
support the independent living of veterans with chronic diseases 
through monitoring of vital signs at home e.g. pulse, blood pressure 
etc. at home. A piloting of this care coordination/home telehealth 
(CCHT) program demonstrated very high levels of patient satisfaction 
and reduced the need for unnecessary clinic admissions and 
hospitalizations. For example by monitoring a heart failure patient at 
home it is possible to detect any worsening of the condition when there 
is breathlessness and weight gain. Early detection in this way means 
medication can be adjusted and the problem resolved rather than have 
the patient deteriorate unnoticed and require admission to hospital in 
extremis at risk of dying, and often necessitating an intensive care 
unit admission.
    Because the support of a patient at home usually requires a 
caregiver in the home OCC is paying attention to caregiver issues and 
working on this collaboratively with other organizations and agencies, 
as appropriate.
    Care coordination is being incorporated into VA's long-term care 
strategic plan as a means of supporting non-institutional care, when 
appropriate for veteran patients who want to remain living in their own 
home and live independently.
    At this time we have no specific legislative initiatives to 
recommend.

                     Telehealth Pilot in New Mexico

    VA is implementing a telehealth pilot to provide medical services 
to patients in remote parts of VISN 18. Telehealth is remote patient 
case management using devices located in the patient's home that 
connect to hospital staff via a normal phone line. The patient responds 
to short, disease-specific questions each day. The devices may also be 
used to transmit vital signs and medical information to hospital staff 
monitoring the daily reports. Hospital staff can send patients 
reminders, tips, and feedback on their progress. Telehealth enhances 
veteran health care because it allows for earlier intervention and 
enhanced veteran self-care and self-assurance. To begin, selected 
patients with congestive heart failure and chronic obstructive 
pulmonary disease will receive telehealth care in their homes. 
Implementation will begin with the Geriatric Clinic and the Spinal Cord 
Injury Clinic in Tucson, Arizona, followed by their Primary and Medical 
Care teams. Then the pilot will be expanded to Amarillo VA Health Care 
System patients. Amarillo will start enrolling medical center patients 
with congestive heart failure and chronic obstructive pulmonary disease 
for care coordination in Phase One. When this is operational, Phase Two 
will begin to enroll patients with these same diseases at the Clovis, 
New Mexico, and Lubbock, Texas, community based outpatient clinics. VA 
anticipates that Phase Two will occur in fiscal year 2005.

                      Staffing in Rural Facilities

    Given the increased workload throughout the system, a majority of 
sites are experiencing an increase in demand for services. This is 
having an impact on VA's ability to maintain capacity and provide 
services within its 30-day access standards. Remote rural facilities 
face even greater challenges in the recruitment of providers, because 
frequently the pool of providers for recruitment is not as extensive as 
in non-rural locations. This is especially true for specialists, 
because many specialty positions are scarce. In some of the small rural 
facilities, the loss of a specialist can have a major impact on the 
services provided, resulting in prolonged waiting times and wait lists.
    In recent years, VA has improved access to care for veterans in 
rural areas through development of Community-Based Outpatient Clinics 
(CBOCs). Where we have staffing shortages, these clinics are managed 
via contracts. Additionally, VA has a new initiative on care 
coordination that uses telehealth technology to provide care in 
patients' homes. Telehealth technologies allow greater access to care 
for veterans in rural areas, while simultaneously reducing travel and 
inconvenience. Through telehealth technology, staff at VA medical 
centers can provide services remotely, thus filling in the void where 
staffing shortfalls exist.
    We do not have readily available, detailed information on staffing 
shortfalls in specific rural locations. This type of information would 
fluctuate on a weekly, even a daily basis. Obtaining reliable 
information would require an extensive survey of field facilities.
    We have sent to Congress legislative initiatives that would assist 
us in recruitment of physicians and nurses, not only in rural 
locations, but throughout the VA health care system. One is a Physician 
Pay Bill, which would allow VA to be more competitive in the market for 
recruiting physicians to work within VA. This is especially true for 
specialty physicians which VA has difficulty recruiting. The second is 
a legislative proposal allowing enhanced flexibility in scheduling 
tours of duty for registered nurses. The ability to offer compensation, 
employment benefits and working conditions comparable to those 
available in their community is critical to our ability to recruit and 
retain nurses, particularly in highly competitive labor markets and for 
hard-to-fill specialty assignments.

    Senator Domenici. And then medical research has been 
touched on a bit. I would just like you to describe in more 
detail the current trends of medical research and tell us where 
we might expect some new breakthroughs. We talk about 
collaboration with other government agencies and universities. 
I can tell you there are great opportunities for the VA to 
contract and go into partnership with other branches of the 
government. I think you know in my home city of Albuquerque, we 
were the second--and actually the first of a significant 
partnership of a hospital. Air Force veterans, one big hospital 
instead of two hospitals. It has worked well. Either would be 
too big without the other, and putting them together, they just 
are right.

                     RURAL OUTPATIENT-BASED CLINICS

    Outpatient-based clinics are working splendidly and I have 
some questions asking you to address the staffing shortfalls 
that may exist in these rural facilities. I know your problems 
are terrific. I would just hope that you would take this 
opportunity to look carefully at the current group of veterans 
and make sure that we do not let any of them fall between the 
cracks. We do not need anyone coming to the American people 
saying we have let any of them get denied when they should have 
been cared for. That will be a very big story and a big black 
mark. So currently they are getting a lot of good care, but I 
hope the word is out that you all better make sure you take 
care of them and take care of them well.
    Thank you. Thank you very much, Mr. Chairman.
    Senator Bond. Thank you very much, Senator Domenici, for 
your very appropriate comments.
    And now, finally, we will get to the testimony of Secretary 
Principi. We thank you for your attention to our concerns, and 
we will make your full statement a part of the record and ask 
you to proceed.

                    STATEMENT OF ANTHONY J. PRINCIPI

    Secretary Principi. Thank you, Mr. Chairman, Chairman Bond, 
Senator Mikulski, and members of the committee. I am pleased to 
have this opportunity to testify on our proposed budget for 
fiscal year 2005 to address some of the challenges that you 
raise. I too am constantly reminded that we live in a difficult 
time and young men and women are coming back to our shores, 
having served so magnificently in combat theaters of operation 
and even on the front lines in the ramparts of freedom, and we 
need to be there for them and we cannot afford to have anyone 
fall through the cracks. It is a very, very high priority. I 
feel very deeply about this.
    I want to thank you both for your kind comments, but most 
importantly, I want to thank you for your extraordinary support 
for my Department and for the veterans of this Nation. I think 
the progress we have made in recent years is directly 
proportional to the tremendous support that you, Mr. Chairman, 
and Senator Mikulski have given to my Department.
    The President proposed a VA budget for fiscal year 2005 
that will, if it is approved, ensure that 800,000 more veterans 
receive medical care than VA cared for in 2001, the year I 
became Secretary of Veterans Affairs. As you indicated, our 
health care budget has grown dramatically in recent years and 
with the 2005 budget, the 4-year cumulative will be more than 
40 percent. Again, on behalf of America's veterans I thank both 
the President and the members of this committee for your 
enormous contribution to this achievement. This 4-year 
cumulative total is probably the largest increase certainly in 
50 years and perhaps in the history of the VA. My budget has 
gone from $48 billion overall to about $65 billion in 2004, and 
with this budget, it will go up well over $70 billion in 2005.
    As a result of these budget increases and the tremendous 
hard work of the people at the table with me and those 
throughout the VA, quality of veterans' health care in my view 
has never been so good. This is not my dad's VA. Never before 
has access been this broad. We have almost 800 community-based 
outpatient clinics, and prior to the mid-1990's we had none. 
Never before have we treated so many veterans at so many 
locations. That is the good news.
    The challenging news is that we have a lot of work ahead of 
us because more and more veterans are coming to us for health 
care. But I believe that with the 2005 budget and what you have 
provided to us in 2004, we will have the resources we need to 
meet our goal of scheduling non-urgent primary care 
appointments for 93 percent of the veterans within 30 days and 
99 percent within 90 days.
    In July of 2002, not really too long ago, we had 317,000 
veterans who were waiting more than 6 months for an 
appointment. Today that number is down to about 22,000, of 
which only about 5,000 are waiting for an initial visit. We 
will continue to focus on the medical needs of veterans 
identified by Congress as the highest priority, the service-
connected disabled veterans, the poorest of the poor, the low 
income who have few if any other options for health care in 
this country, and those who need our specialized services like 
blind rehabilitation and spinal cord injury.
    This budget request also more than doubles from the current 
fiscal year our appropriation request for construction of the 
new and improved facilities soon to be identified through our 
CARES process. And I look forward to the opportunity to talk 
with you about CARES during the question and answer period.
    In addition, I plan to use the authority that you have 
given me to apply up to $400 million of the 2004 appropriation 
to CARES projects to modernize our infrastructure throughout 
the country. This makes a total of approximately $1 billion 
that we will be able to commit during 2004 and 2005 to 
transforming VA's medical facilities into a 21st century health 
care system and not one from the century gone by.
    Perhaps most importantly the budget will fund high quality 
care for veterans returning to our shores from overseas 
conflicts. Approximately 19,600 of the 145,000 returnees from 
Iraq and Afghanistan have sought and been provided VA health 
care, and I know that number will increase in years to come.
    The budget request also sustains our tremendous progress in 
bringing down the disability claims backlog. By the end of last 
fiscal year, we reduced our inventory of rating-related claims, 
claims for disability compensation and pension, from a high of 
432,000 to 253,000. And the percentage of veterans waiting more 
than 6 months for a decision was down to 18 percent from 48 
percent. A court of appeals decision in September 2003 made us 
hold claims where part of the decision was a denial for a year, 
and our backlog shot back up, but the Congress fixed that 
problem and we are now back on track to achieve my goal of 
250,000 and about 100 days' processing time by the end of this 
year. We now decide more than 60,000 cases a month, up from 
about 40,000 per month in 2001. And that is because of the 
people you have given us and the hard work of our Veterans 
Benefits Administration folks.
    The President's request will also continue the greatest 
expansion of the national cemetery system since the Civil War 
and fund long-deferred maintenance needed to ensure our 
cemeteries are recognized as national shrines. We will open up 
11 new national cemeteries between now and the year 2009, which 
will increase our gravesite capacity by 85 percent. And that is 
needed because of the large number of World War II veterans and 
Korean veterans that are passing from us.
    As you indicated, Senator Mikulski, the budget emphasizes 
our health care commitment to the poor. So we propose to raise 
the income threshold, exempting low income veterans from 
pharmacy co-payments, from an income of $9,800 a year to 
$16,500. Of course, we ask for elimination for all co-payments 
for former prisoners or war and those in end-of-life care and 
hospice care and palliative care. We also ask for the authority 
to reimburse veteran patients for their out-of-pocket costs in 
those cases where they must make co-payments to their insurance 
companies for non-VA emergency care, when they seek emergency 
care in private hospitals and have to make co-payments.
    The budget does propose an increase, as you indicated, for 
pharmacy co-payments to $15 for a 30-day supply and I believe a 
modest annual fee for higher income veterans, non-disabled 
veterans, using our system that really totals less than $21 a 
month, a very small portion of the cost of care and comparable 
to the amount military retirees, enlisted people who retire 
after 20 years of service, devote their career to the military, 
have to pay to enroll in the TRICARE prime program. So I think 
there is an equity issue and that is why I think the $250 was a 
reasonable amount for veterans with the higher incomes and no 
disabilities to pay. But I understand the reticence of the 
members of the committee.

                           PREPARED STATEMENT

    I place a very high priority on effective and efficient 
management of the resources entrusted to the Department by 
Congress. By financial management initiatives and medical care 
collections, debt management procurement reform, we will 
continue to increase the resources that are made available to 
veterans because every dollar we waste is a dollar that we 
cannot spend on veterans' health care. The same is true with 
CARES. Every dollar we spend on utility bills for empty 
buildings is a dollar we do not have to spend on veteran's 
health care. And that is why I believe the CARES process is so 
important.
    That concludes my testimony, Mr. Chairman, Senator 
Mikulski. I look forward to answering your questions.
    [The statement follows:]

               Prepared Statement of Anthony J. Principi

    Mr. Chairman and members of the committee, good afternoon. I am 
pleased to be here today to present the President's 2005 budget 
proposal for the Department of Veterans Affairs (VA). The focal point 
of this budget is our firm commitment to continue to bring balance back 
to our health care system by focusing on veterans in the highest 
statutory priority groups.
    The President's 2005 budget request totals $67.7 billion (an 
increase of $5.6 billion in budget authority)--$35.6 billion for 
entitlement programs and $32.1 billion for discretionary programs. Our 
request for discretionary funds represents an increase of $1.2 billion, 
or 3.8 percent, over the enacted level for 2004, and supports my three 
highest priorities:
  --provide timely, high-quality health care to our core constituency--
        veterans with service-connected disabilities, those with lower 
        incomes, and veterans with special health care needs;
  --improve the timeliness and accuracy of claims processing;
  --ensure the burial needs of veterans and their eligible family 
        members are met, and maintain veterans' cemeteries as national 
        shrines.
    The growth in discretionary resources will support a broad array of 
benefits and services that VA provides to our Nation's veterans. 
Including medical care collections, funding for the medical care 
program rises by $1.17 billion over the 2004 enacted level. As a 
principal component of our medical care budget, we are requesting $524 
million to begin implementing recommendations stemming from studies 
associated with the Capital Asset Realignment for Enhanced Services 
(CARES) program.
    We are presenting our budget request using a slightly modified new 
budget account structure that we proposed for the first time last year. 
This new structure more clearly presents the full funding for each of 
the benefits and services we provide veterans. This will allow the 
Department and our stakeholders to more effectively evaluate the 
program results we achieve with the total resources associated with 
each program. I am committed to providing Congress with the information 
and tools it needs to be comfortable with enacting the change.

                              MEDICAL CARE

    The President's 2005 request includes total budgetary resources of 
$29.5 billion (including $2.4 billion in collections) for the medical 
care program, an increase of 4.1 percent over the enacted level for 
2004, and more than 40 percent above the 2001 level. With these 
resources, VA will be able to provide timely, high-quality health care 
to nearly 5.2 million unique patients, a total 21 percent higher than 
the number of patients we treated in 2001.
    I have taken several steps during the last year to refocus VA's 
health care system on our highest priority veterans, particularly 
service-connected disabled veterans who are the very reason this 
Department exists. For example, we recently issued a directive that 
ensures veterans seeking care for service-connected medical problems 
will receive priority access to our health care system. This new 
directive provides that all veterans requiring care for a service-
connected disability, regardless of the extent of the injury or 
illness, must be scheduled for a primary care evaluation within 30 days 
of their request for care. If a VA facility is unable to schedule an 
appointment within 30 days, it must arrange for care at another VA 
facility, at a contract facility, or through a sharing agreement.
    By highlighting our emphasis on our core constituency (Priority 
Levels 1-6), we will increase our focus on the Congressionally-
identified highest priority veterans. The number of patients within our 
core service population that we project will come to VA for health care 
in 2005 will be nearly 3.7 million, or 12 percent higher than in 2003. 
During 2005, 71 percent of those using VA's health care system will be 
veterans with service-connected conditions, those with lower incomes, 
and veterans with special health care needs. The comparable share in 
2003 was 66 percent. In addition, we devote 88 percent of our health 
care funding to meet the needs of these veterans.
    While part of our strategy for ensuring timely, high-quality care 
for our highest priority veterans involves a request for additional 
resources, an equally important component of this approach includes a 
series of proposed regulatory and legislative changes that would 
require lower priority veterans to assume a small share of the cost of 
their health care. These legislative proposals are consistent with 
recent Medicare reform that addresses the difference in the ability to 
pay for health care. We are submitting these proposals for Congress' 
reconsideration because we strongly believe they represent the best 
opportunity for VA to secure the necessary budgetary resources to serve 
our core population. Among the most significant legislative changes 
presented in this budget are to:
  --assess an annual use fee of $250 for Priority 7 and 8 veterans; and
  --increase co-payments for pharmacy benefits for Priority 7 and 8 
        veterans from $7 to $15.
    We will work with Congress to enact our legislative proposal to 
eliminate the pharmacy co-payment for Priority 2-5 veterans, who have 
fewer means by which to pay for these costs, by raising the income 
threshold from the pension level of $9,894 to the aid and attendance 
level of $16,509 (for a single veteran). This would allow about 394,000 
veterans within our core constituency to receive outpatient medications 
without having to make a co-payment.
    The 2005 budget includes several other legislative and regulatory 
proposals that are designed to expand health care benefits for the 
Nation's veterans. Among the most significant of these is a provision 
that would give the Department the authority to pay for insured veteran 
patients' out-of-pocket expenses for urgent care services if emergency/
urgent care is obtained outside of the VA health care system. This 
proposal would ensure that veterans with life-threatening illnesses can 
seek and receive care at the closest possible medical facility. In 
addition, we are proposing to eliminate the co-payment requirement for 
all hospice care provided in a VA setting and all co-payments assessed 
to former prisoners of war. Currently, veterans are charged a co-
payment if hospice care cannot be provided in a VA nursing home bed 
either because of clinical complexity or lack of availability of 
nursing home beds.
    The President's 2005 budget for VA's medical care program also 
continues our effort to expand access to long-term care for veterans. 
This budget includes a legislative proposal to focus long-term care on 
non-institutional settings by expanding the 1998 average daily census 
nursing home capacity requirement to include the following categories 
of extended care services--nursing homes, community residential care 
programs, residential rehabilitation treatment programs, home care 
programs, non-institutional extended care services under VA's 
jurisdiction, and long-term care beds for which the Department pays a 
per diem to States for services in State homes. As part of this effort, 
we aim to significantly enhance access to non-institutional care 
programs that allow veterans to live and be cared for in the comfort 
and familiar setting of their home surrounded by their family.
    In return for the resources we are requesting for the medical care 
program in 2005, we will continue to aggressively pursue my priority of 
providing timely and accessible health care that sets a national 
standard of excellence for the health care industry. During the last 3 
years, we have significantly enhanced veterans' access to health care. 
We have opened 194 new community clinics, bringing the total to 676. 
Nearly 9 out of every 10 veterans now live within 30 minutes of a VA 
medical facility. This expanded level of access has resulted in an 
increase in the number of outpatient visits from 44 million in 2001 to 
51 million in 2003, as well as a 26 percent rate of growth in the 
annual number of prescriptions filled to a total of 108 million last 
year. To further highlight the Department's emphasis on the delivery of 
timely, accessible health care, our standard of care for primary care 
is that 93 percent of appointments will be scheduled within 30 days of 
the desired date and 99 percent of all appointments will be scheduled 
within 90 days. For appointments with specialists, the comparable 
performance goal is 90 percent within 30 days of the desired date.
    As I mentioned earlier Mr. Chairman, a key component of our overall 
access goals is the assurance that veterans seeking care for service-
connected medical problems will receive priority access to health care. 
In addition, we have dramatically reduced the number of veterans on the 
waiting list for primary care.
    VA's health care system continues to be characterized by a 
coordinated continuum of care and achievement of performance outcomes 
that improve services to veterans. In fact, VA has exceeded the 
performance of private sector and Medicare providers for all 18 key 
health care indicators, from diabetes care to cancer screening and 
immunizations. The Institute of Medicine has recognized the 
Department's integrated health care system, including our framework for 
using performance measures to improve quality, as one of the best in 
the Nation. Additionally, VA's quality score based on a survey 
conducted by the Joint Commission on Accreditation of Healthcare 
Organizations exceeds the national average quality score (93 versus 
91).
    We will continue to use clinical practice guidelines to help ensure 
high-quality health care, as they are directly linked with improved 
health outcomes. We expect to show improvements in both of our 
principal measures of health care quality. The clinical practice 
guidelines index will rise to 71 percent in 2005, while the prevention 
index will increase to 84 percent.
    The 2005 budget includes additional management savings of $340 
million that will partially offset the need for additional funds to 
handle the increasing utilization of health care resources, 
particularly among our highest priority veterans who require much more 
extensive care, on average, than lower priority veterans. We will 
achieve these management savings through improved standardization 
policies in the procurement of supplies, pharmaceuticals, and other 
capital purchases, as well as in other operational efficiencies such as 
consolidations.
    Our projection of medical care collections for 2005 is $2.4 
billion. This total is 38 percent above our estimated collections for 
2004 and is more than three times the collections level from 2001. 
Approximately $407 million, or 61 percent, of the increase above 2004 
is possible as a result of the proposed medical care policy 
initiatives. The Department continues to implement the series of 
aggressive steps identified in our revenue cycle improvement plan in 
order to maximize the health care resources available for the medical 
care program. We are establishing industry-based performance and 
operational metrics, developing technological enhancements, and 
integrating industry-proven business approaches, including the 
establishment of centralized revenue operation centers. For example, 
during the last year we have lowered the share of reimbursable claims 
receivable greater than 90 days old from 84 percent to 39 percent, and 
we have decreased the average time to produce a bill from 117 days to 
49 days. Further, the Department is implementing the Patient Financial 
Services System in Veterans Integrated Service Network 10 (Ohio). This 
will be a single billing system that we will use for both hospital 
costs as well as physician costs, and involves comprehensive 
implementation of standard business practices and information 
technology improvements.
    As you know Mr. Chairman, one of the President's management 
initiatives calls for VA and the Department of Defense (DOD) to enhance 
the coordination of the delivery of benefits and service to veterans. 
To address this Presidential initiative, our two Departments 
established a high-level Joint Executive Council to develop and 
implement significant collaborative efforts. We are focusing on three 
major system-wide issues: (1) facilitating electronic sharing of 
enrollment and eligibility information for services and benefits; (2) 
establishing an electronic patient health record system that will allow 
rapid exchange of patient information between the two organizations by 
the end of 2005; and (3) increasing the number of shared medical care 
facilities and staff. The sharing of DOD enrollment and eligibility 
data will reduce the burden on veterans to provide duplicative 
information when making the transition to VA for care or benefits. 
Shared medical information is extremely important to ensure that 
veterans receive safe and proper care. VA and DOD are working together 
to share facilities and staff in order to provide needed services to 
all patients in the most efficient and effective manner.

        CAPITAL ASSET REALIGNMENT FOR ENHANCED SERVICES (CARES)

    The 2005 budget includes $524 million of capital funding to move 
forward with the Capital Asset Realignment for Enhanced Services 
(CARES) initiative, a figure more than double the amount requested for 
CARES for 2004. This is a multi-year program to update VA's 
infrastructure to meet the needs of veterans in the 21st century and to 
keep our Department on the cutting edge of medicine. CARES will assess 
veterans' health care needs across the country, identify delivery 
options to meet those needs in the future, and guide the realignment 
and allocation of capital assets so that we can optimize health care 
delivery in terms of both quality and access. The resources we are 
requesting for this program will be used to implement the various 
recommendations within the National CARES plan by funding advance 
planning, design development, and construction costs for capital 
initiatives.
    Mr. Chairman, the independent commission that reviewed our draft 
CARES plan has delivered their report to me. I am in the process of 
reviewing the commission's analysis and recommendations. We will 
thoroughly evaluate their report and seriously consider their 
recommendations before making our final realignment decisions and 
preparing for the next phase of the CARES program.

                    MEDICAL AND PROSTHETIC RESEARCH

    The President's 2005 budget includes total resources of $1.7 
billion to support VA's medical and prosthetic research program. This 
request is comprised of $770 million in appropriated funds, $670 
million in funding from other Federal agencies such as DOD and the 
National Institutes of Health, as well as $230 million from 
universities and other private institutions. Our budget includes an 
initiative to assess pharmaceutical companies for the indirect 
administrative costs associated with the clinical drug trials we 
conduct for these organizations.
    This $1.7 billion will support nearly 2,900 high-priority research 
projects to expand knowledge in areas critical to veterans' health care 
needs--Gulf War illnesses, aging, diabetes, heart disease, mental 
illness, Parkinson's disease, spinal cord injury, prostate cancer, 
depression, environmental hazards, women's health care concerns, and 
rehabilitation programs.

                           VETERANS' BENEFITS

    The Department's 2005 budget request includes $36 billion for the 
entitlement costs associated with all benefits administered by the 
Veterans Benefits Administration (VBA). Included in this total, is an 
additional $2.740 billion for disability compensation payments to 
veterans and their survivors for disabilities or diseases incurred or 
aggravated while on active duty. Recipients of these compensation 
benefits will have increased from 2.3 million in 2001 to over 2.6 
million in 2005. The budget includes another $1.19 billion for the 
management of these programs--disability compensation; pensions; 
education; vocational rehabilitation and employment; housing; and life 
insurance. This is an increase of $26 million, or 2.2 percent, over the 
enacted level for 2004.
    We have made excellent progress in addressing the Presidential 
priority of improving the timeliness and accuracy of claims processing. 
Not only have we hired and trained more than 1,800 new employees in the 
last 3 years to directly address our claims processing backlog, but the 
productivity of our staff has increased dramatically as well. Between 
2001 and 2003, the average number of claims we completed per month grew 
by 70 percent, from 40,000 to 68,000. Last year the inventory of 
rating-related compensation and pension claims peaked at 432,000. By 
the end of 2003, we had reduced this backlog of pending claims to just 
over 250,000, a drop of over 40 percent. We have experienced an 
increase in the backlog during the last few months, due in large part 
to the impact of the court decision (PVA v Secretary of Veterans 
Affairs) that interpreted the Veterans Claims Assistance Act of 2000 as 
requiring VA to wait a full year before denying a claim. However, this 
rise in the number of pending claims will be temporary, and we expect 
the backlog to be back down to about the 250,000 level by the end of 
2004. We thank the Congress for the legislation that eliminated the 
mandatory 1-year waiting period.
    In 2002 it took an average of 223 days to process a claim. Today, 
it takes about 150 days. We are on track to reach an average processing 
time of 100 days by the end of 2004 and expect to maintain this 
timeliness standard in 2005. One of the main reasons we will be able to 
meet and then sustain this improved timeliness level is that we have 
reduced the proportion of claims pending over 6 months from 48 percent 
to just 19 percent during the last 3 years.
    To assist in achieving this ambitious goal, VA established benefits 
delivery at discharge programs at 136 military installations around the 
country. This initiative makes it more convenient for separating 
servicemembers to apply for and receive the benefits they have earned, 
and helps ensure claims are processed more rapidly. Also, the 
Department has assigned VA rating specialists and physicians to 
military bases where servicemembers can have their claims processed 
before they leave active duty military service.
    We expect to see an increase in claims resulting from the return of 
our brave servicemen and women who fought to protect the principles of 
freedom in Operation Enduring Freedom and Operation Iraqi Freedom. We 
propose to use $72 million of the funds available from the war 
supplemental during 2004 to address the challenges resulting from an 
increasing claims processing workload in order to assist us in reaching 
our timeliness goal of 100 days by the end of 2004. We propose to use 
the remaining $28 million in 2005 to help sustain this timeliness 
standard.
    At the same time that we are improving timeliness, we will be 
increasing the accuracy of our claims processing. The 2005 performance 
goal for the national accuracy rate for compensation claims is 88 
percent, well above the 2001 accuracy level of 80 percent.
    This budget request includes additional staff and resources for new 
and ongoing information technology projects to support improved claims 
processing. We are requesting $2 million for the Virtual VA project, 
the ultimate goal of which is to replace the current paper-based claims 
folder with electronic images and data that can be accessed and 
transferred electronically through a web-based solution. The 2005 
funding will maintain Virtual VA at the three Pension Maintenance 
Centers. We are seeking $3.4 million for the Compensation and Pension 
Evaluation Redesign, a project that will result in a more consistent 
claims examination process. In addition, we are requesting $2.6 million 
in 2005 for the Training and Performance Support Systems, a multi-year 
initiative to implement five comprehensive training and performance 
support systems for positions critical to the processing of claims.
    The Veterans Service Network (VETSNET) development is nearing 
completion and is scheduled to begin deployment in April 2004. This 
system offers numerous improvements over the legacy Benefits Delivery 
Network (BDN) that it is replacing (e.g., correction of material 
weaknesses and implementation of comprehensive claims processing within 
a modern corporate environment). Sufficient platform capacity is 
required to successfully deploy VETSNET and to ensure the continued and 
uninterrupted payment of approximately $24 billion annually in benefits 
to around 3.4 million deserving veterans and their beneficiaries. 
Therefore, $5 million in funding is requested to procure the capacity 
required. This platform capacity will ensure successful deployment and 
operation of VETSNET throughout VBA's Regional Offices and in a modern 
corporate environment that integrates all components of claims 
processing (e.g., establishing the claim, rating the claim, preparing 
the claim award, and paying the claim award). Without sufficient 
platform capacity, the Veterans Benefits Administration will be unable 
to operate this critical new system.
    In support of the education program, the budget proposes $5.2 
million for continuing the development of the Education Expert System. 
These resources will be used to expand upon an existing prototype 
expert system and will enable us to automate a greater portion of the 
education claims process and expand enrollment certification. This 
initiative will contribute toward achievement of our 2005 performance 
goals for the average time it takes to process claims for original and 
supplemental education benefits of 25 days and 13 days, respectively.
    VA is requesting $9.6 million for the One-VA Telephone Access 
project, an initiative that will support all of VBA's benefits 
programs. This initiative will result in the development of a Virtual 
Information Center that forms a single telecommunications network among 
several regional offices. This technology will allow us to answer calls 
at any place and at any time without complex call routing devices.
    In order to make the delivery of VA benefits and services more 
convenient for veterans and more efficient for the Department, we are 
requesting $1.5 million for the collocation and relocation of some 
regional offices. Some of this will involve housing regional office 
operations in existing VA medical facilities. In addition, we are 
examining the possibility of collocations using enhanced-use authority, 
which entails an agreement with a private developer to construct a 
facility on Department-owned grounds and then leasing all or part of it 
back to VA. At the end of these long-term lease agreements, the land 
and all improvements revert to VA ownership.

                                 BURIAL

    The President's 2005 budget includes $455 million for the burial 
program, of which $181 million is for mandatory funding for VA burial 
benefits and payments and $274 million is for discretionary funding, 
including operating and capital costs for the National Cemetery 
Administration and the State Cemetery Grant program. The increase in 
discretionary funding is $9 million, or 3.4 percent, over the enacted 
level for 2004, and includes operating funds for the five new 
cemeteries opening in 2005.
    This budget request includes $926,000 to complete the activation of 
new national cemeteries in the areas of Detroit, MI and Sacramento, CA. 
These are the last two of the six locations identified in the May 2000 
report to Congress as the areas most in need of a national cemetery. 
The other four cemeteries will serve veterans in the areas of Atlanta, 
GA, South Florida, Pittsburgh, PA, and Fort Sill, OK.
    With the opening of new national cemeteries and State veterans 
cemeteries, the percentage of veterans served by a burial option within 
75 miles of their residence will rise to 83 percent in 2005. The 
comparable share was less than 73 percent in 2001.
    The $81 million in construction funding for the burial program in 
2005 includes resources for Phase 1 development of the Sacramento 
National Cemetery (CA) as well as expansion and improvements at the 
Florida National Cemetery (Bushnell, FL) and Rock Island National 
Cemetery (IL). The request includes advanced planning funds for site 
selection and preliminary activities for six new national cemeteries to 
serve veterans in the following areas--Bakersfield, CA; Birmingham, AL; 
Columbia/Greenville, SC; Jacksonville, FL; Sarasota County, FL; and 
southeastern Pennsylvania. Completion of these new cemeteries will 
represent an 85 percent expansion of the number of gravesites available 
in the national cemetery system since 2001, almost doubling the number 
of gravesites during this time period. In addition, the budget includes 
$32 million for the State Cemetery Grant program.
    In return for the resources we are requesting for the burial 
program, we expect to achieve extremely high levels of performance in 
2005 and to continue our noble work to maintain the appearance of 
national cemeteries as shrines dedicated to honoring the service and 
sacrifice of veterans. Our performance goal for the percent of survey 
respondents who rate the quality of service provided by the national 
cemeteries as excellent is 96 percent, and our goal for the percent of 
survey respondents who rate national cemetery appearance as excellent 
is 98 percent. In addition, we will continue to place emphasis on the 
timeliness of marking graves. Our performance goal for the percent of 
graves in national cemeteries marked within 60 days of interment is 82 
percent in 2005, a figure dramatically above the 2002 performance level 
of 49 percent.

                        MANAGEMENT IMPROVEMENTS

    Mr. Chairman, we have made excellent progress during the last year 
in implementing the President's Management Agenda. Our progress in the 
financial, electronic government, budget and performance, and DOD/VA 
coordination areas is currently rated ``green.'' Our human capital 
score is ``yellow'' due only to some very short-term delays. However, 
VA's competitive sourcing rating is ``red'' because existing 
legislation precludes us from using necessary resources to conduct cost 
comparisons of competing jobs such as laundry, food and sanitation 
service. The administration will work with Congress to develop 
legislation to advance this effort that would free up additional 
resources to be used to provide direct medical services to veterans. We 
will continue to take the steps necessary to achieve the ultimate goals 
the President established for each of the focus areas.
    We have several management improvement initiatives underway that 
will lead to greater efficiency and will be accomplished largely 
through centralization of several of our major business processes. We 
are currently realigning our finance, acquisition, and capital asset 
management functions into business offices across the Department. There 
will be one business office in each of the 21 Veterans Integrated 
Service Networks and a single office for the National Cemetery 
Administration. For the Veterans Benefits Administration, the majority 
of the field functions will be centralized into product lines. In 
addition, we are establishing an Office of Business Oversight in our 
Office of Management that will provide much stronger oversight of these 
functions by our Chief Financial Officer, will improve operations 
through more specialization, and will achieve efficiencies in staffing. 
The realignment of these business functions will reduce and standardize 
field business activities into a more manageable size, limit the number 
of sites to be reviewed, provide for more consistent interpretation of 
policies and procedures, and promote implementation of performance 
metrics and data collection related to these business functions. As a 
result of the realignment, we will significantly strengthen compliance 
and consistency with finance, acquisition, and capital asset policies 
and procedures.
    We continue to make excellent progress in implementing the 
recommendations of our Procurement Reform Task Force, as 43 of the 65 
recommendations have been completed. By the end of 2004, we expect to 
implement all of the remaining recommendations. These procurement 
reforms will optimize the performance of VA's acquisition system and 
processes by improving efficiency and accountability. We expect to 
realize savings of about $250 million by the end of 2004 as a result of 
these improvement initiatives. This figure will rise after we have 
completed all 65 recommendations.
    During 2005 VA will continue developing our enterprise architecture 
that will ensure that all new information technology (IT) projects are 
aligned with the President's E-government initiatives as well as the 
Department's strategic objectives. The enterprise architecture will 
help eliminate redundant systems throughout VA, improve IT 
accountability and cost containment, leverage secure and 
technologically sound solutions that have been implemented, and ensure 
that our IT assets are built upon widely accepted industry standards 
and best practices in order to improve delivery of benefits and 
services to veterans. One of our primary focus areas in IT will be 
cyber security. We will concentrate on securing the enterprise 
architecture and providing continuous protection to all VA systems and 
networks. This will require purchases of both hardware and software to 
address existing vulnerabilities.
    We are continuing the development and implementation of our CoreFLS 
project to replace VA's existing core financial management and 
logistics systems with an integrated, commercial off-the-shelf package. 
CoreFLS will help us address and correct management and financial 
weaknesses in the areas of effective integration of financial 
transactions from Department systems, necessary financial support for 
credit reform initiatives, and improved automated analytical and 
reconciliation tools. We have conducted initial tests at selected sites 
and are still on schedule for full implementation during 2006.
    The Department has developed a comprehensive human capital 
management plan and has started implementing some of the strategies 
outlined in this plan. In addition, we are implementing a redesigned 
performance appraisal system to better ensure that all employees' 
performance plans are linked with VA's mission, goals, and objectives.

                                CLOSING

    Mr. Chairman, VA has achieved numerous successes during the last 3 
years that have significantly improved service to our country's 
veterans. We have enhanced veterans' access to our health care services 
that set the national standard with regard to quality; improved the 
timeliness of health care delivery; expanded programs for veterans with 
special health care needs; dramatically lowered the time it takes to 
process veterans' claims for benefits; and expanded access to our 
national cemetery system. The President's 2005 budget will provide VA 
with the resources necessary to continue to improve our delivery of 
benefits and services, particularly for veterans with service-connected 
conditions, those with lower incomes, and veterans with special health 
care needs.
    That concludes my formal remarks. My staff and I would be pleased 
to answer any questions.

                          MEDICAL CARE FUNDING

    Senator Bond. Thank you very much, Mr. Secretary.
    I understand you recently sent a letter to House Budget 
Committee Chairman Nussle endorsing an additional $1.2 billion 
over the budget request for VA medical care, making the safe 
assumption that the administration's proposed fees will not be 
accepted by the Congress. Will $1.2 billion be adequate to 
ensure that the VA will be able to meet its medical care needs 
for 2005?
    Secretary Principi. Yes, it certainly will, Mr. Chairman. I 
am very pleased I was given the authority to endorse the budget 
resolution, adding $1.2 billion to our appropriation because of 
the understanding that Congress would not enact the policy 
reforms on user fees and co-payments. Therefore, those dollars 
would be necessary to ensure that our waiting lists and waiting 
times for appointments do not go up. It will also allow us to 
slightly increase staffing in our Benefits Administration, 
increase the amount for research and a little bit for CARES as 
well. So the $1.2 billion would, indeed, allow us to continue 
to stay on track.

                                 CARES

    Senator Bond. Speaking of CARES, I understand you had some 
personal experiences where you have seen veterans' hospitals 
apparently with some unneeded space, maybe in Chicago and 
something about New York. You said rather than spending the 
money on unneeded electricity, what do you mean by that, Mr. 
Secretary?
    Secretary Principi. Well, I had an interesting evening one 
night. I was in New York City driving up 1st Avenue to an event 
up in midtown, and I was caught in traffic at the corner of 
23rd and 1st Avenue and looking up the VA medical center, an 
18-story bed tower at about 7:30 at night and I noticed no 
lights on or virtually no lights on. I knew there was power 
because some lights were on.
    I went back to my office the next day and I asked for the 
information on the New York City medical centers, Brooklyn, 
Manhattan, and Bronx, and how large are these medical centers 
and how many patients do we have in them because I did not see 
any lights on in the bed tower. They came back and said the 
Bronx was built to 1,800 beds in 1920, downsized to about 850 
beds in the 1970's. Manhattan was built to 1,000 beds in 1950 
and Brooklyn was built to 1,300 beds in 1950 as well. And the 
day I was in New York, they had a combined inpatient census of 
385 patients. So we have three medical centers within 
relatively short distance of one another that were built to 
3,000 beds. Of course, they had been converted to other uses, 
and there were only 385 patients in them.
    I think that is an indication that medical care has changed 
so dramatically in this country going to outpatient care and 
ambulatory surgery and reducing lengths of stay and drug 
therapy and using technology, telehealth, that we were spending 
an awful lot of money on maintenance of very old buildings that 
are no longer defined as health care delivery. And veterans 
deserve better than that.
    That is why I believe this process is so important to 
ensure that we have a modern infrastructure with medical 
centers, tertiary care hospitals that are supported by multi-
specialty outpatient clinics and that are supported by primary 
care clinics. That was the example I used.
    Senator Bond. In addition to the obvious benefits of CARES, 
I believe it will also spur some major construction spending. 
There are some estimates that VA would spend some $4 billion to 
$6 billion in new construction under CARES. For 2004, how much 
money will VA be able to spend on new construction projects 
under CARES and how many do you think could be funded 
immediately? How would you prioritize the funding?
    Secretary Principi. Mr. Chairman, CARES is not about saving 
money. CARES is about modernization. The VA health care 
infrastructure is aging and we have not made the investment in 
it for many years that we should. So I think the budget 
estimates in the area that you mentioned, $5 billion to $7 
billion, over a period of years is approximately correct. We 
have almost $1 billion in 2004 and 2005 that would be available 
to begin the process. Much of it will be advance planning and 
design funding in 2004 that would allow us in 2005 to award 
contracts to begin to modernize.
    Senator Bond. I will now defer to my colleague from 
Maryland to continue the questioning. Thank you.
    Senator Mikulski. Thank you, Mr. Chairman.

                     ENROLLMENT FEE AND COPAYMENTS

    Mr. Secretary, I want to raise the issue once again about 
something that Congress rejected last year, which is the issue 
of charging category 7 and 8 veterans, those who do not have 
literally a service-connected disability, a $250 enrollment fee 
as well as more than doubling their drug co-payments from $7 to 
$15 and also outpatient co-payments by another $5. Some people 
call this $250 a user fee. I call it a toll charge to get into 
VA, which of course I object to.
    Could you tell us why you picked $250? How many veterans 
will not enroll because of this fee? Was this done as a 
deterrent for veterans coming in? What is the point of the 
$250?
    Secretary Principi. Well, I think the focus is to make sure 
that we first and foremost care for those high priority groups 
established by Congress, the service-connected disabled, the 
very poor, and those in need of specialized services and to ask 
those who can most afford to make a small contribution, if you 
will, to the cost of their care.
    Why $250? Again, I am an E-6. I mean, I am a staff sergeant 
and I am in uniform for 20 years or 30 years and I have been 
overseas on combat tours. And I retire with maybe an income of 
$1,000 a month, $12,000 a year retirement after 20 years of 
military service. I have to enroll in TRICARE Prime to get 
medical care for myself and my family. I have to pay a minimum 
of $250-some-odd. So why is it fair that we mandate in this 
country that military retirees who have 20 years' service pay 
$250 to be enrolled in the TRICARE Prime program, but it is 
unfair to ask a veteran who maybe only served 2 years or 4 
years in the military and has no disabilities to pay the same 
amount. So that is how I came up with the $250.
    Senator Mikulski. Well, Mr. Secretary, I appreciate that. 
As you know, I feel and I think in your heart you feel that 
people paid their dues. They paid their dues in active duty. By 
the very nature of active duty, they might not have the kind of 
permanent wound of an orthopedic injury, spinal cord, or 
amputation. But you do not come home from war without 
consequences.
    And I agree with your commentary about the TRICARE men and 
women. But you see, my response to that is why charge them $250 
as well.
    Secretary Principi. Of course, that is Department of 
Defense.
    Senator Mikulski. I know that, but I want you to know that 
you are seeking parity with them because of essentially what 
you see is a fairness issue. I see as a fairness issue that 
when you serve in the military and if you have put in 20 
years--while the rest of us are eating turkey on Thanksgiving, 
they are chasing some turkey down some hole somewhere. So I 
believe we have got to stand by our military.
    But I understand your situation. You understand where we 
are coming from, but I just do not think you have to pay dues 
to get veterans health care.
    But let me take an issue which we do know is exploding 
whether it is in the civilian population, the veterans' 
population, or in TRICARE: the cost of prescription drugs. We 
know many are turning to VA medical care because you offer a 
prescription drug benefit. Could you tell the committee how you 
are controlling the cost of drug purchases and at the same time 
not shackling the physician to prescribe what is medically 
necessary or medically appropriate? This is a challenge that we 
are facing and we would like to know, one, how are you doing it 
and, second, would there be lessons learned in other Government 
initiated programs?

                  PHARMACY BENEFIT MANAGEMENT PROGRAM

    Secretary Principi. We have a model program in my view and 
one that has been very, very successful because it is a 
pharmacy benefit management program that brings clinicians and 
administrators and pharmacists together to make decisions on 
our program.
    How do we do it? We have a national formulary. Of course, 
physicians, if they need to order a drug off the formulary, 
they can do so, but we try to stick to the formulary.
    Senator Mikulski. And that would be because of evidence-
based medical necessity.
    Secretary Principi. Exactly. Sixty-five percent of the 
drugs we prescribe are generic. So we try to use generic drugs 
whenever therapeutically equivalent. And we buy in large sums. 
We leverage our purchasing power and use consolidated mail-out 
pharmacies.
    The results of all of this have been that we have been able 
to keep our prescription drug costs to manufacturers' level 
just over the past 4 years. The only inflation comes from the 
large number of veterans who are coming to us. But the actual 
cost for ingredients has been steady at around $15 for a 30-day 
supply of drugs. And that is pretty extraordinary in my view. 
It comes about from a formulary, generic drugs, and national 
procurement.
    Senator Mikulski. So you have a pharmacy benefit 
management. Second, you use generic drugs. You also use mail-
out pharmacies so that, for example, for a diabetic, you do not 
have to continually have to go to get your testing supplies and 
some of those things that are----
    Secretary Principi. It is mailed to you. Exactly. It is 
mailed from one of six or seven consolidated mail-out 
pharmacies.
    Senator Mikulski. What you take is predictable. Then, of 
course, where there might be an infection or something, it 
requires timely treatment.
    Now, let us go to the bulk purchasing. Essentially when I 
go to the Price Club or Sam's Club, it is discount because of 
bulk. You have got an Uncle Sam's Club. Right? You have got an 
Uncle Sam's Club with your bulk purchasing because essentially 
you are talking about managing primarily chronic illness which 
has a predictability, not the infections and so on.
    Could you share with the committee how much you save in the 
bulk purchasing?
    Secretary Principi. Well, I just have five drug classes 
here. I probably cannot even pronounce the names. Maybe I 
should let Dr. Perlin do so to give you an idea of the 
magnitude of the cost avoidance by buying in these large 
quantities for five drugs.
    Dr. Perlin. Senator, it is really quite remarkable. One is 
an acid reflux ulcer drug omeprazole. The savings by partnering 
and buying in bulk are $134 million to VA this year alone. 
Metformin is a drug for diabetes. The savings for that are $45 
million this year alone. Terazosin, diltiazem, and felodipine 
all for blood pressure, and the savings for each of those are 
$44 million for terazosin, $23 million for diltiazem, and 
felodipine, $22 million. And that is just our top five.
    Secretary Principi. Our 6-year savings in pharmaceuticals, 
as a result of the pharmacy benefit management program, have 
exceeded $1.1 billion. So we need to replicate that now in 
surgical, medical supplies, and equipment. There is an awful 
lot of money we are leaving on the table. We need to do more 
standardization, more national contracting for high-tech 
equipment like MRI's, as well as stents and bandages and 
surgical gloves. There is an awful lot of money that we can 
save the taxpayer and use for more medical care in the future.
    Senator Mikulski. Well, we are all for this Uncle Sam's 
Club. I know my time is up, but what is interesting to me is 
for all the calls we get from veterans' families saying, ``My 
father needs a nursing home, there is a waiting line for 
certain specialty care,'' et cetera, ``nobody has called me and 
said I am not getting the drug that I need or the VA would not 
give me the drug. I went to another primary care doctor and got 
X.'' So it must be working. I think that, first of all, these 
are very informative. I would like to have more of a 
documentation on the savings. I think that these are lessons to 
be learned, and we want to follow up on that.
    And then I will be talking about your demonstration issue 
in a minute.
    Thank you, Mr. Chairman.
    [The information follows:]
                   Prescription Drugs Bulk Purchasing
    Question. Provide documentation on the savings of bulk purchasing 
of prescription drugs.
    Answer.

------------------------------------------------------------------------

------------------------------------------------------------------------
Fiscal Year 1996........................................      $1,900,000
Fiscal Year 1997........................................      32,800,000
Fiscal Year 1998........................................      88,600,000
Fiscal Year 1999........................................     127,800,000
Fiscal Year 2000........................................     186,800,000
Fiscal Year 2001........................................     278,800,000
Fiscal Year 2002........................................     444,400,000
Fiscal Year 2003........................................     394,200,000
Fiscal Year 2004 (1st Qtr)..............................      83,300,000
                                                         ---------------
      TOTAL.............................................   1,638,241,300
------------------------------------------------------------------------

    While standardization contracting is an important cost avoidance 
tool, VA uses other tools to reduce the expense of drug therapy, 
including: (1) purchasing drugs through a Pharmaceutical Prime Vendor 
using negative distribution fees; (2) purchasing drugs in bulk 
quantities not available in the commercial supply chain and repackaging 
those drugs in unit of use quantities; and, (3) managing the 
appropriate utilization of drugs through the development and 
dissemination of evidence-based drug utilization guidelines. These 
strategies work together to help contain the growth of VA's 
pharmaceutical expenditures.

                                 CARES

    Senator Bond. Thank you, Senator Mikulski.
    I would like to go back to the CARES discussion and ask you 
about Chicago. I would like an update on how progress on CARES 
is going in VISN 12, hear how the program is operating where 
one of the hospitals was scheduled to close and how it is 
affecting medical care. Has the closure of Lakeside had any 
adverse impact on the services for veterans and has the medical 
care service in VISN 12 improved?
    Secretary Principi. I think this has become a success 
story. It was the first pilot that we started on CARES, and 
since the CARES decision was made, we have allocated $100 
million to Chicago. Seventy-two million dollars is obligated, 
with the rest in minor projects. All of the Lakeside inpatients 
have been moved over to Westside which is in the poorer part of 
Chicago. We are in design at the present time for a new bed 
tower, a 200-bed bed tower. The intensive care unit has been 
completed. We have got a brand new, modern, state-of-the-art 
ICU. We have, through the enhanced use leasing, a new regional 
office and parking garage on the grounds of the VA medical 
center at Westside. At Hines, the new spinal cord injury and 
blind rehabilitation center, which is state-of-the-art, nothing 
like it in the country, is under construction and should be 
completed by the end of 2004. So I think this is an example of 
what could be done, how we can modernize a health care system 
and provide state-of-the-art, 21st century health care to 21st 
century veterans.
    Senator Bond. I thank you for that. That is good news.

                   TRANSITIONAL PHARMACY BENEFIT PLAN

    Let me turn to the transitional pharmacy benefit plan. I 
commend you for implementing the pilot program. We estimated 
originally that over 200,000 veterans would be eligible, but it 
now appears only 41,000 are eligible. I would like to know how 
it has reduced the waiting list. Why has the number changed so 
drastically? What is your current cost estimate of the program 
and how much does it save?
    Secretary Principi. I will turn this over to Dr. Perlin. 
Let me just start out by saying about a third of the veterans 
who come to us, some places much higher, are only coming for 
prescription drugs. They may be enrolled in Medicare and have 
seen a doctor but they cannot get prescription drugs, so they 
are coming to us.
    When we had those long waiting lists, I wanted to do a 
pilot project to see how well we could reduce the waiting times 
and provide the veterans with what they needed, prescription 
drugs. The pilot was generally successful although I think the 
data still needs to be analyzed. I know the Inspector General 
is looking into this and will have a report available shortly 
on the success of this pilot project. Perhaps Dr. Perlin can 
just give us some specifics.
    Dr. Perlin. Thank you, Mr. Chairman. The inception of the 
project occurred when we had huge waiting lists. As the 
Secretary mentioned, a year and a half ago we had 176,000 
patients waiting for their first appointment over 30 days. 
Since the time when it was implemented, I am pleased to say 
that the waiting list has diminished. That meant that the 
number of veterans who were waiting over 30 days came down to 
42,000.
    Of this 42,000, sir, 8,000 took part in the pharmacy 
benefit which was, in fairness, lower than we expected. We 
believe that some veterans may not have heard about the 
pharmacy benefit. We also believe that some may have found the 
process complex. It was a new process for us, a learning 
process in terms of processing prescriptions from outside of 
the system.
    Because we have tighter control within our system with 
electronic prescribing and the closed formulary, we had some 
implementation challenges with prescriptions that were outside 
of our formulary. So all told, about 20 percent of those people 
used the program who were eligible and it was substantially 
lower than we initially had considered.
    Senator Bond. I would like to ask Mr. Griffin if he has any 
additional views, the Inspector General. Have you come to any 
conclusions? Is there anything additional that you could 
provide on the program at this point? And if you would state 
your name for the record.
    Mr. Griffin. My name is Richard Griffin. I am the Inspector 
General for the Department of Veterans Affairs.
    Senator Bond. Welcome.
    Mr. Griffin. As indicated by the Secretary, we have done 
some work in this area. We have recently finished a draft 
report which will be going to VHA for comments.
    I would say that, in general, there were a number of issues 
that impacted the ability to have this program successfully 
kicked off. I would go back a few months prior to the start of 
the program to another audit which we had done at the 
Secretary's request on waiting times throughout the system. At 
that time, the reported waiting times in VHA were 309,000. 
Through the course of our audit, we determined that the actual 
number in May of 2003 was really 218,000, and that was as a 
result of some double-counting of some individuals. There were 
some other veterans who had enrolled in the system just so they 
would be enrolled but who were not actively seeking 
appointments from the Department. And there were some that were 
canceled or changed administratively but the record-keeping did 
not reflect that activity. So that is what was discovered in 
May.
    One of our recommendations to VHA was that they continue to 
pursue electronic waiting times, which they have been doing and 
have been making good progress on. But that is just a few short 
months before the July date when the temporary pharmacy benefit 
was going to start, and some of those growing pains with the 
electronic process still existed. So as a result, the data that 
was being utilized to try and track how many veterans benefited 
from this program was not always accurate.
    The other truth is that as a result of increases in 
staffing from previous budget years, a tremendous dent was made 
in those waiting lists in the 12 months preceding the kickoff 
of this benefit program.
    So you had a combination of increased staffing being 
brought to bear against the workload. You had some facilities 
that accepted the challenge and put in the overtime and got the 
numbers down, and then we had a continued problem with the 
software and with the administration of the program.
    Senator Bond. Thank you very much, Mr. Griffin. We will 
look forward to seeing your full report when it is ready.
    Now I turn to Senator Leahy who has joined us. Thank you, 
Senator.

                 STATEMENT OF SENATOR PATRICK J. LEAHY

    Senator Leahy. Thank you, Mr. Chairman. I look around here. 
I wonder who is back running the store. Secretary Principi you 
have got everybody here. I know the buck stops here and I 
appreciate that. It is good to see you.
    I really get worried--and I have told you this before--on 
the Veterans Affairs budget. We seem to go around and around. 
Last year we went back and forth to add $1.6 billion to the 
administration's budget request for fiscal year 2004, the 
current year. A month before the administration submitted its 
fiscal year 2005 budget, I joined several members of this 
subcommittee and the Veterans Committee to end the pattern of 
the administration where they come in with an unreasonably low 
request. They know that it is a request that nobody is going to 
accept, hoping that then Congress will find the money somewhere 
to bring it up, and it leaves a lower funding baseline the next 
year.
    And the same thing happened again this year. The 
administration submitted a budget clearly short by several 
hundreds of millions of dollars. Veterans groups, everybody 
else has said it is short. They point to inflation. They point 
to increased costs of hospitalization, especially with so many 
coming back from Iraq and Afghanistan.
    I do not know why we are in this. It has been reported that 
you asked for an additional $1 billion and you were turned 
down. I appreciate your asking for it. But what do you have to 
do? Even in an election year, you would think that somebody 
would listen to what veterans are saying. It is somewhat of a 
rhetorical question, but I would be delighted to hear an 
answer.
    Secretary Principi. No. I appreciate the question.
    Again, I would say I guess we always want more.
    Senator Leahy. No, no. Mr. Principi, it is not that we want 
more, it is we need more. And with the number of people coming 
back from Iraq and Afghanistan and everything else, we need 
more.
    Secretary Principi. Well, men and women coming back from 
Iraq and Afghanistan have the highest priority in my view, and 
we will be there for them. We have to be there for them. We 
have no choice.
    But again, my budget just in health care over this 4-year 
period has increased, if you include the 2005 budget as 
requested and if it becomes enacted, over 40 percent. Twenty-
seven percent of that increase is from the President's request; 
13 percent from congressional add-ons. So the problem is we, 
our government, opened the doors in 1998 to 25 million 
veterans. Prior to 1998 only 3 million had eligibility for the 
full continuum of VA health care. So we went one day from 3 
million to 25 million, and as the chairman said, we have this 
perfect storm. We have eligibility for all 25 million. No one 
is entitled but everyone is eligible. We have the best 
prescription drug program in the Nation. We have opened up now 
some 760 outpatient clinics that did not exist prior to 1995, 
and the quality of care is much better than for my dad. So we 
have this tremendous demand for health care, although our 
budget has risen rather dramatically.

                            MEDICAL RESEARCH

    Senator Leahy. Mr. Secretary, in your budget is a summary 
on page 1 to 6, take, for example, medical research spending. 
It says it is increased, but you are asking for a direct 
appropriation for medical and prosthetic research of $769 
million. That is a $50 million cut. So, on the one hand, we are 
increasing all this, but then when you go to the fine print, it 
is saying it is cut.

                             MENTAL HEALTH

    Now, you said that people coming back is the first 
priority, and I am sure you mean that and that is the way it 
should be. But I look at this article--and I am sure you read 
it--that was in the New York Times magazine on the incidence of 
post-traumatic stress disorder, depression among many of our 
troops returning from Iraq and Afghanistan. It says in this 
particular article a wounded veteran who is photographed here--
you can see that he has lost an arm. Many are going through the 
medical evaluation board process. They get medical discharges. 
They become eligible to access care through the VA. But then we 
find that notwithstanding this huge increase, because of Iraq 
and Afghanistan, the mental health programs seem to be kind of 
an ugly stepchild of the VA. Notable shortages in psychiatric 
care for veterans in my own home State of Vermont which has a 
good VA hospital. We have the National Center for Post-
traumatic Stress Disorder at the White River Junction VA 
Medical Center. They provide care and advice to the Army. They 
are going to continue doing that, but they have been flat-lined 
for the past few years, notwithstanding the increase in need.
    You have so much support up here. I do not know how all 
this comes about. I mean, the administration can do all the 
great photo ops, and some of them are very valid. But a lot of 
them are not because we hear then from the veterans saying, oh, 
great, we got this increase. It is not really the way the 
budget came up. What are we going to do?
    Secretary Principi. Well, again, Senator Leahy, when I 
started this business 3\1/2\ years ago, my budget was $48 
billion. Today it is $65 billion.
    Senator Leahy. A lot of that was pushed in by the Congress.
    Secretary Principi. But it has grown dramatically. We have 
treated 800,000 more veterans than the year before I became 
Secretary. I am not taking credit for that. I am just saying 
that 800,000 new veterans have come to the VA and received 
health care that did not in 2001. That is an extraordinary 
increase. And yes, more and more veterans are coming to the VA 
for lots of different reasons.
    Mental health. You are right. Sometimes it does not get the 
allocation that I think it deserves. It is not as glamorous, if 
you will, as high-tech medicine, and we have to continually 
stress the importance of mental health programs.
    Senator Leahy. Will it get the allocation?
    Secretary Principi. Sir?
    Senator Leahy. Will you give it the allocation?
    Secretary Principi. Yes, I will give it the allocation. I 
convened a task force on mental health. They made some 
excellent recommendations to ensure that we have a baseline of 
spending across our entire system. Right now it is too un-
uniform and inconsistent across the Nation.
    In research, the appropriation piece has dropped by $50 
million in this request, but the appropriation is one small 
part of our research program of $1.7 billion. From 2000 to 
2003, we have gone from $504 million in grants from NIH and DOD 
to $704 million. So we are increasing the amount of money that 
is coming to the VA from other sources, NIH and Defense and 
pharmaceutical companies. So we will continue to work to ensure 
that our research program is robust.
    Senator Bond. Thank you very much, Senator Leahy.
    Senator Leahy. Mr. Chairman, I will submit some other 
questions for the record.
    Senator Bond. Thank you, sir. We will do that.
    I think there is a medical care chart request that we will 
put in the record too, going back to the presidential requests 
for about the last 10 years, showing the percentage increase in 
requests. I have that here and we will make this available in 
the record.
    [The information follows:]

    
    
    Senator Bond. Senator Mikulski, do you have some questions?
    Senator Mikulski. Thank you very much, Mr. Chairman. I 
believe Secretary Principi and Dr. Perlin answered the question 
I had about the demonstration project on delivery a 
pharmaceutical benefit, in other words, those who had gone to 
another primary care physician but had come in to see you. This 
sounds like this has momentum.
    And you have also significantly reduced waiting lists. 
Waiting lists are a big issue with me. It is a very big issue 
with the veterans' organizations, and the fact that they have 
been reduced is commendable.

                    WAITING LINES IN SPECIALTY CARE

    But let us go to those waiting lines in the area of 
specialty care. Am I right, Dr. Perlin, that this is where 
there is a waiting list? In other words, do you feel confident 
that you have reduced the waiting list for what we would call 
primary care and primary care management? The blind veterans' 
organizations have told me that there is a now a waiting list 
to get into blind rehab programs.
    Dr. Perlin. Senator, we have made progress in the area of 
specialty care as well. Our goal for 2005 is that 90 percent of 
all appointments will be in 30 days or less. In point of fact, 
we still do have pockets where we need to make improvement. One 
of the areas you mentioned, blind rehabilitation, is such an 
area.
    For veterans who have suffered acute injury, immediate 
injury, such as someone coming back from war, we will see them 
immediately. Those people categorically do not wait.
    We need to modernize our programs. In fairness, the 
programs we have had for someone who has a traumatic loss of 
vision would be different than for some of our veterans who are 
aging and because of diabetes, suffer from macular 
degeneration, a very slow and progressive onset. The programs 
that we have worked with, the inpatient programs for 6 weeks of 
care, are both labor-intensive and require a 6-week commitment 
on the part of the veteran. In point of fact, those veterans do 
wait, between 4 months and a year, but because of the 6-week 
commitment, they often schedule that. My point is we need to do 
better in terms of reducing that waiting list and add new 
programs to address both causes, trauma and slow disease 
progression.
    Senator Mikulski. Well, what you are saying is if you are 
coming back from Iraq or Afghanistan and you have left a 
military hospital and there needs to be medical management of 
the loss or traumatic injury to the eye, they are seen right 
away.
    Dr. Perlin. Yes, ma'am.
    Senator Mikulski. For those who have a chronic and 
degenerative visual situation that comes from, say, diabetes, 
what you are saying is they might have to wait, but they are 
not going to wait indefinitely.
    What would you say are the specialties most challenging for 
you right now?
    Dr. Perlin. Specialty care is sort of a reflection of the 
diseases in society. Cardiology, endocrinology, all of those 
are areas we are working on, but we are moving the waiting 
times forward. Again, we have set the standard to be 90 percent 
of all appointments within 30 days and then 99 percent within 
90 days. We believe we will hit the marks on that. We are about 
41 days overall as an average wait at the moment.

                          WORKFORCE SHORTAGES

    Senator Mikulski. Well, first of all, that is very good, 
but let me ask a question on workforce shortages. We understand 
in the medical profession generally there is not a shortage of 
doctors, but there is a shortage of allied health care people 
that are able to meet both acute needs as well as chronic 
management. What are your challenges in the area of nursing, x-
ray technology? What should we be looking at to help VA not 
only have the money to hire but also to have a farm team to 
help create opportunities for those who would like to come in 
to health care and then serve their Nation as well?
    Dr. Perlin. Well, thank you, Senator, because that is 
absolutely right. Our farm team serves the Nation. Sixty 
percent of all health professionals experience some part of 
their training in VA. So that is a farm team for the Nation.
    As with the Nation, we suffer because of the national 
nursing shortage. I am proud to say that in contrast to 
turnover rates of 17 percent annually, VA has retention rates 
and turnover of only 7 percent among R.N.'s, but there are 
areas of the country where it is very, very difficult to get 
R.N.'s into the workforce.
    You identified x-ray technicians, nuclear technologists. 
Some of these allied health professions are areas where in fact 
some of the salaries in the private sector have gone up 
disproportionately. I know that legislation, title 38 hybrid, 
has been something under review, and those are areas that are 
important for us to maintain both training and adequate staff.
    Senator Mikulski. Well, Doctor, I am going to ask you, 
along with the Secretary, if you could give recommendations to 
us. Where there are national shortages, you could end up in a 
war for talent which then becomes a bidding war. When we say 
the private sector, we are not talking about the profit 
hospitals. We are talking about nonprofit. So you are in a 
bidding war for many people. Am I correct in that?
    So my question would be what would be those ideas which we 
could both recruit people through either debt forgiveness ideas 
for service to the VA, like debt for duty, or other scholarship 
programs? I know this would be a subject of authorization, but 
also we see these in other fields. I am out now touring the 
community colleges. There are people who want to come into 
these fields, but they almost have to be in a work-study 
environment and this becomes of question of where maybe the VA 
could play a role and also then have new thinking, new energy.
    Dr. Perlin. Well, thank you, Senator. I absolutely agree 
with the idea that novel programs such as debt forgiveness such 
as is used in the military would be one of the mechanisms in 
which we can bring people in to VA, retain them in VA, and 
actually provide a service for the country as well.
    When we have to contract care, it becomes very expensive. 
As you know, we have legislation proposed for physician pay 
reform, something that has not occurred for over a decade. In 
all of those areas, that helps us be more competitive.
    For nurses in particular, the associate degree nurses can 
have a full scholarship to attain their baccalaureate degree in 
VA, and we would appreciate any help in getting that word out 
because that is a program and your suggestion to emulate that 
in other areas is, I believe, right on target.
    Senator Mikulski. Well, thank you very much.
    Senator Bond. Thank you, Senator Mikulski.

                       PERSIAN GULF WAR VETERANS

    Mr. Secretary, we all know, of course, that the returning 
service members, including the Reserve and Guard, are entitled 
to 2 years free health care upon separation from service after 
having served in the Persian Gulf. Congress has appropriated 
$100 million in emergency appropriations in 2003 to assist the 
war veterans. I would be interested in knowing what specific 
steps the VA is taking to respond to the needs of returning 
Persian Gulf War vets.
    Secretary Principi. On the medical side, we have had about 
145,000 active duty service members return to our shores, of 
which almost 20,000, if you will, have come to the VA for 
medical care and for various reasons, some related to their 
combat injuries, others unrelated.
    We did receive a $100 million supplemental that could be 
used for either medical or benefits. I have chosen to use the 
supplemental to assist us in addressing the claims of men and 
women returning from Iraq and Afghanistan to reduce the 
backlog. So I think we are making progress on both fronts, and 
the $100 million supplemental has helped us significantly.

                U.S. INTERAGENCY COUNCIL ON HOMELESSNESS

    Senator Bond. Mr. Secretary, I spoke earlier on 
homelessness and the responsibility you took on as chair of the 
U.S. Interagency Council on Homelessness. My colleague and I 
are very strong supporters of the mission. Can you tell us 
briefly what are your goals as chairman of the ICH? How do you 
ensure that veterans are receiving adequate support from other 
Federal agencies? I would be interested to know how homeless 
veterans' access to permanent housing programs is being 
supported by HUD, for example.
    Secretary Principi. We are addressing the homelessness 
issue on many fronts. From the VA perspective, with the latest 
round of grants and per diem, we will have 10,000 beds, the 
highest number we have ever had, transitional housing beds for 
homeless veterans.
    We need to continue to attack the underlying causes of 
homelessness, substance abuse, PTSD, serious mental illness, 
employment-related issues. So it is very, very important that 
we address the clinical issues if we really want to prevent and 
overcome homelessness.
    I was proud the President named me chairman of the 
Interagency Council on Homelessness and my goals this year 
really are to work as hard as I can to achieve the goal of 
eradicating homelessness in our society in 10 years. 
Specifically, we will only do so if the Federal agencies 
involved work together, VA, HUD, HHS, and Labor. To that 
degree, my goal is to bring all of these agencies together, to 
share our resources, and address our respective expertise in 
housing, in employment, in health care. Last year we had $35 
million towards this effort. We have now upped that amount. The 
President has authorized us to use $75 million of interagency 
funding. Most of it is funded by HHS.
    We have a guaranteed loan program for housing, and we will 
have three to five projects started this year. We have one in 
Chicago with Catholic Charities. I am very excited about it. We 
are going to provide a guaranteed loan to Catholic Charities to 
open up a homeless shelter in south side Chicago with a VA 
clinic attached to it. This is a wonderful, wonderful example 
of what we can do.
    With regard to permanent housing, HUD, I think there have 
been some difficulties getting the section 8 vouchers to the 
VA. We continue to work with HUD on that issue.
    Senator Bond. I think we understand some of the challenges 
you face in that area, trying to get those coordinations. We 
will work with you, Mr. Secretary.

                                COREFLS

    My final question is a tough one, but I would like to have 
you discuss it. Developing an integrated information technology 
system for the Department is critical. The VA has tried to 
address this issue by developing an integrated financial 
management system called CoreFLS. I understand the system had 
serious implementation problems at Bay Pines VAMC resulting in 
some serious patient care problems. Have you responded to the 
problems? Do you believe the CoreFLS is salvageable or should 
the Department chuck it and start all over again?
    Secretary Principi. Well, I certainly hope it is 
salvageable. I will not chase good money after bad. We have 
spent $279 million since the program was launched back in 1998. 
It is a very, very important undertaking to build a new, 
integrated financial logistics system for the VA, overcome 
material weaknesses that the VA has had for many, many years in 
its financial management systems.
    It does have problems. Part of it is the test site that was 
selected at Bay Pines for this project--it turns out that that 
was a bad decision because of the other systemic problems that 
Bay Pines VA Medical Center was having.
    To attack this problem, Mr. Chairman, I have done the 
following. I have made some personnel changes recently. 
Secondly, I have asked the Inspector General to do a complete 
and thorough audit and investigation of everything related to 
this CoreFLS project from how the contract was implemented, 
right on down the line.
    Additionally, I have asked our CIO, our chief information 
officer, to contract with an independent agency or organization 
to assess the validity of CoreFLS and whether we should go 
forward with it, and I expect a report from my CIO in 60 days. 
So I am watching it very, very carefully. This was designed to 
be a close to $500 million project. We need to take appropriate 
steps.
    Senator Bond. Thank you. I appreciate that summary. 
Obviously, there is a lot of money that I hope is not down a 
rat hole, but obviously we need a good system and I think it is 
time to step back and take a very careful review and see where 
we are going.
    Secretary Principi. I will report to you, Mr. Chairman, 
Senator Mikulski, as soon as I get the final report from the IG 
and the report from the independent team that will be 
addressing it over the next 60 days and then discuss going 
forward at that time.
    Senator Bond. Thank you, Mr. Secretary. That concludes my 
questions. I will turn now to Senator Mikulski.
    Senator Mikulski. Thank you, Mr. Chairman.
    For my final round I have one question about claims 
processing and then for our Afghan-Iraqi vets.

                           CLAIMS PROCESSING

    On claims processing, I am back to my favorite topic: 
waiting lines and waiting times. As you know for some years, 
those who filed disability claims have had very long waiting 
times and very disappointing and frustrating experiences with 
claims processing. Now, as I understand it, you have been able 
to substantially reduce that waiting time. You said that in 
your testimony. But then I am puzzled by the fact that there is 
going to be a reduction of 540 staff from the VA Benefits 
Administration.
    So here is my question. How are we doing on the claims 
time? Again, if you have a disability, you should not have to 
wait in line to get that for which you are both eligible and 
entitled. Then, second, presuming progress has been made, are 
we now about to trip ourselves up?
    Secretary Principi. Sure. A very important issue, Senator 
Mikulski. As I indicated, we are making great progress. We are 
clearly not there yet. This is a moving target and no sooner do 
I feel that we have got everything under control and then 
something else happens. The court decision will come down and 
say a veteran had a claim. It had 15 conditions and you may 
have approved 14 and you denied 1, but you have got to hold the 
claim for a year to give the veteran a chance to submit 
additional evidence, or concurrent receipt. Veterans, in order 
to become eligible, may want to reopen their claim to get an 
increased disability rating to become eligible for CRSC. So it 
is constantly changing. The landscape is constantly changing.
    The 500 people you mentioned--only 35 of those will come 
out of the disability compensation arena. VBA, the Benefits 
Administration, has as you know, education, housing, vocational 
rehabilitation and pension. We have done some consolidation in 
pension. Thereby we can reduce a little bit of our end 
strength.
    Obviously, I am concerned. It is a very high priority of 
mine. I think we are okay. You gave us 1,800 people over the 
past couple years.
    Senator Mikulski. Right and then I see you are letting off 
500.
    Secretary Principi. They are not actually coming from that. 
How many people do we have in Benefits Administration? About 
11,000. So they will be coming from other areas.
    But the point I feel is important to make is it takes a 
couple years to get those people up and trained. Now that they 
are trained, they should be much more productive.
    Secondly, I think you have a right to demand that like the 
private sector that is showing productivity improvements 
because of technology that you are investing with us, we need 
to demonstrate some productivity improvements too.
    So I think the combination, Senator Mikulski, will allow us 
to do so. But obviously----
    Senator Mikulski. Well, Mr. Principi, I am going to ask you 
and your management team to stand sentry. I think we have come 
a long way over the last several years in reducing the waiting 
line for disability claims and at the same time ensuring those 
eligible and therefore entitled to get their benefit and 
prevent abuse in the system. So we do not want to lose those 
gains and then in the anticipation of the Iraqi-Afghan vets 
coming home, many of whom do bear these permanent wounds of war 
that we do not want, as they then apply for benefits, to have 
to go through the frustration about applying.

                         IRAQI-AFGHAN VETERANS

    But this then takes me to the Iraqi-Afghan vets. First of 
all, I think that VA is going to be hit by the three 
populations. No. 1, we have expanded the eligibility 
opportunities to come to VA. No. 2, the Vietnam vets are coming 
of age, and I believe that they are going to turn more and more 
to VA because of the failure of health care in other areas, 
with the loss of a job or not being eligible for Medicare. 
Essentially the people between 55 and 64. You will be the 
health care providers not of the last resort in a negative 
sense. And then now we have these men and women who will be 
returning from Iraq and Afghanistan.
    My question is, No. 1, are we ready and do we need 
additional money for that?
    No. 2, there seems to be, because of the nature of the war 
against us, an incredible amount of orthopedic injuries. My 
visit to Walter Reed and contacts with constituents talk about 
the prosthetic issues. So my question is, are we ready? Second, 
are we paying particular attention to this? And third, I am 
very troubled by the cut in VA medical research. The doctors 
over at Walter Reed are telling me that there is not a lot of 
work going on in the area of prosthetics either at Walter Reed 
or with themselves, at least with upper body.
    Have you been over to Walter Reed?
    Secretary Principi. Yes, many times.
    Senator Mikulski. I do not have to describe to you what I 
met. But when you walk up to a young man and you want to shake 
his hand and the injury is there, you do not go home at night 
and just read memos. You really want to be on the edge of your 
chair to help them.
    Secretary Principi. It is pretty tough. I go up as much as 
I can.
    Senator Mikulski. Well, God bless you for that.
    Secretary Principi. I think we are ready in the short term, 
Senator. I think because of what you have done and almost a $3 
billion increase in 2004 and I am sure we will have a very good 
increase in 2005, I think we are fine.
    But I do not know about the long term in the sense of we 
have 25 million eligible today. As you indicated, my cohort of 
now 60's, approaching 60, medication and everything is 
increasing, visits, et cetera. So if you want us to focus on 
the service-disabled and the poor and those in need of 
specialized services, I think we are going to be fine. But if 
there is going to be the need to expand the patient population 
to those who may have higher incomes and may have some other 
options--they may not be great options. They may be closing on 
them--then I think the long term is going to be problematic. 
The system is not built for anywhere near 25 million veterans, 
and we are almost growing too fast. The beauty of these 
outpatient clinics throughout Maryland, throughout Missouri is 
that veterans have access, but there is going to come a time 
when they are going to go in for an appointment, but then 6 
months later they are going to have to go in for an inpatient 
open heart or a new hip. Once you get them in the system, then 
they are in the system for everything except long-term care and 
that is 70 percent or greater. But long term it could be 
difficult to balance all this out. And are we going to have to 
go the contract route?
    Senator Mikulski. Mr. Secretary, I am going to ask you to 
give us a white paper on this because we have got to meet the 
needs immediately of those veterans coming home that are being 
discharged from the hospitals, many of whom return to rural 
communities. As you know, when I make those phone calls in 
Maryland to those who have lost a soldier or a sailor or a 
Marine, a lot of them are from our rural communities or they 
are from minority communities. They are going to come back, 
their brothers and their sisters and their cousins, and we just 
have to be there. So just know I think this is where we have to 
be in partnership.
    [The information follows:]

            White Paper on VA Seamless Transition Task Force

                               BACKGROUND

    Secretary of Veterans Affairs, the Honorable Anthony J. Principi, 
created a VA Task Force for Seamless Transition for Returning Service 
Members on August 28, 2004. The Seamless Transition Task Force meets 
weekly and is co-chaired by Dr. Michael Kussman, Acting Deputy Under 
Secretary for Health and Chief of Patient Care Services in the Veterans 
Health Administration (VHA), and Carolyn Hunt, Deputy Director of the 
Compensation and Pension Office in the Veterans Benefits Administration 
(VBA). The task force was charged with:
  --Improving collaboration between VHA, VBA and DOD on care of 
        returning Operations Iraqi Freedom and Enduring Freedom (OIF/
        OEF) veterans;
  --Improving communication and coordination among VHA, VBA and DOD 
        staff in providing health care services and VA benefits 
        applications to OIF/OEF veterans;
  --Ensuring VA staff is educated about the needs of this new group of 
        veterans; and
  --Ensuring appropriate policies and procedures are in place to 
        enhance seamless transition of health care and access to 
        disability services.

                  MTF LIAISONS FOR SEAMLESS TRANSITION

    The task force identified the five major Military Treatment 
Facilities (MTFs) where seriously injured and ill OIF/OEF active duty 
service members were being treated, and assigned VA staff to work side 
by side with MTF staff to assure seamless transition for OIF/OEF active 
duty service members and veterans. VA staff were later assigned to two 
additional MTFs, with another VHA staff member providing liaison to all 
other MTFs. The VHA social workers assigned to the MTFs serve as 
liaisons and arrange transfer of health care, inpatient and outpatient, 
from military hospitals to VHA health care facilities. They also 
arrange for TRICARE authorization so that VHA facilities can provide 
health care to active duty service members, and they enroll active duty 
service members in the VA health care system prior to transfer. VBA 
benefits counselors educate service members about VA benefits and help 
them apply prior to military separation.
    VHA staff are assigned as follows:
  --National Naval Medical Center (Bethesda).--Full time VHA social 
        worker;
  --Brooke Army Medical Center (San Antonio).--Full time VHA social 
        worker;
  --Darnall Army Medical Center (Fort Hood).--Full time VHA social 
        worker;
  --Eisenhower Army Medical Center (Fort Gordon).--Part time VHA social 
        worker;
  --Evans Army Hospital (Fort Carson).--Full time VHA nurse;
  --Madigan Army Medical Center (Fort Lewis).--Two full time VHA social 
        workers;
  --Walter Reed Army Medical Center.--Two full time VHA social workers;
  --All other MTFs.--A part time VHA social worker.

            VHA FACILITY POINTS OF CONTACT AND CASE MANAGERS

    Each VHA facility identified a Point of Contact (POC) to work with 
the VHA social workers serving as liaisons to the MTFs. The POCs 
arrange inpatient care, outpatient appointments, and all necessary 
equipment, supplies, orthotic devices and prosthetics for OIF/OEF 
active duty service members and veterans. Each facility also identified 
a nurse or social worker case manager who is assigned to all OIF/OEF 
active duty service members and veterans whose care is transferred to 
that facility. The case managers maintain contact with the MTF staff, 
particularly for those active duty service members who are still 
awaiting Physical Evaluation Board results regarding medical retirement 
or medical separation from active duty. Lists of the VHA and VBA 
liaisons, the VHA POCs and case managers, and the VBA case managers are 
updated weekly and are available on the VA Intranet web page.

                   VA GUIDANCE ON SEAMLESS TRANSITION

    Secretary Principi sent a letter to each VA employee stressing the 
importance of seamless transition for returning OIF/OEF active duty 
service members and veterans. The VA Seamless Transition Task Force 
developed the following:
  --Guidance to VHA health care facilities and VBA regional offices on 
        the roles of the VHA liaisons, POCs and case managers and the 
        VBA benefits counselors and case managers. The guidance 
        includes a script for front-line staff to use when interacting 
        with veterans.
  --A video, ``Our Turn to Serve'', which was shown to all VA 
        employees.
  --A VA Intranet web page for OIF/OEF where all policy guidance, 
        resource information, task force minutes, and lists of VHA and 
        VBA liaisons, POCs and case managers is available to VA staff.
  --A new OIF/OEF icon on the VA Internet web page with information 
        about VA, DOD, Reserve and Guard Affairs, TRICARE and other 
        resources are available.
  --Pamphlets, brochures and other outreach materials for OIF/OEF 
        regular active duty, members of the Reserves and National 
        Guard, veterans, and family members. Soon-to-be completed 
        products include laminated cards with VA and DOD phone numbers 
        and web addresses as well as an in-flight video welcoming OIF/
        OEF active duty service members and veterans home and offering 
        VA benefits and services.
  --VBA staff continue to conduct briefings on VHA and VBA benefits at 
        Transitional Assistance Program (TAP) meetings. VHA staff have 
        been invited to attend. Briefings are also conducted at Reserve 
        and Guard units during weekend drills.
  --A proposal for a permanent Seamless Transition office at the 
        Department level to carry on the activities of the task force 
        in the future.

                          THE TRANSITION LINK

    Having VHA social workers at the major MTFs assures that those 
active duty service members who are to be discharged from the MTF but 
who still need rehabilitation and other heath care services are 
referred to VHA. The VHA social workers arrange for transfer of care, 
inpatient and outpatient, for all service members referred by MTF 
staff. The VHA social worker meets with each service member and 
discusses VHA health care services, developing a plan for transfer to 
the VHA facility that can provide the needed care and is closest to the 
service member's home.
    For service members needing specialty services, such as treatment 
or rehabilitation for spinal cord injury, traumatic brain injury, 
visual impairment, amputations, and serious mental illness, the VHA 
social worker will arrange transfer to the VHA facility that can 
provide that level of care. The VHA POC and case manager at the 
receiving facility arrange for inpatient and outpatient services as 
well as for all necessary equipment, supplies, orthotic devices and 
prostheses. The VHA case manager makes contact with the active duty 
service member prior to transfer and with the service member's family. 
The case manager can assist the family member with transportation and 
lodging needs if the VHA facility is not within commuting distance.
    For service members who need less specialized care, transfers are 
made to all VHA facilities, including community-based outpatient 
clinics. Community-based outpatient clinics provide access in rural 
parts of the country.
    Service members also have the option of utilizing TRICARE providers 
while they are still on active duty. The VHA social workers serving as 
liaisons at the MTFs assist service members in choosing treatment 
options that include TRICARE and VHA.
    For those who are already separated or retired from active duty, 
post-MTF treatment can include VHA health care facilities, including 
community-based outpatient clinics and services received by community 
providers via fee basis or contracts.

    Senator Mikulski. Senator Leahy followed one course of 
questions. See, I follow another course. I do not think we 
ought to talk about Republicans or Democrats. I think when we 
talk about veterans, we are the Red, White and Blue Party. I 
tell you, when those guys sign up, nobody asks them their 
political party. When they face these ghoulish and horrific 
circumstances, it is not about politics. It is about our 
country.
    The other thing I do know is that you are looking at 
innovation, and I want to thank you for that. We contacted you 
because in the Cumberland outpatient clinic, they were losing 
their opportunity for visual care, not the sophisticated type 
care, Dr. Perlin, that might be available at the University of 
Maryland, VA or even a mandated visit at Wilmer Eye Clinic at 
Hopkins, but it was for the certain basic care which would be 
handled through an optometrist. And you contracted with a Wal-
Mart.
    Now, when I first heard it, I thought, ``Holy hell. Are we 
going to Wal-Mart for the VA? I do not want Wal-Mart medicine 
for my vets.'' But when we looked at it, that was who was 
available in the community and we had a way where there would 
not be a waiting line for veterans.

                     ADDITIONAL COMMITTEE QUESTIONS

    So we are looking for innovation, and I have some other 
ideas on some of this that I would like to then discuss with 
you. I know that our time is up, but we need to really look now 
for the immediate return and then we need to look ahead and to 
prepare ourselves. When everybody wants to stand up for their 
troops, I think we need to stand up for them right here and 
today, meet the budget needs and lay the groundwork for what 
could come in the future.
    So, thank you.
    Secretary Principi. Thank you very much.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

           Questions Submitted by Senator Christopher S. Bond

                               PRIORITIES

    Question. Given the likely funding constraints for our 
subcommittee, what are your top three funding priorities for the VA?
    Answer. While VA believes all its programs are a high priority, we 
are well aware of the funding constraints the subcommittee faces and 
recognize that difficult budget decisions must be made. However, I have 
gone on record stating that my three highest priorities are:
  --Provide timely, high quality health care to our core constituency--
        veterans with service connected disabilities, those with lower 
        incomes, and veterans with special health needs;
  --Improve the timeliness and accuracy of claims processing;
  --Ensure the burial needs of veterans and their eligible family 
        members are met, and maintain veterans' cemeteries as national 
        shrines.

                            CARES--CLOSURES

    Question. Mr. Secretary, you have heard many negative comments on 
CARES because of the potential hospital closings in the plan. Without 
going into specifics, I believe that closures or realignments are 
necessary in cases where the facility is underutilized and where these 
closures will be replaced with other services that will provide better 
care for more veterans.
    There appear to be some misunderstanding about CARES because some 
people believe that the proposed closures will reduce services or 
access for veterans. My understanding is that by closing unneeded 
facilities, the VA will re-direct its cost savings to open more 
outpatient clinics or purchase contract care that is located closer to 
more veterans. Further, the VA will be able to use proceeds from 
enhanced use leases of closed facilities to pay for more medical care 
services for more veterans. Therefore, more veterans will benefit from 
improved access under CARES. Can you respond?
    Answer. VA has been committed to developing a plan that addresses 
the future needs of enrolled veterans. Extensive data based plans were 
developed for each of VA's 77 market areas. All plans identified the 
capital investments and realignments that are required over the next 20 
years to provide cost effective, accessible, quality health care in 
facilities that meet the physical requirements for the delivery of 
health care services.
    On May 7, 2004, I released my decision, which will afford more 
opportunities for veterans to benefit from improved access. Under the 
guidelines of this decision, VA will develop a national plan for 
directing resources where they are most needed; preserving VA's mission 
and special services; and, at the same time, continuing to provide 
high-quality care to more veterans in more locations.
    My decision includes the development of an additional 156 CBOCs and 
calls for taking advantage of all opportunities to purchase contract 
care more effectively. VA will also continue to work with DOD to 
improve sharing to enhance benefits and services to veterans, service 
members, and their dependents, while improving use of taxpayer 
resources.
    Successful implementation of CARES will rest in large part in VA's 
ability to effectively manage its vacant and underutilized space. In 
the last 10 years VA has made numerous changes to the enhanced use 
lease process. It is critical that VA continue to improve its 
capabilities. A cross-organizational team has made recommendations to 
further improve the timeliness and effectiveness of the EUL process. 
Through CARES VA expects to reduce its current vacant and underused 
space by 42 percent by 2022.
    Overall, the comprehensive restructuring of VA health care will 
improve the way VA delivers care. I wish to emphasize that health care 
services for veterans will not be reduced.
    Question. Lastly, under the Veterans Health Care, Capital Asset, 
and Business Improvement Act of 2003, the VA is required to prioritize 
its CARES projects based on six criteria. The first and most important 
criterion is that the project replaces or enhances a project that is 
expected to close. I believe that this criterion helps ensure there is 
continuity in service for veterans. Do you agree?
    Answer. I agree that the criterion will help assure continuity of 
service to veterans. It has always been a major tenet of the CARES 
process that no realignments, closures, or other changes be made to VA 
health care services in a particular locale without first ensuring the 
continuation of these services, whether through other VA facilities or 
through contracts with other health care providers in the community.
    Moreover, to ensure compliance with the law while implementing my 
decision on CARES, VA will use its existing capital development process 
to revise the weights of its criteria so that patient and employee 
safety concerns are ranked as the second most important factor in 
consideration for construction funding. This process will be completed 
in time to be operative for submission of VA's 5-year capital plan, 
scheduled for this month.

               TRANSITIONAL PHARMACY BENEFIT (TPB) PILOT

    Question. Mr. Secretary, I commend you for implementing a pilot 
program that allows veterans to fill privately written prescriptions at 
the VA. Under the Transitional Pharmacy Benefit (TPB) program, 
preliminary data indicates that 8,298 or 20 percent of the 41,167 
eligible patients have participated in the program.
    To what degree has the program help reduce the waiting list?
    Answer. The TPB program was designed to provide prescription drug 
services to veterans on the waiting list to ease the burden of out-of-
pocket prescription drug expenses for veterans whom we were not able to 
serve within 30 days of the appointment request. We have no data 
explicitly linking the TPB program with system-wide reductions in the 
waiting list.
    Question. When the VA originally announced this program, it 
estimated that over 200,000 veterans would be eligible to participate 
but now only 41,000 are eligible. Why has this number changed so 
drastically?
    Answer. Throughout the TPB program development period, various 
eligibility policy options were considered, each of which impacted the 
potential pool of eligible program participants. The number of 200,000 
veterans represented the best estimate available at the time the 
program was initially being developed.
    For example, as data refinements were made, some of the 200,000 
patients originally included in the estimate were found to already have 
had medical care appointments and were excluded. Similarly, another 
portion of the original 200,000 projected patients were found to 
already have received prescriptions from VA and were excluded. More 
detailed explanations of the gradual reduction in eligibility numbers 
can be found in the VA Office of the Inspector General's (OIG) report 
on the program entitled Evaluation of VHA's Transitional Pharmacy 
Benefit.
    Question. What was the original cost estimate of the program? What 
is your most current cost estimate of the program? How much money have 
you saved in administrative costs by streamlining the process in 
obtaining prescription drugs?
    Answer. An early cost estimate for the TPB program (i.e., before 
final policy decisions reduced the pool of eligible participants from 
200,000 to 41,000) was $59 million. Program costs through the first 20 
weeks have been calculated to be $4,183,167 ($915,126 in estimated 
administrative costs and $3,268,041 in drug ingredient costs).
    The TPB program has increased, rather than decreased, the 
administrative prescription processing costs due to the increased labor 
requirements associated with contacting private physicians to discuss 
conversion of prescriptions to formulary items and other formulary-
related issues.
    Question. Based on your preliminary findings, do you believe the 
program has been a success and do you think it should be expanded?
    Answer. For those patients who chose to participate in the TPB 
program, it clearly met its original intent of easing the burden of 
out-of-pocket prescription drug expenses for veterans whom VA was 
unable to serve within 30 days of their appointment request, and is 
therefore considered a success. In this regard, VA is not opposed to 
continuing to offer the TPB program to other patients so long as they 
continue to meet the original three eligibility criteria, which were 
the following:
  --they must have been enrolled in the VA health care system prior to 
        July 25, 2003;
  --they must have requested their initial primary care appointments 
        prior to July 25, 2003; and,
  --they must have been waiting more than 30 days for their initial 
        primary care appointments as of September 22, 2003.
    Question. I have heard that some VA medical personnel opposed the 
implementation of this program. Anecdotally, some medical facilities 
may have taken some extraordinary steps to bring their waiting lists 
down so they did not have to implement the pharmacy program. For 
example, my staff heard that one hospital forced personnel to work 
overtime to see the patients on the waiting list. Is there any truth to 
these rumors? What steps were taken to ensure that the program was 
implemented in a fair and objective manner?
    Answer. As indicated in the Congressional hearing on the 
Transitional Pharmacy Benefit (TPB) on March 30, 2004, VHA has worked 
diligently and aggressively to reduce the list of patients on the wait 
list for their first clinic appointment and has demonstrated meaningful 
reductions in the wait lists. Many facilities extended clinic hours to 
nights and weekends, scheduled staff to work overtime, and/or hired 
additional staff to reduce appointment wait lists.
    The time period from the TPB program approval to implementation was 
compressed and VHA staff worked diligently to achieve the best possible 
program implementation in the time available for rollout. In order to 
encourage consistent system-wide program implementation, VHA took the 
following actions:
  --Prior to and during the TPB program rollout, VHA conducted a series 
        of conference calls with pharmacy, eligibility, information 
        technology, and other support staff to provide an overview of 
        the TPB program and to provide detailed instructions for 
        program implementation.
  --TPB program overviews were also provided to senior VISN and Medical 
        Center clinical and administrative managers on separate 
        conference calls.
  --Periodic program updates were provided to field staff via blanket 
        e-mail messages from the pharmacy, information technology, and 
        eligibility program offices. These messages also provided an 
        electronic forum for field staff to discuss operational issues 
        and or seek clarification on specific TPB implementation 
        issues.
  --VHA also monitored waiting lists and facility specific TPB 
        participation to track program participation, cost and 
        utilization trends.
  --VHA established a website with TPB reference and educational 
        information geared to VA staff, patients and private sector 
        providers.

                            ACCESS STANDARDS

    Question. Mr. Secretary, I commend you for reducing the waiting 
list of veterans waiting more than 6 months for a medical appointment. 
I also commend you for prioritizing care for veterans with service-
connected disabilities. Nevertheless, I remain concerned about 
veterans' access to health care. Despite the establishment of access 
standards since 1995, the VA has not been required to meet them. In 
fact, the President's Task Force to Improve Health Care Delivery for 
Our Nation's Veterans found that ``there is persistent concern about 
the inability of VA to provide care to enrolled veterans within its 
established access standards.''
    Do you believe that the VA should be required to meet its access 
standards? What steps have you taken to hold VA staff accountable for 
meeting the Department's access standards?
    Answer. Yes, VA will continue to meet its access standards and use 
all necessary resources and private-sector initiatives to assure that 
our veterans receive needed care in a timely manner.
    VA holds staff accountable for meeting the Department's access 
standards through performance contracts. The fiscal year 2004 
performance contracts include a combination of standards for access. 
They are combinations of responses from veterans through surveys on how 
long they waited and percentages of appointments within 30 days of the 
Veteran's desired appointment date for veterans requesting the next 
available appointment.

                             WAITING TIMES

    Question. The VA has established a goal of seeing 93 percent of all 
patients within 30 days and in fact, the VA is actually seeing almost 
94.5 percent of all patients within this period. However, the VA's most 
recent data indicates that 48 percent of new patients are being seen 
within 30 days.
    First, does the VA independently verify the accuracy of its wait 
time data? Is it possible for some medical centers to game the system?
    Answer. The General Accounting Office (GAO) audited VA wait times 
in 1999-2000 and most recently in VISNs 6 and 9. Veterans receiving VA 
care are also surveyed about their experience accessing our system. We 
also track complaints on access. All three sources give an independent 
check on our internal wait time calculations. In addition, our wait 
time numbers are trended, and variances between what is reported and 
what is expected are singled out for review with leadership.
    The Under Secretary for Health (USH) read a memo on March 26, 2003, 
to senior VHA leadership stressing his expectations of the highest 
managerial and ethical practices when reporting wait times. The Acting 
USH recently sent an e-mail to all employees regarding ethical conduct 
and the need to report unethical practices to include ``gaming.'' The 
Acting USH asked staff to e-mail him directly if other channels of 
reporting fail. The VA IG also independently evaluates waiting times.
    Question. Second, what is the reason for the poor access rate for 
new patients? Does this poor access rate include new Priority 1-6 
patients?
    Answer. New patients typically request the next available 
appointment date. Established patients typically request follow-up 
appointments. It is easier to balance supply and demand for established 
patients who need to be followed up at predictable dates in the future, 
than it is to balance supply and demand for new patients who request 
the first unscheduled appointment available.
    The 48 percent of new patients seen within 30 days (referenced in 
your previous question) may include Priority 1-6 patients; however, 
facilities are reviewing their appointment logs to see service 
connected veterans within 30 days. VA is able to take care of its 
established patients in a reasonable time frame. Veterans waiting for 
an initial appointment have more extended waits. VA's continued growth, 
difficulty recruiting, lack of a physician pay bill, and geographical 
variances all account for the access issues with new patients.
    Question. Lastly, your data indicates a wide variance among the 
networks on access rates. What are the reasons for this performance 
variance? Do you believe VA's performance needs to be more consistent 
across networks?
    Answer. Veterans' demand for services is increasing at different 
rates between networks. VA operates as a national health care system 
and is working on implementing its Advanced Clinic Access program to 
improve access and make office practice efficiencies. While some 
networks will lag behind others in implementing Advanced Clinic Access 
changes, it is ultimately the uneven growth in demand across VISNs that 
results in inconsistent performance.

                             CARES--GENERAL

    Question. Mr. Secretary, the CARES Commission released their report 
to you on February 12, 2004 and you are now reviewing the report. The 
report includes a wide range of recommendation covering individual 
medical facilities and broad health care issues.
    First, do you have any general concerns about the Commission's 
recommendations? For example, do you have any concerns that the 
Commission consistently applied its guiding principle of reasonableness 
to every location? Do you believe the Commission's recommendations were 
adequately supported by benefit and cost information?
    Answer. It is my belief that the Commission did a magnificent job 
in providing a consistent level of reasonableness and fairness in all 
of its recommendations, given the enormity of the task I set before the 
Commission and the relatively short time it had to produce its report. 
I have every confidence that they had access to and made optimal use of 
the best data available, including cost and benefit information. I 
cannot commend them enough for their valuable contribution to this 
effort.
    Question. Second, do you plan to accept or reject or modify the 
Commission's recommendations in their entirety or on an individual 
basis?
    Answer. I released my decision on May 7, 2004, and have shared it 
with the Committee. I have formally accepted the CARES Commission 
Report although I will use the flexibility it provides to minimize the 
effect of any campus or service realignment on continuity of care to 
veterans.
    Question. The Commission recommended the creation of a separate 
entity that would be charged with the disposition of VA's excess 
properties and land. What are your thoughts on this recommendation? 
Does the VA have the current capacity to carryout this disposition 
function in an efficient and cost-effective manner?
    Answer. The CARES Commission recommended that the Department ensure 
that efficient processes are in place for property disposal and that 
sufficient expertise is available, including the use of private sector 
professionals. As indicated in the question, the Commission suggested 
that perhaps a separate organization might be created. We agree that 
processes and procedures need to be in place to support timely 
disposal. This area of expertise is within VHA's Office of Facilities 
Management and in the Office of the Assistant Secretary for Management, 
of which both utilize private sector services. Both of these elements 
are provided legal support by the Office of General Counsel. A cross 
organizational team has made recommendations to further improve the 
timeliness and effectiveness of the enhanced use lease process. These 
recommendations include delegating authority within appropriate 
thresholds to newly created Chief Asset Manager and Chief Logistics 
Officer at the regional area. VA will also increase real property 
management expertise at the VISN level, and ensure VA personnel have 
access to the financial, legal, and marketing expertise to manage 
complex real estate projects.
    The Department does not presently have the authority to directly 
dispose of property except in very limited situations. Most disposals, 
if not legislatively directed, are through the General Services 
Administration, who handles the real estate aspects of the transaction. 
There have been few disposals historically. The extent to which 
organizational changes might be beneficial will depend on whether VA 
receives the authority to dispose of property and the volume of 
disposals

                           CLAIMS PROCESSING

    Question. Mr. Secretary, I commend you for the substantial 
improvement in reducing the processing times for compensation and 
pension claims. I am, however, concerned about the proposed budget 
reductions in the administration's request when the VA expects a 
projected workload increase. I am especially concerned about the 
Department's ability to meet the workload resulting from the partial 
ban on ``concurrent receipt'' and returning veterans from the War in 
Iraq.
    Are these legitimate concerns? Can the VA adequately handle its 
projected workload despite the proposed staffing reductions in the 
budget request?
    Answer.

----------------------------------------------------------------------------------------------------------------
                                                                   2004 Estimate   2005 Estimate    Difference
----------------------------------------------------------------------------------------------------------------
Compensation Direct FTE.........................................           6,035           6,040              +5
Pension Direct FTE..............................................           1,451           1,230            -221
----------------------------------------------------------------------------------------------------------------

    VBA's primary compensation and pension (C&P) claims processing 
goals for fiscal year 2004 are to reduce the rating inventory to 
250,000 claims, improve rating timeliness to 100 days, and increase the 
quality of rating claims processing to 90 percent. An inventory of 
250,000 claims will represent a normal workload without an associated 
backlog. With its workload under control as we enter fiscal year 2005, 
VBA will be able to maintain optimal performance despite a decrease in 
personnel.
    Over the past several years, we have implemented a number of 
initiatives that will help us sustain our improved performance into 
2005 and beyond:
  --Since 2001, VBA has added 1,800 decision makers in the C&P business 
        lines. As these new employees have gained proficiency in their 
        duties, VBA's performance has dramatically improved.
  --Specific performance priorities, including station inventory, 
        timeliness, and quality levels, have been incorporated into the 
        Regional Office Directors' Performance Appraisal Plan since 
        fiscal year 2002. Additionally, national performance plans were 
        effected 2 years ago for the key technical positions of 
        Veterans Service Representative, Rating Veterans Service 
        Representative, and Decision Review Officer. Individual 
        productivity and quality requirements are included in each of 
        these plans.
  --In its May 2002 report, the VA Claims Processing Task Force noted 
        that the work management system then in place contributed to 
        inefficiencies in claims processing. As a result, a new model 
        was instituted nationwide at the end of fiscal year 2002. It 
        reengineered work processes to reduce the number of tasks 
        performed by decision-makers, and incorporated a triage 
        approach to incoming claims. The efficiencies gained through 
        this reorganization are evident in VA's continued performance 
        improvements.
  --Three Pension Maintenance Centers were established in fiscal year 
        2002 to consolidate this very complex, labor-intensive 
        component of VBA's workload. This consolidation is now complete 
        and has resulted in a streamlined pension maintenance process 
        requiring fewer resources.
  --The proposed pension staffing reductions also include employees 
        adjudicating the remaining pension work. Public Law 107-103, 
        the Veterans Education and Benefits Expansion Act, eliminated 
        the need for rating decisions for certain categories of pension 
        claimants, thereby reducing the amount of work and time 
        required to process these claims.
  --In 2003, responding to a court decision that invalidated a VA 
        regulation to the extent that it permitted the Board of 
        Veterans' Appeals to consider evidence not already considered 
        by the agency of original jurisdiction (AOJ), without remanding 
        the case to the AOJ for initial consideration or obtaining the 
        claimant's waiver of the right to initial AOJ consideration, 
        VBA established the Appeals Management Center (AMC). Rather 
        than sending remanded claims back to regional offices, the AMC 
        develops these cases and makes decisions based on the evidence 
        received. This enables regional offices to use their resources 
        in other areas of claims processing.
  --New training tools and information technology (IT) applications 
        have had a positive impact on worker productivity and quality. 
        National training packages--particularly the Training and 
        Performance Support System (TPSS)--facilitate consistent and 
        thorough training nationwide, increasing employee proficiency 
        more quickly and improving the quality of work.
  --Programs such as Rating Board Automation (RBA) 2000, Modern Award 
        Processing, and SHARE have automated processes previously 
        performed manually, hence accelerating many aspects of claims 
        adjudication and avoiding some of the errors inherent in manual 
        processing.

                             VISN STRUCTURE

    Question. The President's Task Force (PTF) found last May that the 
VA's veterans integrated systems network (VISN) structure ``resulted in 
the growth of disparate business procedures and practices.'' Further, 
the PTF's report stated that the ``VISN structure alters the ability to 
provide consistent, uniform national program guidance in the clinical 
arena, the loss of which affects opportunities for improved quality, 
access, and cost effectiveness.'' Due to these findings, the PTF 
recommended ``the structure and processes of VHA should be reviewed.''
    Do you agree with the PTF's findings? If so, how have you responded 
to these findings? Do you believe the VISN structure needs to be 
altered?
    Answer. Recommendation 4.1 in the PTF Final Report indicated that 
the Secretaries of Veterans Affairs and Defense should revise their 
health care organizational structures in order to provide more 
effective and coordinated management of their individual health care 
systems, enhance overall health care outcomes, and improve the 
structural congruence between the two Departments. We agree that more 
effective coordination between the two Departments is desirable, but we 
also recognize the difficulties in coordinating activities between two 
structurally different organizations. However, both VHA and DOD Health 
Affairs are working to improve coordination activities. Recently, VHA 
approved five new full-time equivalents to serve as liaisons with the 
three new TRICARE regions under T-Nex, with TMA headquarters in Aurora, 
CO, and with Health Affairs in Washington, DC.
    Although we are not averse to altering the VISN structure as 
necessity dictates, at this time, we have no plans to change it.

                                RESEARCH

    Question. The budget request proposes a $21 million cut to the 
medical and prosthetic research account. Further, there has been some 
controversy on proposed changes to VA's research programs.
    What is the justification for this proposed reduction? Is the 
Office of Research still pursuing changes to its research agenda so 
that its programs will more directly benefit veterans?
    Answer. VA's medical and prosthetic research program contributes 
significantly to veterans' health care, and the program enjoys the full 
support of the Department. Fiscal constraints for all non-Defense/
Homeland Security programs forced careful evaluation of all facets of 
health care delivery to ensure that the Department proposed a fiscally 
responsible budget that addressed veterans' needs. In addition, VA 
believed that it would be able to offset the reduction with 
reimbursements from pharmaceutical firms for the indirect costs 
associated with conducting research. Accordingly, VA determined that it 
could temporarily reduce appropriated research funding without directly 
harming its ability to recruit and retain physicians.
    The Office of Research and Development continues to evaluate its 
programs to ensure that they best serve the Nation's veterans. This on-
going process began in the 1990's and has resulted in important medical 
discoveries that have improved veterans health and reduced medical care 
costs. The most recent program revision has resulted in increased 
emphasis on prosthetics and rehabilitation that addresses the long-term 
needs of severely wounded veterans returning from Southwest Asia.

                          CARES--CAPITAL COSTS

    Question. The Draft National CARES plan developed by the Under 
Secretary for Health included an estimate of the capital costs for 
implementing CARES. The CARES Commission, however, did not provide a 
capital cost estimate.
    Will you provide us a capital cost estimate for CARES for those 
recommendations you accept?
    Answer. As we build our fiscal year 2006 budget, we will assess 
what amount should be funded in fiscal year 2006 for CARES and estimate 
the outyear funding stream. Priority will be given to implementing the 
long-range plan identified in my May 7 CARES Decision Report; while 
recognizing that this plan must fit with the overall spending caps. 
Specific project information will be included in the forthcoming 5-year 
Capital Plan.

                         ACTIVITY-BASED COSTING

    Question. Some Federal agencies and private healthcare providers 
are using activity-based costing to analyze and break down the cost of 
a medical procedure, test, or service into cost information that can 
used to achieve financial and operational efficiencies. I am aware that 
the San Diego VA Medical Center is currently utilizing activity-based 
costing software in various lab departments.
    How well is activity-based costing software working at the VA San 
Diego Medical Center?
    Answer. The VA San Diego Healthcare System, Pathology and 
Laboratory Medicine Service (PALMS) is utilizing an activity based 
costing (ABC) software program as a supplement to DSS data as an aid in 
strategic and tactical management decisions. The laboratory began using 
this software as part of a beta-testing agreement about 3 years ago. 
There are several benefits to this type of cost analysis, including 
improved identification of high-cost components to laboratory tests, 
data-driven decision-making, and more accurate budget projections. 
While utilization of this software is still in the development phase in 
this facility, we feel that full implementation would realize decreased 
costs for the laboratory services provided.
    There are many benefits associated with activity based costing in 
general, however the following specific information will address the 
particular software that has been in use at the VA San Diego. The ABC 
software provides a very specific breakdown of costs associated with 
each product (test) performed. This allows management to identify 
outliers and implement improvements to reduce overall cost. 
Additionally, this functionality aids in ensuring the accuracy of 
costing information, such as labor, supply, and overhead allocations. 
This program has the ability to ``simulate'' increases in workload or 
changes in methodology and recalculates the projected costs. Based on 
this information, PALMS can make determinations regarding increasing or 
decreasing sharing agreements, new equipment purchases, or utilizing 
contract services or laboratories. The costing information is virtually 
real time, compared to the current method, which has a lag time of one 
quarter to demonstrate operational changes. Some additional benefits 
include the ability to benchmark against comparable laboratories and a 
budgeting module. The budgeting module utilizes current costs and 
expenditures, but also provides for projected changes in workload or 
methods.
    The full implementation of activity based costing in the laboratory 
would aid in reducing costs, improving financial efficiency, and 
improving the accuracy of current costing methods. This facility 
currently performs laboratory testing for veteran patients, local area 
healthcare facilities, Department of Defense, and various research 
studies. The ABC software would insure external customers are charged 
appropriately for services rendered and decisions to expand external 
sharing are data-driven and justifiable.

                          VA-DOD COLLABORATION

    Question. For several years, there have been numerous efforts to 
promote health care collaboration between the Department of Defense and 
the VA. Most recently, the Bob Stump National Defense Authorization Act 
for fiscal year 2003 directed DOD and VA to establish a joint program 
to identify and provide incentives to implement, fund, and evaluate 
creative health care coordination and sharing initiatives between the 
two departments.
    Can you give us a status and any initial findings in implementing 
this new program?
    Answer. The Treasury account required by the law has been 
established, and the $15 million contributions that each Department is 
required to contribute annually have been made. The DOD-VA Health Care 
Sharing Incentive Fund Memorandum of Agreement is being finalized for 
approval. On November 7, 2003, the Financial Management Work Group of 
the Health Executive Council (HEC) issued the first call for proposals, 
which were due in early January 2004. A work group of VA and DOD staff 
has completed its review of the 57 proposals submitted. The Financial 
Management Work Group approved 28 projects to advance to the second 
round of evaluations. Second round applicants are being asked to submit 
a business plan and a business case analysis by May 21, 2004. Final 
selections are not expected until this summer.
    The Incentive Fund has generated a lot of interest. Some of the 
lessons learned to date include:
  --VA and DOD partners need to coordinate early on their submissions.
  --Time frames for submission of proposals need to allow sufficient 
        time to go through VA's and DOD's chains of command.
  --Corporate information technology activities and initiatives need to 
        be better communicated to avoid development of submissions that 
        are not congruent or duplicative with National projects or 
        solutions.
  --Partners need to recognize that the Incentive Fund process does not 
        supercede normal administrative requirements of either 
        Department, which need to be factored into the time frames for 
        submission of proposals. For example reviews by governing 
        boards for purchases of major pieces of equipment still need to 
        go through VA's and DOD's review boards.

                                 ______
                                 
            Questions Submitted by Senator Richard C. Shelby

                 COMPENSATION AND PENSION CLAIM PROCESS

    Question. Discuss the tools these programs--Virtual VA project; 
Compensation and Pension Evaluation Project; the Training and 
Performance Support Systems Project; and the Veterans Service Network--
will give to improve the claims process, and does this budget help VA 
to accomplish our goals there?
Virtual VA
    Answer. Virtual VA is an ongoing initiative designed to replace the 
current paper-based claims folder with electronic images and data that 
can be accessed and transferred electronically. It will provide a long-
term solution to improving the quality of claims processing for 
veterans and their dependents through enhanced file management, a 
reduced dependency on paper, and increased workload management across 
the business enterprise. Virtual VA is currently being used to support 
the pension workload at three Pension Maintenance Centers 
(Philadelphia, Milwaukee, and St. Paul). The majority of the pension 
maintenance work has now been centralized to these three locations and 
we expect continued improvement in performance. Virtual VA also 
provides simultaneous access to pension documentation by VBA users and 
Veterans Service Officers across the country, allowing for immediate 
response to veterans' inquiries and improved levels of service. Through 
the use of Virtual VA at the Pension Maintenance Centers, we are 
learning how to optimize this valuable tool and intend to continue our 
deployment to other programs after its effectiveness is validated 
through pension maintenance processing.
Compensation and Pension Evaluation Redesign (CAPER)
    CAPER is an ongoing initiative designed to improve services by 
enhancing the disability exam request and return process, as well as 
the disability evaluations process, across the Veterans Benefits 
Administration, the Veterans Health Administration, the Board of 
Veterans Appeals, and contract examiner organizations by using 
redesigned business processes and leveraging information technology 
wherever possible. CAPER will help standardize the quality of 
disability examinations and enhance the level of consistency of 
disability evaluations. Improvements in these processes will contribute 
to the overall timely delivery of disability rating decisions and 
awards, and improve the quality of rating decisions.
Training and Performance Support Systems (TPSS)
    The Training and Performance Support Systems (TPSS) developed by 
the Veterans Benefits Administration (VBA) have two categories of 
products. Each category directly supports claims processing, but in 
different ways, as described below:
    Training.--Training modules (including performance tests and 
performance-based tests) train employees to perform critical claims 
processing tasks, such as ``Rate an original claim for compensation.'' 
The specific benefit to claims processing is that the training 
produces, in a relatively short time frame, a highly trained employee 
who has passed performance tests and is known to be ready to perform 
the job.
    Performance Support.--Job aids and Electronic Performance Support 
Systems (EPSS) are tools that are used by both newly trained employees 
and by experienced employees to perform critical claims processing 
tasks, such as ``Process claims for helpless child benefits.'' These 
tools include work flows, medical information, and other key data. In 
general terms, the benefits are that the products increase employees' 
consistency and efficiency in doing their work by reducing the time 
required to research necessary information and prepare decisions and 
letters.

                            RESEARCH FUNDING

    Question. VA anticipates very large increases in the amount of non-
VA Federal and private funding for VA researchers, $60 million and $50 
million, respectively, a 14 percent increase in non-VA sources. Why the 
sharp increase next year when you only anticipate a 4 percent increase 
this year? Is it really appropriate to put the VA in a position of 
depending on other agencies or the private sector to fund research 
important to veterans?
    Answer. VA based the estimate on actual previous year growth rates, 
which have averaged approximately 16 percent. Earlier estimates had 
been somewhat conservative and underestimated actual increases.
    In the months since VHA developed the estimates, two underlying 
assumptions have changed. VA will not receive NIH reimbursement for the 
indirect facility costs of conducting NIH-funded research, an amount 
estimated to be $50 million. In addition, NIH budget growth will be 
lower than expected, resulting in less growth in direct dollars from 
that organization.
    VA believes that funding for research should be a partnership 
between VA, other Federal research institutions, the medical and drug 
industry, and institutions of higher learning. Through this type of 
leveraged partnership of ideas and funding our veterans and society 
will best be able to reap the benefit of VA's direct investment in 
research. VA will continue to uses its appropriated dollars to ensure 
that the research most vital to veterans is funded. The Medical and 
Prosthetics Research budget provides the resources for VA's multi-site 
clinical trials, centers of excellence, and other initiatives that have 
dramatically increased the quality of health care while reducing 
patient costs. Moreover, appropriated funds provide the research core 
that enables our investigators to receive so much non-VA funding.
    Question. If VA research is funded at the requested level, what 
areas of research will be cut?
    Answer. All currently funded projects will continue, but VA will 
have to reduce the number of new projects funded in fiscal year 2005 by 
approximately 120 or 35 percent. No specific areas of research will be 
cut. Under the proposed budget, VA will be forced to lower the priority 
cut-off score to 12 instead of a priority score of 18.5 used this year, 
causing VA to fund a smaller portion of the relevant and scientifically 
rigorous proposals.
    Question. If provided with additional funding, what areas of 
research would VA add or expand?
    Answer. An increase of $65 million in direct research funding would 
allow VA to expand its research portfolio above the fiscal year 2004 
level. In particular, VA would be able to expand research into 
innovative new approaches to limb loss, prosthetics and tissue 
replacement for severely wounded veterans returning from Iraq and 
Afghanistan.

    VA/DOD CONCURRENT DISABILITY PAYMENT AND COMBAT-RELATED SPECIAL 
                              COMPENSATION

    Question. To what extent is the Department of Veterans Affairs (VA) 
working with Department of Defense (DOD) to implement the concurrent 
disability payment and combat-related special compensation (CRSC) 
programs?
    Answer. The coordination and support VA provides to DOD for 
Concurrent Retired and Disability Pay (CRDP), or ``concurrent 
receipt'', is primarily in the area of data sharing. The military 
service finance centers, DOD, Coast Guard, and Public Health Service 
provide VA with monthly recertification tapes of all retirees verified 
to be eligible to receive CRDP. VA updates the tapes by annotating any 
changes in the combined disability evaluation, individual 
unemployability indicator, rate of compensation, and effective date of 
change. VA and these payment centers are having ongoing discussions on 
ways to improve the process. One result of this exchange is that VA has 
clearly identified the data needs of the military payment centers in 
the development of the VETSNET application.
    VA coordination and support provided to DOD for the combat-related 
special compensation (CRSC) program include the following major 
activities:
  --VA has contracted with a vendor to image pertinent records from VA 
        claims folders to assist CRSC boards in making their 
        determinations. As of April 1, 2004, almost 6,700 requests for 
        records have been centrally requested under the contract.
  --Local regional offices have copied records for hundreds of 
        individual retirees to assist them in completing their 
        applications.
  --Remote access to VA's benefits systems has been provided to DOD 
        Boards and is being provided to the Coast Guard and Public 
        Health Service.
  --The VA Compensation and Pension Service has provided several 
        training sessions, beginning with an initial 3-day session to 
        Board members to assist them in understanding our data systems 
        and the records being provided to them. VA has conducted 
        additional training on issues such as special monthly 
        compensation and individual unemployability. The staff also 
        provides data on specific retiree claimants in emergency 
        situations, and provides assistance to specific Boards when 
        they have questions.
  --VA provides on-going data exchanges on disability evaluations and 
        effective dates of any changes for all disabilities.
  --VA has identified the needs of DOD for administering CRSC. These 
        needs will be addressed as VETSNET progresses to ensure that 
        there is no disruption in the information flow when conversion 
        to VETSNET is underway.

                                 ______
                                 
            Questions Submitted by Senator Pete V. Domenici

                               TELEHEALTH

    Question. Mr. Secretary, as you know, I have long been interested 
in providing enhanced access to medical care for our rural veterans.
    Establishing more community based outpatient clinics is one way 
Congress and the VA have worked together to reach out to rural 
veterans. In fact, my home State of New Mexico now operates 11 such 
clinics for rural veterans.
    I believe Congress and the VA should also work together to improve 
the use of technology for serving rural veterans. In particular, I 
believe we can do much more in the area of telehealth and telemedicine 
for disease management and enhanced care for veterans in remote areas.
    What is the current state of VA's telehealth program?
    Answer. VA is recognized as a leader in the field of telehealth. 
VHA previous Telemedicine Strategic Healthcare Group has been 
incorporated into a new Office of Care Coordination (OCC) and the term 
telehealth is increasingly being used in VHA rather than telemedicine. 
These changes recognize that implementing telehealth is more than a 
technology issue it involves embedding telehealth and other associated 
technologies directly into the health care delivery process and that it 
now involves many different professionals. VA is undertaking telehealth 
in 31 different areas. OCC is supporting all these areas but 
particularly focusing on those where there is particular need and is 
therefore designating lead clinicians in the areas of telemental 
health, telerehabilitation, and telesurgery. VA is formalizing guidance 
for the development of telehealth, with a particular emphasis on the 
community based outpatient clinic in relation to major areas of veteran 
patient need. This has commenced with:
  --Tele-mental health
  --Teledermatology
  --Telesurgery (enabling remote pre-op and post-op assessments)
  --Teleretinal Imaging for diabetic retinopathy
  --Telerehabilitation
    Teleradiology is a major associated area of need where VA is 
seeking to work to bring resources at a local level into an 
interoperable infrastructure and create a national system. Such a 
system, if developed, will enable sharing of resources and acquisition 
of services when local difficulties with recruitment and retention of 
radiologists create challenges to delivering this care. OCC is working 
to support VHA's Chief Consultant for Diagnostic Services in this 
endeavor and to make sure that the various areas of telehealth practice 
harmonize with respect to important processes e.g., credentialing and 
privileging. This will facilitate working with the Department of 
Defense.
    Care coordination in VA involves the use of innovative technologies 
such as telehealth, disease management, and health informatics to 
enhance and extend care. VA is implementing a national care 
coordination program that heralds a marked expansion in telehealth 
across the system.
    In recognition of the demographics of the veteran population and 
the rural and underserved areas in which veteran patients often live VA 
is placing a particular emphasis on developing care coordination that 
uses home telehealth technologies. The rationale for this program is to 
support the independent living of veterans with chronic diseases 
through monitoring of vital signs at home e.g., pulse, blood pressure, 
etc. at home. A piloting of this care coordination/home telehealth 
(CCHT) program demonstrated very high levels of patient satisfaction 
and reduced the need for unnecessary clinic admissions and 
hospitalizations. For example, by monitoring a heart failure patient at 
home it is possible to detect any worsening of the condition when there 
is breathlessness and weight gain. Early detection in this way means 
medication can be adjusted and the problem resolved rather than have 
the patient deteriorate unnoticed and require admission to hospital in 
extremis at risk of dying, and often necessitating an intensive care 
unit admission.
    VA is creating a national infrastructure to support the safe, 
effective, and cost-effective use of home-telehealth technologies by 
veteran patients wherever they reside.
    Because the support of a patient at home usually requires a 
caregiver in the home OCC is paying attention to caregiver issues and 
working on this collaboratively with other organizations and agencies, 
as appropriate.
    Question. What legislative initiatives would you recommend to 
improve both telehealth and telemedicine programs?
    Answer. At this time we have no specific legislative proposals to 
recommend.
    Question. It is my understanding that VA is implementing a 
telehealth pilot project to provide medical services to veterans in 
remote parts of eastern New Mexico. Can you describe how the pilot will 
be implemented and how it will help our veterans receive better care?
    Answer. VA is implementing a telehealth pilot to provide medical 
services to patients in remote parts of VISN 18. Telehealth is remote 
patient case management using devices located in the patient's home 
that connect to hospital staff via a normal phone line. The patient 
responds to short, disease-specific questions each day. The devices may 
also be used to transmit vital signs and medical information to 
hospital staff monitoring the daily reports. Hospital staff can send 
patients reminders, tips, and feedback on their progress. Telehealth 
enhances veteran health care because it allows for earlier intervention 
and enhanced veteran self-care and self-assurance. To begin, selected 
patients with congestive heart failure and chronic obstructive 
pulmonary disease will receive telehealth care in their homes. Now that 
VA Central Office has released equipment funding and equipment can be 
contracted for, implementation will begin with the Geriatric Clinic and 
the Spinal Cord Injury Clinic in Tucson, Arizona, followed by their 
Primary and Medical Care teams. Then the pilot will be expanded to 
Amarillo VA Health Care System patients. Amarillo will start enrolling 
medical center patients with congestive heart failure and chronic 
obstructive pulmonary disease for care coordination in Phase One. When 
this is operational, Phase Two will begin to enroll patients with these 
same diseases at the Clovis, New Mexico, and Lubbock, Texas, community 
based outpatient clinics. VA anticipates that Phase Two will occur in 
fiscal year 2005.
    Question. Are telehealth and telemedicine programs being designed 
to allow for participation by joint venture partners such as the 
Department of Defense?
    Answer. VA has explored, and will continue to explore, all 
opportunities to partner with the Department of Defense and other 
Federal agencies as it develops its telemedicine and telehealth 
programs. This is important to patients, maximizes the return on 
Federal investments in technology, and enables standards to be set in 
this emerging area of technology.
    VHA's partnerships with DOD include:
  --The AHFCAN program in Alaska (a congressionally mandated cross 
        Federal program),
  --The Telemedicine Hui in Hawaii (a congressionally mandated cross 
        Federal program),
  --Teleradiology with the Navy at Great Lakes Naval Recruiting Station 
        in Chicago,
  --Teleretinal imaging for diabetes care in Boston, Maine and Hawaii,
  --Developing credentialing and privileging standards for 
        telemedicine/telehealth that were used by the Joint Commission 
        for Health Care Organizations in formulating their standards in 
        this area.
    To foster possible VA/DOD collaborations VA regularly engages with 
DOD telemedicine/telehealth colleagues at:
  --An inter-service DOD working group on telehealth that VHA attends 
        Telehealth Working Integrated Project Team (TH W-IPT),
  --The Joint Working Group on Telehealth--a cross-Federal group that 
        VA and DOD both participate in,
  --VA and DOD participation at the American Telemedicine Association 
        industry briefings each fall.
    As a recent example of VA/DOD collaboration, on February 12, 2004, 
VA presented a satellite broadcast on telesurgery to VA clinicians 
nationwide in partnership with the U.S. Army's Telemedicine and 
Advanced Technologies Research Center (TATRC). VA's chief of surgery is 
currently working with TATRC on joint developments involving 
telesurgery.

                            MEDICAL RESEARCH

    Question. Investments in research projects at VA have led to a 
number of promising advances in our understanding of diseases and 
medical conditions. These include breakthroughs in areas such as spinal 
cord and prosthetic research.
    Can you describe some of the current trends in VA medical research 
and tell us where we might expect some new breakthroughs in the near 
future?
    Answer. VA continues to maintain strong research portfolios in its 
core competencies. These include mental health, clinical trials, 
substance abuse, spinal cord injuries, and Post-Traumatic Stress 
Disorder (PTSD). In addition, VA is placing increased emphasis on 
prosthetics and rehabilitation for survivors of combat trauma wounds, 
Gulf War Illnesses and other deployment health issues, vaccine 
development, and responses to emerging pathogens.
    While new breakthroughs are difficult to predict, VA is excited 
about several promising developments. An ongoing Cooperative Studies 
Program (CSP) clinical trial using deep brain stimulation offers great 
hope for those suffering from Parkinson's disease. The study is 
comparing best medical therapy to deep brain stimulation for improving 
motor symptoms as well as determining the optimum brain area to 
stimulate.
    Another multi-site trial is examining whether intensified blood-
sugar control and management reduces major vascular complications that 
lead to most deaths, illnesses, and treatment costs for type II 
diabetic patients. If successful, the study would lead to quality of 
life improvements to all type II diabetic patients as well as 
significant cost reductions to VA, Medicare, and other health care 
organizations.
    An upcoming Amyotrophic Lateral Sclerosis (ALS) trial will test the 
effectiveness of two butyrate compounds in reducing and retarding the 
devastating affects of the disease. Research involving animal models 
has shown the ability of both compounds to slow the progression of ALS 
and improve quality of life. Currently, the most effective ALS 
medication prolongs life approximately 4 months without providing 
significant quality of life improvements.
    Question. Please talk about how VA's collaboration in medical 
research with other government agencies and universities is improving 
the quality of life of our veterans.
    Answer. Collaboration with other agencies and organizations has 
contributed greatly to the effectiveness of VA's research program. VA 
investigators annually receive research grants from non-VA sources 
totaling more than $700 million, supplementing the Medical and 
Prosthetic Research and Medical Care appropriations. These funds permit 
VA to address better the many conditions affecting the veteran 
population.
    Collaborative efforts permit VA to access the expertise and skills 
of non-VA researchers at other government agencies and universities. 
These collaborations benefit both VA and its partners by maximizing 
intellectual and budgetary economies of scale. In particular, VA is 
collaborating with the National Institutes of Health on a variety of 
clinical trials that address many conditions.

                   COMMUNITY BASED OUTPATIENT CLINICS

    Question. Mr. Secretary, veterans from rural States continue to 
benefit from the use of community-based outpatient clinics.
    Occasionally, however, we hear concern from rural veterans about a 
lack of adequate numbers of medical staff at these clinics.
    Please describe what steps VA is taking to address staffing 
shortfalls that exist at rural clinics.
    Answer. Given the variation in increased workload around the 
system, many sites are experiencing an increase in demand for services. 
This may result in increasing waiting times and veterans waiting for 
their first appointment to primary care. Efforts to address staffing 
shortfalls, as well as the increased wait times that they may engender, 
include the following initiatives:
  --incorporating Advanced Clinic Access concepts;
  --hiring new providers when available in the local community;
  --recruiting additional providers;
  --contracting/fee basis care;
  --continued education of clerks to avoid scheduling errors;
  --expanding CBOC contracts;
  --improving consult management;
  --establishing nurse-directed, pre-screening clinics for new 
        patients;
  --maximizing clinic scheduling efficiency;
  --increasing access to specialists through telemedicine; and
  --reviewing data and feedback of data to providers.
    Question. What incentives does the VA provide or could it provide 
to recruit health professionals to rural areas?
    Answer. VA is currently awaiting action on the Physician Pay Bill, 
which would allow VA to be more competitive in the market for 
recruiting physicians to work within VA. This is especially true for 
specialty physicians which VA has difficulty recruiting. VA also has 
before Congress a legislative proposal allowing enhanced flexibility in 
scheduling tours of duty for registered nurses. The ability to offer 
compensation, employment benefits, and working conditions comparable to 
those available in their community is critical to our ability to 
recruit and retain nurses, particularly in highly competitive labor 
markets and for hard-to-fill specialty assignments.

                                 ______
                                 
             Questions Submitted by Senator Robert C. Byrd

 CAPITAL ASSET REALIGNMENT FOR ENHANCED SERVICES (CARES) REPORT PROCESS

    Question. Secretary Principi, according to the VA Congressional 
Liaison Office this past February, you were expected to make a decision 
on the CARES Commission's recommendations within 30 days of your 
receipt of the CARES report on February 13, 2004. Further, according to 
the Federal Register of August 20, 2003, you will either accept or 
reject the Commission's recommendations, without modification, although 
Chapter 1 of the CARES report indicates that you could also decide to 
ask for additional information. Obviously, your goal of making a 
decision within 30 days of your receipt of the CARES report has been 
not been met.
    When will you be making a decision on the CARES Commission's 
report? Are you currently seeking additional information on specific 
recommendations contained in the report? If so, please identify the 
specific recommendations for which you are seeking more information.
    Answer. My decision was released May 7, 2004. I sought no 
additional information on specific recommendations of the CARES 
Commission.
    Question. Is it your intent to either accept or reject the 
Commission's recommendation, without modification, in accordance with 
the Federal Register?
    Answer. I have formally accepted the CARES Commission Report 
although I will use the flexibility it provides to minimize the effect 
of any campus or service realignment on continuity of care to veterans.
    Question. If you reject the CARES Commission's report, how will the 
vast data and information collected over a several year period for 
preparation of the CARES report be utilized?
    Answer. These data will form the foundation for addition data 
collection and analysis as the Department proceeds to implement the 
decisions reached in my decision document.
    Question. If you approve the CARES Commission's report, I 
understand that VISNs will prepare detailed implementation plans and 
submit them to the Secretary for approval, and then, later these will 
be refined and integrated into the annual VA strategic planning cycle. 
What is projected timeline for these activities based in fiscal years?
    Answer. In general, the implementation plans will be incorporated 
into the 2005 Budget Cycle and the 2006 and beyond Strategic Planning 
Cycle.

               CARES REPORT: WARS IN AFGHANISTAN AND IRAQ

    Question. Secretary Principi, the CARES process began in October 
2000. Since then, the United States has become involved in wars in 
Afghanistan and Iraq, with hundreds of thousands of troops deployed 
overseas to participate in combat operations. In Iraq alone, more than 
3,000 Americans have been wounded. An unknown number of these troops 
will require long-term medical care from the Department of Veterans 
Affairs.
    The conduct of these two wars, which could yet extend for years to 
come, is creating hundreds of thousands of new veterans, all of whom 
will have some claim to service through the VA health care system.
    Secretary Principi, does the CARES process, which started before 
the United States became involved in an open-ended war on terrorism and 
a lengthy occupation of Iraq, anticipate providing services to these 
hundreds of thousands of new veterans? Could there be a need to revise 
the findings of the CARES Commission to accommodate these new veterans?
    Answer. I do not believe that the findings of the CARES Commission 
need revision to accommodate these veterans needs. At this time we 
believe that we can accommodate the needs of returning OIF and OEF 
veterans with the current resources of the VA health care system. 
However, we will continually monitor our resources in this regard to 
ensure that we do not fall short in providing them needed health care.
  cares report: outsourcing of inpatient services at the beckley vamc
    Question. I, along with my colleagues, Senator Rockefeller and 
Congressman Rahall, sent you the attached February 26, 2004, letter 
asking you to reject the CARES Commission's recommendation to eliminate 
the 40 hospital beds at the Beckley VA Medical Center. The 
recommendation, if approved, would require the 15,000 veterans who are 
enrolled to receive care at the Beckley VA Medical Center to either 
have their medical care contracted to 1 of 11 hospitals within an hour 
of Beckley or to travel to the nearest VA hospitals in Salem, North 
Carolina, and Richmond, Virginia. I received your response on March 24, 
2004, which did not address any of the issues we raised. I continue to 
be very concerned about the CARES Commission's recommendation 
pertaining to inpatient services at the Beckley VA Medical Center, and 
I would appreciate your specific responses to the questions posed 
below.
    Did the Commission contact each of the 11 accredited hospitals that 
the VA identified as alternatives to verify their ability to absorb the 
VA patients of the Beckley VAMC? If so, please provide the response of 
each hospital. If not, please contact them and provide their responses 
to me and to this subcommittee.
    Answer. The CARES Commission did not contact the community 
alternatives within 60 minutes of the Beckley VA Medical Center, as 
listed in Appendix D of the Commission's Report. The Commission 
identified and reviewed available data for alternative community 
resources for every VA medical center identified in the DNCP as a small 
facility. As part of that review, data indicated the types of services 
offered by the community resource, the number of staffed beds for the 
services, and the average daily census for those beds.
    The CARES Commission's charter expired on February 29, 2004. Should 
the Secretary accept the Commission's recommendation to discontinue 
services at a VA medical center, the Commission believes that the 
implementation and operational strategic planning processes would 
include collaborating and negotiating with community facilities to 
provide alternative medical care to veterans.
    Question. What considerations were given to the long and many times 
treacherous travel that elderly veterans who would normally rely on the 
Beckley VAMC for inpatient services will have to travel to reach Salem, 
North Carolina, or Richmond, Virginia, which is at least a 4-hour drive 
from Beckley?
    Answer. After due consideration, I have not found it reasonable to 
consider the closure of the inpatient medical beds at the Beckley VAMC 
for the foreseeable future.
    Question. What specific cost savings does outsourcing outpatient 
care from the Beckley VAMC to local hospitals offer?
    Answer. Outsourcing outpatient care was never a part of the small 
facility plan for Beckley, nor did the CARES Commission recommend it. 
In fact, the Commission recommended that Beckley retain its multi-
specialty outpatient services. I concurred with this recommendation.

                          CATEGORY 8 VETERANS

    Question. The administration suspended new enrollments of Category 
8 veterans in January 2003. This means that veterans with higher 
incomes that do not have a service-connected disability may be denied 
service at VA hospitals, contrary to the intent of the Veterans Health 
Care Eligibility Reform Act of 1996.
    Secretary Principi, how much of an increase in VA health care funds 
would be needed to resume enrollments of Category 8 veterans?
    Answer. VA has determined that resumption of enrollment for 
Priority 8 veterans would require an additional $519 million in fiscal 
year 2005, growing to an estimated $2.3 billion in fiscal year 2012.
    Question. For how long does the administration anticipate rejecting 
new enrollments of Category 8 veterans?
    Answer. At this time, we are unable to project how long VA will 
continue the policy of not accepting the enrollment of new Priority 8 
veterans.
    The statute governing VA's enrollment system requires the Secretary 
to decide annually whether VA has adequate resources to provide timely 
health care of an acceptable quality for all enrolled veterans. Each 
year, VA reviews actuarial projections of the expected demand for VA 
health care in light of the expected budgetary resources and develops 
necessary policies to manage the system of annual patient enrollment. 
VA has not made a decision regarding reopening Priority 8 enrollment in 
fiscal year 2005, but will do so later this year. We must consider not 
only the impact of this policy in fiscal year 2005, but also the impact 
in future years.
    Question. Does the CARES Commission report anticipate that the 
suspension of new Category 8 enrollees will continue?
    Answer. The CARES Commission report assumed a continuation of the 
suspension of enrollment of new Priority 8 veterans.

                          SUBCOMMITTEE RECESS

    Senator Bond. Thank you very much, Mr. Secretary.
    Secretary Principi. Thank you, Mr. Chairman. It is always a 
pleasure.
    Senator Bond. We appreciate the discussions. I think they 
were very constructive.
    The hearing is recessed.
    [Whereupon, at 3:47 p.m., Tuesday, April 6, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
