[Senate Hearing 108-585]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-585



                   PROPOSED FISCAL YEAR 2004 BUDGET 
                         FOR VETERANS' PROGRAMS

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON VETERANS' AFFAIRS

                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 26, 2003

                               __________

       Printed for the use of the Committee on Veterans' Affairs


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                     COMMITTEE ON VETERANS' AFFAIRS


                 ARLEN SPECTER, Pennsylvania, Chairman

BEN NIGHTHORSE CAMPBELL, Colorado    BOB GRAHAM, Florida
LARRY E. CRAIG, Idaho                JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
JIM BUNNING, Texas                   JAMES M. JEFFORDS, (I) Vermont
JOHN ENSIGN, Nevada                  DANIEL K. AKAKA, Hawaii
LINDSEY O. GRAHAM, South Carolina    PATTY MURRAY, Washington
LISA MURKOWSKI, Alaska               ZELL MILLER, Georgia
                                     E. BENJAMIN NELSON, Nebraska

      William F. Tuerk, Majority Chief Counsel and Staff Director
         Bryant Hall, Minority Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                           February 26, 2003

                                SENATORS

                                                                   Page

Specter, Hon. Arlen, U.S. Senator from Pennsylvania, Chairman....     1
Bunning, Hon. Jim, U.S. Senator from Kentucky....................    35
    Prepared statement...........................................    36
Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................    37
Jeffords, Hon. James M., U.S. Senator from Vermont...............    39
Nelson, Hon. E. Benjamin, U.S. Senator from Nebraska.............    40

                               WITNESSES

Principi, Hon. Anthony J., Secretary of Veterans Affairs, 
  accompanied by Robert H. Roswell, M.D., Under Secretary for 
  Health; Daniel L. Cooper, Under Secretary for Benefits; Eric 
  Benson, Acting Under Secretary for Memorial Affairs; Tim 
  McClain, General Counsel; and Willaim H. 
  Campbell, Assistant Secretary for Management...................     2
    Prepared statement...........................................     4
    Response to written questions submitted by:
       Hon. Arlen Specter........................................     9
       Hon. Ben Nighthorse Campbell..............................    31
Wilkerson, Philip, Deputy Manager for Operations and Training, 
  National Veterans Affairs and Rehabilitation Commission, The 
  American Legion................................................    44
    Prepared statement...........................................    45
Cullinan, Dennis, Director, National Legislative Service, 
  Veterans of Foreign Wars.......................................    54
    Prepared statement...........................................    55
Blake, Carl, Associate Legislative Director, Paralyzed Veterans 
  of America.....................................................    58
    Prepared statement...........................................    59
Surratt, Rick, Deputy National Legislative Director, Disabled 
  American 
  Veterans.......................................................    63
    Prepared statement...........................................    64
Jones, Richard, National Legislative Director, AMVETS............    70
    Prepared statement...........................................    71

                                APPENDIX

Graham, Hon. Bob, U.S. Senator from Florida, prepared statement..    77
Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado, 
  prepared 
  statement......................................................    78
Rockefeller, Hon. John D. IV, U.S. Senator from West Virginia, 
  prepared statement.............................................    78

 
        PROPOSED FISCAL YEAR 2004 BUDGET FOR VETERANS' PROGRAMS

                              ----------                              


                      WEDNESDAY, FEBRUARY 26, 2003

                              United States Senate,
                            Committee on Veterans' Affairs,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 4:05 p.m., in 
room SR-418, Russell Senate Office Building, Hon. Arlen 
Specter, 
(chairman of the committee), presiding.
    Present: Senators Specter, Bunning, Akaka, Nelson, and 
Jeffords.

           OPENING STATEMENT OF HON. ARLEN SPECTER, 
                 U.S. SENATOR FROM PENNSYLVANIA

    Chairman Specter. Good afternoon, ladies and gentlemen. The 
hearing on the proposed fiscal year 2004 budget for veterans 
programs will now commence.
    Our distinguished Ranking Member, Senator Bob Graham, had 
expected to be with us today, but is not quite ready for the 
rigors of Secretary Principi.
    [Laughter.]
    I think he made a wise judgment. I had some doubts about 
attending this hearing myself.
    [Laughter.]
    This is in a very serious vein, a very, very serious 
hearing. Our obligation to America's veterans is very, very 
major. This is especially so at a time when war is imminent and 
we will be putting 200,000, or perhaps more American troops, 
men and women, into harm's way. And we enjoy the greatest 
country in the history of the world and democracy because of 
the sacrifices which have been made by men and women who have 
served in the military since the Revolutionary War and before.
    As I have said with some frequency from this position, and 
will say as long as I have this position, the first veteran I 
knew was my father, Harry Specter, who was wounded in action in 
the Argonne Forest, carried shrapnel in his legs until the day 
he died, and was not treated fairly by the United States 
Government. They promised the veterans a bonus, and they broke 
the promise. And that has regrettably been a too-frequent 
pattern.
    And the veterans marched in Washington. And today, when 
there is a demonstration, they roll out the red carpet. Then, 
they rolled out the cavalry with drawn sabers, led by Major 
George C. Patton under the command of the Chief-of-Staff, 
General Douglas MacArthur, who was getting advice from his 
aide-de-camp, Major Dwight Eisenhower.
    And they shot and killed veterans that day, one of the 
blackest days in American history. And I say--in a metaphorical 
sense--that I have been on my way to Washington ever since to 
get my father's bonus. Since I haven't gotten it yet, I am 
still working at it.
    The budget hearing we have today is a very important one. 
We will cover a lot of tough issues which face the Veterans 
Administration. The total request for fiscal year 2004 is 
$60.723 billion. And the needs are enormous.
    What we will consider today are a number of the policy 
proposals which the VA has stated an intention to adopt 
administratively: the suspension of enrollment of so-called 
Priority 8 veterans, and increased outpatient care co-payments.
    A number of proposals require legislation: discontinuance 
of authority to provide nursing home care to more than 70 
percent service-connected vets, with a grandfather provision; a 
proposed annual enrollment fee of $250 per year for veterans 
with incomes over $24,644 a year; an increase in pharmacy co-
payments; and authorizing the VA to collect reimbursements from 
PPO's and HMO's, not just from fee-for-service insurers.
    Now, the committee welcomes the very distinguished 
Secretary of Veterans Affairs, the Honorable Anthony J. 
Principi. And the floor is yours, Mr. Secretary.

 STATEMENT OF HON. ANTHONY J. PRINCIPI, SECRETARY OF VETERANS 
    AFFAIRS, ACCOMPANIED BY ROBERT H. ROSWELL, M.D., UNDER 
  SECRETARY FOR HEALTH; DANIEL L. COOPER, UNDER SECRETARY FOR 
  BENEFITS; ERIC BENSON, ACTING UNDER SECRETARY FOR MEMORIAL 
AFFAIRS; TIM McCLAIN, GENERAL COUNSEL; AND WILLIAM H. CAMPBELL, 
               ASSISTANT SECRETARY FOR MANAGEMENT

    Secretary Principi. Thank you, Mr. Chairman. And I was 
taken by the story about your father, and you talked about the 
Bonus March of 1915, and I am reminded that the Congress of the 
United States----
    Chairman Specter. It was 1932, Mr. Secretary.
    Secretary Principi. 1932. The Congress, remembering the 
events of that Bonus March, came back and passed one of the 
most successful pieces of legislation in the history of our 
country, the GI Bill of 1944, for the demobilizing of 16 
million men and women of World War II and the education and the 
housing programs administered by the VA back then, which helped 
to build modern America.
    But now we are in 2003. And first, before going to 2004, I 
want to thank you, Mr. Chairman, for your advocacy and for your 
help on the Appropriations Committee for allowing the VA to 
receive a very, very sizable increase this year, just signed 
into law yesterday. We all regret it could not have been 
sooner, but we did yesterday get one of the largest increases 
in health care, $2.6 billion, over 2002.
    And that increase, along with the other increases in 
discretionary spending, will allow the agency to begin the 
important task of ramping up so we can eliminate this backlog 
of veterans who are on waiting lists to see their primary care 
physician or their specialist.
    And so, I thank you, Mr. Chairman, the members of this 
committee, and the members of the Appropriations Committee for 
adding to the President's request, which, in and of itself, for 
2003 was a record increase. But your $1.1 billion add-on will 
dramatically help us.
    I am very, very proud of the budget we are submitting in 
2004. I have never misled the committee to say that it is all 
that we need. But it is a sizable increase for the VA: a 7.7 
percent increase in discretionary spending; 8 percent increase 
in health care, the largest percentage increase of any agency 
of the Federal Government at a time of enormous fiscal 
constraint.
    In health care, it is a $2 billion increase, Mr. Chairman, 
$1.5 billion in new revenues appropriations and an additional 
$500 million in co-payments, increased co-payments, and 
collections from insurance companies. And I believe that is the 
largest increase ever requested for VA health care, and we 
believe it will go a long way to meeting the health care needs 
for 2004.
    But when Congress enacted open enrollment, Mr. Chairman, in 
1998, the growth in the demand for health care for the VA has 
been somewhat out of control, if you will. The demand has been 
very, very profound and very significant. Last year, we 
enrolled an additional 830,000 veterans in the VA health care 
system.
    In 1998, we were caring for about 2.9 million veterans. 
Today, we have 6.8 million enrolled. Well over 4 million of 
those 6.8 million veterans are users. And we have had to make 
some tough choices notwithstanding the sizable increase.
    As you know, I have suspended enrollment for Category 8. 
Congress directed that I make an annual enrollment decision, 
and I felt that the growth and the waiting lists dictated that 
I do that.
    And we need to focus on our core constituency, the men and 
women disabled in the service of our country, those who are 
poor and have few other options, and to ensure that we maintain 
our leading edge in specialized care: spinal cord injury, blind 
rehabilitation, mental health, and other fields as well.
    Accordingly, we have proposed an increase in co-payments 
for those who are most capable of defraying an increased 
portion of their care, an annual enrollment fee. But at the 
same time, we have eliminated the co-payments for 
pharmaceuticals for the veterans at the lowest end, those who 
are truly poor, by raising the threshold from $9,000 a year, 
which is obviously at the very, very low end, to $16,000 a 
year.
    So although we are asking that those who have higher 
incomes to defray an increased percentage, we are also 
eliminating the co-pays for the poorest of the poor.
    In the National Cemetery System, we have the most 
aggressive schedule of opening new cemeteries since the Civil 
War. We are proposing to open up four new cemeteries over the 
next several years. A fifth in Sacramento will follow shortly 
thereafter.
    On the benefits side, the budget that we proposed will 
allow us to continue to bring down the backlog of veterans who 
are waiting for disability claims and pensions, and we are well 
on our way to achieving that goal as well by October of this 
new fiscal year.
    So all in all, Mr. Chairman, I think we have presented to 
you a good budget. But it is one that will require us to 
tighten our belts and to find more efficiencies in our system 
so that we can continue to provide high-quality, timely care, 
again, to those core constituencies of our disabled, our poor, 
and those in need of specialized services.
    I am accompanied, sir, by Tim McClain on my far left, our 
General Counsel; Bill Campbell, our Assistant Secretary of 
Management; Dr. Bob Roswell, our Under Secretary of Health; 
Admiral Dan Cooper, our Under Secretary of Benefits; and Eric 
Benson, our Acting Under Secretary of Memorial Affairs.
    Thank you, Mr. Chairman.
    [The prepared statement of Secretary Principi follows:]

          Prepared Statement of the Hon. Anthony J. Principi, 
                     Secretary of Veterans Affairs

    Mr. Chairman and members of the Committee, good morning. I am 
pleased to be here today to present the President's 2004 budget 
proposal for the Department of Veterans Affairs (VA). The centerpiece 
of this budget is our strategy to bring balance back to our health care 
system priorities. I have by my decisions and by my actions focused VA 
health care on veterans in the highest statutory priority groups--the 
service-connected, the lower income, and those veterans who need our 
specialized services. This budget reflects those priorities.
    The President's 2004 budget request totals $63.6 billion--$33.4 
billion for entitlement programs and $30.2 billion for discretionary 
programs. This represents an increase of $3.3 billion, which includes a 
7.7 percent rise in discretionary funding, over the enacted level for 
2003, and supports my three highest priorities:
     Sharpen the focus of our health care system to achieve 
primary care access standards that complement our quality standards;
     Meet the timeliness goal in claims processing;
     Ensure the burial needs of veterans are met, and maintain 
national cemeteries as shrines.
    Virtually all of the growth in discretionary resources will be 
devoted to VA's health care system. Including medical care collections, 
funding for medical programs rises by $2.0 billion. As a key component 
of our medical care budget, we are requesting $225 million to begin the 
restructuring of our infrastructure as part of the implementation of 
the Capital Asset Realignment for Enhanced Services (CARES) program.
    We are presenting our 2004 request using a new budget account 
structure that more readily presents the funding for each of the 
benefits 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.

                              MEDICAL CARE

    The President's 2004 budget includes $27.5 billion for medical 
care, including $2.1 billion in collections, and represents an 8.0 
percent increase over the enacted level for 2003. These resources will 
ensure we can provide health care for over 4.8 million unique patients 
in 2004.
    The primary reason VA exists is to care for service-connected 
disabled veterans. They have made enormous sacrifices to help preserve 
freedom, and many continue to live with physical and psychological 
scars directly resulting from their military service to this Nation. 
Every action we take must focus first and foremost on their needs. In 
addition, our primary constituency includes veterans with lower incomes 
and those who have special health care needs. By sharpening the focus 
of our health care system on these core groups, we will be positioned 
to achieve our primary care access standards.
    The demand for VA health care has risen dramatically in recent 
years. From 1996 to 2002, the number of patients to whom we provided 
health care grew by 54 percent. Among veterans in Priority Groups 7 and 
8 alone, the number treated in 2002 was about 11 times greater than it 
was in 1996. The combined effect of several factors has resulted in 
this large increase in the demand for VA health care services.
    First, the Veterans Health Care Eligibility Reform Act of 1996 and 
the Veterans Millennium Health Care Act of 1999 opened the door to 
comprehensive health care services to all veterans. Second, the 
national reputation and public perception of VA as a leader in the 
delivery of quality health care services has steadily risen, due in 
part to widespread acknowledgement of our major advances in quality and 
patient safety. Third, access to health care has greatly improved with 
the opening of hundreds of community-based outpatient clinics. Fourth, 
our patient population is growing older and this has led to an increase 
in veterans' need for health care services. Fifth, VA has favorable 
pharmacy benefits compared to other health care providers, especially 
Medicare, and this has attracted many veterans to our system. And 
finally, some feel that public disenchantment with Health Maintenance 
Organizations, along with their economic failure, may have caused many 
patients to seek out established and traditional sources of health care 
such as VA. All of these factors have put a severe strain on our 
ability to continue to provide timely, high-quality health care, 
especially for those veterans who are our core mission.
    Through a combination of proposed regulatory and legislative 
changes, as well as a request for additional resources, our 2004 budget 
will help restore balance to our health care system priorities and 
ensure we continue to provide the best care possible to our highest 
priority veterans. The most significant changes presented in this 
budget are to:
     Assess an annual enrollment fee of $250 for non-service-
connected Priority 7 veterans and all Priority 8 veterans;
     Increase co-payments for Priority 7 and 8 veterans for 
outpatient primary care from $15 to $20 and for pharmacy benefits from 
$7 to $15;
     Eliminate the pharmacy co-payment for Priority 2-5 
veterans whose income is below the pension aid and attendance level of 
$16,169;
     Expand non-institutional long-term care with reductions in 
institutional care in recognition of patient preferences and the 
improved quality of life possible in non-institutional settings.
    Revolutionary advances in medicine moved acute medical care out of 
institutional beds and rendered obsolete ``bed count'' as a measure of 
health care capacity. The same process is underway in long-term care 
and this budget proposes to focus VA's long-term care efforts on 
increased access to long-term care for veterans, rather than counting 
institutional beds. This budget focuses long-term care on the patient 
and his or her needs. Our policies expand access to non-institutional 
care programs that will allow veterans to live and be cared for in the 
comfort and familiar setting of their home surrounded by their family.
    While we will shift our emphasis to non-institutional forms of 
long-term care, we will continue to provide institutional long-term 
care to veterans who need it the most--veterans with service-connected 
disabilities rated 70 percent or greater and those who require 
transitional, post-acute care. Coupled with this, our budget continues 
strong support for grants for State nursing homes.
    In addition, we are working with the Department of Health and Human 
Services to implement the plan by which Priority 8 veterans aged 65 and 
older, who cannot enroll in VA's health care system, can gain access to 
a new ``VA+Choice Medicare'' plan. This would allow for these veterans 
to be able to use their Medicare benefits to obtain care from VA. In 
return, we would receive payments from a private health plan 
contracting with Medicare to cover the cost of the health care we 
provide. The ``VA+Choice Medicare'' plan will become effective later 
this year as the two Departments finalize the details of the plan.
    Coupled with my recent decision on enrollment, these proposed 
regulatory and legislative changes would help ensure that sufficient 
resources will be available to provide timely, high-quality health care 
services to our highest priority veterans. If these new initiatives are 
implemented, veterans comprising our core mission population will 
account for 75 percent of all unique patients in 2004, a share 
noticeably higher than the 67 percent they held in 2002. During 2004, 
we will treat 167,000 more veterans in Priority Groups 1-6 (those with 
service-connected disabilities, lower-income veterans, and those 
needing specialized care).
    In return for the resources we are requesting for the medical care 
program, we will be able to build upon our noteworthy performance 
achievements during the past 2 years. During 2002, VA received national 
recognition for its delivery of high-quality health care from the 
Institute of Medicine in the report titled ``Leadership by Example.'' 
In addition, the Department received the Pinnacle Award from the 
American Pharmaceutical Association Foundation in June 2002 for its 
creation of a bar code medication administration system. This important 
patient safety initiative ensures that the correct medication is 
administered to the correct patient at the proper time. Patient 
satisfaction rose significantly last year, as 7 of every 10 inpatients 
and outpatients rated VA health care service as very good or excellent.
    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 will employ this approach most extensively in the 
management of chronic disease and in disease prevention. For 16 of the 
18 quality-of-care indicators for which comparable data from managed 
care organizations are available, VA is the benchmark, exceeding the 
best competitor's performance.
    Mr. Chairman, one of our most important focus areas in our 2004 
budget is to significantly reduce waiting times, particularly for 
patients who are using our health care system for the first time. As we 
begin to rebalance our health care system with a heightened emphasis on 
our core service population, we will drive down waiting times. By 2004, 
VA will achieve our objective of 30 days for the average waiting time 
for new patients seeking an appointment at a primary care clinic. In 
addition, we have set a performance goal of 30 days for the average 
waiting time for an appointment in a specialty clinic. With this budget 
and the enacted funding level for 2003, we will eliminate the waiting 
list by the end of 2003.
    We remain firmly committed to managing our medical care resources 
with increasing efficiency each year. The 2004 budget includes 
management savings of $950 million. These savings will partially offset 
the need for additional funds to care for an aging patient population 
that will require an ever-increasing degree of health care service, and 
rising costs associated with a sharply growing reliance on 
pharmaceuticals necessary to treat patients with complex, chronic 
conditions. We will achieve these management savings by implementing a 
rigorous competitive sourcing plan, reforming the health care 
procurement process, increasing employee productivity, increasing VA/
DoD sharing, continuing to shift from inpatient care to outpatient 
care, and reducing requirements for supplies and employee travel.
    Our projection of medical care collections for 2004 is $2.1 
billion. This total is 32 percent above our estimated collections for 
2003 and will nearly triple our 2001 collections. By implementing a 
series of aggressive steps identified in our revenue cycle improvement 
plan, we are already making great strides towards maximizing the 
availability of health care resources. For example, we have mandated 
that all medical facilities establish patient pre-registration to 
include the use of software that assists in gathering and updating 
information on patient insurance. We are in the midst of a series of 
pilot projects at four Veterans Integrated Service Networks to test the 
implementation of a new business plan that calls for reconfiguration of 
the revenue collection program by using both in-house and contract 
models. In addition, the Department will award the Patient Financial 
Services System this spring to Network 10 (Ohio) which will acquire and 
deploy a commercial system of this type. This project 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. 
Over the past year, our two Departments have undertaken unprecedented 
efforts to improve cooperation and sharing in a variety of areas 
through a Joint Executive Council (JEC). To expand the scope of 
interdepartmental cooperation, a benefits committee has been added to 
complement the longstanding Health Executive Council. The VA and DoD 
Benefits Executive Council is exploring improved transfer and access to 
military personnel records and a pilot project for a joint physical 
examination to improve the claims process for military personnel. The 
JEC provides overarching policy direction, sets strategic vision and 
priorities for the health and benefits committees, and serves as a 
forum for senior leaders to oversee coordination of initiatives. To 
address some of the remaining challenges, the Departments have 
identified numerous high-priority items for improved coordination such 
as the joint strategic mission and planning process, computerized 
patient medical records, eligibility and enrollment systems, joint 
separation physicals and compensation and pension examinations, and a 
joint consolidated mail-out pharmacy pilot.

        CAPITAL ASSET REALIGNMENT FOR ENHANCED SERVICES (CARES)

    The 2004 budget includes $225 million of capital funding to move 
forward with the Capital Asset Realignment for Enhanced Services 
(CARES) initiative. This program addresses the needed infrastructure 
realignment for the health care delivery system and will allow the 
Department to provide veterans with the right care, at the right place, 
and at the right time. 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.
    As demonstrated in Veterans Integrated Service Network 12, 
restructuring will require significant investment to achieve a system 
that is appropriately sized for our future. Our preliminary estimate 
for resources that can be redirected to medical care between now and 
2010 as a result of the appropriate alignment of assets and health care 
services, and the sale or enhanced-use leasing of underutilized or non-
performing assets, is $6.8 billion. It is extremely important to have 
funding in 2004 to begin the multiyear effort to restructure. Given the 
timing associated with identifying CARES projects, we will be working 
with your committee on the authorization process in order not to delay 
the start of these projects.

                    MEDICAL AND PROSTHETIC RESEARCH

    Mr. Chairman, we are requesting $822 million in funding for VA's 
clinical research program, an increase of 3.4 percent from the 2003 
level. For the first time, our request includes funds in the form of 
salary support for clinical researchers, resources that previously were 
a component of the Medical Care request. This approach provides a more 
complete picture of VA's resources devoted to this program. In addition 
to the Department's funding request, nearly $700 million in funding 
support comes from other federal agencies such as DoD and the National 
Institutes of Health, as well as universities and other private 
institutions.
    This $1.5 billion will support more than 2,700 high-priority 
research projects to expand knowledge in areas critical to veterans' 
health care needs--Gulf War illnesses, diabetes, heart disease, chronic 
viral diseases, Parkinson's disease, spinal cord injury, prostate 
cancer, depression, environmental hazards, women's health care 
concerns, and rehabilitation programs.

                           VETERANS BENEFITS

    The Department's 2004 budget request includes $33.7 billion for the 
entitlement and discretionary costs supporting the six business lines 
administered by the Veterans Benefits Administration (VBA). Within this 
total, $1.17 billion is included for the management of these programs--
compensation; pension; education; vocational rehabilitation and 
employment; housing; and insurance.
    Improving the timeliness and accuracy of claims processing is a 
Presidential priority, and during the last year we have made excellent 
progress toward achieving this goal. A year ago, I testified that I had 
set a performance goal of processing compensation and pension claims in 
an average of 100 days by the summer of 2003. I am pleased to report 
that we are on target to meet that goal and we will maintain that 
improved timeliness standard for 2004. When we reach this goal, we will 
have reduced the time it takes to process claims by more than 50 
percent from the 2002 level.
    At the same time that we are improving timeliness, we will be 
increasing the accuracy of our claims processing. The 2004 performance 
goal for the national accuracy rate is 90 percent, a figure 10 
percentage points higher than last year's level of performance, and 
markedly above the accuracy rate of 59 percent in DoD.
    The driving force that will allow us to make this kind of progress 
with only a slight budget increase continues to be the initiatives we 
are implementing from the Claims Processing Task Force I established in 
2001. Located at the Cleveland Regional Office, our Tiger Team has been 
working over the last year to eliminate the backlog of claims pending 
over 1 year, especially for veterans 70 years of age or older. This 
aggressive effort of reducing the backlog and improving timeliness is 
underway at all of our regional offices. VBA has established 
specialized processing teams, such as triage, pre-determination, 
rating, post-determination, appeals, and public contact. Other Task 
Force initiatives, such as changing the procedure for remands, revising 
the time requirements for gathering evidence, and consolidating the 
maintenance of pension processing at three sites, have allowed us to 
free up resources to work on direct processing at the regional offices.
    This budget includes additional staff and resources for new and 
ongoing information technology projects to support improved claims 
processing. We are requesting $6.7 million for the Virtual VA project 
that will replace the current paper-based claims folder with electronic 
images and data that can be accessed and transferred electronically 
through a web-based solution. We are seeking $3.8 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 2004 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.
    In support of the education program, the budget proposes $7.4 
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 2004 performance 
goal of reducing the average time it takes to process claims for 
original and supplemental education benefits to 27 days and 12 days, 
respectively.
    VA is requesting $13.2 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.
    All of these information technology projects are consistent with 
the Department's Enterprise Architecture and will be supported by 
improved project administration from our Chief Information Officer.

                                 BURIAL

    The President's 2004 budget includes $428 million for VA's burial 
program, which includes operating and capital funding for the National 
Cemetery Administration (NCA), the burial benefits program administered 
by VBA, and the State Cemetery Grant program. This total is $17 
million, or 4.1 percent, over the 2003 level.
    This budget request includes $4.3 million for the activation and 
operation of five new national cemeteries in 2004. NCA plans to open 
fast-track sections for interments at four new national cemeteries 
planned for Atlanta, South Florida, Pittsburgh, and Detroit. Fort Sill 
National Cemetery opened a small, fast-track section for interments in 
November 2001, and Phase 1 construction of this cemetery should be 
complete by June 2003. In addition to resources for these five new 
cemeteries, this budget request also includes resources to prepare for 
the future opening of a fast-track section of an additional national 
cemetery near Sacramento. The locations of these national cemeteries 
were identified in a May 2, DoD report to Congress as the six areas 
most in need of a new national cemetery.
    With the opening of these new cemeteries, VA will increase the 
proportion of veterans served by a burial option within 75 miles of 
their residence to nearly 82 percent.
    The $108.9 million in construction funding for the burial program 
in 2004 includes resources for Phase 1 development of the Detroit 
cemetery, expansion and improvements at cemeteries in Fort Snelling, 
Minnesota and Barrancas, Florida, as well as $32 million for the State 
Cemetery Grant program.
    The budget request includes $10 million to support the Department's 
commitment to ensuring that the appearance of national cemeteries is 
maintained in a manner befitting a national shrine. One of the key 
performance goals for the burial program is that 98 percent of survey 
respondents rate the appearance of national cemeteries as excellent.
    A new performance measure established for NCA is marking graves in 
a timely manner after interment. We have established a 2004 performance 
goal of marking 75 percent of graves in national cemeteries within 60 
days of interment. When we achieve this goal, it will represent a 
dramatic improvement over the 2002 level of 49 percent.

                        MANAGEMENT IMPROVEMENTS

    Mr. Chairman, we have made excellent progress during the last year 
in implementing, or developing, several management initiatives that 
address our goal of applying sound business principles to all of the 
Department's operations. We are particularly pleased with our 
accomplishments in addressing the President's Management Agenda that 
focuses on strategies to improve the management of the Federal 
government in five areas--human capital; competitive sourcing; 
financial performance; electronic government; and budget and 
performance integration.
    We have developed a sound workforce and succession plan that 
includes strategies VA will pursue to implement a more corporate 
approach to human capital management, and a workforce analysis of 
several of the Department's critical positions--physicians, nurses, and 
compensation and pension veterans service representatives. We are 
moving forward with a competitive sourcing study of our laundry 
service, and other studies will be conducted of our pathology and 
laboratory services, and facilities management and operations. With 
regard to financial performance, we achieved an unqualified audit 
opinion for the fourth consecutive year. During 2003 and 2004, we will 
be involved in 10 electronic government studies. And finally, we 
continue to progress in our efforts to better integrate resources with 
results. One major accomplishment in this area is the restructuring of 
our budget accounts. This new account structure is presented in our 
2004 budget and will lead to a more complete understanding of the full 
cost of each of our programs.
    VA has a variety of other management improvement efforts underway 
that will lead to greater efficiency and will be accomplished largely 
through centralization of several of our major business processes. I am 
committed to reforming the way we conduct our information technology 
(IT) business, and to help the Department meet this objective, we have 
aggressively pursued new approaches to accomplishing our IT goals. We 
have developed a One-VA enterprise strategy, embarked on a nationwide 
telecommunications modernization program, and laid a solid foundation 
for a Departmental cyber security program. In order to facilitate and 
enhance these efforts, I recently centralized the IT program, including 
authority, personnel, and funding, in the office of the Chief 
Information Officer. This realignment will serve to strengthen the IT 
program overall and ensure that our efforts remain focused on building 
the infrastructure needed to better serve our Nation's veterans.
    This budget includes $10.1 million to continue the development of 
the One VA Enterprise Architecture and to integrate this effort into 
key Departmental processes such as capital planning, budgeting, and 
project management oversight. Our request also includes $26.5 million 
for cyber security initiatives to protect our IT assets nationwide. 
These initiatives aim to establish and maintain a secure Department-
wide IT framework upon which VA business processes can reliably deliver 
high-quality services to veterans.
    The 2004 budget includes funds to continue the CoreFLS project to 
replace VA's existing core financial management and logistics systems--
and many of the legacy systems interfacing with them--with an 
integrated, commercial off-the-shelf package. CoreFLS will help VA 
address and correct management and financial weaknesses in the areas of 
effective integration of financial transactions from VA systems, 
necessary financial support for credit reform initiatives, and improved 
automated analytical and reconciliation tools. Testing of CoreFLS is 
underway, with full implementation scheduled for 2006.
    We are developing a realignment proposal for finance, acquisition, 
and capital asset functions in the Department. A major aspect of this 
effort centers on instituting much clearer delegations of authority and 
improved lines of accountability. This plan would establish a business 
office concept across the Department and would enhance corporate 
discipline that will lead to uniformity in operations and greater 
accountability, and will make the transition to the new financial and 
logistics system much easier to implement. A component of the plan 
under review and consideration will result in a consolidated business 
approach for all finance, acquisition, and capital asset management 
activities.
    Mr. Chairman, I am proud of our achievements during the last year. 
However, we still have a great deal of work to do in order to 
accomplish the goals I established nearly 2 years ago. I feel very 
confident that the President's 2004 budget request for VA will position 
us to reach our goals and to continue to provide timely, high-quality 
benefits and services to those who have served this Nation with honor.
    That concludes my formal remarks. My staff and I would be pleased 
to answer any questions.

                                 ______
                                 
   Response to Written Questions Submitted by Hon. Arlen Specter to 
                         Hon. Anthony Principi

    Question 1: The proposed budget shows collections of $1.172 billion 
in fiscal year 2002 and then estimates that this amount will increase 
to $2.141 billion in fiscal year 2004. To what does VA attribute this 
increase in projected collections?
    Answer: The increase in estimated collections for FY 2004 is 
primarily attributable to planned legislative changes that will improve 
VA's ability to increase collections. First, increases in first-party 
co-payment amounts charged to veterans should result in improved 
collections for FY 2004. Second, legislation that will require managed-
care companies to remit payment for both urgent and emergent care will 
result in significantly increased collection amounts. Third, 
legislation to require veterans to disclose health insurance coverage 
information will improve collections for FY 2004. Section 112 of Title 
I of Division K of Public Law 108-7, signed February 20, 2003, now 
limits the use of appropriated funds for medical treatment of certain 
non-service connected veterans who do not provide accurate insurance 
information.
    In addition to legislative changes, VA believes improved 
collections will come from a variety of program changes including 
automation of claims processing through electronic interfaces for 
insurance verification, insurance identification, billing, and third 
party check processing. VA continues to work on improving the 
automation of information between registration and claims development. 
Finally, VA is pursuing completion of its Patient Financial Services 
demonstration project that will facilitate the implementation of a 
commercial off-the-shelf solution to claims processing issues.
    VA does recognize, however, that the FY 2004 collection goal of 
$2.141 will be a challenge, particularly in light of recent changes 
restricting enrollment of new Priority 8 veterans. VA estimates a 
potential loss of revenue of $36 million per year from first and third-
party collections previously projected for these veterans.
    Question 2: The proposed budget requests, despite an aging veteran 
population, a decrease of almost $200 million in expenditures devoted 
to nursing home care--from a fiscal year 2003 level of $2.054 billion 
down to $1.855 billion in fiscal year 2004. How does VA plan to provide 
nursing home care for increasing numbers of older veterans with less 
money?
    Answer: Under 38 U.S.C. 1710A, VA is required to provide nursing 
home care to any veteran who needs such care for a service-connected 
disability or to any veteran who needs nursing home care and has a 
service-connected disability rated 70 percent or more. Provision of 
nursing home care to all other veterans is discretionary. VA plans to 
provide nursing home care to all veterans mandated under the Millennium 
Act when they are in need of nursing home care and choose to receive it 
from VA. In addition, VA plans to provide needed nursing home care to 
veterans who are in the discretionary group, with priority given to 
those in need of post-hospital rehabilitation or special care, hospice 
care, respite care, intensive geriatric evaluation and management, and 
care for spinal cord injury or disease. In accordance with the 
recommendations of the Federal Advisory Committee on the Future of VA 
Long-Term Care, VA will also continue to support a rising number of 
veterans in State Home nursing homes. Increasingly, however, VA 
anticipates providing needed care for elderly veterans in less 
restrictive, less costly home- and community-based non-institutional 
settings.
    Question 3: The proposed budget suggests that Priority 7 and 8 
veterans be charged a $250 annual enrollment fee. As you know, I 
strongly supported the creation of so-called new Priority 7 veterans by 
advancing legislation to assist veterans residing in high cost areas of 
the country (such as Philadelphia) who do not qualify for Priority 5 
status despite their relative poverty due to residence in high cost 
areas. With that in mind, why do you propose to charge these Priority 7 
veterans the same $250 enrollment fee that you would charge Priority 8 
veterans? Given the intent of Congress to create a new category of low 
income veterans who would qualify for preferential treatment, shouldn't 
these veterans, for purposes of a proposed annual enrollment fee, be 
treated like Priority 5--not Priority 8--veterans?
    Answer: The proposed policies were designed to ensure that VA is 
able to refocus its health care system by providing timely access to 
high-quality health care to currently enrolled veterans, and in 
particular to our ``core'' veterans, those with service-connected 
disabilities, low incomes, and special needs. The cost-sharing 
proposals would only affect higher-income, better-insured veterans in 
the lowest priorities and have been strategically priced to help 
refocus the VA health care system as stated above.
    According to data from the 2002 VHA Survey of Veteran Enrollees, 90 
percent of Priority 8 enrollees and 87 percent of Priority 7 enrollees 
have some type of public or private health care coverage (compared to 
just 70 percent for Priority 5 and 73 percent for Priority 1 
enrollees). These policies discourage use of VA by veterans who, for 
the most part, do not use VA as their primary provider of care but 
supplement their other care options with services from VA when it is 
financially opportune for them. Under the proposed policies, these 
veterans who choose to use VA selectively, such as those who come to us 
only for prescriptions, can make the economic decision to continue to 
do so. Most importantly, those veterans who do not have other health 
care options can still access the high quality, comprehensive care VA 
provides at a very minimal cost.
    Priority 7 veterans currently receive preferential treatment in 
terms of a reduced inpatient co-payment requirement and an enrollment 
priority assignment above that of other higher-income veterans. 
Moreover, the proposal would exempt Priority 7 veterans with service-
connected disabilities rated at zero percent from the requirement of 
paying the annual enrollment fee. Priority 7 veterans continue to be 
responsible for full outpatient and medication co-payment requirements. 
Therefore, application of the enrollment fee to the non-service-
connected Priority 7 veterans would be consistent with our policy of 
asking them to pay a higher portion of the cost of their care than do 
those veterans who comprise our core constituents.
    Question 4: One of the policy proposals in your proposed budget 
envisions Congress enacting legislation deeming VA to be a preferred 
provider for PPO-type private health insurance plans and HMO's. Would 
this proposal require veterans to declare VA to be their sole health 
care provider? Would such a program require veterans to forfeit rights 
under their PPO or HMO plans?
    Answer: The proposal would not require veterans to declare VA to be 
their sole health care provider. Nevertheless, it is possible that this 
could occur in cases where a PPO or HMO requires each member to 
designate a plan/network provider as his or her sole health care 
provider.
    Our proposal, of course, does not, and is not intended to require 
veterans to forfeit any rights under their HMO or PPO plan. Moreover, 
we believe it unlikely that those plans, due to enactment of this 
legislation, would discriminate against veterans by imposing such 
forfeiture. Were they to do so, we believe such action would be 
constitutionally suspect.
    Question 5: Your proposed budget estimates a reduction in nursing 
home care staff of 887 in fiscal year 2004--presumably due to your 
proposed elimination of VA authority to provide nursing home care to 
veteran that are not at least 70 percent service-connected or those 
needing post-acute care.
    Question 5A: Does VA maintain that it currently has the authority 
to carry out this policy change without new statutory language being 
enacted into law?
    Answer: Under 38 U.S.C. 1710A, VA is required to provide nursing 
home care to any veteran who needs such care for a service-connected 
disability or to any veteran who needs nursing home care and has a 
service-connected disability rated 70 percent or more. Provision of 
nursing home care to all other veterans is discretionary under a 
proposal to amend a VA regulation, however, priority will be given to 
veterans in the discretionary group who are in need of post-hospital 
rehabilitation or special care, hospice care, respite care, intensive 
geriatric evaluation and management, and care for spinal cord injury/
disease.
    VA understands that a change to the Millennium Act is required in 
order to reduce the level of effort and staffing in VA nursing homes 
below the 1998 baseline level. VA is proposing that VA's three nursing 
home care programs (VA operated, contract community and State home), VA 
and State domiciliary, and VA and contract home and community-based 
care in total be utilized as the 1998 baseline.
    Question 5B: What is the rationale for proposing to limit VA's 
authority to provide nursing home care to this narrowly defined group 
of service-connected patients?
    Answer: The rationale for this approach is two fold. First, it is 
part of a general VHA initiative to refocus on our primary mission to 
care for veterans with service-connected disabilities, low incomes, and 
those with special needs. Secondly, it optimizes use of VA nursing home 
care beds, which are staffed to provide rehabilitative and other 
special services for the priority groups designated above.
    Question 5C: Is there a reason VA's proposal would bar nursing home 
care to service-connected veterans in need of such care for their 
service-connected condition? Does VA anticipate requiring those 
veterans to obtain care from the State Home system or private sector 
with VA as a buyer or services?
    Answer: VA's proposal continues to include service-connected 
veterans in need of nursing home care for their service-connected 
disabilities in the mandatory group, as required by 38 U.S.C. 1710A. VA 
will provide that care in VA nursing homes, contract community nursing 
homes, or State veterans homes, whichever is most appropriate 
clinically and is in keeping with the individual veteran's 
circumstances.
    Question 5D: How much staff depletion in the area of VA nursing 
care do you anticipate over the next five years when many of the 
current patients, who would be grandfathered in under your proposal, 
are no longer under VA care?
    Answer: VA does not anticipate depletion of staff since we plan 
significant expansion in home and community-based extended care, 
including VA Home-Based Primary Care and care-coordination services.
    Question 5E: Do you envision lay-offs or reductions in force for 
the affected employees?
    Answer: VA anticipates that affected staff will have the 
opportunity to be reassigned to other inpatient units or outpatient 
programs, including other geriatric and extended care programs.
    Question 6: Presumably, VA's proposed restrictions on its authority 
to provide institutional care to veterans would not eliminate the 
current system of per diem payments to State Veterans' Homes.
    Question 6A: Please explain the role you envision the State 
Veterans Homes' playing in the new policy proposal.
    Answer: In accordance with the recommendations of the Federal 
Advisory Committee on the Future of VA Long-Term Care, VA envisions the 
State Veterans Homes playing a larger role in the provision of long-
term care to veterans, particularly with the expansion of beds through 
the State Home Construction Grant Program. VA will continue to provide 
per diem payments for veterans receiving care in State homes, including 
those veterans who need long-term maintenance care.
    Question 6B: Do you intend to discontinue current relationships 
with private sector facilities providing care on a contractual basis? 
Or will that service simply be available to 70 percent service-
connected disabled veterans?
    Answer: VA does not intend to discontinue relationships with 
community nursing homes. VA will continue to survey community nursing 
homes annually to establish or renew contracts with those facilities 
meeting VA standards of care.
    Question 7: Your proposed budget notes that you expect to lose 
approximately 379,000 Priority 7 and 8 veterans in fiscal year 2004 as 
a result of the new enrollment fees and co-payment increases.
    Question 7A: How many of those Priority 7 and 8 veterans will be 
able to access care through other methods such as Medicare, private 
health insurance, etc.?
    Question 7B: How would you respond to the criticism that you are 
``pricing veterans out of the system on purpose'' as a method of 
managing health resources?
    Answer: The demand for VA health care has reached unprecedented 
levels, and it is clear that workload growth of the magnitude we have 
seen in recent years is unsustainable in the current federal budget 
climate. These proposed policies were designed to ensure that VA is 
able to fulfill its core mission--providing timely access to high 
quality health care to veterans with service-connected disabilities, 
low incomes, and those with special needs. The cost-sharing proposals 
would only affect the lowest priority veterans in Priority 8 and non-
service-connected veterans in Priority 7, and have been strategically 
priced to refocus the VA system on those veterans who need us most.
    According to data from the 2002 VHA Survey of Veteran Enrollees, 90 
percent of Priority 8 enrollees and 87 percent of Priority 7 enrollees 
have some type of public or private health care coverage (compared to 
just 70 percent for Priority 5 and 73 percent for Priority 1 
enrollees). These policies discourage use of VA by veterans who, for 
the most part, do not use VA as their primary provider of care but 
supplement their other care options with services from VA when it is 
financially opportune for them. Under the proposed policies, these 
veterans who choose to use VA selectively, such as those who come to us 
only for prescriptions, can make the economic decision to do so. Most 
importantly, those veterans who do not have other health care options 
can still access the high quality, comprehensive care VA provides at a 
very minimal cost.
    Question 8: Your proposed budget assumes management savings of $1.1 
billion during fiscal year 2004. What types of health delivery service 
changes do you expect to achieve these savings? What types of 
commercial activities will VA be reviewing to determine appropriateness 
for private sector competition?
    Answer: Following are the management and administrative 
efficiencies anticipated for FY 2004:
    Competitive sourcing. VA has begun a rigorous analysis of 
appropriate areas to study under its competitive sourcing plan to 
determine whether commercial activities should be performed in-house 
using Government facilities and personnel or through private sector 
performance-based contracts. Our goal is to ensure the best service to 
our customers while managing resources to determine whether the same or 
a higher-quality service can be provided at a lower cost. The first 
round of studies under competitive sourcing review are primarily 
Veterans Health Administration (VHA) activities to include such areas 
as diagnostic radiology, pharmacy, medical libraries, grounds 
management operations, laundry and dry cleaning operations, medical 
information and records, nutrition and food service, etc.
    Reforms for Health Care Procurement Process. VA has the second 
largest number of purchases in the federal government after DoD even 
though it ranks sixth in procurement spending. Standardizing items that 
are purchased most often will leverage VA's purchasing power. VA is in 
the process of implementing aggressive strategies to: (1) leverage 
purchasing power of VA; (2) standardize equipment and supplies; and (3) 
obtain and improve comprehensive procurement information.
    Administrative saving. VA made significant choices regarding 
administrative costs during the FY 2004 budget process. Administrative 
areas such as employee travel, interagency motor pool, IT contracts, 
personal service and training contracts, and other medical contracts 
were reduced. Other operational areas such as maintenance and repair 
services, operating supplies and materials are anticipated to be 
maintained at or below 2003 spending levels.
    Employee productivity. VA is reviewing all aspects of operations, 
including providers, to ensure that all employees are delivering care 
to our veterans in the most productive manner. Particular focus is on 
physicians to ensure that every hour of medical expertise that VA pays 
for is delivered to veterans.
    Local Network efficiencies. Each VISN's management is charged with 
actively reducing per-patient cost for healthcare. Efforts to date have 
resulted in good progress towards this goal, but more can and will be 
done. Medical centers continue to pursue opportunities to provide 
quality care in less costly settings, carefully analyzing each new 
lease opportunity as it arises. Efforts to shift excess acute inpatient 
resources, although largely accomplished, can still yield some savings. 
Wherever resource decisions are made locally, emphasis will be placed 
on receiving the best value for the investment.
    Question 9: You note a desire on the part of the Administration to 
invest $225 million to implement specific recommendations of the CARES 
commission.
    Question 9A: Are you asking this Congress and, more specifically, 
this Committee, to approve a blanket authorization that would allow the 
Administration to decide where and when to spend this money?
    Answer: The Department has requested an appropriation of $225 
million for major construction in support of the implementation of the 
CARES recommendations. The Secretary is planning on approving the CARES 
National Plan by November, 2003.
    Question 9B: Assuming this committee might be willing to consider 
such a ``blanket'' authorization, how would you propose to consult with 
members on both sides of the aisle before undertaking such massive 
expenditures?
    Answer: Because of the CARES timeline, VA decided that it would be 
more prudent to delay selecting construction projects for the FY 2004 
authorization until the National Plan is approved. VA intends to review 
and identify construction projects and develop a five-year plan. In 
February 2004 VA will submit to Congress the five-year plan and request 
authorization for the FY 2004 appropriations and the FY 2005 
appropriations. At the present time VA is requesting that Congress 
authorize those projects listed in VA budget submission, which include 
Chicago West Side construction and leases at Boston, MA, Denver, CO, 
and Pensacola, FL. A request for authorization of the lease at 
Charlotte, NC, was included in the FY 2004 budget request since at the 
time of publication that lease had not been authorized as a part of the 
FY 2003 authorization process.
    Question 9C: Do you have any sense now where VA's capital 
infrastructure needs are the greatest?
    Answer: VA will not know where our greatest infrastructure needs 
are until the Secretary approves the CARES National Plan. VA has 
previously identified critical seismic safety projects in California 
that are considered as Department needs.
    Question 10: During last year's budget hearings I suggested that VA 
do a better job of collecting money from third-party sources. What 
improvements have you made in the past year? May I assume from your 
proposed budget, which States that VA will improve collections by 
another $155 million in fiscal year 2004, that VA still has areas in 
which it can improve its ability to collect money from insurance 
companies?
    Answer: In the past year, VA has substantially improved its ability 
to collect money from third party sources through the initiatives 
outlined below.
    (a) Full automation of electronic data interchange to allow 
electronic submission of claims to first party payers. Automation of 
claims processing results in claims being paid timely and improves cash 
collection. An average of 374,000 e-claims are being submitted every 
month, and as of January 2003, cumulative totals are nearing the three 
million claims mark.
    (b) Development of performance metrics to benchmark VA against 
industry best practices for revenue including: collections, cost to 
collect, days to bill, accounts receivable greater than 90 days old, 
percent collected of amount billed, and total billings. VA has 
developed a website to track and trend metrics in these key areas. 
Additionally, establishment of benchmarks tied to performance contracts 
for senior managers has improved our ability to monitor progress in key 
areas.
    (c) Reduction of Accounts Receivables--VA has developed an 
aggressive program to reduce outstanding accounts receivable including 
mandating that accounts be turned over for collection action at the 60-
day mark. Aggressive follow-up of accounts in partnership with private 
vendors has facilitated reduction of accounts receivable. Additionally, 
VHA has partnered with the Financial Quality Assurance division in 
Austin to review all aging outstanding and residual balances.
    (d) Coding--In FY 2002, the Deputy Under Secretary for Health for 
Operations and Management issued guidance for VA sites to purchase 
encoding software. This software enables coders to more accurately and 
efficiently code encounters and to measure coding productivity. As part 
of coding improvement efforts, VA has developed tools to improve the 
source documentation created by providers including documentation 
templates and electronic encounter forms which provide clinicians more 
detailed codes and information on coding requirements. Finally, many 
VISN's and VA Medical Centers have contracted with external vendors to 
provide coding services as a means to improve lag time in billing and 
collections.
    Although VA has initiated a number of additional improvement 
initiatives, much remains to be done to optimize revenue cycle 
processes. In particular, VA is continuing to finalize the development 
of software to automate insurance identification and verification. VA 
is working closely with private industry to integrate an off the shelf 
software solution to improving bill production. Finally, VA is working 
on developing automated tools to track and trend denials by insurance 
carriers in order to improve front end processing. It is expected that 
improved insurance identification, billing, and accounts receivable 
management will assist us in meeting future collection goals.
    Question 11: You proposed to extend into fiscal year 2004 your 
current policy of prohibiting enrollment for new Priority 8 veterans 
while still ``grandfathering in'' all veterans who enrolled for care 
prior to January 17, 2003. Do you believe that VA needs to make some 
allowances for those recently separating from the service since these 
veterans have had not opportunity to enroll at all?
    Answer: The suspension of enrollment of Priority 8 veterans and the 
proposed policies in VA's FY 2004 budget are designed to ensure that VA 
can provide timely access to high-quality care for currently enrolled 
veterans. Veterans who separate from service after January 17, 2003, 
and have a compensable service-connected disability, have low incomes, 
or special health care needs are eligible to enroll in Priorities 1 
through 7. In addition, recently discharged veterans who served in 
combat locations can receive health care for conditions potentially 
related to their service for two years after their release from 
service.
    Question 12: Your proposed budget requests an increase of nearly 
$10 million for the National Program Administration (formerly 
``MAMOE'') account to support a reorganization of the Office of the 
Under Secretary for Health and include a new position of Deputy Under 
Secretary for Health Policy.
    Question 12A: Please explain to the Committee how this 
reorganization will comply with the organization mandated by 38 U.S.C. 
Sec. 7306.
    Question 12B: Does VA intend to submit legislation proposing the 
elimination of the current Deputy Under Secretary or simply renaming 
the current position to reflect the Health Policy responsibilities?
    Answer: Section 7306 of Title 38 U.S.C. defines and authorizes the 
organizational structure for the Office of the Under Secretary for 
Health. This section mandates that there shall be a position of Deputy 
Under Secretary for Health, who shall be the principal assistant of the 
Under Secretary for Health, and who shall be a qualified doctor of 
medicine. Title 38 further establishes a specific, unique rate of pay 
for this position, together with a unique amount of ``Responsibility 
Pay'' under the Special Pay provisions outlined in Section 7433.
    Section 7306 (a) (4) further authorizes the appointment of such 
Medical Directors as may be necessary to suit the needs of the 
Department. The position of Deputy Under Secretary for Health Policy 
has been established as one of these Medical Directors. Both the base 
rate of pay and the responsibility pay component of the individual's 
Special Pay are lower than those designated for the statutorily 
mandated position of Deputy Under Secretary for Health.
    In summary, section 7306 mandates the establishment of the Deputy 
Under Secretary of Health position with rates of basic pay and 
responsibility pay that exceed those of any other position established 
under the provisions of the section.
    Conversely, however, section 7306 does not preclude the Department 
from assigning the ``Deputy Under Secretary for Health'' title to other 
positions that may be properly established under other provisions of 
section 7306 or Title 5. VA believes the ``Deputy Under Secretary for 
Health'' title should be reserved for a very small number of senior 
staff, and currently has established only two such positions, Deputy 
Under Secretary for Health for Operations and Management, and Deputy 
Under for Health for Health Policy. VA has no plans to establish any 
additional such positions at present.
    Accordingly, the Department does not intend to submit requests to 
either eliminate or rename the statutory Deputy Under Secretary for 
Health position, as the current language in section 7306 provides 
sufficient flexibility to meet its organizational needs.
    Question 13: One of your performance goals includes ensuring that 
90 percent of VA medical centers have electronic access to DoD health 
information for separated service members. One year ago, no VA medical 
centers had such access. What gives VA the confidence to attempt such a 
large achievement in such a short amount of time? What are the positive 
effects such access would have on the care of newly separated 
servicemen and women?
    Answer: The Federal Health Information Exchange (FHIE) program, a 
successor to the Government Computer-based Patient Record (GCPR) 
project, uses the VA Computerized Patient Record System (CPRS) as a 
fundamental building block. CPRS has been in use at VA medical 
facilities nationwide, and enables an authorized user to access 
clinical data from any VA health facility.
    The FHIE repository is a database that receives available DoD 
electronic clinical data. Presently, the DoD data available from their 
Composite Health Care System (CHCS) I systems are radiology reports, 
laboratory results, outpatient prescription data, cytology reports 
(including gynecology data), inpatient episode information, patient 
demographics, and inpatient discharge summaries, when available 
electronically. Currently, CPRS is the application that enables VA to 
import and display DoD clinical data from the FHIE repository, in 
addition to displaying clinical data available within VA.
    In December 2000, a joint, interagency team was formed to deliver a 
system that would provide the one-way transfer of clinically relevant 
Department of Defense (DoD) electronic health information for use by 
authorized VA staff.
    On April 26, 2002, a review of the FHIE test results occurred to 
determine whether or not the first phase of FHIE is ready for 
deployment. Based on the results of this review, it was determined that 
FHIE was ready and was deployed on Memorial Day, 2002. The first phase 
of FHIE was completed July 17, 2002.
    On May 3, 2002, the Deputy Secretary, Department of Veterans 
Affairs, and the Under Secretary (Personnel and Readiness), Department 
of Defense signed a Memorandum of Agreement (MOA) for the Federal 
Health Information Exchange Governance and Management. This MOA 
designates VA as the lead agency for FHIE and commits executive level 
support necessary to adequately manage the project.
    VA has confidence in this work, as the software components built 
for FHIE have been reused from specific VA software already in use by 
VA staff. These software components were able to be leveraged and gave 
a foundation for development of the FHIE software within Veterans 
Health Information Systems and Technology Architecture (VistA). Through 
reuse of both existing DoD and VA software, rapid development of a 
jointly developed, working system is possible.
    Today, 100 percent of all VA Medical Centers have implemented CPRS 
remote data views, which enable access to DoD health information. The 
FHIE system has clinical data on over 1.5 million separated service 
members and is operating around-the-clock at a secure VA data center. 
During FY 2004, this joint VA/DoD project will achieve all approved 
requirements. Late in FY 2004, this system will attain a ``steady 
state'' and be maintained throughout its project lifecycle.
    The FHIE repository is presently receiving about 20,000 newly 
separated health records monthly. FHIE has a number of positive effects 
for newly separated servicemen and women:
    (1) With DoD electronic health data now available, VA clinicians 
have immediate access to accurate, specific historical health 
information from treatment received at Military Treatment Facilities, 
where those data were entered electronically into the CHCS, before 
discharge from the military.
    (2) Satisfaction with care can be enhanced when veterans know their 
DoD and VA clinical data is linked in a longitudinal fashion using the 
existing technology of VA's Computerized Patient Record System (CPRS). 
This new jointly developed system seeks to enhance veterans' confidence 
in the ability of VA to assess and understand their health conditions 
using electronic health information obtained from their military 
service.
    (3) VA staff helping newly separated veterans seeking benefits from 
VA has historical electronic DoD health data readily available to them 
during compensation and pension examinations.
    (4) In July 2003, the Veterans Benefits Administration (VBA) will 
begin using a new release of VA developed software called Compensation 
and Pension Record Interchange (CAPRI). This update of existing 
software will permit authorized VBA users to access DoD clinical data 
stored in the FHIE repository to assist in their delivery of service.
    Question 14: Your proposed budget briefly outlines a program under 
which you would work with the Centers for Medicare/Medicaid Services 
(CMS) to obtain information that would allow VA to work with Medigap 
insurers. Will this information allow veterans to be reimbursed for co-
payments and other VA financial obligations if they are covered by a 
Medigap policy?
    Answer: The VA-CMS project mentioned is the electronic Medicare 
Remittance Advice (e-MRA) Project, a joint effort between VA and CMS to 
solve a long-standing problem that Medigap insurers have had with VA. 
Because VA does not bill Medicare directly, Medigap insurers have had 
difficulty trying to determine payments due VA. The goal of this 
project is to acquire a Medicare equivalent explanation of benefits 
from Medicare outlining the deductible and coinsurance amounts. This 
information will be shared with Medigap insurers so that they better 
understand their financial obligation to VA. One of the provisions of 
Medigap insurers includes coverage of the Medicare deductible and 
coinsurance amounts to which VA may be entitled. The dollars recovered 
from these third-party insurers currently help to offset veterans' co-
payments and financial obligations. However, there are instances where 
these payments do not fully cover VA co-payments, and veterans are 
still obligated to VA for the balance of the co-payments.
    Question 15: VA has identified many different Capital Investment 
Activities as part of the overall Medical Care Business Line, including 
major and minor construction, State home grants, asbestos abatement, 
etc. Do you believe that it would benefit VA to devise a program or 
process for destroying and removing old and dilapidated structures that 
currently plague many VA medical facility campuses?
    Answer: As a part of the VA CARES process, facilities are 
identifying excess property and will be developing exit strategies for 
the use of those structures after the Secretary approves the plans. 
Those exit strategies may include sharing or leasing the space, 
enhanced use, use by other government agencies, demolition, or moth-
balling. Funding to implement the selected exit strategy will come from 
the appropriate funding category.
    Question 16: Your proposed CARES Construction budget requests $183 
million for fiscal year 2004. According to the budget documents, $98.5 
million will be allocated for work associated with the Chicago West 
Side facility's modernization program. Please provide the committee 
with a more detailed description of this proposal.
    Answer: Construction includes a new multi-story bed tower to house 
200 inpatient beds for our VA Medical Centers at Chicago Westside and 
Chicago Lakeside Divisions. The project will also provide for a new 
surgical suite and will be connected to the West end of the existing 
hospital where ancillary support and diagnostic functions will remain. 
Building 1 will provide for consolidated renovated inpatient support 
services.
    Question 17: You propose that current law be amended to allow VA to 
count all institutional and non-institutional long-term care services 
to meet the capacity requirements set forth in 38 U.S.C. 1710B. What do 
you propose as a baseline for this change in policy? Do you believe 
that current institutional services provided at State homes and 
contract nursing facilities must be taken into account when determining 
a baseline?
    Answer: VA would retain 1998 as the baseline year and specify the 
baseline level of effort at 54,585 ADC for all institutional and non-
institutional services combined. VA has included the institutional 
services provided veterans at State homes and contract nursing 
facilities at VA expense in its proposal to amend 38 U.S.C. Sec. 1710B.
    Question 18: Your continued support for increased funding of the 
State Home Construction grant program ($102 million in fiscal year 
2004) suggests that the Administration acknowledges the value of States 
as partners with the Federal government in providing long-term care to 
veterans.
    Question 18A: How does the proposal to count all institutional and 
non-institutional long-term care services in the capacity requirement 
co-exist with a continued expansion of the State home construction 
program?
    Answer: VA highly values its long-standing partnership with the 
States in the provision of long-term care to veterans in State homes. 
VA envisions the State homes playing a larger role in the provision of 
long-term care for veterans in the future. Continued expansion of the 
State home construction program will permit that to occur and will help 
VA to meet the capacity requirement if the proposal to count all 
institutional and non-institutional long-term care is enacted.
    Question 18B: Does VA propose to readjust baseline assumptions for 
areas that construct new State homes in the future?
    Answer: Since the capacity requirement will be met on a national 
basis, readjustment of the baseline on a local basis will not be 
necessary. VA will, however, attempt to assure equity of access to a 
range of institutional and non-institutional long-term care services 
throughout the VA system. State home construction project proposals are 
already required to demonstrate that there is a local need for 
additional bed capacity for long-term care of veterans in order to be 
eligible to receive Federal construction grant funding.
    Question 19: In testimony given on January 29, 2003, before the 
House Veterans Affairs Committee, VA's Under Secretary for Health noted 
VA's compensation system for physicians and dentists is unresponsive to 
the demands of the current market. The effect of noncompetitive pay and 
benefits is seen in dramatic increases in VA's scarce-specialty, fee-
basis, and contractual expenditures.'' Despite this statement, VA's 
proposed budget proposes nothing to alleviate the concern expressed by 
the Under Secretary.
    Question 19A: What would it cost for VA to implement a program 
under which VA could compete for qualified physicians and other 
clinicians to work as VA employees rather than contractors?
    Answer: The amounts of special pay authorized for physicians have 
not been adjusted since 1991 and are no longer competitive for many 
specialties and categories of physicians. After 1991, physician 
staffing stabilized or improved in most medical categories for a time. 
However, VA's current competitive situation is eroding in many areas of 
the country and will continue to erode due to the current limits on 
special pay amounts. Increased enrollment by veterans for VA health 
services and the need for more comprehensive care by aging veteran 
patients will result in increased workloads across the system over the 
next 5 years. Current trends indicate a steady decrease in the number 
of physicians VHA will employ over the same period. This decrease will 
be the result of increased retirements (currently, 25 percent of VA 
physicians and 50 percent of VA dentist retirement eligible), losses to 
the private sector, and increasing difficulty in recruiting 
replacements. This is already being evidenced by increasing vacancy 
rates, increasing times to fill medical specialist positions, and by 
the growth of scare medical specialist contracts, which increased from 
$643 million in FY 1995 to $2.16 billion in FY 2001, a 336 percent 
increase in this six-year period. VA has estimated that it would cost 
approximately $2.12 billion over the next 10 years to effectively 
compete for qualified physicians and dentist rather than contractors.
    Question 19B: When can the Committee expect proposals from the 
Administration to address this problem?
    Answer: VA is currently working on a legislative proposal that is 
under final review across the administration.
    Question 19C: What is your management philosophy for addressing 
this issue? Will you allow one-time bonuses? Locally-varying pay 
scales? Removal of salary caps?
    Answer: VA favors a pay system with the following components: a 
uniform base pay band for all positions; market sensitive pay set by 
specialty, assignment, location, and experience; and performance-based 
bonuses for meeting quality and productivity measures, or for 
supporting corporate goals.
    Question 20: Some members of Congress and Voss's have advocated a 
type of guaranteed funding for VA health care. Other members expressed 
concerns about the wisdom of such a policy and fear unintended 
consequences of such a change in the funding mechanism. Provide the 
Committee with the Administration's views on such proposals--
specifically S. 50 introduced by Senator Tim Johnson--including reasons 
for supporting or opposing this change in budget processing. What are 
VA's views on H.R. 5250, the Veterans Health Care Funding Guarantee Act 
of 2002, introduced in the last Congress?
    Answer: VA's views were not sought on this 10th Congress bill, 
hence no formal position was developed. We have developed views on a 
similar bill, S. 50 with Congress, at the request of Senator Johnson. 
This legislation would establish, by formula, the annual level of 
funding for all programs, activities, and functions (except for grants 
to States for the construction or acquisition of State homes for 
veterans) of the Veterans Health Administration (VHA). More 
specifically, funding for FY 2005 (the first fiscal year covered by the 
bill) would be automatically established at 120 percent of the amounts 
obligated by VHA (for all its activities, programs, and functions) for 
FY 2003. Thereafter, VHA funding would be automatically determined by a 
fixed formula, which is based on the number of enrollees each year 
multiplied by a fixed per capita amount. The per capita amount would be 
adjusted annually in accordance with increases in the Consumer Price 
Index.
    VA does not support the concept of using a fixed formula to 
determine VHA funding. Although VA recognizes the appeal of such an 
approach, particularly in these times when the Department finds it is 
unable to provide care to all veterans who seek enrollment in the 
system, we believe the approach taken in this and other similar bills 
would prove to be unworkable and is inappropriate for funding a dynamic 
health care system, like VA's.
    The provision of care evolves continually to reflect advances in 
state of the art technologies (including pharmaceuticals) and medical 
practices. It is very difficult to estimate both the costs and savings 
that may result from such changes. Moreover, patients' health status, 
demographics, and usage rates are each subject to distinct trends that 
are difficult to predict. The proposed formula in S. 50 would not take 
into account any changes in these and other important trends. As such, 
there is no certainty that the amount of funding dictated by the 
proposed formula would be adequate to meet the demands that will be 
placed on VA's health care system in the upcoming years.
    Perhaps more importantly, use of an automatic funding mechanism 
would also diminish the valuable opportunity that members of the 
Congress and the Executive Branch now have to carry out their 
responsibility to identify and directly address the health care needs 
of veterans through the funding process. It might also tend to depress 
the Department's incentive to improve its operations and be more 
efficient.
    Finally, VA does not believe this proposal would ensure open 
enrollment. The Department would still be required to make an annual 
enrollment decision, and that decision would directly affect the number 
of enrolled veterans and thus the amount of funding calculated under 
the formula. Indeed, references to ``guaranteed funding'' may give the 
public the false impression that this bill would give VA full funding 
to enroll all veterans and to furnish care for all their needs, which 
would not be the case.
    We share the desire by many in Congress to ensure stable funding 
for the Department's health care system, and we look forward to working 
closely with the Congress to achieve that goal. However, for the many 
important reasons discussed, we believe the approach taken in S. 50 is 
not the answer.
    Question 21: In recent months, the President has activated much 
Guard and Reserve troops to fight in the war against terrorism and 
participate in the ``build-up'' in the Middle East. Recent testimony by 
AMVETS notes that VHA currently employs over 13,000 reservists. Do you 
anticipate a large contingent of VA employees being called up for 
active duty service in the near future? What are VA's plans for 
addressing the possible loss of a significant amount of clinical staff?
    Answer: The Department of Veterans Affairs (VA) does anticipate a 
large contingency of VA employees being called to active duty. 
According to DoD's Military Mobilization List, as of December 31, 2002, 
there are 15,204 VA employees subject to military mobilization. Of that 
number, 6,253 VA employees are in health care related occupations. The 
Veterans Health Administration (VHA) recently completed a review of the 
occupations subject to becoming vacant as a result of military 
mobilization. Each VISN prepared a contingency plan to address staffing 
needs in the event significant numbers of clinical and non-clinical 
employees are called to active duty.
    VHA's contingency plans identified the following staffing 
strategies to address personnel shortages in clinical positions:
     Utilize the array of OPM hiring authorities, such as: 
Direct hire authority, temporary or term appointments, and reemployment 
of Federal retirees.
     Reassign or detail existing staff.
     Offer overtime, compensatory time; and adjust work 
schedules.
     Make use of fee basis and contract arrangements for 
positions such as dentist, optometrist or primary care physicians.
    Question 22: The President's budget uses a new analytical tool--the 
Program Assessment Rating Tool (PART)--to help evaluate the 
effectiveness if Federal programs. Using PART, the disability 
compensation program was given a rating of ``results not 
demonstrated.'' The main reason given for the poor rating is that 
compensation for certain disabilities and diseases has little relation 
to veterans' reduced income-generating capacity in a 21st century 
economy. What is your assessment of the PART analysis of the disability 
compensation program?
    Answer: We agree with the stated goals of the Program Assessment 
Tool (PART)--to evaluate Federal programs in a systematic, consistent, 
and transparent manner and to use the results to help inform management 
and budget decision-making. As a result of the PART, it became apparent 
that the program lacks long-term outcome goals as well as cost-
efficiency measures. In 2004, VA will initiate a program evaluation. 
The results of which should improve the program's score.
    Question 22A: Is the criticism that the compensation is not meeting 
its purpose valid?
    Answer: We agree with the stated goals of the Program Assessment 
Tool (PART)--to evaluate Federal programs in a systematic, consistent, 
and transparent manner and to use the results to help inform management 
and budget decision-making. VA recognizes that the disability 
compensation program needs meaningful long-term outcome goals as well 
as cost-efficiency measures, and we have been working to address this 
issue. PART has further emphasized the need for improvement in this 
area. Therefore, in 2004, VA will initiate a program evaluation.
    Question 23: Last year's budget commented on VA's failure to 
establish a relationship between resource expenditures and performance 
in the disability claims process. Is VA any closer to establishing this 
link? What efforts underway will better enable Congress to determine 
whether investments in particular initiatives have a measurable impact 
on claims processing performance?
    Answer: We are enhancing our budget formulation and resource 
allocation models, as well as our budget execution process. To support 
this effort, we have contracted with the Institute for Defense Analyses 
(IDA). The budget formulation model currently forecasts performance, 
incoming workload and completed workload. The resource allocation model 
takes the resources approved by Congress and distributes them to the 
field offices. The outcome of our enhancement project will be to link 
these two models with our budget execution process to better assess our 
efficiencies and performance gains. This project began in March 2003. 
IDA expects to have a beta version of the model available in December 
2004.
    Question 24: The proposed budget states that its new account 
structure ``represents a significant step forward in our ongoing effort 
to more effectively link resources with results.'' How so? For example, 
how does combining mandatory disability compensation payments and 
discretionary administrative expenses give a clearer indication that VA 
is achieving the result of improving the timeliness and accuracy of 
claims processing?
    Answer: The overarching goal of our initiative to restructure the 
Department's budget accounts is to better understand what results we 
are achieving in return for the total resources devoted to each of our 
nine programs--medical care; research; compensation; pension; 
education; housing; vocational rehabilitation and employment; 
insurance; and burial. The new account structure ensures that all of 
the costs associated with each program are grouped together rather than 
having them split among different programs. When all resources for a 
program are included within a single account, we are better positioned 
to understand what we are getting in return for these resources, both 
in terms of program outcomes (what impact the program has on improving 
the lives of veterans and their families) and program outputs (how well 
we are managing the program in terms of activities like timeliness and 
accuracy of service).
    Question 25: The Institute of Medicine (IOM) recently released a 
report on the association between exposures to insecticides and 
solvents which were present during the Gulf War and long-term health 
outcomes. IOM found 12 disease conditions which, at a minimum, had 
limited or suggestive evidence of an association with insecticide or 
solvent exposure. What is your assessment of IOM's findings? What 
action, if any, do you plan to take and what would be the budgetary 
impact of that action?
    Answer: On February 18, 2003, IOM released its second 
congressionally required review of the health effects associated with 
certain Gulf War environmental exposures. It included 21 positive 
findings on long-term health effects from exposure to pesticides and 
solvents that may have been used in the 1991 Gulf War theater of 
operations. These were primarily various cancers and serious 
hematological disorders (e.g., leukemia, non-Hodgkin's lymphoma, 
multiple myeloma, and aplastic anemia), subtle general neurological 
effects seen in neurobehavioral tests, and certain miscellaneous health 
effects (e.g., reactive airway dysfunction syndrome and allergic 
contact dermatitis).
    Most of the pesticides and solvents addressed in the IOM report are 
commonly used in military and civilian life and are not unique to Gulf 
War service. These include such common substances as dry cleaning 
solvents and chemicals commonly found in gasoline, antifreeze, 
household cleaning products, typewriter correction fluid, food, and 
cosmetics. The health effects noted by the IOM are generally well 
known. Most of the IOM's findings are qualified by the conclusion that 
they are associated with ``chronic'' or occupational exposure to the 
pesticides or solvents in question, as distinguished from episodic 
exposure. Virtually all of the data available for review by the IOM 
came from studies of civilian workers who were occupationally exposed 
to pesticides or solvents over long periods. This combination of 
factors has made VA's task in reviewing the IOM report a particularly 
challenging and sensitive one.
    As with prior IOM reports, VA established an internal working group 
(including representatives of the Veterans Health Administration, the 
Veterans Benefits Administration, and the Office of the General 
Counsel) to review the IOM findings. As required by law, we will 
publish regulations and notices, as appropriate, to announce the 
Department's determinations based on the IOM report. We do not 
currently have cost estimates associated with such action.
    Question 26: The proposed budget assumes Congress will enact 
legislation to raise co-payment fees, charge annual enrollment fees, 
and limit nursing home access for certain veterans--but it does not 
assume increased health care and compensation claims-processing costs 
associated with a potential war with Iraq. Has VA made any projections 
or assumptions relating to potential war-related costs?
    Answer: VHA has made no projections or assumptions relating to 
potential costs of a war with Iraq in its FY 2004 budget request. 
Likewise, VBA's workload and performance projections do not address the 
potential effects of war with Iraq.
    Question 27: What impact has the President's call to active duty of 
VA employees in the Reserves or National Guard had on VA operations?
    Answer: As of March 18, 2003, 730 VA employees were mobilized. VA 
has identified a number of critical occupations encumbered by 
reservists subject to mobilization. The number of VA employees 
activated in these critical occupations is monitored on a daily basis. 
To date, a modest percentage of our critical occupations have been 
affected; however, should mobilization of reservists occur more 
rapidly, the impact on our critical occupations could be significant.
    Question 28: In order to reduce the claims processing backlog, one 
of the main recommendations of the C&P Claims Processing Taskforce was 
to free up direct labor hours so that more time could be spent 
processing claims. If VBA had unlimited authority to contract for C&P 
medical examinations, wouldn't that free up direct labor hours at VHA 
thus enabling it to work on reducing its own backlog of patients 
waiting for care?
    Answer: Adoption of the recommendation of the C&P Claims Processing 
Taskforce most likely would not have much impact on VHA's on-going 
efforts to reduce waiting lists. C&P exams comprise less than 1 percent 
of VHA's outpatient workload on a National level. In addition, the use 
of contractors in all areas was not considered to be the most effective 
option, due to the time that would be required for contractors to scale 
up to the production levels necessary to meet national standards for 
timeliness and quality. Moreover, availability of suitable contractors 
in some areas could also limit the ultimate effectiveness of 
contracting as a tool to reduce the waiting lists.
    Question 29: VA has made tough decisions regarding health care 
enrollments, and it has proposed fees to be imposed on Priority 7 and 8 
veterans. Since a 10 percent disability rating would permit veterans 
who currently fall in either Priority 7 or 8 to avoid these changes, do 
you anticipate an increase in compensation claims by such veterans?
    Answer: We assume that a certain percent of veterans rated service-
connected at the zero percent level will apply for increased 
evaluations to change their priority status and avoid additional fees. 
However, a formal estimate of the number of claims expected by these 
changes has not yet been finalized pending results of data requests and 
inquiries. We anticipate having the cost estimate completed by late 
June, 2003.
    Question 30: VBA is conducting a preliminary assessment of the 
impact of the Combat-Related Special Compensation Pay (limited 
concurrent receipt) for certain retired veterans. However, DoD is 
required to promulgate the rules. Has DoD involved VA in the 
implementation process? If, after DoD has made its decision on whether 
an injury is combat-related or not, the veteran disagrees with DoD's 
determination, to whom will the veteran be able to appeal? Will VA be 
required to adjudicate such an appeal? If yes, what impact, if any, do 
you feel such appeals will have on clams processing timeliness?
    Answer: VA has been present at three DoD-sponsored meetings at the 
Pentagon on this issue. DoD representatives have also come to VA on 
five occasions to obtain a better understanding of the compensation 
process. In addition there has been weekly contact on the topic. Our 
role has been advisory and consultative. We also made observations and 
recommendations to DoD about the nature of the data that we have in 
electronic and paper form. We have suggested items to be included in 
their application. To the extent that DoD has asked our advice we have 
provided it.
    DoD has indicated to us that retirees would have the normal appeal 
rights available to members and retirees inside the DoD system. Because 
VA will not be making decisions as to basic eligibility to this 
benefit, VA's appeals system is not available for claimants 
dissatisfied with DoD's decisions.
    Question 31: The proposed budget projects an overall C&P workload 
decline in fiscal year 2004. Has VA projected workload beyond 2004? If 
so, what are the projections and how will they affect VA's assessment 
of the optimal size of VBA's workforce?
    Answer: In the development of the 2004 budget submission, we did 
project workload beyond 2004. The table below shows the overall 
expected C&P workload from 2003 through 2008 at the time of the 
submission.


----------------------------------------------------------------------------------------------------------------
                      FY                           2003       2004       2005       2006       2007       2008
----------------------------------------------------------------------------------------------------------------
Claims Workload...............................  2,027,990  1,849,893  1,778,876  1,761,502  1,744,572  1,728,003
----------------------------------------------------------------------------------------------------------------

    Original and reopened disability compensation claims have been 
declining. We experienced an increase in 2002 and 2003 because of 
passage of the Veterans Claims Assistance Act and the presumption of 
service connection for type II diabetes for veterans who served in 
Vietnam. However, we believe we have received the bulk of this 
workload. Over the long term as the number of active military personnel 
decreased, we have experienced a similar decrease in the number of 
disability compensation claims received.
    Although workload is projected to decline and VBA has been 
successful in improving productivity, we have not yet fully 
accomplished our goal of fixing the system of benefits delivery. In 
determining our workforce needs, we must restore the infrastructure 
needed to institutionalize the changes we are making as a result of the 
recommendations of the VA Claims Processing Task Force. Additionally, 
we are not yet at the level of quality we must achieve, nor have we 
established the training infrastructure essential to maintaining the 
ongoing capability of our entire workforce. All of these requirements 
affect the ``optimal'' size of our workforce and are critical to 
ensuring our ability to respond to workload fluctuations inherent in 
our system.
    Question 32: You established a goal of processing disability claims 
in, on average, 100 days by September of 2003. Since the fiscal year 
2003 funding level for VBA fell short of what the Administration 
requested, will VBA's ability to achieve your processing goals be 
compromised? If so, when will the goal be reached?
    Answer: Because of our commitment to meeting the Secretary's goals 
for improving the timeliness of disability claims processing, VBA 
elected to absorb the across-the-board cut in discretionary spending 
primarily in our non-payroll accounts so that we could fully fund the 
compensation and pension payroll needs. The Under Secretary for 
Benefits has established specific performance targets for regional 
offices that are in line with the national goal of processing 
disability compensation claims in 100 days, on average, by September of 
2003. Although much progress has been made, achievement of this goal by 
September 2003 remains our biggest challenge. We believe that the key 
to achievement of our goals involves not only sustained efforts to 
align our resources to ensure that we have sufficient staffing to meet 
the challenge, but to also carefully assess our business processes and 
analyze cycle times, particularly in those offices that are not 
currently meeting their improvement goals.
    Question 33: The Independent Budget cites the lack of claims 
adjudicators' training in the law as a root cause of VBA's claims 
backlog and low accuracy rates. Has VBA analyzed accuracy rates and the 
productivity of employees who have law degrees? Are lawyers better 
suited for claims adjudication than non-lawyers?
    Answer: VA has not compared the accuracy/productivity of veteran 
service center representatives (rating or non-rating) who have law 
degrees with those who do not. Over the past several years we have made 
an effort to recruit individuals who have specialized knowledge either 
in law or medicine in light of the expertise and training opportunities 
their knowledge provides. However, at the same time we know that a 
formal legal or medical background is certainly not a prerequisite for 
success, since many of our most experienced and best qualified 
personnel do not have either background.
    Question 34: Congress significantly increased VBA's budget over the 
past four years to fund VBA's succession plan. In anticipation of a 
wave of retirements, the plan called for a four-year increase in full 
time equivalent employees (FTEE), followed by a natural reduction in 
FTEE through attrition. Where are we in relation to the succession plan 
laid out four years ago by former Under Secretary Joe Thompson? At what 
point will we see FTEE reductions? What is the optimal level of FTEE 
given VBA's expected C&P workload which, as I understand it, is 
projected to decline in 2004?
    Answer: VBA developed a succession plan that resulted in a series 
of hiring initiatives over the past few years. In addition, VBA 
received funding to add additional FTE to support the increased 
workloads resulting from the Veterans Claims Assistance Act. Since 
1999, VBA has added approximately 2,100 employees in the Compensation 
and Pension business line.
    As these new employees gained proficiency in their duties, 
performance has improved. Over the past year with the implementation of 
the Claims Processing Improvement Model and other recommendations of 
the Secretary's Claims Processing Task Force, even greater improvements 
have been realized. VBA's rating inventory has decreased by 120,000 
claims since its peak. Nearly 800,000 claims were processed in fiscal 
year 2002. Production targets are even more ambitious for fiscal year 
2003.
    As indicated in response to Question 31, even when we achieve our 
goals of 250,000 pending disability claims and 100 days on average to 
process these claims, our goal of fixing the system of benefits 
delivery will not yet be fully achieved. VBA must also devote critical 
resources to important long-term quality improvement initiatives, such 
as an ongoing standardized training program. Such initiatives will 
impact the size of our future workforce, but are essential to 
maintaining the capability of our workforce and achieving consistent 
high quality service delivery.
    Question 35: The current estimate for fiscal year 2003 spending on 
the C&P medical exam pilot program is 37 percent higher than what was 
spent in fiscal year 2002. What accounts for this spike in program 
expenditures? Is the program being utilized more now than in prior 
years? If it is being used more, what is the reason that quality of 
exams performed at VA hospitals and clinics has deteriorated?
    Answer: During fiscal year 2002, the number of C&P examinations 
increased for both the VHA medical centers/clinics and the C&P contract 
medical examination pilot. The overall increase was due to the 
increased workloads and production of our field offices. As regional 
offices worked to meet production goals, many more contract examination 
requests were generated by the ten regional offices participating in 
the pilot program. This increase is not a reflection on the quality of 
examinations performed by the Veterans Health Administration. The 
contractor experienced a 40 percent increase in examinations during 
fiscal year 2002, and that volume is expected to remain high as VBA 
continues to reduce its inventory of pending claims.
    Question 36: How many companies provide contract medical exams for 
VA? Is there adequate competition for this work? It is my understanding 
that contract medical exams are used by other federal agencies, e.g., 
the Social Security Administration. How does the cost of a VA 
compensation exam compare to costs other agencies pay for similar 
exams? If the costs are different, to what do you attribute the 
difference?
    Answer: Utilizing a competitive procurement process, one company 
was awarded the contract for the C&P medical examination pilot. If 
legislation eventually expands VA's authority to contract beyond the 
ten regional offices involved in the pilot, our strategy would likely 
involve more than one contractor and also include VHA as a potential 
bidder. We are aware that other federal agencies utilize contractors to 
fulfill their examination needs. However, we are unaware of the prices 
for these examinations. VA's current contractor, also under contract 
with the Department of Labor and the Social Security Administration, 
has commented that VA's examination requirements are more stringent due 
to VA's examination worksheets that incorporate the requirements of the 
VA Rating Schedule of Disabilities. We believe that our examinations 
require a contractor to spend more time in preparing for the 
examination and more time during the quality review stage to ensure 
that all examination requirements are met.
    Question 37: The proposed budget includes a $3.8 million funding 
request for C&P Evaluation Redesign (CAPER), an initiative intended to 
affect ``a more consistent exam request process.'' The budget cites the 
inadequate exam return rate as evidence for CAPER's need. What is the 
rate at which inadequate C&P exams are returned? What is the return 
rate of exams performed by contractors relative to those performed by 
VA hospitals or clinics?
    Answer: The purpose of CAPER is to improve the examination request 
process as well as the examination report process. The reported 
insufficient rates for VHA exams (AMIS 290) and for those performed by 
a contractor (VERIS) indicate that regional offices return 1 percent of 
the examination reports as inadequate for rating purposes. However, 
independent assessments of examinations conducted by a panel of subject 
matter experts from the C&P Service and the CPEP office in Nashville 
show that material deficiencies in both exam requests and exam reports 
are higher than reported. As part of the Department's efforts to 
dramatically reduce the claims backlog, we have encouraged cooperative 
relationships between regional offices and the corresponding medical 
centers that conduct examinations. Through these cooperative 
relationships, regional offices have established procedures by which 
they contact VA medical examiners directly by telephone to clarify 
examination findings and/or to request addenda to examination reports 
without recording the initial examination report as inadequate for 
rating purposes.
    Question 38: Funding for CAPER began in fiscal year 2002 and was 
continued into fiscal year 2003. Already $4.2 million has been 
appropriated; your request for fiscal year 2004 would bring the total 
to $8 million. What is involved in the ``analysis and development'' of 
the exam request process that requires $8 million over a three-year 
period? When will the impact of this initiative be seen?
    Answer: To date VA has requested a total of $8 million for CAPER, 
including the FY 2004 request of $3.8 million. By the end of fiscal 
year 2003 we will have expended $4.2 million: $1.4 million for payroll 
costs and $2.8 for development costs. Development costs include 
contracts with private business consultants, a software integrator, an 
independent verification and validation contractor, ADP equipment and 
software, and employee travel and training.
    The purpose of CAPER is to develop a web-enabled, rules-based 
system for requesting C&P examinations and for producing examination 
reports that are consistently sufficient for rating purposes, whether 
the source is a VA medical facility or a private contractor. The CAPER 
process will be consistent with the One-VA Enterprise Architecture 
Implementation Plan in its integration of VBA's process with VHA 
architecture.
    CAPER is a two-phase project. Phase I, which began in July 2001, 
focused on a ``proof of concept'' prototype using commercial off-the-
shelf (COTS) products. It required an analysis of our current complex 
business processes for requesting and receiving VA examination reports 
and integrating the information contained in them into a rating 
decision. The current process is governed by disparate manual 
procedures and electronic platforms resulting in inconsistent results 
in our field stations. The Phase I team was comprised of an integrator 
contractor, a multidisciplinary VA staff, and an independent 
verification and validation (IV&V) contractor. VA is currently 
assessing the prototype and analyzing alternatives with IV&V contractor 
assistance. The team will present its final recommendations for Phase 
II in the last quarter of FY 2003.
    The proposal for Phase II involves a production version of the 
CAPER system with nationwide deployment. It will require extensive 
analysis to refine technical design specifications and integrate 
disparate VA Information Technology systems. Extensive collaboration 
among technical staff and business rule subject matter experts will be 
required.
    Question 38A: When will the impact of this initiative be seen?
    Answer: We anticipate initial deployment in 2006, with subsequent 
releases through FY 09. Improvement in the examination request process 
should be seen immediately in 2006, with increasing improvement as the 
system is fully utilized. The impact will be seen in a standardized 
electronic exam process that will reduce claims processing time and 
assure that examination reports address the necessary criteria to 
evaluate a veteran's disabilities. Ultimately, CAPER will increase the 
quality and consistency of VA rating decisions and eliminate variances 
based on geographic location, knowledge/experience of employees, and 
other factors not germane to the claim.
    Question 39: What are the total estimated project costs for all 
current VBA initiatives for which funding is being sought 
incrementally? Which projects, if fully funded now and not 
incrementally, would have the greatest positive impact on VBA 
performance?
    Answer: Incremental project costs for all current 2004 program-
specific VBA initiatives are $32.6 million. Total costs for all 
initiatives, including VBA-wide Initiatives, are $53.6 million. The 
chart below shows VBA's initiatives. Because these initiatives must 
proceed in specific stages, with funding provided for each stage, and 
each stage built upon the results of the work preceding it, full 
receipt of the total funding cost for the entire initiative will not 
expedite the project process.
    While the projects listed in the chart below each have a discreet 
goal, they are projects that are ongoing simultaneously and reflect a 
common purpose of modernizing our work processes so that we have 
accurate claims eligibility and other data that will enable us to 
provide efficient, consistent services to veterans. This goal applies 
across the board. ``VBA-wide initiatives'' affect all business lines 
and the specific impact on an individual business line cannot be 
readily identified.

                                                          Impact of Initiatives on Performance
                                                                 [dollars in thousands]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Benefit                 Program
                                                                    Data Centric               Payment                 Specific    VBA Wide      Total
                                                            TPSS    Architecture    CAPER    Replacement     TEES    Initiatives  Initiative  Initiative
                                                                      (VETSNET)                 System                   Cost        Cost        Cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initiative Cost........................................     $2,601       $9,622      $3,821       $9,200     $7,390     $32,634      $21,021     $53,655
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Question 40: The proposed budget suggests that Congress eliminate 
compensation benefits for alcohol and drug abuse-related disabilities 
which are secondary to other diagnoses, or which demonstrate the 
severity of a primary service-connected disability such as Post 
Traumatic Stress Disorder. What is VA's rationale for this proposal?
    Answer: Sections 1110 and 1131 of title 38, United States Code, 
authorize the payment of compensation for disability resulting from 
injury or disease incurred or aggravated in line of duty in active 
service, ``but no compensation shall be paid if the disability is a 
result of the veteran's own willful misconduct or abuse of alcohol or 
drugs.'' Before their amendment in 1990, the provisions currently 
codified in sections 1110 and 1131 prohibited compensation ``if the 
disability is the result of the veteran's own willful misconduct.'' In 
1990 these provisions were amended to also prohibit compensation if the 
disability is a result of the veteran's own alcohol or drug abuse. VA 
implemented this statutory provision in 38 C.F.R. 3.301 (c) (2), (3) 
and 38 CFR 3.301 (d), providing that drug and alcohol abuse are 
considered for VA purposes to be willful misconduct.
    In February 2001, the Court of Appeals for the Federal Circuit in 
Allen v. Principi, 237 F.3d 1368, 1370 (Fed. Cir. 2001) interpreted the 
statutory language in 38 U.S.C. 1110 as not precluding a veteran from 
receiving compensation for an alcohol or drug-abuse related disability 
secondary to a veteran's service-connected disability or use of an 
alcohol or drug abuse disability as evidence of the increased severity 
of a service connected disability.
    In our view, payment of additional compensation based on the abuse 
of alcohol or drugs is contrary to congressional intent and is not in 
veterans' best interests because it removes an incentive to refrain 
from debilitating and self-destructive behavior. Moreover, the court's 
interpretation in Allen could also greatly increase the amount of 
compensation VA pays for service-connected disabilities. This potential 
is illustrated by mental disorders, which are frequently associated 
with alcohol and drug abuse. The legislation we are seeking would avoid 
those increased costs by clarifying that compensation is not payable 
for disability that is a result of the veteran's own alcohol or drug 
abuse, even if the abuse is secondary to a service-connected 
disability.
    Question 41: The proposed budget anticipates significant savings if 
Congress adopts the proposal referenced in Question 40. What 
assumptions were made in arriving at the savings VA projects? Are there 
particular drug or alcohol abuse-related disabilities which would 
account for the bulk of the savings? Irrespective of whether physical 
disability--e.g. liver damage--is manifest on account of drug or 
alcohol abuse, does VA consider physical dependence on alcohol or drugs 
a disease?
    Answer: The potential costs of the Allen v. Principi decision were 
determined using the following assumptions:
    At the time of the estimate there were over 2.3 million veterans in 
receipt of service-connected disability compensation. Approximately 
750,000 Vietnam veterans were on the rolls and the substance abuse for 
this population was noted to be 44.9 percent (approximately 340,000 
veterans). Incidence rate of substance abuse for the general population 
is 32.6 percent. We subtracted the number of Vietnam veterans from the 
total veteran population and applied the 32.6 percent substance abuse 
rate to the remaining veteran population (approximately 510,000 
veterans). Therefore the pool of potential veterans is approximately 
850,000. A claim rate of 30 percent was assumed for the first year with 
a 25 percent grant rate.
    Specific disabilities were not considered in making this estimate. 
While the Merck Manual cites the four most common forms of organ damage 
resulting from alcoholism as cirrhosis, peripheral neuropathy, brain 
damage, and cardiomyopathy, there are many other conditions that can be 
attributed to chronic alcoholism. The disabilities resulting from drug 
abuse also vary widely.
    Question 42: The proposed budget requests an extension of the 
Veterans Advisory Committee on Education, set now to terminate on 
December 31, 2003. What action has VA taken in the last three years as 
a result of Advisory Committee recommendations?
    Answer: The Department of Veterans Affairs has supported and given 
strong consideration to a vast majority of the Veterans Advisory 
Committee on Education (VACOE) recommendations. VACOE is effective in 
formulating recommendations and advising the VA on significant 
veterans' issue.
    VACOE has made many recommendations that require legislation. We 
take these recommendations into account when we provide our views to 
Congress on bills under consideration.
    These recommendations are also reviewed when we are helping draft 
the Administration's veterans bill. VA cannot always adopt Advisory 
Committee recommendations, either because of budget limitations or 
other pressing veterans' issues.
    VA has acted on the following recommendations:
2001:
    Improve interdepartmental coordination of veteran-related issues.
     VA expanded the working relationship and liaison with 
Department of Defense by taking part in the Montgomery GI Bill (MGIB)-
Active Duty, MGIB-Selected Reserve and DoD Voluntary Education policy 
working groups. VA provided MGIB usage and budget trend analysis to DoD 
and the military services. In addition, we provided policy advisories 
and guidance, previously only provided to our regional offices, to 
Department of Defense and Military Service points of contact which has 
improved the level of understanding of MGIB education programs in the 
military community.
     VA partnered with the Department of Labor, Veterans' 
Education and Training Service (DOLNETS) to sponsor, Transition 
Assistance: The Role of Certification Second Annual Conference. This 
conference addressed the role of certification in the transition from 
military to civilian employment. In 2002, VA and DOLNETS partnered to 
sponsor Transition Assistance: The Role of Certification ``Military 
Training to Career Success.''
    The VACOE recommended a web-based secure portal for Education 
Service.
     The Loan Guaranty Service is developing a web portal that 
will be available for use by the Education Service. The portal will 
provide an efficient mechanism for information exchange and access to 
the Education systems by veterans and other stakeholders, such as 
schools, State Approving Agencies, etc.
    VACOE recommended that staffing at RPOs be at an appropriate level.
     Education Service has evaluated staffing levels at RPOs to 
ensure that they are adequate.
2002:
    VA should use its authority to make sure accelerated payment is 
widely available.
     VA published regulations on accelerated payments in the 
Fall of 2002. These regulations will ensure that accelerated payment is 
widely available.
    Question 43: I note a significant downward adjustment to expected 
education claims for licensing and certification tests. Why is demand 
for education benefits to train for such tests low? What more can be 
done, if anything, in terms of outreach? Are service members departing 
the military made aware of the various uses of their education 
benefits?
    Answer: The downward adjustment to the expected education payments 
for licensing and certification tests is based on an incorrect 
assumption made during the last budget cycle. We assumed more veterans 
would want to be reimbursed for the licensure and certification tests 
they took. Instead they apparently do not want reimbursement for lower 
cost tests. During FY 2002, the first full year of authority to provide 
reimbursement for qualifying tests, VA made 5,111 payments, and the 
average payment was approximately $280. This figure was much lower than 
the 25,000 payments projected for fiscal year 2002, in the 2003 budget. 
However, the demand for test reimbursement continues to grow through 
the first five months in 2003, almost doubling the number of payments 
made over the same period in 2002.
    In terms of additional outreach, VA is currently contracting with a 
news distribution company to create a news release about the Licensing 
and Certification program. The company provides these stories to 
thousands of newspapers, radio stations and television stations. This 
news release should be available to media outlets in June 2003.
    Service members departing the military receive a transition 
assistance briefing which covers their education benefits, to include 
licensure and certification test reimbursement. In addition, we are 
beginning to distribute pamphlets to all service members who are within 
six months of discharge. Pamphlets were sent to about 55,000 service 
members in late April 2003.
    Question 44: Public Law 107-103 expanded the work-study program to 
include work performed at VA nursing homes and hospitals, and work at 
State and national veterans' cemeteries. How many work-study contracts 
have been approved for work at these new sites?
    Answer: VA nursing homes, hospitals, and cemeteries have been 
eligible to use VA Work-Study students for many years and have taken 
advantage of the program. VA hospitals, which include the VA nursing 
homes, use a great many VA work-study students.
    We polled VA work-study coordinators and have confirmed the 
employment of nine VA Work-Study students at State veterans' 
cemeteries.
    Question 45: How many individuals were served through the VR&E 
program's independent living program in each of fiscal years 2000, 
2001, and 2002? What were VA expenditures for the program in each of 
those fiscal years? What is the projected caseload and related 
expenditures for fiscal years 2003 and 2004?
    Answer: Veterans receiving support through VR&E's Independent 
Living Program for fiscal years 2000 through 2002 number as follows:
     FY 2000--2,530
     FY 2001--4,247
     FY 2002--5,650
    Average 12-month Independent Living Program caseloads for fiscal 
years 2000 through 2002 are as follows:
     FY 2000--1,231
     FY 2001--2,270
     FY 2002--3,209
    Numbers of veterans to be served through the Independent Living 
Program for fiscal years 2003 and 2004 are projected as follows:
     FY 2003--5,444 veterans
     FY 2004--5,220 veterans
    We are unable to provide the fiscal information you requested at 
this time. In September of 2001, VR&E deployed Corporate WINRS, VR&E's 
Information and Case Management System. In February 2002, the WINRS 
modifications were put in place to enable us to separately account for 
independent living expenditures and training expenditures in the 
readjustment benefits (RB) account (similar to the way general 
operating expense funds are tracked). We will be able to provide this 
accounting information for FY 2003 at the end of this year.
    Question 46: Does the decline in FTE specified in the budget for 
the loan guaranty program factor in the result of VA's recently 
completed housing program's A-76 study? If not, how many FTEE will be 
eliminated when property management functions are contracted out?
    Answer: The President's FY 2004 budget requests DoD direct FTE for 
the Loan Guaranty Program. This level of FTE is required to support the 
Loan Guaranty benefits delivery functions and the property management 
oversight function in FY 2004. Over the 3 percent years of the A76 
Property Management (PM) Study, the majority of the PM employees found 
other positions in anticipation of the loss of the PM functions to the 
private sector or were lost to retirement or buyouts. Any remaining PM 
employees will be reassigned to fill other critical Loan Guaranty 
vacancies or other available positions in regional office operations 
once the PM contract is activated. No additional FTEE below the DoD 
level will be eliminated when the PM functions are performed by the 
contractor.
    Question 47: The proposed budget projects that three loans will be 
disbursed in FY 04 under the Guaranteed Transitional housing for 
Homeless Veterans loan program. The total amount of the loans is 
expected to be $20 million, while the subsidy costs associated with the 
loans are expect to be $9.7 million. Why is the subsidy cost so high 
for this program? Is this one reason VA proposes to make this a grant 
program?
    Answer: The subsidy rate originally selected for the Multifamily 
Transitional Housing Program was the subsidy rate of what was thought 
to be a comparable housing program. Every effort will be made to 
reevaluate the subsidy rate with more program specific assumption data. 
As is true with all credit reform programs, the projected costs 
(subsidy) of the program are only as valid as the assumptions used to 
project the subsidy rate. Should this loan guaranty program remain as 
originally authorized by Public Law 105-368, VA will be evaluating all 
available prospective borrowers proposals to estimate the risk of the 
proposals and develop revised assumption data. VA is currently 
negotiating with Bearing Point (formerly KPMG Consulting) for ongoing 
assistance with areas such as underwriting to assist VA with the credit 
standards VA should use in evaluating the credit-worthiness of 
prospective borrowers.
    VA has found that many potential developers of transitional housing 
are in need of a cash grant or other sources of funds that do not 
require regular repayment. Based on numerous discussions with potential 
developers, VA has concluded that a grant would be of more benefit to 
such developers than a loan.
    The key advantage for the Federal government of changing from a 
guaranteed loan to a grant program is the reduction of financial loss 
resulting from loans defaulting. The current pilot program, as a loan 
guaranty, is full of risks (pre-development, construction, operating 
risks) and currently has a subsidy rate of 48.25 percent. The potential 
sponsors could apply for grant funding, in lieu of a loan guaranty, 
where repayment is not required.
    The proposal to convert this loan guaranty to a grant program 
resulted after VA's experience in trying to design the loan guaranty 
program and meeting with potential partners under this pilot program. 
In addition, numerous representatives of government, private and public 
lending institutions, and real estate developers of multifamily housing 
projects have advised VA of the high risk involved and high rates of 
defaults by borrowers.
    Veterans could be better served with the proposal to change from a 
loan guaranty to a grant program because VA believes more developers 
would be interested in and able to complete projects with the 
assistance of a grant rather than a loan that must be repaid. 
Therefore, there exists the likelihood that more projects will be 
completed and more beds will become available to homeless veterans if 
this program were converted to a grant.
    Question 48: What is VA's strategy for addressing the $280 million 
worth of ``one-time repairs'' identified in volume two of the Study on 
Improvements to Veterans Cemeteries?
    Answer: The National Shrine Commitment report, completed last year, 
provides a comprehensive assessment of the condition of the 
Department's national cemeteries. The report identified over 900 
projects at a cost of nearly $280 million to ensure a dignified and 
respectful setting appropriate for each national cemetery. The 
Department of Veterans Affairs (VA) will use the information and data 
provided in the report to plan and accomplish the repairs needed at 
each cemetery.
    The report includes an extensive database of condition assessment 
information. This data will be used in the planning process to assist 
in prioritizing repair projects over a multi-year period. VA will 
evaluate the problem categories and the severity of problems within 
each category. VA will also use data from the Annual Survey of 
Satisfaction with National Cemeteries to factor in the viewpoint of 
veterans and their families when determining project priorities.
    Repairs to address long-standing deferred maintenance needs will be 
addressed in a variety of ways. Gravesite renovation projects to raise, 
realign and clean headstones and markers and to repair sunken graves 
will continue to be a high priority in allocating operational 
resources. Infrastructure improvements to buildings, roads, irrigation 
systems and historic structures will be addressed with capital 
expenditures through the major and minor construction programs. In 
addition, cemetery staff will be used to complete some repairs.
    A preliminary review of the report's findings indicates that the 
contractor has recommended some repair processes and solutions that are 
significantly different from those currently used by VA. In some cases, 
particularly headstone and marker cleaning, VA methods are more cost 
effective. VA will evaluate the long-term benefits of the contractor's 
recommended processes to determine the best solution for achieving the 
same results.
    It is important to note that except in very few cases are the 
repair projects identified in the study truly ``one-time repairs''. The 
care and maintenance of cemetery grounds and facilities is cyclical in 
nature and require continuing efforts. This is especially true for the 
maintenance of burial sections and the cleaning and realignment of 
headstones and markers. VA will develop strategies and plans for 
preventive maintenance to address these and other recurring issues 
related to the appearance of national cemeteries. VA will also use in 
its planning processes recently developed operational standards and 
measures by which actual achievement to national shrine standards can 
be compared or measured on a proactive, ongoing basis. VA will develop 
the additional mechanisms necessary to ensure that the data collected 
are accurate, valid, and verifiable.
    Question 49: The proposed budget requests almost $25 million for 
expansion and improvement of the Fort Snelling National Cemetery. The 
justification given for the request is that Fort Snelling will exhaust 
burial capacity for both casketed and cremated remains by 2007, leaving 
approximately 280,000 Minneapolis-area veterans without a cemetery 
within reasonable driving distance. If that is the case, why is 
Minneapolis not on the list of locations identified in the Future 
Burial Needs report?
    Answer: The Future Burial Needs report identified those areas of 
the country with the greatest concentration of veterans whose burial 
needs will not be served by a national or State veterans cemetery from 
2005 through 2020. The report also anticipates that undeveloped land at 
a national cemetery would be used to develop additional gravesites to 
extend service to veterans. Fort Snelling Cemetery was not identified 
in the report because it has undeveloped land that will provide 
gravesite capacity beyond 2030. The major construction project included 
in the 2004 budget request reflects the Department's practice of phased 
development of open national cemeteries as the need approaches.
    Question 50: In your testimony, you established a performance goal 
of marking 75 percent of graves in national cemeteries within 60 days 
of interment. How long does it currently take to mark a grave after 
interment in a national cemetery? To what do you attribute the delay?
    Answer: In 2002, the Department of Veterans Affairs (VA) began to 
measure the timeliness of marking graves in national cemeteries. The 
baseline data showed that 49 percent of graves in national cemeteries 
were marked within 60 days of interment. It is VA's goal to increase 
the percent of graves marked within 60 days to 75 percent by 2004. 
Significant progress has already been made towards achieving the 75 
percent goal. Performance has improved from 49 percent to 64 percent 
through the first 5 months of fiscal year 2003.
    There are many factors that affect the timeliness of setting 
headstones and markers in national cemeteries. A business analysis has 
identified the key processes involved from the interment to the actual 
marking of the grave. These processes include preparing the inscription 
for the headstone or marker, contracting, manufacturing, shipping, and 
setting the delivered headstone or marker on the gravesite. Each of 
these processes will be evaluated at the Central Office and cemetery 
levels. Significant progress has been achieved at some cemeteries 
simply by reducing the cycle time for releasing orders to contracting 
or by changing operational practices in how headstones are set in 
burial sections. VA will also examine how cycle time may be reduced by 
modifying the contract specifications used for the production and 
delivery of grave markers to the national cemeteries.
    The VA plan for continuous performance improvement will focus on 
reengineering current business processes in the ordering and setting of 
headstones and markers and enhancing management oversight. The 
importance of marking graves in a timely manner will continue to be 
emphasized through monthly performance and accountability reviews. Top 
management involvement is essential for success. New tracking reports 
and analytical tools will be developed to assist managers in 
identifying opportunities for improvement. The establishment of 
performance goals and holding managers accountable for results will 
increase VA's ability to meet the performance goal.
    Question 51: VA is updating its future cemetery construction plan 
based on data from the DoD census. When does VA expect to release the 
updated plan? What assumptions about cemetery access do you expect the 
new plan will make?
    Answer: The VA Office of the Actuary has recently completed revised 
veteran population estimates, based on DoD census data. The National 
Cemetery Administration is currently using this data to develop revised 
veteran population estimates for the 31 sites identified in the Study 
on Improvements to Veterans Cemeteries, Volume 1--Future Burial Needs. 
This information will be provided as soon as VA completes its review. 
This update will provide the revised veteran population estimates 
within the context of current policy on cemetery access and other 
service delivery factors. VA will continue to evaluate these factors in 
its planning process to ensure the Department is effectively meeting 
the burial needs of veterans.
    Question 52: Please provide a report on VA's progress, and costs, 
in establishing a new national cemetery in Atlanta. Please include in 
that report: an accounting of costs incurred to date in the 
construction of that cemetery; an itemization of costs VA anticipates 
will be necessary to complete that cemetery project; and VA 
recommendations, if any, with respect to this project.
    Answer: The proposed new national cemetery, located in Cherokee 
County, Georgia (about 35 miles north of Atlanta), is projected to 
accommodate over 65,780 interments from 2005 through 2035. The first 
phase of the project will develop approximately 23,000 gravesites for 
casket interments, 3,000 columbarium niches, and 500 in-ground sites 
for cremated remains. This first phase of construction will develop 
about 110 acres and will provide burial capacity for approximately 10 
years, through 2015. The use of extensive pre-placed crypts will 
greatly increase the capacity for burial sites per acre, and the use of 
columbaria will provide extensive capacity for cremated remains while 
using less land. In addition to gravesite development, the first phase 
will include an entrance area, a flag/assembly area, three committal 
service shelters, a public information center with restrooms, an 
administration and maintenance complex, road system, utilities, 
signage, site furnishings, fencing, and landscape plantings.
    In choosing a site for the Atlanta national cemetery, VA followed 
its standard procedures for identifying those sites that would be 
suitable for development as a cemetery. VA collaborated with private 
and other government entities to identify a multiple number of possible 
sites. Once several sites were identified, the site evaluation team 
considered a wide variety of factors when surveying the site's 
potential, such as proximity to veterans, topographical features, 
sufficient acreage size, and the surrounding land use. Once the number 
of sites was narrowed down to the most favorable, VA considered the 
suitability of the land for development as a cemetery. This step always 
involves conducting an environmental assessment.
    The choice to select the current site was ultimately based on its 
meeting certain evaluation criteria as well as the fact that there 
would be no acquisition costs. The site was donated to the VA saving 
the Federal Government approximately $4.5 to $6.5 million, based upon 
comparable commercial sites that were considered. There are always 
benefits and challenges with any site being considered. For example, 
while the site ultimately chosen posed challenges in terms of 
topography, its location near main roadways will make it more easily 
accessible to the veteran population it serves. By accepting the 
donated site and precluding lengthy assessments, price negotiations, 
and the associated need for an additional appropriation request for 
land purchase, progress toward developing a new national cemetery to 
serve area veterans was accelerated by potentially one full year.
    Costs to date for this project include $100,000 for conducting the 
Environmental Assessment, $1.1 million for master planning and design 
development, and $1.2 million for preparation of construction 
documents. In addition to Federal funding, funding has been provided 
from the local government--Cherokee County approved the generous 
expenditure of $1.0 million in County funds to help develop an access 
road to the new national cemetery. VA has provided $1.4 million to 
augment the County's funding in order to complete the entry road. 
Construction of the entry roadway should be completed by Fall 2003. The 
State of Georgia Department of Transportation is also providing 
improvements, estimated to be $250,000 to $500,000, to State Route 20 
that serves as primary cemetery access.
    VA received $28 million for the construction of this new national 
cemetery in the FY 2002 appropriations act. The prospectus for this 
project and detailed cost estimates were included in the FY 2002 
President's budget request. The VA will be able to develop the first 
phase of this cemetery within the amount appropriated.
    VA is committed to completing Phase 1 of this project because it 
believes the overriding factor should be the provision of effective 
service to the veteran. In the future, before further phases are 
developed, VA will assess the cost effectiveness of continuing to 
expand the current site versus other viable sites in the area that 
would be more cost effective.
    Question 53: The proposed budget recommends an 11 FTEE increase 
within the Office of the Secretary for the Office of Regulation Policy 
and Management. The budget mentions that the office was modeled after 
similar offices in other cabinet-level agencies. Which other cabinet 
agencies have such offices and how many FTEE are in each?
    Answer: The Federal Government's most active rulemaking agencies 
are HHS, USDA, EPA, DOI, DOT, DOC, HUD, VA, and DOJ. The Department of 
Veterans Affairs' Office of Regulation Policy and Management is an 
amalgamated model designed to capture the ``best'' features and avoid 
some of the known problems experienced by these agencies, and others. 
Major General Walt Huffman, who proposed our current structure, met 
with various regulatory officials and incorporated important concepts 
from DOT, DOL, and the USCG. We anticipate that our single, centrally 
located office, will assure timely and effective rulemaking. Its 
process for producing new regulations creates accountability for 
regulation development.
    Based upon the number of regulatory reviews OMB performed on rules 
they deemed to be significant, over a 3-year period (see 
www.whitehouse.gov/omb/library, for 1999 to 2001 statistics), coupled 
with information obtained informally from each agency's rulemaking 
staffs, we estimated the following: HHS averaged 108 significant 
regulations per year with a staff in excess of 50 FTEE; USDA averaged 
74 significant regulations per year with a staff ranging from 20 to 30 
FTEE; EPA averaged 64 significant regulations per year with a staff of 
20 FTEE; DOI averaged 46 significant regulations per year with a staff 
of 30 FTEE; DOT (including the USCG) averaged 44 significant 
regulations per year with a staff ranging from 20 to 30 FTEE; DOC 
averaged 40 significant regulations per year with a staff of 14 FTEE; 
HUD averaged 36 significant regulations per year with a staff of 10 
FTEE; VA averaged 34 significant regulations per year with a staff of 7 
FTEE (now 11 FTEE; and 3 supporting FTEE attorneys in OGC); and DOJ 
averaged 28 significant regulations per year with an estimated staff of 
15 to 25 FTEE. It is important to note that each agency also publishes 
hundreds of less significant regulations and notices that are not 
reviewed by OMB because they are not considered ``significant'' under 
OMB guidance.
    The FTEE numbers were difficult for agencies to quantify because 
each agency is configured differently. Some have decentralized 
operations. Many employees often perform rulemaking functions in 
conjunction with other duties. Some regulatory offices performed 
enforcement, legislative, or administrative law functions as well as 
rulemaking activities. Many organizations have a large number of 
employees who draft regulations infrequently or only on a part-time 
basis. Most offices had lawyers dedicated to the rulemaking process and 
many regulation offices were located within the General Counsel's 
organization. However, we concluded that centralized control, early 
policy integration, and uniform processing of VA policies and 
regulations could be more effectively accomplished by operating under 
the Secretary. DOI's Office of Executive Secretariat and Regulatory 
Affairs also operates under the authority of the DOI Secretary.
    Question 54: The Board of Veterans' Appeals (BVA) is now permitted 
to develop evidence and correct procedural defects in lieu of remanding 
claims. Given the increased responsibilities, one would think an 
increase in staffing was warranted. However, the budget projects a 
decrease in FTEE for BVA in fiscal year 2004. How without an increase 
in staffing, will BVA be able to reduce appeals resolution time and 
keep its own backlog of cases on the appellate docket from getting out 
of control?
    Answer: In February 2002, the Board of Veterans' Appeals (BVA or 
Board) was provided with the authority to develop evidence and to cure 
procedural defects in order to improve appeals resolution time. While 
the Board retained the authority to remand appeals for the originating 
agency to take such action, remands had the effect of significantly 
increasing appeals resolution time, as there has been a significant 
delay, on average, between the time of the remand and its return to the 
Board. For example, in FY 00, this time averaged 627 days. We believed 
that, ultimately, the Board would be able to achieve a final resolution 
of an appeal in a more effective and timely manner by doing the 
necessary development itself in most cases.
    As the Board had not had this responsibility in the past, the 
proper staffing levels and other resource requirements to successfully 
accomplish the mission were difficult to determine at the outset. The 
proper staffing levels and productivity performance measures for this 
activity and for the Board as a whole are currently under active 
consideration by the Department.
    The Board instituted and had plans to institute a number of 
administrative measures designed to improve decision timeliness within 
its current resource allocation. For example, the Board improved 
administrative efficiency by restructuring along functional lines. In 
order to better serve our Nation's veterans and their families, our 
Chairman requested and our staff responded to increase productivity--
our Veterans Law Judges increased their productivity by 25 percent, and 
our staff counsel have done so by 20 percent. We are continuing to 
improve our case tracking system and measures of performance to improve 
individual and organizational accountability. In addition, together 
with the Veterans Benefits Administration and the Office of the General 
Counsel, we have expanded Department-wide training and other 
initiatives to improve the quality and timeliness of the entire 
appellate process. Other initiatives to improve efficiency and 
timeliness using existing resources include: a pilot project to utilize 
computer assisted transcription to improve the processing time for 
hearing cases, the preparation of draft designations of the record by 
paralegals instead of attorneys, and the use of cost effective intern 
and extern programs.
    In a decision issued May 1, 2003, the United States Court of 
Appeals for the Federal Circuit invalidated the VA regulation 
authorizing the Board to develop evidence. Disabled American Veterans 
et al. v. Secretary of Veterans Affairs, Nos. 02-7304, 7305, 7316 (Fed. 
Cir. May 1, 2003). The Department is currently evaluating the impact of 
this decision.
    Question 55: What accounts for the near 300 FTEE difference between 
what the fiscal year 2003 budget estimated for the Office of Human 
Resources and Administration and what the current estimate is?
    Answer: Early in fiscal year 2003, the Shared Services Center (SSC) 
in Topeka, KS was realigned under the Veterans Health Administration 
(VHA). The decision to terminate the HR LlNK$ development project 
resulted in a drastically re-scoped mission for the SSC that is best 
housed in VHA. The re-constituted office is now known as the Health 
Revenue Center. This decision resulted in approximately 270 FTE being 
transferred from the rolls of HR&A to VHA.
    Question 56: One of the duties of the Office of Congressional and 
Legislative Affairs (OCLA) is to ``identify, track, and coordinate the 
development of all congressionally mandated reports. . .'' Has OCLA 
produced a database of all mandated congressional reports that includes 
status information on each report? If not, will you direct OCLA to 
produce such a database by the end of fiscal year 2004?
    Answer: During 2002, the Office of Congressional and Legislative 
Affairs (OCLA) was proactive and completed a Department-wide 
centralized listing for all congressionally mandated reports. The 
database was developed as a tool to track all reporting requirements 
and place all VA elements on at least a 90-day advance notice of due 
dates of the congressional deadline. The database successfully 
integrated and contains newly enacted provisions from the 107th 
Congress, consolidates requirements of both the authorizing and 
appropriating Committees and updates automatically (rollover feature) 
for cyclical recurring reports. Reports may be standardized to provide 
information on those completed, past due or coming due in 30, 60, or 90 
days or within any specified date range. Customized reports may also be 
run to target specific deadlines or topics in the completed, past due 
or coming due categories.
    In addition, the integrity of the reports data are being annually 
reviewed by OCLA and all program offices responsible for preparing 
congressionally mandated reports.
    The goal is to maintain the quality of the data so that the reports 
system produces useful and beneficial reports to assist VA in meeting 
deadlines.
Response to Written Questions Submitted by Hon. Ben Nighthorse Campbell 
                        to Hon. Anthony Principi

    Question 1: Many veterans are blaming Congress for the enrollment 
cuts for not providing enough money. I understand the difficulty of 
looking into the future and trying to predict the numbers of enrollees 
and determine the inflationary costs of health care. Yet in each of the 
last two years, Congress has appropriated more than the budget request. 
The VA's inability to predict its needs and make accurate projections 
has been enormous. What are you doing to do to change that? How can the 
VA better project and anticipate its needs for vets' medical care?
    Answer: VA's ability to estimate veteran demand and expenditures 
has improved significantly with the use of an actuarial health care 
demand model. This model is based on private sector benchmarks adjusted 
for our veterans' age, gender, morbidity, utilization, reliance, and 
insurance. The model projects veteran enrollment, utilization, and 
expenditures, and includes detailed projections for approximately 50 
health care service categories.
    While this change to using actuarial projections in budget 
development now allows us to provide very accurate estimates of 
expected enrollment and expenditures, it also quantifies the escalating 
demand for veteran health care. In comparing the expenditures projected 
by the model for FY 2003 and 2004 with our anticipated resources, we 
identified a significant gap between veteran demand for health care and 
those resources. It was also clear that continued workload growth of 
the magnitude experienced in recent years is unsustainable in the 
current federal budget climate. Therefore, using the model, we 
developed health care policies to reduce veteran demand and 
expenditures and close the gap.
    Even with the suspension of Priority 8 enrollment, the actuarial 
projections show that the increasing demand placed on the VA health 
care system will continue to strain VA's ability to provide timely, 
high-quality health care for veterans in Priorities 1-6. VA expects to 
provide health care to 3.6 million patients in Priorities 1-6 in FY 
2004, an increase of 5 percent over FY 2003. Priorities 1-6 alone are 
expected to cost $9 billion more by FY 2008 compared to FY 2003.
    The suspension of Priority 8 enrollment and the policies proposed 
in the FY 2004 budget are designed to ensure that VA is able to fulfill 
its core mission--providing timely access to high quality health care 
to veterans with service-connected disabilities, low incomes, and those 
with special needs.
    Question 2: Mr. Secretary, the last time we visited, you said that 
the Denver Vets Medical Center move to the Fitzsimmons campus in Aurora 
was still under consideration, and that the Air Force might join the 
collaboration. Can you update us on that situation?
    As you know, the entire Colorado delegation supports that move. How 
do you see us helping to make that move a reality?
    Answer: Dr. Roswell, the Under Secretary for Health, participated 
in a meeting on January 3, 2003, with leadership from DOI to discuss 
the current status of the VA/DoD joint venture project at the 
Fitzsimons site. It was agreed that a joint VA/DoD task group would be 
convened to begin their deliberations. On January 15, 2003, Dr. Roswell 
convened a work group to examine, explore, and define long-term 
requirements for veterans in the Denver area. This included developing 
and evaluating proposals for VA/DoD/University of Colorado 
partnerships. The group was to consider, among other things, the impact 
to the CARES process and identify a plan for appropriately involving 
stakeholders. The VA task group has met and completed a draft options 
paper. Further discussions and more specific and detailed information 
are also under development.
    In early February, Mr. Dennis Brimhall, President of the University 
of Colorado Hospital, met with Dr. Roswell and committed to providing a 
response on what mechanism the University could use to make land 
available to VA for a VA outpatient clinic and bed tower footprint. 
James Floyd, Chairman of the VA work group, held a meeting on March 13, 
2003, with DOI representatives near Buckley Air Force Base in Denver. 
Colonel Stephen Meigs, Command Surgeon, Buckley Air Force Base, who 
will continue to serve as the primary DOI contact in Denver, also 
attended the meeting. The meeting included discussions of both VA and 
Air Force needs and resources and used the recently completed Air Force 
economic analysis of the joint venture possibilities. Colonel Meigs has 
indicated that moving VA to Fitzsimons fits into their long-range 
plans. The meeting discussed an integration plan that would include 
ambulatory and inpatient care for active duty, dependents, and possibly 
retirees. The joint venture group will work over the next several weeks 
to develop a draft proposal of services.

    Chairman Specter. Thank you very much, Mr. Secretary. The 
committee is very appreciative of your service, your 
background, your work for this committee in the past, and what 
you have done for the veterans.
    I begin with this issue of the suspension of enrollments of 
Priority 8 veterans and ask you, why is that necessary?
    Secretary Principi. Sir, the growth in workload has far 
outstripped our capacity to provide the care in a timely 
quality manner. As I indicated, we have grown from 2.9 million 
to 6.8 million in just a relatively short period of time, and 
we are not meeting the expectations of the veterans who are 
currently enrolled because of the long waiting lists that have 
resulted from our inability to match resources and demand.
    And the Congress directed that I make an annual enrollment 
decision, and Priority 8, of course, is the lowest priority in 
terms of not having any military-related disabilities and 
higher incomes. And I believe that a suspension of enrollment 
was the responsible thing to do until such time as we can get 
our hands around this backlog and begin to meet veterans' 
expectations.
    It was a difficult decision. The easy one, the politically 
expedient one, would have been for me to keep the doors open. 
But that would have resulted in long delays, not high quality 
of care, and I just felt that it was not the appropriate thing 
to do.
    And as you indicated, Mr. Chairman, we are on the verge of 
another war. We have a responsibility to ensure we have the 
capacity to treat men and women who may be disabled, if we do 
go to war. And we have a provision that allows any service 
member who serves in a combat theater of operations, including 
reserve and guardsmen, to have eligibility for VA health care 
within 2 years from returning from a combat zone.
    So I think it is the responsible thing to do, the difficult 
thing to do. But it will allow us to focus on our core 
constituency, the disabled and the poor.
    Chairman Specter. Mr. Secretary, you have stated publicly 
before the Omnibus Appropriations Act was enacted that if the 
VA were to receive an increase of $2.5 billion for fiscal year 
2003, the VA would be able to eliminate first appointment 
backlogs. You did get that amount of money. Will you be in a 
position to make good on that pledge or expectation?
    Secretary Principi. Yes, sir. I can assure you that, you 
know, short of some unexpected development that might occur, 
how this war might impact on the VA if, in fact, there is a 
war, we are prepared to utilize those resources to totally 
eliminate the backlog by October, this coming October.
    Chairman Specter. When we speak of backlogs, Mr. Secretary, 
what about the backlog in the litigation line and the various 
chains of litigation? What is the situation now with respect to 
the adjudication backlog in the Veterans Benefits 
Administration and in the various levels of the appellate 
process?
    Secretary Principi. Referring to the disability claim 
backlog, Mr. Chairman?
    Chairman Specter. Yes.
    Secretary Principi. Sir, we began the calendar year with a 
backlog of 432,000 claims for disability compensation and 
pension, what we call rating-related claims, the kind of claim 
that your dad may have filed for disability compensation.
    We have brought that down now to close to 300,000 claims in 
the inventory, notwithstanding the fact, Mr. Chairman, that 
each and every month we get about 60,000 new claims in. So we 
are making dramatic progress.
    We created a Tiger Team in Cleveland supported by nine 
other offices around the country. And their purpose in life is 
to address the claims of our elderly veterans, primarily 
veterans over the age of 70 who have been waiting more than a 
year for a decision.
    And since the Tiger Team has been in effect, along with the 
nine resource centers, we have decided 77,000 claims. That is 
77,000 veterans who had been waiting a long time for a 
decision. I think most of those decisions are favorable. But in 
any event, it is a decision that a veteran can appeal if he is 
not happy with it.
    Chairman Specter. Mr. Secretary, you are asking that there 
be legislation imposing an annual enrollment fee of $250 for 
veterans with over $24,644 a year. How much money do you expect 
to take in on that?
    Secretary Principi. Our expectation is in excess of $100 
million a year. I think we projected $111 million a year in 
enrollment fees.
    You know, and I know you would certainly agree with me and 
chastise me if I said we are talking about high-income veterans 
because $24,000 is, indeed, not a very high income. But we are 
trying to at least put a little bit more burden on those who 
may have some other options and who can most afford to pay a 
little bit for the cost of their care.
    On average, we spend about $2,000 a year on health care for 
each veteran. So this represents slightly more than 10 percent 
of the cost of their care. But it will generate about $111 
million.
    Chairman Specter. You have also asked for legislation for 
increased pharmacy co-payments from $7 to $15 for a 30-day 
supply, again with the figure of $24,644. How much will that be 
expected to yield?
    Secretary Principi. That we expect will yield $183 million 
in 2004.
    Chairman Specter. Mr. Secretary, why do you pick a figure 
of $24,644 as a cutoff point for the enrollment fee and the 
increase in pharmacy co-payments?
    Secretary Principi. That is statutory, sir. That is set by 
law, the different categories. And at Priority Group 7, it is 
my understanding that that is in the law for a single veteran. 
It is about $28,000, I believe, for a veteran who has one 
dependent, married. But that is a statutory requirement.
    Chairman Specter. Well, this is going to require 
legislation in order to carry these ideas out. As long as it is 
statutory, we could change that. It seems to me that $24,644 is 
a very, very modest level.
    Secretary Principi. It is. That is something that we 
certainly can work on, Mr. Chairman, to look at the income 
levels, to ensure that it is fair.
    And Congress last year established a new Priority Group 8, 
and that is more of a geographic means-tested priority group. 
We can look at the Priority 8s, which I think is averaged about 
$35,000 a year, somewhere in that neighborhood.
    But certainly, sir, we could look at the income levels to 
ensure that whatever assessment is being made is at a level 
that veterans can most afford.
    Chairman Specter. Mr. Secretary, with respect to Medicare 
subvention, I am advised that as to Category 8, if the 
individuals are not accepted at the VA but choose Medicare, 
that there can be some compensation from CMS which runs back to 
VA. How would that work?
    Secretary Principi. Sir, I am very pleased that Secretary 
Thompson and I have been able to kind of break down the 
barriers that all too often have prohibited collaboration 
between VA and HHS. We need to do a lot with DoD, too. But we 
have agreed conceptually that any veteran in Priority Group 8 
who, because of that suspension, cannot get care through the VA 
and is Medicare eligible would be going out on fee-for-service. 
So there is a cost to the trust fund, clearly.
    So we worked toward establishing what we call a VA+Choice 
program, something akin to a Medicare+Choice program. So that 
any Category 8 veteran, Medicare eligible, who would like to 
come to the VA and get their care would be able to enroll in 
this VA+Choice program, and we would be their Medicare 
provider.
    And we would provide them with a range of health care 
services, including prescription drugs that they cannot 
currently get under Medicare. And we would be reimbursed from 
the Medicare trust fund on a capitated basis, risk-adjusted, so 
that we have a new source of revenues to the VA.
    Chairman Specter. My red light is on, but I just want to 
finish up this line of questioning before yielding to Senator 
Bunning.
    How many of the Category 8 veterans will that cover? It 
covers all of those over 65. How many others in Category 8 are 
there?
    Secretary Principi. Dr. Roswell perhaps can----
    Dr. Roswell. Mr. Chairman, there are approximately 9 
million veterans age 65 and over. Almost half of those are in 
Priority 7 and 8, and the majority of those in Priority 8. We 
anticipate that there are close to 4 million veterans over age 
65 who, by virtue of age, are Medicare eligible.
    Chairman Specter. In Category 8?
    Dr. Roswell. In Category 8.
    Chairman Specter. How many under 65?
    Dr. Roswell. There are, of course, anyone under 65 that is 
Medicare eligible is by virtue of disability. If they are a 
veteran and disabled, the majority of them would already be 
eligible by virtue of their disability.
    Chairman Specter. Well, would they be in Category 8?
    Dr. Roswell. Probably not. That is my whole point. They 
would probably be in a higher----
    Chairman Specter. How many in Category 8 are there under 65 
who are not disabled who qualify for a different category?
    Dr. Roswell. I am not sure I have that number.
    Chairman Specter. Well, in Category 8, you eliminate VA 
care. But the people 65 and over----
    Dr. Roswell. Can still get it.
    Chairman Specter.----can come to the VA, and Medicare will 
pay for them. How many people in Category 8 are under 65, so 
that Medicare would not pay for them?
    Dr. Roswell. I understand. Approximately half of those in 
Priority 8 are Medicare-eligible by virtue of age. So 
approximately the same number----
    Chairman Specter. And half of them would be not eligible. 
They would be under 65.
    Dr. Roswell. Ineligible for Medicare.
    Chairman Specter. Well, if you went to Category 7 or 
Category 6 and you got VA to pay for those 65 and over, 
wouldn't that be a big help to the VA budget?
    Secretary Principi. Well, the only way----
    Chairman Specter. Work out that deal with other categories?
    Secretary Principi. It would be, except the only way it 
works for HHS from an actuarial perspective on the trust fund 
is if they are no longer eligible for VA health care. So the 
only time that this--the only way this program works and we 
could get HHS to agree was to say that they are not eligible 
for VA health care.
    They are Medicare eligible, and they are going to go out on 
fee-for-service. So the trust fund benefits by having them 
enroll, if they wish, into a VA+Choice program. So it would 
mean that Category 6s and 7s would no longer be able to enroll 
in order for HHS to provide us with the benefit.
    Chairman Specter. Well, my red light is on.
    Senator Bunning.

                STATEMENT OF HON. JIM BUNNING, 
                   U.S. SENATOR FROM KENTUCKY

    Senator Bunning. Thank you, Mr. Chairman. And I have an 
opening statement.
    Chairman Specter. Without objection, it will be made a part 
of the record.
    Senator Bunning. Thank you. Mr. Secretary, I applaud your 
efforts to reduce wait times for medical appointments and 
processing times for benefit applications. But when I talk to 
veterans in Kentucky, the top concern I hear from them is how 
long they have to wait.
    I told them I would take this up with you the next time I 
saw you. The next time I talk with the veterans of Kentucky, 
what do you want me to tell them about the delays at VA?
    Secretary Principi. Well, you can tell them that this 
Secretary is very, very concerned about those delays and 
believe we are doing something about it.
    The appropriation, which the President signed into law 
yesterday, gives our health care system an additional $2.6 
billion in funding for the balance of this fiscal year, 
although later than we would have hoped. It is going to allow 
us to increase our staffing, nurses, physicians, expand our 
outpatient clinics so that we can begin to make real inroads in 
ensuring that they get in to see a doctor within a reasonable 
period of time.
    And it is my goal, Dr. Roswell's goal, that we are going to 
eliminate the backlog by the end of this fiscal year. And we 
are going to monitor that very carefully, and you tell them 
that I intend to be held accountable. We are going to do what 
we can to get them in.
    Senator Bunning. I assure you, Mr. Secretary, you are going 
to be held accountable, whether you like it or not.
    I served as Chairman of the Social Security Subcommittee in 
the House of Representatives on Ways and Means, and SSDI people 
were backed up to the tune of about 30,000. And I don't know if 
the veterans are as in as bad a shape as the SSDI program in 
the Social Security system.
    The other question I hear quite often from veterans in 
Kentucky is about VA clinics. Veterans in Kentucky love them, 
and the communities love them. Many communities in my State 
want clinics. Some even have offered to donate space to locate 
the clinics. I recognize that your top priority is and must be 
to improve existing services. There is no point in adding 
services that cannot be adequately provided.
    When initiatives to reduce medical appointment wait times 
are successful, will you be open to expanding the current 
network of community clinics, especially in communities that 
are willing to contribute to the clinics themselves?
    Secretary Principi. Yes, Senator, we are beginning to look 
at lifting the moratorium on opening new community-based 
outpatient clinics. We have opened some 664 in recent years. 
That has accounted for a good deal of the increased workload 
because now veterans have an access point close to their home. 
They don't have to drive long distances to Lexington and other 
VA medical centers.
    So we are going to begin the process of identifying those 
areas where we need to expand, and we will do so.
    Senator Bunning. Well, people in Ashland and people in 
places like that in Kentucky either drive to Columbus or drive 
to Lexington, which is a long way off. And whatever you can do 
to alleviate that problem, we would certainly appreciate it. 
Especially as far as pharmaceuticals and drug care, they really 
need that assistance.
    And I will be looking and watching very closely to see that 
you accomplish your goals.
    Secretary Principi. Thank you, sir.
    [The prepared statement of Senator Bunning follows:]

                Prepared Statement of Hon. Jim Bunning, 
                       U.S. Senator from Kentucky

    Thank you, Mr. Chairman.
    This Committee has quite a full slate of hearings over the next few 
weeks, but this one stands out the most. Not only do we have the 
Secretary and other officials from the V.A., but we also have 
representatives from many veterans groups.
    As I mentioned yesterday, I am glad to sit on this Committee at 
this time. In the Omnibus Appropriations Bill we passed a few weeks 
ago, V.A. medical care received an unprecedented $2.5 billion increase. 
That is an 11 percent increase, which is truly remarkable in the 
current budget situation.
    Another large increase has been requested for next year, and I 
support further increases, especially for health programs. As a member 
of the Budget Committee, I will be involved in the process at every 
step along the way.
    However, I think everyone in this room recognizes that money will 
not cure all the problems at the V.A.
    Mr. Secretary, wait times must be reduced for appointments. Claims 
processing must be made faster.
    Our veterans are grateful for what the V.A. does right, but the 
V.A. must also be held accountable for what it does wrong. I am 
committed to holding the V.A. accountable and will work with this 
committee to do so.
    Thank you, Mr. Chairman.

    Senator Bunning. [Presiding.] Thank you.
    Senator Akaka.

              STATEMENT OF HON. DANIEL K. AKAKA, 
                    U.S. SENATOR FROM HAWAII

    Senator Akaka. Thank you. Thank you very much. I would like 
to take this opportunity to express my appreciation and welcome 
to you, Mr. Secretary, and the staff here.
    As I have said since your confirmation, your job is not an 
easy one, and particularly I want to offer my warm welcome, 
Secretary Principi, to you and my best wishes in all that you 
do.
    Secretary Principi. Thank you, sir.
    Senator Akaka. I want you to know that I understand that 
you will continue to make the very difficult decisions you have 
to make because of fiscal limitations imposed upon your agency. 
However, this does not alleviate my concerns about the need for 
improved access to health care for veterans and improvements in 
services and benefits for veterans.
    In addition, I remain very concerned about the decision to 
end enrollment for Priority 8 veterans. I am also fearful that 
the scant amount of funding for emergency preparedness will 
preclude VA from fulfilling its role in the event of a 
catastrophic event.
    As I have said before, your job is a tough one, but you are 
more than qualified to deal with these challenges, and I look 
forward to continuing to work with you, Mr. Secretary.
    I also welcome your distinguished staff, Dr. Roswell, 
Secretary Cooper, Secretary Benson, Secretary McClain, and 
Secretary Campbell.
    I also want to welcome the second panel, Mr. Wilkerson, Mr. 
Cullinan, Mr. Surratt, Mr. Blake, and Mr. Jones, who represent 
American Legion, Veterans of Foreign Wars, Disabled American 
Veterans, Paralyzed Veterans of America, and AMVETS.
    Your contributions to this process are vital to our ability 
to meet the needs of our veterans.
    I thank you for your dedication and commitment to improving 
the quality of life for the men and women who have served to 
defend our country.
    Mr. Secretary, last year, I expressed my concern for 
Priority 7 vets paying more toward their deductible, because I 
was concerned about how this would impact access to health 
care. As you know, I am concerned about the decision to end 
enrollment for Priority 8 veterans.
    After reviewing the fiscal year 2004 budget, I note that 
serious work is still needed regarding access to health care 
for veterans. In addition, the budget proposes increases in the 
prescription drug co-payment and the outpatient co-payment.
    My question is what would be the impact on your budget if 
the increases in co-payments were not implemented?
    Secretary Principi. Well, there would be a significant 
impact on the department. There would be about a $200 million 
and $181 million--there would be about a $400 million total 
impact on our budget if we did not get the authorities to 
increase the co-pays and the annual enrollment fee.
    What it would mean is we couldn't care for as many 
veterans. I think what happened is--and I certainly don't take 
exception to what happened in 1998--but you know, prior to 
1998, approximately 2.3 million of the 25 million veterans in 
this Nation were eligible, not entitled, to the comprehensive 
health care system. Only 2.3 million were eligible for 
outpatient care. You had to have a service-connected 
disability, primarily.
    The law on eligibility reform changed that. So we went from 
2.3 million eligible to 25 million eligible. That is a big 
jump. And since 1998, that, coupled with the wonderful 
prescription benefit that we have that is not available to 
veterans or any American under Medicare, the outpatient clinics 
that Senator Bunning talked about, that we have built across 
the country--664 of them.
    And truly, this is not my dad's VA. This is a high-quality 
VA health care system today affiliated with our medical 
schools.
    The demand has jumped from 2.9 million that we were seeing 
in the VA to 6.8 million enrolled today, and with no signs of 
any abatement. And what concerned me was that the men and women 
who were disabled in uniform, the people who took a bullet in 
the spine or lost their legs, were being a little bit squeezed 
out of the system because we had a lot of Priority 8s and 7s 
who were coming to get their prescription drugs.
    And we just didn't have the money. I don't know how else to 
say it.
    The demand was far outstripping our ability to fund it. And 
Congress said, ``Mr. Secretary, you are only authorized to 
provide health care to the extent resources are made available 
to you in appropriation acts. And accordingly, you must make an 
annual enrollment decision.'' That was set up by law, and the 
priority scheme was set up by law.
    So I am trying to balance the needs of the poor, the 
service disabled, and those in need of spinal cord injury 
treatment and, of course, see as many other veterans as 
possible. But there came a point where I said I had to make an 
enrollment decision. I had to say we had to suspend those who 
might have other options because they have higher incomes and 
they have no military-related disabilities.
    I certainly didn't like making that decision. It wasn't 
politically easy. But it was the right decision. And that is 
where we are.
    Senator Akaka. My time has expired.
    Secretary Principi. Excuse me. And I might only just add 
that that is not to say that the President and the Congress 
have not been very generous. The President and the Congress of 
the United States have been very generous. The $2.6 billion 
that we just received yesterday is extraordinary--I don't think 
we have ever received that much before, either in real or 
relative terms.
    Again, it is just the fact that the growth demand is just 
outstripping our ability to provide the care. And that is what 
caused the decision to be made.
    Senator Akaka. Thank you.
    Senator Bunning. Mr. Jeffords.

             STATEMENT OF HON. JAMES M. JEFFORDS, 
                   U.S. SENATOR FROM VERMONT

    Senator Jeffords. Mr. Secretary, I very much thank you for 
braving the snow to come up here and join us today.
    Secretary Principi. It is always a pleasure, sir.
    Senator Jeffords. Today, this Nation finds itself on the 
brink of war. If nothing else, the fact alone should focus our 
minds on the needs of veterans. I am shocked and saddened to 
hear from my VA facilities in Vermont about the struggle they 
engage in daily in an effort to provide veterans with the care 
they deserve.
    This is not right. Veterans should not have to wait more 
than half a year for an appointment to see a doctor. We can do 
better, and we must do better.
    You have been a leader on these issues for many years. We 
need your leadership in the fight to fund the health care 
system that veterans deserve.
    I heard your statement, and I just want to get to the 
budget for this year. I appreciate the fact that you have 
fought hard for full funding for the veterans health care. But 
I am very concerned that the 2003 budget is not adequate to 
meet the needs of veterans this year. As I understand it, it is 
the shortfall in funding that precipitated the decision to no 
longer provide care for non-service-connected, non-indigent 
veterans who are not currently enrolled in the VA.
    I am very concerned about this decision and very worried 
that the current budget will force many facilities to cut back 
their services to veterans. This could not come at a worse time 
for many vets. Do you have any plans this fiscal year to 
alleviate these projected shortfalls?
    Secretary Principi. Senator Jeffords, again, I think that 
the $2.6 billion increase this year, it is going to go a long 
way. Again, you know, I would have preferred to have it in 
October, and not February or March, so that we could have 
started ramping up to hire the doctors and the nurses and the 
technicians that we need to man the facilities in Vermont and 
Nebraska and Kentucky, across the country, Hawaii and 
Pennsylvania.
    But the fact is, we have the money now, and treatment and 
getting veterans off the waiting list is our highest priority. 
And the message has been delivered across the system by Dr. 
Roswell and myself, and we are going to monitor it daily, if 
necessary, to ensure that veterans are getting in to see the 
doctors.
    But, again, Senator, if we get a prescription drug benefit 
this year, a Medicare prescription drug benefit, that may help 
us because many of the veterans are coming to us strictly for 
pharmaceuticals. They have a physician in the private sector, 
but you know, they need--they don't have prescription drugs. 
And that is causing somewhat of this backlog and these waiting 
times.
    So we do have a plan. We are going to aggressively 
implement the plan. And I am confident that by the end of the 
year, you are going to see this backlog eliminated, and that is 
our plan.
    Senator Jeffords. I would like to turn, just for a moment, 
to the subject of long-term care. This is something that the 
committee has been active on for the past few years. And 
members intend to continue advocating for adequate provisions 
for this valuable benefit.
    I am very concerned about the proposed limitation in the 
institutional long-term care benefit because the VA has not yet 
sufficiently developed the capacity to provide non-
institutional alternatives. The millennium bill provisions 
mandated that the institutional benefit could be limited only 
when the ability to provide other forms of long-term care was 
provided to all who qualify.
    What measures are you taking ensure that the VA's non-
institutional capacity will be adequate to meet the foreseen 
demand particularly as you intend to limit eligibility for 
nursing homes?
    Secretary Principi. Senator Jeffords, let me just begin and 
then perhaps turn it over to Dr. Roswell.
    I can assure you we are not lessening our commitment to 
long-term care. Over the past 8 years, we have added almost a 
billion dollars to the State Veterans' Home Program. We have 
funded most of the 20,000 beds in the State Nursing Home 
Program. We will continue the main institutional capacity in 
the VA.
    I think what we are trying to do is recognize that long-
term care services have changed dramatically. And with 
geriatric primary care, with home-based primary care, with 
adult daycare, with respite care, and hospice care that we can 
do so much more and reach so many more veterans in a setting, 
their home, that is more conducive to the kinds of care that 
they would like. They would like to stay in their home as long 
as possible.
    So I think it is a balancing, if you will, sir. It is not 
to say that institutional care is not important because you 
reach a point in life where you may need to be 
institutionalized. But with a limited budget, we are trying to 
say let us take advantage of the advances in technology, the 
ability to provide more care at home.
    And our goal by 2007 is to increase the average daily 
census. We have increased it from 11,000 to 16,000 in the past 
3 or 4 years. Our goal is to increase it to 35,000 average 
daily census in community and home-based long-term care by 
2007. So we do have a plan, and that is what we are trying to 
do.
    But believe me, it is not lessening, because while the 
veteran population by the end of this decade will go down 18 
percent, 2010, the number of veterans over the age of 75 will 
increase by 12 percent, and those over 85 will triple.
    So we are on the cusp of this real elderly veteran 
population. We are out in front of the general population by 
about 20 years, and we need to be prepared to meet that demand.
    Senator Jeffords. Thank you, Mr. Secretary. I know you will 
try your best, and I just wanted to alert everyone to this 
serious problem.
    Secretary Principi. Yes, sir. It is a critical issue.
    Chairman Specter. [Presiding.] Senator Nelson.

             STATEMENT OF HON. E. BENJAMIN NELSON, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Nelson. Thank you, Mr. Chairman.
    Secretary Principi, it is good to see you. I have enjoyed 
working with you and have been continually impressed by the 
level of your personal commitment as well as professional 
commitment to our veterans.
    Secretary Principi. Thank you, sir.
    Senator Nelson. And I greatly appreciate your efforts on 
behalf of Nebraska's veterans. I want to thank you again 
publicly for joining me in Nebraska last year at a field 
hearing regarding the merger of VISN's 13 and 14.
    It is also good to see so many representatives from our 
veterans' organizations. I know that you all make a difference 
and you continue to represent your various groups.
    My question today is, Mr. Secretary, at the time of our 
budget hearing last year, it took, I think the number was 219 
days on average, to decide a benefits claim. And then the 
latest numbers indicate that it still takes about 201 days to 
decide a claim.
    But if the target for the end of the year is still 100 
days, the question is with the best efforts, how can you 
achieve and maintain that goal with the flat-lined budget 
request and, in fact, one that will actually maybe cut some 
compensation and pension staff? Maybe you could help me on 
that?
    Secretary Principi. I sure can, Senator, and it is a 
question that I certainly--and an issue I watched very 
carefully. We are making progress. And I think the reason that 
it has not come down faster is because my focus and that of 
Admiral Cooper is to decide the oldest claims first.
    We had a backlog of claims that were languishing for a 
year, two or three years. Now, they don't count against your 
timeliness until you decide them. So, you know, you can have 
perfect timeliness in this business by never deciding the older 
claims, you know? Just decide the ones that are a couple of 
days old or a month old, and let the poor veterans, the older 
veterans with old claims just languish. And that is what was 
happening.
    So over the past year-and-a-half, we created this Tiger 
Team to say let us get these claims of veterans over the age of 
70 who have been waiting a year for a decision, get them 
decided. So that has kept our timeliness up over 200 days.
    I am concerned about hitting 100 days. We are doing great 
in bringing the backlog down. We are going to hit my goal of 
250,000 claims. But we have some work cut out for us in getting 
that number down to 100 days. But I think that as soon as we 
get rid of this large number of old claims and start deciding 
those that are 30 days old and 60 days old, you will see that 
amount come down pretty quickly.
    Senator Nelson. Okay. I am also pleased that last year the 
VA Nurse Recruitment and Retention Act of 2001 was signed into 
law, because you know the VA is the largest employer of nurses.
    And with the nursing shortage everywhere across the 
country, I am very concerned about what your capacity will be 
to hire nurses.
    And given the fact that because of the reserve and call-up 
and the need for more nurses in the military, given the build-
up for Iraq, it is only going to make it that much more 
difficult to find nurses. You are not going to be any different 
than any other health institution in doing that.
    Do you have a plan in particular that might help address 
that shortage, given the circumstances?
    Dr. Roswell. Senator Nelson, we do have a comprehensive 
plan. We had a multidisciplinary effort last year to produce a 
document called ``A Call To Action.'' It identified over 70 
strategies to enhance the professional practice environment for 
VA nurses as well as a variety of recruitment and retention 
strategies.
    Some of those require policy actions that are now being 
implemented. Others require legislation. And later this year, 
we will submit a comprehensive pay reform proposal that will 
allow us to enhance our ability to recruit and retain both 
nurses, as well as physicians, who, I might add, haven't had a 
pay raise since 1991 in the Department of Veterans Affairs.
    So your point is very much on target. We recognize that to 
be able to eliminate the backlogs that Senator Jeffords and 
other members have talked about, we now have to expand our 
workforce, and that means hiring doctors and nurses. We 
anticipate that through the end of the 2004 budget year, we 
will have added over 2,500 nurses and over 1,300 physicians to 
our workforce.
    We will also add licensed practical nurses and nursing 
assistants to bring that total workforce increase among 
doctors, nurses, and the nursing discipline up to over 4,000 
additional employees. But it will take the pay reform package 
that we will be submitting later this year. And we certainly 
look forward to your support for that.
    Senator Nelson. Well, I appreciate it, Dr. Roswell. And I 
thank you, and I wish you the best of luck in doing that. Our 
Nation's veterans really do need it, and I know that you are 
committed to making that happen. We obviously are very anxious 
to work with you to make sure that it does, in fact, happen.
    Thank you very much.
    Secretary Principi. Thank you, Senator Nelson. Appreciate 
it, sir.
    Chairman Specter. Mr. Secretary, just a couple more 
questions, and we will move to panel two.
    There has been some issue raised as to whether many of the 
VA enrollees are really interested in the availability of drugs 
at the cost the VA can provide. Has any consideration been 
given to allowing veterans to have the drug benefits without 
being enrollees generally?
    Secretary Principi. Yes, Senator. It is an issue that we 
are grappling with very intensely. You know, part of me says, 
why are we duplicating the consumption of resources by, you 
know, if a patient--a veteran has a Medicare doc, and the 
doctor gives him prescription----
    Chairman Specter. After you have had those conversations 
with yourself, why not?
    Secretary Principi. I don't know where it would lead, 
Senator. Quite honestly, I am concerned that if we just started 
filling prescriptions that those veterans across the country 
who are not using the VA system and need prescription drugs 
would overload the system at the VA and that we would be 
diverting resources from primary care and tertiary care just to 
essentially be a drugstore.
    And it is really the cost issue and the workload demand 
issue that causes us some hesitation to move down that road at 
this point in time.
    Chairman Specter. Could you have a pilot project to test it 
out to see what the impact would be?
    Secretary Principi. Well, we have talked about that, and we 
have worked up a pilot program. It would require, I am told, 
legislation because we don't have the authority. It is 
something that our general counsel and the committee counsel 
can look at. It is something that we have talked about to do a 
pilot project and to see if it would work.
    Obviously, I think once we went down that road and it was 
successful, it might be very difficult to stop, like most 
things in town. But it is something we can certainly look at.
    Chairman Specter. A couple of provincial questions. How are 
we doing on a cemetery for eastern Pennsylvania?
    Secretary Principi. We are certainly spending a lot of time 
talking about it.
    [Laughter.]
    Secretary Principi. Mr. Benson, who has been up there----
    Chairman Specter. That is a good specific answer.
    [Laughter.]
    Secretary Principi. There is clearly a need for a national 
cemetery in the Philadelphia area. Our current guidelines of 75 
miles and 170,000 population in the catchment area, that 
portion of Pennsylvania falls out a little bit.
    But it is something under serious consideration, Mr. 
Chairman, and we believe that a national cemetery is necessary 
in that area to meet the interment needs of the veterans of 
Pennsylvania.
    Chairman Specter. And when will the CARES issue be done, so 
we can focus on getting the additional construction in Lebanon, 
Pennsylvania?
    Secretary Principi. The under secretary is to submit his 
report to me by June 1st. We have a commission established that 
is going to review that report and get back to me for a final 
decision on October 1.
    Chairman Specter. Does anybody else have any additional 
questions?
    Senator Bunning?
    Senator Jeffords?
    Senator Nelson?
    Well, thank you very much for coming in, Mr. Secretary.
    Secretary Principi. Thank you, Mr. Chairman.
    Chairman Specter. You have got a big job ahead of you, and 
we will be cooperating with you.
    Secretary Principi. Thank you so much, sir.
    Chairman Specter. We will now call panel two. We will take 
a very brief recess before panel two comes in.
    [Recess.]
    Chairman Specter. Well, thank you very much for joining us, 
gentlemen. These are the veterans service organization 
witnesses, and we are very pleased to have you here. We thank 
you for your participation.
    And can we close that door, please? Anybody who wants to 
hear the pearls of wisdom emanating from this room must come 
inside.
    [Laughter.]
    And besides that, it is too noisy out there. But as I was 
saying, we thank you for your participation and for your 
ombudsman function in looking after the veterans. It is a major 
job, and one of our key congressional responsibilities is 
oversight. And candidly, it is very hard to do with all of the 
other commitments which we have.
    So we rely on the service organizations to serve as, in 
effect, ombudsmen. Their reviewing of VA activities and their 
assistance to us in providing some oversight of VA is very, 
very helpful.
    On the witness list given to me, determined by staff, which 
makes most of the important decisions on Capitol Hill--I'm just 
kidding about that--they don't.
    [Laughter.]
    But they do list the witnesses.
    Our first witness is listed as Mr. Philip Wilkerson for The 
American Legion. He is responsible for overseeing the American 
Legion's claims and appeals services in Washington, and the 
program of annual technical training for the Legion's 
professional service officers. He is a native of Washington, 
DC, a graduate from American University in 1963, attended Navy 
OCS, served aboard the USS Cambria from 1963 to 1967.
    Welcome, Mr. Wilkerson, and we look forward to your 
testimony.
    Mr. Wilkerson. Thank you very much, Mr. Chairman.
    Chairman Specter. I regret the limited time. But in setting 
the time, I just want to tell you there was a memorial service 
for Ambassador Walter Annenberg recently in Philadelphia, and 
the time limit was set at 3 minutes. And that applied to 
President Ford, and Secretary of State Colin Powell, and Arlen 
Specter, and 14 other people who testified. So I want you to 
know that on the 3-minute allocation, you are on a par with 
Ford, Powell, and me.
    [Laughter.]
    Let us start the clock again for Mr. Wilkerson.

 STATEMENT OF PHILIP WILKERSON, DEPUTY MANAGER FOR OPERATIONS 
  AND TRAINING, NATIONAL VETERANS AFFAIRS AND REHABILITATION 
                   COMMISSION, THE AMERICAN 
                             LEGION

    Mr. Wilkerson. Thank you very much, Mr. Chairman. It has 
been a while since I have been before this committee, and I 
always appreciate the opportunity to present the views and 
concerns of the American Legion.
    For VHA for fiscal year 2004, the request will require the 
continued rationing of health care. While the proposed 
additional staffing and resources may enable VA to meet its 
stated goal of focusing on its core patient base, this, 
however, can only be achieved if some 1.2 million other 
veterans are effectively forced out of the VA system.
    VHA has, over the past several years, encouraged veterans, 
including those who are military retirees and Medicare-
eligible, to enroll for VA medical care. This effort has been 
so successful that medical centers across the country are now 
under-funded and ill-equipped to handle the large influx of 
veterans seeking all types of care.
    During the same period, the American Legion has become 
increasingly concerned by veterans' complaints of problems in 
obtaining needed medical care and unacceptably long waiting 
times. Our national commander, Ronald Conley, has confirmed 
these problems in his visits to a number of medical centers 
across the country.
    The American Legion is adamantly opposed to VA's efforts to 
overturn the mandate for improved long-term care set forth in 
Public Law 106-117 by counting non-VA sources as part of VA's 
capacity. We believe the ability of the VA medical centers to 
achieve current medical care collection fund goals will be 
severely constrained by the restriction on the enrollment of 
new Priority 8 veterans and will also impact the facilities' 
ability to meet the higher fiscal year 2004 goals.
    We continue to advocate that all MCCF collections be 
treated as an addition to the discretionary appropriation 
without an offset. In addition, VA should be authorized to seek 
reimbursement from Medicare without offset as a way to help 
meet its long-term funding needs.
    The American Legion is also concerned that VHA's net 
funding request is contingent upon several budget proposals 
that seek to generate additional revenue for VA directly from 
veteran patients rather than through appropriated funds.
    We are opposed to denying enrollment to new Priority 8 
veterans. It does not make good business sense to us to keep 
out patients that VA could otherwise be billing directly or 
indirectly for the cost of their care.
    We certainly believe that this is the wrong message to be 
sending to our men and women who are on active duty and being 
sent in harm's way, who will eventually be returning to 
civilian life.
    We once again wish to express our strong objection to the 
proposed $250 enrollment fee, and we hope that Congress will 
once again reject this concept as they did last year with the 
proposal of a $1,500 deductible.
    While the American Legion applauds reduced pharmacy co-
pays, we do not support shifting the cost of this change to the 
back of Priority 7s and 8s. With regard to VBA operations, we 
believe the straight-line staffing request for the C&P and the 
Board of Veterans Appeals is a grave concern. There is an 
exception, however, to the increase that will be provided to 
the education service.
    Mr. Chairman, in the coming months, it will be imperative 
that Congress critically evaluate the funding needs for VHA, 
for VBA, and the Board of Veterans Appeals. The American Legion 
looks forward to working with you and the members of the 
committee.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Wilkerson follows:]

    The Prepared Statement of Philip Wilkerson, Deputy Manager for 
 Operations and Training, National Veterans Affairs and Rehabilitation 
                    Commission, The American Legion
    Mr. Chairman and Members of the Committee:
    Thank you for the opportunity to express the views of the 2.8 
million members of The American Legion regarding the Department of 
Veterans Affairs' (VA) Fiscal Year (FY) 2004 budget request. As 
veterans' advocates, it is our job to ensure that VA is funded at a 
level that is adequate to fulfill the mandate ``--to care for him who 
has borne the battle, his widow and his orphan.''
    With this budget request, President Bush and Secretary of Veterans 
Affairs Principi clearly state their objective: ``a continued focus on 
the health care needs of VA's core groups of veterans--those with 
service-connected disabilities, the indigent, and those with special 
needs.'' The American Legion believes there are two ways to achieve 
this goal:
     Rationing of health care by driving veterans away from the 
health care system designed to meet the health care needs of America's 
veterans or
     Expand the health care system to meet their health care 
needs without compromising the quality of care.
    For over a decade, The American Legion has advocated allowing 
veterans to spend their health care dollars to the health care system 
of their choice. The American Legion believes the Veterans Health 
Administration (VHA) can efficiently expand to meet the health care 
needs of the men and women who have honorably served this Nation in its 
armed forces--in war and in peace.
    The American Legion believes the level of funding proposed in the 
FY 2004 budget request may meet the President's goals, but will lead to 
over 1.2 million veterans leaving the system. The American Legion also 
has reservations about the budgetary impact on other aspects of VA 
operations, to include the Veterans Benefit Administration (VBA).
    When Congress opened access to the VA health care system, many 
veterans believed VA was their best health care option and voted with 
their feet. Since the Centers for Medicare and Medicaid Services (CMS), 
the Nation's largest public health insurance program, does not offer 
its beneficiaries a substantive prescription program, many Medicare-
eligible veterans chose to enroll in VHA specifically to receive 
quality health care and access to an affordable prescription program. 
Since the Department of Defense (DoD), TRICARE, and TRICARE for Life 
require military retirees to make co-payments or pay premiums, but does 
not provide for specialized care (like long-term care), many military 
retirees also chose to enroll in VHA.
    Veterans continue to suffer as a result of a system that has been 
routinely under-funded and is now ill equipped to handle the large 
influx of veterans waiting to use their services. Veterans continue to 
endure interminable waiting times for medical appointments, as well as 
unacceptably long waiting times for claims adjudication.
    VA essentially entered FY 2003 without a budget. Continuing to 
operate at an inadequate FY 2002 funding level has presented many 
challenges. The fallout, in part, has been the Secretary's decision to 
suspend enrollment of Priority Group 8 veterans for the foreseeable 
future. Clearly, the current system is fiscally tapped out.
    The problems resulting from years of under funding run even deeper 
within the VA health care system. In October 2002, National Commander 
Ronald F. Conley began an initiative to reach out to the hundreds of 
thousands of veterans who actually make up the VA health care backlog. 
Through surveys asking veterans for their comments regarding their 
experience with the local VA Medical Center (VAMC), The ``I Am Not A 
Number'' Campaign, as it has been dubbed, has allowed The American 
Legion to learn first-hand of the problems that exist when seeking 
health care through VA.
    The problems described in these surveys, coupled with the 
information that has been gathered from Commander Conley's visits to 
over 25 Veterans Affairs Medical Centers (VAMCs), has been less than 
encouraging. VAMCs are expressing their concern over the significant 
increases in their Medical Care Collection Fund (MCCF) goals for FY 
2003 and what impact the recent restrictions on enrolling any new 
Priority Group 8 veterans will have on their ability to meet those 
goals. Prohibiting the one Priority Group of veterans that, most 
likely, has an expendable income and has third-party health coverage to 
help VAMCs meet increased MCCF goals seems, at face value, illogical.
    Many VAMCs are using capital improvement funds to pay for the 
delivery of health care. Facility improvements continue to be delayed 
due to budgetary shortfalls. National Commander Conley is learning 
first hand of VAMC concerns over the outsourcing of services and the 
cost effectiveness of this initiative.
    The growing shortage of medical specialty personnel, nurses in 
particular, is continuing to impact the delivery of quality health 
care. Exacerbating this shortage is the real possibility of National 
Guard and Reserve units being activated, since several thousand VA 
personnel are members of the Guard or Reserve and their activation 
would certainly have a negative impact on the operation of the VAMCs.
    The American Legion believes these issues and others will continue 
to plague VA beyond FY 2003. As we turn to FY 2004, the picture is no 
brighter. The American Legion believes any budget for VA should be 
augmented by MCCF and not scored as an offset to a budget, because 
these reimbursements are paid for the treatment of non-service-
connected medical conditions. When VA distributes its annual 
appropriations to each Veterans Integrated Service Network (VISN) it 
uses a Veterans Equitable Resource Allocation (VERA) formula. There are 
many components to this formula, to include the patient population of 
Priority Groups 1-6, but the number of enrolled Priority Group 7 and 8 
veterans is not a funding or distribution factor. Therefore, a VISN is 
not funded to treat Priority Group 7 and 8 veterans, but must seek co-
payments and third-party reimbursements to cover the cost of care. 
These collections should be added to the discretionary appropriations, 
not subtracted from these limited resources.

                           EMPLOYMENT ISSUES

    The 2004 budget theoretically provides for the medical care and 
treatment of over 820,000 inpatients with an average daily census of 
over 57,000. VA expects an increase in the workload in 2004 and 
subsequently has requested an additional 5,029 Full Time Employees 
(FTE). The American Legion's concern lies in the fact that they are 
decreasing staff in institutionalized care and using that decrease to 
increase numbers of staff in other areas, in essence, robbing Peter to 
pay Paul.
    The lack of certified coders is another important employment issue. 
Indian Health Services stressed the importance of having certified 
coders with regard to accurately and quickly collecting third-party 
reimbursements. If the coders are not well trained, the chances of 
costly mistakes are high. The problem with getting certified coders is 
that the Office of Personnel Management (OPM) will not authorize these 
positions for VA or Indian Health Services. The American Legion 
believes this is short-sighted. VA increasingly relies on their third-
party reimbursement collections. It would make sense to authorize the 
use of certified coders.
    The American Legion is curious as to how many VA vocational 
readjustment clients are being trained to be certified coders or for 
that matter adjudicators. We believe training individuals in these 
critical skills could help VA meet its own employment needs, but also 
help place disabled veterans find meaningful employment.

                              MEDICAL CARE

    The VA health care delivery system is not only the largest health 
care provider in the Nation, but it has established itself as a 
formidable leader in the health care industry. Veterans receive quality 
health care and are choosing VA as their health care provider in record 
numbers. VA is currently struggling to meet their needs and, with VA's 
proposed FY 2004 budget, it will continue to struggle.
    The FY 2004 budget request introduces several proposals to generate 
increased revenues from the pockets of veterans through an enrollment 
fee, co-payments and third-party reimbursements. According to VA, these 
proposals will reduce the resource demand by $1.3 billion collectively 
and hopefully encourage 1.2 million veterans to leave the system. The 
budget request also seeks management savings of over $1.1 billion. This 
adds up to a $2.4 billion offset to the requested $25.4 billion budget 
for medical care.
    The American Legion is concerned with several of the budget 
proposals:
     Limit enrollment--VA proposes to continue the suspension 
of enrollment of new Priority 8 veterans. These veterans have incomes 
above $24,644 for a single veteran and above the Housing and Urban 
Development (HUD) geographic means test level, to include non-
compensable, zero percent service-connected veterans. Although these 
service-connected veterans may seek health care for their service-
connected disability, they are prohibited from enrolling for treatment 
of or prescriptions for any non-service-connected medical conditions.
    The American Legion continues to disagree with this recent 
decision. We believe denying veterans' access to VA health care, 
particularly while we prepare to go to war, is unacceptable. Many 
recently separated veterans would fall into this Priority Group. By 
denying health care to Priority Group 8 veterans, VA is sending the 
message that these veterans are not welcomed, even if they have the 
expendable income or private health insurance coverage that VA can bill 
for the cost of their non-service-connected medical treatment. Clearly, 
there are potential Priority Group 8 veterans with no health care 
coverage because they are self-employed or unable to afford premiums.
    In order for more veterans to access VA health care, additional 
revenue streams must be generated to supplement the discretionary 
funding. The American Legion strongly advocates Congress authorize VA 
to bill, collect, and retain third-party reimbursements from CMS for 
treatment of Medicare-allowable, non-service-connected medical 
conditions of Medicare-eligible veterans. Since Medicare is a Federally 
mandated, pre-paid health insurance program, The American Legion 
believes Medicare-eligible veterans should be allowed to choose their 
health care provider.
    To qualify for Medicare, most veterans make automatic monthly 
payroll deductions to CMS and cannot use the benefit until reaching age 
65. Access to VHA health care is based on honorable military service 
not age; therefore, a veteran earns the right to enroll in VA, but is 
forced, by law, to participate in Medicare. There is a clear difference 
here: VA is a health care provider, while Medicare is a health insurer. 
If VA is a Medicare-eligible veteran's health care provider of choice, 
then VA should be reimbursed for providing quality health care 
services.
     Assess an annual enrollment fee--VA proposes a $250 annual 
enrollment fee for non-service-connected (NSC) Priority 7 veterans and 
all Priority 8 veterans. Priority 7 veterans have incomes above $24,644 
for a single veteran and below the HUD geographic means test level, to 
include non-compensable, zero percent service-connected disabled 
veterans.
    This annual enrollment fee would apply even if the veteran has 
third-party health insurance that reimburses VA for the treatment of 
non-service-connected medical conditions. This annual enrollment fee 
would apply even if the veteran was willing to make co-payments for 
treatment of non-service-connected medical conditions, pharmacy, and 
specialized care (like long-term care). However, this annual enrollment 
fee does not guarantee timely access to quality health care. According 
to President Bush and Secretary Principi, these veterans are not their 
primary focus.
    The American Legion cannot support this proposal because it is 
designed to discourage the enrollment of veterans based solely on their 
income and not their honorable military service. There are Priority 
Group 7 and 8 veterans with military awards and decorations for wartime 
service that, for the grace of God, were not seriously wounded. Many 
members of ``The Greatest Generation'' fall into these Priority Groups. 
Many veterans of the ``Forgotten War'' fall into these Priority Groups. 
This cannot be the intent of a grateful Nation--to nickel and dime 
veterans out of their heath care system.
    The American Legion would urge Congress to reject this proposal 
just as it did the Administration's plan last year to charge Priority 
Group 7 veterans a $1,500 deductible.
    The American Legion will continue to work with Members of Congress 
to pass long-term funding solutions. We will continue to fight for 
Medicare reimbursement legislation that will allow Medicare to pay VA 
for the cost of health care it provides to all Medicare-eligible 
veterans. Further, we will continue to advocate mandatory funding 
legislation for the President's and Secretary Principi's core 
constituents.
    Access to quality health care is a continuing struggle for veterans 
seeking care through VA. Continued budgetary shortfalls, combined with 
rising medical care costs and increased demand for care have resulted 
in unprecedented waiting times.
     Change the veteran's share of outpatient and pharmacy co-
payments--This proposal entails reducing the pharmacy co-payment burden 
for Priority 2-5 veterans, while increasing Priority 7 and 8 pharmacy 
co-payments from $7 to $15. It also increases outpatient primary care 
co-payments from $15 to $20 for all Priority 7 and 8 veterans.
    While The American Legion applauds the reduction of the pharmacy 
co-payment for veterans in Priority Groups 2-5, the recent increase in 
co-payments from $2 to $7 was accompanied by a decrease in the 
outpatient co-payment from $50 to $15. Obviously, this means the 
President and Secretary of VA miscalculated the reasonable charge for 
medications and treatment. The American Legion would rather VA seek 
reimbursements for CMS for all enrolled Medicare-eligible veterans 
being treated for non-service-connected medical conditions, before 
trying to balance the budget on the backs of Priority Groups 7 and 8 
veterans.
     Require reimbursement for services provided to health 
maintenance organization and preferred provider organization members--
This proposal seeks to establish VA as a preferred provider for members 
of Health Maintenance Organizations (HMOs) and Preferred Provider 
Organizations (PPO's) would obligate these organizations to reimburse 
VA for health care provided to their members.
    The American Legion believes this change would help VA increase 
third-party reimbursements. The fact that VA currently cannot bill 
HMO's and PPO's is unfair considering VA treats many veterans who 
belong to these organizations. The American Legion would welcome this 
change; however, it seems odd to mandate private sector insurance plans 
to recognize VA as a preferred provider and not mandate CMS to 
recognize VA as a Medicare provider, especially since VA meets or 
exceeds most of CMS' own quality performance standards. If CMS' goal is 
to provide its beneficiaries with the best quality health care, VA 
should be a recognized Medicare provider. In fact, CMS Director Scully 
claimed before the Presidential Task Force To Improve Health Care 
Delivery for Our Nation's Veterans (PTF) that he encourages veterans to 
go to VA rather than private health care providers.
     Change the institutional long-term care services provided 
to veterans--This proposal would allow non-institutional, as well as, 
institutional workload in community and State Home Nursing programs 
along with VA Nursing to count toward the 1998 capacity level. VA would 
supposedly expand their total long-term care capacity by increasing 
non-institutional long-term care.
    The American Legion believes the proposal will further stagnate 
long-term care services. The passage of the Veterans Millennium Health 
Care and Benefits Act (Public Law 106-117) on November 30, 1999, was 
the first step toward ensuring a comprehensive long-term care plan for 
veterans. The American Legion fully supported this insightful decision 
by Congress, especially with the aging veterans' population. It 
required the VA to bring the census back to 1998 levels. So far they 
have failed to do that. VA has the authority to establish co-payments 
for non-service-connected veterans in need of long-term care--a time in 
their lives when they and their families desperately need help from VA. 
The President and the Secretary want to reduce the number of long-term 
care beds without any recommendations from the PTF or the Capital 
Assets Realignment for Enhanced Services (CARES). In fact, the CARES 
process is currently not addressing either long-term care or mental 
health inpatient needs. The ``market plans'' currently being developed 
by each VISN will not be including institutionalized care involving 
long-term care or mental health. The American Legion cannot accept this 
recommendation.
    The American Legion is committed to developing permanent solutions 
to preserve and improve the VA health care system. This goal includes 
providing a coordinated continuum of long-term cares to meet the needs 
of the individual veteran. With the ever-growing aging population of 
veterans, it is critical that VA positions itself to adequately care 
for all the needs of these veterans, to include long-term care.
    The American Legion recommends $24.5 billion for direct medical 
care in FY 2004; however, strongly recommend to add, rather than 
offset, MCCF and authorize VA to bill, collect, and retain third-party 
reimbursements from the Nation's largest health insurance program--
Medicare--for the treatment of non-service-connected medical conditions 
on a fee-for-service basis.

                    MEDICAL AND PROSTHETIC RESEARCH

    VA's Medical and Prosthetic Research Program (R&D) is the premier 
research initiative leading the Nation's efforts to promote the health 
and care of veterans. The mission of R&D is to ``discover knowledge and 
create innovations that advance the health and care of veterans and the 
Nation.'' R&D has been instrumental in advancing treatments for 
conditions such as prostate cancer, diabetes, heart diseases, mental 
illnesses, spinal cord injury (SCI) and aging related diseases, 
conditions directly related to veterans.
    The Quality Enhancement Research Initiative (QUERI) continues to be 
a top priority issue for R&D. QUERI is a multidisciplinary, data-driven 
national quality improvement program. There are eight QUERI groups that 
work to promote ``putting research results to work'' and to measure the 
impact of that research at all levels. These groups are chronic heart 
failure, diabetes, HIV/AIDS, ischemic heart disease (IHD), mental 
health, SCI, stroke and substance abuse. Additionally, The National 
Cancer Institute is funding a new Cancer QUERI. These initiatives focus 
on veterans' health issues and have already had a profound effect on 
improving the care and rehabilitation of the Nation's veterans.
    Two of the biggest challenges facing R&D are facility 
infrastructure and recruitment and retention. Like the rest of VHA's 
buildings, research facilities are in desperate need of repair. They 
have been neglected over the years due to budgetary constraints. 
Currently, R&D has nearly 30 facilities in varying states of disrepair. 
The condition of these facilities directly impacts the recruitment and 
retention of qualified researchers. The ability to maintain a state-of-
the-art facility is vital to retaining talented and motivated 
researchers.
    In the wake of the September 11th terrorist attacks and their 
aftermath, there has been a renewed focus on bioterrorism research and 
VHA's fourth mission, which is to support DoD during a national 
emergency.
    The accomplishments of the VA research program cannot be 
overstated. The program has been recognized both nationally and 
internationally for its efforts toward the betterment of veterans' 
lives and advances in their health care. Without proper funding the 
program cannot possibly maintain its current level of success. The 
American Legion believes VA's budget request for $408 million is 
inadequate. The American Legion recommends $445 million for medical and 
prosthetic research in Fiscal Year 2004.

            MEDICAL CONSTRUCTION AND INFRASTRUCTURE SUPPORT 
                       MAJOR & MINOR CONSTRUCTION

    Over the past several years, The American Legion has testified on 
the inadequacy of funding for VA's major and minor construction 
programs. Buildings continue to be neglected and the persistent 
deterioration results in unsafe environments similar to conditions 
discovered last year at the VAMC in Kansas City, Missouri. Of course, 
those that pay the price of this neglect are the veterans who are 
receiving care at these facilities.
    Year after year, needed projects are not funded, because the money 
is just not there. A 1998 study conducted by Price-Waterhouse 
recommended that VA fund 2 percent to 4 percent of Plant Replacement 
Value (PRV) per year and to reinvest in new facilities to replace aging 
facilities. The conclusion of this analysis was that VA's reinvestment 
rate of .84 percent was significantly lower than the benchmark of 2 
percent. That equates to hundreds of millions of dollars that 
conceivably could be used for major construction projects. Private 
consultants have been warning for years that dozens of VA patient 
buildings were at the highest level of risk for earthquake damage or 
collapse, yet funding continues to be woefully short of what is 
actually needed to correct this problem. The President's budget request 
of $422 million falls well short of funds needed to ensure the safety 
of the Nation's veterans.
    The American Legion recommends $320 million for major construction 
and $240 million for minor construction to make a combined total of 
$560 million.
     grants for the construction of state extended care facilities
    The State Veterans Home Program is an important adjunct to VA's own 
nursing, hospital and domiciliary programs. The American Legion 
believes it must continue, and even expand, its role as an extremely 
vital asset to VA. This program has proven to be a cost-effective 
provider of quality care to many of the Nation's veterans.
    As many VA facilities reduce long-term care beds and VA has no 
plans to construct new nursing homes, State veterans' homes must absorb 
a greater share of the needs of an aging population. Title 38, United 
States Code (USC) authorizes VA to pay 65 percent of the total cost of 
building new veterans' homes.
    The American Legion recognizes the growing long-term health care 
needs of older veterans and would like to reemphasize the essential 
service that the State Veterans' Home Program provides to these 
veterans. The program is a viable and important alternative health care 
provider to the VA system. The American Legion recommends funding of 
$115 million for this program.

                 NATIONAL CEMETERY ADMINISTRATION (NCA)

    The National Cemetery Administration (NCA) honors veterans with a 
final resting-place and lasting memorials that commemorate their 
service to the Nation. More than two million Americans, including 
veterans of every war and conflict--from the Revolutionary War to the 
Gulf War--are honored by burial in VA's national cemeteries. Nearly 
14,000 acres of land are devoted to this formidable mission.
    As a result of the continuing increase in veterans' deaths, NCA is 
constantly seeking burial space. Total interments for NCA are projected 
to significantly increase over the next five years, peaking at 107,000 
in FY 2008. NCA continues to strive to meet its accessibility goal of 
90 percent of all veterans living within 75 miles of open national or 
State veterans' cemetery.
    The Veterans' Millennium Health Care and Benefits Act (P.L. 106-
117) required NCA to establish six new National Cemeteries. Fort Sill 
opened in 2001 under the fast-track program, while the remaining five, 
Atlanta, Detroit, South Florida, Pittsburgh, and Sacramento are in 
various stages of completion.
    Maintaining cemeteries as national shrines is one of NCA's top 
priorities. This commitment involves renovating gravesites by raising, 
realigning and cleaning headstones and markers. The work that has been 
done so far has been outstanding, however, adequate funding is key to 
maintaining this very important commitment. The American Legion 
recommends $150 million for the National Cemetery Administration in 
Fiscal Year 2004.

                     STATE CEMETERY GRANTS PROGRAM

    The State Veterans Cemetery Grant Program continues to be a very 
popular and much needed program administered by VA. This program was 
designed to assist States in providing gravesites for veterans where 
NCA is unable to do so. This program is not intended to replace 
National Cemeteries, but to complement them. Grants for State-owned and 
operated cemeteries can be used to establish, expand and improve on 
existing cemeteries.
    Under this program cemeteries must conform to the standards and 
guidelines prescribed by VA with regards to site selection, planning 
and construction. Like the NCA, these State cemeteries must be operated 
solely for the burial of service members who die on active duty, 
veterans, and their eligible spouses and dependent children.
    The State Cemeteries accommodated over 15,000 burials in FY 2001. 
In light of the aging veteran population and with deaths expected to 
peak at 687,000 in 2006, it is necessary that this program remain 
viable. Now is the time to ensure that funding is commensurate with the 
mission of the program. The American Legion recommends $37 million for 
the State Cemetery Grants Program in Fiscal Year 2004.

                    VETERANS BENEFITS ADMINISTRATION

    The American Legion is gravely concerned by the proposed straight 
line staffing request for the Veterans Benefits Administration's (VBA) 
Compensation and Pension Service and for the Board of Veterans Appeals. 
There are long-term workload demands associated with the current 
backlog of pending claims that will extend well into FY 2004. VBA 
acknowledges there will also be a continued influx of new and reopened 
claims, based on the enactment of expanded benefit entitlements by the 
107th Congress, including the Combat Related Special Compensation Pay 
Program, an expectation of additional presumptive diseases, and recent 
precedent decisions of the courts. Despite the fact that the present 
military build-up has been underway for a number of months, the budget 
request does not take into account the involvement of thousands of 
additional active duty personnel. VA must be able to provide these men 
and women timely, quality service upon their return to civilian life as 
veterans, in addition to its ongoing responsibility to current 
veterans.
    Despite assertions of improved quality decision-making, the number 
of appeals being filed continues to increase as does the number of 
appeals requiring further development either by the regional offices or 
the Board of Veterans Appeals. The American Legion believes these 
organizations will require additional personnel, if they are to achieve 
the ambitious service improvement goals promised the Nation's veterans 
and their families in this budget request.

        VETERANS BENEFITS ADMINISTRATION LEGISLATIVE INITIATIVES

    VBA's net mandatory funding request reflects the enactment of 
several legislative proposals. These include:
     A 2-percent COLA in compensation benefits. The American 
Legion supports an annual cost-of-living adjustment in disability 
compensation and DIC benefits.
     Legislation to overturn the decision of U.S. Court of 
Appeals for the Federal Circuit in Allen v. Principi, which held that 
VA must pay compensation for alcohol or drug-abuse disabilities, if 
they are secondary to a service-connected disability. The American 
Legion is opposed to any effort to eliminate or restrict a veteran's 
right to compensation for any disability or disabilities that are 
determined to be secondary to or a manifestation of the service 
connected disability. VA is responsible for administering the law not 
making moral judgment concerning what is or is not misconduct, as it 
did with the issue of tobacco-related illnesses. Such legislation would 
be an effort to punish certain disabled veterans for their service-
related problems.
     Legislation to pay the full rate of compensation to 
certain Filipino veterans and their survivors. The American Legion 
continues to support this change in the law to recognize the military 
service performed by these veterans during World War II.
     Legislation to extend the operations of the Manila VA 
Regional Office for an additional five years. The American Legion 
favors the VA's continued presence in the Philippines, in order to 
provide timely service to these veterans and their families.
     Amend the law to extend the time limit for education 
benefits for members of the National Guard. Because the National Guard 
is now such an integral part of the armed forces, The American Legion 
believes this will be a much needed change in the law.
     Amendment of the Montgomery GI Bill to provide for on-the-
job training for certain self-employment training programs. This will 
assist veterans in taking advantage of additional training through 
self-employment training programs.
     Legislation authorizing the extension of the Education 
Advisory Committee. This committee provides valuable input to VA 
officials.
     Terminate the Education Loan Program. If this program 
were, in fact, not being utilized as it was originally intended, The 
American Legion would not object to its termination.
     Convert the Homeless Veterans Guaranteed Transitional 
House Loan Program to grant program. The American Legion has been a 
strong supporter of the Homeless Veteran Transitional Housing Program. 
The American Legion would have no objection to making it into a grant 
rather than a loan guaranty program.
     Elimination of the 45-day rule for Death Pension. The 
American Legion has sought the elimination of this restriction, since 
enactment of OBRA 90.
     Authorize entitlement to government grave marker or 
headstone for a veteran's marked or unmarked grave, effective from 
November 1, 1990. This will enable the families of thousands of 
deceased veterans to obtain a government marker or headstone to reflect 
their honorable service to the Nation.
     Authorize the payment of the burial plot allowance to 
State veterans' cemeteries. The American Legion has long favored this 
additional support for the State Veterans Cemetery Program.
    Under the new budget format, the request for VBA provides for a 
total of $33.7 billion in mandatory funding for compensation, pension, 
education, vocational rehabilitation, and other benefit entitlements. 
Within this total, $26.3 billion will be required for the compensation 
program, $3.3 billion for the pension program, $1.9 billion for 
education, and $2.4 billion for the other veterans benefit programs. 
This represents an overall increase of $9.8 billion, over FY 2003. 
Compensation benefits will increase by $1.8 billion reflecting the 
proposed 2-percent COLA, additional benefit payments as a result of 
Allen v. Principi, an increase in diabetes cases, and increases in the 
net caseload and benefit payments.
    Discretionary funding for VBA's nine business lines totals $1.2 
billion. While it provides for an additional 17 FTE for the Education 
Program, which is much needed, The American Legion is deeply disturbed 
by the lack of any increase in staffing for compensation program. We 
believe this will constrain VBA's ability to address the many internal 
and external challenges emerging in FY 2003, which will have profound 
budgetary and operational implications for the FY 2004 budget.
    Given the many and varied issues that VBA is faced with, it is 
imperative that Congress critically evaluate the level of discretionary 
funding requested and whether this will enable the regional offices to 
operate efficiently and provide timely, quality service that this 
Nation's veterans expect and deserve. Individuals currently on active 
duty must also be assured that VA will not only be ready and willing to 
assist them, but have physical capacity to provide them the timely, 
quality service they too expect and deserve, without compromising 
current operations or benefits programs.
    VBA is continuing with the implementation of its long-term 
strategic plan to hire and train a new cadre of adjudicators under its 
succession plan, continue the computer modernization program, and 
institute a variety of procedural and programmatic changes intended to 
improve the claims adjudication process. However, external forces, such 
as the enactment of legislation providing new benefits and medical care 
services, and precedent decisions of the courts continue to play a 
major role in changing VBA's plans, policies, and operations.
    Over the course of FY 2002 and FY 2003, VBA has been able to make 
substantial progress toward realizing Secretary Principi's goal of a 
pending case backlog of 250,000 cases with an average processing time 
of 100 days by the end of September 2003. In March 2002, the regional 
office backlog peaked with over 423,000 pending cases requiring rating 
action. Some 40 percent of these cases were over six months old. There 
were also 147,000 cases requiring some other type of action. Only 12 
percent were six months or older. In addition, there were approximately 
107,000 cases in appellate status. Of these, over 20 percent were cases 
that had been remanded by the Board of Veterans Appeals for further 
required development and readjudication. In human terms, there were 
over 670,000 claimants waiting and waiting for action on their case. 
Those with remanded appeals would have been waiting two to three years 
or longer.
    According to VA data, by January 2003, the number of cases awaiting 
rating action had been reduced to 330,300 with only 32 percent older 
than six months and the number of cases requiring some other type of 
action was down to 81,500 but over 28 percent were older than six 
months. However, the number of cases in appellate status had grown to 
over 122,000. These statistics give a false impression of improvement. 
The drop in the claims backlog has been achieved largely at the expense 
of those whose claims were on appeal at the regional offices. VBA's 
efforts and resources were focused almost exclusively on pending 
claims, while appeals, including remands, were virtually ignored, since 
there was no work credit toward the station's production goals. In 
response to The American Legion's criticism concerning the lack of 
action on appeals and the hardship this imposed on disabled veterans, 
regional offices have, within the last several months, begun to address 
their appellate workload and pending remands, in particular.
    The backlog of claims and appeals are, in our view, a symptom of 
unresolved systemic problems that have for years adversely affected the 
claims adjudication and appeals process. These problems include 
frequent decision-making errors, lack of compliance with the VCAA's 
notice and development requirements, the absence of personal 
accountability, ineffective quality control and quality assurance, and 
inadequate training. The current work measurement system does not 
provide reliable, accurate data upon which to assess VBA's real 
resource needs. VBA is faced with a serious dilemma. While endeavoring 
to address these thorny quality-related issues, the regional offices 
are, at the same time, aggressively trying to process claims faster. 
From the results, it appears they still have not found a way to 
successfully balance these competing priorities. The American Legion 
remains concerned by the effects of VBA's emphasis on production rather 
than quality decision-making, i.e., ensuring full and complete 
development with a decision that is fair and proper--the first time. 
This results in cases continuing to churn through the system, for the 
sake of an artificial goal.
    The straight line staffing level requested for FY 2004 is based on 
the assumption that, with the realization of the Secretary's backlog 
reduction goal, VBA would be able to more effectively address the many 
quality-related problems as well other long-outstanding issues. Given 
past performance, The American Legion believes this is an unrealistic 
strategy and will not afford VBA the flexibility to cope with current 
workload demands, let alone some unanticipated contingency. As an 
example, a December 2002 decision by the United States Court of Appeals 
for the Federal Circuit determined that VA had used the wrong effective 
date for grants of service connection in Agent Orange-related diabetes 
claims. To date, action has been completed on over 88,000 Agent Orange-
related diabetes claims. Some 17,000 are still pending. Data is not 
available on the number of cases that will have to be reworked, as a 
result of this decision. Considering the number of cases involved, this 
additional workload will be substantial and could significantly alter 
regional office production timelines and resource requirements. Another 
example of future workload demand will be VA's role in the Combat 
Related Special Compensation Pay program.
    The American Legion believes that an increase in staffing in the 
compensation and pension programs for FY 2004 is both prudent and 
necessary. This reflects the increasingly complex nature of the claims 
and appeals process, the volume of additional work anticipated in FY 
2003-2004, and the ongoing need to rebuild the core adjudication staff 
to replace the increasing number of experienced decision-makers who are 
retiring within the next one to two years.

                                APPEALS

    Staffing at the Board of Veterans Appeals in FY 2004 will decrease 
by 3 FTE from the FY 2003 level to 184 FTE. The proposed reduction in 
personnel is predicated on the expected lower volume of incoming new 
appeals and returning remands. However, given the number of appeals 
currently in the system and regional offices' continuing quality 
problems, The American Legion is concerned that the Board's new 
Development Program will require additional support both from the Board 
and from the C&P Service.
    Beginning in February 2002, the BVA was given the authority to 
further develop appeal cases rather than remanding them to the regional 
office. The American Legion understands that 15 FTE were assigned to 
this unit. By the end of FY 2002, of the 17,231 appeals decided, the 
Board had remanded 3,328 or 19 percent. This figure is somewhat 
misleading, since, in addition to the regular remands, the Board has 
undertaken development of over 9,000 cases that would have previously 
required a remand back to the regional office for further needed 
development and readjudication. Staffing for this unit is 32 FTE. The 
goal of the program is to ensure greater attention to full due process 
and quality decision-making, while providing claimants more timely 
action on the appeal. However, without a substantial improvement in the 
quality of regional office decisions, the BVA will have to assume more 
and more of the regional offices' development and adjudication 
workload, which will require additional staffing resources.
    The American Legion is concerned that regional office's focus on 
speed and production versus quality and propriety is directly 
contributing to the growth of the appellate backlog, which now tops 
123,000 appeals. Each of these cases represents a veteran or a 
veteran's family who, after many months of waiting, is very 
dissatisfied with the decision they received on their claim for 
disability or death benefits. They will wait many more months before 
their case gets before the Board. In 2002, the average appeals 
resolution time was 731 days. This is projected to improve to 590 days 
in FY 2003 and to 520 days in FY 2004.
    As noted earlier, The American Legion remains concerned by the 
problems arising from the regional offices' general lack of compliance 
with the duty to notify and duty to assist provisions of the Veterans 
Claims Assistance Act of 2001. This legislation was one of the most 
significant, pro-veteran changes in the VA claims adjudication system 
in the past decade. However, VBA continues to give only lip service to 
this law. While claimants receive what is termed a ``VCAA'' letter, it 
generally lacks essential information about the claim and what evidence 
is actually needed to grant the benefit sought in the particular case. 
Such letters are usually long and confusing, nonspecific, and full of 
bureaucratic language, which may or may not be accurate or appropriate 
to the claim. Rather than helping the individual with the development 
of the claim, these letters frequently generate more questions, phone 
calls, and correspondence to their representative or the regional 
office. In the end, the type of VCAA letter currently in use serves to 
delay rather than to facilitate the claims process. They set the stage 
for an appeal and, ultimately, additional work for the BVA and 
frustration and hardship for thousands of veterans and their families.

                               EDUCATION

    The American Legion commends the increased-funding request for 
educational programs and support staff for the FY 2004 budget. The 
American Legion deeply appreciates Congress' attempts to provide for a 
stronger Montgomery GI Bill, (Chapter 30) including an increase in the 
monthly entitlement rate for active duty members from $900 to $985. 
However, due to the increased use of Reservists for homeland security 
and various overseas commitments around the world, there needs to be a 
significant increase in their monthly entitlement rates that are 
currently below $300 a month.
    The American Legion also acknowledges the proposed increase in 
benefits to children and spouses of veterans who died of a service-
connected disability or whose service-connected total disability is 
rated permanent, under Chapter 35 of title 38, United States Code. 
Having a stronger dependent/survivor educational benefit program is 
necessary to provide the Nation with the caliber of individuals needed 
in today's all volunteer Armed Forces. Without providing proper 
incentives, the military of the 21st century will be hard pressed to 
effectively carry out its mission.

                VOCATIONAL REHABILITATION AND EMPLOYMENT

    The American Legion is pleased with the funding level requested for 
the Vocational Rehabilitation and Employment program in FY 2004. The 
American Legion has always been a strong supporter of the services this 
program provides eligible service-disabled veterans. The training and 
education assist disabled veterans in becoming employable and helps 
them obtain and maintain suitable employment. The American Legion is 
pleased by the emphasis placed on the new Employment Specialist 
position as a means of redirecting the program toward the veteran's 
employment. During this time of economic uncertainty, meaningful 
employment should never be denied to veterans, especially those with a 
service-connected disabling condition.
    Mr. Chairman and Members of the Committee: The American Legion has 
outlined many issues in our testimony today. We believe all of these 
issues are important and we are fully committed to working with each of 
you to ensure that America's veterans receive the entitlements they 
have earned. Whether it is improved accessibility to health care, 
timely adjudication of disability claims, improved educational benefits 
or employment services, each and every aspect of these programs touches 
veterans from every generation. Together we can ensure that these 
programs remain productive, viable options for the men and women who 
have chosen to answer the Nation's call to arms.
    Thank you for allowing The American Legion the opportunity to 
appear before you today.

    Chairman Specter. Thank you very much, Mr. Wilkerson.
    We turn now to Mr. Dennis Cullinan, Director of the 
National Legislative Services for the Veterans of Foreign Wars. 
Mr. Cullinan has an undergraduate degree from State University 
of New York in Buffalo, where he also received his master's 
degree. He was an electronic technician aboard the USS Intrepid 
and committed three tours of duty in Vietnamese waters. So you 
have the real perspective, Mr. Cullinan. The floor is yours.

 STATEMENT OF DENNIS CULLINAN, DIRECTOR, NATIONAL LEGISLATIVE 
               SERVICE, VETERANS OF FOREIGN WARS

    Mr. Cullinan. Thank you very much, Mr. Chairman. On behalf 
of the men and women of the Veterans of Foreign Wars, I want to 
thank you for including us in today's most important hearing. 
As an organization and as a proud co-author of The Independent 
Budget, we will focus on the construction portion of the budget 
here today.
    It is clear that if VA does not invest proper amounts of 
money in its infrastructure, patient comfort, safety, and VA's 
ability to modernize equipment and facilities will be 
compromised. Supporting additional funding now will lessen 
future burdens on patients and staffs, improve patient and 
worker safety, make health care delivery simpler, and even 
reduce costs in the long term.
    Despite the importance of those factors, we are once again 
left with a budget that falls far short of these important 
goals. The Administration request of $272 million and $252 
million for major and minor construction projects, 
respectively, is far too low. It falls far below our 
recommended levels of $436 million and $425 million for such 
projects.
    Further, VA's request for major and minor construction 
includes funding for Capital Assets Realignment for Enhanced 
Services, the CARES process, something that we believe should 
be kept separate. Deducting the $183 million that is targeted 
for CARES leaves a paltry $89.3 million for major construction 
projects.
    The pending status of CARES has led to the deferral of many 
basic projects vital to the maintenance of VA's physical plant. 
The CARES process should not distract from VA's obligation to 
protect its health care assets. We are greatly concerned with 
the way VA has delayed major construction projects because of 
CARES.
    With respect to the CARES process as a whole, we generally 
remain supportive. We acknowledge that there are some VA 
facilities that are unusable or unnecessary due to aging 
infrastructure as well as the transformation of the system. 
Even so, we strongly urge VA to exercise great care in 
divesting itself of properties until the process is complete.
    If the process does truly enhance services, then we are 
fully behind it. VA must ensure that the statistical model used 
reflects the particulars of VA's many specialized treatments to 
ensure that CARES really does serve the veteran population both 
now and into the future.
    VA must also ensure that veterans, VA's patients and 
customers, have a voice in this process. All concerned parties 
must know what is going on and what the planning process is so 
that we can make informed decisions and suggestions.
    One final point, we urge the Congress to enact legislation 
to raise the limit on minor construction projects to $10 
million. The current cap inhibits many VA facilities from 
properly carrying out construction projects.
    Mr. Chairman, this concludes my testimony. I thank you.
    [The prepared statement of Mr. Cullinan follows:]

     The Prepared Statement of Dennis Cullinan, Director, National 
   Legislative Service, Veterans of Foreign Wars of the United States

    Mr. Chairman and Members of the Committee: On behalf of the 2.6 
million men and women of the Veterans of Foreign Wars of the United 
States (VFW) and our Ladies Auxiliary, I wish to thank you for 
including us in today's important hearing.
    As an organization, and as a proud coauthor of the Independent 
Budget (IB), we are strong advocates for an adequate budget for the 
Department of Veterans Affairs (VA). While the primary focus of that 
attention is on the actual delivery of health care and benefits for our 
Nation's veterans, we cannot afford to forget the importance that 
construction and maintenance play in the process. If VA does not invest 
proper amounts of money in its infrastructure, it will have immense 
repercussions in the coming years when patient comfort, safety and VA's 
ability to modernize equipment and facilities are compromised. 
Supporting additional funding now will lessen future burdens on 
patients and staffs, improve patient and worker safety, make health 
care delivery simpler, and even reduce costs in the end.
    Despite the importance of those factors, we are once again left 
with a construction budget request that falls short of these important 
goals. Using the traditional budget methodology, the Administration 
request calls for $272.7 million and $252.1 million for major and minor 
construction projects respectively. This is far short of the $436 
million and $425 million the IB recommends for major and minor 
construction projects. Further, VA's request for major and minor 
construction incorporates funding for the Capital Assets Realignment 
for Enhanced Services (CARES) process; something we believe should be 
kept separate. Besides the $183 million earmarked for the CARES, VA is 
requesting a paltry $89.3 million for major construction projects. Our 
recommendation of $436 million does not include these CARES projects. 
When one considers the CARES numbers separately, the construction 
accounts are even more strikingly deficient.
    The Veterans Health Administration (VHA) is charged with 
maintaining over 2,026 buildings, which includes 162 hospitals, 675 
outpatient clinics and 137 Nursing Homes, with almost half of them over 
fifty years old. It is essential that VA repair and enhance this vital, 
but aging, infrastructure to delay the erosion of the initial capital 
investment. As in past years, we cite an independent study of VA's 
facilities conducted by Price Waterhouse. Their study indicated that VA 
should allocate between 2 and 4 percent of their asset value into 
maintenance and an additional 2 to 4 percent for improvements. Again, 
the budget is not sufficient to meet these needs. VA should spend over 
$700 million annually on upkeep alone.
    This insufficient request taken together with years of under-
funding will create an even lengthier backlog of nonrecurring 
maintenance issues that must be addressed before VA's aged properties 
deteriorate further. This backlog includes the 890 buildings deemed at 
``significant risk'' and the 73 buildings considered an ``exceptionally 
high risk'' of catastrophic collapse or major damage because of seismic 
deficiencies. The IB believes that VA needs $285 million to begin the 
correction of these seismic deficiencies while the FY '04 budget 
provides less then 10 percent of that amount, $20 million. We also 
believe that VA should have an additional $400 million for the 
reduction in backlog of nonrecurring maintenance issues. VA must focus 
on these problems before patient safety and access become a larger 
crisis.
    We recognize the difficulty of VA's position with regard to the 
construction budget. VA must often carry out these backlogged 
maintenances and improvements within the context of the larger CARES 
process. Despite this, just as we strongly urge VA exercise restraint 
in divesting itself of properties until the process is complete, we 
also point out that it is essential that construction and repair 
continue on existing facilities. The pending status of CARES has led to 
the deferral of many basic projects vital to the maintenance of VA's 
physical plant. VA has identified a number of high-risk buildings in 
desperate need of repair, and the CARES process should not distract 
from VA's obligation to protect its assets, whether they are to be used 
in their current capacity or to be realigned.
    With respect to the CARES process, as a whole, we generally remain 
supportive. We acknowledge that there are some VA facilities that are 
unusable or unnecessary due to the aging infrastructure as well as the 
transformation of VA health care into a more outpatient-focused system. 
If the process truly does enhance services, then we are fully behind 
it. Unfortunately, the results from Phase I, the pilot project in 
Veterans Integrated Service Network (VISN) 12, are so far inconclusive.
    We remain concerned that the actuarial service VA used for 
projections during planning may not have the proper data. VA has many 
specialized programs for illnesses and diseases unique or particularly 
problematic for an aging veterans' population. The specialized care 
provided for chronic mental illness, spinal cord injuries, post-
traumatic stress disorder, and other similar illnesses would not be 
accurately reflected in statistical data based on outside medial 
facilities. VA must ensure that the statistical model used reflects the 
particulars of VA's many specialized treatments to ensure that CARES 
really does serve the veterans population both now and in the future.
    Another concern, that was particularly problematic in Phase I, is 
the lack of clear communication. As Phase II begins, and rapidly 
expands the process throughout the country, we must ensure that 
veterans--VA's patients and customers--have a voice in the process. We 
simply must know what is going on, and what the planning process is so 
we can make informed decisions and suggestions.
    Perhaps our greatest misgiving is with the way that VA has delayed 
major construction projects because of the CARES process. As expressed 
previously, VA absolutely must continue maintenance and upgrades to 
existing facilities for the health of the infrastructure. If it is 
clear that CARES will not affect a particular hospital or facility, it 
is essential that VA begins, and Congress appropriates the money for, 
the major construction projects many of these facilities desperately 
need. We are optimistic that the $225 million contained in the request 
for CARES is a sign that VA recognizes the complications that delaying 
important construction would create. However, the IB recommends $1 
billion as a down payment toward immediate construction needs under the 
CARES process. Further, we urge VA and Congress to work together in 
future years to ensure a proper and steady stream of funding to begin 
construction on projects as they are identified by the CARES process to 
avoid losing as much time as possible.
    On a final note, we would also request a fundamental change to the 
way major and minor construction projects are designated, which would 
greatly enhance VA's ability to solve problems and deficiencies. We 
urge the Congress to enact legislation that would raise the limit on 
minor construction projects from $4 million to $10 million. This cap 
inhibits many VA facilities from properly carrying out construction 
projects by forcing them to reduce the scope of the project or to group 
several small projects in an uneconomical, piecemeal approach. Raising 
this cap would allow VA to conduct more essential projects in an 
efficient and safe manner that would greatly lessen the burden and 
inconvenience on patients and staff.
    VA simply must do a better job protecting and investing in its 
capital infrastructure. If basic care is not provided, the physical 
health of the system will continue to deteriorate. Addressing these 
issues in a timely manner and with proper planning will be of great 
benefit. If these issues are not addressed, it will only serve to 
increase the burden on patients and staff and be a detriment to patient 
safety and VA's ability to deliver health care long into the future. We 
strongly urge that Congress take steps to correct this inadequate 
construction request and to support the funding levels and suggestions 
we have brought before you today.
    Mr. Chairman, this concludes my statement. I would be happy to 
answer any questions that you or the Committee may have.

    Chairman Specter. Thank you very much, Mr. Cullinan.
    Our next witness is Mr. Carl Blake, Associate Legislative 
Director for the Paralyzed Veterans of America. He graduated 
from the U.S. Military Academy at West Point, where he received 
his bachelor's degree in May of 1988, and was commissioned as a 
second lieutenant in the United States Army.
    When I read about you being a second lieutenant, Mr. Blake, 
I think about my having been a second lieutenant. I did not do 
anything as prestigious as attending West Point, but I was an 
ROTC graduate at the University of Pennsylvania and served for 
2 years during the Korean War stateside.
    We had summer training camp for 6 weeks at Lowry Air Force 
Base. We got there on June 25, 1950. I am sure everybody 
remembers June 25, 1950. That was the day the Korean War 
started.
    And 2,000 students between their junior and senior years 
turned into Lowry Air Force Base and got our khakis and our 
M1s, and we were sure we were on our way to Korea. But after 
they had us for 6 weeks, they sent us back to school. They 
decided they wanted to win the war.
    [Laughter.]
    And on graduation, I got my commission and served and found 
it to be a great experience. I think that military service is a 
very positive thing, developmentally for young people to 
undertake. It gives you a little more appreciation for what 
goes on in the world--although I did not see combat and did not 
serve overseas. It gives you a little better appreciation when 
you have to vote on a resolution for the use of armed force.
    Well, that uses up most of your time, Mr. Blake.
    [Laughter.]
    Mr. Blake. Thank you, Mr. Chairman. I will take any 
questions you have.
    [Laughter.]
    Chairman Specter. Thank you for joining us, and we will 
start the clock at the beginning.

   STATEMENT OF CARL BLAKE, ASSOCIATE LEGISLATIVE DIRECTOR, 
                 PARALYZED VETERANS OF AMERICA

    Mr. Blake. Thank you, Mr. Chairman.
    I am pleased to present the health care portion of The 
Independent Budget for the fiscal year 2004. When VA's fiscal 
year 2004 budget for health care became public several weeks 
ago, they touted it as a historic increase of $1.9 billion. Now 
that we have had the opportunity to dig into the details of 
this proposed budget and have a good understanding of what 
makes up that historic increase, we know that it will simply 
not provide adequate funding for the needs of our veterans.
    Unfortunately, most veterans needing health care will gain 
their first perspective of this budget not from digging into 
the details, but from digging into their pockets when they are 
forced to pay for needed care.
    It is clear to us that the Administration's budget relies 
heavily on management efficiencies and collections from others, 
especially veterans, and not enough on appropriated dollars.
    The Independent Budget has proposed $27.2 billion in real 
appropriated dollars for VA health care. These are funds needed 
to address a variety of matters that are expressed in detail in 
the full ``Independent Budget'' document.
    Long-term care for veterans will need more than enrollment 
fees and increased co-payments to address the needs of our 
aging veteran population. Care at home is very important. But 
so is extended care in VA facilities.
    Ironically, the proposed enrollment fees and increases in 
co-payments may swell the proposed budget, but it will also 
chase away many of the veterans who so dearly need the system 
and, in many cases, rely heavily on that system. Indeed, this 
is what the VA is hoping for and planning on.
    For many who need VA's specialized services, VA health care 
is not only the best game in town, it is the only game in town. 
Many older veterans, retired and on fixed incomes, have sought 
VA health care because of the rising costs of other public and 
private health insurance and care plans. The VA has become 
their safety net.
    The members and endorsers of The Independent Budget 
strongly encourage you not to let the VA price itself out of 
their reach.
    The Administration has proposed $408 million for research. 
We are hopeful that your committee will accept the $460 
million, the continuity and strength of which the VA research 
is a national resource and critical.
    The lack of consistent funding for VA, along with the 
uncertainty attached to the process, fuels efforts to deny more 
veterans health care. Mandatory funding legislation can be 
designed to ensure that VA has sufficient resources to meet 
existing statutory obligations. By including veterans currently 
eligible and enrolled for care, we will protect the system and 
the specialized programs VA has developed over the years.
    And finally, Mr. Chairman, speaking for PVA, we don't want 
any new members. But as our Nation continues to prepare for 
war, let our Congress and the Administration make certain that 
VA's health care system will be strong and well prepared for a 
new generation of veterans to come.
    This concludes my testimony, and I would be happy to answer 
any questions.
    [The prepared statement of Mr. Blake follows:]

 The Prepared Statement of Carl Blake, Associate Legislative Director, 
                     Paralyzed Veterans of America

    Mr. Chairman and members of the Committee, as one of the four 
veterans services organizations publishing The Independent Budget, 
Paralyzed Veterans of America (PVA) is pleased to present our views on 
the state of funding for the Department of Veterans Affairs (VA) health 
care system and the Administration's FY 2004 budget request.
    I am Carl Blake, Associate Legislative Director of the PVA. PVA is 
the only national veterans' service organization chartered by Congress 
to represent and advocate on behalf of our members and all Americans 
with spinal cord injury or disease. All of PVA's members, in each of 
the fifty States and Puerto Rico, are veterans with spinal cord injury 
or dysfunction.
    This is the seventeenth year, PVA, along with AMVETS, Disabled 
American Veterans and Veterans of Foreign Wars have presented The 
Independent Budget, a policy and budget document that represents the 
true funding needs of the Department of Veterans Affairs. The 
Independent Budget uses commonly accepted estimates of inflation, 
health care costs and health care demand to reach its recommended 
levels. This year the document is endorsed by 45 veterans service 
organizations, and medical and health care advocacy groups.
    Mr. Chairman, we are deeply troubled by the Administration's budget 
request for VA health care programs. It does not come close to meeting 
the projected needs of the veterans seeking VA health care next year. 
For nearly five months, the VA was forced to operate under the severely 
constrained funding levels of FY 2002, putting enormous pressure on a 
health care system nearing critical condition due to budgetary 
shortfalls.
    Health care demand is rising; the cost of that care is soaring as 
well. In reaction, the Secretary of Veterans Affairs has taken the 
unprecedented step of stopping enrollment of Category 8 veterans. 
Despite touted increases in the FY 2004 request, the Administration 
proposes even more draconian steps to curtail access. The proposed 
budgetary increases rely too heavily on increased collections from new 
co-payments for services and prescription drugs and a new proposed 
enrollment fee imposed on Category 7 and 8 veterans. Any proposed 
additional increase derived by unspecified ``management efficiencies'' 
disappears completely with VA admitting just recently that it is 
currently running at a $1.9 billion deficit this year.
    We have reworked the Administration's numbers from their unusual 
presentation this year to be able to make appropriate comparison with 
The Independent Budget recommendation in the customary way the budget 
and appropriations bills are usually presented. We have included with 
this testimony two charts that we have prepared that delineate these 
accounts and compare The Independent Budget's figures with those of the 
Administration. We have also included a chart prepared by the VA that 
displays its FY 2004 request in the traditional manner. As is the 
custom with Independent Budget recommendations, we have also removed 
the collections from the Medical Care line to indicate the true amount 
of federal appropriations needed to fund medical care next year. The 
Independent Budget Veterans Service Organizations strongly believe that 
veterans' health care is a federal obligation. Increasing collections 
from veterans or their health care insurers only allows budgeters to 
offset federal dollars that are needed.
    Once these recalculations have been done, the Administration is 
requesting $25.2 billion for VA health care. The Independent Budget is 
recommending $27.2, or two billion more than the Administration would 
allow. With the FY 2003 medical care appropriation set at $23.9 
billion, the budget request would provide only $1.3 billion this year 
over that level.
    The Administration is proposing implementing an annual enrollment 
fee of $250 for all currently enrolled Category 7 and 8 veterans. It is 
also proposing more than doubling the prescription fee to $15 and 
raising the cost of each outpatient visit to $20. These punitive co-
payments are designed as much to swell the projected budget increase as 
they are, the VA admits, to deter veterans from seeking their care at 
VA medical facilities. The VA estimates that the end result of its 
proposals will decrease the number of Category 7 and 8 veterans by 
378,818, or nearly 34 percent. The cost of these co-payments is 
designed to have that effect on people who might want to seek care at 
VA. Imagine the effect of these additional costs on those who have no 
other choice but to get care at VA.
    Mr. Chairman, The Independent Budget makes a strong statement in 
opposition to co-payments. From PVA's standpoint, we can make an 
additional case in further opposition. The Congress gave the Secretary 
of Veterans Affairs the authority to set and raise fees. What was once 
thought of as only an administrative function has now become, in times 
of tight budgets, an easy way to try and find the dollars to fund 
health care for veterans. When appropriations are in short supply and 
demand for health care is high, co-payments have become the new way to 
fund the VA out of the pockets of the veteran patient. The VA has 
stated that their objective in curtailing access to the so-called 
``higher income'' veterans in Categories 7 and 8 is to focus their 
resources on the core mission of the VA, the service-connected, the 
poor and those in need of specialized services. Certainly PVA can 
appreciate that goal as our members, veterans with spinal cord injury 
and dysfunction, fall within those categories of veterans with special 
needs seeking care at VA spinal cord injury centers--but at what cost?
    Our first concern rests on the fact that those increased co-
payments collected from Category 7 and 8 veterans are being used to pay 
for the treatment of Category 1 through Category 6 veterans. It is 
completely antithetical to PVA's view, for instance, to have one 
veteran in Category 8 paying for the care of a 100 percent service-
connected disabled veteran in Category 1. The cost of that care is a 
federal duty and a federal responsibility.
    Second, Committee members should not embrace the generalization 
that just because Category 8 veterans are considered ``higher income'' 
these co-payments do not impose an undue burden on their ability to 
pay. There are few, if any, millionaires seeking VA health care in this 
category. For Category 7s, starting at income levels of $24,000, even 
with the geographic cost-of-living in the HUD index, these veterans, 
for the most part, are hardly wealthy. For many of them, particularly 
those who are older, retired, and on fixed incomes, these co-payment 
increases could be devastating. Many of these veterans have sought VA 
health care because of the rising costs of other public and private 
health care plans and insurance. The VA has become their safety net. 
Sadly VA is following the private sector's lead and pricing itself out 
of their reach.
    Because of their designation as ``catastrophically disabled'' 
nearly all PVA members can enroll in the system in Category 4. This, 
however, does not exempt all of them from the burden these co-payment 
increases would impose. Those PVA members with non service-connected 
disabilities, who, because of their incomes could be classified as 
Category 7 or 8, can be enrolled in Category 4 but are still subject to 
Category 7 or 8 co-payments. PVA members go to the VA because there is 
no other system in the country that provides the level and quality of 
spinal cord injury care. Over 80 percent of our members use the VA for 
all or part of their care. Because of the nature of their disabilities 
they require a host of pharmaceuticals, equipment, devices and supplies 
to function on a daily basis. On average, the imposition of these 
punitive co-payment increases would bring their total out-of-pocket 
cost to hundreds of dollars each month. An alternative for many would 
be to forego outpatient visits or re-filling prescriptions and risk 
endangering their health and enduring expensive inpatient care.
    In other areas of health care, the Independent Budget is pleased 
that the Administration requested an increase in medical and prosthetic 
research. Still, its request at $408 million is $52 million below The 
Independent Budget recommendation of $460 million needed to fund this 
important and vital program.
    In closing, the VA health care system faces two chronic problems. 
The first is under-funding, which I have already outlined. The second 
is a lack of consistent funding.
    The budget and appropriations process this year is a textbook 
example of how the VA labors under the uncertainty of not only how much 
money it is going to get, but, equally as important, when it is going 
to get it. No Secretary of Veterans Affairs, no VA hospital director, 
and no doctor running an outpatient clinic knows how to plan and even 
provide care on a daily basis without the knowledge that the dollars 
needed to operate those programs are going to be available when they 
needs them.
    Last year's funding was insufficient. The Secretary said early last 
year that he required a supplemental of $400 million to meet 
anticipated demand. The supplemental bill was not addressed until 
nearly the end of the fiscal year. But the White House only obligated 
$142 million of that amount. The VA was then forced to struggle along, 
from stop-gap funding measure to stop-gap funding measure, based upon 
these demonstratively inadequate funding levels. This breakdown in the 
budget process has had a real and immediate impact on the lives of 
veterans. Over 230,000 are waiting six months or longer for doctors 
appointments. Health care delayed is health care denied. If the health 
care system cannot get the funds it needs when it needs those funds the 
resulting situation only fuels efforts to deny more veterans health 
care and charge veterans even more for the health care they receive.
    The only solution we can see is for this Committee, and this 
Congress, to approve legislation removing VA health care from the 
discretionary side of the budget process and making annual VA budgets 
mandatory. The health care system can only operate properly when it 
knows how much it is going to get and when it is going to get it.
    We look forward to the assistance of this Committee in making this 
proposal a reality.
    This concludes my testimony. I will be happy to answer any 
questions you may have.
                                 ______
                                 
   ATTACHMENT--VA ACCOUNTS 2003 AND FY 2004 REQUEST PRIOR STRUCTURE 
                   COMPARED TO FY 2003 APPROPRIATIONS

                                          VA ACCOUNTS-February 13, 2003
                                                 [In Thousands]
----------------------------------------------------------------------------------------------------------------
                                                   FY 2004                  Difference   Difference   Difference
                                     FY 2003 *     Request     FY 2004 IB  2004 & 2003   IB & 2003    IB & 2004
----------------------------------------------------------------------------------------------------------------
Medical Care......................   23,889,304   25,218,080   27,201,408   +1,328,776   +3,312,104   +1,983,328
Medical Research..................      397,400      408,000      460,000      +10,600      +62,600      +52,000
MAMOE.............................       74,230       79,146       84,000       +4,916       +9,770       +4,854
GOE...............................    1,245,849    1,283,272    1,545,000      +37,423     +299,151     +261,728
Inspector General.................       57,623       61,750       61,000       +4,127       +3,377         -750
National Cemetery.................      132,284      144,203      162,000      +11,919      +29,716      +17,797
Construction, Major...............       99,128      272,690      436,000     +173,562     +336,872     +163,310
Construction, Minor...............      224,531      252,144      440,000      +27,613     +215,469     +187,856
Grants, State Homes...............       99,350      102,100      150,000       +2,750      +50,650      +47,900
Grants, State Cemeteries..........       31,792       32,000       37,000         +208       +5,208       +5,000
----------------------------------------------------------------------------------------------------------------
N.B. Amounts for the Administration's request are displayed in accordance with the traditional account
  structure.
MAMOE--Medical Administration and Miscellaneous Operating Expenses
GOE--General operating Expenses (Veterans Benefits Administration and General Administration)
* FY2003 amounts include mandated .65 percent rescission. Medical Care was exempted from this rescission.

[GRAPHIC] [TIFF OMITTED] T5552.001

    Chairman Specter. Thank you very much, Mr. Blake.
    We turn now to Mr. Rick Surratt, Deputy National 
Legislative Director, Disabled American Veterans. Mr. Surratt 
served in the Army in 1966. In 1967, he was wounded by shell 
fragments in the thigh during a Vietnam combat field operation 
while serving in the 101st Airborne Division.
    Well, you have been there, Mr. Surratt. You are a disabled 
American veteran. As you know, I commented earlier in this 
hearing about the first disabled American veteran I knew who 
was my father, who was wounded with shrapnel somewhat similar 
to your situation. Thank you for joining us, and we look 
forward to your testimony.

    STATEMENT OF RICK SURRATT, DEPUTY NATIONAL LEGISLATIVE 
              DIRECTOR, DISABLED AMERICAN VETERANS

    Mr. Surratt. Thank you, Mr. Chairman.
    Two core veterans' benefits are medical care and disability 
compensation. Unfortunately, it is in the administration of 
these two programs that VA has experienced most of its serious 
problems in recent years. That is not merely a coincidence. It 
is because the costs of administration of these two programs 
are funded by discretionary appropriations.
    That is where the President's budget typically shortchanges 
VA. Therefore, we must look to Congress to appropriate more 
realistic amounts. Congress has reacted to the crisis in 
compensation claims processing that resulted in part from 
inadequate budgets by giving the VA more money for employees to 
process and decide claims. With more adequate resources and 
reforms, VA seems to be making some progress in attacking that 
problem.
    The crisis in VA's medical care system not only lingers, 
however, it has become much worse. The reason is simple. VA 
does not have the necessary resources to treat all veterans who 
need medical care. As a result, medical care for veterans is 
unduly delayed or now denied altogether. It is time to act 
decisively to correct this intolerable problem.
    That is why the DAV, The Independent Budget, and other 
veterans' organizations now urge Congress to enact legislation 
to remove this part of the VA budget from the uncertainties and 
the politics of the annual appropriations process and guarantee 
adequate funding for veterans' medical care in authorizing 
legislation.
    Now let me turn briefly to the other benefit programs. To 
remain effective, the benefit programs need adjustments for 
increases in the cost of living, other changed circumstances, 
or for general improvements. The IB therefore makes several 
recommendations for improving the benefit programs.
    Although not under the jurisdiction of this committee, one 
of our most important recommendations is legislation to 
authorize concurrent receipt of military retired pay and 
disability compensation. Veterans hope to have your support on 
this issue.
    Among the several compelling issues we raise in the IB, 
another we would ask that you consider as a priority this year 
is legislation to eliminate the 2-year limitation on payment of 
accrued benefits. This limitation unfairly deprives survivors 
of the full benefits due a beneficiary at the time of death.
    We have recommended cost-of-living adjustments with 
provisions for automatic annual adjustments, for the specially 
adapted housing, and automobile allowances. We have made 
recommendations to improve veterans' life insurance programs by 
increasing maximum coverage and lowering premiums to reflect 
increased life expectancy, and a number of other 
recommendations to improve the benefit programs.
    Mr. Chairman, that concludes my remarks regarding the 
budget. I want to again take this opportunity to thank you and 
this committee for the support you have shown us in the past, 
and I would certainly be happy to answer any questions you have 
on these issues.
    [The prepared statement of Mr. Surratt follows:]

  The Prepared Statement of Rick Surratt, Deputy National Legislative 
                  Director, Disabled American Veterans

    Mr. Chairman and Members of the Committee: Thank you for the 
opportunity to present the views of the Disabled American Veterans 
(DAV), one of the four coauthors of The Independent Budget (IB), on the 
President's fiscal year (FY) 2004 budget request. This hearing is, of 
course, of prime importance not only because it begins your formal 
consideration of the resource needs of VA for the budget year, but also 
because it sets the broader context for your work during this session 
on many of the legislative and oversight issues you will address 
concerning veterans' programs.
    As an organization dedicated to the welfare of our Nation's 
disabled veterans, the DAV is particularly interested in maintaining 
effective benefits and services for veterans and their dependents and 
survivors. To remain effective, benefits must be delivered in a correct 
and timely fashion and the programs must be adjusted for increases in 
the cost of living and other changed circumstances. The DAV therefore 
joins with AMVETS, the Paralyzed Veterans of America (PVA), and the 
Veterans of Foreign Wars of the United States (VFW) to present in the 
IB our assessment of the resource needs for veterans' programs and our 
recommendations for improving the benefits we provide to veterans and 
their eligible family members.
    The IB represents the collective views of the four organizations, 
but, to most effectively use our own resources, we divide primary 
responsibility for the major parts of the VA budget among the four 
organizations. In turn, each organization focuses its testimony here 
primarily on that part of the budget for which it has responsibility. 
Therefore, my testimony will concentrate predominantly on the Benefits 
Programs, administrative expenses, and Judicial Review in Veterans' 
Benefits. Before I address those issues, I do, however, want to discuss 
one issue of overriding importance to the DAV and all the IB coauthors.
    We have many challenges to face this year, but one that is 
undebatably the most pressing and one that we cannot ignore is the 
crisis confronting VA's medical care system. The problem may be stated 
in simple terms: demand for VA medical care exceeds VA's capacity to 
provide that care to all veterans who need it. With insufficient 
resources, the system is overwhelmed, veterans are waiting unacceptably 
long times to be treated, and VA has closed its doors entirely to some 
sick and disabled veterans. Rather than request the resources VA truly 
needs, the Administration's proposal in the budget is to drive some of 
the intended beneficiaries away from the system and, for those not 
driven to seek medical care elsewhere, shift from the Government to 
veterans themselves more of the costs of providing care. Rather than 
seeking increased appropriations, the Administration would squeeze more 
money from the pockets of veterans needing medical treatment by 
increasing co-payments and by imposing an annual enrollment fee. In 
addition to a higher co-payment for a primary care visit, the veteran 
would be hit with higher co-payments for medications, and could not 
even be treated until he or she had paid $250 just to get through the 
door. To treat veterans in that manner is a national disgrace and 
certainly makes VA's long-time guiding principle, ``To care for him who 
shall have borne the battle. . . '' an hypocrisy and a hollow promise. 
At the same time, the Administration is pressing for another round of 
tax cuts, which will further reduce revenues and perhaps result in even 
more draconian proposals to degrade the benefits the citizens of our 
grateful Nation intended to be provided to veterans as repayment for 
their extraordinary contributions and sacrifices.
    The DAV and the IB urge a different approach. Our approach would be 
to provide adequate, stable funding for VA medical care under a formula 
in authorizing legislation that is based on real resource needs rather 
the capriciousness and uncertainties of the politics of the annual 
appropriations process. With an adequate and stable funding source, VA 
could provide timely and quality health care to all eligible veterans 
and could more effectively conduct long term planning for efficiency 
and strategic use of its allocated resources.
    Already this year, we have two bills in the Senate that would fund 
veterans' medical care through authorizing legislation. Both S. 19 and 
S. 50 include provisions for mandatory funding. As with last year, we 
anticipate a bipartisan bill for this purpose in the House. In 
addition, this is a solution receiving much attention by the 
President's Task Force to Improve Health Care Delivery for Our Nation's 
Veterans. We hope to see a strong commitment in the Senate to guarantee 
funding for veterans' medical care. Now, let me turn to the benefit 
programs under the Veterans Benefits Administration (VBA).
    Under a new budget structure introduced this year, the VA budget 
requests both mandatory and discretionary funding by each ``business 
line,'' or each benefit program. The President's budget for all of VBA 
includes $33.695 billion in mandatory spending and $1.218 billion in 
discretionary spending. The budget for mandatory spending includes the 
costs of proposed new legislation, principally $355.2 million to cover 
a proposed cost-of-living adjustment (COLA) for compensation, which 
would be based on the increase in the cost of living as measured under 
the Consumer Price Index (CPI), projected to be 2.0 percent. The 
compensation COLA applies to disability compensation, dependency and 
indemnity compensation (DIC), and the clothing allowance.
    In addition to the compensation COLA, the President's budget 
proposes several other legislative changes in the benefit programs, the 
total cost of which, including the COLA, would be $412.728 million. 
However, based on projected savings of $127.007 million from a 
legislative proposal to eliminate compensation for certain service-
connected disabilities, the net cost of these changes would be $285.721 
million for FY 2004. While we support the compensation COLA and other 
beneficial legislative proposals, we strongly object to eliminating 
compensation for certain service-connected disabilities to offset part 
of the costs of the changes. We oppose taking away benefits from one 
group of veterans to fund improvements in benefits for other veterans.
    The IB also recommends a compensation COLA to maintain the value of 
compensation in relation to the cost of living. Let me add here, 
however, that the DAV believes the COLA for disability compensation 
should be based on the Labor Department's Employment Cost Index (ECI) 
for private sector wages and salaries. Disability compensation is 
intended primarily to make up for average impairments in earning 
capacity in civil occupations, and the ECI would appear to be a more 
appropriate index for this purpose.
    For the compensation program, the Administration proposes 
legislation to authorize full compensation benefits to New Philippine 
Scouts and full DIC for eligible survivors of Filipino veterans. This 
proposal has an equitable purpose, and we do not oppose it.
    For the pension program, the President's budget proposes 
restoration of provisions that would make awards of death pension 
effective the first day of the month in which death occurred if the 
claim is filed within 1 year of the date of death. Prior amendments 
reduced this period from 1 year to 45 days. The IB has no 
recommendation on this issue, but it would liberalize the program for 
needy widows of wartime veterans, and in the process, restore 
uniformity to effective date provisions and thus restore uniformity to 
the administration of the compensation and pension programs.
    The President's budget recommends two legislative changes for 
education benefits: (1) extension of time for use of education benefits 
by members of the National Guard, and (2) authorization for on-the-job 
training in self-employment under the Montgomery GI Bill. We have no 
objections to these changes. The Administration also recommends 
elimination of the Education Loan Program because more than 10 years 
have passed since the last loan was made under the program. We have no 
position on this recommendation.
    For the VA housing program, the budget recommends legislation to 
convert the direct loan program for Guaranteed Transitional Housing for 
Homeless Veterans from a mandatory program to a discretionary grant 
program. The IB has no position on this issue, but we question how the 
program would be more effective with this change, and we question 
whether this is simply not a way for the Administration to ultimately 
reduce a program authorized by Congress to divert the funding to other 
Administration priorities.
    As noted, the President's budget proposes to achieve savings by 
legislation that would eliminate compensation for certain service-
connected disabilities. Specifically, the proposal would eliminate 
compensation for that part of the impairment from a service-connected 
disability attributable to alcohol or drug abuse. Except where 
secondary to another service-connected disability, the law already 
prohibits compensation for disability from alcohol or drug abuse. For 
several years, through an erroneous interpretation of law and one that 
was inconsistent with another interpretation within VA itself, VA 
denied compensation for disability from alcohol or drug abuse although 
the abuse was caused by the effects of another service-connected mental 
or physical disability. Congress intended to prohibit compensation for 
alcohol and drug abuse as primary conditions, but did not intend to 
deny compensation when a veteran's service-connected mental or physical 
disability induced use of alcohol or drugs to escape mental or physical 
pain. Alcohol use, particularly, is more prevalent among veterans who 
suffer from the disordered thinking of serious mental conditions or who 
suffer from the disturbing symptoms of posttraumatic stress disorder 
caused by severe psychological trauma such as the death and destruction 
of combat. Having misinterpreted the law against veterans and having 
that misinterpretation set aside by the United States Court of Appeals 
for the Federal Circuit, the VA now wants Congress to change the law to 
conform to VA's improper view of what the law should be. Regrettably, 
this recommendation reflects very negatively upon the agency that is 
charged with understanding and having insight into the effects of 
trauma and severe disabilities upon veterans. It evidences a narrow-
minded insensitivity to the real nature of the effects of severe trauma 
and severe disability upon young men and women who bear these 
extraordinary burdens and suffer these extremely traumatic experiences. 
We oppose such an unwarranted, inequitable change in the strongest 
possible terms, and we urge this Committee to appropriately dismiss 
this recommendation with no consideration whatsoever.
    We are similarly disappointed that the President's budget continues 
to make so few recommendations to improve veterans' benefits when so 
many improvements are needed. For the Benefit Programs, the IB makes 
the following legislative recommendations in addition to its 
recommendation for compensation COLA:
     To exclude compensation as countable income for Federal 
programs.
     To repeal the prohibition of service connection for 
disabilities related to tobacco use.
     To repeal delayed effective dates for payment of increased 
compensation based on temporary total disability.
     To expand Montgomery GI Bill eligibility to persons who, 
but for service on or before June 30, 1985, would be eligible for 
education benefits under this program.
     To authorize refund of contributions to veterans who 
become ineligible for the Montgomery GI Bill by reason of discharges 
characterized as ``general'' or ``under honorable conditions.''
     To increase the amount of the grants for specially adapted 
housing and to provide for automatic annual adjustments for increased 
costs.
     To provide a grant for adaptations to a home that replaces 
the first specially adapted home.
     To authorize specially adapted housing grants to service 
members with qualifying service-connected disabilities who are awaiting 
discharge.
     To authorize payment of reasonable fees for compliance 
inspections on housing being constructed or adapted under the specially 
adapted housing program.
     To increase the amount of the automobile grant and to 
provide for automatic annual adjustments for increased costs.
     To increase the maximum VA home loan guaranty and provide 
for automatic annual indexing to 90 percent of the Federal Housing 
Administration-Federal Home Loan Mortgage Corporation loan ceiling.
     To exempt the dividends and proceeds from and cash value 
of VA life insurance policies from consideration in determining 
entitlement under other Federal programs.
     To authorize VA to use modem mortality tables instead of 
1941 mortality tables to determine life expectancy for purposes of 
computing premiums for Service-Disabled Veterans' Insurance.
     To increase the maximum protection available under the 
base policy of Service-Disabled Veterans' Insurance from $10,000 to 
$50,000.
     To increase the maximum coverage under Veterans' Mortgage 
Life Insurance from $90,000 to $150,000.
     To repeal the 2-year limitation on payment of accrued 
benefit.
     To protect veterans' benefits from unwarranted court-
ordered awards to third parties in divorce actions.
    Though not under the jurisdiction of this Committee, the IB also 
recommends legislation to remove the offset between military retired 
pay and disability compensation and legislation to extend the 3-year 
limitation on recovery of taxes withheld from disability severance pay 
and military retired pay later determined exempt from taxable income.
    Where the President's budget previously separated requests for 
mandatory funding for the benefit programs from requests for 
discretionary funding for VBA's General Operating Expenses, as noted, 
the President's budget this year eliminates that traditional 
bifurcation, and, in addition, includes in the discretionary funding 
appropriations for construction. The new format merges the requests for 
both mandatory and discretionary funding associated with each business 
line of VBA. The President's request for discretionary funding for all 
VBA business lines, minus funding for construction, is essentially at 
the same level as the budget request for FY 2003.
    In the business lines under VBA, VA is continuing its several 
ongoing initiatives to improve the administration of the benefit 
programs. The most formidable and longest running challenge is the 
compensation and pension claims backlog. VBA continues to address this 
problem through a combination of measures, including process changes, 
improved skills through better training, new technology, and 
accountability. So many initiatives affecting so many aspects of 
compensation and pension claims processing are in play simultaneously 
that the net effect is difficult to appreciate at this time, although 
we are continually monitoring VA's reported processing times and 
accuracy rates. New technology plays a major role in the efforts to 
improve program administration and benefits delivery in the other VBA 
business lines as well.
    This year's budget request would authorize 12,720 total full-time 
employees (FTE) for VBA, a net reduction of 61 FTE from FY 2003 levels. 
Compensation and Pension (C&P) Service would maintain FY 2003 levels, 
which was down 190 FTE from FY 2002. Education Service would gain 17 
FTE, while Loan Guaranty Service would lose 73 FTE, Insurance Service 
would lose 4 FTE, and Vocational Rehabilitation and Employment Service 
would lose 1 FTE. In this period of change for VBA, the IB has not 
included recommendations for increased staffing, but we watch with 
guarded concern for the time being.
    In the IB, we have recommended that VBA's program directors be 
given line authority over their field employees who process and decide 
benefit claims. Under VBA's current management structure, the C&P 
Director, for example has no authority to enforce quality standards and 
VA policy. This presents an obstacle to enforcement of accountability, 
which is essential to VA's success in overcoming its quality problems.
    We have recommended that the Secretary of Veterans Affairs take the 
steps necessary to improve VA's rulemaking. From our experience over 
the last several years, we have seen VA's regulations become more self-
serving and arbitrary. Veterans' organizations are challenging new VA 
regulations in court with regularity. Currently, several veterans' 
organizations have before the United States Court of Appeals for the 
Federal Circuit a challenge to VA's regulations to implement the 
legislation that restored VA's duty to assist veterans. If these 
regulations are invalidated by the court, VA may have to rework a large 
number of the claims that were developed and decided under the 
invalidated rules. Additionally, veterans' organizations have before 
the Federal Circuit a challenge to VA regulations that authorize the 
Board of Veterans' Appeals (BVA) to obtain new evidence and make 
initial decisions on issues in claims. This procedure deprives veterans 
of the statutory right to an initial decision and one review on appeal 
when they believe the initial decision to be wrong. It creates 
conditions for increased inefficiency because field office adjudicators 
can avoid fully developing claims as required by law with the knowledge 
that BVA will correct record deficiencies on appeal. This shifts the 
work that should be done in regional offices to VA's appellate board, 
which was created to ``review'' field office actions in record 
development and field office decisions, not develop the record itself 
and ``make'' initial decisions on new evidence. Because BVA is now 
conducting its own record development to correct the deficiencies it 
identifies in field office development, we are seeing a growing claims 
backlog at BVA. If the court agrees with our view that VA's regulations 
authorizing this practice are contrary to law, BVA may well be required 
to vacate many of its decisions and send the cases back to regional 
offices to correct record deficiencies and afford veterans the due 
process required by law. Just last year this Committee reported 
legislation that was later enacted to override an arbitrary VA 
regulation on anatomical loss of a breast for compensation purposes. In 
the IB, we have recommended that Congress scrutinize VA's rulemaking 
more closely as a part of its oversight role.
    Although VBA's C&P Service has many reforms underway to improve 
compensation and pension claims processing, the IB recommends that the 
primary focus should be more on correcting the root causes of the 
claims backlog. Those who have witnessed C&P's repeated failures to 
overcome its claims processing deficiencies know that those failures 
involve repetitive patterns in which VA develops plans but fails to 
follow through with decisive steps to solve the difficult problems. VA 
attempts to overcome its serious deficiencies by fine-tuning its 
procedures and employing new technology. While those efforts may aid in 
improving claims processing, alone or in combination they are not 
enough to enable VA to overcome its longstanding problem. The coauthors 
of the IB believe that it is obvious VA must resolve to focus primarily 
on eliminating the root causes of its claims backlog if it is to ever 
succeed in restoring the system to acceptable levels of performance and 
service. VA's adjudicators make erroneous decisions because they have 
not been properly trained in the law, they have operated in a culture 
that tolerated indifference to the law, and they have not been held 
accountable for poor performance and proficiency. Accordingly, in 
conjunction with the deployment of better training, VA must take bold 
steps to change its institutional culture, and it must make its 
decision-makers and managers truly accountable.
    If VA's ambitious goal of improving timeliness takes precedence 
over its goal of improving quality, VA will merely repeat the failures 
of the past. Speeding up the process with the single goal of reducing 
claims processing times and claims backlogs is self-defeating if, 
because quality is compromised, a substantial portion of the cases must 
be reworked. In this respect, VA has shown some inability to learn from 
its past mistakes.
    To meet its workload demands, VA must take full advantage of 
automated information systems. These systems can facilitate case 
management, claims processing, and decision-making in ways that improve 
accuracy and efficiency. To determine and implement its optimum 
performance in record development, disability examinations, and claims 
disposition, VA is undertaking a review of its claims process with the 
goal of developing an integrated electronic format to aid in uniform 
and correct application procedures and substantive rules and to allow 
for the electronic transmission of data from its source into the claims 
database. Known as the C&P Evaluation Redesign (CAPER) initiative, this 
project is being undertaken by a CAPER team, working with outside 
experts. VA began work on this initiative in 2001 with a goal of 
nationwide deployment by April 2005. VA now hopes to have this system 
fully in place by September 2005. To achieve that goal, VA needs 
approximately $7 million in FY 2004 for business consultants, software/
systems integration, independent validation and verification, equipment 
and software, and employee travel and training. VA needs this funding 
to stay on its schedule to complete testing of the prototype system it 
is developing in FY 2003 and have the system fully deployed by 
September 2005. The IB therefore recommends that Congress provide $7 
million for CAPER in the FY 2004 budget. The President's budget 
requests only $3.8 million. We understand that the President's budget 
would spend less than our recommendation by completing less of the 
development in FY 2004.
    Inadequate disability examinations have been a major factor in VA's 
claims processing problems. Experience gained from a pilot project and 
a contract authorized by Public Law 104 275 demonstrates that a private 
contractor can economically provide adequate and timely disability 
examinations to veterans at locations near their homes with a high 
level of veteran satisfaction. Authority for contract examinations at 
all VA regional offices would allow VA to improve claims processing 
nationwide. VA projects that it will request approximately 500,000 
disability examinations in FY 2004. To obtain these examinations under 
contract would require an appropriation of approximately $250 million. 
The IB recommends that Congress authorize VA to use contractors for 
disability examinations at all VA regional offices and include $250 
million in the budget for contract examinations. The President's budget 
requests only $50.4 million to continue the current limited use of 
contractors.
    The President's budget request for BVA would essentially maintain 
the status quo. It requests 448 FTE and $50.443 million in budget 
authority, a reduction of 3 FTE and an increase of $1.692 million in 
appropriations. With these resources BVA expects to reduce appeals 
resolution time (the time from initiation of an appeal to final 
resolution) from 731 days in FY 2002 and a projected average 590 days 
in FY 2003 to 520 days in FY 2004. At the same time, BVA projects an 
increase in BVA cycle time (the time the case is physically at the 
BVA), from 86 days in FY 2002 and 250 days projected in FY 2003 to 300 
days in FY 2004. This increase in the time it takes BVA to resolve its 
work on the appeal is attributed to BVA's new responsibility to develop 
evidence in cases where the regional office failed to properly develop 
the record.
    The IB makes only one recommendation for BVA this year. We again 
recommend that VA amend its regulation that purports to exempt BVA from 
substantive rules on benefit entitlement that are binding on VA field 
adjudicators, just as if they were law. It makes no sense to allow BVA 
to ignore substantive rules in its decisions that field adjudicators 
are bound to apply in making claims decisions.
    Although not a part of the budget, the DAV objects to new 
regulations that authorize BVA members to call themselves ``Veterans 
Law Judges.'' We raise this objection here because allowing Board 
members to proclaim themselves to be judges will do nothing to benefit 
decision-making for veterans. While the costs of changing titles in 
form letters and other materials may not be substantial, there will no 
doubt be some cost to the taxpayer. That added cost will have no 
benefit to taxpayers or veterans in return. In addition to the reality 
that BVA's members are not, in fact, judges, we object because this 
will unavoidably add unnecessary formality to proceedings Congress 
intended to remain informal. If Board members desire to have titles 
that include the word ``judge,'' they will no doubt expect to have the 
formal demeanor of judges and will expect others to address them and 
treat them as judges. Congress previously rejected VA efforts to obtain 
legislation to authorize this change in the title of Board members. 
Now, VA has issued a rule to authorize Board members to call 
themselves, and expect others to call them, judges although all 
pertinent statutes refer to them as ``members.'' We are perplexed by 
this pretentiousness, which will likely cause others to question the 
integrity and motives of BVA rather than gain it new respect by reason 
of this self-declared and artificial change. The DAV recommends 
legislation to prohibit VA from assigning Board members any title or 
status other than what is provided in statute.
    In addition to the recommendations we make for VA programs, the IB 
includes recommendations for improving judicial review in veterans' 
benefits. In enacting legislation in 1988 to authorize veterans to 
challenge VA decisions in court, Congress recognized the importance of 
the right to have VA's decisions reviewed by an independent body. 
Judicial review has had the beneficial effect of exposing 
administrative departure from the law and forcing reforms within VA. 
For the most part, judicial review of the claims decisions of VA has 
lived up to the positive expectations of its proponents. To some 
extent, it has also brought about some of the adverse consequences seen 
by its opponents. Based on recommendations in last year's IB, Congress 
made some important adjustments to correct some of the unintended 
effect of the judicial review process. We hope to see these changes 
applied in a manner that will fulfill congressional intent to ensure 
that veterans have meaningful judicial review in all aspects of their 
appeals. Other adjustments are still needed, however.
    Last year, the IB recommended legislation to change the standard 
under which the Court of Appeals for Veterans Claims (CAVC or ``the 
Court'') reviews VA's findings of fact in claims decisions. The Court's 
application of the ``clearly erroneous'' standard has conflicted with 
and undermined the benefit-of-the-doubt rule. Under the statutory 
benefit-of-the-doubt rule, VA is mandated to resolve factual questions 
in the veteran's favor unless the evidence against the veteran is 
stronger than the evidence for him or her. However, CAVC had been 
upholding a VA decision when there was any evidence to support it, and 
this rendered the benefit-of-the-doubt rule unenforceable. Although the 
legislation eventually enacted did not make the changes recommended by 
the IB, Congress did amend the law to expressly require CAVC to 
consider, in its clearly erroneous analysis, whether a finding of fact 
is consistent with the benefit-of-the-doubt rule. The IB now recommends 
that the Veterans' Affairs Committees conduct oversight hearings to 
evaluate whether CAVC is fully carrying out the congressional intent of 
last year's amendments.
    When Congress authorized judicial review of veterans' claims, one 
of its foremost concerns and intents was preservation of the 
informality of VA's administrative claims process under conditions in 
which BVA's decisions would be subject to review by a court. Congress 
was very much aware of the dangers that the courts might attempt to 
impose their own formal rules of adversarial proceedings upon VA's 
informal claims process and therefore sought to prevent this adverse 
consequence. In imposing its own requirement upon veterans that they 
must have expressly argued a technical or legal point before BVA to 
have the point considered by the Court, CAVC has, for its own 
expedience, largely ignored congressional intent, the law, and the 
unique nature and purposes of veterans' programs. The Court has done 
the very thing Congress so carefully and clearly acted to forestall.
    Unlike judicial or more formal administrative proceedings where it 
is the responsibility of the parties to raise and plead all legal 
arguments and discover and present all material evidence, veterans are 
not expected to know and plead the legal technicalities of veterans' 
benefits. Veterans file simple claims forms with basic information, not 
detailed legal pleadings. Congress repeatedly stated its intent to 
preserve and maintain this informal process throughout the legislative 
history of its law to authorize judicial review. It is VA's legal 
obligation to assist the veteran in filing the claim and developing the 
evidence, and it is VA's obligation under the law to consider all 
relevant legal authorities and potential bases of entitlement 
regardless of whether they are expressly raised by the veteran. When a 
veteran appeals to BVA and receives an unfavorable decision, the 
veteran has exhausted his or her administrative remedies. Any failure 
to fully develop the record, to fully explore all avenues of 
entitlement, or to apply all pertinent law is an error of omission by 
BVA which CAVC should address in its appellate review irrespective of 
whether the veteran knew of or raised the specific point before BVA. 
Yet, for its own purposes, CAVC refuses to consider points of argument 
that were not specifically raised before BVA. By requiring veterans to 
know and expressly raise and argue all the complex legal points 
relevant to a claim, CAVC shifts the government's obligations to 
veterans, imposes unnecessary formalities upon VA's administrative 
claims process, and fundamentally alters the non-adversarial, pro-
veteran nature of VA proceedings. The Court seems unable or unwilling 
to grasp the simple fact that, in considering veterans' appeals, it 
reviews a claims record, not a litigation record. The IB therefore 
recommends legislation to prohibit judicial imposition of formal 
pleading or so-called ``exhaustion'' requirements upon the VA claims 
process.
    Currently, VA regulations, with the exception of provisions in the 
Schedule for Rating Disabilities, are subject to challenge in the Court 
of Appeals for the Federal Circuit (CAFC). The IB recommends expanding 
CAFC jurisdiction to permit it to review challenges to the validity of 
the rating schedule on the narrow basis of whether the rating is 
contrary to law or is arbitrary and capricious. The coauthors of the IB 
believe that no unlawful or arbitrary and capricious rating schedule 
provision should be immune to review and correction.
    Because of the advocacy of this Committee, working with the House 
Veterans' Affairs Committee, we have in past years been able to obtain 
more reasonable levels of funding for veterans' programs. We have also 
seen a number of IB recommendations for benefit improvements enacted 
into law. Obviously, much of what this Committee will seek to 
accomplish on behalf of veterans this year will be subject to what 
Congress appropriates for veterans' programs. We urge the Committee to 
press for a budget that is adequate for existing programs and allows 
for some improvement in benefits and services for veterans. We hope our 
independent analysis of the resources necessary for veterans' programs 
and our legislative and policy recommendations are helpful to you, and 
we sincerely appreciate the opportunity to present our views and 
recommendations to the Committee.

    Chairman Specter. Thank you very much, Mr. Surratt.
    Our final witness is Mr. Richard ``Rick'' Jones, an Army 
veteran who served as a medical specialist during the Vietnam 
War era, and who did his undergraduate work at Brown. Mr. Jones 
has a master's degree in public administration from East 
Carolina University, and has extensive experience on Capitol 
Hill, having worked for Senators Coverdell, Faircloth, and 
East. And he worked in the House as committee staff for 
Congressmen Hopkins and Stump. I thank you for joining us, Mr. 
Jones, and we are interested in your testimony.

  STATEMENT OF RICHARD JONES, NATIONAL LEGISLATIVE DIRECTOR, 
                             AMVETS

    Mr. Jones. Thank you, sir.
    Mr. Chairman, for over 17 years, AMVETS has worked with the 
Disabled American Veterans, Paralyzed Veterans of America, and 
the Veterans of Foreign Wars to produce a working document that 
sets out our spending recommendations on veterans' programs for 
the new fiscal year. Indeed, we are proud this year that over 
45 veteran, military, and medical service organizations endorse 
these recommendations.
    At the outset, it is important for AMVETS to clearly state 
that, along with its IB partners, we strongly support shifting 
VA health care funding from discretionary funding to mandatory. 
Mandatory funding would give some certainty to health care 
services. VA facilities would not have to deal with the whimsy 
of discretionary funding, which has proven inconsistent and 
inadequate.
    We believe that mandatory funding would provide a 
comprehensive solution to the current funding problems. Once 
health care funding matches the actual average cost of care for 
veterans enrolled in the system with annual indexing for 
inflation, the VA can fulfill its mission.
    I would like members of this committee to know that AMVETS 
fully appreciates the strong leadership and continuing strong 
support demonstrated by your committee. AMVETS is truly 
grateful to those who serve on this important committee. 
Through your work, you represent the veterans' voice, and you 
have distinguished yourselves as willing to lead the country in 
addressing issues important to veterans and their families.
    The members of The Independent Budget are encouraged by the 
Administration's recommended increase in the National Cemetery 
Administration's resources for fiscal year 2004. However, it 
should be recognized that while the proposal addresses 
employment increases and equipment needs, it does not serve to 
address problems and deficiencies identified in the study on 
improvements to veterans' cemeteries, a comprehensive report 
submitted in the year 2002 by VA to the Senate commenting on 
the conditions of each cemetery.
    The members of The Independent Budget recommend that the 
Senate provide $162 million in fiscal year 2004 for the 
operational requirements of the National Cemetery 
Administration, the National Shrine Initiative, and the backlog 
of repairs. We recommend your support for a budget consistent 
with NCA's growing demands and in concert with the respect due 
every man and woman who wears the uniform of the United States 
armed forces.
    This is an increase of $17.8 million over the 
Administration's request for next year. Clearly, the aging 
veterans population has created great demand on NCA operations. 
Primarily because of the mortality of World War II and Korean 
veterans, as well as the rising age of Vietnam War veterans, 
actuarial projections do not suggest a decline in these demands 
for many years.
    From current interment levels of 89,000 per year, the VA 
interment rate is projected to increase successively over the 
next several years, peaking at 109,000 in the year 2008.
    For funding the State Cemetery Grants Program, the members 
of The Independent Budget recommend $37 million for the new 
fiscal year, an increase of $5 million over the 
Administration's budget.
    Mr. Chairman, I thank you very much for the time you have 
granted us, and I would be pleased to answer any questions you 
might have.
    [The prepared statement of Mr. Jones follows:]

               The Prepared Statement of Richard Jones, 
                 National Legislative Director, AMVETS

    Mr. Chairman, Ranking Member Graham, and members of the Committee: 
AMVETS is honored to join fellow veterans' service organizations at 
this hearing on the VA's budget request for fiscal year 2004. We are 
pleased to provide you our best estimates on the resources necessary to 
carry out a responsible budget for the fiscal year 2004 programs of the 
Department of Veterans Affairs. AMVETS testifies before you today as a 
co-author of The Independent Budget.
    For over 17 years AMVETS has worked with the Disabled American 
Veterans, the Paralyzed Veterans of America, and the Veterans of 
Foreign Wars to produce a working document that sets out our spending 
recommendations on veterans' programs for the new fiscal year. Indeed, 
we are proud that over 45 veteran, military, and medical service 
organizations endorse these recommendations. In whole, these 
recommendations provide decision-makers with a rational, rigorous, and 
sound review of the budget required to support authorized programs for 
our Nation's veterans.
    In developing this document, we believe in certain guiding 
principles. Veterans must not be forced to wait for the benefits 
promised them. Veterans must be assured of access to high quality 
health care. Veterans must be guaranteed access to a full continuum of 
healthcare services, including long-term care. And, veterans must be 
assured burial in a State or national cemetery in every State.
    It is our firm belief that the mission of the VA must continue to 
include support of our military in times of emergency and war. Just as 
this support of our military is essential to national security, the 
focus of the VA medical system must remain centered on specialized 
care. VA's mission to conduct medical and prosthetics research in areas 
of veterans' special needs is critical to the integrity of the 
veterans' healthcare system and to the advancement of American 
medicine.
    In addition, the budget must recognize that VA trains most of the 
Nation's healthcare workforce. The VA healthcare system is responsible 
for great advances in medical science, and these advanced benefits all 
Americans. The VHA is the most cost effective application of federal 
healthcare dollars, providing benefits and services at 25 percent lower 
cost than other comparable medical services. In times of national 
emergency, VA medical services can function as an effective backup to 
the DoD and FEMA.
    Noting the mission of the VA, it is important to understand the 
areas where VA funding must be increased. The VA budget must address 
the pending wage increases for VA employees. It must address the 
enormous backlog in veterans waiting for health care and it must 
address, as well, VA's large benefits casework backlog. There are 
severely disabled veterans and those needing home-based healthcare in 
those backlogs, and I think we can all agree that this situation should 
be addressed and corrected.
    As we look to fiscal year 2004, it is amazing that nearly halfway 
through the current fiscal year, VA's funding remains uncertain for the 
remainder of FY 03. We watch a live lesson about the challenges 
inherent to inadequate funding. Due to a lack of resources, VA took 
action on January 17 to ban healthcare access to 164,000 veterans who 
could have enrolled this year. The resource situation reaches the 
absurd when, after blocking entry to these so-called ``high income'' 
veterans, VA issued a healthcare directive (VHA Directive 2003-003, 
January 17, 2003) to its workers directing them to send banned veterans 
to Community Social Work for assistance.
    Looking at the 2004 budget, released last week, AMVETS notes that 
the Administration is proposing a $1.3 billion increase in VA health 
care. It is interesting to note that about 40 percent of the 
Administration's proposed increase, $525 million, comes directly from 
new premiums and co-payment increases for about 2 million veterans. The 
result of these proposals, according to VA, is to cause nearly 1.7 
million currently enrolled veterans to leave the system, unwilling or 
unable to afford VA care.
    To avoid implementation of the proposed exclusion of these 
veterans, The Independent Budget recommends the Senate provide $27.2 
billion to fund VA medical care for fiscal year 2004, an increase of 
$1.9 over the Administration's request. We ask the Senate to recognize 
that the VA healthcare system is an excellent investment for America. 
However, it can only bring quality health care if it receives adequate 
funding.
    We also ask Congress to recognize other potential challenges 
regarding veterans' health care in the potential for war with Iraq. By 
last year's count, about 15,000 VA employees are reservists subject to 
activation and 13,000 work in the healthcare system. In the event of 
war, it is likely that many more than the current number of 
approximately 400 VA employees will receive the call for active duty.
    It is also important to clearly state that AMVETS along with its IB 
partners strongly supports shifting VA healthcare funding from 
discretionary funding to mandatory. Mandatory funding would give some 
certainty to healthcare services. VA facilities would not have to deal 
with the whimsy of discretionary funding, which has proven inconsistent 
and inadequate. We believe that mandatory funding would provide a 
comprehensive solution to the current funding problem. Once healthcare 
funding matches the actual average cost of care for veterans enrolled 
in the system, with annual indexing for inflation, the VA can fulfill 
its mission.

                  THE NATIONAL CEMETERY ADMINISTRATION

    Before I address budget recommendations for the National Cemetery 
Administration, which is AMVETS' primary responsibility in the 
development of The Independent Budget, I would like members of the 
Committee to know that AMVETS fully appreciates the strong leadership 
and continuing support demonstrated by the Senate Veterans' Affairs 
Committee. AMVETS is truly grateful to those who serve on this 
important committee. Through your work, you represent the veteran's 
voice and you have distinguished yourselves as willing to lead the 
country in addressing issues important to veterans and their families.
    Since its establishment, the National Cemetery Administration (NCA) 
has provided the highest standards of service to veterans and eligible 
family members in the system's 120 national cemeteries.
    Currently, the National Cemetery Administration maintains more than 
2.5 million gravesites on 13,850 acres of cemetery land. Progress is 
underway at several sites around the country to complete construction 
of new national cemeteries, including Atlanta, GA; Detroit, MI; Miami, 
FL; Oklahoma City, OK; Pittsburgh, PA; and Sacramento, CA. Clearly, 
without the strong commitment of the Senate and its authorizing and 
appropriations committees, VA would likely fall short of burial space 
for millions of veterans and their eligible dependents.
    The members of The Independent Budget are encouraged by the 
Administration's recommended increase in NCA resources for Fiscal Year 
2004. However, it should be recognized that while the proposal 
addresses employment increases and equipment needs, it does not serve 
to address problems and deficiencies identified in the Study on 
Improvements to Veterans Cemeteries, a comprehensive report submitted 
in 2002 by VA to the Senate on conditions at each cemetery.
    Volume 2 of the Study identifies over 900 projects for gravesite 
renovation, repair, upgrade, and maintenance. According to the Study, 
these project recommendations were made on the basis of the existing 
condition of each cemetery, after taking into account the cemetery's 
age, its burial activity, burial options and maintenance programs. The 
total estimated cost of completing these projects is nearly $280 
million, according to the Study.
    As any public facilities manager knows, failure to correct 
identified deficiencies in a timely fashion result in continued, often 
more rapid, deterioration of facilities and increasing costs related to 
necessary repair. The Independent Budget Veterans Service Organizations 
(IBVSOs) agree with this assessment and believe that the Senate needs 
to carefully consider this report to address the condition of NCA 
cemeteries and ensure they remain respectful settings for deceased 
veterans and visitors. We recommend that the Senate and VA work 
together to establish a timeline for funding these projects based on 
the severity of the problems.
    Volume 3 of the Study describes veterans' cemeteries as national 
shrines saying that one of the most important elements of veterans' 
cemeteries is honoring the memory of America's brave men and women who 
served in the Armed Forces. ``The commitment of the Nation,'' the 
report says, ``as expressed by law, is to create and maintain national 
shrines, transcending the provisions of benefits to the individual--
even long after the visits of families and loved ones.''
    Indeed, the Senate formally recognized veterans' cemeteries as 
national shrines in 1973 stating, ``All national and other veterans' 
cemeteries--shall be considered national shrines as a tribute to our 
gallant dead.'' (P.L. 93-43:24 1003(c)) Moreover, many of the 
individual cemeteries within the system are steeped in history and the 
monuments, markers, grounds and related memorial tributes represent the 
very foundation of these United States. With this understanding, the 
grounds, including monuments and individual sites of interment, 
represent a national treasure that deserves to be protected and 
nurtured.
    Unfortunately, despite NCA continued high standards of service and 
despite a true need to protect and nurture this national treasure, the 
system has and continues to be seriously challenged. The current and 
future needs of NCA require continued adequate funding to ensure that 
NCA remains a world-class, quality operation to honor veterans and 
recognize their contribution and service to the Nation.
    The members of The Independent Budget recommend that the Senate 
provide $162 million in fiscal year 2004 for the operational 
requirements of NCA, the national Shrine initiative, and the backlog of 
repairs. We recommend your support for a budget consistent with NCA's 
growing demands and in concert with the respect due every man and woman 
who wears the uniform of the United States Armed Forces. This is an 
increase of $17.8 million over the Administration's request for next 
year.
    Clearly, the aging veteran population has created great demands on 
NCA operations. Primarily because of the mortality rate of World War II 
and Korean War veterans is increasing, as is the usage of burial 
services by Vietnam War Veterans, actuarial projections do not suggest 
a decline in these demands for many years. From current interment 
levels of 89,000 per year, the VA interment rate is projected to 
increase successively over the next several years peaking at 109,000 in 
the year 2008.

                   THE STATE CEMETERY GRANTS PROGRAM

    For funding the State Cemetery Grants Program, the members of The 
Independent Budget recommend $37 million for the new fiscal year, an 
increase of $5 million over the Administration proposal. The State 
Cemetery Grants Program is an important complement to the NCA. It helps 
States establish gravesites for veterans in those areas where NCA 
cannot fully respond to the burial needs of veterans. The enactment of 
the Veterans Programs Enhancement Act of 1998 has made this program 
very active and attractive to the States.
    Clearly, the enactment of the Veterans Benefits Improvements Act of 
1998 has heightened the interest in the State cemetery grants program 
and increased participation of States in establishing fully equipped 
cemeteries for veterans. At the start of fiscal year 2003, the State 
cemetery grant program had eleven new cemeteries under design and 
thirteen new cemeteries in planning. In addition, the program had on 
hand 37 pre-applications for a total of $165 million. As before the 
1998 legislative change, States remain totally responsible for 
operations and maintenance expenses to ensure conditions remain in a 
manner appropriate to honor the memory of veterans.
    To augment support for veterans who desire burial in State 
facilities, members of The Independent Budget support increasing the 
plot allowance to $670 from the current level of $300. The plot 
allowance now covers less than 6 percent of funeral costs. Increasing 
the burial benefit to $670 would make the amount nearly proportional to 
the benefit paid in 1973. In addition, we firmly believe the plot 
allowance should be extended to all veterans who are eligible for 
burial in a national cemetery not solely those who served in wartime.

                            BURIAL BENEFITS

    The IBVSOs also request the Senate review a series of burial 
benefits that have seriously eroded in value over the years. While 
these benefits were never intended to cover the full costs of burial, 
they now pay for only a fraction of what they covered in 1973, when 
they were initiated.
    The IBVSOs recommend an increase in the service-connected benefits 
from $2,000 to $3,700. Prior to action in the last the Senate, 
increasing the amount $500, the benefit had been untouched since 1988. 
The request would restore the allowance to its original proportion of 
burial expense.
    The IBVSOs recommend increasing the non-service-connected benefit 
from $300 to $1,135, bringing it back up to its original 22 percent 
coverage of funeral costs. This benefit was last adjusted in 1978, and 
today covers just 6 percent of burial expenses.
    The IBVSOs also recommend that the Senate enact legislation to 
index these burial benefits for inflation to avoid their future 
erosion.
    Mr. Chairman, this concludes my statement. I thank you again for 
the privilege to present our views, and I would be pleased to answer 
any questions you might have.

    Chairman Specter. Thank you very much, Mr. Jones.
    Well, as you men outlined the issues and the problems, 
there is no doubt that there is a shortfall here in what funds 
are available contrasted with what the needs are.
    Mr. Wilkerson, I agree with you that there ought not to be 
a $250 enrollment fee. How do you evaluate Secretary Principi's 
contention that the VA can't sustain itself if it does not have 
that kind of a support?
    Mr. Wilkerson. I believe he is probably right that without 
additional funding he is more or less forced to make a 
decision. Now, whether or not the decision is right and fair is 
a matter that we can certainly differ on.
    However, I think VA is not looking at the larger and 
perhaps more difficult issues of increasing its revenue sources 
and sort of business practices, if you will, in terms of 
providing additional revenue to them--I mean, a net increase in 
revenue that would permit them to continue to provide the level 
of service that veterans have come to expect.
    Chairman Specter. Mr. Cullinan, among the division of the 
testimony, you focused on construction. I note that there has 
been an increase from $323 million to $525 million, which is a 
62 percent increase. Where would you like to see the figure 
reside? That is the biggest increase in any category that the 
VA budget has.
    Mr. Cullinan. Mr. Chairman, a significant portion of that, 
though, is targeted for the CARES initiative, and that reduces 
the major construction portion back down to about $89 million. 
Therefore, we have urged the provision of $450 million for 
major construction.
    That CARES initiative we strongly believe should be funded 
separately, both from the perspective of maintaining 
construction dollars and to keep a better eye on what CARES is 
actually doing.
    Chairman Specter. Mr. Blake, focusing on the health care 
budget, you have emphasized, made the point that there is too 
much emphasis on collections. And as I look at increasing the 
outpatient co-payment and the increased pharmacy co-payments, 
et cetera, I agree with you that there is a very heavy emphasis 
on collections.
    But is Secretary Principi crying wolf, or will he really be 
strangled if he doesn't get those additional funds?
    Mr. Blake. Well, Mr. Chairman, as far as the collection is 
concerned, we have always maintained that it appears that when 
the budgets come out that the budget requests offset those 
collections, and we feel like those collections shouldn't be 
taken into account when considering the budget.
    As far as the co-payments, PVA recently did a case study 
just to determine any members that we have that might be 
affected by the increase in the co-payments. And one of our 
members that actually works on our staff, based on the co-
payments he pays now for different types of equipment and 
services and balanced against the proposal for the increase in 
the co-payments and the $250 enrollment fee, we projected that 
he would pay upwards of 200 percent more than what he currently 
pays by increasing those co-payments. And we just felt that 
that is ridiculous, I guess.
    Chairman Specter. Mr. Surratt, what do you think about the 
idea of allowing veterans to come in just for pharmaceutical 
supplies without being enrolled for care? Do you think that 
would be a good policy, or do you think it would unduly burden 
the VA, as Secretary Principi testified?
    Mr. Surratt. Well, I think it has some pros and cons, Mr. 
Chairman.
    Certainly if veterans could get their medical treatment 
privately, thereby saving VA money, and come only for the 
prescriptions, that would be of benefit to the VA. On the other 
hand, if so many veterans took advantage of that that VA spent 
more money than it would otherwise, then you could end up not 
saving money by that.
    We are also concerned that VA would become for some 
veterans a provider of one service, pharmacy benefits, rather 
than a whole continuum of benefits.
    So, quite frankly, we don't know, but we think there could 
be some serious problems with that.
    Chairman Specter. Mr. Jones, you have had a lot of 
experience on Capitol Hill. We see the immovable object, the 
limitation of funds, and the irresistible force, the greater 
needs of veterans. And when enrollments of Category 8 veterans 
are suspended, it puts a lot of people in jeopardy. There may 
be some relief for those over 65. But those under 65 are going 
to be without services.
    If you were chairman of this committee, what action plan 
would you undertake?
    Mr. Jones. I would press as hard as I could, Mr. Chairman, 
to ensure that the correct priorities for spending were 
selected by the Senate. We believe that veterans' priorities 
rank very high on the list. And most of our freedoms that we 
cherish today come from the work of those who put their lives 
on the line, that honor should be respected by a country.
    We know of leaders, over history, who have wisely said that 
failure to respect those who have served your Nation will soon 
result in a Nation no one will serve. I would put priorities 
first with veterans, whether it means tax policy or 
recommendation for billions of dollars of tax reductions, carve 
that down just $2 billion. Whether it is in any other policy of 
a multi-trillion budget, just $2 billion would resolve the 
problems in health care.
    And I would move, as best I could, sir, as you are doing, 
to encourage the Senate to accept the priorities of the 
veterans first. And we appreciate the job you are doing.
    Chairman Specter. Well, gentlemen, thank you. Thank you 
very much. You are invited to stay in touch as the year 
unfolds.
    There have been consistent efforts to increase the Veterans 
budget over and above what has been proposed by the 
Administration, and I think Congressman Smith, chairman on the 
House side, has very serious reservations about the adequacy of 
the Administration's proposal, as I do.
    At the same time, we are faced with very tight budget 
constraints overall, but your insights and your contacts with 
your members are really invaluable in showing us which way to 
go. So stay in touch.
    Thank you all very much.
    [Whereupon, at 5:36 p.m., the hearing was adjourned.]

                            A P P E N D I X

                Prepared Statement of Hon. Bob Graham, 
                       U.S. Senator from Florida

    I welcome our witnesses to today's hearing, my first as Ranking 
Member of this Committee. Thank you, Senator Specter, for calling this 
hearing. I look forward to working with you, the other Members of this 
Committee, Secretary Principi, and the veterans' service organizations 
to meet the needs of the men and women who have served our Nation.
    Today, we begin the long process of ensuring that the budget for 
Fiscal Year 2004 will allow VA to provide veterans with the care and 
benefits they have earned.
    The Administration has extolled the proposed VA budget as a 
historic increase, beyond any expectation in the current economic 
climate. It has been touted as an increase of seven to 11 percent over 
last year's budget, depending on who is speaking and whose fuzzy math 
they are referring to. As we shape VA's budget for the next year, we 
must move beyond hopeful rhetoric and take an honest assessment of the 
needs of veterans.
    When you strip away the new fees that are to be paid directly by 
veterans, the theoretical management efficiencies, and the sleight-of-
hand accounting tricks, the Administration has asked for an 
appropriation that barely keeps pace with inflation.
    It is disingenuous to boast of a historic increase that relies on 
an annual fee levied upon so-called ``higher income'' veterans--
especially when ``higher income'' can mean as little as $24,000 a year. 
It is insulting to laud such an increase while barring some veterans 
from VA health care and more than doubling co-payments for others. And 
it is nothing short of contemptuous to deliberately drive veterans from 
the system and count that as savings.
    When we enacted eligibility reform in 1996, we opened VA's doors to 
all veterans--and saw an increase in the number of veterans using the 
system by 54 percent. I see this increase as a tribute to the quality 
of care the agency provides. But it is also an indication of a 
shortcoming in our Nation's healthcare infrastructure--namely, the need 
for a meaningful Medicare prescription drug benefit and modernization 
of the Medicare program.
    While VA's committed professionals are struggling to handle the 
increased patient load, they are doing it without a corresponding 
increase in resources. It is certainly not acceptable for a veteran to 
wait six months or more for vital health care. While I understand that 
Secretary Principi is striving to shrink waiting times for health care 
appointments, I fail to see how cutting off enrollment for new veterans 
will shorten the wait for those already enrolled.
    One of my major concerns with the budget proposal is VA's reliance 
on collections to fund healthcare. It relies heavily on collections 
from those veterans who will now be barred or discouraged from seeking 
VA health care because of the Administration's fee increases and 
program restrictions. In addition, with VA's history surrounding 
collections from third-party payers, projections in the budget are 
highly optimistic. This means that the money taken directly from 
veterans' pockets will become even more critical to VA's operations. 
And this is not a viable long-term solution for meeting the needs of 
our veterans.
    Restricting nursing home care for veterans in the future also will 
not solve the problems we face while caring for an aging veterans 
population. When Congress allowed VA to provide long-term care to a 
broader group of veterans, it intended for VA to develop non-
institutional alternatives before cutting nursing home beds. Instead, 
VA has dragged its feet instead of creating alternatives. The 
consequence? Veterans, many who may become seriously ill and expect 
care, may have no place to turn.
    Nowhere does this budget take into account the possibility that VA 
might be called upon to react to a disaster or to fulfill its Fourth 
Mission--caring for active duty military casualties. As this Nation 
prepares for the possibility of war, it is short-sighted to neglect 
this essential duty.
    My concern is not just limited to VA's health care system spending, 
but also the benefits programs budget. Secretary Principi, I commend 
the progress that VA professionals have made in reducing the staggering 
backlog of claims over the past year. However, the Administration 
proposes a flat lined benefits budget--which is actually a decrease 
when accounting for inflation. Currently, veterans are forced to wait 
almost 200 days for VA to make a determination of eligibility for 
benefits--we all agree this is unacceptable. With the proposed funding 
level, I have trouble believing VA will be able to meet the ambitious 
target of 100 days for processing new claims.
    As we begin discussing next year's budget proposal, there may be 
talk of scarce resources and meager increases as the best we can 
expect. Some believe that a $1.5 trillion tax cut should be our budget 
priority. But now is the time for us to fulfill our commitment to those 
who have served our Nation so honorably and they should be the 
priority. Ultimately, these budget issues are not a question of 
resources, they are a question of priorities.
    Thank you, Mr. Chairman.

                               __________

          Prepared Statement of Hon. Ben Nighthorse Campbell, 
                       U.S. Senator from Colorado

    Thank you, Mr. Chairman.
    I would like to welcome you, Mr. Secretary, and thank you for 
appearing before the committee today. I am looking forward to your 
testimony which will give us a better picture of how the Administration 
is going to address the serious issues facing the VA at this time. And, 
I also want to welcome the members of the VSOs who are going to comment 
on the budget today. I will be listening carefully to your testimony as 
you represent the opinions of veterans throughout the Nation.
    Though I am encouraged with the overall FY 2004 funding increase, 
and particularly the increase for health care, I continue to be 
concerned that we find a way to take care of what will be an increasing 
number of elderly veterans. In my home State of Colorado, several 
clinics are no longer able to take new patients due to a lack of 
funding and providers, and many others have been asked to wait up to a 
year for care. I think we can all agree that one of our greatest 
national responsibilities is the welfare of our Nation's veterans. It 
is critical that we find a balanced way to make good on the promises to 
them.
    Mr. Secretary, I appreciate your strong commitment to our veterans 
who have service-connected injuries and illnesses and have always 
admired you for stepping up to the plate to make the hard calls. 
However, the decisions to suspend enrollment for those who are not 
already on the priority ladder, and the proposals to add co-pays and 
enrollment fees for those not suffering from a military-related 
disability, will affect many veterans in my State of Colorado whose 
incomes are close to the cut-off for health care services. I will be 
listening carefully to the veterans who are meeting with me this month 
and I am looking forward to the testimony of the many veterans' 
organizations that will be testifying at the joint hearings during the 
next few weeks.
    Speaking as a veteran, I believe we need to do all we can to serve 
those who have so honorably served us all.
    Mr. Secretary, again, I thank you for being here. I look forward to 
hearing details of your budget proposal and how you plan to address 
these issues in an efficient and effective manner within the proposed 
budget. And, I look forward to working with you and the VSOs to make 
sure that our veterans receive the care they have been promised.
    I thank the chair and look forward to today's testimony.

                               __________

          Prepared Statement of Hon. John D. Rockefeller IV, 
                    U.S. Senator from West Virginia

    Thank you, Mr. Chairman.
    I welcome to this hearing my friend, Tony Principi, Secretary of 
the Department of Veterans Affairs, as well as Bob Roswell, Under 
Secretary for Health, Dan Cooper, Under Secretary for Benefits, Eric 
Benson, Acting Under Secretary for Memorial Affairs, Tim McClain, 
General Counsel and Bill Campbell, Assistant Secretary for Management. 
I am glad that you could all be here.
    I also welcome the members of the various Veterans Service 
Organizations who will be testifying today.
    As many of you have heard me say before, there is nothing that we 
do in this Committee that is more important than what we are doing 
today.
    We are here to discuss an annual budget that is expected to run the 
second largest agency in the United States Government--an agency which 
millions of veterans turn to on a daily basis--an agency that for many, 
many veterans is a crucial part of their daily lives. This is true in 
my State of West Virginia, and I believe in all your home States, as 
well.
    VA matters to veterans. During this budget process, we have an 
opportunity to show that veterans also matter to VA.
    This afternoon, we will discuss the President's budget and whether 
it will provide adequate funding in FY 2004 for medical care, 
specialized services, research, timely compensation and pension 
decisions, our homeless programs, education and vocational 
rehabilitation, VA's vital role in homeland security, and much more.
    And while we are doing this, we need to be ever mindful that we 
will, at the same time, be sending a message to our troops throughout 
the world about how well we, as a Nation, care for our veterans--and 
how prepared we are going to be to take care of today's heroes and 
heroines when they return home.
    Some of us here will disagree about this proposed budget. Some may 
say that the President's budget request is adequate. I say that it 
clearly is not.
    The President's budget proposal recommends that among other things, 
we increase prescription co-pays, bar Priority 8 veterans from 
enrolling, and restrict institutional long-term care benefits for our 
aging veterans. I say we should not.
    Some may continue to publicly blame Congress for not appropriating 
enough money for VA. Others will note that in the last several years, 
Congress has appropriated more money for VA than the President 
requested.
    But there is one place where I believe we can all come together.
    We all believe in the mission of the VA and the importance of what 
this department does, or we wouldn't be here. And I think that we all 
can agree that without adequate funding--and proper use of that 
funding--VA cannot fulfill its mission to our Nation's veterans--past, 
present or future.
    I hope that the results of this hearing, and the dialogue that 
follows, will be an FY 2004 budget of which we can all be proud--and a 
Department of Veterans Affairs that veterans across this country can 
rely on.
    I look forward to working with my colleagues, with Secretary 
Principi and his capable staff, and with our valuable VSO membership in 
an effort to make that happen.
    Thank you, again, for being here.
  

                                  
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