    [Senate Hearing 108-762]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 108-762

      THE ADMINISTRATION'S PROPOSED FISCAL YEAR 2005 BUDGET FOR VETERANS'
                                    PROGRAMS

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

                                    HEARING

                                   BEFORE THE

                         COMMITTEE ON VETERANS' AFFAIRS
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 SECOND SESSION

                                   __________

                               FEBRUARY 10, 2004

                                   __________

           Printed for the use of the Committee on Veterans' Affairs

     Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                     senate

                                     ______

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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, Kentucky                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, Staff Director and Chief Counsel
             Bryant Hall, Minority Staff Director and Chief Counsel

                                C O N T E N T S

                                  ----------

                               February 10, 2004
                                    SENATORS

                                                                       Page
    Specter, Hon. Arlen, U.S. Senator from Pennsylvania..............     1
        Prepared statement...........................................     1
    Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado,
      prepared statement.............................................     3
    Graham, Hon. Bob, U.S. Senator from Florida......................    15
        Prepared statement...........................................    16
    Akaka, Hon. Daniel K., U.S. Senator from Hawaii..................    21
    Murray, Hon Patty, U.S. Senator from the State of Washington.....    22
    Nelson, Hon. E. Benjamin, U.S. Senator from Nebraska.............    24
    Jeffords, Hon. James M., U.S. Senator from Vermont...............    25
    Rockefeller IV, Hon. John D., U.S. Senator from West Virginia....    27

                                   WITNESSES

    Principi, Hon. Anthony, Secretary, U.S. Department of Veterans
      Affairs; accompanied by Robert H. Roswell, M.D., Under
      Secretary for Health; John W. Nicholson, Under Secretary for
      Memorial Affairs; William H. Campbell, Assistant Secretary for
      Management; D. Mark Catlett, Principal Deputy Assistant
      Secretary for Management; and Robert Epley, Associate Deputy
      Under Secretary of Benefits for Policy and Program Management..     3
        Prepared statement...........................................     8
    Gaytan, Peter S., Principal Deputy Director, Veterans Affairs and
      Rehabilitation, The American Legion............................    39
        Prepared statement...........................................    40
    Fuller, Richard B., National Legislative Director, Paralyzed
      Veterans of America............................................    53
        Prepared statement...........................................   173
        The Independent Budget.......................................    54
    Surratt, Rick, Deputy National Legislative Director, Disabled
      American Veterans..............................................   175
        Prepared statement...........................................   176
    Hayden, Paul A., Deputy Director, National Legislative Service,
      Veterans of Foreign Wars of the United States..................   184
        Prepared statement...........................................   185
    Jones, Richard, National Legislative Director, AMVETS............   188
        Prepared statement...........................................   190

                      THE ADMINISTRATION'S PROPOSED FISCAL
                        YEAR 2005 BUDGET FOR VETERANS'
                                    PROGRAMS

                                  ----------

                           TUESDAY, FEBRUARY 10, 2004

                                   U.S. Senate,
                        Committee on Veterans' Affairs,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 3 p.m., in room
    418, Russell Senate Office Building, Hon. Arlen Specter
    (chairman of the committee) presiding.
        Present: Senators Specter, Campbell, Graham, Rockefeller,
    Jeffords, Akaka, Murray, and Nelson.

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

        Chairman Specter. Good morning, ladies and gentlemen. The
    Veterans' Affairs Committee will now proceed. We have a very
    distinguished panel of witnesses before us at the moment. My
    full statement will be admitted to the record, without
    objection.
        [The prepared statement of Chairman Specter follows:]
      Prepared Statement of Arlen Specter, U.S. Senator from Pennsylvania
        Good afternoon, ladies and gentlemen. And good afternoon to you,
    Secretary Principi. It is a pleasure to welcome you--and the veterans
    service organizations, who are scheduled to testify after you--to this
    hearing.
        The subject of today's hearing is the Administration's proposed VA
    budget for fiscal year 2005. We will hear testimony from Secretary
    Principi and the senior VA officials who have accompanied him here
    today. And we will hear from the service organizations who will voice
    the separate views of each organization, if they so choose, and who--
    except for The American Legion--will also speak as advocates for the
    ``Independent Budget.'' It is my hope that, armed with this testimony,
    the Committee will be in a position to render its collective judgment
    on a number of weighty policy questions. Among them are these:
         What precisely is VA asking for this year in terms of
    added appropriations to provide medical care benefits to currently-
    enrolled veterans?
         Will this amount be sufficient to get VA through the
    year--even assuming that VA continues to bar new enrollments of so-
    called ``Priority 8'' veterans? Or will VA need more, just to maintain
    current levels of services?
         What precisely will VA need in terms of added funding if,
    for example, the Congress declines to enact certain ``policy
    proposals'' requested by VA?
         And finally, what would it take for VA to be able to
    reopen enrollments to ``Priority 8'' veterans? That is a prospect that
    I, for one, have not given up on.
        These are critical questions, questions that we raise this year at
    a critical time while the Nation is at war.
        We mourn the deaths of every service member who has fallen in Iraq
    and Afghanistan, and we assure the families of these brave men and
    women that their sacrifice--the ultimate sacrifice--will not be
    forgotten. But while we mourn those who have fallen, we are also
    mindful of the fact that we have been relatively fortunate. One year
    ago, we were prepared for the possibility that hundreds--even thousands
    or tens-of-thousands--might fall, particularly as our troops approached
    Baghdad. That did not happen; we are, of course, fortunate that it did
    not.
        But now we face a very difficult situation in Iraq. While our
    troops were greeted with enthusiasm initially--how can any of us ever
    forget the scene in Baghdad when the tyrant's statue was pulled down by
    the Iraqis . . . with some small assistance from United States troops--
    they now face a very troubling situation. They are viewed by at least
    some elements of the Iraqi population as enemy occupiers, and they face
    the threat of enemy small arms fire, and terrorist bombings, daily. Our
    men and women will overcome these obstacles to peace and stability in
    Iraq--but not without a price. The Nation--and VA--must be prepared to
    bind up the bodily and emotional wounds that will ensue as our troops
    fully stabilize Iraq. After we have done that, the Nation--and VA--must
    be prepared to offer the readjustment benefits that these veterans will
    have earned. For we cannot have and we will not have--another
    generation of veterans, like Vietnam veterans, who were asked to fend
    for themselves after their return from the battlefield.
        I am concerned that this proposed budget may not suffice to meet
    these requirements. Rather, it seems barely adequate--if it is adequate
    at all--to meet the existing challenges that face VA. It will be my
    mission here to find out whether this budget proposal is, at minimum,
    adequate. And if--as I expect--it is not adequate, it will be my
    mission to find out what it will take for VA to maintain current
    services; what it will take to care for and provide services to the new
    young veterans who will return from Iraq this year; what it will take
    to work through, and eliminate, clinical appointment waiting times; and
    what it will take to reopen the VA healthcare system to so-called
    ``low-priority'' veterans. That is the budget number I want to identify
    and secure for VA.
        I know that the Secretary shares these goals. He surely is not a
    man who will fail to meet the needs of the brave new veterans who are
    earning their benefits in Iraq today. And he is not a man who will fail
    to meet the needs of veterans who have earned their benefits in prior
    wars. He has proved that to me repeatedly--most recently, on the
    Saturday that just passed when he visited with veterans in Oil City, PA
    and Warren, PA. I think few Cabinet Members would have made such a trip
    on the weekend through blizzard conditions. But I dare say that
    Secretary Anthony J. Principi is not like most Cabinet Members. He is,
    in this Chairman's opinion, the most extraordinary man ever to serve as
    Secretary of Veterans' Affairs. So I will not be critical of him. I
    will just seek to learn what VA will need to accomplish the goals that
    he and I--and the President--share.
        Mr. Secretary, I look forward to your testimony. And I look forward
    to continuing to work with you in service to the Nation's veterans.

        Chairman Specter. I want to begin by recognizing our
    distinguished Secretary of Veterans Affairs, Anthony Principi,
    with special appreciation for his coming to Pennsylvania last
    Saturday to announce the opening of veterans' clinics in Will
    City, Pennsylvania, and Warren, Pennsylvania. It was a rare
    occurrence for a cabinet officer to visit a city of that size,
    those sizes. We are very grateful to the Secretary. The people
    of Pennsylvania, more importantly, were very grateful and I
    think it is a solid sign as to the dedication that the
    Secretary and the Department have to aiding the veterans of
    America.
        I have said on many occasions, but never too often, my deep
    commitment to the veterans arises from the first veteran I
    knew, who was my father, Harry Specter, who was a veteran of
    World War I, who was promised a bonus, did not get his bonus,
    and perhaps in this year's appropriations bill we can deliver
    in a metaphorical sense on my father's bonus.
        Senator Campbell, would you care to make an opening
    statement?
        Senator Campbell. No. I think with your permission I will
    just submit for the record, Mr. Chairman. I have to leave in
    about half an hour, so I would rather hear Secretary Principi,
    and welcome, Mr. Secretary.
        Chairman Specter. Thank you very much, Senator Campbell.
        [The prepared statement of Senator Campbell follows:]

       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
    VSO's 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 notice that the fiscal year 2005 budget calls for a small
    increase in discretionary health care funding for veterans, I continue
    to be concerned that we find a way to take care of what will be an
    increasing number of elderly veterans. 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.
        I am also encouraged that the budget includes monies for
    construction under the CARES (Capital Asset Realignment for Enhanced
    Services) initiative. I understand that incorporating change into a
    huge Federal entity is difficult. But, changing from institutional care
    to primary and community-based care has left the VA with vacant and
    under-utilized buildings. Deciding how to use these facilities is
    difficult and disposing of such assets is a complex process. But,
    operating hundreds of unneeded buildings can cost billions of dollars
    each year. I look forward to the draft report of the CARES Commission
    which I understand is expected sometime this week.
        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 proposals to add co-pays and user 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 cutoff for
    health care services.
        Speaking as a veteran, I believe we need to do all we can to serve
    those who have so honorably served us all. And, knowing that our
    soldiers are putting their lives on the line for us at this moment
    makes it even more important that we make veterans' health care our No.
    1 priority.
        I will be listening 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.
        Mr. Secretary, again, I thank you for being here. I look forward to
    hearing details of the budget proposal and how you plan to address
    these issues within the proposed budget. I look forward to working with
    you and the VSO's to make sure that our veterans receive the care they
    have been promised.
        I thank the chair.

        Chairman Specter. Then, Mr. Secretary, the floor is yours.

        STATEMENT OF HON. ANTHONY J. PRINCIPI, SECRETARY, U.S.
       DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY ROBERT H.
     ROSWELL, M.D., UNDER SECRETARY FOR HEALTH; JOHN W. NICHOLSON,
      UNDER SECRETARY FOR MEMORIAL AFFAIRS; WILLIAM H. CAMPBELL,
    ASSISTANT SECRETARY FOR MANAGEMENT; D. MARK CATLETT, PRINCIPAL
     DEPUTY ASSISTANT SECRETARY FOR MANAGEMENT; AND ROBERT EPLEY,
      ASSOCIATE DEPUTY UNDER SECRETARY OF BENEFITS FOR POLICY AND
                           PROGRAM MANAGEMENT

        Secretary Principi. Thank you, Mr. Chairman, Senator
    Campbell, and members and staff of the committee. It is always
    a pleasure to be before you. It was a great, great pleasure and
    a privilege to be in Pennsylvania this past weekend and to be
    around so many heroes of World War II and Korea and Vietnam who
    were in the audience.
        Eight-hundred-thousand more veterans will receive VA
    medical care this year and next year if this bill is approved
    than in 2001, the year I took office as Secretary of Veterans
    Affairs, and these veterans are the beneficiaries of a series
    of increased budgets requested by the President and made
    tangible through active and successful advocacy by the members
    of this committee and throughout this body, and I thank you for
    your support for the Department and the men and women we have
    the privilege to serve.
        As the first chart shows--please show that first chart--our
    health care budget with the enactment of the 2005 request have
    increased more than 40 percent, and on behalf of America's
    veterans, I thank the members of the committee again for
    following through on your commitment to our nation's citizen
    soldiers.

        [GRAPHIC] [TIFF OMITTED] T7531.001

        I believe that this is the golden age of VA health care,
    our quality of care never before so good, veterans' access to
    VA care never before this broad, and never before have we
    treated so many veterans at so many locations, and please show
    the second chart.
        Since 2000, 2 years of the previous administration, my
    predecessor, through 2005, we will have treated one more
    million veterans than we did in the year 2000. And since the
    year 2000, and again, our projections through the year 2005
    will show that three million more veterans have enrolled in the
    VA health care system, unprecedented growth in the number of
    veterans who have come to us for care and who have enrolled in
    the VA health care system, a significant number who have not
    used the system but have enrolled in the event that they may
    need to come to us.
    [GRAPHIC] [TIFF OMITTED] T7531.002

        For 2005, our total health care budget authority would
    increase 4.2 percent over 2004, and to be clear, that figure,
    that percentage, includes our capital construction as well as
    our collections. We have counted collections as part of the VA
    budget since 1998, when the Congress made the decision to allow
    those resources to remain in the VA health care system rather
    than going into the United States Treasury as miscellaneous
    receipts. I believe that we will be able to sustain the forward
    momentum we have achieved over the last 3 years.

        [GRAPHIC] [TIFF OMITTED] T7531.003

        If the President's request is endorsed by Congress, we will
    have the resources we need to meet our goal of scheduling non-
    urgent primary care for 93 percent of veterans within 30 days
    and 99 percent within 90 days. Our goal is to totally eliminate
    our waiting list within 90 days.
        If the 2005 budget is approved, we will be able to provide
    timely quality treatment to all the veterans we believe will
    come to us seeking health care this year and next, and we will
    continue to focus on the medical care needs of the men and
    women who were disabled in uniform, our service-connected
    disabled veterans. I believe our highest priority needs to be
    for them. For the lower-income veterans, the poorest of the
    poor who have few other options for health care in this
    country, and those who need our specialized services--spinal
    cord injury, blind rehabilitation, they too have been
    identified by Congress as the highest priority.
        Compared to the current fiscal year, this budget request
    more than doubles our appropriation request for construction of
    CARES identified new and improved facilities. Would you please
    show the construction chart, which is that one there.

        [GRAPHIC] [TIFF OMITTED] T7531.004

        This has been a big concern to all of us, I know to members
    of the committee and certainly to me, the aging of our
    infrastructure, the modernization that needs to take place.
    Using the authority granted by Congress this past year, we will
    also apply up to $400 million of the 2004, this year's medical
    care appropriation, to CARES projects. These actions will
    enable us to commit approximately $1 billion more in 2004 and
    2005 toward transforming VA's medical facilities into a 21st
    century health care system.
        Mr. Chairman, members of the committee, I know that you
    have a concern and share with me a goal of ensuring that we
    provide high quality medical care for our young men and women
    returning home from our overseas conflicts Enduring Freedom and
    Iraqi Freedom, and I am absolutely confident that this budget
    will enable us to meet our commitment to this new generation of
    freedom's defenders.
        The numbers are relatively small so far. Of the 83,000
    service members, including Guard and Reserve, who have
    separated from the military and served in Iraqi Freedom
    conflict, roughly 12 percent have come to us for care, about
    9,700 of those veterans. Of the 15,000 who have been discharged
    and served in Enduring Freedom, Afghanistan, roughly 1,400 have
    come to us for care since they have been discharged, and I
    expect those numbers will increase, but they are relatively low
    compared to Persian Gulf I and, of course, Vietnam and some of
    our other conflicts. But we need to be prepared to take care of
    this new generation of men and women who have fought.
        We still have challenges. Of that, there is little doubt.
    We are responding to those challenges with policy initiatives.
    First, we emphasize our commitment to the highest priority
    veterans by asking Congress to raise the income threshold to
    $16,500 from $9,800 for exempting low-income veterans from
    pharmacy copayments, lifting the burden of copayments from the
    poorest of our veteran population who seek care in the VA. We
    also ask that you eliminate all copayments imposed on former
    POWs. We also proposed to eliminate hospice care copayments,
    hospice care provided in the home, hospice care provided under
    contract. We ask for the authority to reimburse our patients
    for the copayments that they must pay their insurance companies
    when they seek emergency care in private sector hospitals.
        At the same time, we ask Congress to approve both a modest
    increase in pharmacy copayments and an annual fee totaling less
    than $21 per month, a very small portion of the cost of care,
    for higher-income non-service-disabled veterans using our
    system. I want to be very clear to our veterans that this is
    not an enrollment fee. It would be an annual use fee collected
    only from veterans receiving care and could be paid on a
    monthly or annual basis, depending upon the needs of the
    veteran.
        For many, many years, Congress has mandated such a fee for
    enlisted personnel--tech sergeants, staff sergeants, petty
    officers--who spent at least 20 years in the military and
    retire and enroll in the Department of Defense health care
    system, Tricare. They are required to pay $254 a year to be
    enrolled in the DOD health care system after serving 20 years
    on active duty, and we are just asking those who have no
    service-connected disabilities, do not stay in the military and
    retire, and have higher incomes, usually higher than what a
    petty officer or staff sergeant retires on, to pay a modest use
    fee.
        We can meet some of our other challenges on our own. For
    example, I approved the recommendation of the Under Secretary
    of Health, Dr. Roswell, to address regional funding imbalances
    by including all veterans, Category 7 and Category 8 veterans,
    using our system and our resource allocation model.
        In addition to improving access to health care, the
    President directed me to bring our benefits processing under
    control, and by last year, thanks to the hard work of the
    people in VA, we were able to reduce our inventory of rating-
    related claims, the time it takes a veteran to receive a
    decision for a disability claim or pension, down to 253,000
    from a high of 432,000, and the percentage of veterans waiting
    more than 6 months for a decision was down to 18 percent from
    48 percent. I don't think this would have happened without the
    increase requested by the President and the decisions of this
    body in giving us additional people to handle the claims
    workload. Our backlog has gone up recently due to a September
    2003 court decision, but Congress has corrected that issue and
    we are now back on track to achieve our goals.
        I think it is very telling that the number of veterans
    receiving service-connected disability compensation is
    projected to increase to 2.6 million from 2.3 million in 2001,
    and we see a sizable increase in the funding, the mandatory
    funding for disability compensation. In 2005, the President is
    asking for almost $2.8 billion in additional funding for
    disability compensation.
        VA is not only health care and benefits, we also honor our
    veterans in their final rest. Advanced by the President's
    budget request, we will continue the greatest expansion of the
    national cemetery system since the Civil War. One new cemetery
    has just been opened. We will open five more new cemeteries
    over the next year, and we have proposed to add six new
    cemeteries to the system by the year 2009. This will increase
    our gravesites by 85 percent over the current number within our
    120 existing national cemeteries, so this is indeed a major,
    major expansion of our national cemetery system, and, of
    course, it is required because of the large number of veterans,
    World War II and Korea, passing from us, some 1,800 a day. So
    we are very, very pleased with this expansion.
        I am confident that the President's request and the actions
    of the Congress will allow us to continue to build on our
    record of commitment and success. I thank the committee for all
    you have done to help us achieve our goals and I look forward
    to your questions. Thank you.
        Chairman Specter. Thank you very much, Mr. Secretary.
        [The prepared statement of Secretary Principi follows:]

        Prepared Statement of Hon. Anthony J. Principi, Secretary, U.S.
                         Department of Veterans Affairs

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

                                  MEDICAL CARE

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

            CAPITAL ASSET REALIGNMENT FOR ENHANCED SERVICES (CARES)

        The 2005 budget includes $524 million of capital funding to move
    forward with the Capital Asset Realignment for Enhanced Services
    (CARES) initiative, a figure more than double the amount requested for
    CARES for 2004. This is a multiyear program to update VA's
    infrastructure to meet the needs of veterans in the 21st century and to
    keep our Department on the cutting edge of medicine. CARES will assess
    veterans' health care needs across the country, identify delivery
    options to meet those needs in the future, and guide the realignment
    and allocation of capital assets so that we can optimize health care
    delivery in terms of both quality and access. The resources we are
    requesting for this program will be used to implement the various
    recommendations within the National CARES plan by funding advance
    planning, design development, and construction costs for capital
    initiatives.
        Mr. Chairman, the independent commission that is reviewing our
    draft CARES plan will be delivering their report to me soon. The
    commission had originally intended to complete their work by the end of
    November, but due to the intense interest in this project and the
    overwhelming volume of information they are faced with examining, their
    report has been delayed a few months. I look forward to reviewing the
    commission's analysis and recommendations. We will thoroughly evaluate
    their report and seriously consider their recommendations before making
    our final realignment decisions and preparing for the next phase of the
    CARES program.

                        MEDICAL AND PROSTHETIC RESEARCH

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

                               VETERANS' BENEFITS

        The Department's 2005 budget request includes $36 billion for the
    entitlement costs associated with all benefits administered by the
    Veterans Benefits Administration (VBA). Included in this total, is an
    additional $2.740 billion for disability compensation payments to
    veterans and their survivors for disabilities or diseases incurred or
    aggravated while on active duty. Recipients of these compensation
    benefits will have increased from 2.3 million in 2001 to over 2.6
    million in 2005. The budget includes another $1.19 billion for the
    management of these programs: disability compensation; pensions;
    education; vocational rehabilitation and employment; housing; and life
    insurance. This is an increase of $26 million, or 2.2 percent, over the
    enacted level for 2004.
        We have made excellent progress in addressing the Presidential
    priority of improving the timeliness and accuracy of claims processing.
    Not only have we hired and trained more than 1,800 new employees in the
    last 3 years to directly address our claims processing backlog, but the
    productivity of our staff has increased dramatically as well. Between
    2001 and 2003, the average number of claims we completed per month grew
    by 70 percent, from 40,000 to 68,000. Last year the inventory of
    rating-related compensation and pension claims peaked at 432,000. By
    the end of 2003, we had reduced this backlog of pending claims to just
    over 250,000, a drop of over 40 percent. We have experienced an
    increase in the backlog during the last few months, due in large part
    to the impact of the court decision (PVA v Secretary of Veterans
    Affairs) that interpreted the Veterans Claims Assistance Act of 2000 as
    requiring VA to wait a full year before denying a claim. However, this
    rise in the number of pending claims will be temporary, and we expect
    the backlog to be back down to about the 250,000 level by the end of
    2004. We thank the Committee for the legislation that eliminated the
    mandatory 1-year waiting period.
        In 2002 it took an average of 223 days to process a claim. Today,
    it takes about 150 days. We are on track to reach an average processing
    time of 100 days by the end of 2004 and expect to maintain this
    timeliness standard in 2005. One of the main reasons we will be able to
    meet and then sustain this improved timeliness level is that we have
    reduced the proportion of claims pending over 6 months from 48 percent
    to just 19 percent during the last 3 years.
        To assist in achieving this ambitious goal, VA established benefits
    delivery at discharge programs at 136 military installations around the
    country. This initiative makes it more convenient for separating
    servicemembers to apply for and receive the benefits they have earned,
    and helps ensure claims are processed more rapidly. Also, the
    Department has assigned VA rating specialists and physicians to
    military bases where servicemembers can have their claims processed
    before they leave active duty military service.
        We expect to see an increase in claims resulting from the return of
    our brave servicemen and women who fought to protect the principles of
    freedom in Operation Enduring Freedom and Operation Iraqi Freedom. We
    propose to use $72 million of the funds available from the war
    supplemental during 2004 to address the challenges resulting from an
    increasing claims processing workload in order to assist us in reaching
    our timeliness goal of 100 days by the end of 2004. We propose to use
    the remaining $28 million in 2005 to help sustain this timeliness
    standard.
        At the same time that we are improving timeliness, we will be
    increasing the accuracy of our claims processing. The 2005 performance
    goal for the national accuracy rate for compensation claims is 88
    percent, well above the 2001 accuracy level of 80 percent.
        This budget request includes additional staff and resources for new
    and ongoing information technology projects to support improved claims
    processing. We are requesting $2 million for the Virtual VA project,
    the ultimate goal of which is to replace the current paper-based claims
    folder with electronic images and data that can be accessed and
    transferred electronically through a web-based solution. The 2005
    funding will maintain Virtual VA at the three Pension Maintenance
    Centers. We are seeking $3.4 million for the Compensation and Pension
    Evaluation Redesign, a project that will result in a more consistent
    claims examination process. In addition, we are requesting $2.6 million
    in 2005 for the Training and Performance Support Systems, a multi-year
    initiative to implement five comprehensive training and performance
    support systems for positions critical to the processing of claims.
        The Veterans Service Network (VETSNET) development is nearing
    completion and is scheduled to begin deployment in April 2004. This
    system offers numerous improvements over the legacy Benefits Delivery
    Network (BON) that it is replacing (e.g., correction of material
    weaknesses and implementation of comprehensive claims processing within
    a modern corporate environment). Sufficient platform capacity is
    required to successfully deploy VETSNET and to ensure the continued and
    uninterrupted payment of approximately $24 billion annually in benefits
    to around 3.4 million deserving veterans and their beneficiaries.
    Therefore, $5 million in funding is requested to procure the capacity
    required. This platform capacity will ensure successful deployment and
    operation of VETSNET throughout VBA's Regional Offices and in a modern
    corporate environment that integrates all components of claims
    processing (e.g., establishing the claim, rating the claim, preparing
    the claim award, and paying the claim award). Without sufficient
    platform capacity, the Veterans Benefits Administration will be unable
    to operate this critical new system.
        In support of the education program, the budget proposes $5.2
    million for continuing the development of the Education Expert System.
    These resources will be used to expand upon an existing prototype
    expert system and will enable us to automate a greater portion of the
    education claims process and expand enrollment certification. This
    initiative will contribute toward achievement of our 2005 performance
    goals for the average time it takes to process claims for original and
    supplemental education benefits of 25 days and 13 days, respectively.
        VA is requesting $9.6 million for the One-VA Telephone Access
    project, an initiative that will support all of VBA's benefits
    programs. This initiative will result in the development of a Virtual
    Information Center that forms a single telecommunications network among
    several regional offices. This technology will allow us to answer calls
    at any place and at any time without complex call routing devices.
        In order to make the delivery of VA benefits and services more
    convenient for veterans and more efficient for the Department, we are
    requesting $1.5 million for the collocation and relocation of some
    regional offices. Some of this will involve housing regional office
    operations in existing VA medical facilities. In addition, we are
    examining the possibility of collocations using enhanced-use authority,
    which entails an agreement with a private developer to construct a
    facility on Department-owned grounds and then leasing all or part of it
    back to VA. At the end of these long-term lease agreements, the land
    and all improvements revert to VA ownership.
        In recognition of the fact that the home loan program is primarily
    a benefit that assists veterans in making the transition from active
    duty life to veteran status, the 2005 budget includes a legislative
    proposal to phase in an initiative to limit eligibility for this
    program to one-time use. Under our proposal, one-time use of the loan
    program would apply to any person who becomes a veteran after the date
    this proposed legislation becomes law. Those who are already veterans,
    or who will achieve veteran status prior to enactment of the proposed
    law, would retain their eligibility to use the home loan benefit as
    many times as they need to for a period of 5 years after the law takes
    effect. Once that 5-year period has passed, they would no longer be
    able to use this benefit more than once. This legislative proposal does
    not change eligibility for active duty personnel who would retain the
    ability to use this benefit as many times as they need it. VA home
    loans are important for first-time buyers because they require no down
    payment-making them riskier than other loans. After the first use, home
    equity can be used to obtain more favorable terms from conventional
    loans, or through the Federal Housing Administration. Therefore,
    limiting this benefit to its original intent of one-time use after
    leaving the military will lower loan volume and risk, save money over
    the long-term, and coordinate Federal programs.

                                     BURIAL

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

                            MANAGEMENT IMPROVEMENTS

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

                                    CLOSING

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

        Chairman Specter. I turn now to our distinguished ranking
    member, Senator Graham, for an opening statement.
        Senator Graham. Thank you very much, Mr. Chairman. I have a
    statement that I would like to file for the record.
        Chairman Specter. Without objection, it will be made a part
    of the record in full.

              STATEMENT OF HON. BOB GRAHAM, U.S. SENATOR
                              FROM FLORIDA

        Senator Graham. I would like to summarize some of the
    issues that I raise in that opening statement. I am concerned
    about the resource commitment that this budget makes, which has
    been calculated as a 1.8 percent increase for medical care and
    calls for the reduction in other areas, such as 540 staff
    responsible for processing veterans' claims. I am also
    concerned about the question of the additional pressures that
    are being placed upon the VA medical system.
        For an example, there will be a significant number of those
    American men and women who have been wounded in Afghanistan or
    Iraq who will return to the United States, separate from the
    military, and then be statutorily entitled to 2 years of
    medical care provided by VA. I am concerned as to whether we
    are prepared to meet that challenge.
        I am also concerned about the reliance on annual user fees
    on higher-income veterans,--those with income of as little as
    $24,000 a year. Also, the doubling of copayments for
    prescription drugs is a matter of concern at a time when we are
    trying to expand coverage of prescription drugs in the Medicare
    program. I will ask some questions about the consistency here.
        In my State, we have had difficulty with delays in veterans
    being able to get access to health care providers. There is a
    standard being suggested that enrolled veterans would be seen
    within 30 days for primary care. Does this budget provide the
    resources necessary to achieve that goal?
        At the Gainesville VA Hospital, there are several hundred
    veterans who have been waiting well beyond 30 days for their
    initial visit and there are 600 veterans who have waited more
    than a year for services like audiology at the Fort Myers
    clinic. How will this budget impact on those delays?
        Mr. Principi, not to just focus on some of the areas of
    concern, I want to commend you and the VA for the professionals
    that you have been able to bring in and retain within the VA
    system. I recently spent time at the VA hospital in Miami and
    at the outpatient clinic in Ocala, and I was very impressed
    with the quality of providers and the level of not just
    satisfaction, but enthusiasm, of those veterans who had
    received care from those professionals.
        Mr. Chairman, I have other points that are made in the
    statement that will be in the record, but at this point, I
    would defer to other members of the committee and then to
    questions.
        Chairman Specter. Thank you very much, Senator Graham.
        [The prepared statement of Senator Graham follows:]
          Prepared Statement of Bob Graham, U.S. Senator from Florida
        I join Senator Specter in welcoming our witnesses to today's
    hearing and I look forward to working with the Chairman, 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 fiscal year
    2005 budget allows VA to provide veterans with the care and benefits
    they have earned. To say that the proposed budget is tough is an
    understatement. The request includes only a 1.8 percent increase for
    medical care, and it calls for cutting 540 staff that process veterans
    benefits.
        This budget, unfortunately, reflects the priorities of this
    Administration and, if enacted, will have devastating effects on the
    men and women who have served this country with honor. The
    Administration has said the proposed VA budget will ``provide the best
    possible health care and benefits to our veterans.''
        I would disagree, and I believe we will hear similar sentiments
    from our witnesses on the second panel. As we shape VA's budget for the
    next year, we must move beyond hopeful rhetoric and political
    gamesmanship and take an honest assessment of the needs of veterans. We
    must then match this assessment with real dollars.
        When you take away the new and higher fees that are to be paid
    directly by veterans and the theoretical management efficiencies, the
    Administration has asked for an appropriation that fails to cover half
    of the expected inflationary increases. I take issue with a budget that
    relies on an annual user 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 this budget, but continue to bar veterans
    from VA health care. It is unfair to double the prescription drug co-
    payments for other veterans. And it is nothing short of hypocrisy to
    deliberately reduce demand for health care services and then to count
    that as savings.
        I am relieved to hear that waiting times for care will disappear in
    early fiscal year 2004, but am mystified as to how this will occur.
    Does this mean that all enrolled veterans will be seen within 30 days
    for primary care? Or does this mean that veterans will not have to wait
    to be assigned an appointment, but will quickly get an appointment that
    is scheduled up to a year later? Will the hundreds of veterans who must
    wait more than a year to see a doctor at the Gainesville VA Hospital or
    the 600 veterans waiting more than a year for audiology care at the Ft.
    Myers clinic be seen promptly? VA's committed professionals are already
    struggling to handle the increased patient load, and for the next
    fiscal year they will be doing it without a corresponding increase in
    resources.
        It is not only the VA health care system that stands to suffer
    under this budget. The Administration proposes a cut, for the second
    year in a row, in the number of staff who process VA benefits,
    including those who decide veterans' disability claims. I commend the
    progress that VA professionals have made in reducing the staggering
    backlog of claims over the past year, but I fear that these cuts will
    erode the gains VBA has made. In addition, this budget request does not
    account for recent changes to the system. Specifically, last year's
    concurrent receipt legislation will allow military retirees that are
    more than 50 percent disabled to receive both their disability pay and
    pension payments.
        However, this new benefit may bring a rush of claimants into the
    system who believe they are eligible, creating an additional backlog.
    The Administration's budget does not account for additional claims that
    service members returning from Iraq and Afghanistan will file during
    the next 2 years.
        In addition, the Administration has failed to consider the health
    care needs of these returning service members, re-directing $100
    million intended for their care. Even without these demands, veterans
    are currently forced to wait 189 days for VA to make a determination of
    eligibility for benefits. With the proposed funding level, I have
    trouble believing VA will be able to meet, much less sustain, the
    ambitious target of 100 days for processing new claims.
        As we begin discussing next year's budget proposal, there will be
    talk of fiscal discipline. It is true that the deficit is a serious
    problem we must tackle, but we must make choices. Should we choose to
    make a permanent tax cut our nation's priority? Or should we fulfill
    our commitment to those who have served our Nation honorably? We cannot
    send the signal to our men and women in uniform that we will not care
    for them upon their return. I fear the Administration's budget proposal
    may send that signal.

        Chairman Specter. We will now proceed with our customary
    approach of 5-minute rounds of questions on the early bird
    principle of order of arrival.
        Mr. Secretary, I commend you for the candid testimony which
    you gave to the House last week as reported in CQ that you
    asked for a $1.4 billion addition, which was denied by the
    Office of Management and Budget. I think that kind of candor is
    really necessary. I know the custom in many quarters is to not
    be candid, but we understand the budget constraints. We know
    about the deficit. We understand the problems with the economy
    and the very heavy costs of the wars, the ones against
    terrorism, Al Qaeda, and the other in Iraq. That kind of candor
    is very impressive.
        We have noted your request for copayments and we will
    consider them carefully, but in a spirit of candor from this
    side of the table, they are very, very difficult. When you
    start making evaluations of ability to pay, that is very hard.
    And in an era where we are calling on our servicemen and women
    to do so much and recruiting depends in significant manner on
    what is happening to veterans who have been discharged as well,
    we take that into account before we make our own budgetary
    considerations.
        There has been a good deal of talk about Medicare
    subvention, where the veterans' budget would be supplemented by
    the care you give which could have been, perhaps should have
    been, borne by Medicare. You have a new program called VA
    Advantage. Would you describe that new approach and what you
    anticipate from that by way of increased revenues?
        Secretary Principi. Yes, Mr. Chairman. Secretary Thompson
    and I over the past year have worked to develop a program, a
    concept, wherein veterans who are in Category 8, because of
    this dramatic increase in workload and the Congress directs
    that I make an annual enrollment decision, have not been able
    to enroll in the VA health care system would be able to come to
    the VA for care under this VA Advantage program and we would be
    reimbursed from Medicare.
        Over the past 6 to 8 months, we have been working very
    closely with the folks at HHS and CMS to work through the many,
    many legalistic and regulatory issues on getting reimbursed
    from Medicare, but I am hopeful by the end of this year those
    veterans can come to the VA for health care and VA would get
    reimbursed by the Medicare Trust Fund. I am not sure we have a
    projection on how much we would receive, but the cost of their
    care would be covered in full by Medicare. So it is the first
    time that we have been able to develop a program with Medicare
    and I am hopeful that we can work through the many regulatory
    issues that Medicare has so that we can implement this program
    as soon as possible.
        Chairman Specter. That would certainly be a big boost to
    the VA budget if that can be accomplished.
        We have also looked to supplementing the VA income by
    proceeds of those who are insured. Would you give us a brief
    summary as to what you anticipate in that respect?
        Secretary Principi. Well, again, starting in 1998, the
    Congress authorized the VA to keep the revenues from third-
    party payments, payments from insurance companies. Rather than
    those dollars going into the Treasury as miscellaneous receipts
    and then coming back to the VA indirectly in increased
    appropriation, Congress said, you keep them there and you count
    them as new resources in addition to your appropriation.
    President Clinton started that, rightfully so, and it has been
    that way--it has been programmed that way since.
        We are making great progress in doing better collecting
    from insurance companies. We still have some difficulty with
    HMOs, and, of course, Medicare is off the table, the largest
    insurance company in the nation, so to speak. But this year, we
    project to collect--or for 2005, a little over one billion
    dollars in revenues. That is used to enhance our medical care
    appropriation and expand the reach of health care, buy more
    pharmaceuticals, more outpatient visits, more inpatient visits.
        So it is a great program. We just need to do better in our
    accounts in collecting those dollars from insurance companies.
    We are improving, but we still have a ways to go.
        Chairman Specter. Your answer ended just with the
    expiration of my time so I will not ask you another question
    and I will yield now to Senator Graham.
        Senator Graham. Thank you.
        Chairman Specter. He is the one exception to the early bird
    rule, the Ranking Member.
        Senator Graham. Thank you, Mr. Chairman.
        I would like to ask in this round about the responsibility
    of the VA to provide medical care for combatants who have
    separated from the service. During the 2003 consideration of
    the VA's budget, I proposed an amendment to add $375 million to
    meet the health care needs of returning service members. This
    amount was based on a formula taking the percentage of veterans
    who sought VA health care and benefits following the first Gulf
    War, multiplying that by the VA's average per patient cost
    today, and the result of that is $375 million.
        In conference with the House, that amount was reduced to
    $100 million. It is now my understanding that the
    Administration believes that the right number is not $375
    million or $100 million, but is zero, and intends to redirect
    the full amount from health care to the Veterans Benefit
    Administration.
        Mr. Secretary, is that policy correct, and if so, what is
    the basis of the Administration's determination that there will
    be no budgetary cost in terms of providing benefits as
    statutorily required to returning servicemen and women?
        Secretary Principi. Senator Graham, I applaud you and I
    applaud the Congress for adding that $100 million. But the law
    in the appropriation, or the language of the appropriation
    bills says for an additional amount for costs associated with
    processing claims of veterans who may have incurred injuries
    with service in the Persian Gulf, war combat arena, $100
    million. It did give me the authority to use the dollars for
    health care, as well, and the reason that I have elected to use
    the $100 million for veterans' benefits and veterans' claims is
    because in 2004, the President's request and the Congress's
    actions increased our health care budget by 11.5 percent. I
    think that is probably a record. We received close to $3
    billion in 2004, 4 months, 5 months late, but nonetheless a
    very dramatic increase.
        Senator, I am absolutely confident that this increase that
    you have given us in 2004 is more than adequate to ensure that
    we take care of the health care needs of veterans coming back
    from Iraq and Afghanistan. Otherwise, that money would be
    there, believe me.
        At the same time that we received this dramatic increase in
    health care spending in 2004, for our Benefits Administration,
    the processing of claims, I think there was zero increase. We
    really are struggling in the Veterans' Benefits Administration
    to ensure that these claims that veterans who are coming back
    wounded, filing for disability compensation, are processed in a
    timely manner and that was the basis for the decision.
        The law said veterans' benefits, and I could move money
    over to health care if I need it. I found that I didn't need to
    do so, Senator. The $100 million is very important and that is
    how we have applied it.
        Senator Graham. Are you saying $100 million to process
    benefit claims is going to be focused exclusively on combatants
    returning from Afghanistan or Iraq?
        Secretary Principi. No, sir. I am trying to use that money
    to--you know, obviously, by improving our timeliness, by having
    the right equipment, the right people on board--we are giving
    them a very, very high priority, but it is going to help us
    improve our benefit delivery process in general. So no, I would
    not make the statement, be misleading and say all $100 million
    is going to be for the veterans returning from Iraq and
    Afghanistan who are filing disability claims. There are not
    that many claims. But in general, this whole system needed the
    resources. But----
        Senator Graham. That 11 percent increase that you stated
    was given to veterans' medical benefits, what was that on a per
    capita basis? For each VA patient, how much additional
    resources did the 11 percent allow?
        Secretary Principi. Rounded, about $500 per patient.
        Senator Graham. What is that as a percentage?
        Secretary Principi. Eleven percent increase in funding for
    our medical care, of which we have--how many users--4.8 million
    users of our health care system, so that almost $3 billion
    increase that you gave us this year is very, very significant,
    Senator.
        Senator Graham. I would like to return to this. My round is
    now over. That will give you something to look forward to.
        [Laughter.]
        Chairman Specter. Thank you, Senator Graham.
        Senator Campbell.
        Senator Campbell. Thank you, Mr. Chairman.
        Mr. Secretary, as I understand your testimony, the waiting
    time that a veteran has to wait to get in to see a doctor is
    going down. I think that is really terrific. The backlog, from
    your testimony, is going to continue going down. I am sure that
    is good news to all the veterans.
        The last 3 years, we have put in more money from Congress
    than the President requested in his budget, and even at that,
    we hear every year from the veterans' associations it is not
    enough, and more than likely after you have testified today,
    when the VSO's testify, we are going to hear the same thing,
    that we are not putting enough resources into it.
        I guess with a $450 billion deficit or maybe more, who
    knows what it is going to be by the end of the year, it is
    going to be a real tug-of-war around here to get money. I, like
    many of the people on this committee, happen to really try to
    prioritize veterans' health, being a veteran myself. But I,
    like Senator Graham and maybe some of the other members, am a
    little concerned about these user fees, too.
        I guess I would like you to clarify a little bit, when you
    talked about the veterans who are better off, how is that going
    to be determined? Is there going to be some kind of a threshold
    by which they would have to pay a higher user fee? Who is going
    to determine that?
        Secretary Principi. Yes. Congress established seven
    priority groups when open enrollment went into effect in 1998,
    and then about a year or two ago added an eighth priority
    group. The Priority Group 7s and 8s are veterans who have no
    military disabilities and have--they are not high incomes, but
    they have higher incomes. I believe it is around--Category 7 is
    about $25,000 for a single veteran, higher if you are married
    with dependents.
        The copayment--these fees would only be assessed against
    the Category 7 and 8 veterans. We are proposing to eliminate
    copays, on the other hand, for the poorer veterans. Today, if
    you have an income above $9,800, you start paying copays. We
    are asking Congress to say, raise that level to $16,500.
        So yes, indeed, I believe it is reasonable to ask the
    higher-income non-disabled to pay a little bit, a very small
    proportion of their care and the poorer veterans to be
    alleviated of that burden.
        Senator Campbell. I understand that. It may be a little
    more complicated on determining some of the things that were
    military related. I guess the most common, of course, is
    smoking and the long-term effects. I remember when I was in the
    service, we got cigarette rations. Even though I didn't smoke,
    I still got cigarette rations. We were encouraged to smoke.
    What happens to a veteran who is encouraged as a youngster to
    smoke and years later he develops cancer? Is there a
    possibility that somehow he would be forced to pay higher user
    fees because he didn't develop the cancer until after he got
    out, even though the roots of it began when he was in the
    service?
        Secretary Principi. If he is service-connected disabled for
    cancer, he would not pay any copays or user fees. This would
    only be those who come to the VA health care system or enroll
    in the VA health care system and have no military-related
    disabilities.
        Senator Campbell. OK. Maybe I phrased my question very
    poorly. How do you determine whether it was a military
    disability when the cancer didn't appear until after he was out
    sometime?
        Dr. Roswell. Senator Campbell, if I may, that is why I
    think our efforts to work on disability claims are so important
    and the $100 million that Senator Graham spoke about. As the
    Secretary alluded, over 300 additional veterans are now
    receiving service-connected compensation this year, which I
    think is a direct reflection on how we are able to reach out to
    veterans, to help them file disability claims for illnesses
    such as lung cancer, which can be service connected, for
    example, for veterans who served in Vietnam, and help them file
    those claims so that they receive disability compensation.
    They, in turn, not only receive that compensation, but they
    then receive priority health care.
        Senator Campbell. I think I have no further questions, Mr.
    Chairman.
        Chairman Specter. Thank you very much, Senator Campbell.
        Senator Akaka.

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

        Senator Akaka. Thank you very much, Mr. Chairman.
        I would like to add my welcome to Secretary Principi and
    our other witnesses here. I want to express my appreciation to
    you for all you have done. I know it is so difficult to carry
    on the programs we want with the kind of revenue and
    appropriations that you receive.
        I have two questions I would like to ask. Secretary
    Principi, as the chairman mentioned about Priority 8, I am also
    concerned about that. Last year, as you know, I signed a joint
    letter objecting to your decision to end the eligibility for
    enrollment of Priority 8 veterans in the VA health care
    program. I am still concerned about that. After hearing the
    fiscal year 2005 budget, I see that Priority 8 veterans are
    still barred from enrolling in the VA health care system and I
    also see that prescription drug copayments are increasing for
    middle-income veterans.
        I realize, as you mentioned, that Priority 8 veterans are
    considered high-paid veterans. My question to you is, what
    would be the impact in your budget if Priority 8 veterans could
    enroll--could enroll--into the VA health care system, as well
    as the impact on the budget if the increases in copayments were
    not implemented?
        Secretary Principi. Yes, Senator. If I just very briefly,
    historically, as you know, in 1998, we went from approximately
    three million eligible for comprehensive VA health care to 25
    million, a very, very dramatic jump in eligibility. That,
    coupled with the opening--my predecessor and I have continued
    to open community-based outpatient clinics. We now have almost
    700, a great pharmaceutical benefit, and high quality. We have
    seen this enormous, enormous increase in demand for health
    care, so much so that consistent with the law, I have to make
    an annual enrollment decision based upon resources made
    available in the Appropriation Act.
        It was only because we had a growing number of veterans on
    waiting lists, as Senator Graham talked about in Florida, it
    was close to over 300,000 waiting more than 6 months for care,
    that I made that decision, because we were enrolling veterans
    and had no expectation of providing them with timely care.
        To reopen the door to Category 8s--and I continually look
    at it to see if we can do it--in 2005 would be $590 million. Of
    course, enrolling veterans has an impact not only in the year
    that we do so, but as they become older and perhaps sicker,
    that the number increases. So it does have a rather
    significant, financial impact.
        Senator Akaka. I am also concerned about VA's ability to
    meet its production goal of processing new claims in 100 days.
    It appears to me that VA's 2005 budget does not include an
    anticipated increase in claims by service members returning
    from service in Iraq or Afghanistan. Additionally, the VA's
    budget request assumes a 1.5 percent increase in Federal pay.
    However, the Federal pay increase is expected to be 3.5
    percent.
        Given these factors, Mr. Secretary, I am very concerned
    that the VA will need to cut other resources which will result
    in additional time processing new claims and will compromise
    health care service to veterans. Given this background, I would
    like to hear your thoughts regarding these.
        Secretary Principi. It is very challenging. I set those
    goals of never having more than 250,000 claims in our
    inventory, which would allow us to process claims in 100 days.
    I felt that veterans having to wait years to get a decision on
    a claim is just unconscionable, and that is why I set those
    goals and put in place new processes, and with the support of
    the President, with the support of the Congress, we added some
    1,300 new rating specialists to the VA and we have been able to
    dramatically bring down the backlog, and also hundreds of
    millions of dollars that you gave us for information technology
    enhancements to improve our productivity.
        I think the combination of these things, now that these
    1,300 people are trained and being very productive, that we
    will be able to achieve these goals. But it is going to be
    challenging, Senator, you are absolutely right, and that is
    why, as Senator Graham said, I have used some of that money for
    claims processing.
        Chairman Specter. Senator Akaka, we have eight members here
    and a second panel of five witnesses.
        Senator Akaka. Thank you very much.
        Chairman Specter. Thank you, Senator Akaka.
        Senator Murray.

              STATEMENT OF HON. PATTY MURRAY, U.S SENATOR
                            FROM WASHINGTON

        Senator Murray. Thank you very much, Mr. Chairman, for
    holding this very timely hearing, and Mr. Secretary, thank you
    for being here and all the work you do on behalf of veterans
    and especially for your willingness to request an additional
    $1.2 billion for the VA budget. I was disappointed that the
    President didn't follow through on that, but I appreciate your
    putting it out there.
        I have a lot of very serious reservations about the
    President's budget. I think with the new generation of veterans
    coming home that are going to be reliant upon the VA for health
    care and services, we really have an obligation to take care of
    them and I think this budget request we have seen really falls
    short.
        I agree with the comments about the new fees on veterans. I
    think it is highly unlikely that Congress is going to approve
    that and the health care is going to be far short of what we
    need. I am very concerned about the major medical construction
    dollars in here, $180 million, and I understand the
    administration is going to transfer $400 million from health
    care to construction, which will make our construction account
    about $600 million. If that is accurate, that is far short of
    what the CARES initiative plans were to spend. I think we have
    all been assured more than once that the CARES process was--
    that we would accept significant changes based on new
    construction and service delivery, and if that falls short, it
    is going to leave a lot of us really feeling like we were not
    told the whole story and our veterans are not going to be
    served.
        I want to ask you about that, but before I do, I want to
    bring up a separate issue and that is on the Department of
    Labor rule that is eliminating overtime compensation that will
    affect some veterans. I think you are aware that the proposed
    rule could very well undermine many of our young people who
    enlist in the military because it is going to change the
    definition of professional employees. It basically will mean
    veterans working in professional fields will now be classified
    as professional employees and lose their overtime.
        I wanted to know if you had made comments on that, and as
    the nation's leading advocate for veterans, if you intend to
    express your opposition to the Department of Labor on that
    issue.
        Secretary Principi. I guess I am not as knowledgeable about
    it as I should, Senator. To say that veterans would lose income
    by being designated a professional employee, which is based
    upon education, experience, and I would hope that being
    designated a professional would somehow provide more upward
    mobility and more increase in compensation and benefits. But I
    guess we could debate that.
        I would just, if I can, just take a quick second to say
    that, yes, I have always tried to be honest with the Congress,
    and having grown up here, about what I requested. Every year,
    every Department goes through a very difficult negotiating
    process with OMB and we achieve a requested level of spending
    that the President makes to Congress.
        I just want to be clear that I believe that the budget we
    requested, coupled with--I believe we are going to have $800
    million or somewhere in that neighborhood that we will be able
    to carry over into 2005--will allow us to achieve our goals, to
    take care of the very veterans we are all concerned about as
    well as, very importantly, the men and women who served in
    combat in Iraq and Afghanistan.
        But on the Department of Labor issue, I think that is one I
    need to study.
        Senator Murray. Mr. Secretary, I have actually sent you a
    letter dated February 9 on that, and if you could take a look
    at that and respond, I would really appreciate it.
        Let me also tell you, I am very concerned about the new
    generation of veterans that we are creating today. About 40
    percent of the U.S. armed forces in Iraq and Afghanistan, as
    you know, are activated Guard and Reservists. Those men and
    women are going to have a very different priority from the
    regular troops. They are older. They are more likely to have
    families. They are in a hurry to get back to their jobs and
    their community and their own life. I am concerned that we
    could lose track of many of those people when we return home,
    and I don't think we want them to fall through the cracks.
        What is the VA prepared to do in order to capture those
    veterans and make sure we don't lose them?
        Secretary Principi. You are so right. It is far different
    than it was during the Vietnam War, what we are asking our
    Reservists and Guardsmen and women to do today.
        We are truly outreaching to them. We have engaged in some
    over 3,000 of them in TAP programs, Transition Assistance
    Programs for members of the armed forces. We have engaged in
    another 2,000 briefings. We have outreached to some 46,000
    Reservists and Guardsmen and women around the country to just
    make sure they understand what their benefits are, that when
    they are called up to active duty, they are veterans and they
    are eligible and entitled to the veterans' benefits program.
    They are entitled to VA health care.
        So absolutely, we have an important responsibility to
    outreach to them and I can assure you we are going to continue
    to do so.
        Senator Murray. Good, and I would like to work with you on
    that. I think it is really important. Thank you.
        Dr. Roswell. Let me just add that we----
        Chairman Specter. Senator Murray, your time has expired.
        Senator Murray. If Dr. Roswell could just respond to the
    last question in 2 seconds.
        Dr. Roswell. I was just going to add that we have actually
    printed a million brochures specifically for Reserve and Guard
    and have distributed those through all of the Reserve and Guard
    units. We have opened our readjustment counseling service to
    the Reserve and National Guard. The Secretary is planning to
    send letters to all 90,000 people who have been separated thus
    far, and we have unprecedented cooperation with DOD to make
    sure that we know everyone who is being discharged, whether
    they are on active duty, in the Reserves, or in the National
    Guard.
        Chairman Specter. Thank you, Senator Murray.
        Senator Nelson.

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

        Senator Nelson. Thank you, Mr. Chairman, and may I add my
    appreciation, Mr. Secretary, for the continuing good work that
    you do for our veterans. I suspect after all the praise that
    you have received from all of us today, you have to be sitting
    there wondering how we can have so many critical things to say
    and/or to ask of the care for veterans, but I think it is a
    common thought that we have. You are trying to do a better job.
    We want to see a better job done, and I hope we can work
    together to do that.
        When Nebraska was moved into a new VISN just some time ago,
    we were all told that the services wouldn't change for veterans
    in Nebraska. I remember somebody from your staff saying that
    one of the reasons they were having headquarters in Minneapolis
    was because there were more qualified people there and I took
    issue with that, being from Nebraska. My staff tells me that a
    change has occurred, that veterans requiring cardiac surgery
    are now being required to go to Minneapolis for the care. If it
    is emergency care, surgery, they will be treated in Nebraska.
        Once again, I want to point out that we have excellent
    cardiac surgeons in Nebraska and this isn't consistent with
    what we had hoped would happen, where veterans would be treated
    as close to home as possible. It is not a matter of trying to
    patronize Nebraska as much as it is to take care of veterans as
    close to home as possible. I would hope that you would look
    into that to see what you can find out.
        We were also told that, well, Nebraska would become the hub
    for some other services. But I am not sure that unless there is
    a particular reason why the care can't be provided in a
    location that we would try to create hubs for care, and yet I
    am one who is as hawkish on the budget as can be. I know you
    want to save every dollar that you can. But we all have to come
    up short of shortchanging the veterans in the process.
        Secretary Principi. I made a commitment to you that
    Nebraska would not get shortchanged. I will ensure that that
    commitment is adhered to. Next week, I happen to be meeting,
    along with Dr. Roswell, the network director that has Nebraska.
    I will certainly ask these questions, and----
        Senator Nelson. We were told part of the reason is because,
    and I don't want to overplay my time, the chairman is quite
    sharp when you do that, but it is because they can provide the
    care in the veterans' hospital there and it has to be
    outsourced in Nebraska. But it would seem like we could work
    out a contractual relationship that would even out the cost if
    it is a cost factor because it needs to be about the care
    providing at the closest possible----
        Secretary Principi. I am sure there are a number of
    factors, and certainly going in for cardiac surgery, open
    heart, we certainly want to go and make sure the outcomes are
    good. I mean, that is most important. Sometimes it is a little
    inconvenient to go to one of those major cardiac care medical
    centers, and, of course, cost is an issue, but I will certainly
    look into it and I will get back to you personally to make sure
    that there are reasons or that there will be a change, so we
    can discuss it further.
        Senator Nelson. As always, I appreciate the ability and the
    opportunity to work with you. Thank you very much. Thank you,
    Mr. Chairman.
        Chairman Specter. Thank you very much, Senator Nelson.
        Senator Jeffords.

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

        Senator Jeffords. Mr. Secretary, I would like to thank you
    for coming today and thank you for your leadership over the
    past few years on behalf of veterans. Your job is not an easy
    one and I appreciate all you have done for increased funding
    for the VA over the objections from those who don't want to see
    any more money spent on veterans. I believe we have an
    obligation to care for those who have carried the flag and I
    would like to see that we continue to hold that banner high. We
    must not let the banner sag or fall by merely meeting the
    minimal obligations.
        I have a two part question about benefits. First, how does
    the VA plan to notify newly discharged veterans of their
    benefits? Second, in anticipation of the increase in claims
    submitted by these new veterans, please tell me what VA's
    current plan is in processing veterans' initial claims.
        Secretary Principi. We are taking as many steps as possible
    to outreach to veterans being discharged. Of course, we have
    the TAP programs. As I indicated, we have done over 3,000
    Transition Assistance Programs for military personnel. Well
    over 100,000 have attended those briefings. We engage in other
    briefings for military personnel, Guard and Reservists. We have
    health fairs. Some 700,000 veterans attended health fairs this
    past year. We have brochures that we mail out. I am sending a
    letter to all of the recently discharged servicemen and women
    coming back from Iran and Afghanistan.
        We now have staff on 136 military bases. You know, in the
    past, you had to wait until you were discharged and then you
    would have to find your way to a regional office, maybe 4 or 5
    hours' drive. Today, at 136 military bases, you can walk across
    the street from your barracks. You can fill out a claim for
    disability compensation or whatever it might be, have an exam
    right there across the street from your barracks, and when you
    get your discharge papers, you get your disability compensation
    or you get your GI bill benefit right away. I mean, I think
    this is what we have to do for our customers, the men and women
    who served in uniform, bringing the benefit structure to
    military bases.
        We have full-time staff now for the first time in history
    at Walter Reed and Bethesda to make sure the wounded who are
    coming back, when they go home on convalescent leave or
    discharged, they are already enrolled in a VA hospital near
    their home and they have been given the claims information so
    that they can get their disability compensation.
        I am sure there is more that we can do. I just don't want
    to see anybody fall through the cracks, and this is especially
    meaningful to me, because I had two sons serve in Iraq at the
    same time. So I just feel very strongly, personally and
    professionally. We are not perfect. We don't, of course, ever
    have all the resources you need. I am not saying we do, but I
    think the President, this Congress has treated us very
    generously and we need to continually strive to do better.
        Senator Jeffords. I appreciate that answer. As you know,
    many of us here represent rural States. In the past, the VA has
    made an effort to open community-based outreach clinics to get
    access to the VA for more vets. But in the last 2 years, the VA
    has had a policy of not opening any more clinics. Is there any
    chance that this policy will change? I believe these clinics
    perform a very useful service for veterans and would like to
    know your answer.
        Secretary Principi. I applaud my predecessor for
    transitioning the VA from a hospital-centric system to a
    patient-focused health care system and I have continued that
    process. I think I have opened probably or directed that we
    open 170, 190 outpatient clinics over the past 3 years and I
    will continue to open outpatient clinics.
        Of course, we have to balance outpatient clinics and
    inpatient hospitals because we have an inpatient mission as
    well as an outpatient mission, but we need to continually bring
    health care closer to the veteran's home so that they don't
    have to drive long distances to get outpatient care in a VA
    medical center. They can get it in a community-based outpatient
    clinic.
        I think it is a great program, Senator. We have tried to
    balance it and watch it and maybe there has been a slowing
    down, but we will continue to do so.
        Senator Jeffords. Thank you. I thoroughly appreciate what
    you are doing. Thank you.
        Secretary Principi. Thank you, Senator Jeffords.
        Chairman Specter. Thank you very much, Senator Jeffords.
        Senator Rockefeller.

               STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
                    U.S. SENATOR FROM WEST VIRGINIA

        Senator Rockefeller. Thank you, Mr. Chairman.
        I want to say what others have said and I want to say it
    with as much or even more feeling, and that is that when you
    came in here to be confirmed, I remember I asked you the
    question, if you came up against something which really
    bothered you, would you go face to face with the President, and
    he was on ``Meet the Press,'' so you didn't have time. Before
    that, you did, in a sense, go face to face with the President
    because you went face to face with the budget officials and
    asked for $1.2 billion more for VA health care, which
    represents a real act of courage and you did it publicly.
        I really commend you for that. It is a gutsy thing to do.
    This is an administration which wants people to be in line, and
    when somebody isn't in line, they don't like it, but you
    decided that you were going to put the veterans ahead of this.
    I really congratulate you for that, Secretary Principi, and I
    think you understand that I mean it when I say that.
        As Ben Nelson said, Senator Nelson, we praise you and then
    we ask for things, but that is because you are under a budget.
    This is a national budget. It is not a free health care system,
    so everything is always in competition with something else. If
    you come from States like mine, you have to fight. That is what
    we have always done. We have always fought uphill. Arlen
    Specter knows something about that in the western part of his
    State, and we have to do that.
        Now, in the CARES Commission, which hasn't come out, but
    they are going to and they are going to suggest cutting some
    beds, I am told, from the Beckley VA facility. On the other
    hand, you have recognized, and, in fact, due to your
    leadership, you have recognized that there are some hospitals
    that because of certain situations need to be declared critical
    care hospitals, critical access hospitals.
        My understanding is that CARES as a commission does not
    recognize such designations, wherein we have a quandary because
    I need to fight very hard for what is the most isolated part of
    my State. I am not sure how we can do this or if we can do it
    together or if it can be done, but I am going to try in every
    way that I know how. I can't do less than that, because,
    frankly, the majority of our veterans come from that part, the
    coal fields, the steepest mountains, the poorest counties of
    West Virginia, which is 1 of 50 States.
        So I ask your attention for that. I don't necessarily need
    to have a comment from you. I want to have a sense that you
    hear me loud and clear on that, that it is----
        Secretary Principi. Senator--oh, I am sorry.
        Senator Rockefeller. Go ahead, please.
        Secretary Principi. I would just say, I had the pleasure to
    tour West Virginia with you. I saw firsthand, as you have
    experienced, the needs of veterans in rural America, in West
    Virginia. I had the privilege of being in Western Pennsylvania
    with Senator Specter, an awful lot of poor people, an awful lot
    of elderly people, veterans, who are lacking health care. So I
    certainly intend to very carefully review the commission's
    report, analyze it, and do what is best for veterans.
        I know it is going to entail some changes because health
    care is changing and demographics change, and if we don't
    change with the changing dynamics in health care, I am afraid
    we will fail America's veterans maybe 10, 15, 20 years from
    now, because our infrastructure has been built up over 150
    years. So we just need to be mindful of that, but at the same
    time recognize it is not only in large urban areas, but also in
    rural areas that we have a responsibility. I just want you to
    know I am listening and hopefully we will make the right
    decision.
        Senator Rockefeller. Thank you, Mr. Secretary, and I have
    two other questions which I will simply submit for the record.
    I thank you, sir, and I thank the chairman.
        Chairman Specter. Thank you very much, Senator Rockefeller.
        Mr. Secretary, I have a thick sheet of 19 questions to ask
    you for the record on going into some substantial details. May
    I inquire of my colleagues if they would like another round?
        Senator Graham. I would like to ask two more questions, Mr.
    Chairman.
        Chairman Specter. Senator Murray. Senator Nelson.
        Senator Nelson. Nothing.
        Chairman Specter. Senator Jeffords. Senator Graham, two
    questions.
        Senator Graham. The first has to do with the assumptions in
    the budget. The assumptions, as I read them, are that veterans
    will make $1.3 billion in copayments for their medical care,
    but only $1 billion will be collected from insurers who are
    third party responsible persons. That results in nearly $2
    billion in claims being rejected by those insurers. It is my
    assumption that if we could do better with insurance company
    collections, that would relieve some of the pressures off
    taxpayers and veterans. What would be your recommendations as
    to what could be done? What role will Congress play in
    increasing the percentage of collections made from claims
    submitted?
        Secretary Principi. As you know, we can't bill Medicare,
    and that is a Finance, Ways and Means Committee, and that has
    been an issue, a longstanding issue with regard to that. But I
    think that Congress can help us with HMOs. I think there is a
    very significant amount of resources that we do not collect
    from HMOs and it has been a real struggle. So I think
    legislation that would somehow require HMOs to reimburse us at
    a certain level, reasonable level for billed charges would
    certainly generate significant revenues to the VA and that
    would expand the reach of health care, because you said we can
    keep those dollars. So I would look to that area and we will
    work with you, Senator Graham.
        Senator Graham. If you could give us what you believe would
    be the most effective legislative solution in combination with
    your administrative action, I would be very appreciative.
        Secretary Principi. Yes, sir.
        Senator Graham. The second question goes back to a hearing
    that was held last week with Secretary Thompson of HHS. We were
    talking about the fact that there seems to be a difference in
    the way in which the VA is currently negotiating pharmaceutical
    prices, whereas Medicare in the recent legislation is
    prohibited from doing so. When asked about this difference,
    Secretary Thompson said that Medicare was reluctant to
    negotiate because it might constitute an undue intrusion into
    the marketplace, i.e., could be described as price setting.
        As I understand it, and I know this was true at the VA
    hospital in Miami where I spent a day in November, it is
    getting better than a 50 percent reduction off what would be
    the drug store prices of some $39 million of prescription drugs
    that they dispense a year. Has it been your finding that the
    VA's effective use of negotiations has constituted an undue
    intrusion in the marketplace?
        Secretary Principi. No, not at all. I think we have done
    extraordinarily well. We have had $1.1 billion in cost
    avoidance for pharmaceuticals over the past 3 years. We rely
    very heavily, we use a lot of generic drugs. Sixty-five percent
    of the drugs we provide are generic. Unfortunately, the brand
    name drugs, the 35 percent brand name drugs account for 92
    percent of our costs.
        So I think a combination of factors of how we procure
    pharmaceuticals, how we manage them, our formulary, I think
    that it has worked very, very well for our nation's veterans
    and for the American taxpayer.
        Senator Graham. I would urge you to consider having that
    conversation with Secretary Thompson because there is
    tremendous savings for the taxpayers and Medicare beneficiaries
    if his agency would use the same techniques that the VA has
    done, and I would hope that he would be authorized and
    encouraged to do so.
        Let me ask just one short follow-up question. Are there any
    other areas in which the VA could use authority to negotiate to
    reduce costs?
        Secretary Principi. Nothing comes to mind at the moment,
    Senator Graham, but I would appreciate the opportunity to
    advise you in writing.
        Chairman Specter. Thank you very much, Senator Graham.
        Senator Murray.
        Senator Murray. Thank you, Mr. Chairman. I appreciate the
    accommodation.
        Mr. Secretary, I am really concerned that this budget
    request is low for major medical construction and it goes back
    to the CARES process, where we were told that we will get $5
    billion in new facilities for our veterans. Veterans were asked
    to accept some pretty significant changes to their health care
    system today in exchange for a future promise of funds for new
    clinics and hospitals and facilities in the future, and I don't
    think this budget request even comes close to meeting the CARES
    promises for new facilities.
        One of the areas that is slated for a new clinic is in
    Central Washington in my home State, and I am concerned that
    the $5 billion promise in new facilities is an empty promise
    and at the very least this budget sets us behind in meeting the
    CARES promise.
        Can you comment on this, and specifically whether the
    administration, do you believe, will request adequate funding
    for the CARES initiative?
        Secretary Principi. Yes, Senator. The construction portion
    of CARES has always been viewed as a 5- to 7-year effort, that
    would not all be funded in the first year. I really do believe
    that we have put forth a good down payment. It would be
    misleading to say we have all we need, but we have doubled the
    CARES money from $280 million to $540 million for 2005. We have
    increased major construction, I think, from about $180 to,
    what, to $382 or $362. So I think we are moving in the right
    direction and it will take additional funding in the out years
    to do what I hope to approve in the next couple weeks.
        Senator Murray. You can understand why people are really
    concerned. They are giving up a lot today on the hope that
    something big is going to happen tomorrow, and we have seen
    with budget deficits and cutback programs that that doesn't
    necessarily occur.
        Secretary Principi. Well, I think CARES is a very, very
    high priority and I certainly think so in the outpatient clinic
    arena, so----
        Dr. Roswell. If I could, Senator Murray, we have actually
    anticipated the CARES report, though we were unable to
    anticipate the specific recommendations. But to make sure that
    we are prepared, we have identified 41 projects for which we
    have begun the advanced planning. This would put them in a
    State of readiness so that when the Secretary makes a decision,
    those 41 projects, which we believe are the highest priority,
    would be ready to go into the design phase. That design phase
    requires 10 percent of the total project cost up front, or the
    typical cost is 10 percent.
        So even though it is a small amount of money, you are
    absolutely right that the promise has to go to $4.6 or $5
    billion. We believe that the amount of money that will be
    available to the Secretary in fiscal year 2004 and 2005 will be
    sufficient to get this thing jump-started with the expectation
    that the monies must follow after that.
        Senator Murray. Let me just ask a quick question and make a
    comment. Mr. Secretary, on December 6, President Bush signed
    the Veterans' Health Care Capital Assets and Business
    Improvement Act. There was a section in that, 231, requiring
    the VA to develop a plan for meeting the future hospital care
    needs of veterans who live in North Central Washington State. I
    know that that report is not due back until April 15, but I
    would like to know whether you have people who are conducting
    that study and whether or not my staff can be a resource to you
    as you do that.
        Secretary Principi. I assume they are, Senator. I don't
    know for certain, but I will certainly get back to you and make
    sure that is done.
        Senator Murray. Would you let me know on that?
        Secretary Principi. Yes.
        Senator Murray. And finally, Dr. Roswell, my colleague,
    Senator Cantwell, and I sent you a letter on December 19
    regarding our continued belief that the CARES initiative has
    not properly considered the current and future needs for
    veterans' health care service in VISN 20. We noted a number of
    things, including the relatively young veterans population as
    well as the low-market penetration in our home State. We just
    sent 3,500 troops off yesterday to Iraq from my State. We know
    we are going to have some of those new veterans back in our
    State and we want to make sure that this is part of that. I
    know you have the letter. I have a copy of it today, but I was
    hoping that we could get an answer back on that as quickly as
    possible.
        Dr. Roswell. We will do everything we can, Senator, to get
    you a prompt response.
        Senator Murray. Thank you. Thank you, Mr. Chairman.
        Chairman Specter. Thank you very much, Senator Murray.
        Thank you, Secretary Principi, and thank you, gentlemen,
    for accompanying the Secretary. You have heard praise on your
    efforts. We recognize the work that you are doing. You have
    also heard a great many concerns about the ability of the
    Veterans Administration to deliver the necessary care within
    the confines of the budget.
        We would encourage you, Mr. Secretary and the others, to
    explore the Medicare subvention, or as you term it VA
    Advantage, and the insurance premiums and Category A. We hope
    there will be some way to not bar them from coverage.
        We now turn to our next panel, the veterans' service
    organizations, and ask Mr. Peter Gaytan, Mr. Paul Hayden, Mr.
    Rick Surratt, Mr. Richard Fuller, and Mr. Richard Jones to come
    forward.
        Thank you very much for coming, gentlemen. We have been
    asked to change the order to some extent because this
    distinguished group of witnesses has already had the wisdom to
    divide up the topic so as to make their words most effective.
    We regret the limitations on time, but that is one of the
    problems here in the Capitol, as you know.
        Our first witness is Mr. Peter Gaytan, Principal Deputy
    Director of Veterans Affairs and Rehabilitation in June 2002
    for the American Legion. He has a long, distinguished resume
    which we will have included in the record, but in the interests
    of time, may the record show a dismissive gesture from Mr.
    Gaytan to get on with the business at hand. So the floor is
    yours, Mr. Gaytan.
        Mr. Gaytan. Thank you, Mr. Chairman, and thank you for the
    opportunity to express the views of the 2.8 million members of
    the American Legion.
        Chairman Specter. I am going to have to interrupt you at
    the very outset because I have to excuse myself for a few
    minutes. I wonder in advance of your opening statements,
    Senator Graham, if we might yield to you for a round of
    questions if you would like. I will only be a few minutes, but
    I am going to have to have a brief adjournment of the meeting.
        Senator Graham. Or would you like to start the statements?
    You want to be here for the statements?
        Chairman Specter. I want to be here for the statements, but
    if you would like to question.
        Senator Graham. OK. Thank you.
        Chairman Specter. Senator Graham will proceed. He knows
    what to ask even though he hasn't heard your opening
    statements.
        [Laughter.]
        Senator Graham [presiding]. Thank you, gentlemen. We look
    forward to your statements, and as soon as the Chairman is able
    to return, we will turn to you. This is a little bit out of
    order, but let me ask a question that has been already
    discussed, and that is the potential for Priority 7 and
    Priority 8 veterans to not come to VA due to the $250 user fee
    and the increase in drug copayment from $7 to $15.
        What group of veterans do you think will be most affected
    by this, and what are the likely effects?
        Mr. Gaytan. Well, sir, let me just State that the American
    Legion has opposed the restriction of enrollment for Priority
    Group 8 veterans since it was announced last January, a year
    ago January. We also adamantly oppose the provisions in the
    2005 budget request that would implement a $250 enrollment fee
    for Priority Group 7s and 8s. We also oppose the increase in
    copayments for pharmaceuticals and the increase in copayments
    for outpatient care.
        Mr. Fuller. Senator Graham, I am Richard Fuller with
    Paralyzed Veterans of America. We, too, have opposed the
    increases in the fees, and what we basically have been seeing
    over the past several years is that the administration
    constantly proposes increasing the costs of health care on the
    backs of veterans, and more and more they are relying on these
    fees as part of their appropriations process to reduce
    appropriations and have one veteran paying for the health care
    of another veteran out of his own pocket.
        We also find it interesting that they keep lumping Category
    7s and Category 8s together by implicating that the Category 7s
    are somehow high-income veterans, whereas, this committee and
    the Congress a couple of years ago created that particular
    category to be able to capture people who fell just above the
    nationwide low income level but who lived in geographic areas
    of higher cost.
        Category 7 veterans are basically low-income Category 5
    veterans in some people's minds and in our minds, as well. To
    think that they can afford to pay these costs and user fees and
    copayments in the same fashion as, say, some high-income
    veteran in Category 8 can, we find rather implausible.
        Senator Graham. What is the range of income for a person
    who is designated as a Category 7?
        Mr. Fuller. The range is based on a HUD low-income index,
    which is really rather complicated, but HUD has been using it
    for gauging low-income housing payments. It varies from,
    actually from what I understand, even from county to county in
    the United States. But it is a formula and it is very easy to
    plug into that formula and find out what the income levels are.
        Senator Graham. In my opening statement, I made the
    statement that Category 7 went as low as $24,000 a year. Is
    that----
        Mr. Fuller. Twenty-four thousand is the national threshold
    if you are just looking at what the base means test is. Now, if
    you lived in Miami or you lived in San Francisco or Brooklyn,
    New York, I haven't seen the actual scales and studied them
    that closely myself, but you could get up to maybe $27,000,
    $28,000, something of that nature, but you are not going to be
    considered rich by any stretch of the imagination. You are
    basically going to be considered, if you are faced with a
    catastrophic illness, as medically indigent.
        Senator Graham. If I could move on to another question, and
    thank you for your comments on that first question, this is the
    issue of claims processing. This has been a very big issue in
    my State, where there has been a history of long delays.
        It is my understanding that this budget calls for cutting
    the claims processing staff nationwide by some 500-plus
    persons. I would be interested in what your assessment of the
    likely impact of that reduction would be and what do you
    consider to be the minimum appropriate level of claims
    processors in order to meet the demands and reduce the backlog
    on claims that have already been filed?
        Mr. Surratt. Senator, as you know, the VA has been
    struggling with claims backlogs for years. With some focus on
    fixing their deficiencies and some additional resources from
    the Congress, they made some gains. But I think VA's own budget
    projections speak for themselves here.
        We just finished fiscal year 2003, so that makes a good
    comparison with what they are asking for for 2005. Compensation
    claims, the VA projects they will have 178,966 more in 2005
    than they had in the fiscal year we just completed, yet they
    are reducing staffing. Now, 2004 has a reduced staffing and
    2005 goes even below that.
        Education, in the education department, they are going to
    have 10 percent more claims in 2005 than we had last year, some
    51,000. Yet again, they propose cutting the budget. It is the
    same way with voc rehab. They anticipate more claims and they
    just had a task force that is about to report, and if those
    task force recommendations are implemented, VA will get more
    into the employment business. It is vocational rehabilitation
    and employment, but they have very few people devoted to actual
    employment now for veterans.
        So finding increased efficiencies to stay even is one
    thing. That is a challenge. But finding increased efficiencies
    to do more with less, that is--I guess that is the kind of
    magic we see in Washington sometimes in budgets, but it doesn't
    seem realistic. We have made specific FTE recommendations and I
    have covered those in my written statement. But essentially,
    for most of the services, we have recommended that they keep
    their--that they have the fiscal year 2003 level. I think we
    ask for 200 more FTE in vocational rehabilitation and
    employment.
        Mr. Gaytan. Sir, if I may for the American Legion, we are
    very concerned about the wait times for benefit claims. We
    understand the mandated quotas implemented by the Secretary
    last year and it has improved some of the wait times and
    reduced the backlog of benefit claims. But we are cautious in
    this hurried rush to adjudicate claims in that we don't want to
    reduce the quality of the claims as they are processed the
    first time. We don't want them to have to come back as remands,
    and some of those will be going back as remands as these claims
    adjudicators are trying to meet these production quotas. We
    must be conscious that faster is not always better. We need the
    quality in the claims in the first process before they are sent
    back as a remand. We do not agree with reducing the number of
    FTEs to adjudicate these claims.
        Senator Graham. It has, again, been my experience in
    Florida that there is a relationship between the number of
    claims and the staff deciding the claims and then the
    percentage of those claims that denied and then appealed. I
    think it is the old adage that an ounce of prevention is worth
    a pound of care. If you do a good job at the front end, then
    you are less likely to have to replicate it.
        Let me raise a question that I asked the Secretary about,
    and that has to do with the fact that apparently there are
    approximately $3 billion in annually claims sent to private
    insurance carriers. I have been told that since the VA can't
    bill Medicare, none of that is Medicare related, and we are
    recovering now about $1 billion. I asked if there were any
    steps that the secretary thought VA could take to increase that
    level of recovery so as to loosen or reduce the demand on
    veterans for paying things like the $250 enrollment fee in
    order to make up the difference in claims that are not
    collected. Do any of you have any thoughts about that or
    suggestions?
        Mr. Fuller. Senator, historically, VA has done a very poor
    job in trying to collect these third-party reimbursements, as
    they are known. They are getting better. There are
    institutional challenges, however, which makes it difficult, if
    not impossible, for them to collect from, as the Secretary
    said, from HMOs and people who they need to negotiate and
    establish rates and exchange with. I believe that we have been
    discussing it for several years, that this problem existed and
    ought to be addressed undoubtedly through legislation and we
    were glad to hear that the Secretary thought so too so perhaps
    that can help.
        On the Medicare side, VA, of course, has been subsidizing
    Medicare for years and to great, great savings to the Medicare
    Trust Fund. There are difficulties involved in opening that
    door back up, not only institutional but also from the
    standpoint that every time we think of some way to fund VA
    health care from non-appropriated funds, what happens is that
    OMB offsets the appropriation by those collections the next
    year, so it is just a pass-through of money from one side to
    the other and is a constant battle.
        As we state in The Independent Budget--this is The
    Independent Budget for 2005, which was provided to all of you
    which we will be addressing here today. The Independent Budget
    has never counted the collections as being part of the funding
    mechanism for VA health care. Some people have said this is
    rather unrealistic, but we want to keep a pure marker as to
    what the appropriated dollar need is for the Congress to be
    aware of and not have the budget obscured by the fact that the
    collections are becoming an increasingly larger amount of the
    total that the Administration is asking for.
        Senator Graham. Any other comments on my question?
        Mr. Jones. May I retract the question, Senator? My concern
    is with the decision to ban Priority 8's access to VA
    hospitals. It was suggested when it was done, the year it was
    done, that the cost savings would be about $340 million by
    denying access. In the same year, we rescinded from the VA
    budget $225 million and we rolled over $650 million. Yet the
    decision was made that we didn't have enough money.
        If we did not roll over $650 million and kept that in the
    medical care system, that money would have provided access to
    over 300,000 veterans. That is more than was estimated by the
    VA that came to VA looking for access but were barred. They
    estimated it at 167,000. I am concerned about that.
        VA says that the average cost of the priority veterans is
    about $2,500 a year, and yet we have rolled over $600 million,
    we have rescinded $225 million, and we saved $339 million by
    barring their access. That is one of the things that concerns
    me, the decisionmaking.
        I think the law says that an assessment is supposed to be
    made with regard to the resources available. It seems that the
    decision is being made prior to resources being provided or
    even to resources being suggested. I am concerned about this. I
    am concerned about the law. I am concerned that money that is
    available isn't being used.
        The Congress is generous. Your generosity was spoken about
    earlier today, 11 percent-plus increase, far, way and above,
    what the President has suggested. But the money isn't being
    used. It is being rolled over. The estimate for fiscal year
    2005 is at $800 million that we rolled over into fiscal year
    2005's budget from fiscal year 2004.
        That is just what I wanted to say.
        Senator Graham. Let me move to a related subject, and that
    is access to prescription drugs. In the questions to Secretary
    Principi, I indicated the very significant savings that
    veterans secure by getting access to prescription drugs through
    the VA as opposed to through normal channels.
        One of the barriers for veterans getting access to
    prescription drugs is that VA requires an independent
    evaluation of the patient before the VA will make prescription
    drugs available to them, even though a non-VA provider has
    authorized a prescription. Of course, this restriction on
    Category 8 veterans getting access to health care means that
    they are also losing their access to the less-expensive
    prescription drugs.
        Is that an accurate assessment of the situation, and what
    do you think are the policy rationales of requiring veterans to
    have a second physical before they can get prescription drugs?
        Mr. Fuller. Historically, Senator, we have taken the
    position with an argument along these lines, that the VA health
    care system is a health care provider. It historically has been
    a provider of health care from the standpoint they want to have
    control over the patients, the patients' care, and what the
    patient is prescribed from the standpoint of both quality and
    medical interactions.
        The concept of veterans taking prescriptions from private
    physicians to the VA changes the role of the VA in a way that
    it becomes not a provider but it becomes a drug store. It loses
    control over that particular patient as being able to find out
    if there are complications in mixes of other prescriptions and
    other types of care that the individual might be getting.
        Indeed, it does cost money to be able to put these people
    into the system and examine them, but at the same time, I
    believe the Secretary a couple of years ago testified over on
    the House side that the cost of everybody going to the VA to
    get their prescriptions filled at such a modest rate would be
    in the neighborhood of $4 or $5 billion a year. You would be
    shifting a major part of VA costs from being a health care
    provider to being a prescription provider.
        Of course, if OMB wants to provide that $4 or $5 billion,
    we would love to have the VA turned into a pharmacy, but I
    can't quite see that money coming across when they aren't
    funding the health care system side adequately right now.
        Senator Graham. Any other comments on that issue?
        Mr. Jones. We know the Secretary did lift the ban earlier
    last year in order to address the waiting list problem. I
    haven't seen any costs of that or any studies or reports as to
    what happened. As you recall, the Secretary trying to address
    the waiting list offered the opportunity for those who had been
    on the waiting list for greater than 6 months an opportunity to
    bring their prescriptions to VA and have them filled if the
    prescription had been written by a private doctor.
        That, I believe, has been suspended at the time, but there
    was a brief time, a brief moment last year the Secretary used
    exactly what you are suggesting might be used and perhaps some
    data could be gained from requesting the Secretary to submit a
    study or some results from that activity.
        Senator Graham. To me, one of the ironies is that the
    typical veteran over the age of 65 prior to going to the VA
    probably was getting most of his or her health care financed
    through Medicare at a Medicare-approved physician. The Federal
    Government is paying for that cost through Medicare. Now the
    veteran comes to the VA and is required to spend more Federal
    money to get an examination before they can get prescription
    drugs in VA. There needs to be some better coordination, both
    for the benefit of the veteran, who shouldn't have to wait 6
    months to get access to prescription drugs, and for the
    taxpayers, who shouldn't have to pay twice to do the same
    essential examination of the patient. If anybody has any
    suggestions about how to do that better, I am sure we would all
    be interested.
        Another issue is funding for medical research. VA
    historically has not only provided a great service to American
    veterans, but to health care literally on a global scale by the
    quality of its medical and prosthetics research. That budget is
    now being suggested to be reduced by $50 million, which equates
    to 149 research projects and 500 VA employees. VA has indicated
    that the area of those lost projects will include aging,
    cancer, and heart disease research.
        How do the organizations that represent veterans, what
    value do you put on VA's research budget?
        Mr. Gaytan. Sir, on behalf of the American Legion, we are
    very concerned about the proposed cuts in the budget for
    research funding. Not only as you mentioned have the historical
    research advantages created through the VA benefited the
    veterans who seek their health care at the VA, it has also
    benefited all Americans nationwide.
        In addition to those benefits that are accrued the research
    that is carried forth in the VA, there is also the key factor
    of the affiliations, the medical schools that are affiliated
    with the VA who carry out some of these research projects
    through the VA facilities. Last year, the American Legion
    initiated a ``System Worth Saving,'' where our National
    Commander visited over 60 VA medical centers, and one of the
    areas he tried to focus on was the affiliations and the
    partnerships between the medical schools and the VA facilities
    and exactly how much the VA facilities benefited through these
    affiliations, through volunteers, through students, and mainly
    through the research, and the American Legion fears this
    decrease in funding for research and the detrimental effects it
    will have on not only the veterans who seek care at the
    facilities, but patients nationwide.
        Mr. Fuller. Senator, on behalf of Paralyzed Veterans of
    America, we were actually astonished at this budget request.
    This is totally unprecedented. Granted, as we have seen the
    administration and Congress almost double funding for NIH
    research, the VA research program sort of limps along with
    little increases every year of $5 or $10 million or something
    of that nature. But to swoop in in one stroke and to call for a
    reduction of $50 million, which we anticipate in both the grant
    money and the indirect support funding, would reduce VA
    research back to 1999 levels.
        When you are talking about losing 500 researchers, you are
    not talking about guys and gals who are just sitting in a
    laboratory. These are clinician researchers. These are doctors
    and nurses who work certainly in the laboratory doing research,
    but they are also there at the VA treating a veteran patient
    and this would be a stunning loss to a program which has
    received Nobel prizes and then TOP awards both nationally and
    internationally and we certainly hope that Congress can do
    something to set this straight.
        Mr. Jones. We agree, Senator. The research is clinical
    research. It is applied to veterans almost immediately on
    discovery. It is not theoretical or basic research, and that is
    one of the marks that makes the difference between VA research
    and National Institutes of Health research. It is applied at
    the base where delivery of health care is done. So it is an
    important element and could have adverse effects on the health
    of veterans.
        Senator Graham. If I could move to another issue, The
    Independent Budget raises some questions about VA's proposal
    for achieving management efficiencies. In this budget, those
    efficiencies are projected to result in a cost reduction of
    approximately $1 billion.
        Based on previous VA management efficiency programs, what
    do you think might result from the one that is suggested in
    this budget in terms of service to beneficiaries, cuts to
    employees, and reductions in particularly specialty programs?
        Mr. Fuller. When you look at a figure that large, Senator,
    of $1 billion, and you figure that the VA appropriation, the
    largest amount of it is in domestic discretionary funding, and
    the cost of VA health care is basically based upon the cost of
    FTE, of people, certainly there is equipment and construction
    and all those other things, but where you achieve the savings
    are through people. And, if you have to cut people, then you
    are cutting services to veterans and you are cutting both the
    quantity of the services you can provide but also the quality
    of those services.
        This, as you well know, is a standard trick of all
    administrations in every annual budget to try to force
    imaginary and unrealistic management efficiencies as just being
    part of their bottom line and they are never achieved.
        Senator Graham. This is especially true in my State, but it
    is also a national phenomenon that the veteran population is
    aging. My own brother, who was a radar operator on a B-29 in
    the Second World War, just had his 80th birthday. How well
    prepared do you think VA is for this increasingly older
    population in areas such as providing community care so that
    veterans don't have to be unnecessarily institutionalized, and
    where they do require institutionalization, having facilities
    that will be appropriate to their needs and provide a quality
    of service?
        Mr. Gaytan. I can say the American Legion is very concerned
    with the budget proposal that would reduce long-term care beds.
    We support first meeting the mandates of the Millennium Health
    Care Act, which they aren't doing, but then aside from not
    reaching those goals, to propose a budget that would reduce
    long-term care beds which are going to be needed by that very
    population of veterans that you mentioned, those aging veterans
    who are turning to long-term care, and when the VA can't supply
    it, then they are offering a budget that reduces the existing
    long-term care beds. The American Legion is very concerned that
    VA will be unable to meet the mandate of these aging veterans
    as they turn to long-term health care to the VA.
        Mr. Fuller. From PVA's standpoint, of course, long-term
    care issues are our great interest and a necessity of all our
    membership. Of course, the last thing in the world we want for
    anyone, any person with a disability, is to be
    institutionalized if there is an alternative to that
    institutionalization.
        That being said, of course, we have no real direct long-
    term care policy in the United States, either in the public or
    private sector, and it is one of the embarrassments for our
    country, when we compare our system with other countries of the
    world.
        The VA could serve as the most shining example of how to
    put together an enlightened long-term care policy if they would
    provide the resources to do it. The Congress and this Committee
    required the VA a couple years ago by statute to maintain a
    floor for the number of nursing home beds. They have ignored
    that statutory requirement and this particular budget calls for
    a reduction of 5,000 nursing home beds. They claim, on the
    other hand, that they are going to be increasing their home and
    community-based programs, which is admirable, but, of course,
    they never really meet the targets that they say that they are
    going to meet. You wind up with a gap in the middle of services
    between inpatient and home and community-based programs. There
    really ought to be a way for the Congress to--and you have done
    yeoman work in this committee in trying to force the VA into
    doing the right thing as far as long-term care is concerned,
    but we have got a long way to go, still.
        Chairman Specter [presiding]. Senator Graham, thank you
    very much for holding the fort and thank you for your patience
    and the fact that you have been patient. It is hard to get our
    time to any extent, as you have found out, but now we will
    begin the testimony.
        Mr. Gaytan, I had introduced you, so if you will proceed.

            STATEMENT OF PETER S. GAYTAN, PRINCIPAL DEPUTY
            DIRECTOR, VETERANS AFFAIRS AND REHABILITATION,
                          THE AMERICAN LEGION

        Mr. Gaytan. Thank you, Mr. Chairman. The American Legion,
    as you know, continues a proud tradition of advocating for
    funding to ensure America's veterans receive the health care
    and benefits they have earned through their honorable service
    to this country. As American service members continue to fight
    for our freedom in a number of countries worldwide, it is the
    responsibility of this Congress to provide a budget that will
    allow VA to fulfill its mission.
        In the fiscal year 2005 budget request, there is a
    continued emphasis on the treatment of the core mission veteran
    population. The term ``core mission veteran population'' does
    not appear in Title 38. In 1998, eligibility reform ensured all
    eligible veterans could seek health care through VA, not simply
    those designated as the core mission veteran population. Since
    then, we have seen VA shut its doors to Priority Group 8
    veterans.
        Tailoring the patient population to meet the budget was not
    the intent of Congress when VA eligibility was reformed. The
    American Legion urges this committee to fund VA at a level that
    will ensure all veterans have access to the VA health care
    system. The VA budget must reflect the true demand for care.
        Today, veterans continue to suffer as a result of a system
    that has been routinely underfunded, is now ill-equipped to
    handle the large influx of veterans waiting to use their
    services. Veterans continue to experience long waiting times
    for medical appointments as well as long waiting times for
    claims adjudication.
        The American Legion applauds Secretary Principi for his
    efforts to reduce the extreme backlog of patients waiting to
    receive care at VA facilities and we urge VA to continue to
    implement practices that will eliminate the backlog systemwide.
        Last year, as I mentioned earlier, the American Legion
    initiated the ``System Worth Saving'' initiative. National
    Commander Ron Conley visited 60 Veterans' Affairs medical
    centers, and so far this year, a team of Legionnaires has
    visited more than 30 facilities. We are learning that one of
    the main issues of concern is the increased medical care
    collection fund targets. Medical center directors are concerned
    over the significant increases in their medical care collection
    fund goals and what impact the restriction on enrolling any
    Priority Group 8 veterans will have on their ability to meet
    these goals.
        The American Legion shares their concern and we are also
    concerned about the impact of certain proposals included in the
    fiscal year 2005 budget request. The American Legion opposes
    the continuation of the suspension of enrollment of new
    Priority Group 8 veterans. Denying veterans access to VA health
    care, particularly while the Nation is at war, is the wrong
    message to send, not only to the members of the all-volunteer
    force, but also to the young men and women who may be
    considering a life of service in the U.S. Armed Forces.
        The American Legion also opposes the implementation of a
    $250 annual enrollment fee for non-service connected Priority
    Group 7 and 8 veterans. The American Legion would urge Congress
    to once again reject this proposal, just as it did last year.
    While the American Legion applauds the initiative to exempt any
    hospice care from copayments and to exempt former POWs from
    copayments for extended care services, we do not support
    increasing the pharmacy copay from $7 to $15.
        Additionally, the American Legion opposes the proposed
    regulatory change that would increase outpatient primary care
    copayments from $15 to $20. The American Legion would rather VA
    seek reimbursement from CMS for all enrolled Medicare-eligible
    veterans being treated for non-service connected medical
    conditions before they try to balance the budget on the backs
    of Priority Group 7 and 8 veterans.
        The American Legion is very concerned with the proposed
    reduction in long-term care beds, as I mentioned earlier. VA
    must meet the mandates of the Millennium Health Care bill, and
    eliminating long-term care beds is not the answer.
        The American Legion recommends $30 billion for VA medical
    care without the inclusion of MCCF collections. The American
    Legion continues to advocate for all MCCF collections to be
    added to the budget numbers and not be treated as an offset to
    the budget.
        Regarding Veterans' Benefits Administration, the American
    Legion is committed to ensuring VA will adjudicate veterans'
    claims fairly and impartially within a reasonable amount of
    time, and I think I expressed that during our Q and A earlier.
        The American Legion is pleased, however, with the fiscal
    year 2005 budget request proposal to address the influx of
    claims resulting from returning service members from Operation
    Enduring Freedom and Operation Iraqi Freedom. These deserving
    veterans should not be told to wait in line when turning to
    VBA.
        Chairman Specter. Mr. Gaytan, would you mind summarizing?
        Mr. Gaytan. Yes.
        Chairman Specter. You are 50 percent over time now.
        Mr. Gaytan. Yes, sir. I apologize. I just want to mention
    or reaffirm the American Legion's support for mandatory
    funding. We fully support designating VA medical care as a
    mandatory funding item within the Federal budget.
        I apologize for extending my time and I appreciate your
    patience.
        Chairman Specter. Thank you. Thank you very much, Mr.
    Gaytan.
        [The prepared statement of Mr. Gaytan follows:]

       Prepared Statement of Peter S. Gaytan, Principal Deputy Director,
            Veterans Affairs and Rehabilitation, the American Legion

        Mr. Chairman and Members of the Committee:
        Thank you for this opportunity to present the views of the 2.8
    million members of The American Legion regarding the Department of
    Veterans Affairs' (VA) fiscal year (FY) 2005 budget request. The
    American Legion continues to advocate adequate funding levels to ensure
    America's veterans receive the health care and benefits they have
    earned through their honorable service to this country. As America's
    soldiers, sailors, airmen, and Marines continue to fight in more than
    130 countries worldwide, this Nation must fulfill its obligation ``. .
    . to care for him who has borne the battle, and for his widow and his
    orphan.''
        In the fiscal year 2005 VA budget request, there is a continued
    emphasis on focusing resources for medical treatment of the core-
    mission veteran population. The term core-mission veteran population
    does not appear in Title 38, United States Code. In 1996, Congress
    passed VA eligibility reform legislation. It was not until 1998 that VA
    finally established the rules to enforce the statute. Eligibility
    reform ensured all eligible veterans could seek health care through VA,
    not simply those designated as the core-mission veteran population.
    Tailoring the veteran population to meet the budget was not the intent
    of Congress when it reformed access eligibility. The American Legion
    believes VA must be funded at a level that will ensure all eligible
    veterans have access to the VA health care system. The VA budget must
    reflect the true demand for care.
        Once again, the Administration attempts to place the burden of
    financing VA health care on the backs of veterans. The fiscal year 2005
    budget request contains provisions that would increase prescription co-
    payments and create an annual enrollment fee. These legislative
    initiatives target those Priority Group 7 and 8 veterans who are
    currently enrolled in the system. At the same time, VA continues to
    deny enrollment of any future Priority Group 8 veterans who could help
    shoulder this burden. These are the very veterans required to pay VA's
    co-payments and make third-party reimbursements for their health care.
    Rationing health care to America's veterans is not the solution to VA's
    accessibility crisis. The American Legion supports repealing the
    suspension of enrollment of Priority Group 8 veterans.
        We applaud the Administration efforts to alleviate co-payments for
    veterans receiving hospice care and former prisoners of war. The
    American Legion supports provisions within the budget request that
    would increase the income threshold from the Pensions level of $9,894
    to the aid and attendance level of $16,509 for certain Priority Group
    2-5 veterans. This would help reduce the pharmacy co-payment for those
    veterans struggling to meet the sky-rocketing cost of health care.
        In addition, The American Legion supports provisions to allow VA to
    pay for emergency room care at non-VA facilities for enrolled veterans.
    This will prevent any delays in treating life threatening injuries or
    illnesses for enrolled veterans not in close proximity to a VA
    facility. During visits to VA facilities under The American Legion's
    ``System Worth Saving'' initiative, Past National Commander, Ronald
    Conley discovered many VA facilities operated under a ``divert'' policy
    that imperiled veterans by denying them immediate access to health
    care.
        The American Legion is equally concerned with VA's continued
    efforts to create the new ``VA Advantage'' Medicare plan that would
    offer limited health care services to Priority Group 8 veterans 65 or
    older with Medicare Part B. Keep in mind that only nonservice-connected
    veterans who fall above the geographical means test and are Medicare-
    eligible will be considered under this proposal. Priority Group 8
    veterans who are not Medicare-eligible will simply continue to be
    denied access to VA medical care.
        Indian Health Services and TRICARE for Life are classic examples of
    effective Medicare and Medicaid Federal partners. Since over half of
    VA's enrolled patient population are Medicare-eligible veterans, The
    American Legion strongly believes Congress should consider passing
    legislation to ensure VA is reimbursed for treatment of Medicare-
    eligible veterans for allowable, nonservice-connected medical
    conditions.
        The fiscal year 2005 budget request must provide an adequate level
    of funding to eliminate the backlog of veterans waiting to receive
    care, to meet the needs of returning servicemembers who must now
    receive health care from VA, and to once again allow Priority Group 8
    veterans to receive timely access to quality VA medical care through
    the very system created to meet their unique health care needs.

        THE AMERICAN LEGION'S BUDGET REQUEST FOR SELECTED DISCRETIONARY
                      PROGRAMS FOR VA IN FISCAL YEAR 2005

        The American Legion strongly recommends Congress provide VA with
    the following specified funding in fiscal year 2005:

    ------------------------------------------------------------------------
                      Counts                           Budget Request
    ------------------------------------------------------------------------
    Medical Care..............................  $30 billion*
    Medical & Prosthetics Research............  $445 million
    Construction:
      Major...................................  $325 million
      Minor...................................  $255 million
    State Grants for Extended Care Facilities.  $120 million
    State Grants for Veterans' Cemeteries.....  $40 million
    National Cemetery Administration..........  $160 million
    General Administration....................  $1.8 billion
    ------------------------------------------------------------------------
    * Third-party reimbursements should supplement rather than offset
      discretionary funding.

                         VETERANS HEALTH ADMINISTRATION

    Medical Care
        Over the past 20 years, VA has dramatically transformed its medical
    care delivery system from a struggling collection of hospitals and
    homes to an integrated health care system of excellence that leads
    private and other government health care providers in almost every
    measure. The quality of care that is provided through the VA health
    care system is exemplary. However, the quality of care is irrelevant
    when access to that care is impeded.
        Today, there are over 25 million veterans. As more veterans choose
    to use VA as their primary health care provider (over 8 million
    veterans enrolled or waiting to enroll), the strain on the system
    continues to grow. The American Legion fully supported the enactment of
    Public Law 104-262, the Veteran's Health Care Eligibility Reform Act
    that opened enrollment in the VA health care system. Many veterans who,
    until this time, were restricted from VA health care in the 1980's were
    once again able to gain access. Veterans recognize that the Veterans
    Health Administration provides affordable, quality care that they
    cannot receive anywhere else.
        The astronomical growth of Priority Groups 7 and 8 veterans seeking
    health care at their local VA medical facility resulted in over 300,000
    veterans being placed on waiting lists regardless of their assigned
    Priority Group. As mentioned earlier, fiscal year 2003 saw the
    suspension of enrollment of new Priority Group 8 veterans due to this
    growth in enrollees. The American Legion does not agree with the
    decision to deny health care to veterans simply to ease the backlog.
    Denying earned benefits to eligible veterans does not solve the
    problems resulting from an inadequate budget.
        The simple fact is VHA does not have the funding needed to treat
    all veterans seeking care from VA. VHA operates under a constant cloud
    of fiscal uncertainty. The fiscal year 2004 VA appropriations battle
    delayed much-needed funds until more than 5 months into the fiscal
    year. Future spending projections, staffing levels, equipment
    purchases, and structural improvements are all stalled if the funding
    is not a certainty. Delayed funding means delayed services for
    deserving veterans who rely on VA for their care.
        In an effort to provide a stable and adequate funding process, The
    American Legion supports mandatory funding for veterans' medical care,
    as well as Medicare reimbursement for VA.

                  MANDATORY FUNDING FOR VETERANS MEDICAL CARE

        The American Legion believes that health care rationing for
    veterans must end. It is time to guarantee health care funding for all
    veterans. The American Legion has called for the current discretionary
    funding process, in which VA must compete with other agencies for
    scarce budget dollars, to be replaced by a mandatory funding formula
    for VA medical care. VA must be adequately funded to meet its own
    growth and end intolerable waiting periods.
        For over a decade, The American Legion has advocated allowing
    veterans to spend their health care dollars on the health care system
    of their choice. The American Legion believes the 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.
        When Congress opened access to the VA health care system, many
    veterans believed VA was their best health care option and newly
    eligible veterans began seeking care at VA. Since the Centers for
    Medicare and Medicaid Services (CMS), the nation's largest public
    health insurance program, does not offer its beneficiaries the full
    continuum of care or a substantive prescription benefit program, many
    Medicare-eligible veterans chose to enroll in VHA specifically to
    receive quality health care and access to an affordable prescription
    program. Although the Department of Defense's TRICARE and TRICARE for
    Life require military retirees to make co-payments or pay premiums,
    they do not provide for specialized care (like long-term care) many
    military retirees may need; therefore, many military retirees chose to
    also enroll for VA care to meet their unfulfilled medical needs.
        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 extensive waiting times for medical appointments, as well as
    unacceptably long waiting times for claims adjudication.
        Funding for VA health care currently falls under discretionary
    spending within the Federal budget. The VA health care budget competes
    with other agencies and programs for limited Federal dollars each year.
    The funding requirements of health care for service-disabled veterans
    are not guaranteed under discretionary spending. VA's ability to treat
    veterans with service-connected injuries is dependent upon
    discretionary funding approval from Congress each year.
        However, under mandatory spending, VA health care would be funded
    by law for all enrollees who meet the eligibility requirements,
    guaranteeing annual appropriations for the earned health care benefits
    of veterans.
        The American Legion believes it is disingenuous for the government
    to promise health care to veterans and then make it unattainable
    because of inadequate funding. Rationed health care is no way to honor
    America's obligation to the brave men and women who unselfishly put our
    nation's priorities in front of their own needs. Mandatory funding for
    VA health care will help ensure timely access to quality health care
    for America's veterans.
        Mandatory funding of VA medical care would not prohibit the use of
    other revenue streams to meet fiscal obligations, such as co-payments
    and third-party reimbursements from all health care insurers, both
    public and private.

          THIRD PARTY REIMBURSEMENT AND MEDICAL CARE COLLECTION FUNDS

        Public Law 105-33, the Balanced Budget Act of 1997, established the
    VA Medical Care Collections Fund (MCCF) and requires that amounts
    collected or recovered after June 30, 1997, be deposited into this
    fund. The MCCF is a depository for collections from third party
    insurance, outpatient prescription copayments and other medical charges
    and user fees. The funds collected may only be used for providing VA
    medical care and services and for VA expenses for identification,
    billing, auditing and collection of amounts owed the Government.
        Technically, the MCCF is not considered a Treasury offset because
    the funds collected do not actually go back to the Treasury account,
    but remain within VHA and are used as operating funds. Instead, in
    developing a budget proposal, the total appropriation request is
    reduced by the estimate for MCCF for the fiscal year in question. We
    fail to see the difference in the net effect to the VISN's and VAMC's.
    Offsetting estimated MCCF funds largely defeats the purpose of
    realigning VHA's financial model to more closely approximate the
    private sector. The American Legion adamantly opposes offsetting annual
    VA discretionary funding by the MCCF recovery.
        Implementation by VHA of the Revenue Cycle Enhancement Plan has a
    dramatic effect on the amount of revenue collected. Resuming in early
    fiscal year 2002 it has resulted in significantly higher receipts than
    projected. VHA doubled the amount expected in fiscal year 2004 from
    $1.3 billion to 2.1 billion. However, any system can stand improving
    and agency models are available that clearly illustrate the
    efficiencies that can be gained through practical application.
    Considering that VA is prohibited from collecting third-party
    reimbursements from the nation's largest health care insurer--CMS--and
    the vast majority of VA enrolled patient population are Medicare-
    eligible, VA's MCCF program has the potential of becoming even more
    effective in the recovery of third-party reimbursements.

                         MEDICARE REIMBURSEMENT TO MCCF

        As do all working citizens, veterans pay into the Medicare system
    without choice. A portion of each earned dollar is allocated to the
    Medicare Trust Fund. Although veterans must pay into the Medicare
    system, they cannot use their Medicare benefits at any VA health care
    facility. VA cannot bill Medicare for the treatment of Medicare-
    eligible veterans. The American Legion does not agree with this policy
    and supports Medicare reimbursement for VHA for the treatment of
    allowable, nonservice-connected medical conditions of enrolled
    Medicare-eligible veterans. As a Medicare provider, VHA should be
    authorized to bill and collect allowable third-party reimbursements
    from the Medicare Trust Fund for the treatment of nonservice-connected
    medical conditions of enrolled Medicare-eligible veterans.
        Since VA is working with CMS contractors for the purpose of
    providing VA with a Medicare-equivalent remittance advice (MRA) for
    veterans who are using VA services and are covered by Medicare, the
    American Legion recommends including all Medicare-eligible veterans
    assigned to Priority Groups 7 and 8. Under the Veterans Equitable
    Resource Allocation (VERA) formula, enrolled Priority Group 7 and 8
    veterans are not included in the current VERA formula that ultimately
    results in an inequitable distribution in resources.
        The fiscal year 2005 budget optimistically projects a $2.4 billion
    revenue stream attributed to third-party collections, but still
    supports the suspension of Priority Group 8 veterans from enrolling in
    VA.
        As The American Legion continues to visit VA facilities nationwide
    as part of the ``System Worth Saving'' initiative, we are hearing
    first-hand from facility leadership of the problems that exist with
    increased third-party collection rates. During a recent visit to a
    VAMC, the facility staff stated that their fiscal year 2004 MCCF
    collection goal was ``not realistic''. They added that the goal is
    probably ``not attainable as long as Category 7 & 8 veterans who bring
    in the MCCF dollars are excluded from using the system''.
        The American Legion recommends $30 billion for Medical Care in
    fiscal year 2005 in addition to MCCF collections, as well as
    eliminating the MCCF offset and authorizing VA to collect third-party
    reimbursements from Medicare for the treatment of allowable,
    nonservice-connected medical conditions.

                        MEDICAL AND PROSTHETICS RESEARCH

        VA Medical and Prosthetic Research has a history of productivity in
    advancing medical knowledge and improving health care, not only for
    veterans, but all Americans. VA research has led to the creation of the
    cardiac pacemaker, nicotine patch, and the Computerized Axial
    Tomography (CAT) scan, as well as other medical breakthroughs. Over
    3800 VA physicians and scientists conduct more than 9,000 research
    projects each year involving more than 150,000 research subjects.
        The VA Medical and Prosthetic Research budget has not kept pace
    with inflation during the past 15 years. It is essential that Congress
    and the Administration support strong medical and prosthetic research
    programs within VA so that veterans and all citizens continue to
    benefit from the exceptional research capability of the Department.
        The American Legion supports adequate funding for VA biomedical
    research activities. Congress and the Administration should encourage
    acceleration in the development and initiation of needed research on
    conditions that significantly affect veterans--such as prostate cancer,
    addictive disorders, trauma and wound healing, post-traumatic stress
    disorder, rehabilitation, and others--jointly with the Department of
    Defense (DoD), the National Institutes of Health (NIH), other Federal
    agencies, and academic institutions.
        The American Legion recommends $445 million for Medical &
    Prosthetics Research in fiscal year 2005.

                MEDICAL CONSTRUCTION AND INFRASTRUCTURE SUPPORT

    Major 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 unsanitary
    conditions discovered 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.
        A 1998 study recommended that VA fund two to 4 percent of Plant
    Replacement Value (PRV) per year 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. This 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 American Legion supports legislation that would provide $1.8
    billion over the next three fiscal years to improve, replace, update,
    renovate or establish facilities within the existing VA infrastructure.
    These funds would be exempt from 38 USC Sec. 8103 (a)(2) which requires
    enabling legislation for construction procurements in excess of $4
    million or leases in excess of $600,000 per year. This money would be
    available at the discretion of VA for:
         Seismic protection;
         Life safety upgrades;
         Utility improvements; and
         Accommodations for disabled persons.
        Facilities eligible for improvements include:
         Blind rehabilitation centers;
         Inpatient and residential programs for seriously mentally
    ill veterans and veterans with substance abuse disorders;
         Physical medicine and rehabilitation activities;
         Long term care including adult day care, nursing
    facilities and geriatric research and education facilities;
         Amputation care facilities including prosthetics and
    orthotics and sensory aids;
         Spinal cord and traumatic brain injury centers;
         Women's veterans' health programs; and
         Hospice and palliative care facilities.
        The American Legion is concerned that veterans are needlessly being
    placed in harm way within existing VA facilities. There are over 60
    patient care and other related use buildings in danger of collapse or
    heavy damage in the event of an earthquake. The sorely needed seismic
    corrections, along with the necessary ambulatory care and patient
    safety projects, will require a significant increase in funding to
    address VHA's current major construction requirements. This legislation
    will go a long way toward correcting these deficiencies.
        The American Legion further supports legislation that would
    authorize the following major medical construction projects at the
    amounts specified:
         Construction of two bed towers to consolidate inpatient
    sites in inner-city Chicago at the West Side Division in an amount not
    to exceed $98.5 million.
         Construction in Clarke County, Nevada of a multi-specialty
    outpatient clinic to replace the leased Las Vegas ambulatory care
    center and a satellite office for the Veterans Benefits Administration
    in an amount not to exceed $97.3 million.
         Seismic corrections to strengthen Medical Center Building
    1 at VA health Care System at San Diego, California not to exceed $48.6
    million.
         Renovation of all inpatient care wards at the VA West
    Haven, Connecticut healthcare facility at a cost not to exceed $50
    million.
        The American Legion recommends $325 Million for Major Construction
    in fiscal year 2005.

                               MINOR CONSTRUCTION

        Similar to VA's major construction program, VA's minor construction
    program has likewise suffered significant neglect over the past several
    years. The requirement to maintain the infrastructure of VA's buildings
    is no small task. When combined with the added cost of the CARES
    program recommendations and the request for minor infrastructure
    upgrades in several research facilities, it is easy to see that a major
    increase is crucial.
        The American Legion recommends $255 Million for Minor Construction
    in fiscal year 2005.

                  STATE EXTENDED CARE FACILITY GRANTS PROGRAM

        State Veterans Homes were founded for indigent and disabled Civil
    War veterans beginning in the late 1800's and have continued to serve
    subsequent generations of veterans for over one hundred years. Under
    the provisions of 38 USC, VA is authorized to make payments to states
    to assist in the construction and maintenance of State Veterans Homes.
    Today, there are 109 State Veterans Homes facilities in 47 states with
    over 23,000 beds providing nursing home, hospital, and domiciliary
    care. The State Veterans Home Program has proven to be a cost-effective
    provider of quality care to many of the nation's veterans and this
    program is an important adjunct to VA's own nursing, hospital, and
    domiciliary programs. The Grants for Construction of State Veterans
    Home Program provides funding for 65 percent of the total cost of
    building new veterans homes. VA has not been able to keep pace with the
    number of grant applications; and currently there is over $120 million
    in unfunded new construction projects pending.
        Recognizing the growing long-term health care needs of older
    veterans, it is essential that the State Veterans Home Program be
    maintained as a viable and important alternative health care provider
    to the VA system. The American Legion supports increasing the amount of
    authorized per diem payments (40 percent) for nursing home and
    domiciliary care provided to veterans in State Veterans Homes. The
    American Legion also supports the provision of prescription drugs and
    over-the-counter medications to State Homes Aid & Attendance patients,
    along with the payment of authorized per diem to State Veterans Homes.
    Additionally, VA should allow for full reimbursement of nursing home
    care to 70 percent service-connected veterans or higher, if the veteran
    resides in a State Veterans Home. The National Association of State
    Veterans Homes and VA should develop mutual planning efforts, enhanced
    medical sharing agreements, and enhanced-use construction contracts
    with qualified providers.
        The American Legion recommends $120 Million for the State Extended
    Care Facility Grants Program in fiscal year 2005.

                               NURSING HOME CARE

        Except for the occasional congressional initiative to build nursing
    homes in individual states or congressional districts and some CARES
    planning initiatives, VA has no plans to expand its own nursing home
    capacity.
        VA has failed to fulfill the promise of its landmark mid-1980's
    study, Caring for the Older Veteran. That study recommended large
    increases in both inpatient and alternative programs, such as respite,
    hospice, adult-day and home-based care, so that VA could approach the
    needs of World War II veterans with meaningful, health and end-of-life
    care programs, on both institutional and non-institutional bases. This
    has not been achieved.
        Millennium Act required VA to maintain its in-house NHU bed
    capacity at the 1998 level of 13,391. This capacity has significantly
    eroded rather than been maintained. In 1999, there were 12,653 VA NHU
    beds, 11,812 in 2000, 11,672 in 2001 and 11,969 in 2002. VA estimates
    it will have only 9,900 beds in 2003 and 8,500 in 2004. VA has claimed
    that it cannot maintain both the mandated bed capacity and implement
    all the non-institutional programs required by the Millennium Act.
        VA should be required to maintain its nursing home capacity as
    intended by Congress. VA must create incentives and receive appropriate
    funding to maintain its NHCU beds rather than abandon them to
    alternative sources. These beds are a vital component of the VA Long
    Term Care (LTC) continuum of care, and they are essential in addressing
    the needs of the aging veteran population.
        According to VA's fiscal year 2002 Annual Accountability Report
    Statistical Appendix, in September 2002, there were 93,071 World War II
    and Korean War era veterans receiving compensation for service-
    connected disabilities rated seventy percent or higher. The American
    Legion opposes provisions in the fiscal year 2005 budget request that
    would reduce funding for VA nursing homes by $270.5 million and reduce
    staffing by 2,500 full time employees. VA should comply with the intent
    of Congress to maintain an adequate LTC nursing home capacity for those
    disabled veterans who are in the most resource intensive groups;
    clinically complex, special care, extensive care and special
    rehabilitation case mix groups. The Nation has a special obligation to
    these veterans. They are entitled to the best care that the VA has to
    offer.

            CAPITAL ASSET REALIGNMENT FOR ENHANCED SERVICES (CARES)

        The CARES process was designed to take a comprehensive look at
    veterans' health care needs and services. However, because of problems
    with the model in projecting long-term care, domiciliary, and
    outpatient mental health care needs into the future, specifically to
    2012 and 2022, these critical health care services were omitted from
    the CARES planning. An extensive look, such as that proposed by the
    CARES initiative, cannot possibly be accomplished when an assessment of
    need for those services is missing from the process.
        The Draft National Plan contains several proposals to realign
    campuses and consolidate services. These realignments were introduced
    in the eleventh hour, with no stakeholder input sought by VA. There are
    13 such realignments proposed in the plan. The American Legion does not
    support the closing of a VA facility just for the sake of saving money
    while veterans are denied care.
        The Draft National CARES Plan expects substantial renovations and
    expansions as consolidations happen. A great deal of money will have to
    be allocated up front to ensure the new construction and renovations
    are completed. The American Legion understands that CARES is an ongoing
    process and when dealing with vacant space and renovations, incremental
    changes may have to take place. The price tag for all of the
    construction and renovations proposed is in the billions of dollars.
    With the proposed consolidations and transferring of services, it is
    imperative that veterans not experience delays in the delivery of their
    care. No facilities should be closed, disposed of, or downsized until
    the proposed movement of services is complete and veterans are being
    treated in the new locations.
        Funding should be provided to ensure that any realignment resulting
    from the CARES initiative does not lead to the suspension of services
    for veterans seeking care.

                        VETERANS BENEFITS ADMINISTRATION

        Over the years, Congress has established a system of laws that
    provide veterans and their survivors a spectrum of the services and
    benefits earned by virtue of the veteran's service in the Armed Forces
    of the United States. Since 1938, VA has had the responsibility of
    implementing these laws in a pro-claimant, informal, ex parte, and
    nonadversarial manner. The American Legion continues to closely monitor
    the programs and policies of the Veterans Benefits Administration (VBA)
    and assess whether or not these are truly meeting the needs of veterans
    and their families. The American Legion has a number of concerns about
    the current State of claims adjudication and the level and quality of
    service being provided by VBA and the Board of Veterans Appeals.
        The American Legion emphasizes that it is committed to ensuring
    that VA carries out its historic and statutory responsibility to
    provide medical care and benefits to those who have served and
    sacrificed in the defense of this nation. Veterans have the right to
    expect that VA will adjudicate their claims fairly and impartially
    within a reasonable period of time. We believe there are still too many
    instances where veterans and other claimants are being arbitrarily
    denied the benefits to which they are entitled.
        Over the course of fiscal year 2002 and fiscal year 2003, VBA has
    been able to make notable progress toward realizing Secretary
    Principi's often stated goal of the reducing the number of pending
    cases down to 250,000 and cutting the average processing time down to
    100 days by the end of this month. This has been a major challenge for
    VBA. In March 2002, at its peak, the regional offices had a backlog of
    over 423,000 cases that required rating action. Of these, 40 percent
    were over 6 months old. There were another 147,000 cases in which some
    other type of action was pending. In addition, there were approximately
    107,000 pending appeals, which included over 22,000 cases that had been
    remanded by the Board of Veterans Appeals. In human terms, thousands of
    these sick and disabled veterans or their survivors were waiting a year
    or more for a regional office to make a decision on their claim. If the
    claim was denied and they pursued an appeal, their wait could extend
    another two to 3 years or more. Such delays caused increased stress as
    well as serious financial hardship. The American Legion has commended
    the Secretary for his commitment to improving the regional office
    claims adjudication process. Recognizing the fact that many of these
    backlogged claims were from elderly veterans, one of the Secretary's
    first service improvement initiatives was the establishment of the
    Tiger Team at the Cleveland VA Regional Office. This unit has been
    primarily responsible for expedited action on the claims of older
    veterans, particularly those aged 70 and older, whose cases have been
    pending for a year or more.
        The Tiger Team initiative has been a success and they too should be
    commended for their efforts and dedication. However, it is regrettable
    that a sick and disabled veteran has to wait months, if not a year or
    more for action on their claim for benefits. Because of processing
    delays and necessity of an appeal to the Board of Veterans Appeals (the
    Board or BVA) or the Federal courts, many veterans have died before
    receiving a final decision on their case. In the view of The American
    Legion, the regional offices should be more concerned with people than
    process.
        It is clear that there has been a dramatic reduction in the claims
    backlog in the past year and a half. This decline means that regional
    offices are taking less time to adjudicate claims than in the past.
    Last year at this time, there were some 358,000 claims awaiting final
    action. Of these, almost 36 percent were over 6 months old. At the end
    of August, VBA reported there were about 265,000 pending claims and, of
    these, about 20 percent are over 6 months old. The average processing
    time has been reduced from 224 days in June 2002 to about 160 days
    currently. However, given the complexities of the claims adjudication
    process and requirements of the law, numbers do not tell the whole
    story and ``faster'' is not always ``better.''
        In its annual budget request over the past several years, VBA has
    reported a steady decrease in claims adjudication error rate. At the
    end of 1997, the error rate had been 36 percent. In 1998, it was 30
    percent. It increased slightly in 1999 to 32 percent. In 2000, there
    was a dramatic increase to 41 percent. The reported error rate declined
    to 22 percent in 2001. It was 20 percent in 2002 and, in 2003, it had
    declined to only 12 percent. The error rate goal for fiscal year 2004
    is 10 percent. Over this same period, The American Legion's regional
    office quality review visits do not confirm a substantial and dramatic
    improvement in the overall error rate.
        There is little doubt that the vast majority of regional office
    adjudicators are dedicated, hardworking men and women. They continue to
    operate under tremendous stress to meet the Department's and veterans'
    expectations. However, The American Legion believes the effectiveness
    of VBA's quality improvement efforts has been severely compromised by
    the drive to achieve the Secretary's mandated production quotas.
    Veterans and other claimants are being short-changed by VBA policies
    and procedures that tend to promote less than adequate claims
    development, premature denials, and under-evaluations.
        The lack of proper and appropriate action on thousands of claims
    continues to result in a high level of claimant dissatisfaction and a
    steady influx of new appeals to the regional offices. There are now
    over 134,000 pending appeals with some 111,500 requiring adjudicative
    action. Even though there is a concerted effort to resolve appeals at
    the regional office through the Decision Review Officer program, most
    of these cases will eventually go to the Board of Veterans Appeals for
    a final decision on the merits of the claim.
        The straight line staffing level requested for fiscal year 2004 is
    based on the assumption that, with the accomplishment of the
    Secretary's backlog reduction goals, VBA would be able to refocus its
    efforts to more effectively address the quality-related problems and
    other long-standing issues. Given past performance, The American Legion
    continues to believe that this is an unrealistic policy and will not
    afford VBA the flexibility to cope with current workload demands, let
    alone some unanticipated contingency, such as supporting the Department
    of Defense new Combat-related Special Compensation Program and the
    additional resources that will be required to comply with the Huston
    decision. The American Legion recognizes that VBA has made a concerted
    effort to hire additional staff in the last several years. This policy
    of continuing growth is both prudent and necessary, given the
    increasingly complex nature of the claims and appeals process, the
    heavy volume of new claims, and the ongoing need to buildup the core
    adjudication staff in anticipation of the retirement of the more
    experienced regional office decisionmakers.
        The American Legion is concerned with support in the budget request
    for legislation that would reverse the Allen vs. Principi court
    decision. Clearly, the intent of this proposal is to overturn the 2001
    decision of the United States Court of Appeals for the Federal Circuit
    (the Federal Circuit or the Court) in Allen v. Principi 237 F.3d 1368
    (Fed. Cir., 2001). The Court held that Congress, in enacting P.L. 96-
    466, the ``Omnibus Budget Reconciliation Act of 1990'' (OBRA 90), did
    not intend to preclude compensation for an alcohol or drug-related
    disability resulting from or secondary to a non-willful misconduct
    service-connected disability. Prior to OBRA 90, VA considered
    alcoholism and drug abuse disabilities unrelated to a service connected
    psychiatric disorder as willful misconduct. The term ``willful
    misconduct'' was defined in VA regulations as a deliberate and
    intentional act involving conscious wrongdoing or known prohibited
    action, with knowledge of or wanton and reckless disregard of the
    probable consequences.
        However, the definition noted that the mere technical violation of
    police regulations and ordinances would not, per se, constitute willful
    misconduct unless it is the proximate cause of injury, disease, or
    death. VA's policy was that the misconduct bar to benefits did not
    apply to those veterans whose alcohol or drug addiction was secondary
    to a service connection mental or physical disability. OBRA 90
    specifically provided in 38 U.S.C. Sec. Sec. 1110 and 1131, that an
    injury or disease resulting from the abuse of alcohol or drugs is not
    considered to have been incurred in the line of duty and VA may not pay
    compensation for disabilities that are the result of ``the veteran's
    own willful misconduct or alcohol or drug abuse.'' Under OBRA 90, VA as
    a matter of policy and practice, would not grant secondary service
    connection for substance abuse, but would, where appropriate,
    incorporate the symptoms of alcohol and drug abuse into the overall
    evaluation of the primary service connected disability. As an example,
    a veteran may have been rated for ``PTSD with alcoholism.'' In 1998,
    the United States Court of Appeals for Veterans Claims (CVAC), in
    Barela v. West (11 Vet. App. 280) (1998), held that, while OBRA 90
    provided for service connection of alcohol and drug-related
    disabilities as being secondary to a service connected disability, VA
    could not pay compensation for such disabilities.

                           BOARD OF VETERANS APPEALS

        The reduction in the number and the average processing time of
    pending claims represents only one aspect of VA's overall case backlog,
    since not all claims can or should be approved. When a veteran or other
    claimant receives an unfavorable decision either denying the claim in
    whole or in part, they have the right to appeal. The number of appeals
    filed each year is a direct reflection of the level of claimant
    satisfaction with the quality of the regional office adjudication. The
    action taken by the Board of Veterans Appeals (BVA) is a further
    reflection and commentary on the quality of regional office
    decisionmaking. Of those appeals decided in the first 10 months of
    fiscal year 2003, the Board affirmed the decisions of the regional
    office only 38 percent of the time and rejected their decision in about
    59 percent of the cases. Such poor performance by the regional office
    adjudicators is of grave concern to The American Legion, since it
    represents a tremendous waste of time and taxpayers' money, and a
    hardship for thousands of veterans and their families. Clearly, VBA's
    efforts to date have not effectively addressed the persistent systemic
    problems that adversely affect regional office claims processing and
    adjudication.

     COURT OF APPEALS FOR VETERANS CLAIMS AND THE COURT OF APPEALS FOR THE
                                FEDERAL CIRCUIT

        The regulations and procedures of both the VBA and the BVA will be
    fundamentally changed by several recent court decisions. The courts
    have held that VA, as a matter of policy, had promulgated regulations
    that were misleading, basically unfair, and a violation of claimants'
    right to full due process.
        In 2002, there was a combined effort by the Board of Veterans
    Appeals and VBA to try and improve the timeliness and quality of action
    on remanded appeals. By alleviating some of the regional offices'
    appellate workload, this would enable the regional offices to devote
    more resources to resolving previous remands and further reduce the
    backlog of pending claims. This initiative was prompted by the fact
    that remands often sat in a regional office for months or even years
    with little or no action taken. In many instances, the development that
    was done would be inadequate or incomplete and the Board had to remand
    the case two or three times, which meant greater delay and hardship for
    the appellant. Rather than sending a case back to the regional office,
    a unit was established within the Board to undertake the development
    specified in the remand decision. If the decision included a benefit
    grant, the unit could initiate the award, so there would be no delay in
    payment. The American Legion supported the intent of this service
    improvement effort.
        In a decision early last summer, the United States Court of Appeals
    for the Federal Circuit held that the BVA's Development Unit was
    unlawful. As a result, there are about 8,000 remands plus new remands
    that are in the process of being transferred from the BVA Development
    Unit to VBA's Appeals Management Center (AMC), which is located at the
    Washington VA Regional Office, for further development and
    readjudication. While generally supportive of the effort to try and
    improve the handling of remands, there are problems in handling cases
    where the Board has awarded benefits. The lack of action by the AMC to
    expedite payment action has prompted several veterans to contact The
    American Legion for assistance. We are hopeful that appropriate steps
    have now been taken by VBA to ensure this type of problem does not
    recur. The AMC is projected to be fully staffed and operational by
    December 2003. In the interim, remands are being referred to the
    Huntington, West Virginia Regional Office and the Tiger Team in
    Cleveland for action. However, the prior BVA Development Unit
    initiative and the current AMC leave unaddressed the larger and more
    difficult issues relating to poor regional office decisionmaking,
    incomplete development, inadequate VCAA notices, and premature denials.
    Furthermore, there does not appear to be any incentive for the regional
    offices to improve their case development, nor is there any
    disincentive to keep them from certifying cases, because the AMC have
    to do what they should have done. VBA must ensure that the AMC does not
    become a dumping ground for the regional offices.
        In a system with tens of thousands of claims to be processed, there
    is a constant tension between management's need to have cases decided
    as quickly as possible and the statutory need to protect the claimant's
    right by ensuring that any decision made is proper and consistent with
    the law and regulations. For the past two and a half years, VBA
    management has been emphasizing speed and production volume. Under such
    pressure, there has been a tendency among some VBA managers and
    adjudicators to ignore the law and VA's own regulations and put
    bureaucratic convenience ahead of quality decisionmaking and the
    welfare and well being of the individual veteran and his or her family.
        In the opinion of The American Legion, one of the key impediments
    to progress on improving the quality of regional office decisionmaking
    and, thereby, claimant satisfaction, has been VBA's lack of compliance
    with both the letter and spirit of the ``Veterans' Claims Assistance
    Act of 2000'' (PL 106-475) (VCAA). The American Legion was actively
    involved in the development of this landmark legislation. It was
    designed to overcome the deficiencies and lack of clarity in the way
    VBA communicated with claimants and the way in which it developed
    claims. It made clear the exact nature and extent of VA's obligations
    and responsibilities to notify and to assist claimants. The idea was
    that, if claims were better developed, they could be promptly and more
    accurately adjudicated, thereby improving service to claimants. In the
    long run, these improvements should also reduce the overall appeals
    workload for the regional offices and the Board of Veterans Appeals. It
    was to be a ``win/win'' situation for all parties. However, as we have
    seen thus far, VBA has generally given lip service to the requirements
    of VCAA.
        While claimants are provided what is termed a ``VCAA'' letter,
    little time or effort goes into trying to help the individual veteran
    understand his or her claim and what evidence is going to be needed and
    who is responsible for developing it. Such letters usually lack
    essential information regarding the individual's claim and the evidence
    needed to grant the benefit sought in the particular case. These are
    unnecessarily long, confusing, nonspecific letters, which are filled
    with bureaucratic jargon. In some of the cases reviewed during The
    American Legion's regional office quality review visits, the
    information in many VCAA letters was found to be incorrect or not even
    appropriate to the claim. Rather than facilitating the adjudication
    process, as they were intended, these notice letters set the stage for
    an appeal to the BVA and the Federal courts.
        The American Legion's concerns regarding the deficiencies in the
    VCAA letters have been brought to Secretary Principi's attention as
    well as discussed in testimony before the Veterans' Affairs Committees
    on a number of occasions. Despite these efforts, VBA policy on the use
    of this type of letter remained unchanged. However, as a result of the
    July 2003 decision by the United States Court of Appeals for Veterans
    Claims (CVAC), in Huston v. Principi, VBA will now be forced to comply
    with the duty to notify and duty to assist provisions of title 38,
    United States Code, sections 5103(a) and 5103A. VA will now be
    obligated to clearly tell the claimant what evidence to submit in order
    to obtain the benefits claimed. The American Legion is disappointed
    that it took a court order to make VBA do what it should have been
    doing since the enactment of the VCAA. We will be watching very closely
    how VBA and Board of Veterans Appeals implement the Huston decision.
    Continued strong oversight by the Veterans' Affairs Committees will
    also be important in ensuring the VBA is, in fact, meeting its historic
    and statutory responsibilities to the veterans of this nation.

                          GI BILL EDUCATIONAL BENEFITS

        The American Legion commends the 108th Congress for its actions to
    improve the current Montgomery GI Bill (MGIB). A stronger MGIB is
    necessary to provide the Nation with the caliber of individuals needed
    in today's Armed Forces. The American Legion appreciates the efforts
    that this Congress has made to address the overall recruitment needs of
    the Armed Forces and to focus on the current and future educational
    requirements of the All-Volunteer Force.
        Over 96 percent of recruits currently sign up for the MGIB and pay
    $1,200 out of their first year's pay to guarantee eligibility. However,
    only one-half of these military personnel use any of the current
    Montgomery GI Bill benefits. This is directly related to the fact that
    current GI Bill benefits have not kept pace with the increasing cost of
    education. Costs for attending the average 4-year public institution,
    as a commuter student during the 1999-2000 academic year was nearly
    $9,000. PL 106-419 recently raised the basic monthly rate of
    reimbursement under MGIB to $650 per month for a successful 4-year
    enlistment and $528 for an individual whose initial active duty
    obligation was less than 3 years. The current educational assistance
    allowance for persons training full-time under the MGIB--Selected
    Reserve is $263 per month.
        The Servicemen's Readjustment Act of 1944, the original GI Bill,
    provided millions of members of the Armed Forces an opportunity to seek
    higher education. Many of these individuals may not have been afforded
    this opportunity without the generous provisions of that act.
    Consequently, these servicemen and servicewomen made a substantial
    contribution not only to their own careers, but also to the economic
    well being of the country. Of the 15.6 million veterans eligible, 7.8
    million took advantage of the educational and training provisions of
    the original GI Bill. Between 1944 and 1956, when the original GI Bill
    ended, the total educational cost of the World War II bill was $14.5
    billion. The Department of Labor estimates that the government actually
    made a profit because veterans who had graduated from college generally
    earned higher salaries and therefore paid more taxes. Today, a similar
    concept applies. The educational benefits provided to members of the
    Armed Forces must be sufficiently generous to have an impact. The
    individuals who use MGIB educational benefits are not only improving
    their career potential, but also, making a greater contribution to
    their community, state, and nation.
        The American Legion recommends the following improvements to the
    current MGIB:
         The dollar amount of the entitlement should be indexed to
    the average cost of a college education including tuition, fees,
    textbooks, and other supplies for a commuter student at an accredited
    university, college, or trade school for which they qualify.
         The educational cost index should be reviewed and adjusted
    annually.
         A monthly tax-free subsistence allowance indexed for
    inflation must be part of the educational assistance package.
         Enrollment in the MGIB shall be automatic upon enlistment,
    however; benefits will not be awarded unless eligibility criteria have
    been met.
         The current military payroll deduction ($1,200)
    requirement for enrollment in MGIB must be terminated.
         If a veteran enrolled in the MGIB acquired educational
    loans prior to enlisting in the Armed Forces, MGIB benefits may be used
    to repay those loans.
         If a veteran enrolled in MGIB becomes eligible for
    training and rehabilitation under Chapter 31, of Title 38, United
    States Code, the veteran shall not receive less educational benefits
    than otherwise eligible to receive under MGIB.
         A veteran may request an accelerated payment of all
    monthly educational benefits upon meeting the criteria for eligibility
    for MGIB financial payments, with the payment provided directly to the
    educational institution.
         Separating service members and veterans seeking a license,
    credential, or to start their own business must be able to use MGIB
    educational benefits to pay for the cost of taking any written or
    practical test or other measuring device.
         Eligible veterans shall have 10 years after discharge to
    utilize MGIB educational benefits.
         Eligible members of the Select Reserves, who qualify for
    MGIB educational benefits shall receive not more than half of the
    tuition assistance and subsistence allowance payable under the MGIB and
    have up to 5 years from their date of separation to use MGIB
    educational benefits.

                           HOME LOAN GUARANTY PROGRAM

        The American Legion believes that the current limit of VA Home Loan
    Guarantee of $252,500 should be raised to $300,000 and that higher
    limits be established for areas of the country where justified by
    prevailing real estate market conditions. In San Francisco, California
    in 2002 the median price of a home was $482,300, an actual decrease of
    .3 percent from 2001. In Boston, Massachusetts the median price of a
    home was $358,000; in the New York City Metro area, 285,600; and here
    in Washington D.C. the median home cost $229,100 in 2002, up 19.8
    percent from $183,700 in 2001. Clearly, in these cities, the difference
    between many veterans being able to secure financing for a decent home
    for his or her family and being shut out of the market is due to the
    inadequate levels of the VA Home Loan Guarantee Program.
        The American Legion also supports the recognition of VA Home Loan
    Guaranty benefits in cases where both members of a married couple are
    eligible for the benefit. If both members are eligible to receive the
    benefit, both members should be allowed to use the benefit.
        The American Legion is also concerned with a provision in the
    budget request supporting legislation that would limit the VA Home Loan
    program to one-time use for military members who separate after the
    legislation is passed and for all current veterans 5 years after
    enactment. Veterans have earned the right to this benefit and it should
    not be limited to one-time usage.
        The VA Home Loan program is one of the core elements of the
    original Servicemen Readjustment Act of 1944, the GI Bill of Rights.
    This legislation is often referred to as ``one of the most important
    pieces of social legislation ever enacted.'' Successful participation
    in the VA Home Loan program should be rewarded, not restricted or
    terminated. Due to the transient nature of our society, many Americans
    may experience several relocations based on business opportunities or
    upgrades in their financial situations. Living the American dream of
    homeownership should be encouraged and promoted as continuous economic
    stimulus opportunity.

      NATIONAL CEMETERY ADMINISTRATION (NCA) THE NATIONAL CEMETERY SYSTEM

        VA's National Cemetery Administration (NCA) is comprised of 120
    cemeteries in 39 states and Puerto Rico as well as 33 soldiers' lots
    and monuments. NCA was established by Congress and approved by
    President Abraham Lincoln in 1862 to provide for the proper burial and
    registration of graves of Civil War dead. Since 1973, annual interments
    in NCA have increased from 36,400 to over 84,800. Annual burials are
    expected to increase to more than 115,000 in the year 2010 as the
    veteran population ages. Currently 59 national cemeteries are closed
    for casket burials. Most of these can accept cremation burials,
    however, and all of them can inter the spouse or eligible children of a
    family member already buried. Another 22 national cemeteries are
    expected to close by the year 2005, but efforts are underway to
    forestall some of these closures by acquiring adjacent properties.
        Maintaining cemeteries as National Shrines is one of NCA's top
    priorities. This commitment involves raising, realigning and cleaning
    headstones and markers to renovate gravesites. The work that has been
    done so far has been outstanding, however, adequate funding is key to
    maintaining this very important commitment. At the rate that Congress
    is funding this work, it will take twenty-eight years to complete. The
    American Legion supports the Under Secretary for Memorial Affairs in
    his goal of completing the NCA's National Shrine Commitment in 5 years.
    This Commitment includes the establishment of standards of appearance
    for national cemeteries that are equal to the standards of the finest
    cemeteries in the world. Operations, maintenance and renovation funding
    must increased to reflect the true requirements of the National
    Cemetery Administration to fulfill this Commitment.
        Congress must provide sufficient major construction appropriations
    to permit NCA to accomplish its stated goal of ensuring that burial in
    a national or State cemetery is a realistic option by locating
    cemeteries within 75 miles of 90 percent of eligible veterans.
        P.L. 107-117 required NCA to build 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. Additional acreage is
    currently under development in 10 national cemeteries, columbaria are
    being installed in 4 and additional land for gravesite development has
    been acquired at national cemeteries in 5 states. 9 national cemeteries
    are expected to close to new interments between 2005 and 2010. The rate
    of interments in national cemeteries has increased from 36,400 in 1978
    to 84,800 in 2001. This rate is expected to rise to 115, 000 in 2015.
        The average time to complete construction of a national cemetery is
    7 years. The report of a study conducted pursuant the Millennium Bill
    concluded that an additional 31 national cemeteries will be required to
    meet the burial option demand through 2020. Legislation is currently
    pending in this session that will authorize the establishment of 10 new
    national cemeteries in areas of the country facing a shortage of burial
    space. Together with the 6 national cemeteries under development, this
    will go a long way toward fulfilling this need. NCA will be able to
    keep pace with current demand for burial space if this legislation is
    enacted and fully funded this year.
        The American Legion urges Congress to provide sufficient major
    construction appropriations to permit NCA to accomplish its mandate of
    ensuring that burial in a national cemetery is a realistic option for
    90 percent of our nation's veterans.
        The American Legion recommends $156 Million for the National
    Cemetery Administration in fiscal year 2005.

                         STATE CEMETERY GRANTS PROGRAM

        The National Cemetery Administration (NCA) administers a program of
    grants to states to assist them in establishing or improving state-
    operated veterans cemeteries through VA's State Cemetery Grants Program
    (SCGP). Established in 1978, the matched-funds program helps to provide
    additional burial space for veterans in locations where there are no
    nearby national cemeteries. Through fiscal year 2002, more than $169
    million in grants has been awarded to states and the Territories of
    Guam and the Northern Marianas, including 5 new State cemeteries and
    the improvement and/or expansion of 9 existing ones.
        Under the Veterans Programs Enhancement Act of 1998, PL 105-261, VA
    may now provide up to 100 percent of the development cost for an
    approved project. For establishment of new cemeteries, VA can provide
    for operating equipment. States are solely responsible for the
    acquisition of the necessary land.
        The American Legion recommends $40 Million for the State Cemetery
    Grants Program in fiscal year 2005.
        Mr. Chairman, this concludes my testimony. I again thank the
    Committee for this opportunity to express the views of The American
    Legion on VA's fiscal year 2005 Budget Request and look forward to
    working with you and the members of the Committee to ensure VA is
    funded at a level that will allow all veterans to receive the care they
    have earned through their service.

        Chairman Specter. Our next witness is Mr. Richard Fuller,
    National Legislative Director of the Paralyzed Veterans of
    America. Thank you for joining us, Mr. Fuller, and your full
    biographical resume will be placed in the record.

    STATEMENT OF RICHARD B. FULLER, NATIONAL LEGISLATIVE DIRECTOR,
                     PARALYZED VETERANS OF AMERICA

        Mr. Fuller. Thank you, Mr. Chairman. The balance of the
    panel here represent the four organizations who co-authored The
    Independent Budget every year. This year's 2005 Independent
    Budget is available for every member of the committee and will
    be sent to every member of the Senate.
        [The Independent Budget follows:]

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        Mr. Fuller. What we do in the interest of time and also so
    we don't repeat ourselves is that each organization takes a
    certain segment of The Independent Budget to testify on, and
    for the past 18 years, Paralyzed Veterans of America has worked
    on the health care portion. I will address my comments to that
    today.
        The Administration's budget request for health care is a
    shocking one, providing once again a woefully inadequate
    funding level for sick and disabled veterans. Calling for only
    a $310 million increase in appropriated dollars is a mere 1.2
    percent increase over fiscal year 2004. This is the smallest
    health care appropriation request of any Administration in
    nearly a decade.
        Indeed, the VA Under Secretary for Health testified just
    last year that the VA requires a 13 to 14 percent increase just
    to keep its head above water each year. Once again, we are
    faced by a request that relies too heavily on budgetary
    gimmicks and accounting sleight-of-hand rather than on real
    dollars that veterans need.
        The Administration is again resurrecting its user fee and
    increased copayment schemes, proposals that were soundly
    rejected before and we hope they will be rejected again. Once
    again, we see unrealistic management efficiencies utilized to
    mask how truly inadequate this budget is.
        For fiscal year 2005, The Independent Budget recommends a
    medical amount of $29.8 billion. This amount represents an
    increase of $3.2 billion over the amount provided in 2004. For
    medical and prosthetic research, The Independent Budget is
    recommending $460 million. This represents a $54 million
    increase over the 2004 amount. Sadly, the Administration has
    proposed cutting research grants alone by approximately $21
    million, which is absolutely unprecedented in recent history.
    Accepting this level of funding would set the research grant
    program back to fiscal year 1999 levels. This also needs to be
    corrected.
        In closing, the VA health care system faces two chronic
    problems. The first is underfunding, which I have already
    outlined, and the second is a lack of consistent funding. The
    budget and appropriations process over the last number of years
    demonstrates conclusively how the VA labors under the
    uncertainty of not only knowing how much money it is going to
    get, but more equally important, when it is going to get that
    money. No Secretary of Veterans' Affairs, no VA hospital
    director, 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 there when they need them.
        The only solution we can see is for this committee and the
    Congress as a whole 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 when it knows how much it is going to get and when
    it is going to get it.
        This concludes my testimony. I will be happy to answer any
    questions you may have.
        Chairman Specter. Thank you. Thank you very much, Mr.
    Fuller. Your full statements will all be made a part of the
    record and we will have a chance to review them in some detail
    and staff will analyze them. We appreciate this very impressive
    booklet. I thought you would probably read it in 3 minutes, but
    you couldn't do it.
        [Laughter.]
        [The prepared statement of Mr. Fuller follows:]

    Prepared Statement of Richard B. Fuller, National 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 the views of
    The Independent Budget regarding the funding requirements for the
    Department of Veterans Affairs (VA) health care system for fiscal year
    2005.
        This is the eighteenth 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 32 veterans service
    organizations, and medical and health care advocacy groups.
        Mr. Chairman, we are becoming increasingly troubled by the delays
    in enacting VA appropriations. In fiscal year 2000, VA appropriations
    were not enacted until October 20th, in fiscal year 2001 October 27th,
    in fiscal year 2002 November 26th, in fiscal year 2003 February 20th,
    and this year, January 23rd. For the past 2 years alone, the VA health
    care system has had to struggle along at previous year's inadequate
    funding levels for nearly one-third of each year. This is unacceptable.
    These delays directly affect the health care received by veterans. This
    deplorable State further points to the importance of a mandatory
    funding mechanism for VA health care. But until that happens, we ask
    that this Congress move expeditiously to put the necessary funding
    levels in place by the start of fiscal year 2005. We also are
    disappointed in the practice of using rescissions as a budgetary
    mechanism in the omnibus spending bills that have become far too
    common. These cuts also have real consequences for veterans and their
    families.
        This year, as we did last year, The Independent Budget is presented
    in the traditional account format. The VA is once again presenting its
    budget in the format it unveiled last year, a format that did not find
    wide acceptance. The House Appropriations Committee has adopted its own
    format, a format adopted in the recently enacted Omnibus spending bill.
    Until this format dispute is settled, and until we have adequate data
    in which to analyze the VA health care system under whichever format is
    adopted, we will continue to utilize the traditional account structure.
    It can become confusing amid the din of competing dollar amounts based
    upon these different formats, but we ask you to compare oranges to
    oranges and to bear in mind that attractive numbers may not exactly
    match reality.
        The Administration's budget request for health care is a shocking
    one, providing once again a woefully inadequate funding level for sick
    and disabled veterans. Calling for only a $310 million increase in
    appropriated dollars, a mere 1.2 percent increase over fiscal year
    2004, this is the smallest health care appropriation request of any
    Administration in nearly a decade. Indeed, the VA Under Secretary for
    Health testified just last year that the VA requires a 13 to 14 percent
    increase just to keep its head above water.
        In addition, we once again are faced by a request that relies far
    too heavily on budgetary gimmicks and accounting sleight of hand rather
    than on real dollars that veterans need. The Administration is again
    resurrecting its enrollment fee and increased co-payment schemes,
    proposals soundly rejected by both the Senate and the House of
    Representatives. And once again we see unrealistic ``management
    efficiencies'' utilized to mask how truly inadequate this budget is.
    The VA must be accorded real dollars in order to care for real
    veterans. Shifting costs onto the back of other veterans is not the way
    to meet this Federal responsibility. Punitive co-payments and charges
    are designed not so much to swell projected budget increases as they
    are to deter veterans from seeking their care at VA medical facilities.
    Imagine the effect of these additional costs on those who have no other
    choice but to get care at VA. We may indeed have the greatest health
    care system in the world, but if you cannot get in the door we might as
    well have the worst.
        Mr. Chairman, The Independent Budget makes a strong statement in
    opposition to co-payments. 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.
        For fiscal year 2005, The Independent Budget recommends a Medical
    Care amount of $29.791 billion. This figure does not include funds
    attributed to MCCF, which we believe should be used to augment a
    sufficient appropriated level of funding. This amount represents an
    increase of $3.2 billion over the amount provided in fiscal year 2004.
        The Independent Budget recommendation is a conservative one. The VA
    health care system, in order to fully meet all of its demands and to
    ameliorate the effects of chronic under-funding, could use many more
    dollars. The Independent Budget recommendation provides for the impact
    of inflation on the provision of health care, and mandated salary
    increases of health care personnel. It provides resources to begin
    funding the VA's critical fourth mission to back up the Department of
    Defense health care system. Make no mistake about it, the VA will be
    spending money to comply with its new responsibilities in this area,
    and if specific funding is not included, then these resources will have
    to come directly from dollars used to care for sick veterans. It
    provides increased prosthetics funding and long-term care funding, and
    provides enough resources, we believe, to enroll Priority 8 veterans.
    With the VA's decision to cease enrolling Priority 8 veterans,
    undertaken only because of the lack of resources, we are losing an
    entire class of veterans, veterans who are an integral part of the VA
    health care system.
        Of course, these recommendations are only estimates, and our
    crystal ball is often cloudy. Health care inflation may be higher, or
    lower than we have estimated. Demand may increase, or decrease. The
    implications, as they pertain to VA health care funding estimates, of
    the 2-year grant of health care eligibility to recently discharged or
    released active duty personnel as provided in P.L. 105-363, are
    difficult to account for. But what we must account for, and provide
    for, are the necessary resources for the VA to meet its
    responsibilities, and this Nation's responsibilities, to sick and
    disabled veterans. These resources must be provided in hard dollars,
    and not dollars magically realized out of the thin air of ``management
    efficiencies'' and other budgetary gimmicks.
        For Medical and Prosthetic research, The Independent Budget is
    recommending $460 million. This represents a $54 million increase over
    the fiscal year 2004 amount. Sadly, the Administration has proposed
    cutting research by approximately $21 million. Accepting this level of
    $385 million would set the research grant program back 6 years to
    fiscal year 1999 funding levels. This program is a vital part of
    veterans' health care, and an essential mission for our national health
    care system. We must provide additional dollars for VA research as we
    provide additional funding for our other national research endeavors.
    Over the course of 5 years, the budget for the National Institutes of
    Health was doubled. We should seek a similar commitment for VA
    research.
        In closing, the VA health care system faces two chronic problems.
    The first is underfunding which I have already outlined. The second is
    a lack of consistent funding.
        The budget and appropriations process over the last number of years
    demonstrates conclusively how the VA labors under the uncertainty of
    not only how much money it is going to get, but, equally 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 need them.
        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 the Congress
    as a whole 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 working with this Committee in order to begin
    the process of moving a bill through the Senate, and the House, as soon
    as possible.
        This concludes my testimony. I will be happy to answer any
    questions you may have.

        Chairman Specter. Our next witness is Mr. Rick Surratt, the
    Deputy National Legislative Director for the Disabled American
    Veterans. Thank you for joining us, Mr. Surratt, and your full
    resume will be placed in the record.

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

        Mr. Surratt. Thank you, Mr. Chairman. On behalf of the DAV
    and The Independent Budget, I am pleased to present our views
    on the President's fiscal year 2005 budget and to highlight our
    recommendations for resources and program improvements.
        Other than a cost-of-living adjustment for compensation and
    reinstatement of the 1-year period for filing death pension
    claims, the President's budget contains no positive
    recommendations for improvements to the benefit programs. It
    does, however, include two objectionable recommendations to
    eliminate entitlement to benefits.
        It again requests the Congress eliminate entitlement to
    compensation for any portion of a service-connected disability
    attributable to the effects of alcohol or drug abuse. Under
    current law, alcohol abuse, for example, is not itself a
    compensable disability. However, when it is a secondary product
    and part and parcel of the manifestations of a service-
    connected psychiatric disorder, for example, its effects are
    properly for consideration in assessing the overall level of
    disability for compensation purposes.
        There is a great difference between a veteran who uses
    alcohol for its pleasurable intoxicating effects and one who
    suffers from such unbearable and unremitting psychological
    distress or physical pain that he or she resorts to alcohol to
    escape the agony. Current law recognizes this distinction.
    Congress should again reject VA's recommendation.
        The President's budget also proposes legislation to
    eliminate a veteran's entitlement to a home loan guarantee
    after its initial use, despite the benefits of the repeat use
    to the veteran and to the American economy and despite the
    apparent lack of any good reason for this adverse action
    against veterans. The IB urges you to reject this
    recommendation.
        The IB recommends a number of beneficial adjustments in
    veterans' benefits programs. We hope you will favorably
    consider those recommendations this year as you have many of
    our recommendations in past years.
        Veterans deserve good benefit programs and also have every
    right to expect to receive their benefits when they need them.
    The proper and timely delivery of benefits requires, among
    other things, resources that match the workload. Here again, we
    must disagree with the President's budget request.
        The President's budget proposes to reduce staffing in the
    Veterans' Benefits Administration by 540 full-time employees.
    Because of the war and other factors, VBA's workload can only
    be expected to increase. VBA has been laboring for several
    years to improve proficiency and efficiency, but it has not
    historically achieved gains at a rate that would allow it to
    make up for such a large loss of personnel in a single year.
        The improvident reductions in staffing suggested by the
    President's budget may very well make VA lose those gains and
    return to the entirely unacceptable situation that existed
    before. We urge you to reject the President's recommendation to
    reduce VBA's staffing. In the IB, we recommend staffing levels
    more consistent with VBA's workload.
        Mr. Chairman, that concludes my statement and I will be
    happy to answer any questions you may have.
        Chairman Specter. Thank you very much, Mr. Surratt.
        [The prepared statement of Mr. Surratt follows:]

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

        Mr. Chairman and Members of the Committee:
        Thank you for inviting the Disabled American Veterans (DAV) and our
    partners in The Independent Budget (IB)--AMVETS, the Paralyzed Veterans
    of America (PVA), and the Veterans of Foreign Wars of the United States
    (VFW)--to present our views on the budget for the upcoming fiscal year.
        As with the President's budget submission, the IB is a broad plan
    for veterans' programs and includes recommendations for legislation to
    improve the benefits and services our Government provides to meet
    veterans' special needs. Consistent with DAV's primary responsibility
    in preparing the IB, and to avoid unnecessarily duplicating the
    testimony of my colleagues from the IB, my testimony will focus
    predominantly on the benefit programs, the administrative operations
    and resource requirements for delivering those benefits, and the
    judicial appeals process for veterans' claims.
        The importance of an adequate budget for veterans' programs cannot
    be overstated. All else that the veterans' community seeks and this
    Committee undertakes during the year ahead is influenced to a large
    degree on available resources. Fortunately, the President's budget only
    provides a discussion document to begin deliberations. It does not
    dictate what Congress does for veterans. Likewise, support from the
    Budget Committee and appropriators is important but not entirely
    indispensable to what you, the authorizing committee, determine is
    appropriate for our Nation's veterans. Unfortunately, the
    Administration's budget request for fiscal year (FY) 2005 does fall
    short in many respects, and we are disappointed with its meager
    recommendations for benefit improvements.
        The President's budget contains few recommendations for legislation
    to improve the benefit programs. For compensation, it includes the
    usual recommendation for a cost-of-living adjustment (COLA) based on
    the increase in the cost of living during the current year, projected
    to be 1.3 percent for fiscal year 2004. This increase for disability
    compensation would include dependency and indemnity compensation and
    the clothing allowance provided to veterans whose service-connected
    disabilities tend to increase wear and tear of their clothing.
        To prevent the purchasing power of compensation from falling behind
    the cost of living as it increases, the IB also recommends a
    compensation COLA. However, to maintain the value of compensation in
    relation to the cost of living, the IB urges Congress to repeal
    provisions that require rounding down the COLA to the nearest whole
    dollar. Though this rounding down may erode the value of compensation
    very slightly for 1 year, rounding down year after year, with its
    compounding effect, eventually amounts to a significant degradation of
    the modest compensation veterans rely on to purchase the necessities of
    life.
        The Administration's budget seeks legislation to bar compensation
    altogether for the effects of the added disability that results when
    veterans resort to alcohol to escape the extreme distress and
    disturbing symptoms of some service-connected mental disorders and
    other disabilities. This request reveals a callous disregard and
    insensitivity to the true nature of these secondary disabilities and
    how severely disabled veterans are victimized by them. It ignores the
    cause-and-effect relationship between the primary service-connected
    disability and the secondary effects. By using alcohol to ameliorate
    the psychological pain of these disabilities, veterans are attempting
    to quell their symptoms rather than choosing to be more disabled. In
    many of these instances, the underlying illness is so debilitating by
    itself that any additional disability attributable to alcohol accounts
    for no greater rate of compensation or is so inextricably intertwined
    with other psychiatric symptoms as to be essentially indistinguishable
    from them. Current law resolves these unfortunate circumstances
    equitably. Congress rejected VA's request for this legislation last
    year, and the IB urges Congress to respond with an emphatic ``no''
    again this year.
        Similarly, the IB is resolute in its opposition to any repeat of
    last year's misplaced scheme to fundamentally alter the bases for
    establishing service connection for service-related disabilities.
    Military service is not merely a job where an individual spends his or
    her regular working hours. Military service requires the service-
    member to be at the disposal of the military authorities 24 hours a day
    7 days a week and encompasses, indeed dictates, directly or indirectly
    all of a service-
    member's life activities. Military service is inherently hazardous, and
    it involves physical and mental stresses beyond those experienced by
    civilian society. Current law therefore equitably treats disabilities
    that occur during service as service connected, without requiring a
    showing of cause and effect between particular activities or factors of
    service and the disability.
        Because of the full-time, extraordinarily rigorous, and dangerous
    nature of service in the Armed Forces, and rather than becoming mired
    in the problematic nuances of causation in such a unique environment,
    causation is presumed. No other fair, foolproof, and practical method
    exists for determining service connection. The scheme devised last year
    for inclusion in the defense authorization bill would have been
    anything but fair, foolproof, and practical, although it would have
    been expedient for its self-serving purpose of permitting the
    Government to dishonorably disavow its obligation to care for our
    Nation's sons and daughters who are disabled in service to their
    country. By excluding from eligibility for service connection
    essentially all accidental injuries and diseases incurred during
    military service except those caused directly by work-related
    activities of servicemembers' military occupations, few would meet the
    extremely restrictive terms of service connection, and many would have
    insurmountable difficulties in producing evidence to isolate the cause
    to the direct performance of military duties.
        The Department of Veterans Affairs (VA) projected that
    approximately two-thirds of the disabled veterans now entitled to
    disability compensation would not have qualified for service connection
    under these criteria. Obviously, the proposed scheme was calculated to
    achieve just that result. The action was brazen and reprehensible.
    Because its proponents were so shameless and unrestrained, we may very
    well see the same or similar action repeated. It will be no less
    repugnant, and no less objectionable to the veterans' community. We
    appreciate the decisive stand against this plan taken by the Chairman
    and other members of this Committee last year, and we urge you to again
    flatly reject any similar efforts this year.
        The IB makes three additional recommendations to improve the
    disability compensation program. We recommend legislation:
         to exclude compensation as countable income for Federal
    programs;
         to repeal the prohibition of service connection for
    disabilities related to tobacco use; and
         to repeal delayed effective dates for payment of increased
    compensation based on temporary total disability.
        The President's budget submission suggests legislation to 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. We
    have no recommendation for this legislation in the IB, but we note that
    it would be beneficial to needy widows of wartime veterans, and it
    would bring this effective date provision back into line with effective
    date provisions applicable to other disability benefit payments,
    simplifying the law for VA adjudicators.
        Service-connected disabilities result in functional impairments
    that not only adversely impact upon veterans' ability to perform job
    functions but also adversely impact upon their ability to perform the
    everyday activities of living. For veterans suffering from service-
    connected blindness and physical disabilities that require special
    fixtures and modifications to allow them mobility and independence
    within the home, VA provides grants for the purchase or construction of
    specially adapted housing. For veterans with service-connected
    disabilities that interfere with their ability to operate motor
    vehicles, VA provides grants for the purchase and special modification
    of automobiles. Like other benefits that are subject to the effects of
    rising costs, the grants for specially adapted housing and automobiles
    must be increased regularly to match increases in costs of homes and
    vehicles. The value of these benefits has fallen substantially behind
    rising costs because there have been long periods between adjustments.
    Congress increased these grants last year, but the increase did not
    equal their cumulative loss in value and therefore did not fully
    restore them to the value they had when first established. To remedy
    this deficiency and to improve these programs, the IB recommends that
    Congress enact legislation:
         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; and
         to increase the amount of the automobile grant and to
    provide for automatic annual adjustments for increased costs.
        For the education programs, the President's budget includes
    suggestions for legislation to make three minor ``technical'' changes,
    although one of the amendments would make a substantive change to
    prohibit education benefits for servicemembers who are incarcerated for
    crimes and whose character of service upon discharge following their
    release from prison will be disqualifying. The IB has no position on
    these suggested legislative changes. However, for the education
    programs, we make two recommendations for legislation:
         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; and
         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''.
        Although we have come to expect the Administration to propose
    actions to reduce or eliminate benefits and services for veterans, we
    were surprised by this year's suggestion in the President's budget for
    VA that Congress enact legislation to restrict veterans' use of home
    loan guaranties to one time. When they return to civilian life from
    military service, veterans often have very limited means to achieve the
    American dream of owning a home. They purchase ``starter'' homes. As
    their economic situation improves and families grow, they, like many
    other Americans, want to expand and improve their housing. In today's
    mobile society, veterans may be required to move to new locations to
    follow their jobs or the job market. If a veteran is in good standing
    with VA, his or her purchase of another home can be made easier by a VA
    guaranteed loan. Because of the limits on VA loans, veterans who use VA
    loan guaranty are those who must purchase moderately priced homes, and
    the repeat use of this benefit provides no unwarranted windfall for
    veterans. At the same time, it is no great burden on the Government.
    The ability of veterans to use their loan guaranty more than once can
    be very beneficial to them and to the American economy, without any
    undue cost to the Government. Therefore, this proposal to limit
    veterans to one loan seems to have as its object the reduction of
    veterans' benefits merely for the sake of reducing them, without any
    reciprocal benefit to the Government. In any event, this suggested
    legislation is unwarranted, and the IB urges you to soundly reject it.
        The IB makes positive recommendations to improve the home loan
    guaranty program for veterans and other eligible beneficiaries. We
    recommend that Congress enact legislation:
         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; and
         to repeal funding fees imposed upon certain home loan
    guaranties.
        For the insurance programs, the President's budget proposes
    legislation for technical amendments ``to clarify certain points such
    as defining an insurable dependent, terms of coverage and premiums.''
    According to the budget, these changes require no additional funds.
    Without more specifics, we have no position on the proposed legislation
    at this time.
        The insurance programs for veterans are in need of added
    protections and revisions to replace long outdated rates and increase
    the maximum coverage available. Often, a veteran's life insurance
    policy is all that a veteran has to pay for his or her last expenses
    and burial. Yet, for nursing home care under Medicaid, the Government
    forces veterans to surrender their Government life insurance polices
    and apply the cash value toward nursing home care as a condition for
    Medicaid coverage.
        Because of service-connected disabilities, disabled veterans have
    difficulty getting or are charged higher premiums for life insurance on
    the commercial market. VA therefore offers disabled veterans life
    insurance at standard rates under the Service Disabled Veterans'
    Insurance (SDVI) program. When this program began in 1951, its rates,
    based on mortality tables then in use, were competitive with commercial
    insurance. Commercial rates have since been lowered to reflect improved
    life expectancy shown by current mortality tables. VA continues to base
    its rates on mortality tables from 1941, however. Consequently, SDVI
    premiums are no longer competitive with commercial insurance, and SDVI
    therefore no longer provides the intended benefit for eligible
    veterans.
        When life insurance for veterans had its beginnings in the War Risk
    Insurance program first made available to members of the Armed Forces
    in October 1917, coverage was limited to $10,000. A $10,000 life
    insurance policy provided sufficiently for the loss of income from the
    death of an insured in 1917. Today, some 87 years later, maximum
    coverage under the base SDVI policy is still $10,000. Given that the
    annual cost of living is many times what it was in 1917, the same
    maximum coverage, well over three quarters of a century later, clearly
    does not provide meaningful income replacement for the survivors of
    service-disabled veterans.
        Similarly, the maximum coverage under the Veterans' Mortgage Life
    Insurance (VMLI) program has fallen behind current needs. The maximum
    VMLI coverage was last increased in 1992. Since then, housing costs
    have risen substantially. Because of the great geographic differentials
    in the costs associated with accessible housing, many veterans have
    mortgages that exceed the maximum face value of VMLI. Thus, the current
    maximum coverage amount does not cover many catastrophically disabled
    veterans' outstanding mortgages. Moreover, severely disabled veterans
    may not have the option of purchasing extra life insurance coverage
    from commercial insurers at affordable premiums.
        These deficiencies substantially reduce the effectiveness of the
    insurance programs. To correct these shortcomings, the IB recommends
    legislation:
         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 modern mortality tables instead of
    1941 mortality tables to determine life expectancy for purposes of
    computing premiums for SDVI;
         to increase the maximum protection available under the
    base policy of SDVI from $10,000 to $50,000; and
         to increase the maximum coverage under VMLI from $90,000
    to $150,000.
        Veterans' benefits are for veterans, not others who have no right
    to them. Congress has been careful to ensure veterans receiving
    benefits are not easy prey for persons seeking to divert these benefits
    away from veterans and into their own pockets. Congress has placed
    restrictions on attorney fees, and Congress has included broad and
    sweeping protections in the law to prohibit the assignment of veterans'
    benefits and to protect them against the claims of third parties.
    Existing law provides:

              ``Payments of benefits due or to become due under any law
            administered by the Secretary shall not be assignable except to
            the extent specifically authorized by law, and such payments
            made to, or on account of, a beneficiary shall be exempt from
            taxation, shall be exempt from the claim of creditors, and
            shall not be liable to attachment, levy, or seizure by or under
            any legal or equitable process whatever, either before or after
            receipt by the beneficiary.''

        Despite the prohibition against assignment, some commercial
    entities were enticing vulnerable veterans into arrangements whereby
    the veterans traded their future compensation payments for lump sums
    amounting to a fraction of the value of the compensation. Last year,
    Congress added language to the prohibition against assignment to leave
    no room for convenient interpretation of the law as permitting that
    practice. Despite the clear and emphatic language in the law shielding
    veterans' benefits from the claims of third parties, the courts have
    conveniently interpreted the law to permit what it unquestionably
    prohibits. As a result, veterans' benefits have become an easy target
    for former spouses seeking alimony. The courts show little reverence
    for the principle that veterans' benefits were created for veterans and
    little regard for congressional intent that a disabled veteran, and not
    someone else, should be compensated for the effects disability. Courts
    seem to have no hesitation in ordering disabled veterans to pay part of
    their disability compensation to able-bodied former spouses. This
    situation is appalling. The IB therefore recommends legislation to
    reinforce existing law so there can be no doubt that it means what it
    says.
        While not under the jurisdiction of this Committee, we also call
    for legislation to remove, for all service-connected disabled military
    longevity retirees, the offset between their military retired pay and
    disability compensation. As you know, the legislation enacted near the
    end of the last session of Congress provides for removal of this
    inequitable offset for some disabled veterans. In so doing, it left the
    injustice in place for many other veterans. We also recommend
    legislation to extend the 3-year limitation on recovery of taxes
    withheld from disability severance pay and military retired pay later
    determined to be exempt from taxable income.
        Although they need fine tuning from time to time, the benefit
    programs have been carefully crafted by Congress to alleviate the
    disadvantages veterans suffer as a result of disabilities and as a
    result of educational and vocational opportunities forgone by young men
    and women who chose to serve their country before personal advancement.
    These programs are effective only to the extent the benefits and
    services are delivered to entitled veterans when they need them.
    Efficiently and proficiently administering this broad range of programs
    for millions of veterans naturally and unquestionably presents
    formidable management challenges. Small mistakes can have major
    consequences for large numbers of veterans. Management and process
    deficiencies, and insufficient resources, have consequences that are
    directly revealed through poor service to veterans.
        Although such poor service frustrates veterans who must deal with a
    massive and complex bureaucracy, it causes more than mere
    inconveniences. Incorrect decisions deprive entitled veterans of the
    benefits they need, and long delays due to incorrect decisions and
    insufficient resources deprive entitled veterans of the benefits they
    need when they most need them. Of course, the correct and timely
    payment of disability compensation is imperative for veterans who must
    rely on compensation for food and shelter.
        In fulfilling its mission of effective management of the benefit
    programs and effective delivery of benefits and services, the Veterans
    Benefits Administration (VBA) has a checkered history, especially in
    accurate and timely delivery of the core veterans' benefit, disability
    compensation. Some of the failures were self-inflicted and the product
    of a wrong-headed institutional mindset, others were due to more
    innocent mistakes, and many were caused or compounded by insufficient
    resources or other factors beyond VA's control.
        With a focus and decisive action directed to real reforms and
    improvement, current management has made some headway in overcoming
    systemic deficiencies in the delivery of benefits. Congress has helped
    by providing the additional resources necessary to bring the workforce
    and technology to the capacity required. To continue on the course of
    restoring VBA to acceptable levels of performance and service to
    veterans--indeed, to avoid losing the gains made thus far--VBA must
    continue to devote its full energies to the process, and Congress must
    continue to provide the resources required to get the job done. The IB
    makes specific recommendations in both of these areas.
        To enable it to more effectively enforce agency policy and
    performance standards, we have recommended that VBA make changes to
    remedy some weak links in its management structure. We have called for
    improvements in VA rulemaking to make VA's regulations more fairly
    serve veterans and to avoid litigation over challenged regulations. For
    VBA's Compensation and Pension Service (C&P), we have urged VA to
    devote more effort to attacking the root causes of errors in claims
    adjudication.
        To ensure that VBA has the personnel and tools necessary to carry
    out its mission, we have made several recommendations regarding
    staffing and appropriations to support ongoing initiatives to develop
    and install modern information technology systems. Unfortunately, the
    President's budget request appears to seriously undermine VBA's
    systematic efforts to correct its deficiencies, employ better
    information technology, and improve its production and service to
    veterans.
        The President's budget submission for VA clearly does not remain
    fixed on the objective of strengthening VBA to make it better able to
    fulfill its responsibilities to veterans. Due to the war in Iraq and
    the many hostilities in which our Armed Forces are engaged today, we
    can only expect an influx of new veterans needing VA benefits and
    services. Logically, more resources will be needed in some areas just
    to stay even with the workload. However, the President's budget
    proposes major reductions in resources for the delivery of benefits and
    services to veterans. For VBA, the President's budget requests 829
    fewer full-time employees (FTE) for fiscal year 2005 than authorized at
    the end of the fiscal year we have just finished, fiscal year 2003. The
    request is 540 FTE below the fiscal year 2004 level. We note,
    incidentally, that the difference between the fiscal year 2003 and
    fiscal year 2005 FTE for VBA is apparently greater than the 829
    employees indicated by the budget submission because, at the beginning
    of fiscal year 2004, the responsibilities and the 31 FTE of the
    Evidence Development Unit of the Board of Veterans' Appeals (BVA) were
    reassigned from BVA to VBA, without any corresponding request to
    increase VBA's authorized FTE by an equal amount.
        Under the President's budget request, every benefit line except
    Insurance Service would lose employees. Even with all-out efforts,
    VBA's progress in reducing the backlog of work and the waiting times
    for benefits has been gradual and fairly slow-paced, representative of
    deliberate efforts within the limits of its abilities under the
    resource levels available in the past few years. We seriously doubt
    that VBA can suddenly accelerate and achieve enough productivity
    improvements to offset such a substantial loss of resources, especially
    against the weight of added work. The President's budget would also
    substantially scale back investments in ongoing programs to modernize
    VBA's essential information technology. These two proposed reductions
    strike the core of the veterans' benefits delivery system.
        The President's budget proposes 7,270 FTE, or 487 fewer direct
    program FTE for C&P Service in fiscal year 2005 than in fiscal year
    2003. In addition, the President's budget requests 185 fewer FTE for
    management direction and support and information technology in C&P
    Service for fiscal year 2005 than it had in fiscal year 2003. We also
    understand that the additional FTE for the Evidence Development Unit
    assumed by VBA from BVA are charged to C&P Service. With those FTE
    absorbed by C&P and without any equal increase in the FTE requested for
    C&P, that number of employees must be calculated as an additional net
    reduction of FTE for C&P Service when comparing the fiscal year 2003
    staffing with the request for fiscal year 2005.
        We recommend in the IB that C&P Service be authorized 7,757 FTE for
    fiscal year 2005. VA had projected that its workload would allow it to
    draw down its FTE in fiscal year 2005 by approximately 268 below its
    staffing level of 7,757 FTE at the end of fiscal year 2003. However,
    those projections did not take into account additional work VA now
    expects incident to legislation that expanded eligibility for Combat
    Related Special Compensation and authorized concurrent receipt of
    military retired pay and disability compensation for certain veterans.
    VA projects that this legislation will generate 391,000 new claims and
    52,869 appellate cases over the next 5 years. In addition, VA projects
    it will have to rework approximately 48,000 claims to meet the
    requirements of a court decision invalidating VA procedures that placed
    unlawful requirements upon veterans. Though most of that work should be
    done during fiscal year 2004, this additional volume will likely delay
    work on some of C&P's inventory and carry some extra caseload over into
    fiscal year 2005. This additional workload requires that VA, at least,
    have approximately the same direct program staffing levels for fiscal
    year 2005 that it had at the end of fiscal year 2003.
        Just as VA must have sufficient staffing to match its compensation
    and pension claims workload, it must continue to have efficient
    procedures and technology for processing claims and related
    information. To aid in accuracy and uniformity in claims adjudication,
    and to achieve the greater efficiencies of modern information
    technology, VA began its Compensation and Pension Evaluation Redesign
    (CAPER) initiative during 2001. To determine and implement its optimum
    performance in record development, disability examinations, and claims
    decisions, VA is undertaking a review of its claims process with the
    goal of developing and deploying an integrated electronic format to aid
    in uniform and correct application of procedures and substantive rules
    and to allow for the electronic transmission of data from its source
    into the claims data base. VA now hopes to have this system fully in
    place by September 2006. To achieve that goal, VA needs approximately
    $3.5 million in fiscal year 2005 to continue development of this
    system. The IB recommends that Congress provide this essential funding
    to VA. The President's budget requests only $2.7 million for this
    project.
        Another aspect of systems modernization is the use of electronic
    files to replace manual paper transfer and storage of claims records.
    With the necessary imaging and other equipment, VA can acquire, store,
    and process claims data much more timely and efficiently, reducing task
    times and staffing needs. VA's project, known as ``Virtual VA,'' has
    been deployed at VA's Pension Maintenance Centers and is undergoing
    evaluation and assessment based on experience at these three sites.
    With eventual full implementation, all VBA regional offices will have
    document imaging capabilities, and VA medical centers will have
    electronic access to veterans' claims folders for review in connection
    with disability examinations ordered by claims adjudicators.
    Accordingly, the IB recommends that Congress provide VA the $8 million
    it needs in fiscal year 2005 to continue document preparation and
    scanning at the Pension Maintenance Centers and to continue development
    of the system for application nationwide. The President's budget
    requests only $1.6 million for Virtual VA.
        As with C&P Service, VBA's Vocational Rehabilitation and Employment
    Service (VR&E) faces major challenges in meeting its responsibilities
    to disabled veterans under circumstances of heavy workloads and limited
    resources. The impact of the worldwide war on terrorism, hazardous duty
    in other locations around the world, and major combat operations in
    Iraq and Afghanistan, will undoubtedly be felt by VR&E when these
    veterans begin pouring into the system with the need for rehabilitation
    training and employment suitable to their service-connected
    disabilities. To sustain current levels of performance with its
    projected workload, VR&E needs to retain the staffing strength it had
    at the end of fiscal year 2003. In addition, the VA Secretary's VR&E
    Task Team has made a number of recommendations to improve vocational
    rehabilitation and employment services for veterans. It is projected
    that approximately 200 additional FTE will be needed to implement these
    substantial reforms in the programs, organization, and work processes
    of the VR&E program. At the end of fiscal year 2003, VR&E direct
    program staffing was 931 FTE. The IB therefore recommends that Congress
    authorize 1,131 direct program FTE for VR&E in fiscal year 2005. The
    President's budget requests only 876 FTE for fiscal year 2005, and
    seeks 21 fewer FTE for management direction and support and information
    technology than VR&E had in fiscal year 2003.
        Similarly, VBA's Education Service expects some increase in its
    workload, due to legislation last year that expanded coverage of the
    program to include additional types of training. VA is striving to
    provide more timely and efficient service to claimants seeking
    education benefits. Education Service reports gains in these areas
    during fiscal year 2003. To continue on the course of improvement and
    to meet the added workload projected, Education Service must at least
    maintain its fiscal year 2004 staffing level. In fiscal year 2004,
    Education Service had 766 direct program FTE authorized, and the IB
    recommends that Congress authorize 766 FTE for Education Service in
    fiscal year 2005.
        For veterans who do not receive a correct disposition of their
    benefit claims from VA's administrative claims adjudication processes,
    judicial review is available. Because the United States Court of
    Appeals for Veterans Claims is not a part of the VA or the executive
    branch, its funding is not included under the budget for veterans'
    benefits and services. The Court is nonetheless an integral part of the
    system of benefits for veterans, and this Committee does, of course,
    have oversight responsibilities and jurisdiction over any authorizing
    legislation pertaining to the Court and its functioning. Additionally,
    the United States Court of Appeals for the Federal Circuit has
    jurisdiction to hear appeals from decisions of the Court of Appeals for
    Veterans Claims and has jurisdiction to hear direct challenges to VA
    regulations. This Committee has jurisdiction over laws that govern
    review of these appeals and challenges to regulations in the Federal
    Circuit. For this area of great importance to veterans, the IB includes
    several recommendations.
        In previous years, we have recommended in the IB that Congress
    amend the standard under which the Court of Appeals for Veterans Claims
    reviews the propriety of factual findings by VA's administrative
    appellate board, BVA. Under the ``clearly erroneous'' standard, the
    Court was essentially upholding any finding of fact against a VA
    claimant that had some ``plausible basis'' in the record although the
    law mandates that VA decide a factual question in a claimant's favor
    unless the evidence against the claim outweighs the evidence supporting
    it. This mandate in law is known as the ``benefit-of-the-doubt'' rule.
    This rule is based on the time-honored principle that we owe veterans
    greater considerations than ordinary citizens litigating in court or
    seeking government assistance from other agencies and that a veteran
    claiming benefits is therefore entitled to the benefit of the doubt
    when the evidence neither proves nor disproves his or her claim. With
    the Court upholding adverse factual findings for which there is merely
    some plausible basis, BVA was completely free to ignore the law and
    deny a claim for VA benefits even though the supporting evidence was
    much stronger than, or at least as strong as, the evidence against it.
    The Court was turning a blind eye to erroneous and unjust denials of
    meritorious claims, making the benefit-of-the-doubt rule unenforceable
    and meaningful only to the extent VA chose to observe it. Appeals to
    the Court often follow from arbitrary decisions in which VA chose to
    ignore the rule, but these appeals were essentially futile, with
    meritorious claims and justice denied. To correct this grave injustice,
    the IB recommended that Congress amend the law to require the Court to
    reverse any BVA factual finding against a claimant that was clearly
    inconsistent with the benefit-of-the-doubt rule. To accomplish this, we
    recommended that the clearly erroneous standard be replaced with an
    instruction that the Court must reverse any finding of fact adverse to
    a claimant that was not reasonably supported by a preponderance of the
    evidence, which is weight of the evidence required for such adverse
    finding under the benefit-of-the-doubt rule.
        Seeking to continue its immunization from meaningful judicial
    review of its factual findings, VA opposed this change, and the
    veterans' committees compromised with less definite changes than the IB
    had recommended and thought necessary. As a result, the Court has
    construed the new legislation as making no change whatsoever. Indeed,
    VA itself argued to the Court that Congress made no substantive change
    in the law by these amendments. Deserving veterans are still left with
    no remedy for outright violations of the law. That is unacceptable. We
    therefore renewed in this year's IB our previous recommendation that
    Congress replace the clearly erroneous standard with the requirement
    that the Court reverse factual findings not reasonably supported by a
    preponderance of the evidence. Certainly, you should not again be
    persuaded to accept any compromise proposed by VA that will enable VA
    to once more argue to the Court that you did nothing. We want to
    reiterate here that this issue is one that remains very important to
    veterans and their rights.
        When Congress ended the longstanding absence of judicial review for
    veterans' claims, it was very concerned that the formalities typical of
    judicial proceedings not change the informalities of VA's
    administrative claims processes. The legislative history for judicial
    review legislation emphasizes repeatedly congressional intent to
    preserve this informality and the pro-veteran procedures at the
    administrative level. Congress maintained in the law provisions that
    put the obligation on VA to develop the claims record and afford
    consideration to all possible theories of entitlement under all
    relevant laws, regulations, and other legal authorities. The veteran is
    not required to know or argue the legal technicalities of benefits
    laws. Thus, failure of BVA to consider all points of law bearing on a
    claim is legal error, an error of omission. Yet, the Court has refused
    to consider these points in appeals on the grounds that the veteran
    failed to argue them before BVA. In effect, the Court is relieving VA
    of its obligations under the law and shifting them to veterans. The
    Court is imposing upon veterans the very thing Congress did not intend,
    the obligation to formally plead all the finer points of law that are
    often very complex and poorly understood by average laypersons. To
    prevent the Court from further imposing the formalities of adversarial
    judicial proceedings upon the non-adversarial veterans' claims process,
    the IB recommends legislation to prohibit judicial imposition of formal
    pleading or so-called ``exhaustion'' requirements upon the VA claims
    system.
        Though veterans have deep frustration with some of the Court's
    actions, judicial review and many of the Court's precedents have added
    legitimacy to the process and forced VA to follow the law more
    carefully. Judicial review exposed deeply ingrained unlawful practices
    and deficiencies in VA's claims adjudication, and more than any other
    factor, forced VA to acknowledge these systemic defects and make
    fundamental reforms. As a result of the availability of judicial review
    and enforcement of the law by the Court, veterans stand a much better
    chance of getting a fair decision today than they did before judicial
    review was authorized by your landmark legislation in 1988. We still
    need to make adjustments to bring the process closer to that envisioned
    by Congress in its 1988 legislation, however.
        The Chief Judge has begun exploratory steps toward securing a site
    and authority for construction of a courthouse and justice center.
    After an appropriate site is located, Congress must enact authorizing
    legislation and provide necessary funding if the project is to be
    undertaken. The IB fully supports the project to construct a courthouse
    for the veterans' court. We seek the support and essential assistance
    of the members of this Committee in securing a site, enacting the
    necessary legislation, and working with your colleagues in Congress to
    obtain the funding required to build this courthouse and justice center
    for veterans.
        When Congress authorized judicial review of VA's claims decisions,
    it also authorized judicial review of VA's regulations. However,
    Congress exempted one area of VA's rulemaking from review by the
    courts. Congress expressly deprived the courts of jurisdiction to
    review VA's Schedule for Rating Disabilities. We agree with the
    reasoning that the courts should not be empowered to intervene in VA's
    application of its special expertise and the exercise of its discretion
    in formulating criteria for evaluating the effects of disabilities.
    However, we believe the United States Court of Appeals for the Federal
    Circuit should be authorized to review and invalidate rating schedule
    provisions that are, on their face, contrary to the laws enacted by
    Congress or are arbitrary and capricious. Such narrow review would not
    interfere with VA's lawful and legitimate exercise of its broad
    discretion, and would empower the Federal Circuit to intervene in only
    the most egregious abuses of discretion and invalidate only the
    unequivocally unlawful rating schedule provisions. Today, VA is totally
    immune to any remedy for flatly unlawful or arbitrary and capricious
    actions in adopting or revising its rating schedule. The IB therefore
    recommends expanding Federal Circuit jurisdiction to permit that court
    to review challenges to VA's rating schedule on these narrow grounds.
        Finally, I want to join with our IB witness who is covering
    veterans' medical care in this hearing in stressing the importance of
    putting a mechanism in place to end what has unquestionably proven to
    be an inadequate process for funding veterans' medical care. Year after
    year, the President's budget request falls well below the minimum
    needed to maintain medical services for sick and disabled veterans
    seeking those services from the medical care system established to
    serve them. Year after year, we must fight an uphill battle to get more
    realistic appropriations, and that annual battle is getting ever more
    difficult despite the strong advocacy of the members of this Committee,
    who know what resources VA really needs. To get funding to continue
    operation of their medical programs, veterans should not have to
    compete with all the many other interests who seek part of the limited
    discretionary dollars. Veterans and VA should not have to face the
    yearly uncertainty of whether there will be sufficient funding provided
    to continue essential medical care services for disabled veterans.
    Veterans should not have to wait months to be treated for their
    illnesses. VA should not have to continue operating the largest medical
    care system in this country on the shoestring of annual appropriations
    and without any means to plan strategically for long-term efficiencies.
    We have thoroughly tested the discretionary appropriations process
    whereby political will, rather than actual resource needs, determines
    how much funding veterans' medical care receives each year. With
    consistent experience that funding veterans' medical care under that
    process has repeatedly failed, and will only continue to be
    unsatisfactory, the remedy is to guarantee adequate and stable funding
    through a permanent authorization that uses a reliable formula to
    project resource needs. Among all the meritorious issues to be
    addressed by this Committee this year, this issue is the most urgent
    and therefore the most important to veterans. We need strong bipartisan
    support from the members of this Committee to get legislation for
    mandatory funding, and we renew our earnest request for your support
    this year.
        In closing, I want to acknowledge and express the DAV's sincere
    appreciation for the advocacy and support veterans have received from
    this Committee. The Committee has acted favorably on many of the
    recommendations of the IB in past years, and many of the recommended
    changes are now in law, making the programs more effective for our
    veterans. Working together, the IB and this Committee have made
    numerous improvements in the benefits and the delivery system. We hope
    you will again find our recommendations meritorious and will shepherd
    legislation through this year to adopt more of them.

        Chairman Specter. Our next witness is Mr. Paul Hayden,
    National Legislative Service, Veterans of Foreign Wars of the
    United States. Thank you for coming in today, Mr. Hayden, and
    we will put your whole resume in the record.

        STATEMENT OF PAUL A. HAYDEN, DEPUTY DIRECTOR, NATIONAL
      LEGISLATIVE SERVICE, VETERANS OF FOREIGN WARS OF THE UNITED
                                 STATES

        Mr. Hayden. Thank you, Mr. Chairman, Ranking Member Graham.
    As a member of The Independent Budget for VA, the VFW is
    responsible for the construction portion of the VA budget, so I
    will limit my testimony to that area.
        The President's fiscal year 2005 budget indicates that
    along with gross funding deficiencies in practically every VA
    account, VA construction is to be dramatically and most
    detrimentally shortchanged, as well. In fact, since 1993, VA
    construction funding has been in steady decline. The fiscal
    year 1993 combined major and minor construction total was $600
    million, and the fiscal year 2005 proposal is only $170
    million.
        VA's history of low construction budgets the last 12 years
    is an explicit indication of poor stewardship of the system's
    facility capital assets. It also flies in the face of statutory
    mandates to provide for the short- and long-term care needs of
    our most seriously service-connected veterans.
        Once again, the administration is proposing counting State
    nursing home beds as part of its long-term care capacity. We
    view this as an attempt to circumvent both the letter and
    intent of the law with a number of our most deserving and
    vulnerable veterans suffering as a consequence.
        Further, there continues to be a major resistance to fund
    an adequate construction budget before the CARES process has
    been completed. We have been supportive of the CARES process
    from the beginning as long as the primary emphasis is on the
    ES, enhanced services. However, we believe that it is poor
    policy to defer all VA construction needs until the CARES
    process is complete.
        We agree with the findings of the President's Task Force to
    Improve Health Care Delivery for Our Nation's Veterans. The VA
    must accomplish three key objectives. No. 1, invest adequately
    in the necessary infrastructure to ensure safe, functional
    environments for health care delivery. No. 2, right-size the
    respective infrastructures to meet projected demands for
    inpatient, ambulatory, mental health, and long-term care
    requirements. And finally, create abilities to respond to a
    rapidly changing environment using strategic and master
    planning to expedite new construction and renovation efforts.
        In order to accomplish these objectives, we recommend that
    Congress appropriate $571 million to the major construction
    account for fiscal year 2005, not the totally inadequate $97
    million asked for by the administration. This amount is needed
    for seismic correction, clinical environmental improvements,
    National Cemetery Administration construction, and land
    acquisition.
        We also call on Congress to appropriate $545 million to the
    minor construction account for fiscal year 2005 while rejecting
    the administration proposal of $69 million. These funds
    contribute to construction projects costing less than $7
    million while providing for inpatient and outpatient care and
    support, infrastructure, physical plant, and historic
    preservation projects.
        Mr. Chairman and members of this committee, this concludes
    my statement and I will be happy to answer any questions.
        Chairman Specter. Thank you. Thank you very much, Mr.
    Hayden.
        [The prepared statement of Mr. Hayden follows:]

        Prepared Statement of Paul A. Hayden, Deputy Director, National
       Legislative Service, Veterans of Foreign Wars of the United States

        Mr. Chairman and Members of the Committee:
        On behalf of the 2.7 million men and women of the Veterans
    of Foreign Wars of the United States (VFW) and our Ladies
    Auxiliary, I would like to take this opportunity to thank you
    for being included in today's important hearing regarding the
    Department of Veterans Affairs (VA) budget. As a member of The
    Independent Budget for VA, the VFW is responsible for the
    Construction portion of the VA budget, so I will limit my
    testimony to that area.
        The VA construction budget includes major construction,
    minor construction, grants for construction of State extended
    care facilities, grants for State veterans' cemeteries and the
    parking garage revolving fund.
        The President's fiscal year 2005 budget indicates that,
    along with gross funding deficiencies in practically every VA
    account, VA construction is to be dramatically and most
    detrimentally short-changed as well. In fact, since 1993, VA
    construction funding has been in steady decline. The fiscal
    year 1993 combined total was $600 million and the fiscal year
    2005 proposal is only $200 million once the Capitol Asset
    Realignment for Enhanced Services (CARES) is backed out. VA's
    history of low construction budgets the last 12 years is an
    explicit indication of poor stewardship of the system's
    facility capital assets. It also flies in the face of moral as
    well as statutory mandates to provide for the short- and long-
    term care needs of our most seriously service connected
    veterans. Once again, the administration is proposing counting
    State nursing home beds as part of its own long-term capacity.
    We view this as an attempt to circumvent both the letter and
    intent of the law with a number of our most deserves and
    vulnerable veterans suffering as a consequence.
        Further, there continues to be major resistance to fund an
    adequate construction budget before the CARES process has been
    completed. We have been supportive of the CARES process from
    the beginning, as long as the primary emphasis is on the
    ``ES''-enhanced services; however, we believe that it is poor
    policy to defer all VA construction needs until CARES is
    complete.
        Currently, most VA medical centers, with an average age of
    54 years, are in critical need of repair. Sadly, the prospect
    of system-wide capital asset realignment through the CARES
    process has been used as an excuse to hold all construction
    projects hostage. These projects are essential to patient
    safety; moreover, they will eventually pay for themselves
    through future savings as a result of modernization. The
    ongoing reconfiguration of the system through CARES must not
    distract VA from its obligation to protect its current assets
    by postponing needed funding for the construction, maintenance
    and renovations of VA facilities.
        While we still believe the CARES process should proceed, we
    perceive a need for further data to support various
    recommendations that would close or change missions of certain
    VA long-term care and small-size facilities. These data should
    include such items as a cost analysis associated with these
    changes to include the costs of transferring patients and
    staff; the cost associated with contracting for care in the
    community; the cost related to shutting down and disposing of
    property to include asbestos removal; the cost to build or
    lease new facilities like community-based clinics and patient
    bed towers to include associated site elements to make the
    building functional, such as equipment, relocation, and
    activation costs; and updating facility infrastructures to
    handle additional patient workloads while maintaining privacy
    and safety requirements.
        We acknowledge that the VA Office of Facilities Management
    has assembled construction cost data for various functional
    building types; however, the inclusion of the aforementioned
    cost could provide the rationale for reconsidering some
    decisions.
        In addition, the assumption that Congress will adequately
    fund all CARES proposed changes must be questioned. The VFW and
    other Independent Budget Veterans Service Organizations (IBVSO)
    are concerned that when CARES implementation costs are factored
    into the appropriations process, Congress will not fully fund
    the VA system, further exacerbating the current obstacles
    impeding veterans' access to quality health care in a timely
    manner. It is our opinion that VA should not proceed with CARES
    changes until sufficient funding is appropriated for the
    construction of new facilities and renovation of existing
    hospitals is approved.
        We recommend that Congress appropriate $571 million to the
    Major Construction Account for fiscal year 2005, not the
    totally inadequate $97 million asked for by the administration.
    This amount is needed for seismic correction, clinical
    environment improvements, National Cemetery Administration
    construction, land acquisition, and claims. Allocated as
    follows: Seismic Improvements--$285,000; Clinical
    Improvements--25,000; Patient Environment--10,000; Research
    Infrastructure Upgrade and Replacement--50,000; Advance
    Planning Fund--60,000; Asbestos Abatement--60,000; National
    Cemetery Administration--81,000; IB Recommended fiscal year
    2005 Appropriation--$571,000.
        We also call for the Congress to appropriate $545 million
    to the Minor Construction Account for fiscal year 2005 while
    rejecting the administration proposal of $69 million. These
    funds contribute to construction projects costing less than $7
    million. This appropriation also provides for a regional office
    account, National Cemetery Administration account, improvements
    and renovation in VA's research facilities, a staff office
    account, and an emergency fund account. Increases provide for
    inpatient and outpatient care and support, infrastructure,
    physical plant, and historic preservation projects. Allocated
    as follows: Inpatient Care Support--$130,000; Outpatient Care
    and Support--100,000; Infrastructure and Physical Plant--
    150,000; Historic Preservation Grant Program--25,000; Other--
    25,000; VBA Regional Office Program--35,000; National Cemetery
    Program--35,000; and VA Research Facility Improvement and
    Renovation--45,000; IB Recommendation fiscal year 2005
    Appropriation--$545,000.
        Annually, the VHA submits a list of Top 20 Priority Major
    Medical Construction Projects to Congress, which identifies the
    major medical construction projects that have the highest
    priority within VA. This list includes buildings that have been
    deemed as ``significant'' seismic risk and buildings that are
    at ``exceptionally high risk'' of catastrophic collapse or
    major damage. Currently, 890 of VA's 5,300 buildings have been
    classified as significant seismic risk, and 73 VHA buildings
    are at exceptionally high risk.
        The IBVSO's believe, as we have indicated in the past, that
    there is ill-advised resistance to funding any major
    construction projects before the CARES process has been
    completed, and this includes correcting seismic deficiencies in
    VHA facilities. Regardless of the recommendations of the CARES
    program on facility realignments, it is our contention that VA
    must maintain and improve its existing facilities to support
    the delivery of health-care services in a risk-free environment
    for veterans and VA employees alike.
        Most seismic correction projects should include patient-
    care enhancements as part of their total scope. Also,
    consideration must be given to enhanced service recommendations
    provided for in CARES. Due to the lengthy and widespread
    disruption to ongoing hospital operations that are associated
    with most seismic projects, it would be prudent to make
    qualitative medical care upgrades at the same time.
        We contend that Congress should appropriate $285 million to
    correct seismic deficiencies. Further, VA should schedule
    facility improvement projects and CARES recommendations
    concurrently with seismic corrections.
        In The Independent Budget for Fiscal Year 2004, we cited
    the recommendations of the interim report of The President's
    Task Force to Improve Health-Care Delivery for Our Nation's
    Veterans (PTF). That report was made final in May 2003. To
    underscore the importance of this issue, we will cite the
    recommendation of the PTF again this year.
        VA's health-care facility major and minor construction over
    the 1996 to 2001 period averaged only $246 million annually, a
    recapitalization rate of 0.64 percent of the $38.3 billion
    total plant replacement value. At this rate, VA will
    recapitalize its infrastructure every 155 years. When
    maintenance and restoration are considered with major
    construction, VA invests less than 2 percent of plant
    replacement value for its entire facility infrastructure. A
    minimum of 5 percent to 8 percent investment of plant
    replacement value is necessary to maintain a healthy
    infrastructure. If not improved, veterans could be receiving
    care in potentially unsafe, dysfunctional settings.
    Improvements in the delivery of health care to veterans require
    that VA and DOD adequately create, sustain, and renew physical
    infrastructure to ensure safe and functional facilities.
        It was also recommended by the PTF that ``an important
    priority is to increase infrastructure funding for
    construction, maintenance, repair, and renewal from current
    levels. The importance of this initiative is that the physical
    infrastructure must be maintained at acceptable levels to avoid
    deterioration and failure.''
        The PTF also indicated that ``Within VA, areas needing
    improvement include developing systematic and programmatic
    linkage between major construction and other lifecycle
    components of maintenance and restoration. VA does not have a
    strategic facility focus, but instead submits an annual top 20
    facility construction list to Congress. Within the current
    statutory and business rules, VA can bring new facilities
    online within 4 years. However, VA facilities are constrained
    by reprogramming authority, inadequate investment, and lack of
    a strategic capital-planning program.''
        The PTF believes that VA must accomplish three key
    objectives:
        (1) invest adequately in the necessary infrastructure to
    ensure safe, functional environments for healthcare delivery;
        (2) right-size their respective infrastructures to meet
    projected demands for inpatient, ambulatory, mental health, and
    long-term care requirements; and
        (3) create abilities to respond to a rapidly changing
    environment using strategic and master planning to expedite new
    construction and renovation efforts.
        Additionally, it was recommended by the PTF that ``an
    important priority is to increase infrastructure funding for
    construction, maintenance, repair, and renewal from current
    levels.''
        In a study completed in 1998, Price Waterhouse was asked to
    determine the spending level required to ensure that the
    Veterans Health Administration's (VHA) investment in facility
    assets would be adequately protected against adverse
    deterioration and to keep the average condition of facilities
    at an appropriate level. Price Waterhouse concluded that the
    VHA was significantly underfunding its construction spending,
    and based on their observations across the industry,
    appropriate annual spending should be between 2 percent and 4
    percent of the plant replacement value (PRV) on reinvestment to
    replace aging facilities. Price Waterhouse considered
    reinvestment to be improvements funded from the major and minor
    construction appropriations. PRV for the VHA is approximately
    $35 billion. The 2 percent-4 percent range would therefore
    equate to annual funding of $700 million to $1.4 billion.
        The VFW supports the Price Waterhouse recommendation that
    VA spend at least 2 percent of the value of its buildings or
    $700 million annually on upkeep. Together with the IBVSO's, we
    believe that $400 million should be appropriated in fiscal year
    2005 with continued increases in the following years until an
    appropriate level of funding, that will forestall the continued
    deterioration of VA properties, is achieved.
        Congress should appropriate no less than $400 million for
    nonrecurring maintenance in fiscal year 2005 to provide for
    adequate building maintenance. VA should direct no less than
    $400 million for nonrecurring maintenance in fiscal year 2005.
    VA should also make annual increments in nonrecurring
    maintenance in the future until 2 percent of the value of its
    buildings is budgeted and utilized for nonrecurring
    maintenance.
        Good stewardship demands that VA facility assets be
    protected against deterioration and that an appropriate level
    of building services be maintained. Given VA's construction
    needs, such as seismic correction, compliance with the
    Americans with Disabilities Act (ADA) and Joint Commission of
    Accreditation of Healthcare Organization (JCAHO) standards,
    replacing aging physical plant equipment, and CARES, VA's
    construction budget continues to be inadequate.
        In addition, it has been suggested that the VA medical
    system has vast quantities of empty space that can be cost
    effectively reused for medical services. It has also been
    suggested that unused space at one medical center may help
    address a deficiency that exists at another. Although the space
    inventories may be accurate, the basic assumption regarding
    viability of space reuse is not.
        Medical facility planning is a complex task because of the
    intricate relationships that must be provided between
    functional elements and the demanding technical requirements of
    the sophisticated equipment that must be accommodated. For
    these reasons, space in medical facilities is rarely
    interchangeable--except at a prohibitive cost. Unoccupied rooms
    located on a hospital's eighth floor, for example, cannot
    offset a space deficiency in a second floor surgery because
    there is no functional adjacency. Medical space has very
    critical inter- and intra-departmental adjacencies that must be
    maintained for efficient and hygienic patient care. In order to
    maintain these adjacencies, departmental expansions or
    relocations usually trigger extensive ``domino'' impacts on the
    surrounding space. These secondary impacts greatly increase
    construction costs and patient care disruption.
        Some permanent features of medical space, such as floor-to-
    floor heights, column-bay spacing, natural light, and
    structural floor loading, cannot be altered. Different medical
    functions have different technical requirements based on these
    permanent characteristics.
        Laboratory or clinical space, for example, is not
    interchangeable with patient ward space because of the need for
    different column spacing and perimeter configuration. Patient
    rooms need natural light and column locations that are
    compatible with patient room layouts. Laboratories should have
    long structural bays and function best without windows. If the
    ``shell'' space is not appropriate for its purpose, renovation
    plans will be larger and more inefficient and therefore cost
    more.
        Using renovated space rather than new construction yields
    only marginal cost savings. Build out of a ``gut'' renovation
    to accommodate medical functions usually costs approximately 85
    percent of the cost of similar new construction. If the
    renovation plan is less efficient, or the ``domino'' impact
    costs are greater, the small potential savings are easily lost.
    Renovation projects often cost more and produce a less
    satisfactory result. Renovations are sometimes appropriate to
    achieve desirable functional adjacencies, but they are rarely
    economical.
        Early VA medical centers used flexible campus-type site
    plans with separate buildings serving different functions.
    Since World War II, however, most main hospitals have been
    consolidated into large, tall ``modern'' structures. Over time,
    these central medical towers have become surrounded by
    radiating wings and connecting corridors leading to secondary
    structures. Many current VA medical centers are built around
    prototypical ``Bradley buildings.'' These structures were
    rapidly constructed in the 1940's and 1950's for returning
    World War II veterans.
        Fifty years ago, these brick facilities were easily site-
    adapted and inexpensive to build, but today they provide a very
    poor chassis for a modern hospital. Because most Bradley
    buildings were designed before the advent of air conditioning,
    for example, the floor-to floor heights are very low. This
    makes it almost impossible to retrofit modern mechanical
    systems. The older hospital's wings are long and narrow (in
    order to provide operable windows) and therefore provide
    inefficient room layouts by contemporary standards. The Bradley
    hospital's central service core with a few small elevator
    shafts is inadequate for the vertical distribution of modern
    medical services.
        In addition, much of the currently vacant space is not
    situated in prime locations. If the space were, it would have
    been previously renovated or demolished to clear the way for
    new additions. Unused space is typically located in outlying
    buildings or on upper floor levels. Its permanent
    characteristics often make it unsuitable for modern medical
    functions.
        VA should perform a comprehensive analysis of its excess
    space and deal with it appropriately. Some of this space is
    located in historic structures that must be preserved and
    protected. Some space may be appropriate for enhanced use. Some
    may be appropriate for demolition. While it is tempting to
    focus on unused space, it should not be a major determinant in
    CARES realignments. Each medical center should develop a plan
    to find appropriate uses for its vacant properties.
        Mr. Chairman and members of this Committee, this concludes
    my statement and I will be happy to respond to any questions
    you may have.

        Chairman Specter. Our final witness in this round is Mr.
    Rick Jones, National Legislative Director of AMVETS. Thank you
    for being with us, Mr. Jones, and the floor is yours.

      STATEMENT OF RICHARD JONES, NATIONAL LEGISLATIVE DIRECTOR,
                                 AMVETS

        Mr. Jones. Thank you, Mr. Chairman, Ranking Member Graham.
    It is an honor to be here with you today and I would like to
    note appreciation for your strong leadership and continuing
    support.
        Last year, Mr. Chairman, you played a critical role in
    terminating a dark-of-night proposal to make future disabled
    veterans pay the compensation of past veterans for their
    service-connected injury and we applaud you for your stand up,
    stand out defense of veterans. Thank you very much.
        Mr. Chairman, without your strong commitment, Congress may
    fall short of providing the appropriations necessary to ensure
    that burial space for millions of veterans and their eligible
    dependents will be provided. The Independent Budget Veterans
    Service Organizations do work together and we work to ensure
    that the National Cemetery Administration remains a world
    class, quality service that honors veterans and recognizes
    their contribution to the security and development of our
    nation.
        The members of The Independent Budget recommend Congress
    provide $175 million in fiscal year 2005 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 that would be consistent
    with NCA's growing demands and in concert with the respect that
    is due every man and woman who ever wore the uniform of the
    Armed Service of the United States. This is an increase of
    nearly $30 million over current year funding.
        Funding for the State Cemetery Grants program, the members
    of The Independent Budget recommend $37 million in the new
    fiscal year. The intent of the State Cemetery Grants program is
    to develop a true complement to, not a replacement of, the
    National Cemetery System and it is a vital program. It has
    greatly assisted States to increase burial service to veterans,
    especially those living in more rural areas, less densely-
    populated areas that are not currently served by the National
    Cemetery System. For example, in the current year, the IBO's
    anticipate fast track opening in Idaho, Kansas, Massachusetts,
    and the Tidewater area of Virginia, where over 200,000 veterans
    reside.
        The IB VSO's also recommend a series of upgrades on a
    number of burial benefits that have eroded over time since
    their initiation in 1973. The legislative proposals are part of
    the fiscal year 2005 Independent Budget and we ask for
    consideration of these proposals.
        Mr. Chairman, I would just note one thing. On the cover of
    The Independent Budget, you will note that in the bottom left
    hand corner there is an individual in a wheelchair who has lost
    a leg who is sitting with his family. The picture above is also
    a picture of the same individual standing with his comrades
    prior to injury. I think this is important for us to note, that
    individuals who we expect to return, in full health as Priority
    8 veterans may return otherwise. But in each case, it's a
    Priority 8 veteran who needs to step forward when a fellow
    soldier is injured, hurt, or, unfortunately, killed. We don't
    win our battles and we don't have victory without that
    commitment.
        Thank you, sir, and God bless America.
        Chairman Specter. Thank you. Thank you very much, Mr.
    Jones.
        [The prepared statement of Mr. Jones follows:]

      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 2005. We are
    pleased to provide you our best estimates on the resources necessary to
    carry out a responsible budget for the fiscal year 2005 programs of the
    Department of Veterans Affairs. AMVETS testifies before you today as a
    co-author of The Independent Budget. This is the 18th year 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 30 veteran,
    military, and medical service organizations endorse these
    recommendations. In whole, these recommendations provide decisionmakers
    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 advances benefits all
    Americans. The Veterans Health Administration 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
    continuing backlog in veterans waiting for health care and it must
    address, as well, VA's 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 2005, we watch a live lesson about the
    challenges inherent to inadequate funding. Due to a lack of resources,
    VA took action on January 17, 2003, to ban healthcare access to 164,000
    veterans who could have enrolled last year. This ban remains in force,
    despite substantial increases in healthcare funding over the past 2
    years. It is remarkable that after blocking entry to these so-called
    ``high income'' veterans, VA issued a healthcare directive (VHA
    Directive 2003-003, January 17, 2003) telling workers to send banned
    veterans to Community Social Work for assistance.
        It is hoped that recently passed provisions contained in the fiscal
    year 2004 appropriations bill, which aim to overcome VHA Directive
    2003-003, will remedy this breach of faith. When an individual commits
    to the defense of the rest of us, undertakes training that is
    inherently more dangerous than the typical civilian occupation, and
    stands ready to go into harm's way so that others need not, this
    country's gratitude should not be demonstrated with a simple referral,
    however courteous and sincere, to the welfare line.
        Looking to the new year, The Independent Budget recommends Congress
    provide $29.8 billion to fund VA medical care for fiscal year 2005, an
    increase of nearly $3.1 above fiscal year 2004. We ask Congress to
    recognize that the VA healthcare system is an excellent investment for
    America. It can only bring quality health care, however, if it receives
    adequate funding.
        We also ask Congress to understand that there are other potential
    challenges regarding veterans health care especially in regard to a new
    generation of veterans returning from Iraq, Afghanistan and the war on
    terrorism. By last year's count, more than 80,000 veterans who returned
    from the war have sought VA health care. And, it is likely the demand
    will remain strong for the foreseeable future. To facilitate their
    care, it is important that Congress work with the administration to
    accelerate the development of a seamless, transferable lifetime medical
    record between the DoD and VA.
        It is also important to clearly State that AMVETS along with its IB
    partners strongly support 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 uncertainty of discretionary funding, which has proven
    inconsistent and inadequate. Mandatory funding would provide a
    comprehensive solution to the current funding problem. Once healthcare
    funding matched the actual average cost of care for veterans enrolled
    in the system, the VA can fulfill its mission.

                      THE NATIONAL CEMETERY ADMINISTRATION

        Before I address budget recommendations for the National Cemetery
    Administration, I would like members of the Committee to know that
    AMVETS fully appreciates the strong leadership and continuing support
    demonstrated by members of the Senate Veterans' Affairs Committee.
    AMVETS is truly grateful to those who serve on this important
    committee. Through your work, 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
    2.6 million gravesites on approximately 14,000 acres of cemetery land,
    while providing nearly 90,000 interments annually.
        VA is scheduled to open new cemeteries in Atlanta, GA; Oklahoma
    City, OK; Pittsburgh, PA; Detroit, MI; Miami, FL; and Sacramento, CA.
    Also under legislation passed last year (P.L. 108-109), VA is directed
    to design and construct cemeteries at six new national locations in
    Philadelphia, Pennsylvania; Birmingham, Alabama; Jacksonville, Florida;
    Bakersfield, California; Greenville, South Carolina; and Sarasota
    County, Florida.
        The strong effort to build new cemeteries recognizes the dramatic
    increases in the interment rate of veterans. NCA requires increases in
    funding if it is to carry out its statutory mandates. Without the firm
    commitment of Congress 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 urge Congress and the
    administration to significantly boost NCA resources for fiscal year
    2005. It should be recognized that not only is the interment rate
    increasing and the construction of new facilities accelerating, but
    also there are repair and upgrades needed. The Study on Improvements to
    Veterans Cemeteries, a comprehensive report submitted in 2002 by VA to
    Congress on conditions at each cemetery, identified nearly $300 million
    in over 900 projects for gravesite renovation, repair, upgrade, and
    maintenance.
        As any public facilities manager knows, failure to correct
    identified deficiencies in a timely fashion results in continued, often
    more rapid, deterioration of facilities and increasing costs related to
    necessary repair. The IBVSO's agree with this assessment and believe
    that Congress 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 Congress 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, Congress 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) 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 Congress
    provide $175 million in fiscal year 2005 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 nearly $30 million over current year funding.
        Clearly, the aging veteran population has created great demands on
    NCA operations. Nearly 655,000 veterans deaths are estimated in 2005
    with the death rate peaking at 690,000 in 2009; of these, it is
    expected that 109,000 will seek burial in a national cemetery. As
    veteran deaths accelerate, it is obvious the demand for veterans'
    burial benefits will increase.

                       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. The
    intent of the State Cemetery Grants Program is to develop a true
    complement to, not a replacement for, our Federal system of national
    cemeteries.
        With enactment of the Veterans Programs Enhancement Act of 1998,
    the NCA has been able to strengthen its partnership with States and
    increase burial service to veterans; especially those living in less
    densely populated areas not currently served by a national cemetery.
        During fiscal year 2004, the IBVSO's anticipate fast-track openings
    at new cemeteries under construction--Boise, Idaho (the last State in
    the United States without a veterans cemetery); Wakeeny, Kansas (300
    miles east of Denver and west of Kansas City, serving rural areas in
    western Kansas); Winchendon, Massachusetts (serving the densely
    populated northern part of the State); and Suffolk, Virginia (serving
    200,000 veterans in the Tidewater area).
        To augment support for veterans who desire burial in State
    facilities, members of The Independent Budget support increasing the
    plot allowance to $725 from the current level of $300. The plot
    allowance now covers less than 6 percent of funeral costs. Increasing
    the burial benefit to $725 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.
        The Independent Budget veterans service organizations (IBVSO's)
    also request Congress 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 IBVSO's recommend an increase in the service-connected benefits
    from $2,000 to $4,000. Prior to action in the last Congress, increasing
    the amount to $2,000, the benefit had been untouched since 1988. The
    request would restore the allowance to its original proportion of
    burial expense.
        The IBVSO's recommend increasing the nonservice-connected benefit
    from $300 to $1,225, 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 IBVSO's also recommend that Congress 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. I would like to ask just a few questions
    at the moment. I would like each of you to comment on the
    proposals for mandatory funding. That has been a subject under
    discussion for a considerable period of time which would avoid
    the discretionary consideration each year, but the other side
    of it is it might not produce the kind of analysis and
    thoughtful examination depending upon the circumstances.
        I would just like you to go down the row and tell me if you
    would like to see mandatory funding.
        Mr. Gaytan. Thank you for the question, first off. The
    American Legion fully supports mandatory funding and it is
    going to be key for the equation that reaches the amount needed
    for VA health care to be adequate. The equation that is used
    must ensure that the cost for each veteran is an adequate cost
    when determining exactly what the overall funding for VA would
    be under a mandatory funding mechanism.
        Chairman Specter. Mr. Fuller, before you respond, Senator
    Graham would like to make a brief comment.
        Senator Graham. I apologize that I am going to have to
    leave for another 5 o'clock appointment, but I want to thank
    each of you for your contribution not only today, but with the
    excellent independent analysis that you have given to the VA's
    budget. That is very helpful to all the Members of the Congress
    and I thank you for that and appreciate your very helpful
    responses to the questions that I ask. Thank you very much.
        Chairman Specter. Thank you, Senator. Thank you very much,
    Senator Graham.
        Mr. Fuller, what do you think about mandatory funding?
        Mr. Fuller. Paralyzed Veterans of America fully supports
    the concept of mandatory funding. We have become increasingly
    frustrated year after year after year when it is a constant
    battle, the budget fight that goes on. You hardly get one
    appropriation taken care of and you are already battling for
    the next year's budget request. We think that it is not only
    the question of how much you get, as I said in my statement,
    but when you get it. In the past 2 years alone, VA has----
        Chairman Specter. Mr. Surratt, your view?
        Mr. Surratt. The DAV is one of the nine organizations, I
    believe, that is in the coalition supporting mandatory funding.
    We have a problem. We know what that problem is. We have a
    solution. There have been questions raised about whether a
    mandatory formula and the law would be flexible enough, but we
    project funding for discretionary appropriations and I believe
    that Congress can come up with a formula that makes necessary
    adjustments by making funding mandatory in law.
        Chairman Specter. Mr. Hayden.
        Mr. Hayden. VFW fully supports mandatory funding, sir.
        Chairman Specter. Mr. Jones, do you dissent?
        Mr. Jones. No, sir. No, sir.
        Chairman Specter. On the issue of copays or entrance fees,
    is there any level that there would be any support for the VA
    proposals and their ways sprinkled all through the VA budget to
    try to raise some revenues, any means testing at all which
    would be acceptable to the veterans' organizations?
        Mr. Jones.
        Mr. Jones. We have a means test, sir. The interesting thing
    is that these user fees seem more intended to drive veterans
    away. VA projections last year on user fees suggested up to 1.2
    million veterans who were currently enrolled would not re-
    enroll if they had to pay a user fee. The current projections
    with this smaller user fee is that over 300,000 veterans would
    not return and 200,000 would have trouble returning. That is
    about a half-a-million.
        Chairman Specter. So you are opposed to all the user fees?
        Mr. Jones. I think the user fees are intended to go about
    it in the wrong way, sir. Yes, we are opposed.
        Chairman Specter. Mr. Hayden.
        Mr. Hayden. The VFW is opposed to user fees, as well, sir.
        Chairman Specter. Mr. Surratt.
        Mr. Surratt. The DAV is opposed to user fees.
        Chairman Specter. Mr. Fuller.
        Mr. Fuller. The PVA is opposed to user fees.
        Mr. Gaytan. The American Legion is, as well.
        Chairman Specter. Mr. Gaytan, it is up to you.
        Mr. Gaytan. Yes, sir. We oppose it, as well.
        Chairman Specter. The final question, and the hour is
    growing late and you have been very patient, the VA customer
    performance satisfaction rating remains low at 55 percent,
    despite stated increases in performance. First of all, do you
    think that there have been increases or improvement in
    performance? Does anybody think that is so in the VA?
        Mr. Gaytan. Sir, if you are mentioning performance as
    quality of care, yes, the American Legion recognizes the
    improvement in quality of care over the past 20 years. But as I
    stated earlier----
        Chairman Specter. How would you account, Mr. Gaytan, for
    the fact that the customer satisfaction remains low at 55
    percent?
        Mr. Gaytan. I think it would be due to wait times. Wait
    times for care----
        Chairman Specter. Wait times?
        Mr. Gaytan. Yes, sir. Not only the extended wait times for
    months to get into the facility, but those wait times within
    the waiting rooms themselves. As I stated earlier, the American
    Legion has put together the System Worth Saving Task Force and
    we are out there visiting these facilities. Just this past
    week, we visited six different facilities in three different
    States and we are accruing that information. We are going to
    present that again to you this year, sir.
        Chairman Specter. Does anybody else care to comment on that
    question?
        Mr. Jones.
        Mr. Jones. Well, it is an anomaly. It is hard to figure
    out, because what we hear is that once you are in, veterans are
    very pleased with the care. Fifty-five percent expression of
    performance and quality, that is interesting. I had not seen
    that. I thought that the performance and quality was way up and
    those who were in the system were well pleased with the care
    they received.
        Chairman Specter. Mr. Fuller, what do you think?
        Mr. Fuller. I think that we have a double-edged sword here.
    What we have always heard is that once you got into the VA, you
    said this was the greatest thing since sliced bread and I
    really love the VA. I am really surprised to see those figures.
    I would have assumed that they would have been higher, as well.
    I would be very interested in seeing a copy of that and also
    seeing if the committee staff could follow up on that for us in
    being able to find out from the VA what is going on here,
    because that is really rather astonishing.
        Chairman Specter. Mr. Surratt.
        Mr. Surratt. I really don't have anything to add to that,
    Mr. Chairman. Our impression has been that veterans appreciate
    the care they get and think it is very good.
        Chairman Specter. Mr. Hayden.
        Mr. Hayden. I agree with my colleagues at the table.
        Chairman Specter. The hearing ran a lot longer than we
    would ordinarily expect. You had eight Senators here today.
    That constituted a quorum. We haven't had a--I can't recall
    when we had a quorum with this hearing before, but I think that
    attests to the tremendous interest that the United States, this
    committee, and the whole Senate and the whole Congress have
    about veterans' issues.
        We are looking at a very, very difficult budget. There is
    no doubt about the need for more homeland security and there
    has been a 9.7 percent increase there, more for national
    defense, 7 percent without even accounting for Iraq and
    Afghanistan, which is later, and the discretionaries are
    overall less than a half-a-percent. So the Veterans
    Administration did better than most.
        But we will take a very, very close look at it, and I was
    pleased, as I said, to see Secretary Principi very candidly
    tell the House that they thought they ought to have more money,
    $1.2 billion, and we admire the work that your service
    organizations are giving. We are going to submit detailed
    questions and we will take into account your full statements
    and staff will be in touch with you further. Thank you for
    providing some bedtime reading.
        [Laughter.]
        Chairman Specter. One very short story. When I was one of
    the younger stories--and I say younger because I am still a
    young lawyer--for the Warren Commission staff, we had to
    produce 400 pages every Friday for Earl Warren because he was
    an insomniac and he couldn't fall asleep unless he had more to
    read than he could possibly read. So our assignment--this is a
    serious point, not the only serious point today but a serious
    point--we had to provide 400 pages for Warren every Friday. So
    thank you for providing some pages for me.
        [Laughter.]
        Mr. Surratt. Mr. Chairman, we are disappointed to learn
    that the independent budget is a cure for insomnia.
        [Laughter.]
        Chairman Specter. Thank you all. The hearing is adjourned.
        [Whereupon, at 5:08 p.m., the committee was adjourned.]