[Senate Hearing 110-215]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-215
 
                HEARING ON VA HEALTH CARE FUNDING ISSUES

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

                                HEARING

                               BEFORE THE

                     COMMITTEE ON VETERANS' AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 25, 2007

                               __________

       Printed for the use of the Committee on Veterans' Affairs


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                     COMMITTEE ON VETERANS' AFFAIRS

                   Daniel K. Akaka, Hawaii, Chairman
John D. Rockefeller IV, West         Larry E. Craig, Idaho, Ranking 
    Virginia                             Member
Patty Murray, Washington             Arlen Specter, Pennsylvania
Barack Obama, Illinois               Richard M. Burr, North Carolina
Bernard Sanders, (I) Vermont         Johnny Isakson, Georgia
Sherrod Brown, Ohio                  Lindsey O. Graham, South Carolina
Jim Webb, Virginia                   Kay Bailey Hutchison, Texas
Jon Tester, Montana                  John Ensign, Nevada
                    William E. Brew, Staff Director
                 Lupe Wissel, Republican Staff Director


                            C O N T E N T S

                              ----------                              

                             July 25, 2007
                                SENATORS

                                                                   Page
Akaka, Hon. Daniel K., Chairman, U.S. Senator from Hawaii........     1
    Prepared statement...........................................
Craig, Hon. Larry E., Ranking Member, U.S. Senator from Idaho....     2
    Prepared statement...........................................     4
Sanders, Hon. Bernard, U.S. Senator from Vermont.................     6
Tester, Hon. Jon, U.S. Senator from Montana......................     8
Murray, Hon. Patty, U.S. Senator from Washington.................     9
    Prepared statement...........................................     9
Rockefeller, Hon. John D., IV, U.S. Senator from West Virginia...    10
    Prepared statement...........................................    11
Smith, Hon. Christopher, House Representative from New Jersey....    11
    Prepared statement...........................................    14

                                WITNESS

Reinhardt, Uwe E., Ph.D., Professor of Political Economy, 
  Economics, and Public Affairs, Woodrow Wilson School of Public 
  and International Affairs, Princeton University................    17
    Prepared statement...........................................    20
Kizer, Kenneth W., M.D., M.P.H., Chief Executive Officer and 
  Chairman of the Board, Medsphere Systems Corporation...........    34
    Prepared statement...........................................    37
Violante, Joseph A., National Legislative Director, Disabled 
  American Veterans, on Behalf of the Partnership for Veterans 
  Health Care Budget Reform......................................    52
    Prepared statement...........................................    54
Cox, J. David, R.N., National Secretary-Treasurer, American 
  Federation of Government Employees, AFL-CIO....................    65
    Prepared statement...........................................    67
Kussman, Michael J., M.D, M.S., M.A.C.P., Under Secretary for 
  Health, Veterans Health Administration, Department of Veterans 
  Affairs........................................................    72
    Prepared statement...........................................    74

                                APPENDIX

Manley, Joseph M., VA Medical Center Director (Retired), on 
  behalf of funding for VA healthcare; prepared statement........    79
Perreault, Robert A., former VA official; prepared statement.....    80


                       HEARING ON VA HEALTH CARE 
                             FUNDING ISSUES

                              ----------                              


                        WEDNESDAY, JULY 25, 2007

                               U.S. Senate,
                    Committee on Veterans' Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:30 a.m., in 
room 562, Dirksen Senate Office Building, Hon. Daniel K. Akaka, 
Chairman of the Committee, presiding.
    Present: Senators Akaka, Rockefeller, Murray, Tester, 
Sanders, and Craig.

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

    Chairman Akaka. Aloha and welcome to everyone. This hearing 
is in order.
    I welcome everyone to this morning's hearing. I will be 
brief. I know that Members have some time constraints this 
morning. And several of our witnesses do, as well.
    We are here today to discuss ways to improve how the VA 
health care system is funded every year. As we all know, budget 
shortfalls, continuing resolutions, and other funding 
constraints have taken their toll on VA in recent years.
    Make no mistake, this is not simply about numbers, budget 
models, and inflation. What we are talking about is ensuring 
that VA can provide the highest quality patient care and 
services for our Nation's veterans.
    Appropriations battles, political maneuvering, and planning 
errors have stalled the flow of needed monies for the past 7 
years in a row. We all remember the crisis VA faced in 2005 
when it was revealed that the Department was short by $1 
billion.
    There is no other health care system in the country that 
enters each fiscal year unsure of its budget. No other 
beneficiaries must come to Congress, hat in hand, to ask for 
billions of dollars to keep their health care system afloat. No 
other hospital managers must plan in an atmosphere of complete 
uncertainty and raid maintenance funds so as to furnish care. 
Innovative solutions must be examined so that veterans are no 
longer subject to such whims.
    Today, we will hear from incredibly well-qualified 
witnesses. I know we can conduct a fruitful dialogue about what 
can be done now, as well as what we can do in the future. Thank 
you very much.
    Chairman Akaka. And now, Senator Craig for your statement.

       STATEMENT OF HON. LARRY E. CRAIG, RANKING MEMBER 
                    U.S. SENATOR FROM IDAHO

    Senator Craig. Mr. Chairman, thank you very much, and for 
all who have assembled, we want to thank you for being here 
this morning for this important hearing.
    Mr. Chairman, while you and I have always done our best to 
maintain a strong bipartisan approach to this Committee's 
issues, I think this issue in particular has lent itself to 
some serious partisan maneuvering. For example, I can't help 
but recall that over the past several years, there have been 
Senate bills introduced each year to address mandatory funding 
and there have been a number of attempts to add some form of 
mandatory funding to the Defense Authorization Act. I recall an 
effort a few years ago by Senator Daschle to do so, and last 
year and the year prior, I believe it was left to Senator 
Stabenow. There were full-page ads urging Congress to act on 
mandatory funding, yet with the new majority taking over 
control of Congress this year, oddly, there were no amendments 
from the majority to the Defense Authorization Act to provide 
mandatory funding. I have not seen a bill introduced, and now 
full-page ads are bought to urge the President, not the 
Congress, to act on mandatory funding.
    I also can't help but notice that we are holding this 
hearing almost exactly 1 month after the Committee marked up 
its health care legislative package for this session. I have 
often wondered in debating the amendments on the floor over the 
past few years how much politics was behind them, and I think I 
have learned a little about the answer that I have questioned 
myself on as we speak.
    Having said that, Mr. Chairman, I want to assure you and 
other Members of this Committee that I take this issue very 
seriously and my comments today reflect concerns with the 
issues as they pertain to health care policy and fiscal 
prudence. It is no secret that I don't support mandatory 
funding legislation, and that has been introduced in all of the 
Congresses. I simply think it is bad policy. In fact, I 
articulated many of my views and thoughts on this matter in a 
letter I sent to Senators Johnson and Thune last year. That 
letter became fairly widely circulated among veterans' 
advocates, so I know many have read it. But for the record of 
this hearing, I would like to once again articulate some of my 
concerns with the legislation that was previously put forth to 
the Senate.
    First and foremost, of course, is the question of whether 
it would improve the health care delivery by VA to provide 
funding on the basis of a formula laid out in the legislation. 
I realize there hasn't been any bill introduced in the Senate 
this year, but the bill before the House is identical to those 
introduced in previous Congresses here in the Senate, so I am 
working from that premise.
    Mr. Chairman, I am not sure I see how the bill will improve 
health outcomes for veterans. In fact, I think it could have 
some adverse effects on the health care system.
    First, as I have noted many times before, the formula is 
based on the number of enrollees in the health care system, yet 
according to VA's budget, there are 7.9 million enrollees and 
only 5.7 million users of the system. We would be basing a 
budget on 2.2 million veterans who don't use VA's health care 
system at all. Of course, if, for example, 300,000 of the 2.2 
million began using VA in the middle of the fiscal year, we 
would be in real trouble. We would be increasing the patient 
population by about 5 percent but not increasing the budget 
available to the system.
    Another large problem would be what happens when the number 
of enrollees begin to shrink but the overall user population 
does not? I certainly have suggested that we control VA's 
spending increases over the past few years, but I can't imagine 
that I have ever advocated that we reduce the budget from one 
year to the next simply because the number of people who don't 
use the VA system is shrinking. It makes, in my opinion, no 
sense, and I certainly do not see how it would improve care.
    And finally, Mr. Chairman, in my view, the formula is 
rather arbitrary. It just takes the previous year's budget and 
adds 30 percent to it, then divides it by the enrollees to get 
a per enrollee cost. Then I suggest that amount is deemed to be 
adequate. So the bill adds a medical care inflator to the per 
enrollee amount every year. Of course, the formula has changed 
with successive introductions of the bills over the years and I 
think that fact only supports my view that it is arbitrary and, 
therefore, more political than substantive.
    Mr. Chairman, if you will allow me, I have brought a chart 
along, and I know I am already giving you more than you had 
hoped for in this opening statement. But the chart shows the 
amount of money that would be available to VA if we had enacted 
mandatory funding when Senator Johnson first introduced the 
idea in the 107th Congress. Next, we see the amount of funding 
if we had passed last year's version of the bill.
    I also compared those two numbers, which you will see as 
fairly different, to the amounts provided in appropriations for 
each year and the amounts requested by the Independent Budget. 
As I hope is clear, there are four different numbers for each 
fiscal year. Interestingly, by 2008, you will see that the 
amount of appropriations recently provided in the Senate, which 
was called manna from heaven by one VSO, is actually more than 
the Independent Budget. But it is anywhere from $5 to $6 
billion less than what would have been available under 
different mandatory funding bills.

                         Mandatory Funding for VA Medical Care--Hit and Miss Budgeting?
                         (All in billions; actual approps include supplemental funding)
----------------------------------------------------------------------------------------------------------------
                                                                  FY04      FY05      FY06      FY07     FY08\1\
----------------------------------------------------------------------------------------------------------------
Actual Discretionary Approps + Collections....................     $28.1     $31.5     $31.4     $36.8     $39.6
Independent Budget + Collections..............................      29.5      32.2      33.7      35.2      39.2
Mandatory Funding (S. 2903 107th) + Collections...............      30.8      37.0      39.8      42.7      44.5
Mandatory Funding (S. 331 109th) + Collections................        NA        NA        NA      42.1      45.1
----------------------------------------------------------------------------------------------------------------
\1\Estimates.
Sources: VA Budget Submissions; Independent Budget Recommendations; and Bureau of Labor Statistics.

    Senator Craig. So my question is, are we short this year? 
Was the Independent Budget too low? Or is it possible that 
mandatory funding would have over-funded VA, and if it did by 
as much as $6 billion, how should the overage be handled? Those 
are legitimate and responsible questions to be asked when we 
begin to talk about the scheme of mandatory funding.
    Mr. Chairman, I hope my colleagues do not mistake my views 
for suggestions that money doesn't matter. I concede that money 
has some bearing on the overall quality of care provided to our 
veterans. We need quality staff, quality facilities to provide 
quality care and money can help us get there. But there have 
been incredible improvements over the past 10 years in VA's 
health care delivery system. It is ranked amongst the best in 
the Nation. It did so not by mandatory funding, but by 
discretionary funding. It was a model that worked. It is a 
model that is working. And it is a model that will continue to 
work if Congress keeps its focus.
    I think much of those improvements are related to 
systematic changes in health care models delivered by Dr. Kizer 
or implemented by VERA to a more exacting model as envisioned 
by Dr. Roswell. I also believe the integration of the 
electronic health records and the clinical outcome studies and 
so on are significant. There is much more to be said.
    But to suggest that the system is broken and, therefore, we 
need to change the funding model is simply, in my opinion, an 
exaggeration of the reality at hand. Congress has been faithful 
to increased funding and we have seen it going 11 and 12 
percent annually, this year, a phenomenal boost in the reality. 
I have gone on long enough. I think my opinion and my 
observations are clear and I think they are valid and I will be 
more than happy to question and hear from those who have come.
    I will ask unanimous consent that the balance of my 
statement be a part of the record.
    [The prepared statement of Senator Craig follows:]

              Prepared Statement of Hon. Larry E. Craig, 
                        U.S. Senator from Idaho

    Mr. Chairman, thank you very much. And, of course, thank you for 
scheduling this important hearing.
    Mr. Chairman, while you and I have always done our best to maintain 
a strong level of bipartisanship on this Committee, I think this issue 
in particular has lent itself to some serious partisan maneuvering.
    For example, I cannot help but recall that over the past several 
years there have been Senate bills introduced in each Congress to 
address mandatory funding. And there have even been a number of 
attempts to add some form of mandatory funding to the Defense 
Authorization Act. I recall an effort a few years ago by Senator 
Daschle to do so, and last year and the year prior, I believe it was 
left to Senator Stabenow.
    There were full page ads urging ``Congress'' to act on Mandatory 
funding. Yet, with the new Majority taking over control of Congress 
this year, oddly there were no amendments from the Majority to the 
Defense Authorization Act to provide mandatory funding. I have not seen 
a bill introduced and now full page ads are bought to urge ``The 
President'' not Congress to act on mandatory funding.
    I also can't help but notice that we are holding this hearing 
almost exactly one month after the Committee marked-up its health care 
legislative package for the first session. I've often wondered in 
debating the amendments on the floor over the past few years, how much 
politics was behind them. I think I've learned a little about the 
answer to that question this year.
    Having said that, Mr. Chairman, I want to assure you and other 
Members of this Committee that I take this issue very seriously. And my 
comments today reflect concerns with the issues as they pertain to 
health care policy and fiscal prudence.
    It is no secret that I do not support the mandatory funding 
legislation that has been introduced in previous Congresses. I simply 
think it's bad public policy. In fact, I articulated many of my views 
and thoughts on the matter in a letter I sent to Senators Johnson and 
Thune last year. That letter became fairly widely circulated among 
veterans' advocates so I know many have read it. But, for the record of 
this hearing, I'd like to once again articulate some of my concerns 
with the legislation that was previously been put forth to the Senate.
    First and foremost--of course--is the question of whether it would 
improve the health care delivered by VA to provide funding on the basis 
of the formula laid out in the legislation. I realize there hasn't been 
any bill introduced in the Senate this year. But, the bill before the 
House is identical to those introduced in previous Congresses here in 
the Senate. So, I am working from that premise.
    Mr. Chairman, I am not sure I see how that bill will improve health 
outcomes for veterans. In fact, I think it could have some adverse 
effects on the health care system.
    First, as I've noted many times before, the formula is based on the 
number of enrollees in the health care system. Yet according to VA's 
budget there are 7.9 million enrollees and only 5.7 million users of 
the system. We'd be basing a budget on 2.2 million veterans who do not 
use VA's health care system at all.
    Of course, if for example 300,000 of the 2.2 million began using VA 
in the middle of a fiscal year, we'd be in real trouble. We would be 
increasing the patient population by about 5 percent, but not 
increasing the budget available to the system at all.
    Another large problem would be what happens when the number of 
enrollees begins to shrink, but the overall user population does not. I 
certainly have suggested that we control VA's spending increases over 
the past few years. But, I can't imagine that I'd ever advocate that we 
reduce the budget from one year to the next simply because the number 
of people who don't use the VA system is shrinking. It makes no sense. 
And I certainly do not see how it would improve care.
    Finally, Mr. Chairman, in my view, the formula is rather arbitrary. 
It just takes the previous fiscal year's budget, adds 30 percent to it, 
then divides it by enrollees to get a per enrollee cost. Then, I guess 
that amount is deemed to be adequate. So, the bill adds a medical care 
inflator to the per enrollee amount every year.
    Of course, that formula has changed with successive introductions 
of the bills over the years. I think that fact only supports my view 
that it is somewhat arbitrary.
    Mr. Chairman, if you'll allow me, the chart behind me shows the 
amount of money that would be available to VA if we had enacted 
mandatory funding when Senator Johnson first introduced this idea in 
the 107th Congress. Next, we see the amount of funding if we passed 
last year's version of the bill. I have also compared those two 
numbers, which you'll see are fairly different, to the amounts provided 
in appropriations for each year and the amounts requested by the 
Independent Budget.
    As I hope is clear, there are four different numbers for each 
fiscal year. Interestingly, for 2008, you'll see that the amount of 
appropriations recently provided in the Senate--which was called 
``manna from Heaven'' by one VSO is actually more than the IB. But, it 
is anywhere from $5 to $6 billion less than what would have been 
available under different mandatory funding bills.
    So, my question is: are we short this year? Was the IB too low? Or 
is it possible that mandatory funding would have ``over funded'' VA? 
And, if it did by as much as $6 billion, how should the overage be 
handled?
    Mr. Chairman, I hope my colleagues do not mistake my views for a 
suggestion that money doesn't matter. I concede that money has some 
bearing on the overall quality of care provided to our veterans. We 
need quality staff and quality facilities to provide quality care. And 
money can help us get that.
    But, there have been incredible improvements over the past 10 years 
in VA's health care system--all under the discretionary funding model. 
I think much of those improvements are related to systemic changes in 
the care delivery model designed by Dr. Kizer, or the implementation of 
VERA to a more exacting model as envisioned by Dr. Roswell. I also 
believe the integration of the electronic record with clinical outcomes 
studies implemented by Dr. Perlin has had a significant effect. In 
other words, it was as much leadership and vision as it was money to 
hire the right staff that has led to VA's wonderful improvements. I 
don't see how a mandatory budget improves that leadership.
    I said earlier that the most important question was whether 
mandatory funding would improve the health care provided to our 
veterans. But, the second question is whether it makes sound fiscal 
policy for our Nation. On this question, I truly believe that it does 
not.
    We already have three very large programs that are considered to be 
funded by ``mandatory spending.'' Namely: Social Security, Medicare, 
and Medicaid. So, it is appropriate for us to consider the fiscal 
implications of these programs in assessing the likely fiscal effects 
of adding another mandatory program. I think we all know the national 
fiscal picture of the three programs I've just mentioned.
    But, allow me to highlight just a few thoughts. For example, this 
past January when discussing entitlement programs in testimony before 
the Senate Budget Committee, Federal Reserve Chairman, Bernanke stated 
``If early and meaningful action is not taken, the U.S. economy could 
be seriously weakened, with future generations bearing much of the 
cost.'' And in response to a question from Senator Conrad of ``how 
urgent is it we address the imbalance [between income and spending], 
Chairman Bernanke went on to say ``the time to start is 10 years ago''.
    Senator Conrad, himself, has called the current health care 
entitlement programs ``the 800 pound gorilla of federal spending.'' And 
David Walker, our Comptroller General has said ``we have a fiscal 
cancer'' growing in the United States.
    Yet, we as a Congress have been completely unwilling to address 
those fiscal calamities. Amazingly, in spite of that, here we are 
contemplating adding another tumor to the problem! It's baffling!
    Please keep in mind that this move would provide a mandatory budget 
to a federal agency. And the money would be ``no year money.'' Meaning, 
if the formula ``over budgets'' as I noted above it just might, then VA 
just keeps the extra and we send them a bigger check the next year. I 
can think of no precedent for that. Even agencies like the Social 
Security Administration are funded with discretionary appropriations. A 
mandatory agency budget would, in my judgment, be horrible national 
fiscal policy.
    So, Mr. Chairman, I've taken up enough time this morning with my 
statement. But, I've read the testimony of our witnesses and I look 
forward to hearing from them and to asking some questions as well.
    Thank you Mr. Chairman.

    Chairman Akaka. It will be included in the record.
    Senator Craig, as you know, we have worked very well 
together over the years and we will continue to do that. I want 
you to know it is clear to me, Senator Craig, that we have lots 
to do to bring VA and all its services about to help our 
veterans throughout the country, and funding is one of them. 
Today, we expect to hear from witnesses about how to best fund 
VA health care and I hope we will hear some answers from you 
out there and look upon this as not being a political hearing 
but a hearing to try to find the best methods of dealing with 
the responsibilities of VA.
    Now, I would like to call on Senator Sanders for your 
statement.

              STATEMENT OF HON. BERNARD SANDERS, 
                   U.S. SENATOR FROM VERMONT

    Senator Sanders. Thank you very much, Mr. Chairman. I am 
going to have to apologize to you and our guests because I am 
going to have to be running off soon for an important markup.
    In a certain sense, while I disagree with much of what my 
friend, Senator Craig, said, he is right about politics and he 
is right about priorities, and the essence of the issue to my 
mind is that when somebody joins the Armed Forces of this 
country and puts his or her life on the line, do we make a 
commitment to that person and say that the U.S. Government and 
the VA will always be there for them, or do we not?
    As the Chairman mentioned, several years ago, we had an 
absolute crisis where the VA virtually ran out of money. Four 
or five years ago, the President of the United States in his 
wisdom said, yes, we have hundreds of billions of dollars in 
tax breaks for the wealthiest 1 percent, but if you have a non-
service-connected disability, if you don't have a service-
connected disability and you make more than $27,000 a year, we 
are shutting the doors of the VA to you. That is politics. I 
happen to disagree with those priorities.
    The truth of the matter is, that in my State of Vermont and 
all over this country today, there are waiting lines for 
veterans to get the health care that they need. Very often, 
people have to wait long periods of time to get the care that 
they are entitled to.
    To my mind, I would very strongly agree with the Chairman 
and say that when you are running what I believe is the largest 
health care organization in the world, it is pretty hard to 
hire the staff and buy the equipment and do all of the things 
that you need when you do not know what your budget will be. 
How do you plan for the future?
    The reality is also that when you are talking about 
veterans, you are talking about a special population. What we 
are learning from the War in Iraq and certainly what we have 
learned from Vietnam is that many of the problems that arise, 
when medical problems arise, take place years after somebody 
served in the military.
    In May of this year, media reports, for example, told us, 
and I quote, that ``from 125,000 to 150,000 U.S. troops may 
have suffered mild, moderate, or severe brain injuries in Iraq 
and Afghanistan.'' The Defense Department's Task Force on 
Mental Health states that it found, ``38 percent of soldiers 
and 31 percent of the Marines report psychological concerns, 
such as Traumatic Brain Injury and Post Traumatic Stress 
Disorder after returning from deployment. Among members of the 
National Guard, the figure is 49 percent.'' Does anyone 
seriously believe that today we have anywhere near the 
capability of addressing that very serious problem? I would 
argue we certainly do not.
    I would also argue that because of lack of money, what we 
have seen over the last many decades are shameful acts on the 
part of the U.S. Government. Who in this room can be proud that 
the Department of Veterans Affairs and the Government of the 
United States of America fought as hard as they could against 
those Vietnam veterans who said, Hey, we came back from 
Vietnam. We were exposed to Agent Orange. Our people are dying. 
Our people are getting sick. And what the U.S. Government has 
said, sorry, that is not the case. You have got to go to court 
to win your rights. And a lot of that has to do with funding.
    Now, I think I speak for many Members of Congress who say 
that perhaps the most difficult vote that any Member has to 
make is whether or not we send our young men and women into 
war, and what I would simply say, if we are not--when we make 
that vote, if we are not prepared to understand that the cost 
of war is a lot more than planes and tanks and guns but is to 
understand what happens to that soldier when he or she comes 
back from war, 20 years later or 50 years later, that is the 
cost of war and we have got to own up to it.
    I think that the Chairman is right, Larry Craig is right in 
saying that, in many ways, we have a good system. When people 
get into the VA, they generally feel that the service they get 
is good. The problem is the waiting lines. The problem is that 
we have thrown over a million veterans off of VA. So if we are 
serious about, in fact, keeping the promises made to our 
veterans, taking care of them, I think we have to move toward 
mandatory coverage. I strongly support it and will do my best 
to see that that happens.
    Thank you very much, Mr. Chairman.
    Chairman Akaka. Thank you very much, Senator Sanders.
    Senator Tester?

                 STATEMENT OF HON. JON TESTER, 
                   U.S. SENATOR FROM MONTANA

    Senator Tester. Thank you, Mr. Chairman. On Saturday, I 
chaired a VA Committee field hearing in Great Falls addressing 
the needs of rural veterans. I just want to thank you, Mr. 
Chairman, and the Ranking Member for sending two outstanding 
staff members to that hearing, Kim Lipsky and Jeff Gall. I 
appreciate you sending those staff members there. They did a 
very, very nice job and I am much appreciative of it and I want 
the record to show that.
    Once again, we had the opportunity to hear from a number of 
Montana veterans who said that once they get into VA, the care 
they get is very good. The problem is getting in the door. We 
heard concerns about distance for veterans, in between veterans 
and veterans' facilities. We heard about inadequate staffing 
levels at the VA facilities as well as inadequacy in addressing 
the mental health issues that revolve around the returning 
veterans from Iraq and Afghanistan.
    One thing that struck me in particular is learning that 
when the VA adds outpatient clinics to a region, the region 
doesn't always get more money. They have to figure out how to 
do it with what they have been getting, and that makes adding 
these facilities to a State or to a region to address some of 
the problems that I spoke of earlier an extremely difficult 
proposition.
    The President's budget, remember, for Fiscal Year 2008 
assumed a 2 percent decrease in Fiscal Year 2009. They would 
essentially remain frozen for 3 years in a row after that. This 
proposal was rejected by the Congressional Budget Resolution, 
but it should be a serious concern that the White House is not 
providing a clear picture of the likely future of VA funding 
needs.
    So to me, it is clear that we find a way to increase lead 
time for capital projects. We have got to get some more 
assurances in the system that the dollars will be there so that 
the regional and State-level administrators can make decisions 
about how best to serve the unique needs of veterans and their 
area, and to me, that means guaranteed funding for VA.
    I look forward to hearing the views of the witnesses and I 
hope that we can have a good discussion on mandatory funding. I 
understand it is going to be much harder to address this issue 
at this point in time with pay-go, but I think it is due time 
to restart this dialogue.
    Once again, thank you, Mr. Chairman.
    Chairman Akaka. Thank you very much, Senator Tester.
    Senator Murray?

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

    Senator Murray. Mr. Chairman, thank you very much. I will 
submit my opening statement for the record, and let me just 
say, as Senator Tester said, I think the one point we all agree 
on is once you get in the door of the VA, you do get excellent 
health care and that is exactly what our veterans should be 
getting. Their focus on patients, the integrated delivery model 
the VA has, the first-rate IT system that manages the patients 
is something that is a model for everyone and we want to make 
sure veterans get that.
    But as Senator Tester said, it is getting in the door that 
is a challenge and that really goes to the budget and how we 
budget and how we look at the long-term costs that we need to 
be able to meet for our veterans, both ones from previous wars 
to the coming generations that will be impacted, that we need 
to be looking at how we do that.
    I look forward to today's testimony from all of our 
witnesses and hope we can have a good discussion. Clearly, on 
the table, looking at the proposals, we have to make sure that 
each one of them that we look at is done responsibly and in a 
way that allows both the flexibility for the future but also 
requires that we have that funding there and it isn't 
continuing resolutions that we have to go to or supplemental 
funding because we haven't planned correctly. That doesn't 
serve our veterans well.
    So I really appreciate the hearing today and look forward 
to the testimony from our witnesses.
    [The prepared statement of Senator Murray follows:]
 Prepared Statement of Hon. Patty Murray, U.S. Senator from Washington
    Chairman Akaka, thank you very much for holding today's hearing on 
funding for veteran's health care. I applaud you and Ranking Member 
Craig for holding this important hearing and I look forward to the 
testimony from our distinguished witnesses.
    Mr. Chairman, I often say that the VA provides excellent care to 
veterans, once they get in the door. The VA's long term focus on 
patients, its integrated delivery model, and its first-rate health IT 
system provide distinct advantages over private sector care, and we 
need to keep it that way. But too often, getting in the door is a 
problem. All of us have heard from constituents who have waited months 
to see a primary care doctor. Some veterans have even had to wait years 
to get surgery. And all of us have surely heard from veterans who were 
denied enrollment because of the Bush Administration's decision in 2003 
to deny VA healthcare access to new Priority 8 veterans.
    Mr. Chairman, this country has a moral obligation to care for those 
who have served this country in uniform. That means providing access to 
the VA health care system for all veterans. The men and women who have 
served in our military have born significant burdens of war. They have 
assumed great risk for our country, and they have sacrificed life and 
limb to protect our freedoms. They kept their promise to serve our 
Nation. It is only right that we keep our promise to serve them.
    For too many years under this Administration, veterans have been 
``last in line,'' and we in Congress have had to fight the 
Administration tooth and nail to meet their needs. That has to change. 
I am tired of having to fight and fight and fight--to just barely meet 
the needs of veterans. I want to get to a point in this country where 
we don't have to fight to provide the resources that meet our veterans' 
needs, but where it is just plain understood and done.
         democratic congress meeting the needs of our veterans
    It is clear that this new Congress and the American people want to 
do what's right by our veterans. In the most recent Iraq war 
supplemental funding bill, we included $1.8 billion in emergency 
funding for veterans programs--the first time veterans funding has ever 
been included as a cost of this war. And the FY 2008 VA funding bill 
that has passed the Senate Appropriations Committee provides a $3.6 
billion increase over the President's request. It meets nearly all of 
the funding recommended by the Independent Budget.
    Despite this good news, we can't stop there. We have to take a long 
term view of how to best meet the needs of veterans. And that starts at 
today's hearing. As the massive shortfall in 2005 and 2006 
demonstrated, the VA's budget model is not flexible enough to meet 
changing realities and take into account new costs. And we simply 
cannot continue the pattern of falling back on Continuing Resolutions, 
which hamstring the VA and force them to scrape by on inadequate 
resources. Some of our witnesses today have proposed that we make VA 
health care funding mandatory. This is an idea that merits strong 
consideration. But as we consider this option, we need to make sure 
that any formula created gives the VA enough flexibility to meet the 
needs of veterans and respond to any unforeseen consequences.
    I appreciate the participation of all of today's witnesses and I 
look forward to hearing their testimony.

    Chairman Akaka. Thank you, Senator Murray.
    Senator Rockefeller?

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

    Senator Rockefeller. I will submit my opening statement for 
the record. I just want to praise two people, and I don't mean 
to leave you out, Congressman. I would be happy to praise you, 
too, but it will be based upon a little bit less knowledge.
    Number one, Ken Kizer, I have been wanting to say this for 
years. I have been on this Committee for 23 years and I 
remember when you came and mostly we met in the regular meeting 
room. I looked upon you as another one of those people who were 
coming through and who were going to serve, in your case, a 
substantial amount of time. Something I have rarely seen in 
government before, and it is suddenly clear to the American 
people are two things. One is that the VA health care system is 
the best in the country, the most efficient. I read at length 
only your testimony.
    But you did it. You did it, and that has now become clear 
to people. While you didn't do it all by yourself, you were the 
person in charge of the health services and you took a hold of 
things which the rest of us simply didn't understand and which 
the rest of the VA bureaucracy was not willing to deal with or 
wasn't fully aware of. You exercised, I think, supreme 
leadership. I think you should have gotten one of those Medals 
of Freedom. I could have named two or three that probably 
shouldn't have, but you are somebody who should have gotten 
one. I mean that and I wanted to say that to you. You did a 
spectacular job--and your face is showing no emotion whatsoever 
as I pour my heart out to you.
    [Laughter.]
    Senator Rockefeller. But at least I want that to sink in.
    And then I want to say to Dr. Reinhardt, who has always 
understood things about 40 years in advance of the rest of 
America, and you have laid out questions here, including 
sustainability and all kinds of things. Senator Murray raised 
this huge question of budgeting, which I want to ask you about 
in your role as an economist. But I think that you are also one 
of those, in a different way from Ken but on a very, very broad 
range, one of those people who has led our Nation for years in 
thinking controversially, out of the box, and I think almost 
always completely correctly. So you are both national assets. 
Congressman, you would be, too, if I knew you better.
    [Laughter.]
    Senator Rockefeller. You understand that I mean that, and I 
want you to give my regards to May and I am very much aware of 
where your son is.
    [The prepared statement of Senator Rockefeller follows:]
          Prepared Statement of Hon. John D. Rockefeller IV, 
                    U.S. Senator from West Virginia
    Chairman Akaka and Senator Craig, as always I want to thank you for 
your leadership and commitment to oversight. This is an important 
hearing on VA health care funding and you have a series of thoughtful 
and impressive witness--their views will help us more than my opening 
statement so I will be brief.
    Dr. Kizer, you should be proud of the changes at VA. Dr. Reinhardt, 
welcome my friend and I value your insights on American health policy 
for VA and our system at large. Each part of our health care system 
interacts with other aspects so your testimony provides important 
context.
    Unfortunately, I cannot stay for the full hearing, but I will have 
written questions and I will carefully review the testimony of each 
witness. And to Joe Violante, the DAV and all members of the 
Partnership, thank you for your leadership and your commitment--it 
matters.

    Mr. Reinhardt. Thank you.
    Chairman Akaka. Thank you very much.
    Senator Murray. Mr. Chairman?
    Chairman Akaka. Senator Murray?
    Senator Murray. Mr. Chairman, if I could just inform the 
Committee, I just came from the floor of the Senate where we 
passed by unanimous consent the Dignified Troop Wounded 
Warriors Act out of the Senate. I think that is a major step 
forward. Many of us on this Committee worked on it. Mr. 
Chairman, you did along with the Armed Services Committee in 
order to address that gap between the Department of Defense and 
the VA and the different rating systems and the lack of 
services for our wounded warriors. It is a great step forward 
and I think that we all should really be proud of the work that 
is done in a bipartisan manner to move that forward efficiently 
after we heard about the Walter Reed scandals, and we will keep 
working until we get it signed by the President.
    Chairman Akaka. Thank you so much, Senator Murray.
    In addition to the witnesses that we have listed, we are 
joined today by Representative Chris Smith of New Jersey. The 
Committee looks forward to your statement on health care 
funding.
    I also want to say that the full statements of Senator 
Murray and Senator Rockefeller will be included in the record.
    Senator Rockefeller. Amended statements.
    Chairman Akaka. Amended statements. Thank you.
    Congressman Smith, please proceed.

             STATEMENT OF HON. CHRISTOPHER SMITH, 
              HOUSE REPRESENTATIVE FROM NEW JERSEY

    Congressman Smith. Thank you very much, Mr. Chairman, and 
to Senator Craig and all the Members, and to Senator 
Rockefeller, it is nice to be a potential national asset, so I 
think I thank you. It is a very, very rare privilege to be here 
and I thank you for this opportunity to testify on the 
compelling need to reform VA health care funding.
    As former House Chairman, I deeply appreciate and respect 
all the work that this Committee has done and is doing to 
ensure that our men and women who have served in uniform have 
all the benefits and services they need and have earned. No one 
on earth, Mr. Chairman, as you know and as Members of the 
Committee know, has done more to protect and preserve freedom, 
democracy, and fundamental human rights than our veterans. When 
the dust settles, it is the veteran and his or her family who 
bear the physical and emotional scars of war, and for some, it 
is paying the ultimate price. A grateful Nation, therefore, 
must at all times and in every circumstance put veterans first.
    As we may hear this morning, the President's Commission on 
Care for Returning Wounded Veterans and Warriors is meeting 
with President Bush to provide its recommendations on how to 
improve the transition, health care and benefits for injured 
servicemembers and veterans. I commend Senator Dole and 
Secretary Shalala and all the members of that Commission for 
their service and look forward to reading their 
recommendations.
    However, unless we resolve the underlying funding problems 
that have plagued VA health care since at least 1990, I am not 
optimistic about the prospects of seeing any meaningful reforms 
implemented. Notwithstanding a potentially huge plus-up in 
Fiscal Year 2008 medical appropriations, the funding mechanism 
remains broken.
    As I am sure most of you know, this is not the first 
commission or task force created to address problems in the 
delivery of care to injured and disabled servicemembers and 
veterans. In fact, it is not even the first convened by 
President Bush. Four years ago, the President's Task Force to 
Improve Health Care Delivery for Our Nation's Veterans 
presented two dozen solid recommendations on how to resolve the 
decades-old problems of cooperation and collaboration between 
the VA and DOD in order to improve health care. That Task 
Force, chaired by Dr. Gail Wolensky, who is also a member of 
the President's new commission, spent almost two years studying 
both the VA and DOD health care systems.
    Among the Commission's key findings, even though it was not 
part of their original mandate, but they had to deal with it 
because it was staring them right in the face, was the 
conclusion that, ``The mismatch between funding for the VA 
health care system and the demand for services from enrolled 
veterans affects the delivery of timely health care.''
    Mr. Chairman, even a cursory look at recent shortfalls in 
veterans' health care funding shows that the mismatch remains a 
serious and vexing problem. Remember the summer of 2005. First, 
$975 million had to be added to the 2005 budget, only to be 
followed just one month later by an over $1.9 billion increase 
for Fiscal Year 2006 appropriation. Unless we fix the funding 
process for VA health care, all efforts to improve its delivery 
will continue to be impeded, and worse, we risk new Walter 
Reed-like problems at VA facilities in the future.
    From 2001 to 2004, Mr. Chairman, I had the honor of 
chairing the House Veterans' Affairs Committee during a time 
when usage of the VA health care system rose dramatically. The 
consequence of expanding coverage and eligibility, the VA's low 
copayment for prescription drugs, and the huge growth in the 
Community Based Outpatient Clinics made utilization skyrocket. 
If you build access points, men and women will use the system. 
It was and is a great news story and Dr. Kizer deserves a lot 
of credit for having created this modern system.
    Thus, no single issue garnered more of our Committee's 
attention than ensuring that VA received the funds it required 
to provide the services veterans needed. Both my good friend 
and colleague and Ranking Member Lane Evans and I spent 
hundreds of hours examining the Administration's budget request 
and made bipartisan recommendations to the Budget Committee, 
Appropriations, and all of our colleagues on the proper level 
of funding.
    We began not with the Administration's budget request, 
however, but rather with the VA's full demand model, which is 
its, as you know, internal projection of the level of funding 
needed each year based upon their latest actuarial and cost 
data. Our analysis showed that VA's full demand model was 
extraordinarily accurate. However, the process that occurred 
along the way from VA's internal estimate to the President's 
budget submission to final Congressional appropriations is one 
that is often replaced by--that often replaces sound data with 
other agendas.
    As a result, the VA budget requests under both Presidents 
Clinton and Bush have often been lackluster, deficient, and 
infirm. Virtually every year, Congress has had to add millions, 
sometimes billions, to the Administration's request. 
Compounding the problem, Congress's budget and appropriations 
process has been consistently late and totally unacceptable.
    It is astonishing to me that since 1990, 16 of the 18 VA 
appropriations were late. On two occasions, 5 months late. 
Once, it was 7 months late. How can the Secretary, the VISN 
Directors, and medical directors plan and execute delivery of 
medical services under those adverse circumstances? No one can 
honestly look at that and dispute the evidence that VA's health 
care funding has been woefully inadequate. Persistent 
shortfalls have resulted in long waiting lines, a cutoff of 
Priority 8 veterans, and very public and very embarrassing 
admissions by the last two Secretaries that budget requests 
were sometimes a billion dollars less than needed.
    There are also an array of budget gimmicks routinely 
employed to cover the shortfalls, such as billions of dollars 
of so-called savings through what is euphemistically called 
management efficiencies and overly rosy expectations of third-
party collections that never materialized, as well as 
repetitive and unrealistic annual policy proposals to shift the 
cost of care to veterans with new user fees and copayment 
increases.
    The effect on the VA has been extremely harmful, leading to 
huge management and staffing problems as well as construction 
funding shortfalls that threaten VA's physical infrastructure. 
The VA health care system, the system that Senator Rockefeller 
and others have pointed out is the best health care system in 
America and has been shown that by a number of authoritative 
studies and leading publications, could very well be threatened 
if we do not correct the underlying funding problem.
    That is the very same conclusion that the President's task 
force came to back in 2003 when they recommended a full funding 
system and offered two alternatives, a mandatory funding system 
or the establishment of an independent panel of experts charged 
with submitting the Administration's request absent OMB vetting 
and veto.
    In the summer of 2002, Mr. Chairman, I introduced 
legislation, H.R. 5250, to move VA's health care funding from 
discretionary, which is subject to political forces in both 
Congress and the Administration, to one that is mandatory and 
driven by formula, measuring demand for care and the cost of 
care. Opposition to new entitlement spending in the House, 
however, was strong, and there were admittedly some potential 
weaknesses in this approach. But our goal was to jump-start the 
debate to ensure full funding that is predictable and delivered 
on time.
    In 2005 and again this year, I have introduced another 
bill, H.R. 1041, based on this second model offered by the 
President's Task Force. My current bill would create an 
independent expert panel called the Veterans Health Care 
Funding Review Board, to determine the level of funding 
required to meet projected demand with accepted access 
standards. The Board's estimate would bypass OMB and be 
submitted to Congress as the Administration's budget request. 
Although Congress would still have the discretion to adjust 
that amount either up or down, the imprimatur, it seems to me, 
of an impartial and ex parte body would make it very hard from 
a political standpoint to go below the Board's spending floor, 
although further increases would certainly be possible.
    Despite some drawbacks, and Senator Craig did mention a 
few, I believe that either of these bills, or perhaps a hybrid 
of both, would be a dramatic improvement over the status quo.
    Finally, while the aggregate number of veterans is likely 
to decline, the number of veterans who rely on VA continue to 
rise, and this trend is likely to continue over the next decade 
and beyond. Furthermore, with the devastating types of injuries 
being suffered in war today and the long-term care needs of so 
many veterans on the rise, we must ensure that the VA continues 
to provide world class medicine far into the future. It must be 
sufficient, it has to be timely, and we need predictability. I 
thank the Chairman.
    [The prepared statement of Mr. Smith follows:]

           Prepared Statement of Hon. Christopher H. Smith, 
                  House Representative from New Jersey

    Chairman Akaka, Senator Craig, Members of the Committee, It is a 
rare privilege to testify before the Committee today on the compelling 
need to reform VA health care funding.
    As former House Chairman, I deeply appreciate and respect all the 
work that this Committee has done and is doing to ensure that our men 
and women who have served in uniform have all of the benefits and 
services they need and have earned.
    No one, on earth, has done more to protect and preserve freedom and 
democracy than our veterans. And no one, has had to bear the physical 
and emotion scars--for some even death--to protect our liberties, as 
have our veterans. A grateful Nation must put veterans first.
    As we meet here this morning, the President's Commission on Care 
for Returning Wounded Warriors is meeting with President Bush to 
provide its recommendations on how to improve the transition, health 
care, and benefits for injured servicemembers and veterans. I commend 
Senator Dole and Secretary Shalala and all the members of that 
Commission for their service and I look forward to reading their 
recommendations.
    However, unless we resolve the underlying funding problems that 
have plagued VA health care since at least 1990, I am not optimistic 
about the prospects of seeing any meaningful reforms implemented. 
Notwithstanding a potentially huge plus-up in FY 2008 VA Medical 
Appropriations--the funding mechanism remains broken.
    As I am sure most of you know, this is not the first commission or 
task force created to address problems in the delivery of care to 
injured and disabled servicemembers and veterans. In fact, it is not 
even the first one convened by President Bush.
    Four years ago, the President's Task Force to Improve Health Care 
Delivery for Our Nation's Veterans presented two dozen solid 
recommendations on how to resolve decades old problems of cooperation 
and collaboration between VA and DOD in order to improve health care. 
That Task Force, chaired by Dr. Gail Wilensky, who is also a member of 
the President's new Commission, spent almost two years studying both 
the VA and DOD health care systems. Among that Commission's key 
findings--even though it was not part of their original mandate--was 
the conclusion that, ``the mismatch between funding for the VA health 
care system and the demand for services from enrolled veterans affects 
the delivery of timely health care. . . ''
    Even a cursory look at the recent shortfalls in veterans health 
care funding acknowledged by VA and Congress shows that the 
``mismatch'' remains a serious problem. Remember the summer of 2005? 
First $975 million had to be added for FY 2005 only to be followed just 
one a month later by over a $1.9 billion increase for Fiscal Year 2006. 
Unless we fix the funding process for VA health care, all efforts to 
improve its delivery will continue to be impeded, and worse, we risk 
new Walter Reed-like problems at VA facilities in the future.
    From 2001 through 2004, I had the honor of chairing the House 
Veterans' Affairs Committee during a time when usage of the VA health 
care system rose dramatically. The consequence of expanding coverage 
and eligibility, the VA's low copayment for prescription drugs, and the 
huge growth in Community Based Outpatient Clinics made utilization 
skyrocket. It was--and is--a great news story.
    Thus, no single issue garnered more of the Committee's attention 
than ensuring that VA received the funds it required to provide the 
services veterans needed. Both my good friend and Ranking Member, Lane 
Evans, and I spent hundreds of hours examining the Administration's 
budget requests and made bipartisan recommendations to the Budget 
Committee, Appropriations Committee and all our colleagues at large, on 
the proper level of funding required to allow VA to faithfully 
discharge its functions. We began not with the Administration's budget 
submission, but rather with VA's ``full demand model'', which is its 
internal projection of the level of funding needed each year, based 
upon their latest actuarial and cost data.
    Our analysis showed that VA's full demand model was extraordinarily 
accurate. However, the process that occurs along the way from VA's 
internal estimate to the President's budget submission to final 
Congressional appropriations is one that often replaces sound data and 
prudent policy with other agendas.
    As a result, VA's budget requests--under both Presidents Clinton 
and Bush--have often been lackluster and infirm. Virtually every year 
Congress has had to add millions, sometimes billions, of dollars to the 
Administration's request. Compounding the problem, Congress' budget and 
appropriations process has been consistently late and totally 
unpredictable.
    Since 1990, sixteen of the eighteen VA appropriations were late--on 
two occasions 5 months late, once 7 months late. How can the Secretary, 
VISN directors and medical directors plan and execute delivery of 
medical services under those adverse circumstances?
    No one can honestly look at and dispute the evidence that VA's 
health care funding has been woefully inadequate. It has resulted in 
long waiting times, a cutoff for Priority 8 veterans, and very public 
and embarrassing admissions by the last two Secretaries that budget 
requests were sometimes a billion dollars less than needed.
    There has also been an array of budget gimmicks routinely employed 
to cover these shortfalls--such as billions of dollars of so-called 
``savings'' through ``management efficiencies'' and overly rosy 
expectations of third party collections that never materialized, as 
well as repetitive and unrealistic annual policy proposals to shift the 
cost of care to veterans with new user fees and copayment increases.
    A GAO analysis done last year of the VA health care budget process 
concluded that:

        Unrealistic assumptions, errors in estimate, and insufficient 
        data were key factors in VA's budget formulation process that 
        contributed to the requests for additional funding for Fiscal 
        Years 2005 and 2006.

    Moreover, GAO concluded that:

        VA's total projected management efficiency savings in the 
        President's budget request for fiscal years 2003 through 2006 
        were used to fill the gap between the costs associate[d] with 
        VA's projected demand for health care services and anticipated 
        resources.

    In plain English, when VA's internal estimates of what it would 
cost to provide health care services to veterans was greater than the 
amount of budget authority that OMB designated for VA health care, they 
plugged it with unspecified ``management efficiencies.'' And during the 
four years I was Chairman, despite repeated requests, VA failed to 
document any significant savings through these so-called efficiencies, 
much less the billions of dollars they had plugged into their budget 
requests.
    The effect on VA has been extremely harmful, leading to huge 
management and staffing problems, as well as construction funding 
shortfalls that threaten VA's physical infrastructure. The VA health 
care system--system that has been hailed as the best health care in 
America by authoritative studies and leading publications--could be 
threatened if we do not correct the underlying funding problems.
    That's the very same conclusion that the President's Task Force 
came to back in 2003 when they recommended a ``full funding'' system, 
and offered two alternatives: a mandatory funding system; or the 
establishment of an independent panel of experts charged with 
submitting the Administration's request absent OMB vetting and veto.
    In the summer of 2002, I introduced legislation H.R. 5250 to move 
VA's health care funding from a discretionary system--which is subject 
to political forces in both Congress and the Administration--to one 
that is mandatory and driven by formula measuring demand for care and 
the cost of care. Opposition to new entitlement spending in the House 
however was strong and there were admittedly potential weaknesses in 
this approach. But our goal was to jumpstart the debate, to ensure full 
funding that is predictable and delivered on time.
    In 2005, and again this year, I have introduced another bill, H.R. 
1041, based upon the second model offered by the President's Task 
Force. My current bill would create an independent, expert panel--the 
Veterans Health Care Funding Review Board--to determine the level of 
funding required to meet projected demand with accepted access 
standards. The Board's estimate would bypass OMB and be submitted to 
Congress as the Administration's budget request. Although Congress 
would still have discretion to adjust that amount either up or down, 
the imprimatur of an impartial and expert body would make it very hard 
from a political standpoint to go below the Board's spending floor, 
although further increases would certainly be possible.
    Despite some drawbacks in both approaches, I believe that either of 
these bills--or perhaps a hybrid of both or perhaps some other 
alternative--would be a dramatic improvement over the status quo.
    Mr. Chairman, while the aggregate number of veterans is likely to 
decline, the number of veterans who rely on VA continues to rise, and 
this trend is likely to continue over the next decade. Furthermore, 
with the devastating types of injuries being suffered in war today, and 
the long term care needs of so many veterans on the rise, we must 
ensure that the VA continues to provide world class medicine far into 
the future.
    I want to commend this Committee for holding this hearing on this 
most important issue and I urge you to move forward with 
recommendations for a systemic reform of VA's health care funding 
system that provides sufficient, timely, and predicable funding.
    I'd be happy to address any questions you may have.

    Chairman Akaka. Thank you very much, Congressman Smith, for 
your statement.
    I am pleased to welcome our first panel. It would be very 
hard to overstate the credentials and accomplishments of its 
members.
    Dr. Kenneth Kizer, as most of you know, was VA's Under 
Secretary for Health from 1994 to 1999. Dr. Kizer is credited 
with turning around the Veterans Health Administration, which 
in the early 1990s was seen as overly centralized and 
inefficient. We are very fortunate to have access to his 
perspective at this hearing.
    I also welcome Dr. Uwe Reinhardt, who teaches at Princeton 
University's Woodrow Wilson School of Public and International 
Affairs. He is a renowned expert on health care, economics, and 
a true leader in his field, and I thank you both for being 
here.
    Your full statements will appear in the record of the 
hearing, and I would like to call first on Dr. Reinhardt for 
your statement and then we will hear from Dr. Kizer. Dr. 
Reinhardt?

      STATEMENT OF UWE E. REINHARDT, Ph.D., PROFESSOR OF 
   POLITICAL ECONOMY, ECONOMICS, AND PUBLIC AFFAIRS, WOODROW 
 WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, PRINCETON 
                           UNIVERSITY

    Dr. Reinhardt. Thank you, Mr. Chairman and distinguished 
Members of this Committee. My name is Uwe Reinhardt. I am the 
James Madison Professor of Economics and Public Affairs at the 
Woodrow Wilson School of Public and International Affairs and 
the Department of Economics at Princeton University. My 
research over the years has been on health economics and 
policy, and I had the privilege of serving in the early 1980s 
on the Special Medical Advisory Group of the Veterans' 
Administration. Hence my longstanding interest in this system.
    In my written statement, I have focused mainly on the part 
of the VA budget that deals with health care, because that is 
my expertise. The other part is disability payments and 
cemeteries, which I think are separate issues.
    It is true, as I show in Figure 1 of my statement, that in 
the last 10 years, the VA budget has doubled. When you plot 
that on a graph and if you scale the axis over a narrow range 
of numbers you can always draw a really scary picture, because 
you can make that line pretty steep.
    Of the VA budget, only less than half is actually going to 
health care proper. But, as I said, we see in Figure 2 that 
this VA health care budget did rise 100 percent in the last 
decade, which means it doubled. But national health spending 
under private health insurance rose by 124 percent, faster than 
the VA budget, and Medicare by 110 percent. Overall national 
health spending in that period rose by 105 percent.
    So of those bars in Figure 2, the VA budget was actually 
not the fastest-rising, in spite of the fact that in that last 
decade, the VA had to cope with the wars in Iraq and 
Afghanistan, that is, with veterans who bring trauma of a sort 
that earlier wars had not produced in these numbers, also 
psychological trauma. This trauma is deepened because we are 
recycling the same troops time and time again as not enough of 
other Americans volunteer to stand tall for America. The 
Congress just voted against giving soldiers a longer break 
between combat missions, which I find quite astounding, and 
that wears on the troops' minds, too. So even if their body 
comes home in good shape who knows what happens to the mind.
    On top of it, during the last decade, my colleague Ken 
Kizer reformed the VA health system and made it worldwide. I 
just came from the International Health Economic Association, 
where everyone talks about the VA as a model of how to run 
health care, and Ken deserves so much of the credit, but also 
all the men and women who are so motivated that worked with him 
in modernizing the VA.
    Although the VA is expensive, it is expensive because it is 
imbedded in the most expensive health system in the world. As 
shown in Figure 3 of my written statement, we spend per capita 
(in purchasing power parity) roughly twice as much as Canadians 
do, more than twice what Germans do, although Germany is a much 
older country, and even the Swiss, who have a system, they have 
more of everything, spend much less than we do. The reason is 
that we pay higher prices for the same goods and services 
partly because we have a higher GDP and can afford to spend so 
much on health care. And secondly, in our wisdom, we have 
created a health system where the market power all lies on the 
supply side of the market. That supply side can dictate volume 
and prices to the demand side, which is splintered, fragmented, 
and weak. We chose this as a people, and the VA has to buy 
inputs in that system and be part of it.
    The next point I address in my testimony is whether it is 
sustainable in the future. The VA health care budget is now 
only one-fifth of one percentage point of GDP. That is a round-
off error, I think. The VA health budget is 1.15 percent of the 
Federal budget. So in a way, that budget really doesn't scare 
me ever. If one had to err on the side of generosity, it would 
not be a big deal and it might actually be appropriate to err a 
bit on the generous side for our veterans.
    In Figure 4 of my testimony, I extrapolate current trends 
in VA health spending to 2055. Even under worst-case scenario, 
VA health spending will not exceed one percent of GDP. It will 
also remain less than 4.5 percent of the Federal budget.
    So the bottom line here is this is not a budget that is 
going to overwhelm either the Federal Government or the people 
of the United States, especially when we consider what we get 
for it in return. How many Americans actually still serve and 
fight for our country? These veterans have or were willing to 
do so. When they come back, if they do, should they not have an 
entitlement to good health care? I really use that word 
judiciously. If any time, anyone ever deserved an entitlement, 
it would surely be the people who put their lives at risk out 
there on behalf of the rest of us.
    To highlight how often we get hung up on this word 
``sustainable,'' I used the Medicare program just by way of 
illustration. It is often said the Medicare program is not 
sustainable, but I have a chart in my testimony--I think it is 
Figure 7--that says even if we ran Medicare as inefficiently as 
we now do, and I am not recommending that, even if we did, the 
Gross Domestic Product per capita of Americans 50 years from 
now will be almost double what it is now. One way to put it, if 
you took 9 percent of that budget from Medicare, the amount of 
money left over for all other stuff that our descendants in 
2050 will have is still 80 percent more than what we now have 
after the current Medicare haircut of about 3 percent of GDP.
    The way I put it to my students, I will be doggone if I now 
lose sleep over people who will have 80 percent more than I do 
have when we have waitresses in America with kids who are 
uninsured. So that is my view on this. I agree that this is a 
subjective personal statement--that is, a purely political 
statement--but so is the argument that Medicare is not 
financially sustainable. The program is eminently sustainable 
in our country if the young are willing to share their good 
fortune with the old.
    I do, however, point out in Figure 8, Section 5 of my 
testimony, that the Medicare program and all other health care 
in America is not cost effectively delivered now. We all know 
this. All health services researchers know that we could 
probably shave 20 percent off national health spending and do 
no harm to patients, if we knew how to get at the current 
waste. In fact, I think we will do this. But even if we didn't, 
we will be all right. I hope the young people in this room, 
once they run the country, will do better than my generation on 
the issue of sharing good fortune.
    In concluding, I have said if there is pressure on the 
Federal budget, yet we are the least-taxed nation in the world, 
as is shown in Figure 8 of my testimony. Japan and the U.S. 
have the lowest tax rate as a percent of GDP in the world. So I 
don't think there has to be this pressure on the Federal 
budget, we certainly could raise taxes, but if there is, there 
are many other trade-offs we could make.
    One of these, I mentioned in my statement, agricultural 
subsidies. I don't think you can find an economist in this 
country who would defend the agricultural subsidies we now pay 
on either the basis of equity or efficiency. So, if you had to 
cut the Federal budget you may consider cutting there and not 
the VA health care 
budget.
    Thank you very much.
    [The prepared statement of Mr. Reinhardt follows:]

 Prepared Statement of Uwe E. Reinhardt, Ph.D., Professor of Political 
Economy, Economics, and Public Affairs, Woodrow Wilson School of Public 
            and International Affairs, Princeton University

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    Chairman Akaka. Thank you very much, Dr. Reinhardt.
    Dr. Kizer?
    Senator Rockefeller. Mr. Chairman, if Dr. Reinhardt has to 
leave at 10:30 to catch a 11:45 plane--how he is going to 
manage that, I have no idea--would it be possible to ask him a 
question or two, because he does have to leave.
    Dr. Reinhardt. Well, actually, I booked a back-up plane, 
so----
    [Laughter.]
    Senator Rockefeller. OK.
    Dr. Reinhardt. This, to me, is more important, so I booked 
a back-up plane.
    Senator Rockefeller. Thank you.
    Chairman Akaka. Dr. Kizer?

      STATEMENT OF KENNETH W. KIZER, M.D., M.P.H., CHIEF 
EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD, MEDSPHERE SYSTEMS 
                          CORPORATION

    Dr. Kizer. Chairman Akaka, Members of the Committee, good 
morning. Thank you for inviting me to testify before you today 
on the health care funding for the Department of Veterans 
Affairs.
    Senator Rockefeller, thank you for your very kind comments. 
I deeply appreciate those. Any lack of expression should not be 
cause for concern.
    At the outset of these comments, I think I should echo what 
others have said in different ways. In considering funding for 
VA health care, I think that it is worth reminding ourselves 
that the benefits and services provided for veterans are 
inherently an extended cost of maintaining the Armed Forces and 
one of the long-term costs of national security. Likewise, 
since establishing and maintaining the Armed Forces are the 
responsibility of the Federal Government, the Federal 
Government has an enduring obligation to pay for the costs of 
veterans. The Federal Government creates veterans and the 
Federal Government must pay for veterans.
    In considering funding for VA health care in the near-term, 
I believe we should also keep in mind that based on the nature 
of the injuries and illnesses seen so far from veterans of 
Operation Enduring Freedom and Operation Iraqi Freedom--with 
their high incidence of Traumatic Brain Injury, multiple 
amputations and mental health problems--the relative costs of 
caring for these veterans will almost certainly exceed anything 
that we have ever seen before. From a veterans' health care 
perspective, the per capita or relative costs of caring for 
veterans of the War in Iraq is likely to be the most expensive 
of any war in history.
    There are many aspects of health care funding for VA that 
we could discuss this morning. I would like to associate myself 
with many of the comments that have been made by Professor 
Reinhardt, both in his oral and written testimony. I think he 
has done an excellent job of putting recent increased VA health 
care spending in context with increased spending for Medicare 
and health care overall. He has done an excellent job of 
summarizing information about the disproportionately greater 
spending for health care in the U.S. compared to other 
developed countries and the inverse relationship between 
Medicare per capita expenditures and the quality of care.
    He has also commented, I think quite correctly, on the 
sustainability of both VA health care, and perhaps the more 
important question of whether the costs of U.S. health care 
overall is sustainable. I would also reaffirm his comments that 
substantial evidence shows that a considerable fraction of U.S. 
health care spending cannot be justified on the basis of either 
clinical outcomes or service satisfaction. Indeed, probably 25 
to 30 percent of all of the health care spending in the United 
States is simply wasted. If even a relatively small portion of 
these wasted funds could be recovered, I believe there would be 
more than enough money to ensure that all Americans had 
guaranteed access to health care.
    And if we might digress for one moment and talk about the 
VA health care experience in this regard, during the 5 years 
that I was Under Secretary for Health, the VA medical care 
budget increased a total of 6 percent. We went from $16.3 
billion to $17.3 billion in a 5-year interval. During that same 
period of time, the number of veterans who received hands-on 
care increased by 24 percent. We were able to demonstrate 
dramatic improvements in quality as well as service 
satisfaction. I am not recommending that we continue that trend 
of increase, but the point there is simply that during that 
time, we were able to recover inefficiencies and waste, 
redirected those funds to taking care of more veterans and 
doing a better job of doing so at the same time.
    I am mindful of the clock, and I would like to use my 
remaining time to comment on a couple of issues not addressed 
by Professor Reinhardt. The first of these is whether VA could 
achieve greater cost effectiveness with its funds without 
compromising quality or service satisfaction. I believe that it 
could. Notwithstanding the huge savings that were wrung out of 
the system in the latter 1990s and VA's admirable cost 
effectiveness today compared to Medicare and private health 
insurance, I think the VA should assiduously seek to achieve 
cost savings wherever it is reasonable to do so, and especially 
in those non-patient-facing areas such as the procurement of 
supplies and services. The VA spends many billions of dollars 
each year on goods and services.
    The VA could achieve substantial savings almost immediately 
by doing two things in particular.
    The first would be to do as most of the top hospitals in 
the Nation have been increasingly doing in recent years, and 
that is to start reprocessing selected medical devices that are 
approved for marketing in the United States as single-use 
medical devices. Although this might appear at first impression 
to be unwise, the reuse of medical devises that are labeled 
``for single use only'' is a well-established and safe practice 
regulated by the FDA and utilized by most of the hospitals that 
are rated in America as the ``best hospitals.'' The two major 
benefits of using reprocessed single-use devices are the lower 
cost of the devices and the decreased amount of biomedical 
waste that has to be disposed of.
    Currently, as a matter of policy, VA does not use 
reprocessed 
single-use devices, although the management of a number of VA 
hospitals would like to do so. I estimate that the VA could 
easily achieve savings of $25 to $30 million in Fiscal Year 
2008 if it started to reprocess these single-use devices, with 
potentially substantially larger savings in the out years, 
depending on the number and types of reprocessed devices it 
utilized.
    The second cost savings step that VA could take would be to 
utilize state-of-the-art technology to optimize sourcing in the 
procurement process in what is now generally known as 
expressive commerce or expressive bidding. This technology is 
difficult to explain in limited time, but expressive commerce 
and sourcing optimization, as it is known, are based on a set 
of highly sophisticated algorithms that allow buyers to present 
more of their demand at one time and that allow sellers to be 
more creative in their responses. This has been made possible 
by software that allows literally thousands of options for 
combinations of goods and services at different pricings and 
other specifications to be processed in a single 
bidding run.
    Expressive commerce and sourcing optimization is now an 
established best practice in private companies such as 3M, 
Proctor and Gamble, Johnson and Johnson, Unilever and many 
other companies. It has recently been adopted by the U.S. 
Postal Service, where they are achieving savings of about 10 or 
11 percent on their procurement. It is just starting to be used 
by hospitals and health care providers, including the U.K.'s 
National Health Service and the University of Pittsburgh 
Medical Center.
    In private hospitals where it has been utilized to date, 
expressive bidding is typically achieving savings in the range 
of 12 to 18 percent. Based on VA's budget for medical and 
surgical supplies, pharmaceuticals, and other things, and 
factoring in their already preferred government pricing, I 
would anticipate the VA could achieve savings in the range of 
several hundred million dollars a year in the first year after 
starting to utilize expressive bidding, i.e., somewhere in the 
range of $500 million to $700 million in areas that would be 
not noticed by patients at all, and possibly much larger 
savings as experience was gained with the technology.
    The last issue I would like to raise in these comments has 
to do with the challenges imposed upon VA health care managers 
by the unpredictability of the Federal budget and the 
increasing rigidity of the VA health care budget. A number of 
Members have commented on this, as well as Congressman Smith in 
his comments. It seems that more often than not, the Federal 
budget is not passed in time, forcing the government to operate 
under continuing resolutions, sometimes for several months into 
the fiscal year.
    While this may be a mild inconvenience for some agencies or 
departments, it has definite untoward consequences for agencies 
like the VA that must provide life support and mission critical 
services 24 hours a day, 7 days a week, 365 days a year. 
Typically, when VA is forced to operate under a continuing 
resolution, it must impose hiring freezes and take other 
personnel options that will likely impede the delivery of 
services or planned improvements in 
services.
    I don't propose to have a solution to this at the moment, 
but this is something that unquestionably has deleterious 
effects on the delivery of services. This matter should be 
further investigated by this Committee.
    Likewise, the increased compartmentalization of the VA 
health care budget in recent years into medical services, 
medical administration, medical facilities, and information 
technology, combined with the earmarking of funds in VA's 
central office, reduces field management's flexibility to spend 
on what may be the most needed priorities locally. While I 
think I understand the intent of the compartmentalization of VA 
health care funds, and I am very sympathetic to the needs and 
desires of VA program leadership to ensure adequate and 
appropriate spending for high-priority programs like 
prosthetics, geriatrics and mental health, the increased 
rigidity of the budget produced by these practices has the 
effect of imposing unintended artificial spending limits.
    Again, I urge the Committee to look into finding mechanisms 
that can both ensure accountability and appropriate spending 
for priority VA healthcare programs but which also give local 
field management the flexibility to spend their limited budget 
on the most important needs of the veterans that they serve.
    With that, let me stop, and I will be pleased to address 
any questions that there might be.
    [The prepared statement of Dr. Kizer follows:]

 Prepared Statement of Kenneth W. Kizer, M.D., M.P.H., Chief Executive 
    Officer and Chairman of the Board, Medsphere Systems Corporation

    Good morning, Mr. Chairman and Members of the Committee. Thank you 
for inviting me to testify before you today about healthcare funding 
for the Department of Veterans Affairs.
 funding for veterans healthcare--a long term cost of national security
    In considering the funding of VA healthcare we should always remind 
ourselves that the benefits and services provided for veterans are 
inherently an extended cost of maintaining the Armed Forces and one of 
the long term costs of national security. The cost of VA healthcare is 
part of the price of our foreign policy.
    Since establishing and maintaining the Armed Forces are the 
responsibility of the Federal Government, the Federal Government has an 
irrevocable obligation to pay for the costs of veterans. The Federal 
Government creates veterans, and the Federal Government must pay for 
the cost of veterans.

                   THE HIGH COST OF OEF/OIF VETERANS

    In considering funding for VA healthcare in the near term I believe 
that we should also keep in mind that based on the nature of the 
injuries and illnesses seen so far among veterans of Operation Enduring 
Freedom (OEF) and Operation Iraqi Freedom (OIF)--i.e., with their high 
incidence of Traumatic Brain Injury, multiple amputations and mental 
health problems, in particular--the relative cost of caring for these 
veterans will almost certainly exceed anything that we have ever seen 
before. That is, I believe the per capita or relative cost of 
healthcare for OEF/OIF veterans will exceed the cost of healthcare for 
veterans of any prior conflict. From a veteran's healthcare 
perspective, the war in Iraq is likely to be the most expensive of any 
war to date.
    Because the nature of the morbidity being experience by OEF/OIF 
veterans is significantly different than what has been seen in prior 
wars it should also be understood that projecting the costs of services 
for these veterans will be more difficult than projecting the costs for 
veterans of prior conflicts. There is much to learn about how best to 
care for these veterans.
    During the next several years, until the VA gains more experience 
in caring for the types of polytrauma and mental health problems seen 
among OEF/OIF veterans, it should be expected that budget predictions 
for the cost of caring for these veterans are probably not going to be 
as precise as desired, and there is likely to be greater need for 
supplemental funding or reprogramming of funds than in prior years.

                THE MANY FACETS OF VA HEALTHCARE FUNDING

    In considering funding for VA healthcare, there are multiple policy 
and pragmatic aspects of the topic to which we could direct our 
attention this morning, including the adequacy of current funding; the 
reasons for increased spending for OEF/OIF veterans; the sustainability 
of recent spending trends; the ability to reliably project future 
spending needs; the seeming paradox of rising costs in the face of a 
declining veteran population; the value and cost-effectiveness of VA 
healthcare; and the effect of the budget appropriations process on the 
delivery of VA healthcare services, to name some of the issues.
    Since Professor Reinhardt has done such an excellent job of putting 
recent increased VA healthcare spending in context with increased 
spending for Medicare and healthcare overall I will not further comment 
on that in these prepared remarks. Likewise, he has done an excellent 
job of summarizing information about the disproportionately greater 
spending for healthcare in the U.S. compared to other developed 
countries and the inverse relationship between Medicare per capita 
expenditures and quality of care.
    I observed a similar inverse relationship between expenditures and 
quality in VA healthcare in the 1990s, and I am pleased to say that 
some of the changes implemented as part of the transformation of VA 
healthcare in the latter 1990s have resulted in VA's demonstratively 
greater cost-effectiveness today compared to Medicare or private 
indemnity insurance.
    I will also defer to Professor Reinhardt's comments on the 
sustainability of VA healthcare funding, and the more important 
question of whether the cost of U.S. healthcare overall is sustainable.
    I would echo Dr. Reinhardt's comments that substantial evidence 
shows that a considerable fraction of U.S. healthcare spending cannot 
be justified on the basis of clinical outcomes or service satisfaction. 
Indeed, probably 25 percent to 30 percent of all healthcare spending in 
the U.S. is wasted.
    If even a relatively small portion of these wasted funds could be 
recovered there would be more than enough money to ensure that all 
Americans had guaranteed access to healthcare.
    In this regard, I think it is unfortunate that Medicare and private 
insurers have not expended more effort to understand and learn from the 
changes that occurred in VA healthcare in the latter 1990s. The 
evidence of VA's improved performance as a result of those changes is 
incontrovertible.
    And while I do not want to overstress the point, it may be worth 
pointing out that during the 5 years that I served as Under Secretary 
for Health in the Department of Veterans Affairs, the VA healthcare 
budget increased a total of 6 percent, rising from $16.3 billion in FY 
1995 to $17.3 billion in FY 1999. During this time there was a 24 
percent increase in the number of patients who received hands-on care, 
as well as dramatic improvements in the quality of care and service 
satisfaction. (In the preceding 5 years, VA's healthcare budget 
increased 41 percent, rising from $11.6 billion in FY 1990 to $16.3 
billion in FY 1995, although the number of veterans served in FY 1990 
was not much different than in FY 1995.)
    During the same 5-year time period, non-VA healthcare spending 
increased well over 30 percent--an increase of more than 5 times 
greater than VA healthcare.
    Since FY 1999, the VA healthcare budget has increased 131 percent, 
rising from $17.3 billion in FY 1999 to a projected $40.0 billion in FY 
2008. Of course, the number of veterans using the system has 
essentially doubled during this time.

          POTENTIAL INCREASED VA HEALTHCARE COST-EFFECTIVENESS

    I would like to address a couple areas not commented upon by 
Professor Reinhardt.
    The first of these is whether VA could achieve greater cost-
effectiveness without compromising quality or service satisfaction. I 
believe that it could.
    Notwithstanding the huge savings that were rung out of the system 
in the latter 1990s and VA's admirable cost-effectiveness today 
compared to Medicare and private health insurance, as noted by 
Professor Reinhardt in his testimony, I believe VA should assiduously 
seek to achieve cost savings wherever it is reasonable to do so, and 
especially in non-patient-facing ways such as in the procurement of 
supplies and services. In this regard, I believe VA could achieve 
substantial savings almost immediately by doing two things.
    The first would be to do as most of the top hospitals in the Nation 
have been increasingly doing and that is to start reprocessing selected 
medical devices that are approved for marketing in the United States as 
Single-use Medical Devices (SUDs). Although this might appear on first 
impression to be unwise, the reuse of medical devices that are labeled 
for ``single-use only'' is a well established and safe practice 
regulated by the FDA and utilized by many of the nation's premier 
medical centers. Indeed, for many years, most of the hospitals rated as 
America's best hospitals have been reprocessing SUDs.
    Reprocessing involves taking a medical device that has been used 
(or sometimes only the package has been opened and the device not 
used), cleaning and disinfecting it, verifying that it functions 
properly, repackaging it, sterilizing it and returning it for use. The 
more commonly processed SUDs are sequential compression device (SCD) 
sleeves used to prevent blood clots from forming in the legs of 
immobile patients; orthopedic drill bits, burrs and saw blades; biopsy 
forceps and snares; and endoscopic or laparoscopic scissors, graspers, 
dissectors and clamps.
    According to the FDA, about one-fourth of all hospitals and nearly 
half of large hospitals use reprocessed SUDs today. When these 
reprocessed devices are re-sold they are significantly cheaper than the 
original new device.
    The two major benefits of using reprocessed SUDs are the lower cost 
of the devices and the decreased biomedical waste that must be disposed 
of. The latter both reduces hospital operationing costs and helps 
preserve landfill capacity.
    Currently, as a matter of policy, VA does not use reprocessed SUDs, 
although the management of a number of VA hospitals would like to do 
so. I estimate that VA could achieve savings of $25 to $30 million in 
FY 2008 if it started to reprocess SUDs, with potentially significantly 
larger savings depending on the number and volume of reprocessed 
devices it ultimately utilized.
    In considering reprocessing, it is important to understand that 
``single use'' is a designation chosen by the manufacturer typically 
for economic reasons without consideration for the suitability of the 
device for reuse or reprocessing. As the GAO has noted, approval of a 
device as single-use simply means that the device can be safely and 
reliably used at least once, not that it cannot be used safely and 
reliably more than once. When you consider the nature of many of the 
items targeted for reprocessing (e.g., orthopedic drill bits and 
stainless steel external fixation rods) it is obvious that they should 
be reusable.
    The second cost-savings step that VA could take would be to utilize 
state-of-the-art technology to optimize sourcing in the procurement 
process in what is generally known as expressive commerce or expressive 
bidding.
    Expressive commerce and sourcing optimization are somewhat 
difficult to explain. They are sometimes confused with what is known as 
a reverse auction; however, sourcing optimization is not a reverse 
auction.
    Expressive commerce and sourcing optimization are based on a set of 
highly sophisticated algorithms that allow buyers to present more of 
their demand at one time and allow sellers to be more creative in their 
responses. This has been made possible by software that allows 
literally thousands of options for combinations of goods and/or 
services at different pricings and other specifications to be processed 
in a bidding run.
    While expressive bidding and sourcing optimization is an 
established best practice in private companies such as 3M, Proctor & 
Gamble and Johnson & Johnson, and it recently has been adopted by the 
U.S. Postal Service, it is just now starting to be used by selected 
hospitals and healthcare providers, including UK's National Health 
Service and the University of Pittsburgh Medical Center.
    The potential savings associated with expressive commerce are huge 
because of the vast arrays of options made possible by the technology.
    Private hospitals that have used expressive bidding are typically 
seeing savings in the range of 12 percent to 18 percent. Based on VA's 
budget for medical and surgical supplies, pharmaceuticals and 
facilities maintenance, and factoring their already preferred 
government pricing, I would anticipate VA could achieve savings in the 
range of several hundred million dollars in the first year after 
starting to utilize expressive bidding (i.e., $500 million to $700 
million), with probably much larger savings as experience was gained 
with the technology.
    I believe that VA should vigorously pursue the above types of cost 
savings strategies as rapidly as possible, and they should rigorously 
look for other such opportunities. Just as we should expect VA 
healthcare to be a leader in quality and service satisfaction, it 
should also be a leader in cost-effectiveness and efficiency. We should 
expect VA to be a leader in providing best healthcare value.

               THE NEED TO MAKE THE VA HEALTHCARE BUDGET 
                   MORE PREDICTABLE AND MORE FLEXIBLE

    The last issue I would like to raise in these comments has to do 
with the challenges imposed upon VA healthcare managers by the 
unpredictability of the Federal budget and the increasing rigidity of 
the VA healthcare budget.
    More often than not, it seems, the Federal budget is not passed on 
time, forcing the government to operate under a continuing resolution 
(CR)--sometimes for several months into the budget year. While this may 
be a mild inconvenience for some agencies or departments, it has 
definite untoward consequences for agencies like the VA that must 
provide critical services 24 hours a day, 7 days a week, 365 days a 
year.
    Typically, when VA is forced to operate under a CR it must impose 
hiring freezes and take other personnel actions that will likely impede 
the delivery of services, or planned improvements in services, because 
it does not have its planned budget. Such forced practices often 
degrade services at the point of care.
    While I do not have a suggested solution to this problem at the 
moment, I believe the unpredictability of the Federal budget process 
does have significant deleterious effects on the delivery of VA 
healthcare on the front lines and this should be further investigated 
by this Committee.
    Likewise, the increased compartmentalization of the VA healthcare 
budget in recent years (i.e., into medical services, medical 
administration, medical facilities, and information technology 
accounts) and the earmarking of funds in VA's Central Office (i.e., for 
prosthetics, mental health, geriatrics, etc.) combine to reduces field 
management's flexibility to spend on what may be most needed locally.
    While I think I understand the intent of the compartmentalization 
of VA healthcare funds, and while I am sympathetic to the needs and 
desires of VA program leadership to ensure adequate and appropriate 
spending for their high priority program areas, the increased rigidity 
of the budget produced by these practices has the effect of imposing 
unintended artificial spending limits. I would urge the Committee to 
look into finding mechanisms that can ensure accountability and 
appropriate spending for priority programs but which also give field 
management the flexibility to spend their limited budget on the most 
important needs of the veterans they serve.
    That concludes my prepared testimony. I would be pleased to answer 
any questions that the Committee might have.

    Chairman Akaka. Thank you very much, Dr. Kizer.
    As you know, Dr. Reinhardt has a time problem here, and we 
are trying to move it along so that we can ask Dr. Reinhardt 
questions, so I am going to veer from our normal procedure here 
and I am going to ask a question of Dr. Reinhardt and ask other 
Members here who have questions for him to ask that so we can 
let him go. We had made a deal with him that we would let him 
go at 10:30. I am glad to hear that he has a back-up plan.
    Dr. Reinhardt, last August, you wrote a column for the 
Washington Post that was widely read entitled, ``Who Is Paying 
For Our Patriotism?'' in which you argue that the Iraq War 
imposes no sacrifice of any sort on well over 95 percent of the 
American people. Do you believe we would be here talking about 
finding adequate resources for VA if that figure was, let us 
say, 50 percent?
    Dr. Reinhardt. No, I don't. In fact, the article that you 
refer to uses a concept that is now used in health insurance, 
namely, ``moral hazard.'' We have people saying, we have too 
much health insurance coverage. Therefore, we have to have 
high-deductible policies, supplemented with HSAs to make 
patients feel the cost their health care imposes on others. 
Well, if that is all true, that people who don't bear the cost 
of health care are reckless in their use of health care, then I 
would say that a political elite that can start wars but 
doesn't have to pay either taxes for it or bear the blood cost 
of it might be much too reckless into rushing into war. So that 
was the first point in my editorial. I sincerely believe this 
moral hazard led Congress to rush us into this war without 
adequate preparation.
    If more children of our political and moneyed elite had 
been in uniform, our soldiers wouldn't have been sent there 
without flak jackets, as ours were, without adequate equipment, 
without armored Humvees. People would have risen up and 
protested. You marginalize the problem when you make it your 
neighbor's problem, and then you can go happily on your way.
    So I am convinced and I am on record as saying that this 
entire decade, the Iraq war will go down as one of the more 
shameful episodes of American history on account of the 
sacrifice it imposed on only a few Americans, while the rest of 
us got tax cut and went shopping. I read in the Trenton Times 
that they had a pancake bake in order to raise money for food 
pantries for military families. Those were National Guardsmen. 
And I asked my students, what nation would possibly send the 
wives and the husbands of people who are serving in Iraq to a 
food pantry essentially begging for food? That is not true in 
Germany. I asked German military people. When a Reservist gets 
called there, the employer keeps paying his or her salary and 
the government reimburses the employer.
    Not here. These Guardsmen's and Reservists' families take 
huge hits on their income when the family's breadwinner is 
called up for combat duty. We did a survey with the Kaiser 
Foundation. Quite a few Guard families and Reservists are 
struggling financially. Is it uncouth to wonder what kind of 
nation have we become, that we would allow military families to 
struggle financially as their loved ones face bombs and 
bullets. That is what that editorial was about, although not, 
of course, my testimony this morning.
    Chairman Akaka. I may have some other questions that I will 
put in the record for you.
    Senator Craig?
    Senator Craig. Thank you very much, Mr. Chairman.
    Dr. Reinhardt, a couple of questions. First of all, I guess 
when I said earlier, and I know it is frustrating for my 
Chairman to suggest that when we work so bipartisanly together 
that I felt this hearing was political. Certainly, your last 
statement might confirm my beliefs. That was a very political 
statement that I take a certain amount of disagreement with, 
when you make those kinds of observations, and if that is true, 
then it is possible that your observations from an economic and 
political standpoint might be prejudiced a bit by that.
    But having said that, I am going to take you at face value 
and at the word you have said and let me ask you the following 
questions. I have put up a chart that I think demonstrates the 
reality of where we are with Federal revenues and Federal 
spending. It is arguable by some and a fairly broad range of 
economists that if you hold a historic tax rate of about 18.2, 
18.5 percent GDP, that is where our economy performs at its 
best. And certainly I would hope you would not disagree that 
this economy, like almost no other, provides the greatest work 
opportunity, the greatest economic opportunity for individuals 
in the world. It is well proven. It is why we are 25 percent of 
the world GDP today and I am not very embarrassed by that. In 
fact, I am very proud of that.
    But having said that, if we accept as a norm somewhere 
around 18 percent, 18.5 percent GDP taxed out of the economy 
into government and then government begins to allocate that 
resource back out, and that is what we do here. That is part of 
the job of the authorizing cmmittee. I am an appropriator. It 
is part of my job as an appropriator.
    Then we do have to make some determination as to where we 
spend the money.
    In your chart on page eight in your testimony, you project 
the spending of VA health care out for many years.
    Then you show it as a percentage both of total Federal 
budget and the total GDP of the U.S. VA health grows from just 
over 1 percent of total Federal budget to about 3.5 percent 45 
years from now. And then you suggest that a moral Congress can 
easily sustain that.
    My first question is, am I correct in assuming that under 
the scenario you present, Congress would need to take money 
from other Federal programs in order to meet that increased 
share of the Federal budget going to VA health care if you 
don't assume a higher percentage of GDP coming into government 
for the purpose of that funding?
    Dr. Reinhardt. I have----
    Senator Craig. You mentioned agriculture.
    Dr. Reinhardt. Permit me, Senator Craig, to respond first 
to your statement that my testimony might be political before 
coming to the economic issue you raise. Senator Akaka had asked 
me a specific question about an op-ed piece I had written in 
August of 2005, and I responded to the Senator's question about 
the issues raised there. I would agree that the op-ed piece and 
my responses on it reflect my subject, moral values, which do 
make such statements political. But if showing chagrin over 
military families under financial distress or combat soldiers 
and marines without adequate armor is political, then I am not 
ashamed for having been political on behalf of fighting men and 
women in that op-ed piece.
    On the other hand, the economic and budgetary data I 
include in the statement submitted to you today are factual. 
The numbers come from reputable sources, and I have followed 
the scholar's habit of fully describing the sources of the data 
I present, so that anyone can audit what I present for 
accuracy. You need not worry about bias here.
    Senator Craig. Well--go ahead.
    Dr. Reinhardt. In this particular case, there is no 
question that if taxes stay at the same ratio of GDP in the 
United States, if one takes that as a given, you are totally 
correct. Then there have to be very painfull trade-offs.
    You raise the question, Senator, on what is the optimal tax 
rate for our Nation. You mentioned that 18 percent is optimal.
    Senator Craig. No, I am not. I am suggesting that that has 
been the average and it has been suggested by many economists 
as a tax rate that keeps the economy optimized.
    Dr. Reinhardt. OK. Fair enough. I recently asked my 
Princeton colleague, Harvey Rosen, who is a tax expert, on this 
very issue, because I am not a tax expert, and he sent me some 
literature. I was astounded that actually the issue of what 
taxation does to economic growth is a lot more controversial 
among economic experts than I would have thought. I would have 
actually thought higher taxes arrest growth, but it is not 
necessarily the case. It depends how you raise the taxes. If 
you have high marginal tax rates, that is known to blunt 
incentives. But depending on how you raise the taxes, average 
tax levels and economic growth may be inversely related.
    Unfortunately, when a society becomes older, and 
particularly where so many Americans go into old age without 
much or any savings, you will have these old people and you 
must feed and care for them somehow. If you have endless wars 
with very seriously injured veterans on top of it, you face 
this problem. You either have to cut something else, and I 
suggest agricultural subsidies, or you must raise taxes.
    Senator Craig. And you, like I, would agree, you make 
political statements and so does Congress.
    Dr. Reinhardt. Saying you must either cut the budget or 
raise taxes is not political. Saying that you might consider 
cutting welfare to agriculture is political, I agree with you 
there.
    Senator Craig. All right.
    Dr. Reinhardt. I am saying, these agricultural subsidies 
cannot be justified on economic grounds. That is what I am 
saying. On grounds of horizontal equity, economists find it 
difficult to defend these subsidies as well. But, no, it is a 
purely political decision to grant these subsidies. And, of 
course, yes, I don't think politics is a dirty word. I think 
politicians are there, they were put there by God precisely to 
make the moral trade-offs that the rest of us are not entitled 
to make or don't have the power to make or don't want to have 
to make.
    Senator Craig. Well, let me make one comment and move on, 
because time is limited, over to Dr. Kizer. Thank you for that 
observation.
    I would make this observation, and this is part of our 
difficulty. If you choose agriculture, of the $47 billion spent 
in agriculture last year, only $8.6 billion of it went to 
commodities. The rest of it went to food stamps. That is a 
caring Nation paying for its poor to eat. So the biggest part 
of agriculture today are food stamps. So the $8.6 billion that 
went into commodities, we just increased this budget by $6 
billion. So within one year's time, you eat up the commodity 
portion of agriculture. Then what do you do in the out-years? 
That becomes the obvious of the trade-offs.
    So, really, politically, you have got a problem. And then 
you have an economic and a budget problem that is a reality 
that you start--you go to agriculture first. You take those 
away. Then where do you go the next year and the next year and 
the next year as you have all of these other programs, based on 
your observation, and I don't disagree. A caring nation is 
going to fund Social Security and Medicare and Medicaid. Where 
do we go next? We obviously go to the revenue flow. We have to 
go to the revenue flow to begin to justify and fund the model 
that you present to us or you can't get there, is my 
observation.
    Dr. Reinhardt. I think it is correct. I would predict that 
taxes in the United States as a percent of GDP will rise over 
the next 30 years. I can't see how we can avoid it. If you try 
to avoid it, some very tough trade-offs will have to be made. I 
doubt the voters will accept such tough trade-offs.
    Senator Craig. Well, you have been very kind with your 
time. Let me ask one question, if I can, Mr. Chairman, of Dr. 
Kizer.
    Chairman Akaka. Can you hold with that----
    Senator Craig. I will. My time is up. Let me move back to 
you.
    Chairman Akaka. Senator Rockefeller?
    Senator Craig. Thank you, Mr. Chairman.
    Senator Rockefeller. Let me make one observation in defense 
of the good James Madison Professor. One of our problems in 
making policy in this country is that we have--anytime somebody 
disagrees with a point of view which is earnestly felt, we call 
it political. And as soon as we call it political, it is 
discarded as such. Senator Craig used that technique, I thought 
unkindly and inappropriately with you. If he had read the piece 
which you wrote, the advice which you gave to your son (who is 
in Iraq) do what you must, but be advised that this Nation will 
never truly honor your service and it will condemn you to the 
bottom of the economic scrap heap should you ever get seriously 
wounded. The intervening years have not changed my views, they 
have reaffirmed them.
    I find myself in total agreement with that.
    Senator Craig. Mr. Chairman, Senator Rockefeller, I did 
read his comments.
    Senator Rockefeller. Well, I am proud of you. Thank you. 
But you didn't take them in. In other words, it is a fact. You 
have made a fact. It took Dana Priest and the Washington Post 
to make this Committee and this Nation, and for the first time 
this Congress aware of the fact that we have been acting 
outrageously, in spite of what Dr. Kizer did, in terms of our 
veterans. That is not my question.
    You quote Stiglitz and then Linda Bilmes at Harvard. They 
estimate that just Iraq and Afghanistan are going to end up 
being $2 trillion. That is what they are going to cost. What we 
all do around here is we talk about $500 billion, and that sets 
up the question that I want to ask you, because that seems like 
an almost unpayable amount.
    We in the Finance Committee have just been through an 
arduous three months of almost non-stop work, to the exclusion 
of virtually everything else, to try and add, and now we have 
done it successfully in that Committee, four million more 
uninsured children onto the six million which had been 
previously uninsured but which under the Children's Health 
Insurance Program started in 1997 got health insurance. So we 
now have, in fact, about somewhere--I don't know what the 
percentage would be, but 22 percent of all of the people who 
are uninsured in this country if this bill passes who will have 
health insurance.
    What is extraordinary about that is that it is an amazing 
achievement, and second, the biggest problem we had was trying 
to pay for it. There is even argument as yet whether we have. 
Why? Because just at the time that the Democrats take over the 
Congress, we go to a pay-go system, which condemns us to doing 
nothing, because we went from a $5.6 trillion surplus under 
President Clinton, who failed to fence in the surplus. I wanted 
three-quarters of this surplus spent for national 
reconstruction, including universal health care system, kids 
zero through five and on up in education, and everything else 
you can think of, including homeland security and many other 
aspects.
    I am really wondering, where do we go? Isn't this all talk? 
If we had to spend all that time trying to find money for four 
million children, totaling $35 billion, then how can we 
possibly be talking about making substantial improvements in 
health care and other subjects?
    I strongly agree with you. I mean, I can remember, and this 
is sort of embarrassing for me to say, not to myself but 
perhaps to my integrity, but my father was paying 91 percent of 
his personal income taxes, to the Federal Government and 
thought that it was the right thing to do. I admire him for 
that and I think he was right then and I think he would feel 
the same way now.
    Now, we have just been through an orgy because President 
Clinton didn't fence in that surplus, an orgy of tax cuts, the 
vulgarity of which I have never seen in my entire public life. 
It was as if the Nation was suddenly put to sleep and everybody 
said it was a good thing to do. One group had control of the 
Congress. There is not a single Democrat who ever for a period 
of 6 years went to a single conference Committee on any subject 
at any point, not one, not even in intelligence. So it was a 
one-party control. They ran the tax cuts through. The tax cuts 
are simply the most obscene thing I have ever seen. My guess is 
that my colleague from Montana would agree with me.
    I don't know where we go on pay-go. I rail against this in 
caucuses and get shouted down unanimously because we have 
become fiscally responsible. Well, we may be fiscally 
responsible, but we are making it impossible to give anybody a 
fair shot at life or to do anything of any significance in this 
country. We have condemned ourself to irrelevance. I don't know 
where one goes other than what you talked about, the 
agricultural subsidies, which are, of course, sacred and which 
could never pass, but that is never an excuse, is it? That is 
just a mantra which sort of builds up on its own and becomes 
theological because it affects people who don't want to go home 
and face other folks.
    I have watched our steel industry and our coal industry 
disappear in West Virginia and I have complained about it, but 
that is sort of the way life works and I regret that. But I 
think that you are quite right. I think we are going to have to 
go back to that tax system and take the vulgarity of what was 
done over the past 6 years and do it wisely, which I think we 
would be able to do, to get some revenues from that as well as 
some of the suggestions that you have made.
    You cut down, Dr. Kizer, you said, enormous amounts of 
money, 30 percent or something like that of waste and 
inefficiency that you just mentioned. Now it is not just a 
question of cutting out waste or inefficiency or programs that 
are politically difficult to cutoff, but to go back and undo 
tax cuts. I will just say this because I am mad. I walk into 
the office of somebody on the 86th floor of some huge building 
in New York, who is obviously very senior, at his invitation 
and he gives me a very cold look, and so I decide it is not 
going to be a very warm meeting.
    So I start off by asking him, how much money are you going 
to make this year? That is not usually the way I start a 
conversation, but that is the way I started that one. And he 
said, ``$183 million, he said, ``but I could make more if you 
would defer my compensation through a variety of means.'' And 
then I explained to him I represented a State where the average 
working family of four, their income was $26,600 and they 
worked and they paid taxes and they did everything that this 
fellow did. And I said, how do I take your situation over here 
and the West Virginian situation over there and then somehow 
stitch that together and call it either just or America? You 
can't do it. You simply can't do it. There is greed in this 
country. There is an unwillingness to face problems. There is a 
lack of leadership. I guess that wasn't much of a question.
    [Laughter.]
    Senator Rockefeller. I would sort of like you to comment on 
it, and I apologize to Senator Tester.
    Dr. Reinhardt. Well, first, this famous quote, it did 
happen. Before our son graduated from Princeton, he announced 
that he was going to join the Marines. He then was 21 years 
old. I said to him, ``Look, you are 21. It is your decision, 
but be advised that my experience has been--actually, Rudyard 
Kipling wrote about it eons ago--that soldiers are usually not 
well treated by their society, and don't forget, I grew up here 
in this country or came to this country during the Vietnam 
period. I was appalled by what I saw, son.'' That is indeed 
what I told him. I have always been very pro-military, ever 
since I was a kid in Germany learning country music from 
American Forces Network. My wife from Taiwan is the same. We 
were appalled by how Vietnam veterans were treated when they 
came back. And our daughter, who is now a physician, tells me 
many, many of the homeless, helpless old men she treats are 
Vietnam veterans that were neglected. So there was that memory 
and I warned my son about not expecting much gratitude for his 
service. He went into the Marines just the same.
    Now, James Taranto of the Wall Street Journal, who has a 
blog there, accused me of being disrespectful to my son for 
making that statement. I thought it was a ridiculous statement 
for him to make, but I guess that hell hath no fury like a 
chicken hawk scorned. I suspect that Mr. Taranto is a member of 
that class of Americans. I had written about chicken hawks in 
some op-ed pieces and said I think more young people who are 
for this war should step up to the breach and fight and give 
the guys who already did three tours a break. That is what I 
was writing about and that, I guess, what provoked Mr. Taranto 
and led him to make the ridiculous statement that I do not 
respect my son's service.
    I did not show any disrespect for my son. On the contrary, 
I thought my statement to him showed respect. It merely showed 
a certain disrespect to the people of the United States who 
would allow veterans going without the right care, who would 
allow military families to lapse into financial distress.
    On these larger trade-offs that you talk about, those, I 
guess, will be debated in the forthcoming Presidential 
election, and I have very little to say about it other than the 
observation that the ratio of GDP going to taxes is not God-
given. It is something that a body politic chooses, and one has 
to respect whatever choice is made by the body politic as long 
as a democracy works all right.
    And in that regard, Senator Craig is right. Given the 
reluctance to pay more taxes by the American people, you, the 
politicians, have a tough job to make these trade-offs, given 
you can't just raise the taxes. And I often sympathize very 
much with that. There is a fair amount of waste in health care 
which we know about--I alluded to it in my testimony--that 
maybe we should address more seriously than we have.
    There may be other areas where we could be more efficient, 
including possibly military procurement of the weapons systems 
that don't work. I recall a gun being made that was so heavy 
that it couldn't cross a bridge in Europe.
    But my testimony here basically said if you have to make 
trade-offs, the VA health budget ought to be last the budget 
you would look to cut, and if you over-budgeted it a bit in a 
given year, that is not what I would lose sleep over because 
the VA would use it smartly. The VA is one of the great 
trainers of young doctors. They do wonderful medical research. 
It is hard to think that the VA would actually waste a lot of 
money and you could even make sure that they don't by the 
management systems Ken talks about.
    That was really the thrust of my remarks. If you must cut, 
be careful when it comes to veterans. Some of us, and I hope 
all Americans, have a very soft spot for them.
    Chairman Akaka. Thank you, Dr. Reinhardt.
    Senator Tester for your questions for Dr. Reinhardt?
    Senator Tester. Thank you, Mr. Chairman.
    When is your next plane, Dr. Reinhardt?
    [Laughter.]
    Senator Tester. I appreciate your testimony, and quite 
honestly, I have sat on a lot of committees. This has been an 
interesting one today. Perspective versus political statement 
is interesting to me. But I appreciate your honesty and I 
appreciate your forthrightness in your testimony and calling it 
as you see it. I, too, have a problem with our kids and 
grandkids and great-grandkids paying for a war that we are 
fighting today. I particularly agree with what you mentioned in 
your testimony about the benefits that we give our veterans 
being a relatively small measure of gratitude. It, indeed, is 
right on the mark. And, by the way, I don't necessarily agree 
with everything you say. I happen to be a farmer in my real 
life----
    [Laughter.]
    Senator Tester [continuing].--so agriculture subsidies are 
something that we maybe have a debate for another time.
    Maybe we can get you in front of the Agriculture Committee, 
but I am not on that, so another issue.
    But I do have a couple of questions. Twenty-seven percent 
of the deaths or casualties in Iraq and Afghanistan are from 
rural America. That is compared to only 19 percent of the 
United States population comes from rural America. So we are 
over-represented in the war, and when kids are critically 
injured, they go back to rural America, farms, small towns. I 
was wondering if there has ever been any work done, and Dr. 
Kizer, you might address this, too, when we get to you, to see 
if this really is a problem in the VA system, if it really is a 
problem that we have a smaller percentage of resources than 
what is actually in the service as far as rural America goes 
and the kind of access to health care that they get and if 
there has ever been any work done to point this out as being a 
problem, or is this just something that is a statistic for 
statistic's sake?
    Dr. Reinhardt. Well, I think it has been known. There have 
been sundry studies of the origin, the socio-economic origin of 
the Armed Forces and that rural America is very heavily 
represented in those ranks. Part of that is tradition, that 
they have this very patriotic tradition. Part of it may be that 
the Army is a good opportunity for them. The economic 
opportunities in rural America are not as great as elsewhere in 
the economy.
    As far as health care is concerned, sometimes it may cause 
problems if there are no VA facilities nearby, and then one has 
to really worry either about transportation or one has to worry 
about having other health care facilities who could substitute 
for the VA nearby.
    But the other thing that is sometimes overlooked is how 
easy it is for families to visit wounded veterans. When our son 
was wounded in the Landstuhl hospital in Germany, my wife and I 
jumped on a plane and flew there and stayed in a nearby hotel. 
How easy would that be for people with lower incomes?
    Senator Tester. Right.
    Dr. Reinhardt. How easy is that when sometimes even with a 
veteran, when he is in a VA that is very, very good, how far is 
that for relatives to visit, and yet those visits are crucial 
to the healing. So it is a real problem.
    We even have a problem with the active military service. 
The program for the TRICARE pays rates that are roughly 
equivalent to Medicare. Now, anywhere near a base, that doesn't 
cause a problem because the military has made sure that there 
are health care providers who serve the military. But for 
families of Reservists who are not near a military base, I have 
read and I have heard that doctors--it was in the Wall Street 
Journal, no less--that doctors sometimes refuse to take care of 
these families because the TRICARE fees are so low.
    See, that again, whether you call it political or whatever, 
this would outrage a pro-military man like me. As I said 
before, I have been pro-military ever since I was a kid. We 
Germans loved those GIs. My wife and I took our own kids to 
American military cemeteries abroad, we stood there with them 
to pay our respects for these fallen ones. So when I see a 
military person not properly cared for in this country, I do 
get angry and possibly political and I don't apologize for it.
    Senator Tester. One last one, and I am about out of time, 
but you had mentioned in your comments to begin with that you 
said, and correct me if I am wrong, because I could be, in the 
VA budget, half goes to VA health care proper. I looked through 
your written and I could not find that again. Is that what you 
did say? And my question is, where does the other half go?
    Dr. Reinhardt. There are disability pensions and regular 
pensions, and cemetery services and there is a whole lot----
    Senator Tester. Oh, OK. I have got you. I understand.
    Dr. Reinhardt. I probably have it somewhere here.
    Senator Tester. That is not important. You clarified it. 
The part that goes to the VA health care portion of the budget, 
I would assume that we are getting 90 percent or higher that 
gets to the veterans that need the health care. In other words, 
the documents I have seen is that the Administration--VA is 
very, very good in their administrative costs. They keep it 
very, very low. And I just want to make sure that is still the 
way it is. Dr. Kizer can answer that later. Thank you very 
much.
    Chairman Akaka. Thank you very much.
    We have used this method, Professor Reinhardt, so that you 
can leave to get your plane. I know that you have been planning 
to do that, and we will continue, then, with the questions to 
Dr. Kizer. I am going to limit my questions to you, Dr. Kizer, 
and place others in the record for you.
    Thank you very much, Dr. Reinhardt.
    Dr. Reinhardt. And I would like to thank you for putting up 
with a guy like me. Free speech, I probably take it too far.
    [Laughter.]
    Dr. Reinhardt. But I enjoy it and I----
    Senator Craig. Dr. Reinhardt, we may disagree, but free 
speech is never taken too far.
    Dr. Reinhardt. And I want to thank you, in particular, for 
being very gracious with my remarks, and Senator Rockefeller 
for his kind remarks, my rambunctiousness over the years, I 
guess. And thank you, Mr. Chairman, for having me.
    Chairman Akaka. Dr. Kizer, CBO estimates that the cost of 
moving VA health care funding from discretionary to mandatory 
is roughly the amount currently being spent. What effect would 
this have on the overall Federal budget?
    Dr. Kizer. I am not sure I can answer the question that you 
pose. I think the real question in my mind as far as VA health 
care funding is three-part: Is funding adequate? Is it on time? 
And does it come with enough flexibility that field management 
can do what they need to do to serve the veterans in their 
communities?
    Chairman Akaka. Thank you. Dr. Kizer, when you were Under 
Secretary for Health, you developed many relationships. In this 
particular case, let me ask this.
    How was your relationship with OMB? How strong was the 
pressure to limit annual budget requests?
    Dr. Kizer. How does one answer that? OMB has a perspective 
and important role. I was fortunate, I think, in that our 
program budget person was understanding of our needs and 
actually we cut a deal that historically had not been possible. 
I am referring to Nancy Ann Min, who very much understood what 
we were trying to do in VA and allowed us to retain the savings 
that we were able to achieve. Historically, OMB had not agreed 
to this. Nancy did some other things that made the job a little 
bit easier.
    Now, obviously, not everyone in OMB agreed with her 
perspective, and we had some spirited discussions--and we 
didn't always come out on the top side of those discussions. 
But this is a government of checks and balances, and the 
Congress has its role in the appropriations process as does OMB 
and in the end, you hope that the--in this case, the Department 
of Veterans Affairs gets what is needed to serve the needs of 
the veterans.
    Chairman Akaka. Dr. Kizer, recent VA budgets have proposed 
substantial savings from what VA refers to as management 
efficiencies. GAO has found that there is no methodological 
justification for the figures put forward under this term. As 
one who is credited with making VA more efficient, what is your 
view of these efficiencies and of using them to justify a lower 
budget request?
    Dr. Kizer. Well, ``management efficiencies'' is one of 
those terms that means a lot of things to different people. 
Most often, I think, it means that you don't know where the 
hell you are going to get the money from but you need to reduce 
your appropriation request that is going to the Congress.
    And in other cases, it means there are actually known 
savings that can be achieved. In my comments, I highlighted two 
areas where I think the VA could achieve real savings in things 
that they are not doing now, and some of that is simply because 
of new technology that has only recently become available. I 
don't know about all of the management efficiencies that they 
are referring to, but I think we are all aware of the budget 
process and the give and take that is involved in that process 
between the respective parts of government.
    Chairman Akaka. I have other questions I will place in the 
record for you. Senator Craig?
    Senator Craig. Well, thank you very much, Mr. Chairman, and 
I will be brief. I have many one question, one follow-up, and 
I, too, want to recognize the phenomenal work that Dr. Kizer 
has done in VA over the years and what he produced as a result 
of it. And I think your testimony in general has been 
imminently fair to the reality of where we are and what we try 
to do for our veterans.
    Let me ask you this question. You talk about efficiencies 
in health care based on technological changes, and that is 
valid and it often times comes to pass. And then you can go to 
Dr. Reinhardt's chart that shows, if you will, probably the 
greatest efficiencies may be occurring as a result of your 
leadership in VA compared to the private sector, where I won't 
argue that there is unlimited funding, but there is certainly 
no pressure in part against cost increases, or less pressure.
    When you talk about how the VA budget for health care rose 
only 6 percent total during your time and the fiscal pressures 
you had to deal with to produce what you did, could you have 
produced the efficiencies you did and the quality of health 
care you produced had you not had the fiscal pressures on you?
    Dr. Kizer. I think that is an interesting academic 
question. The reality is that I did have those pressures and 
that is what we had to deal with and the outcome is as it is. 
And frankly, I think the fiscal pressure certainly helped 
adjust attitudes and sometimes get people to the same page or 
the same place in their thinking so that we could advance some 
of the new ideas and newer concepts that were introduced at 
that time that previously were impossible, and I think that 
that is not unlike in many other situations where new fiscal 
realities or other new realities force one to change their 
thinking.
    Certainly, and I am changing gears a little bit, technology 
should be looked to for where it can save funds, but on the 
other hand, we should be mindful that technology is also going 
to drive costs up dramatically. Just to give you a couple of 
examples, during my tenure at VA, the protease inhibitors came 
out and suddenly our pharmacy budget increased by hundreds of 
millions of dollars overnight. Likewise with Hepatitis C and 
interferon and treatment for that. Again, hundreds of millions 
of dollars suddenly was added to the pharmacy budget, and this 
is going to continue the trend.
    If you look at the technology coming down the pipeline in 
health care overall, there are just dramatic things that are 
going to be possible to do to improve people's lives and 
improve their functioning. All of those things are going to 
come with a cost. So I think that recognizing that we 
continuously have to be mindful of the need to be looking for 
opportunities to save dollars and to make the system more cost 
effective wherever possible, and particularly in areas that 
don't or are non-patient-facing, those areas that the patient 
doesn't necessarily see and doesn't affect service satisfaction 
or the quality of care.
    Senator Craig. Well, I appreciate that comment because I 
think that is a fair judgment.
    Last question, we are falling into the habit, whether it is 
for political purposes or for high-profile issues, beginning to 
earmark certain health care funds flowing through to the VA. Is 
that good business? It may be politically good for us here. 
Will it result in good administrative work or the ability to 
spread money and get where you need to get with health care 
delivery at the VA?
    Dr. Kizer. Well, I think that is a really important 
question that you ask and I have to put on my epidemiology hat, 
I guess, for you, on the one hand and on the other hand, 
because certainly from a VA headquarters perspective, I think 
earmarking funds makes a lot of sense, and certainly as one 
sits down the street on Vermont Avenue and you are looking at 
your needs, whether they be mental health, historically a very 
underserved area and where we haven't given appropriate 
resources, it might make sense to earmark that and make sure 
that those monies are going for behavioral or mental health 
problems, or whether it is geriatrics or whether it is 
prosthetics. There are multiple areas where you might want to 
do that.
    However, if you happen to be in Twin Falls or someplace 
where the needs of the veterans in that community are different 
and you don't have the ability or the flexibility to go back 
and forth, then it becomes very difficult for management in the 
real world and on the front lines of health care to do what 
they need to do to provide service to the veterans in that 
community.
    So I think this is a real challenge for the VA in assuring 
both the appropriateness and the accountability of dollars go 
to those high-priority areas, but at the same time you don't 
want to hamstring your management so that they then can't pay 
for the services that may be needed on Maui or some other local 
community that just has a different patient mix that has 
different priority needs.
    Senator Craig. Thank you. Thank you for that observation, 
Doctor. Thank you, Mr. Chairman.
    Chairman Akaka. Thank you very much, Senator Craig.
    I want to thank you so much for your statement today and 
also for your responses, Dr. Kizer. Your responses have been 
valuable to us. Thank you very much.
    Dr. Kizer. Thank you for the opportunity to be here today. 
Good luck.
    Chairman Akaka. Thank you.
    At this time, I would like to welcome our second panel. Joe 
Violante is the National Legislative Director for the Disabled 
American Veterans, and Joe, you have been here many times 
before. Again, I want to welcome you back.
    And also, J. David Cox is the National Secretary and 
Treasurer of the American Federation of Government Employees 
and has 18 years of experience representing VA staff in the 
field. I look forward to hearing his perspective on the effects 
of Washington budget struggles and VA at the ground level.
    Thank you again, both of you, for being here and for being 
patient. Your full statements will appear in the record of the 
hearing.
    Mr. Violante, will you please begin with your statement.

        STATEMENT OF JOE VIOLANTE, NATIONAL LEGISLATIVE 
    DIRECTOR, DISABLED AMERICAN VETERANS, ON BEHALF OF THE 
             PARTNERSHIP FOR VETERANS HEALTH CARE 
                         BUDGET REFORM

    Mr. Violante. Mr. Chairman and Members of the Committee, 
thank you for this opportunity to testify on the funding system 
for the Department of Veterans Affairs health care system. I am 
testifying on behalf of the Partnership for Veterans Health 
Care Budget Reform, made up of nine national veterans service 
organizations.
    First, I want to thank you, Chairman Akaka and Ranking 
Member Craig, for holding this critical and historical hearing. 
Fourteen years ago, the original Partnership for Veterans 
Health Reform was established. In the early 1990s, as 
eligibility reform was being discussed, we urged Congress to 
also reform VA's discretionary budgeting system. Today, we 
remain unified in this position. We are equally unified that 
the VA health care system needs to be protected and sustained 
for the millions of veterans who depend on it as their only 
health care provider and will do so for many decades to come.
    The Partnership acknowledges and applauds the support of 
this Committee and your Appropriations Committee colleagues for 
funding increases in recent years, including this year's likely 
increase of $6 billion. However, with the August recess looming 
and the new fiscal year starting October 1, we see a strong 
possibility that VA's regular appropriations for 2008 will be 
late again, as it has been for 12 of the past 13 years.
    To resolve our concern, Congress must not only provide 
yearly appropriations that are sufficient to meet known needs, 
but those funds must arrive on time and be provided in a 
predictable manner. These are our three principles for funding 
reform: Sufficiency, timeliness, and predictability, and I 
believe those are the same elements that Dr. Kizer mentioned.
    Without reform, we see no prospect for improvement in the 
current budget structure. Inadequate submissions from 
Presidents of both parties, proposals for new fees, copayments, 
and management efficiencies, annual continuing resolutions, 
offsets and across-the-board cuts, supplementals, and even dire 
emergency appropriations provided late in the year, all of 
these anomalies have become so regular that they are now normal 
and expected activities each year. Aside from an insufficient 
level of funding, today's budget process itself has basically 
paralyzed VA officials from more properly managing, planning, 
and operating the VA system.
    Not knowing when or what level of funding they will receive 
from year to year or how Congress would deal with policy 
proposals directly affecting the budget severely impairs their 
ability to recruit and retain staff and conduct planning and 
administrative matters across a wide path of necessary and even 
routine matters. We ask, is there an American business today 
that could operate and remain viable if it had to operate under 
these same conditions year after year?
    Mr. Chairman, there is much at stake. A young American 
wounded today, particularly one with severe injuries such as 
limb loss, blindness, or Traumatic Brain Injury, must be able 
to rely on the VA health care system for decades. The goal of 
the Partnership is for Congress to enact a long-term funding 
solution that guarantees all enrolled veterans will have a 
dependable VA health care system, and not just today while the 
war is in the news, but far in the future when the headlines of 
these wars have faded from our national memory.
    Opponents of this reform have made a number of charges. 
Specifically, that it would create a new entitlement, that too 
many new veterans would rush in to enroll, that Congress would 
lose its oversight power, that it would cost too much. The 
Partnership rejects these skeptics. Shifting VA health care to 
a mandatory status would not create an individual entitlement 
for veterans, nor would it change the current health benefit 
package. Most veterans today have private health insurance and 
would not seek VA care merely because of a change in the 
funding mechanism. Congress would retain all oversight 
authority. What the shift would do is remove politics from 
determining the budget for VA health care.
    Most importantly, the Partnership rejects the argument that 
it would cost too much. Our proposal is designed to ensure that 
sufficient funding is made available to provide health care 
services to veterans whom VA enrolls, no more, no less. Funding 
VA health care is a continuing cost of national defense.
    Mr. Chairman and Members of the Committee, the Partnership 
looks to this Committee for leadership. In your forthcoming 
Fiscal Year 2009 Views amd Estimates to the Budget Committee, 
we ask that you inform them of this Committee's intention to 
report legislation creating a mandatory and guaranteed funding 
system for VA health care to become effective in 2009. We ask 
that you recommend that the Budget Committee reserve sufficient 
funds to make that change.
    If the Committee chooses a different method than offered in 
H.R. 2514 or a future Senate companion bill, the Partnership 
will study that proposal to determine whether it meets our 
three key standards for reform: Sufficiency, timeliness, and 
predictability. If that alternative measure meets our 
standards, the Partnership will support it with a great deal of 
enthusiasm and appreciation. If it does not, we will tell you 
why not.
    The time for change is now. Please stand up for veterans, 
and thank you for holding this critical and long-awaited 
hearing. I will be pleased to answer your questions.
    [The prepared statement of Mr. Violante follows:]
    Chairman Akaka. Thank you very much, Mr. Violante.

    Prepared Statement of Joseph A. Violante, National Legislative 
Director, Disabled American Veterans, on Behalf of the Partnership for 
                   Veterans Health Care Budget Reform

    Mr. Chairman and Members of the Committee:
    We appreciate the opportunity to testify today about the funding 
process for the Department of Veterans Affairs (VA) health care system. 
I am testifying not only on behalf of Disabled American Veterans (DAV), 
but also the eight other national veterans service organizations along 
with DAV that make up the Partnership for Veterans Health Care Budget 
Reform (hereinafter, the Partnership): The American Legion; AMVETS; 
Blinded Veterans Association; Jewish War Veterans of the USA; Military 
Order of Purple Heart of the U.S.A.; Paralyzed Veterans of America; 
Veterans of Foreign Wars of the United States; and, Vietnam Veterans of 
America.
    I would like to begin by thanking Chairman Akaka and Ranking Member 
Craig for holding this critical, and even historic, hearing. For more 
than a decade the Partnership has urged Congress to address and reform 
the basic discretionary appropriations system of funding VA health 
care. The VA health care system must be protected for millions of 
veterans who depend on it now as their only health care resource and 
will do so for many decades. This hearing is a key moment for Congress. 
There is an opportunity to create an enduring legacy of commitment to 
the long-term viability of the health care system dedicated to meeting 
the unique needs of our Nation's veterans.
    While we have waited a long time for today's hearing, the 
Partnership acknowledges and applauds the support of this Committee and 
your Appropriations Committee colleagues who have elevated VA 
discretionary health care funding over the past several budget cycles 
and in particular this year's prospective increase of $6 billion in 
additional health care funding. Nevertheless, I hope to make clear to 
the Committee why funding problems persist and how Congress can solve 
this issue by enacting a reform that results in sufficiency, 
predictability and timeliness of VA health care funding.
    Each year the President proposes a prospective budget and 
accompanying policies for the Federal Government. Based on the Views 
and Estimates reports from authorizing committees, including this 
Committee in the case of Budget Function 700, Veterans Benefits and 
Services, the Budget Committees create a Concurrent Resolution as a 
blueprint to execute that budget. The Appropriations Committees 
allocate funds to carry out the purposes of that budget, guided by the 
Concurrent Resolution. The whole Congress and the President underwrite 
this system. Executive Branch agencies carry out policies approved by 
Congress by spending the funds Congress appropriates for those 
purposes, approved through that process. It is intended to be a 
balanced system, but for a variety of reasons that we will discuss in 
our testimony today, it does not work in the case of veterans health 
care.
    No matter how accurate and precise the formulation methodology for 
the budget may be, the budget process itself impacts the 
appropriateness of the final resource outcome. For example, although 
the budget process is designed to accommodate multiple reviews and 
approvals it is often too cumbersome and long requiring seven review 
levels (the Veterans Health Administration; VA; the Office of 
Management and Budget; Congressional Authorizing Committees (House and 
Senate) and Congressional Appropriations Committees (House and Senate); 
and 21 months (at a minimum) from initial formulation to the beginning 
of the budgeted fiscal year. The resultant budget, after multiple 
tactical adjustments, often lacks a clear strategic direction. Updates 
in estimates (during the 21-month span) are not encouraged after review 
officials lock-in to their approved levels. Review adjustments often 
lack precise calculations. Finally, the resultant budget is subject to 
delays in appropriations enactment often unrelated to veteran policy 
issues.
    All veterans' programs, including its health care system, are 
dependent upon sufficient funding for the benefits and services 
provided by Congressional authorization. If Congress awards a benefit 
to veterans, that benefit or service should be appropriately funded by 
Congress. Finally, a level of funding should be provided to guarantee 
that benefits or services are actually available to a veteran in need. 
Unfortunately, the VA discretionary appropriations process often fails 
against that standard.
    VA has been unable to manage or plan the delivery of care as 
effectively as it could have, as a result of perennially inadequate 
budget submissions from Presidents of both political parties; annual 
Continuing Resolutions in lieu of approved appropriations; late 
arriving final appropriations; offsets and across-the-board reductions; 
plus the injection of supplemental and even ``emergency supplemental'' 
appropriations to fill gaps. We challenge this Comm ittee to identify 
an American business that could operate successfully and remain viable 
if, in 12 of 13 consecutive years, it had no advance confidence about 
the level of its projected revenues or the resources it needed to bring 
a product or service to market, no ability to plan beyond the immediate 
needs of the institution day-to-day, and no freedom to operate on the 
basis of known or expected need in the future. In fact, this has been 
the situation in VA, with 12 out of 13 fiscal years beginning with 
Continuing Resolutions, creating a number of challenging conditions 
that are preventable and avoidable with basic reforms in funding. We 
believe that no commercial business in America could have withstood the 
degree of financial insecurity and instability VA has endured over a 
decade. The Partnership believes this situation needn't exist, and that 
Congress can make vast improvements with funding reform legislation.
    The Partnership is especially concerned about maintaining a stable 
and viable health care system to meet the unique medical needs of our 
Nation's veterans now and in the future. The wars in Iraq and 
Afghanistan are producing a new generation of wounded, sick and 
disabled veterans, and some severe types at a poly trauma level never 
seen before in warfare. A young American wounded in Central Asia today 
with brain injury, limb loss, or blindness will need the VA health care 
system for the remainder of their lives. The goal of the Partnership is 
to see a long-term solution formed for funding VA health care to 
guarantee these veterans will have a dependable system for the 
foreseeable future, not simply next year. Reformation of the whole 
funding system is essential so Federal funds can be secured on a timely 
basis, allowing VA to manage the delivery of care, and to plan 
effectively to meet known and predictable needs. In our judgment a 
change is warranted and long overdue. To establish a stable and viable 
health care system, any reform must include suficiency, predictability, 
and timeliness of VA health care funding.
    In past Congresses we have worked with both Veterans' Affairs 
Committees to craft legislation that we believe would solve this 
problem if enacted. The current version of that bill is a House 
measure, the Assured Funding for Veterans Health Care Act, H.R. 2514, 
introduced on May 24, 2007, by Representative Phil Hare of Illinois 
with 77 original cosponsors and the Partnership's full endorsement. We 
note for the record that no Senate companion measure has been 
introduced in this Congress due to the illness of the expected chief 
sponsor, Senator Tim Johnson of South Dakota, a Member of this 
Committee. A number of public criticisms have been made of this bill 
and its predecessors, and I will address those concerns later in this 
statement. Suffice it to say that the Partnership believes even if each 
of those assertions about the bill were literally true, veterans still 
would have an improved funding system were that bill enacted than the 
one they have today under the current discretionary appropriations 
system.
    We ask the Committee to consider all the actions Congress has had 
to take over only the past three years to find and appropriate 
``extra'' funding to fill gaps left from the normal appropriations 
system. Please also consider the Administration's efforts to explain to 
Congress why VA was shortchanged by billions of dollars each year. 
These admissions were often very reluctantly made. In one case, the 
President was reduced to formally requesting two budget amendments from 
Congress within only a few days of each other.
    Some Members have opposed mandatory funding because it would cost 
too much; however, the recent Congressional Research Service report to 
Congress detailing the running expenditures for the Global War on 
Terror since September 11, 2001, revealed that veterans affairs-related 
spending constitutes 1 percent of the government's total expenditure. 
Without question, there is a high cost for war and caring for our 
Nation's sick and disabled veterans is part of that continued cost. A 
report by a researcher at Harvard's Kennedy School predicted that 
Federal outlays for veterans of the wars in Afghanistan and Iraq will 
arc between $350 billion and $700 billion over their life expectancies 
following military service an amount in addition to what the Nation 
already spends for previous generations of veterans. Thus, it is clear 
the government will be spending vast sums in the future to care for 
veterans, to compensate them for their service and sacrifice, but these 
funds will still only constitute a minute fraction of total homeland 
security and war spending. We believe funding VA health care is a cost 
of defense and war no less important than the weapons systems Congress 
authorizes in direct prosecution of the Nation's defense.
    From this hearing, after considering the testimony of witnesses and 
based thereon, we ask the Committee, in your FY 2009 Views and 
Estimates to the Budget Committee that you inform them of your 
intention to report legislation creating a mandatory and guaranteed 
funding system for VA health care in 2009, and that you recommend that 
they reserve sufficient funds to make that seminal change. If the 
Committee chooses a different method than offered in H.R. 2514 or a 
future Senate companion bill that is similar, we will examine that 
proposal to determine whether it meets our three essential standards 
for reform: suficiency, predictability, and timeliness of funding for 
VA health care. If that alternative fully meets those standards, our 
organizations will enthusiastically support it.

      HISTORICAL PERSPECTIVE AND FURTHER JUSTIFICATION FOR REFORM

    In 1996, Congress passed the Veterans' Health Care Eligibility 
Reform Act of 1996, Public Law 104-262, which changed eligibility 
requirements and the way health care was provided to veterans. Greater 
numbers of veterans became eligible for health care benefits as a 
result of this Act. As P.L. 104-262 was moving through Congress, Dr. 
Kenneth W. Kizer, the then-Under Secretary of Health of the Veterans 
Heath Administration (VHA), submitted a major administrative 
reorganization plan to Congress under Title 38 United States Code, 
Chapter 5, Section 510(b). Since Congress expressed no disapproval of 
this proposal, this plan created 22 Veterans Integrated Service 
Networks (VISNs) \1\ to replace the VA's four regional management 
divisions.
---------------------------------------------------------------------------
    \1\ The creation of the new VISNs began in 1995 in anticipation of 
the passage of the Act.
---------------------------------------------------------------------------
    The decentralization of operations was seen as essential to prepare 
VA to function more effectively in manageable and integrated delivery 
networks networks that would be more patient-centric and would rely on 
primary and preventive care rather than more intensive modes. 
Accentuated by authorities provided by P.L. 104-262, the VA health care 
system thereabout underwent significant reforms from an episodic and 
bed-reliant system of care to one in which veterans were enrolled and 
could expect continuity of care and health maintenance, including 
preventive services. The shift in focus from medical intervention in 
diseases afflicting veterans, to primary care to maintain their health, 
reflected a broader trend co-occurring in America's private health care 
sector. The shift allowed VA to close thousands of unnecessary hospital 
beds while establishing new facilities called Community Based 
Outpatient Clinics (CBOCs) to provide more veterans more convenient 
access to care.
    With encouragement from many Members of Congress as well as your 
Committee and national veterans service organizations, the VISNs 
outreached to veterans to enroll in a reformed VA health care system. 
As a result millions of veterans enrolled in VA health care for the 
first time in their lives. A decade later, VA health care is a 
remarkable success story of how to transform a troubled and 
overburdened system into a state-of-the-art provider. Harvard 
University's School of Public Health and the National Quality Research 
Center at the University of Michigan have both scored VA at the very 
top of American health care systems in terms of patient safety and 
medical outcomes. Mainstream publications, including Time, Newsweek, US 
News and World Report, Business Week, The Wall Street Journal, New York 
Times, Washington Post, Fortune, and the Washington Monthly, have all 
written major stories detailing VA's transformation over the past 
decade. Their investigations have confirmed that VA today is the 
highest quality, lowest cost health care system in the Nation.
    While Congress intended veterans to be able to secure an improved 
continuum of care, P.L. 104-262 underscored that VA health care 
operations would still be dependent upon appropriated resources. \2\ As 
early as 1993, the Partnership urged Congress to ``guarantee'' funding 
for VA health care if Congress decided to reform eligibility for that 
care. Unlike other health care benefits available to non-VA 
beneficiaries, this VA benefit is not ``guaranteed.'' This has probably 
been the single most significant problem for VA during the past decade 
and the reason we appear here today. In sum, as a result of eligibility 
reform veterans have been rewarded with a more integrated VA health 
care system, a more comprehensive health care benefit and high quality, 
safe health care services. However, gaining and keeping access to that 
system is a continuing dilemma due to the uncertainty of duration of an 
individual's enrollment, VA's hobbled planning from lack of secured and 
predictable funding; budgetary gimmicks employed by VA and Office of 
Management and Budget (OMB) officials. Additionally, because of the 
Administration's policies, VA is constrained from publicly stating 
their true funding requirements.
---------------------------------------------------------------------------
    \2\ ``the extent and in the amount provided in advance in 
appropriations Acts for these purposes. Such language is intended to 
clarify that these services would continue to depend upon discretionary 
appropriations.'' Taken from the Committee Report (H. Report 104-690) 
of the P.L. 104-262.)
---------------------------------------------------------------------------
    Most importantly, eligibility reform eliminated fragmented care 
provisions in the statute and enabled VA to appropriately streamline 
care for its veteran patients. It eliminated a tangled web of rules and 
internal VA policies that made individual health care eligibility 
decisions bureaucratic, complicated, confusing, and harmful to the 
health of veterans who depended on VA to meet their needs. Reforming 
eligibility corrected the artificial inefficiencies of the system, 
allowed it to treat more veterans, and enabled it to preserve the 
system, primarily for service-connected veterans, low income veterans 
and veterans with special needs. We believe that goal was, and still 
is, a sound one. Without question VA's success has led to unprecedented 
growth in the system but we disagree with some who allege that 
eligibility reform created ``the current funding problem'' by enticing 
too many veterans to enroll. In our judgment the problem is not 
eligibility reform, but inadequate funding through the discretionary 
appropriations process.

                     PRESSURE BUILDS ON THE SYSTEM

    In 2002, VA placed a moratorium on its facilities' marketing and 
outreach activities to veterans and determined there was a need to give 
the most severely service-connected disabled veterans a priority for 
care. This was necessitated by VA's realization that demand was 
seriously outpacing available funding and other resources, and service-
connected veterans were being pushed aside as VA's highest priority. On 
January 17, 2003, the Secretary announced a ``temporary'' exclusion 
from enrollment of veterans whose income exceeds geographically 
determined thresholds and who were not enrolled before that date. This 
directive denied health care access to 164,000 so-called ``Priority 
Group 8'' (PG8) veterans in the first year alone following that 
decision. To date, over one million veterans have been denied access to 
VA health care under that policy. The then-Ranking Member of the House 
Veterans' Affairs Committee was correct when, in response to the 
Secretary's decision to restrict enrollments of these veterans he 
stated, ``The problem isn't that veterans are seeking health care from 
their health care system it's that the Federal Government is not making 
the resources available to address their needs.'' We agree.
    Mr. Chairman, the decision to exclude PG8 veterans from VA health 
care enrollment at the beginning of 2003 also must be taken into 
historical context. While VA was in the midst of unprecedented 
systemic--even revolutionary--change, Congress passed the Balanced 
Budget Act (BBA) of 1997, Public Law 105-33. That Act was intended to 
flatline domestic discretionary Federal spending, across the board, 
including funding for VA health care. As the effects of the BBA took 
hold during the 3-year life of that law, VA's financial situation 
shifted from challenging to that of crisis. In 2000, at the urgings of 
both this Committee and your House counterpart, Congress relented and 
provided VA health care a supplemental appropriation of $1.7 billion. 
Nevertheless, a 3-year funding drought built up conditions that could 
not easily be surmounted by one infusion of new funding. VA began 
queuing new veteran enrollees, the waiting list lengthened and 
rationing of care was commonly reported. Eventually, by 2002, the list 
of veterans waiting more than 6 months for their first primary care 
appointment inched toward 300,000 nationwide. Given an Administration 
that would not permit additional funding to stem the waiting list 
buildup, then-VA Secretary Principi, using the policy available to him, 
closed new enrollments of PG8 veterans and set about a plan to get the 
waiting list under control.
    Another consideration important to this discussion is that the BBA 
also authorized a ten-site ``Medicare subvention'' demonstration 
project within the Department of Defense (DOD) health care system as a 
precursor to the advent of Medicare subvention in VA. This program 
eventually failed in DOD and, later known as ``VA+Choice Medicare'' and 
later still, ``VAAdvantage,'' never got off the ground due to 
opposition from the Office of Management and Budget (OMB) and the 
Department of Health and Human Services. This failure meant that no 
Medicare funds would ever be received by VA for the care it had been 
providing (and is still providing) to fully Medicare-eligible veterans 
receiving care as enrolled VA patients, at a huge cost avoidance 
savings to the Medicare trust fund. At least 55 percent of VA's 
enrolled population is concurrently eligible for Medicare coverage. 
Many PG8 veterans, in and out of VA, would be Medicare eligible as 
well.

                         PRESIDENT'S TASK FORCE

    An additional perspective to consider with respect to addressing 
funding reform is that of the President's Task Force to Improve Health 
Care Delivery for Our Nation's Veterans (PTF). Dr. Gail Wilensky, Co-
Chair of that task force, testified before the House Committee on 
Veterans' Affairs on March 26, 2003, two months following the exclusion 
of PG8 veterans from VA enrollment. She stated:

          As I noted earlier, as the Task Force addressed issues set 
        out directly in our charge, we invariably kept coming up 
        against concerns relating to the current situation in VA in 
        which there is such a mismatch between the demand for VA 
        services and the funding available to meet that demand. It was 
        clear to us that, although there has been a historical gap 
        between demand for VA care and the funding available in any 
        given year to meet that demand, the current mismatch is far 
        greater, for a variety of reasons, and its impact potentially 
        far more detrimental, both to VA's ability to furnish high 
        quality care and to the support that the system needs from 
        those it serves and their elected representatives.
          The PTF members were very concerned about this situation, 
        both because of its direct impact on VA care as well on how it 
        impacted overall collaboration [with DOD]. Our discussion on 
        the mismatch issue stretched over many months and, as anyone 
        following the work of the Task Forces already knows, it was the 
        area of the greatest diference of opinion among the members.
          Although we did not reach agreement on one issue in the 
        mismatch area--that is, the status of veterans in Category 8, 
        those veterans with no service-connected conditions with 
        incomes above the geographically adjusted means test 
        threshold--we were unanimous as to what should be the situation 
        for veterans in Categories 1 through 7, those veterans with 
        service-connected conditions or with incomes below the income 
        threshold.

    While the Partnership supports opening the system to new PG8 
veterans who need care, we must surmise based on the above historical 
recounting and our analysis that the readmission of PG8 veterans to VA, 
absent a major reformation of VA's funding system, could stimulate and 
trigger a new funding crisis in VA health care. While Congress is 
poised to add a significant new discretionary funding increase to VA 
medical accounts for FY 2008--one that we deeply appreciate--we are 
uncertain that even that generous increase will be sufficient to offset 
all of VA's financial shortfalls. Also, it should be pointed out that 
the needs of re-admitted veterans would be challenging for VA's human 
resources and capital programs. We are concerned whether sufficient 
health professional manpower could be recruited to enable VA to put 
them into place in an orderly fashion to meet this new demand. Also, 
VA's physical space may be insufficient to accommodate the new 
outpatient visits that PG8 patients would likely generate. These 
practical problems are but additional proof that funding reform should 
accompany readmission of PG8 veterans into the system.
    The question about PG8 veterans reenrolling in VA health care is 
not a question only about them and their needs for health care. It is 
also a larger question about the sufficiency, reliability and 
dependability of the current system of funding VA health care through 
the domestic discretionary appropriations process. Until those reforms 
are enacted to guarantee that on October 1 of each year, VA will have a 
known budget in hand, will have the means and methods to spend those 
funds in accordance with need, and that VA's budget will be based on a 
stable, predictable and sufficient methodology, we are concerned about 
immediate readmission of PG8 veterans.

              FACTS ON ASSURED FUNDING FOR VA HEALTH CARE

    Mr. Chairman, in recent years we have heard a number of reasons put 
forward as to why converting VA health care to mandatory funding would 
fail, whether from the bill we recommend or through other models to 
achieve that purpose. We summarize those concerns here and ask the 
Committee to consider them and our responses.
Myths and Reality
    Myth: Congress would lose oversight over the VA health care system 
if VA shifted from discretionary to mandatory funding.
    Reality: While funding would be removed from the direct politics, 
uncertainties, and capriciousness of the annual budget-appropriations 
process, Congress would retain oversight of VA programs and health care 
services--as it does with other Federal mandatory programs. Guaranteed 
funding for VA health care would free Members of Congress from their 
annual budgetary battles to provide more time for them to concentrate 
on oversight of VA programs and services.

    Myth: Mandatory funding creates an individual entitlement to health 
care.
    Reality: The Assured Funding for Veterans Health Care Act would 
shift the current funding for VA health care from discretionary 
appropriations to mandatory budget status. The Act makes no other 
changes. It does not expand eligibility for an individual veteran, make 
changes to the benefits package, or alter VA's mission.

    Myth: Guaranteed funding would open the VA health care system to 
all veterans.
    Reality: The Health Care Eligibility Reform Act of 1996 
theoretically opened the VA health care system to all 27 million 
veterans; however, it was never anticipated that all veterans would 
seek or need VA health care. Most veterans have private health 
insurance and will likely never elect to use the system. The Secretary 
is required by law to make an annual enrollment decision based on 
available resources. This bill would not affect the Secretary's 
authority to manage enrollment, but would only ensure the Secretary has 
sufficient funds to treat those veterans enrolled for VA health care.

    Myth: Guaranteed funding for VA health care would cost too much.
    Reality: Guaranteed funding under the Act would utilize a formula 
based on the number of enrolled veterans multiplied by the cost per 
patient, with an annual adjustment for medical inflation to keep pace 
with costs for medical equipment, supplies, pharmaceuticals and 
uncontrollable costs such as energy. The Act would ensure that VA 
receives suficient resources to treat veterans actually using the 
system.

    Myth: Veterans in Priority Group 7 and 8 are using up all of VA's 
health care resources; and it therefore costs too much to continue to 
treat these veterans.
    Reality: Among the 7.9 million enrollees in the VA health care 
system, 2.4 million veterans from Priority Groups 7 and 8 account for 
only 30 percent of the total enrolled population but use only 11 
percent of VA's expenditure for all priority groups.

    Myth: The viability of the VA health care system can be maintained 
even if VA only treats service-connected veterans or the so- called 
``core group,'' Priority Groups 1-6.
    Reality: VA health care should be maintained and priority given to 
treat these veterans, since many of the specialized services they need 
are not available in the private sector. However, to maintain VA, a 
proper patient case mix and a sufficient number of veterans are needed 
to ensure the viability of the system for its so-called core users and 
to preserve specialized programs, while remaining cost effective.

    Myth: Providing guaranteed funding for VA health care will not 
solve VA's problems.
    Reality: With guaranteed funding, VA can strategically plan for the 
short-, medium- and long-term, optimize its assets, achieve greater 
efficiency and realize savings. VA continues to struggle to provide 
timely health care services to all veterans seeking care due to 
insufficient funding, and always uncertain funding beyond the 
operational year. The guaranteed funding formula in the bill provides a 
standardized approach in solving the access issue and permitting more 
rational planning.

    Myth: Veterans health care should be privatized because the system 
is too big, inefficient, and unresponsive to veterans.
    Reality: VA patients are often elderly, have multiple disabilities, 
and are chronically ill. They are generally unattractive to the private 
sector. Also, such patients pose too great an underwriting risk for 
private insurers and health maintenance or preferred provider 
organizations. While private sector hospitals have lower administrative 
costs and operate with profit motives, a number of studies have shown 
that VA provides high quality care and is more cost-effective care than 
comparable private sector health care. VA provides a wide range of 
specialized services, including spinal cord injury and dysfunction 
care, blind rehabilitation, prosthetics, advanced rehabilitation, Post 
Traumatic Stress Disorder, mental health, and long-term care. These are 
at the very heart of VA's mission. Additionally, VA supplies one-third 
of all care provided for the chronically mentally ill, and is the 
largest single source of care for patients with AIDS. Without VA, 
millions of veterans would be forced to rely on Medicare and Medicaid 
at substantially greater Federal and state expense.

    Myth: Under a mandatory funding program, VA would no longer have an 
incentive to find efficiencies and to supplement its appropriation with 
third-party collections.
    Reality: Mandatory funding will provide sufficient resources to 
ensure high quality health care services when veterans need it. It is 
not intended to provide excess funding for veterans health care. VA 
Central Office (VACO) would still be responsible for ensuring local 
managers are using funds appropriately and efficiently. Network and 
medical center directors and others would still be required to meet 
performance standards and third-party collections goals. These checks 
and balances will help ensure accountability.

                   DECISION POINT: A CALL FOR ACTION

    In closing, Mr. Chairman and Members of the Committee, we ask for 
your leadership, support and commitment to resolve this keystone issue 
in veterans' affairs. Only strong leadership from the Committee can 
address the current workload and resource imbalance reported to the 
Administration and Congress in 2003 by the President's Task Force, a 
mismatch confirmed nearly every day since in media accounts, learned 
reviews and research studies that are readily available to the 
Committee. We urge you to guide the Department out of this unnecessary 
but real and continuing dilemma. We hope, as leaders on veterans' 
issues, the Members of this Committee will remember the needs of 
America's veterans and take action to remedy this serious problem.
    This Committee knows best the enormous fiscal distress that VA has 
faced and still faces. We hope that Congress in a bipartisan manner 
will be willing to break the vicious cycle that has undermined the 
veterans' health care system. Your action on this issue will determine 
what level of health care is available to meet the needs of current and 
future generations of American veterans. We believe guaranteed funding 
through a mandatory formula would provide the most comprehensive 
solution to VA's chronic health-care funding problem. It would ensure 
the viability of the system. The hopes of the entire veterans' 
community for a more stable future were rekindled when you, Mr. 
Chairman, scheduled this important Committee hearing. We trust it 
represents the beginning of the end of these annual budget battles we 
all have to fight.
    Mr. Chairman, attached to this statement are legislative statements 
or resolutions adopted by member organizations of the Partnership 
urging funding reform in VA health care. We hope as you debate this 
crucial matter the Committee will recognize that our organizations are 
unified in our interests in calling for budget reform.
    This concludes my testimony. Again, I appreciate the opportunity to 
present testimony on behalf of the Partnership, and I thank the 
Committee for its continuing support for veterans, especially those who 
are sick and disabled as a result of serving the Nation.

    [Attachments to Mr. Violante's prepared statement follow:]

       Eighty-Eighth National Convention of the American Legion, 
             Salt Lake City, Utah, August 29, 30, 31, 2006

                           RESOLUTION NO. 254

    Subject: The American Legion Policy on Assured Funding for VA 
Medical Care

    Origin: California

    Submitted by: Veterans Affairs and Rehabilitation

    WHEREAS, the Department of Veterans Affairs (VA) annual budget 
consists of both mandatory and discretionary funding; and
    WHEREAS, mandatory funding refers to a process where the level of 
funding is governed by formulas or criteria set forth in authorizing 
legislation rather than by appropriations; and
    WHEREAS, under budget law, a mandatory program is one that requires 
provision of benefits to all who meet the eligibility requirements of 
the law; and
    WHEREAS, mandatory funding is provided for programs such as Social 
Security, Medicare, and VA compensation and pension; and
    WHEREAS, in contrast, discretionary funding is ``all other'' 
funding subject to the annual appropriations process; and
    WHEREAS, discretionary funding in VA's current annual budget 
provides for programs such as medical care, major and minor 
construction, National Cemetery Administration, State Extended Care 
Facility Grants, and State Cemetery Grants; and
    WHEREAS, there have been annual struggles to obtain sufficient 
funding to provide access to quality care for eligible veterans seeking 
care in VA facilities; and
    WHEREAS, a method to provide dependable, stable and sustained 
funding for veterans health care is needed; and
    WHEREAS, assured (mandated) funding is one component of a 
combination of funding mechanisms to ensure adequate Veterans Health 
Administration (VHA) funding: Now, therefore, be it
    RESOLVED, By The American Legion in National Convention assembled 
in Salt Lake City, Utah, August 29, 30, 31, 2006, That Congress 
designate assured funding for VA medical care; and, be it further
    RESOLVED, That Congress continue to provide discretionary funding 
required to fully operate other programs within the Veterans Health 
Administration's budgetary jurisdiction; and, be it finally
    RESOLVED, That Congress provide, if necessary, supplemental 
appropriations for budgetary shortfalls in VHA's mandated and 
discretionary appropriations to meet the health care needs of America's 
veterans.
                                 ______
                                 
                          RESOLUTION NO. 08-01

    Subject: Assured Funding for VA Health Care

    Source: National Headquarters

    WHEREAS, each year, veterans service organizations fight for 
sufficient funding for VA health care and a budget that is reflective 
of the rising cost of health care and increasing need for medical 
services; and
    WHEREAS, our nation's veterans are continuing to suffer because the 
system they depend on has been routinely under funded; and
    WHEREAS, the FY 2006 funding shortfall of more than $1 billion in 
health care services for sick and disabled veterans requires a long 
term fix; and
    WHEREAS, the current discretionary funding method for veterans' 
heath care is broken and the needs of our nation's sick and disabled 
veterans are not being met; and
    WHEREAS, without assured funding, VA will continue to remain under 
funded and unable to provide timely access to quality health care to 
many of our Nation's veterans; and
    WHEREAS, taking VA's budget out of the discretionary budget would 
eliminate the year-to-year uncertainty about funding levels that have 
prevented VA from being able to adequately plan for and meet the 
constantly growing number of veterans seeking treatment: Now, 
therefore, be it
    RESOLVED, That Congress enact legislation to make VA health care 
funding mandatory, thereby guaranteeing sufficient resources to cover 
expenses of the veterans health care system.

                                       Legislative Director
                                      AMVETS National Headquarters.
                                 ______
                                 
     Blinded Veterans Association Resolution on Mandatory Funding 
                for VHA Approved at Our Convention 2006

                          RESOLUTION NO. 60-02

    WHEREAS, veterans health care is funded annually by discretionary 
appropriations decided by the House and Senate Appropriations 
Committees, AND
    WHEREAS, each year the Department of Veterans Affairs fails to 
receive adequate funding for Veterans Medical Care from Congressional 
appropriations, AND
    WHEREAS, this lack of adequate funding causes veterans of all 
categories, delays and denials of critical medical care services: 
Therefore be it
    RESOLVED, That the Blinded Veterans Association, in convention 
assembled in Buffalo, NY on this 19th day of August, 2006, hereby 
support H.R. 515, Assured Funding for Veterans Health Care Act of 2005.
                                 ______
                                 
      Support Legislation to Make Department of Veterans Affairs 
                     Health Care Funding Mandatory

                           RESOLUTION NO. 074

    WHEREAS, the funding for Department of Veterans Affairs (VA) health 
care under the Federal budget is a discretionary program, meaning that 
it is within the discretion of Congress to determine how much money it 
will allocate each year for veterans' medical care; and
    WHEREAS, title 38, United States Code, section 1710(a), provides 
that the Secretary of Veterans Affairs ``shall'' furnish hospital care 
and medical services, but only to the extent Congress has provided 
money to cover the costs of the care; and
    WHEREAS, the Disabled American Veterans firmly believes that 
service-connected disabled veterans have earned the right to VA medical 
care through their extraordinary sacrifices and service to this Nation; 
and
    WHEREAS, the Disabled American Veterans, along with the other 
Independent Budget service organizations, has fought for sufficient 
funding for VA health care and a budget that is reflective of the 
rising cost of health care and increasing need for medical services; 
and
    WHEREAS, despite our continued efforts, the cumulative effects of 
insufficient health care funding have now resulted in the rationing of 
health care; and
    WHEREAS, VA reports that it has now reached capacity at many of its 
health care facilities; and
    WHEREAS, VA is unable to provide timely access to quality health 
care to many of our Nation's most severely disabled service-connected 
veterans; and
    WHEREAS, it is disingenuous for our government to promise health 
care to veterans but then make it unattainable because of inadequate 
funding; and
    WHEREAS, making veterans' health care funding mandatory would 
ensure the government meets its obligation to provide health care to 
service-connected disabled veterans and ensure all veterans eligible 
for care in the VA health care system have access to timely quality 
health care; and
    WHEREAS, making veterans' health care funding mandatory would 
eliminate the year-to-year uncertainties about funding levels that have 
prevented VA from being able to adequately plan for and meet the 
constantly growing number of veterans seeking treatment; and
    WHEREAS, by including all veterans currently eligible and enrolled 
for care in the mandatory health care funding proposal, we protect the 
overall viability of the system and the specialized programs VA has 
developed to improve the health and well-being of our nation's service-
connected disabled veterans: Now, therefore, be it
    RESOLVED, That the Disabled American Veterans in National 
Convention assembled in Chicago, Illinois, August 12-15, 2006, supports 
legislation to make VA health care funding mandatory thereby 
guaranteeing Congress provide sufficient resources to cover the 
expenses of the veterans' health care program.
                                 ______
                                 
          Jewish War Veterans Resolution on Mandatory Funding

                           MANDATORY FUNDING

    The Jewish War Veterans of the USA strongly endorses and supports 
the efforts of several Members of Congress to provide required funding 
for veterans' health needs through the introduction of H.R. 515, the 
Assured Funding for Veterans Health Care Act of 2005.
    The Jewish War Veterans of the USA agrees in the strongest possible 
terms with these friends of the veterans' contention that ``We can no 
longer allow the VA to be hostage to the administration's misplaced 
priorities and the follies of the Congressional budget process. This 
bill would place veterans' health care on par with all major Federal 
health care programs by determining resources bases on programmatic 
need rather than politics and budgetary gimmicks.''
    Under the current system, funding for veterans' health care is 
subject to reduction at any time due to political and programmatic 
pressures to take money earmarked for the care of those who have served 
the country, many on the field of battle, and divert those funds to 
other programs. In this way, the most deserving among us, those who 
have fought to defend our basic freedoms, are often denied the care 
which they have earned, which they have been promised, and which they 
deserve.
    The lack of prompt access to the care they deserve and have earned 
is not acceptable. As the wounded come home in ever-increasing numbers 
from the battlefields of Iraq and Afghanistan, the problem will only 
worsen in the years to come. Therefore, it is imperative that all those 
who honor our brave fighting men and women come together to support 
Representative Lane Evans' bill.
    It is not enough to mouth support for our current troops and those 
who fought the brave fight before them. We must all support mandatory 
funding to ensure their future needs as set out in the legislation 
proposed by our friends. The Jewish War Veterans of the USA urges 
everyone to contact his/her senators and representatives to urge their 
support for this bill and corresponding legislation in the Senate. Our 
country owes health care to our veterans who must not be dependent on 
the whims of the political process to get the benefits they have 
earned. We must remove funding for veterans' health care from the 
vagaries of political maneuvering.
                                 ______
                                 
                   Military Order of the Purple Heart
Tom Poulter, National Commander, March 29, 2007, Testimony Before the 
        Joint Senate and House Committees on Veterans Affairs

    Chairman Akaka, Chairman Filner, Members of the Committee, ladies 
and gentlemen.
           adequate funding for the va health administration
    The Military Order of the Purple Heart (MOPH) is on record as 
supporting the Independent Budget, which is developed and submitted to 
Congress by the Veterans of Foreign Wars (VFW), Disabled American 
Veterans (DAV), Paralyzed Veterans of America (PVA) and American 
Veterans (AMVETS).
    I am the fourth MOPH National Commander in a row to present as our 
number one priority Adequate/Assured funding for the VA Health 
Administration. MOPH joins our fellow VSOs in urging Congress to find a 
long-term solution to the annual funding crisis at the VA. The VA 
deserves a system that delivers funds on time to allow for long-term 
planning. With the ongoing War on Terror and our servicemembers 
returning home from war with medical conditions requiring treatment at 
VA hospitals, the VA needs the capability to meet their needs.
    Demand for VA healthcare still outpaces the capacity to deliver 
care in a timely manner. Within the priority system established by law, 
Congress should appropriate sufficient funds for all veterans the VA 
has agreed to treat through the enrollment process. This is not 
happening today as more and more veterans are triaged for care on 
waiting lists. A Presidential Task Force (May 2003) strongly 
recommended full funding for all veterans enrolled in the VA health 
care system. Thus far, the Administration and Congress have ignored 
this recommendation.
    Each year the VA is to receive funding for the next fiscal year by 
October 1 so that they may plan for personnel and programs. Over the 
last several years this has not occurred and the Appropriations Act has 
not passed until well into the fiscal year. The 2007 Appropriations Act 
has not passed and the VA is currently operating on a Continuing 
Resolution. While MOPH appreciates the fact that Congress mandated that 
the VA received a $3.6 billion increase in the Continuing Resolution, 
for which we commend Congress, this is a perfect example of why the 
funding of the VA health system needs to be changed.
    MOPH urges Congress to pass legislation which will fully fund the 
VA health care system through modifications to the current budget and 
appropriations process, either by using a mandatory funding mechanism, 
or by some other changes in the process in order to achieve the desired 
goal of providing care to those veterans who are enrolled in the VA 
health care system.
    On another health care note, MOPH, like the majority of Americans 
is appalled by the conditions that those heroes returning from the 
ongoing conflicts had to endure at Walter Reed Army Hospital. There is 
no excuse for this episode. When our country commits its military to a 
mission then it must be ready to see to the needs of those warriors 
when they return home. We must never accept less than the best health 
care and treatment for these men and women. MOPH will not ``pile on'' 
this issue as it seems that Congress and the Administration are trying 
to correct the problems. We will closely monitor the process.
                                 ______
                                 
                Assured Funding for Veterans Health Care

                           RESOLUTION NO. 610

    WHEREAS, there must be continued and sustained investment by 
Congress and the Administration in the national resource of the VA 
health care system, including improving veterans access to timely care, 
protecting and strengthening specialized services, and ensuring that 
the infrastructure is functional; and
    WHEREAS, while the Secretary of Veterans Affairs sets standards for 
quality, access to health care is often constrained by the level of 
appropriated funding; and
    WHEREAS, the amount of annual funding, and not the demand for 
services, defines overall access to VA health care; and
    WHEREAS, without a statutory veterans' entitlement to VA health 
care, the Secretary of Veterans Affairs has no clear obligation to 
deliver a defined amount of health care nor estimate the physical 
capacity in response to the demand; and
    WHEREAS, the lack of adequate and inconsistent appropriated funding 
has now resulted in the actual denial of mandated VA health care to 
veterans, leaving the VA also unable to justify reciprocal capital 
investments sorely needed to support the efficient access to health 
care; and
    WHEREAS, the Secretary of Veterans Affairs is accordingly limited 
to enhancing quality of health care for some veterans by reducing 
access for other veterans; and
    WHEREAS, as long as the annual appropriation is the statutory 
determinant of access to quality health care, inconvenience, delay and 
denial remain the de facto cost control mechanisms restricting any 
initiative to improve performance; and
    WHEREAS, it is now obvious that veterans need a dependable 
entitlement to high quality health care not only for a basis of proper 
fiscal and economical planning but also to fulfill the moral mandate to 
``care for those who have borne the battle'': Now, therefore, be it
    RESOLVED, by the Veterans of Foreign Wars of the United States, 
That we urge Congress to establish a statutory entitlement for veterans 
health care as a means to assure veterans receive the care they justly 
deserve, obviate diminished access as the current primary method of 
cost control, and provide a basis for justification of those capital 
investments needed to streamline processes for efficiency improvements.

    Submitted by Commander-in-Chief to Committee on Veterans Service 
Resolutions
    The intent of this resolution is:
    To have Congress establish the funding for entitlement to veterans 
health care as insured rather than discretionary appropriations.
    APPROVED by the 107th National Convention of the Veterans of 
Foreign Wars of the United States.
                                 ______
                                 
                      Vietnam Veterans of America

                     VETERANS HEALTH CARE (V-1-05)

Issue
    The Department of Veterans Affairs (DVA) Veterans Health Care 
Administration, Veterans Integrated System Network/VISN is responsible 
for providing health care to veterans with service-connected 
disabilities and others as determined by eligibility rules established 
by Congress. Concerns continue regarding quality of health care, 
access, and eligibility for services.
Background
    Many veterans have been adversely affected by what has been 
described as a health-care system ``in crisis.'' This, in part, is due 
to budget and resource limitations. Other significant factors are 
directly related to the massive size of the centralized DVA health-care 
system, its bureaucratic inertia, and its inability to organize itself 
into an effective instrument to meet the changing health-care needs of 
all veterans under its care. Both service-connected and non-service-
connected veterans have experienced a consistent unavailability of 
access to DVA health care, including mental health, outpatient 
contract, and inpatient cares.
    Issues of access involve the need for many veterans to travel long 
distances to obtain care, as occurs with veterans living in rural 
communities or on island communities in Puerto Rico, the U.S. Virgin 
Islands, and Hawaii. Non-U.S. citizen veterans of the U.S. Armed Forces 
may receive DVA treatment for service-connected disabilities only if 
residing in the U.S. the statute allows payment for the treatment of 
service-connected disabilities outside the U.S. for veterans of the 
U.S. Armed Forces, only if such veterans are U.S. citizens, reside in 
the Republic of the Philippines, or are Canadian nationals.
    The quality of health care in DVA remains suspect as revelations of 
questionable practices and adverse outcomes continue to emerge. DVA has 
lost sight of its obligation to provide quality health care as defined 
by veterans and there families, opting instead for quality as defined 
by health administrators and medical school affiliations.
    This resolution amends V-1-95
    Resolved, That:
    Vietnam Veterans of America maintains that:

    1. Veterans who have sustained injuries or illnesses during and/or 
as a result of their military service have the right to the highest 
quality medical and psychological services for treatment of those 
injuries and illnesses.
    2. The first priority of the DVA must be to provide the highest 
quality medical and psychological treatment at no cost to veterans for 
illnesses and injuries incurred during and/or as a result of military 
service.
    3. DVA must insure the highest quality of care provided in DVA 
health-care facilities. Monitoring activities conducted by Quality 
Assurance Programs must be scientifically based and include regular and 
consistent review by the director and chief of staff of the 
institution.
    4. When DVA cannot provide the highest quality care within a 
reasonable distance or travel time from the veterans home (fifty miles) 
and in a timely manner (thirty days). DVA must provide care via fee-
basis provider of choice for service-disabled veterans. Additionally, 
DVA must provide beneficiary travel reimbursement at the government 
rate.
    5. Restrictions against providing DVA medical care to non-citizen, 
service-connected disabled veterans of the U.S. Armed Forces must be 
removed in order to treat equitably all those who served in the U.S. 
Armed Forces regardless of their country of origin, citizenship, or 
current country of residence.
    6. DVA health-care policies must allow the veteran client to have 
input in DVA Medical Center/Outpatient Clinic operations. This should 
include establishment of veteran's advisory boards at the local level.
    7. DVA health-care policies must be based on veteran patient needs. 
Health-care implementation should be decentralized to the local level, 
and budgeting should allow local facilities to plan for their own needs 
with significant consultation by the local veterans advisory board.
    8. The Congress must enact and the President must sign into law 
legislation that creates an assured reliable funding stream for the DVA 
health are programs, indexed to medical inflation and the per capita 
use of the VA Health Care System.
    9. VVA questions the philosophy and the language that limits the 
delivery of the VA healthcare treatment and services to a ``core 
constituency''. VVA is committed to protecting the rights of veterans 
and access to VA programs and services as defined in Title 38 U.S. 
code.

    Financial Impact Statement: In accordance with motion 8 passed at 
VVA January 2002 National Board of Directors meeting which charges this 
committee with the reviewing its relevant Resolutions and determining 
an expenditure estimate required to implement the Resolution, presented 
for consideration at the 2003 National Convention; this committee 
submits that implementation of the foregoing Resolution be at no 
additional cost to the organization.This Resolution states in effect 
what has been a long standing part of VVA's advocacy and legislative 
programs.
    Adopted at Vietnam Veterans of America 12th National Convention in 
Reno, Nevada August 9-14, 2005.

    Mr. Cox, your statement.

         STATEMENT OF J. DAVID COX, NATIONAL SECRETARY-
         TREASURER, AMERICAN FEDERATION OF GOVERNMENT 
                       EMPLOYEES, AFL-CIO

    Mr. Cox. Chairman Akaka, Ranking Member Craig, and 
distinguished Members of the Committee, thank you for the 
opportunity to present AFGE's views on the VA health care 
funding process. I ask that my written statement be submitted 
for the record.
    I would also like the privilege of thanking Representative 
Chris Smith for his fine leadership in the House and Dr. Kizer, 
that I had the privilege of working with many years in the VA, 
for his insight to always involve the union and the employees 
in his programs and the development of those programs that has 
made the VA what it is today.
    AFGE unequivocally supports the Partnership for Veterans 
Health Care Budget Reform in calling for an assured funding 
approach that uses mandatory dollars to guarantee sufficient 
funds for all veterans who need medical care. The discretionary 
funding process is broken, so broken that it no longer supports 
the demands that are being placed on it. I worked for this 
amazing health care system as a registered nurse for 25 years 
before becoming an AFGE officer a year ago. I am so proud of 
what the VA health care system has accomplished in recent 
years.
    It breaks my heart to see what this funding roller coaster 
called discretionary funding is doing to the VA. Our members 
working at VA medical centers and clinics see firsthand the 
cumulative, corrosive effect of discretionary funding. 
Opponents contend that the costs of assured funding will be 
unmanageable, but they fail to point out the enormous cost of 
the stop-gap solutions that managers turn to when discretionary 
funds are scarce, including fee-based care, agency nurses, and 
diversion to non-VA medical centers.
    Over the long haul, these policies will undermine the gains 
of the past and hurt VA's ability to provide quality care to 
veterans or contribute as a national leader in best practices, 
research, and medical training.
    What I am hearing from the front lines is very disturbing. 
Primary care physicians were chastised for making referrals for 
screening colonoscopies, even though a new VA directive says 
that all veterans age 50 and over should be screened. 
Management wanted them to use stool cards that are less 
effective at detecting colon cancer when it is still treatable.
    Nurses working in new spinal cord injury units were told 
there were no funds to send them to training or to observe best 
practices at other facilities. When new PTSD and suicide 
prevention programs drew staff away from other mental health 
units, the vacant positions were not back-filled.
    The VA is a world leader in safe patient handling, but 
fails to provide patient lifting equipment to most of its own 
medical centers and nursing homes, leading to workplace 
injuries, patient skin tears, and lost work time.
    The VA is in desperate need of workforce succession 
planning, but I fear that it will never be undertaken in a 
serious manner so long as the discretionary funding process 
continues to focus on the short-term and generates great 
financial uncertainty. The average age of the VA health care 
workforce is 48.3 years and it is going up every year. In 5 
years, 44 percent of the entire VA health care workforce will 
be eligible to retire.
    The statistics on VA registered nurses are frightening, 
especially in light of the national nursing crisis.
    According to an American Hospital Association report just 
cited in USA Today, this country had 118,000 nurse vacancies 
last year. Can the VA health care system, which has to fight 
for funding every year, compete for nurses in the face of this 
national crisis? I am doubtful. Yet the VA isn't doing what it 
can to hold on to its current nurses. Almost 22,000 of the 
36,000 registered nurses who work at the VA will be eligible to 
retire by 2010. That is 3 years away. And newer nurses are 
leaving in droves. In Fiscal Year 2005, nearly 78 percent of 
all R.N. resignations at the VA occurred within the first 5 
years of employment.
    A systematic funding methodology goes hand-in-hand with 
systematic staffing methodology that counts what needs to be 
counted, like patient acuity, staffing needs for new health 
directives, and costs of staying competitive with the private 
sector. Unfortunately, VA's track record for implementing a 
nurse staffing methodology in a discretionary funding 
environment has been dismal.
    In 1991, VHA collaborated with experts to develop a new 
staffing methodology, but it was implemented in a very few 
facilities. A decade later, the National Commission on VA 
Nursing, on which I served, called for a national staffing 
methodology, but like almost every other Commission 
recommendation, it went nowhere.
    The one Commission recommendation that was enacted into 
law, nurse locality pay legislation, has not significantly 
boosted VA nurse recruitment or retention because of cash-
strapped managers who are either reluctant to conduct pay 
surveys or increase pay for front-line nurses, even when 
surveys prove they are needed. By contrast, they are quite 
willing to conduct pay surveys and top-load the pay of nurse 
executives and managers.
    Nurse scheduling met a similar fate. In 2004, a law to 
allow nurses to have compressed work schedules and limit 
overtime has been circumvented by politics and chronic staffing 
shortages.
    Funding problems also took precedence over Congressional 
intent when it came to addressing physician shortages. Under 
legislation that took effect last year, local pay panels were 
supposed to set competitive market pay for different 
specialties. But many managers told their physicians they had 
no money for pay raises, even before the pay panel started 
deliberating. The law also set fixed maximums for performance 
pay awards, but most physicians got minimal awards, at best, 
regardless of their performance, again, justified by management 
claims that the well had run dry.
    Chairman Akaka, we thank you for pursuing a GAO study on 
the use of agency nurses at the VA. Besides being costly, 
agency nurses are not familiar with VA patient care directives 
or its health care IT system, such as electronic health 
records, computerized bar code medication coding, clinical 
reminders, which compromise patient care and further burden 
staff nurses.
    In closing, we urge you to reform the current funding 
process so that the VA is funded with mandatory dollars just 
like almost every other Federal health care system. Only a 
systematic approach to funding based on actual need and cost 
will be effective in alleviating the VA health care workforce 
crisis that is looming on the horizon.
    Thank you very much, sir, and I would be glad to answer any 
questions.
    [The prepared statement of Mr. Cox follows:]

Prepared Statement of J. David Cox, R.N., National Secretary-Treasurer, 
          American Federation of Government Employees, AFL-CIO
    Dear Chairman and Members of the Committee:

    The American Federation of Government Employees, AFL-CIO (AFGE), 
which represents more than 600,000 Federal employees who serve the 
American people across the Nation and around the world, including 
roughly 150,000 employees in the Department of Veterans Affairs (VA), 
is honored to testify today regarding the current process for funding 
veterans' health care and alternative funding approaches.
    It is also an honor to participate in this important discussion 
along with the Partnership for Veterans Health Care Budget Reform 
(Partnership). AFGE is a long time supporter of the principles endorsed 
by the veterans' organizations that comprise the Partnership and the 
Independent Budget, including the need for an assured funding approach 
that uses a systematic methodology for funding veterans' health care.
    The Partnership has presented a very compelling case for assured 
funding. The Nation's largest integrated health care system must 
receive its funding through a predictable, needs-based funding formula 
if it is to remain a leader in health care quality and respond to 
growing demand. Assured funding is the only approach that can utilize a 
systematic methodology; a systematic discretionary funding methodology 
is practically an oxymoron.
    What I would like to address through my testimony today is the 
perspective of AFGE nurses, physicians, and other Title 38 
professionals who see first hand the harm caused by the discretionary 
funding process. As a registered nurse at the Salisbury, North Carolina 
VA Medical Center for almost 25 years and a long time union president 
and officer of the National VA Council, I have received a great many 
reports from VHA employees struggling to care for veterans under a 
constant cloud of continuing resolutions and unpredictable funding.
    The wear and tear of a broken funding process on the VA health care 
system is cumulative, steadily depleting its infrastructure and 
workforce at a time of burgeoning demand from veterans of the Global 
War on Terror and an aging population. Facilities remain in disrepair, 
hospital beds stay closed, and staffing shortages and workforce morale 
worsen. The occasional emergency supplemental infusion of cash leads to 
a rush to spend, without adequately addressing long term needs.
    Opponents of assured funding contend that the VA budget will reach 
unmanageable levels, but they fail to point out that a discretionary 
funding process results in great misallocation of health care dollars, 
and threatens the VA's exemplary quality record. Facilities with hiring 
freezes and noncompetitive physician and nurse pay rates, and delayed 
purchases of medical equipment must contract with the private sector at 
much higher costs. Facilities with unstaffed hospital beds and too few 
specialists spend huge sums of money diverting patients to non-VA 
hospitals.
    The following troubling reports were recently provided by members 
working in VHA facilities:

     Delays and cutbacks in diagnostic testing: VA pay scales 
for scarce medical specialists are far below the private sector. 
Facilities address unfilled positions by turning to high priced fee 
basis care. Shortages in gastroenterologists are impacting the VA's 
ability to implement a new policy to offer screening colonoscopies to 
all veterans age 50 or older, regardless of prior risk factors. Primary 
care physicians attempting to make colonoscopy referrals according to 
the new guidelines are being pressured to cut back, and offer stool 
cards--a far less effective tool for detecting cancer at early stages--
instead.
     Reduced access to state-of-the-art treatment: A primary 
care physician reports that her patients who are in extreme pain are 
not able to receive the most effective injection-based pain treatment 
because her facility is unable to hire an anesthesiologist at current 
VA pay levels and management has capped spending on fee basis care.
     Budget driven equipment purchases: During months of the 
fiscal year when dollars are short, money needed to update or repair 
medical equipment is used for payroll. Then, at the end of the fiscal 
year, the rush to spend and justify next year's budget results in 
hasty, lower priority purchases such as furniture.
     Inadequate training in specialty care: Nurses working in 
new spinal cord units were told that there was no money to send them to 
conferences or other facilities where they could observe best 
practices. Similarly, ICU nurses were not permitted to attend 
cardiology training due to a shortage of funds and staff.
     Inadequate time with patients: Many VA providers are 
working with patient panel sizes (some as high as 1,400 patients or 
more) that exceed VA's own recommended ceiling. Nurses are discouraged 
from setting multiple follow up appointments even when the veteran's 
health problems warrant close monitoring. In addition, facilities set 
fixed time limits for examining each patient regardless of the 
individual's needs.
     Psychiatric care: Staffing shortages result in delays in 
treatment of PTSD and other mental health conditions, and constrain the 
amount of time staff can spend with each patient or visit veterans in 
other locations such as homeless shelters. New PTSD and suicide 
prevention programs have drawn staff away from patients in other mental 
health units; the positions they vacate are not filled, leaving 
remaining staff with larger patient loads.
     Safe patient handling. Although VA is a world leader in 
state-of-the-art patient lifting equipment, sufficient funds to equip 
all VA hospitals and nursing homes have not been provided. The costs: 
more nurse back injuries, lost work time, patient skin tears, and 
workers compensation claims.
     Nonmedical tasks divert time away from patients: Budget 
problems have resulted in widespread hiring freezes and lags for 
support positions, for example, clerks who check in patients, schedule 
reminders for future appointments and answer phones. Team leaders of 
new health care initiatives lack staff support for added duties.
     Understating access problems: The current funding process 
encourages management to hide the true gap between patient need and 
available resources through patient appointment processes that ``shape 
demand'', manipulation of wait list data and empty ``ghost beds'' that 
lack staff.
     Discretionary style diversion policies: Patient care is 
compromised when decisions whether to divert to non-VA facilities are 
based on budget problems rather than good medicine. When VA beds are 
unavailable, and dollars are tight, patients who need to be admitted 
wait in ERs and hallways instead.

         THE IMPACT OF THE CURRENT FUNDING PROCESS ON STAFFING

    VHA's aging workforce should provide a wake up call to management 
to take succession planning more seriously than it has. Unfortunately, 
yearly funding fluctuations and shortfalls have undermined succession 
planning efforts in the past. The average age of VHA employees has 
risen from 45.4 years to 48.3 years over the past decade, and 44 
percent will be eligible to retire at the end of 2012.
    Adequate nurse staffing is a critical component of improved patient 
outcomes, e.g., decreases in urinary tract infections, pneumonia and 
shock or cardiac arrest, avoided hospital stays and fewer in-hospital 
deaths. \1\ The impending RN workforce shortage at the VA is startling: 
almost 22,000 of the RNs caring for our veterans will be eligible to 
retire by 2010 while 77 percent of all RN resignations occur within the 
first 5 years.
---------------------------------------------------------------------------
    \1\ J. Needleman, et al., ``Nurse Staffing in Hospitals: Is there a 
Business Case for Quality? '' Health Affairs No. 1(2006): 204-211.
---------------------------------------------------------------------------
    In 1991, in response to a growing nurse shortage, VHA collaborated 
with a panel of staffing experts to recommend a complete overhaul of 
VHA's staffing methods. Unfortunately the new methodology was sparsely 
implemented, due in part to a lack of resources.
    In 2002, Congress sought to address the growing nurse staffing 
crisis by establishing the National Commission on VA Nursing. As a 
member of that Commission, I participated in extensive discussions 
about the need for a systematic staffing methodology. Our final 
recommendations included a call for VHA to ``develop, test and adopt 
nationwide staffing standards that assure adequate nursing resources 
and support services to achieve excellence inpatient care and desired 
outcomes.'' Unfortunately, the Commission's recommendation met the same 
fate as the previous attempt: a national staffing methodology was never 
implemented.
    Ironically, the one Commission recommendation that was enacted into 
law--2001 nurse locality pay legislation--has not achieved its 
potential due to the reluctance of cash-strapped managers to conduct 
pay surveys or provide increases commiserate with private sector pay 
surveys. The significant inequity between locality pay increases for 
the rank and file and supervisory nursing staff hurts morale and 
worsens VA's nurse shortage.
    The greater problem is that any staffing methodology operating in a 
system with unpredictable funding is bound to fail. Without a sound 
funding methodology for the larger health care system, it is our firm 
belief that VHA will not have the resources to adopt the Commission's 
important staffing recommendations. In contrast, an assured funding 
approach would enable the VA to base staffing on all relevant criteria, 
including patient acuity, the impact of alternative work schedules, the 
staffing needs generated by new health care directives and the impact 
of nursing shortages nationwide on nurse pay and other incentives.
    The discretionary funding process took its toll again when Congress 
tried to address the VA nursing shortage through 2004 legislation that 
increased the availability of RN alternative work schedules and 
restricted mandatory overtime, in order to become more competitive with 
private sector nurses. Management operating under hiring freezes and 
uncertain funding streams continue to require or pressure RNs to work 
overtime and are reluctant to offer alternative work schedules, further 
contributing to recruitment and retention problems.
    We thank Chairman Akaka for requesting a GAO study of the cost and 
quality impact of agency nurses in the VA. Facilities continue to over 
utilize costly agency nurses rather than adopt policies to improve 
recruitment and retention of staff nurses. Agency nurses are unfamiliar 
with VA's specialized care, new directives on Traumatic Brain Injury, 
mental health and hospital infections, and the VA's bar code medication 
administration system, electronic health records or clinical reminder 
systems. They lack security clearances to access certain computer 
files. As a result, they cannot work as independently as staff nurses 
and must be given more desirable day shifts sought by senior in-house 
nurses.
    Provisions in 2004 legislation that addressed pay for physicians 
and dentists have met a similar fate. The law established new systems 
for setting competitive salaries (``market pay'') and for performance 
pay awards. The chaos of the current budget process struck again. Even 
before the compensation panels to set new market pay rates were in 
place, management in many locations told physicians not to expect much 
of any pay increase because of budget problems, and that is just what 
happened on a widespread basis.
    When we asked about the pay surveys that facilities used to set 
physician market pay, we were told it was too confidential to reveal. 
What we do know, however, is that the process was anything but 
systematic. Each facility chose its own pay surveys and had complete 
discretion to select compensation panel members, the resultant 
variations in pay decisions were often suspect. More generally, the 
current process is flawed in that raises for VHA employees are not 
addressed until after the projected budgets are submitted, leaving the 
facility director to absorb proposed salary increases.
    The impact of a flawed budget process was even more obvious in the 
implementation of the physician performance pay provisions in the 2004 
law. Congress set a yearly award of up to $15,000 or 7.5 percent of 
salary to reward quality performance. However, in the first year, the 
VA revised the national cap downward to $5,000 and local management has 
continued to play the budget card by setting even lower caps (in many 
cases, under $1000 or no awards at all).
    Needless to say, these pay policies have failed to improve the VA's 
ability to recruit and retain health care professionals or reduce 
spending on fee basis physicians and other contract care.
    In the words of one of our primary care physicians, ``physicians 
would flood the VA'' if pay rates were competitive because they are 
attracted to this patient population, the computerized medical record, 
single drug formulary and the ability to provide high quality care 
without worrying whether the patient will be able to pay his out-of-
pocket share of services and medications.
    In closing, AFGE has sadly concluded that the VA will not be able 
to undertake meaningful succession planning, effectively address 
recruitment and retention problems, or engage in strategic, long range 
planning for other aspects of health care delivery so long as 
discretionary funding is creating a constant state of financial 
uncertainly and the demand for and cost of delivering health care to 
our veterans is based on a yearly political fight rather than a 
systematic funding methodology.

                               CONCLUSION

    AFGE greatly appreciates the opportunity to submit our views and 
recommendations to the Senate Committee on Veterans' Affairs. We look 
forward to working with Chairman Akaka and the Committee on short term 
and long term solutions to the VA's health care funding problems.

    Chairman Akaka. Thank you very much, Mr. Cox.
    Mr. Cox, you have spent a considerable part of your career 
representing VA employees in the field. You have seen many 
things happen there. You have just mentioned in your statement 
about what you expect to happen with retirements and the huge 
percentage of retirements that will be occurring. Could you 
speak a little bit more on the effects of continuing 
resolutions and hiring freezes on employee morale and 
motivation?
    Mr. Cox. Every year when we had the continuing resolutions, 
there was the inability to replace staff that had left, 
retired, or quit, moved to other jobs, or moved from one 
section of the medical center. Medical center directors were 
told to hold the line. They did not have the budgets to act on. 
We had to reach out to use agency employees, fee basis, which 
cost a whole lot more. And then again, many of the schools of 
nursing, many of the physicians, many of the health care 
professionals that were available that were graduating and 
eligible and available to be hired, the VA was not able to 
reach out to them and to offer them employment because of 
continuing resolutions and the lack of funds. And therefore, it 
has greatly hampered the ability to recruit and retain.
    And obviously, nothing is any more upsetting to a nurse or 
any health care provider, to be there on the front line 
providing care to veterans and have insufficient staff to meet 
those needs.
    Chairman Akaka. We are very concerned about morale and 
motivation, as well.
    Mr. Cox. Thank you, sir. Morale is a very serious problem, 
and I think the employee morale in the VA has gone down in the 
last several years because of the budget process and the 
inability to replace the staff and to get the staff that is 
needed to take care of the veterans.
    Chairman Akaka. Mr. Violante, after hearing you, you did 
use the word ``mandatory.'' Is your Partnership proposing an 
entitlement to VA health care for veterans? If so, what effects 
do you think this would have on the overall Federal budget 
process, including on the role of this Committee and the 
Appropriations Committee, as well?
    Mr. Violante. Well, Mr. Chairman, first of all, we are not 
asking for an individual entitlement. The entitlement is to the 
VA. It is a Department entitlement. There is a distinction. We 
are not changing in any way how VA provides services, who they 
provide them to, or the benefit package. It doesn't entitle me 
as a service-connected disabled veteran to go anywhere I want 
to go for care. It requires me still to go to the VA.
    What it does do is provide VA with a sufficient level of 
funding. It also provides predictability and it provides 
timeliness. We have heard earlier about some of the funding 
situations that Congress is going to have to deal with if they 
move the VA health care discretionary funding to a mandatory 
account. There are pay-go implications. We would hope that 
Congress could somehow use the money that is being saved on the 
discretionary side to offset the costs.
    Congress is going to have to deal with the costs of health 
care. We have heard it from the first witnesses, including 
former Chairman Smith. It is going to continue to cost our 
government quite a bit of money to fund veterans' care and we 
can't see how VA can sustain its programs under the current 
system.
    Chairman Akaka. Let me ask both of you the simple question 
that to which you have alluded. Would you agree that the amount 
for VA for next year--now coming out of both the Senate and the 
House--is it adequate?
    Mr. Violante. I think we believe that the level of funding 
that you are considering right now is in line with what we 
believe VA's needs are. Our concerns, again, are when is VA 
going to receive that money or know, in fact, what amount they 
are getting it. So that is still a concern. But certainly, the 
level of funding is adequate, and we greatly appreciate all the 
hard work that went into reaching that level of funding. It is 
very helpful. Six billion dollars more for health care is line 
with what we believe VA needs.
    Chairman Akaka. Thank you very much. Mr. Cox?
    Mr. Cox. AFGE is very excited about the budget that we have 
seen for the VA and applaud all the Members of Congress for 
their efforts and work on that. But again, we would like to see 
that budget delivered today so that we can begin preparing and 
the staff is prepared, but also there is still an element of 
caution because every day, we are creating brand new veterans 
and making a 40-, 50-, or greater-year commitment. And these 
veterans, as Dr. Kizer and others said earlier, are going to 
require a great deal of specified care and services, and to 
anticipate those needs, I am not sure that anyone has the 
ability to calculate all of that.
    But we are excited about the funding, and the employees 
nationwide, from housekeeping aides to doctors and nurses, you 
know, have an element of joy in their heart that there is going 
to be greater funding, that they can go out and do their job 
every day serving veterans.
    Chairman Akaka. Thank you very much, and I want to thank 
both of you for your statements. You have been very helpful. I 
ask you to convey our best wishes to the groups that you 
represent. Thank you.
    Mr. Cox. Thank you.
    Mr. Violante. And thank you, Mr. Chairman. We appreciate 
it.
    Chairman Akaka. I am very pleased to welcome the Honorable 
Michael J. Kussman, VA's current Under Secretary for Health, 
and his colleagues as today's third panel. Dr. Kussman is 
accompanied by Patricia Vandenberg, Assistant Deputy Secretary 
for Health for Policy and Planning, and Paul Kearns, Veterans 
Health Administration Chief Financial Officer. I want to thank 
you all for being here with us today and for being so patient.
    Dr. Kussman, your full statement will appear in the record 
of this hearing, so will you please begin with your statement.

  STATEMENT OF MICHAEL J. KUSSMAN, M.D, M.S., M.A.C.P., UNDER 
              SECRETARY FOR HEALTH, DEPARTMENT OF 
VETERANS AFFAIRS; ACCOMPANIED BY PATRICIA VANDENBERG, ASSISTANT 
DEPUTY SECRETARY FOR HEALTH FOR POLICY AND PLANNING, DEPARTMENT 
                          OF VETERANS 
  AFFAIRS; AND PAUL KEARNS, CHIEF FINANCIAL OFFICER, VETERANS 
     HEALTH ADMINISTRATION, DEPARTMENT OF VETERANS AFFAIRS

    Dr. Kussman. Well, aloha, Mr. Chairman. I guess you are the 
only one here, so I don't have to acknowledge the other Members 
of the Committee. But before I get into my prepared remarks, I 
would like to make a quick comment.
    I am very thankful of the first two panels because I really 
appreciated their continual validation of the quality of care 
and the magnificent work of the 200,000 people who work for me 
in the Veterans Health Administration, so I truly appreciate 
that.
    I would also like to say that, Dr. Reinhardt is not here, 
but I would also like to thank his son for his magnificent 
service in defense of our country on the Global War on 
Terrorism. He is truly an American hero.
    Mr. Chairman, thank you for the opportunity to discuss the 
Department of Veterans Affairs' current funding process for its 
medical care program, including budget formulation, 
Congressional appropriations, and alternatives to the existing 
process, such as moving such funding from the mandatory side of 
the Federal ledger.
    Joining me today is Paul Kearns, Chief Financial Officer of 
the Veterans Health Administration, and Patricia Vandenberg, 
Assistant Deputy Under Secretary for Health for Policy and 
Planning. And again, thank you for submitting my written 
testimony for the record.
    Prior to enactment of the Veterans Health Care Eligibility 
Reform Act of 1996, the VA's medical care budgets were based on 
past expenditures adjusted for inflation. This historical 
approach, however, was inconsistent with the practices of 
large, integrated, private sector health plans, which VA began 
to resemble as we transformed into an integrated system of 
care, providing a full range of comprehensive health services. 
For this new model of health care delivery, the VA adopted a 
rational and predictive budget to meet the needs of veterans. 
These budgets are able, then, to continually adjust budgetary 
projections to account for shifting trends in the veteran 
population, increasing demands for services, and escalating 
costs of health care.
    Pivotal to this entire enterprise is the VA Enrollee Health 
Care Demand Model, which develops estimates of future veteran 
enrollment, enrollees' expected utilization for 55 health care 
services, and costs associated with utilization. The model 
projects future demand for health care services based on 
private sector benchmarks adjusted for the unique demographic 
and health care characteristics of the veteran population in 
the veteran VA health care system. Each year, the model is 
updated with the latest data on enrollment, health care service 
utilization, and service costs. VA has integrated the model 
projection into our financial and management processes.
    VA believes the use of actuarial projections for budget 
development is the most rational way to project the resource 
needs of our veterans. As noted earlier, this approach is 
consistent with the private sector.
    Unlike the private sector, VA must develop budgets 2\1/2\ 
to 3 years into the future. Furthermore, VA receives its 
medical care budget in three separate appropriations: Medical 
services, medical administration, and medical facilities. The 
Congress created this funding structure in 2004, replacing the 
previous single appropriations structure. This change has 
significantly increased operational complexity without 
improving financial accounting accuracy. In addition, the new 
structure has introduced unintended inefficiencies and 
increased complexities into the VA's budget management 
processes and procedures.
    There are two commonly considered alternatives to the 
existing appropriations process. First, VA's current multiple 
appropriations could be combined into a single medical care 
appropriation. The second option is the one that we have heard 
on mandatory funding. A single appropriation for medical care 
would enable VA managers at every medical center and network to 
optimize resources flexibly and ensure timely delivery of high-
quality care to veterans.
    We believe the other alternative, mandatory funding, would 
not be in the best interests of our veterans. Since there is no 
concrete proposal describing in detail how a mandatory funding 
approach would actually work, we can only hypothesize about its 
effects. However, a mandatory funding approach, in our view, is 
neither reflective nor adaptable to changes in enrollee 
priority level and age mix, enrollee morbidity and mortality, 
enrollee reliance, and advances in state-of-the-art 
technologies and medical practices. Additionally, a mandatory 
funding approach potentially limits the ability of either the 
executive or legislative branches of government to match policy 
with financial circumstances or to execute its inherent 
oversight responsibility.
    VA believes the current processes of budget formulation 
provides the best methodology for estimating the VHA budget. 
However, a return to a single appropriation would significantly 
improve VHA's ability to deliver timely, high-quality health 
care to our Nation's veterans.
    Mr. Chairman, this concludes my prepared statement and my 
staff and I would be pleased to answer any questions you may 
have.
    [The prepared statement of Dr. Kussman follows:]

 Prepared Statement of Michael J. Kussman, M.D, M.S., M.A.C.P., Under 
  Secretary for Health, Veterans Health Administration, Department of 
                            Veterans Affairs

    Mr. Chairman and Members of the Committee, good morning and thank 
you for the opportunity to discuss the Department of Veterans Affairs' 
(VA) current funding process for its medical care program including 
budget formulation, Congressional appropriations, and alternatives to 
the existing process, such as moving such funding to the mandatory side 
of the Federal ledger. Joining me today are Paul Kearns, Chief 
Financial Officer for VHA, and Patricia Vandenberg, Assistant Deputy 
Under Secretary for Health for Policy and Planning.
    Following the enactment of the Veteran's Health Care Eligibility 
Reform Act of 1996, VA's health care system has undergone significant 
transformation from one that provided episodic, inpatient care to an 
integrated system of care that provides a full range of comprehensive 
health care services to its enrollees. The focus on health promotion, 
disease prevention, and chronic disease management has produced more 
effective and more efficient health care for our Nation's veterans. As 
a result, the range of health care services utilized by VA patients 
began to mirror that of other large health care plans. Therefore, VA 
decided to follow private sector practice of large health care plans 
and use a health care actuary to help predict future demand for health 
care services. Mr. Chairman, transforming VA from an inpatient, 
hospital-based system to a fully integrated health care system has 
enabled VA to take a leadership position in health care quality in the 
United States.
    Prior to eligibility reform, VA medical care budgets were based on 
historical expenditures that were adjusted for inflation and increases 
were based on new initiatives. However, this historical-based approach 
was not consistent with the practices of large, integrated, private-
sector health plans. The private sector budget practices based on 
projected demand appeared better suited for our mission, so VA adopted 
a rational and predictive budget to meet the needs of veterans in this 
new transformed health care system. We appreciated the need to be able 
to continually adjust budgetary projections to account for shifting 
trends in the veteran population, increasing demand for services, and 
escalating costs of health care, e.g., pharmaceuticals and changing 
utilization of health care services.

                 CURRENT FUNDING PROCESS VA'S ENROLLEE 
                        HEALTH CARE DEMAND MODEL

    The VA Enrollee Health Care Demand Model (model) develops estimates 
of future veteran enrollment, enrollees' expected utilization for 55 
health care services, and the costs associated with that utilization. 
These projections are available by fiscal year, enrollment priority, 
age, Veterans Integrated Service Network (VISN), market, and facility 
and are provided for a 20-year period. This produces over 40,000 
individual utilization and budget estimates per year.
    The model provides risk-adjustment and reflects enrollees' 
morbidity, mortality, and changing health care needs as they age. 
Because many enrollees have other health care options, the model 
reflects how much care enrollees receive from the VA health care system 
versus other providers. This is known as VA reliance. Enrollee reliance 
on VA is assessed using VA and Medicare data and a survey of VA 
enrollees. The VA/Medicare data match provides VA with enrollees' 
actual use of VA and Medicare services, while the survey provides 
detailed responses from enrollees regarding private health insurance 
and use of VA and non-VA health care. The graphic on the next page 
provides a conceptual overview of the actuarial model and the key data 
and analyses supporting it.

[GRAPHIC] [TIFF OMITTED] T7969.017

    0The model projects future utilization of numerous health care 
services based on private sector utilization benchmarks adjusted for 
the unique demographic and health characteristics of the veteran 
population and the VA health care system. The actuarial data on which 
these benchmarks are based represent the health care utilization of 
millions of Americans and include data from both commercial plans and 
Medicare, and are used extensively by other health plans to project 
future service utilization and cost.
    The model produces projections for future years using health care 
utilization, cost, and intensity trends. These trends reflect 
historical experience and expected changes in the entire health care 
industry and are adjusted to reflect the unique nature of the VA health 
care system. These trends account for changes in unit costs of supplies 
and services, wages, medical care practice patterns, regulatory 
changes, and medical technology.
    Each year, the model is updated with the latest data on enrollment, 
health care service utilization, and service costs. The methodology and 
assumptions used in the model are also reviewed to ensure that the 
model is projecting veteran demand as accurately as possible. VHA and 
in partnership with Milliman, Inc., develop annual plans to improve 
data inputs to the model and the modeling methodology.
    VA has integrated the model projections into our financial and 
management processes. Eighty-four percent of the VA health care budget 
request for FY 2008 was based on these detailed actuarial projections; 
the remaining sixteen percent is for health programs not yet included 
in the actuarial projections because of the unique characteristics of 
these programs. Some examples include: readjustment counseling, dental 
services, the foreign medical program, and non-veteran medical care 
(such as CHAMPVA and spina bifida). The budget estimates for these 
programs are developed by the respective program managers.
    VA believes the use of actuarial projections to develop its budget 
estimates is the most rational way to project the resource needs for 
our veterans. As noted earlier, this approach is utilized by the 
private sector. Unlike the private sector, however, where projections 
are used to formulate budgets for the next year or even the next ``open 
season,'' the Federal budget cycle requires budget formulation using 
data 2\1/2\ to 3 years ahead of budget execution.

                      CONGRESSIONAL APPROPRIATIONS

    VA receives its medical care budget in three separate 
appropriations (Medical Services, Medical Administration, and Medical 
Facilities). This is a funding structure created by Congress in Fiscal 
Year 2004. This structure replaced the previous single appropriation 
structure and has significantly increased the operational complexity 
without improving the accuracy of financial accounting. In addition, 
the new structure has introduced unintended inefficiencies and 
increased complexities into VA's budget management processes and 
procedures. VA does not believe the benefits of this structure are 
superior to the previous one.

                  ALTERNATIVES TO THE EXISTING PROCESS
    The two most considered alternatives to the existing process are: 
(1) combining VHA's current multiple appropriations structure into a 
single medical care appropriation and (2) mandatory funding. VA 
supports a single appropriations structure for medical care but does 
not support a mandatory funding approach for veterans' health care.
    A single appropriation for medical care would enable VA managers at 
every Medical Center and Network level to optimize resources flexibly 
and ensure timely delivery of high quality health care to veterans. It 
would also reduce the complexity of current financial management 
processes and procedures.
    On the other hand, mandatory funding we believe would not be in the 
best interests of our veterans. A mandatory funding approach, in our 
view, is neither reflective of nor adaptable to changes in: enrollee 
priority level and age mix, enrollee morbidity and mortality, enrollee 
reliance, and advances in state-of-the-art technologies and medical 
practice. While we can only hypothesize at this time since there is not 
a concrete proposal to review regarding a mandatory funding model, this 
type of funding mechanism can be reactive in nature consequently may be 
out of date with rapidly changing best clinical practices and 
developments. Additionally, a mandatory funding approach potentially 
limits the ability of either the Executive or Legislative branches of 
government to match policy with financial circumstances or to execute 
their inherent oversight responsibility.
    We believe the current process of budget formulation provides the 
best methodology for estimating the VHA budget and a single 
appropriation would significantly improve VHA's ability to deliver 
timely, high-quality health care to our Nation's veterans.
    Mr. Chairman, this concludes my prepared statement. I would be 
pleased to answer any questions you may have.

    Chairman Akaka. Thank you very much, Dr. Kussman.
    We have heard today strong testimony about the budget 
failures of recent years, the inability of VA managers to plan 
ahead, the uncertainty, and the impact on care. I realize that 
you are required to support the current process, but in your 
personal view, do you believe that VA employees and ultimately 
VA patients are well served by it?
    Dr. Kussman. Sir, the real issue is do we get adequate 
funding to do the job that we are supposed to do in any way 
that you choose to do it. I believe that we are getting 
adequate funding. With your support and the Administration's 
support, we have been very appreciative of the very significant 
increases in the budget over the last couple of years.
    As I mentioned in my both prepared and oral testimony, 
there are some things that would allow us to be more efficient 
and better in our development of our budgets, such as the 
single appropriation and other things of that sort that would 
allow us to be more flexible and nimble in our ability to do 
the role that we are expected to do.
    Chairman Akaka. Yes. Dr. Kussman, please describe to me 
your approach for providing the best possible care to every 
patient and at the same time dealing with pressure from OMB to 
limit spending on health care.
    Dr. Kussman. Sir, as you know and I testified, I think, in 
my confirmation process, my job is to be straightforward and 
honest and assess what I believe and the Veterans Health 
Administration believes is our needs to take care of our 
veterans. That is a passion of mine, as you know. We are 
committed to doing that.
    The process is that we then go through OMB and ultimately 
the Administration and to the Congress. Over the last couple of 
years, particularly in 2007 and 2008--2006 and 2007, we are not 
in 2008 yet, I don't think, maybe--we formed, I believe, an 
unprecedented and close relationship with OMB. We go there on a 
monthly basis with these two members of my staff and others to 
go over with them on our monthly review of where we are. They 
understand, I think, much better what we are doing and our 
assessment process and we believe that the 2008 budget, as 
approved, was really unprecedented in its accuracy with what we 
had requested and it was a very good budget.
    Chairman Akaka. Dr. Kussman, you have heard other Members 
today mention once veterans come in the door, they get the best 
care, but accessibility is one of the problems that veterans 
have. But I do note that the quality of care is good, and it 
has been good over the years.
    I truly believe that VA health care is largely a success 
story. VA facilities have been more successful than private 
sector providers in holding down costs while providing quality 
care. In your view, does VA provide a better return on each 
dollar than Medicare, Medicaid, or the private sector? And 
additionally, is VA an economical way to provide health care 
services?
    Dr. Kussman. Mr. Chairman, I don't know if it would be 
presumptuous of me to say that we are better than anybody else 
in the country, but I believe that the performance standards 
and data confirm that we lead the country in our ability to 
provide services. I have a passion and truly believe that if 
you are a veteran in this country, you have a much better 
chance of getting the full depth and breadth of services that 
you need as a veteran than if you were in any other delivery 
system in the country.
    We are very efficient in delivering our care. I think we 
give a magnificent ``bang for our buck,'' so to speak, and I am 
very proud of the delivery of care, not only the quality, but 
the caring attitude that our 200,000 people provide.
    Chairman Akaka. I think you know that the Committee has 
been working hard on what we are calling ``seamless 
transition'' between active and civilian life. I have been 
working diligently on this. Part of this is changing because 
people at VA and DOD are starting to talk, as you mentioned 
here. I was so glad to hear a report that Gordon England and 
Gordon Mansfield have been chatting on some of these seamless 
transition issues. So that is really great, and I hope that 
continues to go on. As it does, it will certainly help our 
cause.
    Dr. Kussman, do you anticipate that VA's resource needs 
will follow the general trend in U.S. health care and continue 
to grow at over 5 percent annually for the foreseeable future?
    Dr. Kussman. I believe that the growth in expenditures for 
health care is a mix of inflation that is just a price that you 
have to pay to keep business going and then a combination of 
the needs that are for new services, new enrollees, new 
techniques, and things of that sort. I believe that we are 
consistent, generally, with the civilian community for the 
total amount of expenditures being in that range.
    Chairman Akaka. Well, we really appreciate what you are 
doing and we look forward to working together to try to improve 
care. We are looking and focusing on invisible wounds, we 
really need to help to put together policy that can deal with 
these. Mental health issues affect people and their families. 
So it is something that is serious.
    And so I thank you for what you are doing and what VA is 
doing and I look forward to continuing to work with you and to 
continue to try to help our veterans.
    Dr. Kussman. Thank you, Mr. Chairman.
    Chairman Akaka. Thank you very much.
    We again have come to the close of another good hearing of 
three panels, and I would like to thank all of our witnesses 
for joining us today. I want you to know that we do appreciate 
your taking time to share your views on the VA health care 
budget. Without question, this will help us to make VA the best 
in our country. Thank you very much.
    This hearing is adjourned.
    [Whereupon, at 11:52 a.m., the Committee was adjourned.]

                            A P P E N D I X

                              ----------                              

  Prepared Statement of Joseph M. Manley, VA Medical Center Director 
         (Retired), on Behalf of ``Funding for VA Healthcare''

    Mr. Chairman and Members of the Committee:
    Thank you for giving me the opportunity share my perspective on the 
VA budgeting process and its impact on providing healthcare to our 
Nation's veterans. I am Joseph Manley, the former Director of the VA 
Medical Center in Spokane, Washington. I retired in 2007 after 35 years 
of VA service. As a VA manager, I had the opportunity to work at all 
levels of the organization from coast to coast, including large and 
small VA hospitals, in urban and rural settings and in senior staff 
positions at our national headquarters. I am also a veteran having 
retired at the rank of Full Colonel after 25 years of active and 
reserve duty with the U.S. Army.
    I would like to state for the record that I am not submitting this 
document to find fault or place blame with any individuals. I am proud 
of my VA service and feel fortunate to have had the privilege of 
working with the dedicated and professional people of the Department of 
Veterans Affairs. I believe that there are systemic problems within the 
governmental budgeting process that create undesirable outcomes and 
prevent good people from doing their jobs and providing the services 
the veterans of our Nation rightfully deserve.
    The reasons for the budgeting system failures are complex and 
varied but some of the key drivers are: the political nature of the 
Governmental budget process; the lack of multiyear appropriations; the 
lack of real time data on VA workload and demand; and the lack of an 
accurate internal budget distribution mechanism. I believe that all of 
these shortcomings could be resolved if the government decided to fund 
veterans' healthcare as an entitlement and base reimbursement for the 
VA system on enrollment (HMO model) and/or the actual work performed 
(fee for service model).
    For the past 13 years, I served as the Director of the Spokane VA 
Medical Center. This primary and secondary care hospital is the only VA 
facility serving the needs of veterans living throughout a 60,000 
square mile region of Eastern Washington, Northern Idaho and Western 
Montana (a geographical area the size of the state of Pennsylvania).
    During my tenure, the number of patients seeking care at the 
Spokane VA medical center grew at a rate of more than 10 percent per 
year due to declines in the economy of the region (mining, timber and 
farming) and to the growth and aging of the veteran population. A third 
of our patients traveled more than 100 miles (one way) to obtain 
primary care from the VA. Patients needing specialty care, such as, 
neurosurgery, orthopedics, neurology, radiation therapy, etc., were 
forced to travel an additional 300 miles (one way) to our nearest VA 
tertiary care centers in Seattle or Portland, Oregon. The VA was the 
only affordable health care option for most of this deserving 
population and it troubled my staff greatly when we were not able to 
meet the patent's needs in a timely manner, nor were we able to provide 
services within a reasonable distance from the patient's home.
    In all but one year of my tenure as Director, we began the budget 
cycle in a continuing resolution. With employment and other 
expenditures restricted to the prior year budget levels, there was no 
way to adequately meet the continuing waves of new patients and to 
properly maintain operations at the facility. As a result, we were 
forced to defer capital expenditures, delay employment, restrict local 
purchases, limit maintenance and otherwise constrain costs for the 
first half of the year. Worst of all, when funds ran short, we were 
forced to place veterans on waiting lists for our services. At one 
point, we had over 3,000 veterans who had waited a year or more for 
their initial medical appointment.
    The availability of drop money or budget increases late in the year 
triggered frantic efforts to purchase equipment, implement construction 
projects and catch up on patient care that had been delayed by the 
funding constraints. Unfortunately, the ``lean'' years often ran for 3-
4 consecutive years and we were forced to helplessly watch waiting 
lists grow as our physical plant declined. When the situation grew 
extreme, our appeals for supplemental funding would be politically 
recognized and we would see a couple of years of relief.
    The uncertainty of budgeting at the Congressional level was 
compounded by management actions within the VA. At the national level, 
the VA Headquarters often required that enhancements be made to 
existing programs or that new programs be implemented at the local 
level without an increase in funding to pay for the new service. These 
unfunded mandates were often in response to Congressional pressures or 
to appease a special interest group. Whatever the impetus for the new 
initiatives, the result was erosion in our ability to properly support 
our existing core services.
    As you know, the Congress provides the VA with resources via the 
appropriation process. Once the VA has received these lump sums, they 
divide the resources among the 22 Networks and program offices on a 
``zero sum'' basis. The VA's national budget allocation model 
theoretically divides the resources among the Networks based upon each 
Network's actual workload from a prior year. This modeling process has 
many flaws (workload data for the model is not real time, the 
allocation process is often distorted by agency imposed caps, corridors 
and ceilings, etc.), but overall, the allocation process does appear to 
slowly shift money from areas of the country with declining patient 
workload to areas of growth.
    While each Network's share of the national budget is based upon 
this workload model, the parceling of money to the individual medical 
centers within each Network is left to the discretion of the individual 
Network director. To my knowledge, no two Networks use the same method 
for determining what resources their medical centers will receive. Most 
of the Networks have changed their allocation processes over the past 
10 years, some multiple times. All of this creates uncertainty among 
the VA staff and prevents any meaningful long term planning at the 
local level.
    During my tenure at Spokane, I worked for four Network Directors. 
Each of these individuals had a different set of priorities, each faced 
differing problems and each had a different budgeting style. For 
example, one felt that Education and Research within the Network was 
inadequately supported, so he reduced the medical center clinical 
allocations to shift money to support these endeavors. Another of my 
Network Directors felt that patients needing high cost tertiary care 
was a priority, so he shifted money from the rural hospitals to the 
urban centers. A third felt that sub-specialty care was a priority and 
spent large amounts of the Network budget purchasing these services at 
inflated prices in the community.
    The current Network Director has recognized the need for primary 
care services in rural areas and to increase access--thus, he is 
shifting significant amounts of money within the Network to open 
Community Based Outpatient Clinics and to expand services at those 
medical centers experiencing increased enrollment or who have low 
penetration rates for the veteran populations of their respective 
geographical areas.
    Please don't misunderstand me--I am not faulting any of my past 
leaders for their decisions. I think their actions were properly 
motivated and well intentioned. The real problems were insufficient 
resources overall and the absence of a sophisticated allocation system; 
so they were forced to respond to recognized organizational 
shortcomings as best they could with the limited means at their 
disposal.
    The VA has one of the most advanced electronic medical records 
systems in the world. If the Congress has the will to act on mandatory 
funding, I believe that our electronic record could be adapted to 
create a real time, workload based reimbursement mechanism at the 
medical center level to ``pay'' each facility for the work that is 
actually performed. This would ensure that each of our medical centers 
is appropriately funded for the services provided to our Nation's 
veterans. By utilizing a single, uniform payer approach for VA 
Healthcare, further adjustments, supplementals, and other budgeting 
actions would no longer be needed unless the Congress desired to add 
programs or services. VA Medical Center Directors would also be held to 
the same accountability as their community counterparts--that is to 
operate using sound business principles and deliver high quality 
services in a timely manner.
    Thank you for considering my views on this subject. This concludes 
my statement.
                                 ______
                                 
   Former VA Official's Perspective on VA Health Care Appropriations 
             Operational Difficulties and Political Demands

    For as long as I can remember during my career as a senior 
executive in either VA Central Office or at the four VA Medical Centers 
(health care systems) that I had the privilege of directing, VA funding 
and the appropriations process is a process no effective business would 
tolerate. I believe it will require great political will for there to 
be substantial improvements, especially given the pay go and 
discretionary nature of VA health care funding.
    In the 1980s and early 1990s VA appropriations were insufficient to 
maintain current services (in several years the appropriation did not 
even cover approved cost of living and pay increases) and supplementals 
were expected as a ``way of doing business.''
    In certain years VA was ordered through appropriations language to 
maintain employment floors. In one instance a Chief Medical Director 
refused to order the field to maintain the employment floor as there 
was insufficient money to do so. VA was ``rewarded'' by a slashing of 
the MAMOE appropriation.
    In the mid 1990s, the practice of expecting supplementals changed. 
Proposed VA funding levels at the ``mark'' provided VA by OMB were 
still insufficient. The ``mark'' was increased in at least three years 
before the President's request was finalized only after the Secretary 
made direct appeal to the President.
    Since the mid 1990s appropriations have rarely been passed by the 
beginning of the fiscal year. This fact leads to numerous operational 
difficulties. Most years facilities were required to operate at the 
prior year level until the appropriation passed, despite inflation and 
increased patient demand. Hiring freezes were typical and patient 
delays were common, equipment and other needed purchasing was delayed. 
In many years the appropriation was not passed for at least 6 months 
after the fiscal year began. In some of those years there were 
substantial increases so management of staffing, inventories, and other 
significant purchasing was very ineffective. With sometimes very large 
sums included in the new appropriation we were many times guided to 
have no carry over funds. So we'd buy ahead pharmacy and medical 
supplies inventories that were not required at the moment in order to 
use those funds. In years where there was so much money that it was 
inevitable to have unobligated funds at the end of the fiscal year 
carry-overs were requested. Most times OMB or the Congress or both 
would expect the carry over as an offset for the current budget year. 
Getting ``two bites out of the apple'' was politically convenient, but 
practically the money could have been well managed had it been approved 
at the beginning of the fiscal year.
    The Fiscal Year 2005 Budget, in my view, was a typical situation 
that got out of hand. The OMB mark and ultimate President's request was 
far short of current services. Even though I had left the VA, when I 
learned of the number proposed around September of 2004, well before 
the President's request was approved. I knew, as did many of my former 
VA colleagues, the request was in my estimate $1-$1.3 billion short of 
current services. I attended with dismay the appropriations hearings 
where VA testified there were sufficient funds, only to then suggest 
the big gap in money was suddenly discovered in April or May due to 
insufficient consideration of the demand from OEF/OIF. I'd suggest that 
was a political smoke screen.
    In one year without an appropriation or a continuing resolution 
facilities were required to identify ``non-essential'' staff, they were 
furloughed without pay, while ``essential'' staff continued to work. 
The non-essential staff was ultimately made whole, but the effect of 
determining ``non-essential'' staff had a significant negative impact 
on morale.
    There were several years where money was ``earmarked'' for special 
purposes. Probably well intended but, frequently dysfunctional at an 
operational level as those local situations differed widely in terms of 
patient demand for particular services.
    VA health care budgeting is a very complex issue. Changes in 
eligibility and the absence of a defined population of beneficiaries 
who will be served will always contribute to uncertainty about demand 
and lead to errors in budget estimation. Facilities struggle with 
priorities, while at the same time having to deal with eligible 
patients for which there are many times insufficient funds. To deny 
access to care based on a low priority is not a simple or sometimes 
medically ethical practice. VA facility staff face this dilemma every 
day.
    There is frequently a disconnect between authorizing and 
appropriations committees. Authorizing committees legislate new 
programs, but they sometimes didn't get appropriated. We used to refer 
to these programs as unfunded mandates.
    In other situations access is determined based on funds available. 
During the period of dramatic increases in the number of Community 
Based Outpatient Clinics oftentimes directors were faced with absolute 
enrollment limits, e.g., as Director at Charleston when we opened the 
CBOC in Myrtle Beach we had enough money for approximately 3,500 
patients. When we enrolled that panel we stopped accepting new 
patients, as there was insufficient money to add more. Rather than 
outright deny the patients we told them they could be seen in 
Charleston, a two-hour or more drive depending on time of day. We knew 
most of those patients would not want to drive to Charleston so they'd 
seek other sources for their care.

    [Note: Robert A. Perreault held the following positions at VA: VHA 
Chief Business Officer, VACO, 2002-2003; Director, VAMC Charleston, SC 
2000-2002; Director, VAMC Atlanta, GA 1995-2000; Director, Health Care 
Reform, VACO 1994-1995; Director, VAMC Philadelphia, PA 1993-1994; 
Director, VAMC Newington, CT 1990-1993; Executive Assistant to the 
Chief Medical Director, VACO 1989-1990.]

  

                                  
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