[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




                             REVIEW OF THE
                  U.S. DEPARTMENT OF VETERANS AFFAIRS
                   CONTRACT HEALTH CARE: PROJECT HERO

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 3, 2010

                               __________

                           Serial No. 111-57

                               __________

       Printed for the use of the Committee on Veterans' Affairs


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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     HENRY E. BROWN, Jr., South 
Dakota                               Carolina
HARRY E. MITCHELL, Arizona           JEFF MILLER, Florida
JOHN J. HALL, New York               JOHN BOOZMAN, Arkansas
DEBORAH L. HALVORSON, Illinois       BRIAN P. BILBRAY, California
THOMAS S.P. PERRIELLO, Virginia      DOUG LAMBORN, Colorado
HARRY TEAGUE, New Mexico             GUS M. BILIRAKIS, Florida
CIRO D. RODRIGUEZ, Texas             VERN BUCHANAN, Florida
JOE DONNELLY, Indiana                DAVID P. ROE, Tennessee
JERRY McNERNEY, California
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota
JOHN H. ADLER, New Jersey
ANN KIRKPATRICK, Arizona
GLENN C. NYE, Virginia

                   Malcom A. Shorter, Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                  MICHAEL H. MICHAUD, Maine, Chairman

CORRINE BROWN, Florida               HENRY E. BROWN, Jr., South 
VIC SNYDER, Arkansas                 Carolina, Ranking
HARRY TEAGUE, New Mexico             CLIFF STEARNS, Florida
CIRO D. RODRIGUEZ, Texas             JERRY MORAN, Kansas
JOE DONNELLY, Indiana                JOHN BOOZMAN, Arkansas
JERRY McNERNEY, California           GUS M. BILIRAKIS, Florida
GLENN C. NYE, Virginia               VERN BUCHANAN, Florida
DEBORAH L. HALVORSON, Illinois
THOMAS S.P. PERRIELLO, Virginia

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
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both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.












                            C O N T E N T S

                               __________

                            February 3, 2010

                                                                   Page

Review of the U.S. Department of Veterans Affairs Contract Health 
  Care: Project HERO.............................................     1

                           OPENING STATEMENTS

Chairman Michael Michaud.........................................     1
    Prepared statement of Chairman Michaud.......................    35
Hon. Henry E. Brown, Jr., Ranking Republican Member, prepared 
  statement of...................................................    35

                               WITNESSES

Congressional Research Service, Library of Congress, Sidath 
  Viranga Panangala, Specialist in Veterans Policy...............    14
    Prepared statement of Mr. Panangala..........................    46

U.S. Department of Veterans Affairs:

    Belinda J. Finn, Assistant Inspector General for Audits and 
      Evaluations, Office of Inspector General...................    15
        Prepared statement of Ms. Finn...........................    62
    Gary M. Baker, MA, Chief Business Officer, Veterans Health 
      Administration.............................................    27
        Prepared statement of Mr. Baker..........................    74

                                 ______

American Legion, Denise A. Williams, Assistant Director, Veterans 
  Affairs and Rehabilitation Commission..........................     2
    Prepared statement of Ms. Williams...........................    36
Blinded Veterans Association, Thomas Zampieri, Ph.D., Director of 
  Government Relations...........................................     5
    Prepared statement of Dr. Zampieri...........................    42
Delta Dental of California, P.T. Henry, Senior Vice President, 
  Federal Government Programs....................................    23
    Prepared statement of Mr. Henry..............................    73
Disabled American Veterans, Adrian Atizado, Assistant National 
  Legislative Director...........................................     4
    Prepared statement of Mr. Atizado............................    37
Humana Veterans Healthcare Services, Inc., Tim S. McClain, 
  President and Chief Executive Officer..........................    22
    Prepared statement of Mr. McClain............................    65
Vietnam Veterans of America, Bernard Edelman, Deputy Executive 
  Director for Policy and Government Affairs.....................     7
    Prepared statement of Mr. Edelman............................    45

                   MATERIAL SUBMITTED FOR THE RECORD

Hon. Michael H. Michaud, Chairman, Subcommittee on Health, 
  Committee on Veterans' Affairs, to Sidath V. Panangala, 
  Specialist in Veterans Policy, Congressional Research Service, 
  The Library of Congress, letter dated February 16, 2010, and 
  response memorandum dated May 14, 2010.........................    77
Hon. Michael H. Michaud, Chairman, Subcommittee on Health, 
  Committee on Veterans' Affairs, to Ms. Belinda Finn, Assistant 
  Inspector General for Audit and Evaluations, Office of the 
  Inspector General, U.S. Department of Veterans Affairs, letter 
  dated February 16, 2010, and response from Hon. George Opfer, 
  Inspector General, letter dated March 25, 2010 [An identical 
  letter was sent to Hon. Henry E. Brown, Jr., Ranking Republican 
  Member, Subcommittee on Health, Committee on Veterans' Affairs]    81
Hon. Michael H. Michaud, Chairman, Subcommittee on Health, 
  Committee on Veterans' Affairs, to Tim S. McClain, President 
  and Chief Executive Officer, Humana Veterans Healthcare 
  Services, Inc., letter dated February 16, 2010, and response 
  letter dated March 29, 2010....................................    83
Hon. Michael H. Michaud, Chairman, Subcommittee on Health, 
  Committee on Veterans' Affairs, to P.T. Henry, Senior Vice 
  President, Federal Government Programs, Delta Dental of 
  California, letter dated February 16, 2010, and Delta Dental 
  responses......................................................    90
Hon. Michael H. Michaud, Chairman, Subcommittee on Health, 
  Committee on Veterans' Affairs, to Hon. Eric K. Shinseki, 
  Secretary, U.S. Department of Veterans Affairs, letter dated 
  February 16, 2010, and VA responses............................    91

 
                             REVIEW OF THE
                  U.S. DEPARTMENT OF VETERANS AFFAIRS
                   CONTRACT HEALTH CARE: PROJECT HERO

                              ----------                              


                      WEDNESDAY, FEBRUARY 3, 2010

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:03 a.m., in 
Room 334, Cannon House Office Building, Hon. Michael H. Michaud 
[Chairman of the Subcommittee] presiding.

    Present: Representatives Michaud, Teague, McNerney, 
Perriello, Brown of South Carolina, and Boozman.

             OPENING STATEMENT OF CHAIRMAN MICHAUD

    Mr. Michaud. I would like to call the Subcommittee on 
Health to order. Mr. Brown will be here shortly. I would also 
like to ask the first panel to come forward as well. The 
Subcommittee on Health today will examine whether the VA's 
Project on Health Care Effectiveness Through Resource 
Optimization, known as Project HERO, is meeting the goal of 
delivering efficient, high-quality contract care to our 
veterans.
    Each year, the U.S. Department of Veterans Affairs (VA) 
spends more than $2 billion to purchase private, non-VA health 
care for eligible veterans. The VA has the authority to do this 
when VA facilities are not able to provide the necessary health 
care or geographic accessibility to our veterans.
    There is room for improvement in the way that the VA 
manages and coordinates contract care. Specifically, there is 
no consistent process in place to ensure that care is delivered 
by fully licensed and credentialed non-VA providers. This 
continuity of care is monitored and is part of a seamless 
continuum of services that ensures clinical information flows 
to the VA.
    It is under these circumstances that the VA developed the 
Project HERO pilot program in response to the language in the 
Conference Report accompanying the VA's 2006 Appropriations 
Act.
    As the VA was in the initial stage of developing and 
implementing Project HERO, the full Committee held a hearing on 
this issue in March of 2006. At this full Committee hearing, 
the VA testified that Project HERO aimed to provide quality 
cost-effective care, which is complementary to the larger VA 
health care system. In this endeavor, the VA also testified 
that they would sustain ongoing communication with the VSO 
community.
    We have since learned that the VA is implementing Project 
HERO in Veterans Integrated Services Networks (VISNs) 8, 16, 
20, and 23. On October 1, 2007, the VA awarded the Project HERO 
contract to Humana Veterans Healthcare Services (HVHS) and 
Delta Dental Federal Services.
    We understand that the health care services became 
available through Humana on January 1, 2008. And that the 
dental services became available through Delta Dental soon 
thereafter on January 14, 2008.
    With nearly 2 years of rich program data, our hearing today 
will examine whether the VA has delivered on the promises of 
Project HERO. For example, was Project HERO implemented 
properly to meet the pilot program's objectives to provide 
improved access, quality, and cost-effective care? Was there 
transparency in the implementation of this program? And was the 
VSOs community informed and involved in the process? Finally, 
what has Project HERO achieved and what are the potential next 
steps moving forward?
    To help us answer these questions, I look forward to the 
testimony of the different panels today. And at this time, I 
would ask Mr. McNerney if he has an opening statement.
    [The prepared statement of Chairman Michaud appears on p. 
35.]
    Mr. McNerney. Thank you, Mr. Chairman. I'll waive my 
opening statement.
    Mr. Michaud. Mr. Perriello.
    Mr. Perriello. No.
    Mr. Michaud. Once again, Mr. Brown should be here shortly. 
I figured if I read my statement slowly that he would make it. 
But he will be here shortly.
    On our first panel, we have Denise Williams from the 
American Legion, Adrian Atizado from the Disabled American 
Veterans (DAV), Tom Zampieri who is from the Blinded Veterans 
Association (BVA), and Bernard Edelman from the Vietnam 
Veterans of America (VVA).
    We will start with Ms. Williams.

STATEMENTS OF DENISE A. WILLIAMS, ASSISTANT DIRECTOR, VETERANS 
AFFAIRS AND REHABILITATION COMMISSION, AMERICAN LEGION; ADRIAN 
  ATIZADO, ASSISTANT NATIONAL LEGISLATIVE DIRECTOR, DISABLED 
    AMERICAN VETERANS; THOMAS ZAMPIERI, PH.D., DIRECTOR OF 
GOVERNMENT RELATIONS, BLINDED VETERANS ASSOCIATION; AND BERNARD 
 EDELMAN, DEPUTY EXECUTIVE DIRECTOR FOR POLICY AND GOVERNMENT 
              AFFAIRS, VIETNAM VETERANS OF AMERICA

                STATEMENT OF DENISE A. WILLIAMS

    Ms. Williams. Good morning. Mr. Chairman and Members of the 
Subcommittee, thank you for this opportunity to present the 
American Legion's views on the Department of Veterans Affairs 
health care contract program known as Project HERO. These views 
are based on quarterly update briefings given to Veterans 
Service Organizations (VSOs) by VA.
    The American Legion is concerned with quality of care, the 
timeliness of access to care, and patient satisfaction. The 
stated goals of Project HERO deal with managing the ``fee 
based'' health care services.
    If I may paraphrase, ``In order to streamline the process, 
reduce cost, and ensure security of records, of contracted 
health care.'' In briefings received by VSOs from VA, these 
goals seem to be in reach.
    The American Legion reiterates the priority need is for 
quality health care in a timely manner to be provided. 
Currently, Project HERO sets up appointments with ``certified'' 
caregivers. It is our opinion that VA should increase its 
efforts to enforce criteria for the certification of 
caregivers, do follow-up investigations, and conduct training 
to assure care given by contracted caregivers meets the quality 
of care standards received at the VA facility.
    This oversight would not only assure quality health care, 
but it will improve customer satisfaction in the overall 
process. This is once caregivers are VA ``certified'', the need 
for extended review of recommended treatment by VA experts, as 
is now the case, would not be necessary.
    The American Legion recommends that under Project HERO, VA 
consider mirroring the private sector's approval practices for 
treatment between doctors and insurance companies; allowing 
veterans to have timely access to quality health care as 
opposed to waiting for an extensive VA review of the 
recommended treatment.
    Since patients would only be sent to ``VA approved and 
certified'' commercial facilities for treatment, it would be 
generally accepted that recommended procedures be allowed and 
conducted. These treatment procedures should be reviewed after 
patients are treated. If it is found that excessively expensive 
or unnecessary treatments have been performed, the service 
provider should be charged back or decertified for repeat 
infractions.
    The American Legion urges VA to expand access to Project 
HERO to veterans in other VISNs, particularly those VISNs with 
extensive rural veteran's populations or limited access to VA 
facilities, such as Alaska and Hawaii.
    This is to assure that veterans residing in areas with 
limited access to VA medical facilities are not subjected to 
insufficient health care. Knowledge and understanding of 
existing programs by veterans is critical to success.
    The American Legion urges that every measure be taken to 
assure these advances are communicated and implemented within 
the rural and higher rural areas to provide all veterans with 
timely access to quality care, quality health care in the 
proper settings.
    While not originally designed to address the rural health 
care, initial results from four VISNs in the pilot project 
indicate that Project HERO could, in fact, be an important 
component to addressing the health care access issue.
    Finally, the American Legion would like to emphasize that 
this program should not be utilized as a means to control the 
VA Medical Center's budget by referring veterans to Project 
HERO resources in order to save on equipment repair or 
purchases. For example, if the emphasis on cost savings becomes 
too great, we could see a scenario where an administrator would 
delay repair or purchase of a piece of equipment, justifying it 
by utilizing Project HERO health care and thereby enhancing 
budget numbers.
    We would like to encourage VA to continue to maintain a 
health care system which 8 million veterans rely on for their 
care. It is imperative to note that the Project HERO should not 
be intended to replace the VA health care system.
    Mr. Chairman and Members of the Subcommittee, the American 
Legion sincerely appreciates the opportunity to submit 
testimony and looks forward to working with you and your 
colleagues on this important matter. This concludes my 
statement.
    [The prepared statement of Ms. Williams appears on p. 36.]
    Mr. Michaud. Thank you very much. Mr. Atizado.

                  STATEMENT OF ADRIAN ATIZADO

    Mr. Atizado. Chairman Michaud, Ranking Member Brown, 
Members of the Subcommittee, I would like to thank you for 
inviting the Disabled American Veterans to testify at this 
important oversight hearing on VA's Project HERO.
    The DAV is an organization of 1.2 million service-disabled 
veterans and devotes its energies to rebuilding the lives of 
disabled veterans and their families.
    The DAV believes Project HERO is timely considering about 
40 percent of veterans receive some of their care from a non-VA 
health care provider. Also considering the escalating rise in 
VA spending for purchased care and the manner by which such 
care is currently managed.
    As you had mentioned, Mr. Chairman, VISNs 8, 16, 20, and 23 
were selected to ensure that demonstration results are 
representative of the larger VA population and to facilitate 
measurement of the proof of concept under Project HERO.
    Contracts for this demonstration project have a base year 
and is now in its 3rd of 4th option years. DAV believes VA has 
demonstrated, through Project HERO, its ability to deliver on 
the ideas our organization has expressed previously and still 
now to improve VA contract care coordination.
    I'll name four items in particular: Oversight of clinical 
care quality provided by the contractors and care is delivered 
by fully-licensed and credentialed providers and must meet VA-
defined quality standards.
    Coordination of care is performed by the contractors by 
communicating directly with the veteran and the prospective 
provider.
    Continuity of care is monitored by the contractors and VA 
as patients are directed back to the VA health care system for 
follow-up when appropriate.
    Clinical information necessary to provide care under 
Project HERO is provided by VA to the contractors. And records 
of care are scanned by contractors and sent to VA for 
annotation in its Computerized Patient Record System or CPRS.
    While this list is certainly a tremendous improvement over 
VA's Purchase Care Program, it is not complete. And thus, our 
organization's concerns remain.
    As indicated in my written testimony, evaluating Project 
HERO requires greater detail than is currently being provided 
to include validated and comparable data.
    For example, access to care, we have not been provided data 
to compare VISN facility versus HERO providers on travel 
distance or patient satisfaction for convenience of provider 
location.
    In addition, we do not have information on VISN compliance 
for either VA provided or VA purchased care to compare 
timeliness to access to care standards under Project HERO. Now 
these standards include appointment scheduling being done 
within 5 days, completed appointments within 30 days, or office 
wait times of less than 20 minutes.
    It remains uncertain whether measurements and Project 
HERO's impact on VA facilities and academic affiliates 
accurately capture whether or not Project HERO compliments 
rather than supplants the VA's health care system. And whether 
partnerships with university affiliates have been sustained.
    Further, VA employees in the field have raised concerns to 
DAV about VA's claims auditing procedure, which may need 
refinement to minimize risk of overpayment.
    Mr. Chairman, the quarterly updates VA has provided to 
veteran service organizations have indeed been informative. And 
DAV is working closely with Veterans Health Administration's 
(VHA's) Chief Business Office to ensure future reports provide 
more consistent and meaningful data.
    Now since this matter first emerged in the fiscal year 
2006, Congressional appropriations arena, it has remained a 
significant concern, as with our colleagues, that Project HERO, 
as with all other non-VA purchased care programs, does not 
become a basis to downsize or privatize VA health care. Now to 
that end, DAV would like to express our appreciation for VA's 
effort to address these concerns and those of the veteran 
community.
    As DAV continues to work to ensure Project HERO achieves 
the goals we have advocated, we encourage this Subcommittee to 
continue its oversight, which would help ensure this 
demonstration project will provide a model for contract care 
coordination.
    This concludes my statement. And I would be pleased to 
answer any questions you or the other Members may have.
    [The prepared statement of Mr. Atizado appears on p. 37.]
    Mr. Michaud. Thank you very much, Mr. Atizado.
    Dr. Zampieri. I'll just call you Doctor for short.

              STATEMENT OF THOMAS ZAMPIERI, PH.D.

    Dr. Zampieri. Mr. Chairman you were close.
    I appreciate the opportunity to testify here today before 
you and the other Members of the Subcommittee on Health.
    Blinded Veterans Association, along with the other veteran 
service organizations today that appear here that support the 
Independent Budget (IB) has been concerned about contracted 
care services within the VA's system for a long time.
    And actually, how we ended up here today was I think 
individuals looked at IB report language and decided that this 
was an avenue of approach.
    Our testimony here basically, you know, we are concerned 
about the old fee-based system and that VA move to more 
coordinated, high-quality care with improved access and cost-
effective delivery of those services for veterans.
    Along with that, any contracted care should essentially 
ensure full development of bidirectional compatible electronic 
health care record (EHR) so that VA clinicians and health care 
providers can access all of the clinical notes or diagnostic 
services being provided by any outside contracted care.
    The IB stressed that participating preferred providers 
should use a provider pricing program to receive discounted 
rates for services rendered to veterans with only credentialed, 
high-quality providers utilized in contracted care. Customized 
provider networks should complement the capabilities of and the 
capacity of each VA Medical Center and not replace those as the 
veterans' first choice of care. The VA health care system has 
undergone tremendous positive changes in the past decade, 
bringing it high acclaim for its leadership in quality and for 
its outstanding utilization of information technology and 
electronic health care records in advancing health care for our 
Nation's veterans.
    We are concerned about the impact of this on academic 
affiliations. And again I want to stress on the impact of 
staffing decisions made at local VA medical centers within the 
four networks where Project HERO is currently going on. We want 
to make sure that there is full transparency in regards to the 
costs in the program and the reporting of the records to the VA 
in a timely fashion on any outside tests that are done, or 
consults, or procedures that are done.
    The VA's confronted with an extremely complex social 
medical system challenge today. The American health care 
system, as everyone in this room knows, has been brought before 
Congress this past year in regards to recommendations on 
changing health care access. And all of this is going to have 
an impact on the VA system. And these are all difficult 
challenges.
    Long-term comorbidities, unique mental health problems, the 
triad of access, cost, and quality that all impact the 
decision-making practice and health care environment are all 
impacting this.
    We have some recommendations here. And rather than read 
through all those, I think I will go to my conclusion and to 
just say that we, again, appreciate the opportunity to be able 
to present the testimony here today.
    It is sort of interesting in the fact that today we are not 
sure where exactly health care reform is going to end up, and 
what specific changes may occur, and how those will impact the 
VA's system.
    And hopefully, Project HERO and other contracted care will 
be looked at closely in regards to how the VA improves its 
services and the ability of veterans to access the system.
    Thank you again for the invitation to testify today. I 
would be happy to answer any questions.
    [The prepared statement of Dr. Zampieri appears on p. 42.]
    Mr. Michaud. Thank you very much, Dr. Zampieri.
    Mr. Edelman.

                  STATEMENT OF BERNARD EDELMAN

    Mr. Edelman. Yes, sir. Good morning, Mr. Chairman, Mr. 
Brown, other Members of this distinguished Subcommittee. First 
off, Vietnam Veterans of America wants to thank all of you for 
the work you have done and continue to do on behalf of 
America's veterans. It is critical. And we appreciate it. I 
think I can speak for every veteran in this room.
    You are going to be given or have been given a lot of 
information with a lot of numbers about Project HERO. And we 
would caution that you do not be bedazzled by the numbers. Yes, 
there are lots of them.
    We believe that it was the intent of Congress to get a 
handle on, to optimize the money spent for fee-basis care, 
understanding, of course, that what costs $100 let us say in 
Boston or in Bangor, Maine, might cost $80 in Dubuque or 
Duluth.
    A commendable purpose from Congress for not an 
inconsiderable amount of money, as you pointed out, Mr. 
Chairman, more than $2 billion a year goes to fee-basis care 
from the Department of Veterans Affairs.
    The goal, though, is not to transmogrify the VA health care 
system. It is to fill in gaps, not to replace wholesale a 
variety of services in various VISNs. It is to be, to use your 
words, sir, complementary.
    Are the health care services rendered by Humana and by 
Delta Dental enhancing health care delivery at the Veterans 
Affairs Medical Centers (VAMCs) and the Community-Based 
Outpatient Centers (CBOCs) in which this pilot project is 
ongoing?
    Further, while this project was supposed to fill in 
services when the VA had trouble recruiting key specialists in 
a reasonable time, are these temporary fixes now becoming 
permanent? And is the VA, Veterans Health Administration, no 
longer trying to fill the vacancies on its own staff at 
relevant VA medical centers? Are they succeeding in filling in 
the gaps in VA service at a significant cost savings to the VA? 
We are really not convinced they have, despite the numbers.
    During our quarterly briefings with VA officials, we are 
given thick reports festooned with charts and graphs and 
numbers. What we are not given is any real evidence that HERO 
is improving or enhancing care available at the VAMCs and 
CBOCs.
    What seems to have evolved is a parallel health sub-system 
in these VISNs. This is our concern. What was supposed to 
supplement or complement VA health care seems to be supplanting 
basic care and not only in rural and remote areas. This was 
not, we believe, the intent of Congress.
    Through the fiscal largesse of Congress for VA health care 
operations over the past 3 years, it seems to us that rather 
than pay a middleman, which is what Humana and Delta Dental 
are, the VAMCs and the VISNs ought to be able, on their own, to 
get a handle on dollars for doctors and other clinicians whose 
fee-basis services are necessary for the provision of timely 
health care to veterans who either reside inconveniently away 
from VA facilities or who cannot get appointments in a 
reasonable amount of time, either with primary care providers 
or with specialists.
    VVA sees no reason why internal units at these VISNs and VA 
medical centers can't assemble a roster of clinicians and 
regulate fee-basis care, insuring that such care is available, 
is of high quality, and can be integrated into the VA's 
electronic health record system.
    Just as important, the entire business model of HERO 
threatens the underpinning of the VA health care system. VISN 
and VAMC directors can find it fiscally advantageous in the 
short term to outsource more and more of their services. This 
can, and we believe will, eventuate in the shuttering of 
outpatient clinics as well as, potentially, VA medical centers.
    We agree with the statement by then Chairman Steve Buyer 
who stated on March 29, 2006, ``This initiative is not intended 
to undermine our affiliations, or lead to expanded outsourcing 
or the replacement of existing VA facilities. It should instead 
help us learn how to improve some of the contracted care we now 
provide and the way we provide it.''
    If Project HERO accomplishes this, then it will have been a 
worthy experiment. But that is all it ought to be, an 
experiment, and not an answer.
    Thank you.
    [The prepared statement of Mr. Edelman appears on p. 45.]
    Mr. Michaud. Thank you very much. I appreciate all of your 
testimony this morning. I have one quick question for Mr. 
Atizado.
    You provided some examples of instances where Project HERO 
does more for our veterans than the existing fee-basis 
programs, most notably the collection and tracking of certain 
data. Can you summarize for us the elements of Project HERO you 
believe have the potential to improve the current fee-based 
programs if they were to be applied systemwide?
    Mr. Atizado. Thank you for that question, Mr. Chairman.
    One thing I would like to point out at the outset is that 
Project HERO is a contract-based system, health care--is 
contract based. Fee based on the other hand is more like fee 
services, much more passive.
    While there are lessons learned and proven concepts that 
have been gathered out of Project HERO, as I listed in my oral 
testimony, whether that can be applied to fee basis I think may 
prove more difficult, simply because it is a different program 
all together.
    Although, the idea that VA can track and manage the care 
that a veteran receives in the private sector, I think should 
be the end goal of any non-VA purchase care program that VA 
manages.
    Fee basis is fraught with problems. And to compare Project 
HERO to fee basis, in my opinion, it sets such a low bar that a 
comparison with it is going to turn out good regardless.
    So I don't know if I was able to answer your question. But 
it is very hard to do that, sort of to transport what we have 
learned with Project HERO to fee basis in my opinion.
    Mr. Michaud. Thank you. This question is for everyone on 
the panel. As you know, the VA was supposed to involve the VSO 
community as it was implementing Project HERO.
    Do you feel the VA has adequately involved your different 
organizations as they have moved forward with Project HERO? If 
not, how could they do so, so that there is more transparency?
    I will start with Ms. Williams.
    Ms. Williams. They have been transparent as far as the 
quarterly updates with the information. I think the only thing 
that they could perhaps do is be more in depth with the patient 
satisfaction.
    As Adrian stated, you know, we should have some kind of way 
to find out definitely. We are getting numbers, and we are 
getting charts. But, you know, we need more in-depth analysis 
of the care that they are receiving.
    Mr. Michaud. Mr. Atizado.
    Mr. Atizado. Mr. Chairman, as my colleague, Mr. Edelman and 
Denise, had mentioned, these quarterly briefings are most 
definitely heavy with data.
    My only critique is that the information that is provided 
to us on a quarterly basis is not necessarily presented 
consistently. There are certain things that they want to 
present to us. There are certain things that the VSO Committee 
wants to find out.
    And, unfortunately, things such as access to care, travel 
time, patient satisfaction, as well as contract requirements 
the information that VA has provided to us we cannot compare 
across the board.
    Whether it is comparing to HVHS, Delta Dental, the VA 
facilities by VISN, or by non-VA provider, it just--we can't 
do--I can't--personally can't do a spreadsheet to show the 
scoring for each one of those. It is very hard to do a very 
good comparison under Project HERO.
    But I must say the Chief Business Office has been working 
extremely hard to do that. Even though at times for the 
information that we ask they don't have the structure or the 
means to do it, they still try and provide surrogate 
information.
    Mr. Michaud. Doctor.
    Dr. Zampieri. Yes. I just concur with my colleagues here on 
that. The briefings are very good. There is a tremendous amount 
of data.
    You know, the 800-pound gorilla in this room right now, 
that it would be interesting to see if anybody dares say this 
is, you know, you look at the total costs of VA's contracted 
care and fee basis in the last 3 years.
    I mean you talk about health care costs in this country and 
escalating and inflation rates. And where are we going to be in 
2 years? What is the total cost going to be for all this?
    See nobody wants to, oh, well, you know, we will go into 
microscopic details of the numbers of veterans in each medical 
center that has been referred or whatever. You know, the 
reports are huge. Where are we going? Are we going to spend $5 
billion in 2 years?
    You know, that is what is going to impact the system. That 
is what the medical center directors who are bold enough to 
talk in confidentiality about this are afraid of.
    You know, I mentioned in my testimony, and I don't want to 
go too long here, but, you know, health care in this country 
and everything else associated with it, you know, if we start 
to cut Medicare plans, what happens in that impact with, you 
know, veterans? Is it going to force more veterans into the 
system and more enrollment, and, therefore, you know, more 
utilization, more costs?
    I am not sure where we are headed. And I don't think--well, 
we will leave it to others to see where we are headed. Thank 
you.
    Mr. Michaud. Thank you.
    Mr. Edelman. Mr. Chairman, let me say that initially the VA 
was not transparent at all. HERO was a done deal, period, end 
of story. It was only when the VSOs basically demanded that we 
get quarterly updates, quarterly briefings, that we finally got 
them.
    This wasn't any largesse on the part of the VA. Now we do 
get quarterly briefings in which we listen to the numbers. We 
do criticize. We do ask questions. And I believe that many of 
our questions do get responses, replies. And they are trying to 
understand our concerns, because I think they realize we are 
all in this together.
    And they also are under the glare of the floodlights, so to 
speak, in Congress.
    Mr. Michaud. Thank you.
    Mr. Brown.
    Mr. Brown of South Carolina. Thank you very much for your 
insight.
    Let me just ask a couple of general questions. And this 
will be to all the members of the panel.
    You expressed concern that under this demonstration project 
VA will pay significantly, expand contract care without 
safeguards of VA high-quality standards. What safeguards are 
missing? And what recommendations do you have to ensure that 
the necessary safeguards are in place?
    I guess number one, let me preface this by saying, do you 
think this is a good idea or not a good idea?
    Ms. Williams. We believe Project HERO is an excellent 
project program, especially for the veterans in the rural 
areas.
    As stated in my testimony, we see where the veterans in 
rural areas are little utilized in this program. And, you know, 
with the current conflict going on, a lot of veterans they tend 
to move away from the urban areas into the rural areas.
    And so this has really enhanced the care that they are 
receiving. So I would say that it is an excellent program. And 
the concern is that Project HERO will not remain permanent and 
it won't eliminate the veterans health care system for 
veterans. It is a temporary fix and that the VA should be able 
to meet the desires for the veterans to receive their care at a 
facility. So I do believe it is an excellent program.
    Mr. Brown of South Carolina. I know I had the opportunity 
to go up to the Chairman's district in Maine about 5 or 6 years 
ago and had some town hall meetings with the veterans there.
    I don't know whether you have been to Maine or not. But it 
is a pretty big expansive territory. Is it half as big as 
Texas? It is the next largest State to Texas?
    Mr. Michaud. Correct.
    Mr. Brown of South Carolina. But not including, you know, 
Alaska. But they have like 1.1 million?
    Mr. Michaud. 1.3.
    Mr. Brown of South Carolina. 1.3, oh it is growing some. 
And so that is a major problem to try to, you know, address the 
health care for those veterans that might be 300 miles away 
from a facility? And so this was just kind of an idea to try to 
bridge that.
    But I certainly, you know, appreciate everybody's input. I 
have a couple of other questions. But if anybody else would 
like to fill in. Do you think the quality of care is being 
sacrificed doing this?
    Mr. Atizado. Ranking Member Brown, that is the million 
dollar question, one of I should say. There hasn't been any, as 
far as I know, I don't think VA has actually looked at 
comparing the quality of care. I mean, there are a number of 
ways to measure that and to compare it. But I don't think it 
has been done.
    I think the idea that resting on credentialed providers, 
licensed providers, and having set up a patient safety process 
whereby is a patient has a complaint of has an adverse event, 
that the current Project HERO has something to address that I 
think is one thing. And to actually compare to actual VA care 
is another.
    I certainly don't have the information nor can I tell you 
here today that, in fact, it is as good or better than VA care.
    Mr. Brown of South Carolina. Do you think the 2 billion is 
too much? I know that somebody expressed maybe it might grow 
even more. But do you think the money that is being spent in 
this program is diminishing the care in the conventional VA 
health care delivery? Do you think they are competing against 
each other or supplementing each other?
    Mr. Atizado. That is a very complex question, Ranking 
Member Brown. The problem with--in my opinion, the problem with 
trying to ascertain whether or not a non-purchase care program 
that VA has is supplanting or complimenting the overall VA 
health care system.
    It really depends on how you want to measure that. If you 
talk about, as my colleague, Mr. Edelman, here had mentioned, 
that there are staffing vacancies that haven't been filled. If 
you want to use volume of services, if you want to use cost 
that is being expended for these services, there are a number 
of ways to answer that.
    But I really think it is a dangerous position. It is a hard 
position to be in to make that call, because that really 
depends on the facility and the VISN and their responsibilities 
to protect the VA.
    When we start getting down that road, if it gets very 
complicated very quickly, because we are, in fact, making a 
judgment call on how well the facility and the financial 
officer of that facility or the VISN is doing its job.
    Mr. Brown of South Carolina. Mr. Chairman, I notice my time 
has expired.
    Mr. Michaud. Thank you.
    Mr. McNerney.
    Mr. McNerney. Thank you, Mr. Chairman. You know, it is 
gratifying after all the complaints we hear from various parts 
of the country about the VA. How the real experts are saying 
our veterans want to stay in the VA system. The VA hospital 
really provides the best care.
    So it is really gratifying to hear that from you. I 
appreciate those sorts of comments.
    And I am hearing that overall Project HERO is satisfactory. 
Veterans are getting reasonable treatment, reasonable 
expectation. One thing I am concerned about is outreach. How 
effective is the message out there to veterans that aren't 
within some enactment area? How effective is the message that 
they can take part or participate in this sort of a program?
    Whoever wants to answer that question. Mr. Edelman, do you 
have a comment?
    Mr. Edelman. I am not sure I have an answer to that, sir. 
We don't know what their outreach precisely is in any of the 
four VISNs. So I really find it difficult to answer that 
question.
    But if I might, I just would like to reply to something 
that Mr. Brown said. HERO is an experiment. It is a pilot 
project. But we still believe that the safeguards for health 
care for veterans is better provided within the VA health care 
system, not out of it.
    Yes, there is a need for out-of-system services. But the VA 
itself ought to be able to recruit these health care providers 
in rural and remote areas as well as in inner cities and get 
the word out to the veterans residing in these places.
    Mr. McNerney. Thank you.
    Ms. Williams, I think I understood you to say that there 
were unnecessary delays in proving cases for Project HERO. And 
that it is better to go ahead and make those assessments 
quickly and then later decide if that was a problem or not. Is 
that what I understood you to be getting at there?
    Ms. Williams. Yes, sir. That was my recommendation. Instead 
of having the veteran wait around to receive the care, perhaps 
they should mirror the practices of the private sector. Allow 
the veteran to receive the care and then later on do the 
reimbursement and oversight.
    And if the physician in fact over provided care to the 
veteran, then they can go back and take actions later on 
instead of having them sit around, because as we know, the wait 
time was one of the main concerns in the VA system. And if 
Project HERO is supposed to be a fix for that, we feel like we 
should try to eliminate that.
    Mr. McNerney. Thank you.
    One of the themes that I hear from this panel, and I am 
sure the other panels as well, is that we don't want Project 
HERO and the other fee-for-service type programs to replace VA 
services.
    And Mr. Edelman just reinforced that with his statement. 
And I think that that is excellent feedback from you all. And I 
am sure that we will try to do our best to make sure that that 
doesn't happen.
    But there are cases, obviously, where it is not practical 
to put up a VA facility. And I think everybody understands it. 
And also it has been difficult to recruit qualified people to 
be in the VA.
    So there is certainly a need for this. And I am happy to 
hear that the program is moving along okay.
    Dr. Zampieri, you did mention that you had some concern 
about this elephant of the cost increase in the next few years. 
And I think that is an excellent point. Is your concern that 
the increase in health care costs in general is going to drive 
veterans that are not in the system now to come into the 
system, driving up the cost to the VA? Was that sort of what 
you were getting at there?
    Dr. Zampieri. I think it is a combination of different 
things that are impacting the system.
    You know, it is interesting most of the health care dollars 
are spent for procedure for encounter driven types of services. 
In other words, the more patients that come in for----
    Mr. McNerney. Right.
    Dr. Zampieri [continuing]. X-rays, or lab, or for whatever, 
the more, you know, collections occur or, are paid for that 
way.
    And then, you know, whereas, if you look at a different way 
of maybe managing this is comparative and concurrent 
performance data, which is not a usual part of health care 
culture. Reimbursement that instead of it being procedure or 
encounter driven is more geared towards outcome and bundle the 
payment, you know, which is going on some----
    Mr. McNerney. So are you referring to services within the 
VA, or HERO type services, or services in the health care 
system in general?
    Dr. Zampieri. Yes, outside of the VA. Yes, outside of the 
system, and how it is currently done, and how that impacts VA's 
fee basis and contracting of services.
    Are you just going to keep--let me make it more clear. Are 
you just going to keep paying for individual encounters and 
individual procedures, or are you going to try to really, if 
you want to do a pilot study, you create something where you 
say, okay, I have, you know, X number of patients and they have 
congestive heart failure, diabetes or whatever. And we are 
going to give you a performance kind of payment for, you know, 
the care for that person for a year.
    Mr. McNerney. Right.
    Dr. Zampieri. Or, you know, they do that like I said with 
surgical procedures now.
    Mr. McNerney. Well, I have sort of outrun my time here, so 
I need to ask you to wrap it up. And then I am going to yield 
back.
    Mr. Michaud. You finished?
    Dr. Zampieri. Yes.
    Mr. Michaud. Okay. Mr. Teague.
    Mr. Teague. No, thank you. I will pass.
    Mr. Michaud. Well thank you very much.
    Once again, I want to thank the members of this panel for 
their testimony this morning. We look forward to working with 
you as we move forward to try to get our questions relating to 
Project HERO answered.
    I am quite confident there will be some more written 
questions coming your way. So please get the replies in as soon 
as you can.
    So once again, thank you very much.
    Mr. Edelman. Thank you.
    Mr. Michaud. I would ask the second panel to come on up.
    We have Mr. Panangala who is from the Congressional 
Research Service (CRS) and Ms. Finn from the Inspector 
General's Office (VA OIG). Ms. Finn is accompanied by Mr. Abe.
    I want to thank the second panel for coming forward. I look 
forward to your testimony. We will start with Mr. Panangala.

STATEMENTS OF SIDATH VIRANGA PANANGALA, SPECIALIST IN VETERANS 
 POLICY, CONGRESSIONAL RESEARCH SERVICE, LIBRARY OF CONGRESS; 
AND BELINDA J. FINN, ASSISTANT INSPECTOR GENERAL FOR AUDITS AND 
 EVALUATIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 
 VETERANS AFFAIRS; ACCOMPANIED BY GARY ABE, DIRECTOR, SEATTLE 
 OFFICE OF AUDITS AND EVALUATION, OFFICE OF INSPECTOR GENERAL, 
              U.S. DEPARTMENT OF VETERANS AFFAIRS

             STATEMENT OF SIDATH VIRANGA PANANGALA

    Mr. Panangala. Chairman Michaud, Ranking Member Brown, and 
distinguished Members of the Subcommittee on Health, my name is 
Sidath Panangala. I am from the Congressional Research Service.
    I am honored to appear before the Subcommittee today. As 
requested by the Committee, my testimony will highlight 
observations on the implementation of Project HERO. My 
testimony is based on the CRS report that has been submitted 
for the record.
    Let me just lay out some of the policy discussion here and 
then jump into some of the questions that we were trying to 
answer.
    Policymakers and other stakeholders hold a variety of views 
regarding the appropriate role of the private sector in meeting 
the health care needs of eligible veterans. Some believe that 
the best course for veterans is to provide all their needed 
care in VA facilities under the direct jurisdiction of the VA.
    On the other hand, some see the use of the private sector 
as important in assuring the veterans' access to a 
comprehensive slate of services, in particular, specialty 
services that are needed infrequently or in addressing 
geographic or other access barriers.
    Those who believe that all needed care should be provided 
by the VA and VA-owned facilities are concerned that the 
private sector options for providing care to veterans will lead 
to a dilution of quality of the health care system and could 
fail to leverage the key strengths of the VA's health care 
network.
    Still others hold the view that over the long term, having 
private sector options could improve the quality of services 
within the VHA network through competition.
    Reaching the correct balance between providing care through 
the VA's network and through non-VA providers is an issue for 
policymakers, as well as for the VHA and other stakeholders.
    There are at least two policy questions about Project HERO 
that may be of interest to Congress. Has Project HERO enhanced 
the existing fee basis care program? Are there findings from 
Project HERO that could be applied to standardize the fee basis 
care program throughout the VA health care system?
    Now let me attempt to answer these questions. Has Project 
HERO enhanced fee basis care? During our visits to three of the 
four demonstration sites, we heard mixed reviews about the 
pilot. Some categorized it as a ``tool in a toolbox,'' meaning 
that Project HERO was one of many options the VA medical 
facilities could use to provide care outside the VA health care 
system.
    Some officials categorized Project HERO as a ``concierge 
service'' where Humana Health Care guides the veteran in 
scheduling the appointments, ensures that the clinical 
information is provided back from the network provider to the 
VA, maintains a credentialed network of providers, and then 
provides claims payment to the health care providers.
    Are there lessons to be learned from the pilot? 
Establishing a robust network of providers takes time, even 
when dealing with a health care system that has already been 
established like Humana.
    Most VISNs stated that early on in the pilot Humana had a 
fair to moderate success in building its network of providers 
within the VISN. And that the short implementation period 
between the time the contract was first awarded and then became 
operational in January 2008 was inadequate to establish a 
robust network.
    Second, establishing services and pricing and keeping them 
up-to-date is a challenge. Some VISNs stated that clinical care 
services included in the contract were based on prior needs 
that did not meet the current needs of the network. Some VISNs 
maintained that some contract pricing is higher than what VA 
would have paid under the regular fee basis care and some were 
cost-prohibitive when the value-added fees were included.
    Education is needed for a successful functioning of the 
program. And most of the VISNs we spoke to mentioned that 
educating providers about the program was a challenge.
    And finally, the project has yielded information that could 
be applied to the existing fee basis care program.
    First, without electronic sharing of medical records 
between the VA health care system and non-VA providers, there 
are delays in the transfer of clinical information. In some 
instances this delay may result in a VA provider not being 
alerted to the need for immediate follow-up care required on a 
diagnosis or a laboratory result. And this applies to both 
Project HERO and fee basis care.
    Second, VHA's regular fee basis care program could adopt 
certain quality metrics that are currently used under Project 
HERO, such as how far the veteran travels to receive his or her 
care as well as how long the veteran waits once he or she 
arrives for an appointment.
    Last, VA could develop a provider network within each VISN 
that the veteran could be referred to so that the veteran 
receives the care from a provider who has been credentialed 
similarly to a VA provider.
    However, prior to implementing this pilot demonstration 
throughout the VA, it may be useful to conduct an independent 
evaluation to conclusively measure if Project HERO has been a 
worthwhile effort.
    This concludes my statement. I will be happy to answer any 
questions the Committee may have.
    [The prepared statement of Mr. Panangala appears on p. 46.]
    Mr. Michaud. Thank you.
    Ms. Finn.

                  STATEMENT OF BELINDA J. FINN

    Ms. Finn. Thank you. Chairman Michaud, Mr. Brown, and 
Members of the Subcommittee, thank you for the opportunity to 
discuss our findings related to the Veterans Health 
Administration's purchases of health care services for non-VA 
providers.
    I am accompanied today by Mr. Gary Abe who is the Director 
of our Seattle Audits and Evaluations Office.
    In fiscal year 2009, VHA's medical care budget totaled 
about $44 billion. We estimate that VHA spent about $5.3 
billion, that is 12 percent, to purchase health care services 
from non-VA entities. They used various mechanisms, including 
sharing agreements, Federal Supply Schedule contracts, the Non-
VA Fee Care Program, Project HERO, and the Foreign Medical 
Program.
    According to the VHA managers, the authority to purchase 
services from non-VA sources helps to improve veterans' access 
to needed health care services.
    Our audits have found that VHA has not established 
effective policies and procedures to oversee and monitor the 
services provided by non-VA providers.
    As a result, they cannot ensure that the services are 
necessary, timely, high quality, and appropriately billed and 
paid for.
    During our audit of non-competitive clinical sharing 
agreements, we found that performance monitoring for surgical 
and anesthesiology services provided by contracted physicians 
at the VA medical centers needed strengthening.
    For agreements based on providing a specified number of 
medical professionals, the contracting officers technical 
representatives did not monitor the actual amount of time 
worked or whether the hours worked met the requirements.
    For procedure-based agreements, the oversight personnel did 
not always ensure that VHA actually received or needed the 
services and that contractors correctly calculated Medicare-
based charges.
    We projected that strengthening controls over the 
performance monitoring would save VHA about $9.5 million 
annually or $47.4 million over 5 years.
    Our 2009 audit of the non-VA outpatient fee-care program 
found that VA had not established adequate management controls 
and oversight procedures to ensure that it accurately 
documented, authorized, and paid for outpatient fee services.
    In fact, the medical centers improperly paid 37 percent of 
outpatient fee claims by making duplicate payments and paying 
incorrect rates. As a result, we estimated that in fiscal year 
2008, the medical centers overpaid $225 million and underpaid 
$52 million to fee providers.
    When we look at the impact over 5 years, VHA would overpay 
$1.13 billion and underpay $260 million for a net overpayment 
of almost $865 million.
    In addition, for 80 percent of outpatient fee claims we 
reviewed, the medical centers did not adequately document the 
justification for using fee care or properly preauthorize the 
services. This increases the risk of additional improper 
payments.
    While purchasing health care services from non-VA providers 
affords VHA flexibility in terms of expanded access to care and 
services, it also poses a significant financial risk when 
adequate controls are not in place.
    With non-VA health care costs expected to increase, VHA 
needs to strengthen performance monitoring over the clinical 
sharing agreements and improve controls over claims processing 
and the authorization of fee services.
    Without adequate control, VHA lacks reasonable assurance 
that it is receiving the services it pays for, that the 
services are needed, or that the prices paid are correct.
    In both of our audits we recommended internal control 
improvements to increase accountability for purchased health 
care activities.
    Mr. Chairman, thank you for the opportunity to testify 
today. Mr. Abe and I would both be pleased to answer any 
questions that you or the other Members of the Subcommittee may 
have.
    [The prepared statement of Ms. Finn appears on p. 62.]
    Mr. Michaud. Thank you very much.
    Mr. Brown.
    Mr. Brown of South Carolina. Ms. Finn, could you tell me 
what you think the major reason was for the underpayment/
overpayment of those fees?
    Ms. Finn. Yes. Mr. Abe is going to answer that.
    Mr. Abe. Basically, our outpatient fee audit identified two 
major issues that contributed to the improper fee care 
payments.
    The first one is the VHA had not identified core 
competencies or established mandatory training for the fee 
clerks. During our interviews with the fee staff, fee staff 
expressed frustration that they did not have the necessary 
training to do their jobs. Thus did not have a thorough 
understanding on how and when to apply the various fee payment 
methodologies.
    For example, fee staff incorrectly paid professional 
charges. When paying of fee services, medical centers may incur 
two types of charges, professional charges and facility 
charges. Professional charges are the fees paid to clinicians 
for services provided.
    Professional charges are paid using a payment hierarchy. 
The hierarchy requires that the medical centers reimburse 
providers at the lowest rate between the Medicare physician fee 
schedule and the VA fee schedule.
    Mr. Brown of South Carolina. So they establish the 
reimbursement rate based on those factors?
    Mr. Abe. Right, based upon the hierarchy.
    Mr. Brown of South Carolina. Right. And will the supporting 
service provider agree to those terms?
    Mr. Abe. Yes. There could also be a contract rate if VA 
established a contract with a provider or a hospital. This 
contract rate for fee services supersedes the scheduled rates 
that I mentioned before, even if it is higher. So you have this 
payment hierarchy.
    What our audit found is that VHA did not have a specific 
training module that provides the in-depth training on the 
specific payment methodologies I discussed.
    Additionally, what we found is that only 53 percent of the 
fee staff at the medical centers that we visited had attended 
any basic fee training.
    The second issue is VHA's lack of regulatory authority to 
support payment of outpatient facility charges. Facility 
charges include space, supplies, ancillary services, and other 
overhead.
    The current Code of Federal Regulation does not authorize 
VA to use Medicare payment methodologies to pay facility costs. 
Because VHA does not have the regulatory authority to support 
payment of these outpatient facility charges, we found that 
clear guidance on how to pay for the facility charges to be 
lacking.
    Consequently, VHA has no assurance that the amounts--
medical centers pay for facility charges are consistent, 
reasonable, or proper.
    Mr. Brown of South Carolina. Let me interrupt you just a 
minute again. Do you think it might be better than if the VA 
contracted a third-party collection?
    Ms. Finn. That certainly is an option that they could use. 
Having a third party would give you a professional staff to do 
this all the time. Although the VA staff does do it all the 
time.
    Mr. Brown of South Carolina. But are they in each VISN? Are 
they----
    Ms. Finn. Yes, sir.
    Mr. Brown of South Carolina [continuing]. In some kind of 
central?
    Ms. Finn. There are a few centralized billing centers at 
some of the VISNs. But for the most part, the medical centers 
all handle the bills from the fee providers at each medical 
center.
    Mr. Brown of South Carolina. Like in my case in Charleston, 
you know, the local VA hospital is the--they collect the bills 
and disperse the costs, the payments, I guess?
    Ms. Finn. Yes.
    Mr. Brown of South Carolina. Is that right?
    Ms. Finn. That is correct.
    Mr. Brown of South Carolina. Wow, I can understand then how 
that would be, you know, tough to control.
    Ms. Finn. It makes it tougher. Yes, much more difficult.
    Mr. Abe. It makes it tougher for the facilities as well as 
for the VA.
    Mr. Brown of South Carolina. Right. But it looked like to 
me they would have some kind of--did you all look into some 
kind of a central for the group?
    Ms. Finn. Yes, we did. There are some centralized payment 
facilities. And we did visit them I believe. But we didn't find 
any particularly different results.
    Mr. Brown of South Carolina. Really, 30 something percent?
    Ms. Finn. That is an overall rate.
    Mr. Brown of South Carolina. With the collection groups, 
too?
    Mr. Abe. Pardon?
    Mr. Brown of South Carolina. If you contract a third-party 
collection group, the error rate was no different?
    Mr. Abe. Oh, I think we misunderstood what you said. Are 
you asking whether or not we went to a third-party collection 
group?
    Ms. Finn. There are none.
    Mr. Abe. No, we did not.
    Mr. Brown of South Carolina. Okay. Are you all looking into 
maybe doing that?
    Ms. Finn. I believe VHA is evaluating the possibility of 
centralizing more of their payment process. I don't know that 
they are considering contracting.
    Mr. Brown of South Carolina. I know your nursing homes and 
these other, you know, facilities are included as $5 or $7 
billion. Their way of collecting is the same as the HERO's 
program?
    Ms. Finn. I believe the nursing homes bill to the medical 
centers, also. Sorry, that is correct.
    Mr. Brown of South Carolina. Okay, thank you.
    Mr. Michaud. Mr. McNerney.
    Mr. McNerney. Thank you, Mr. Chairman.
    Ms. Finn, interesting testimony for sure. You use some 
strong language I think, insufficient oversight, inadequate 
management. It is sort of subjective judgment.
    How do you think this compares as a whole to what you would 
find in a Medicare investigation or Medicare? Is it going to 
be--I know it is a smaller set of Federal programs. But, in 
general, is it comparable in terms of what you are seeing 
there, or is it worse, or what would be your feeling on that?
    Ms. Finn. I don't have any data on what type of payment 
error rate they have in the Medicare program. I would suspect 
that some of the issues we found in terms of duplicate payments 
in that both a medical facility like a hospital would bill for 
medical services and then the doctor would bill separately. I 
think we would have the same kind of issues even in a Medicare 
billing or any kind of insurance programs.
    The problem is the ability to take those bills and handle 
them accurately on the other end. In VA it is a very manual 
process. For our auditors, when they were comparing bills, they 
had to manually look through transactions to determine that the 
payment for that physician services had already been paid as 
part of a medical facility bill or separately.
    Mr. McNerney. You know, my understanding is that actual 
human eyes that reduces the fraud, you know, the opportunity 
for fraud is that born out here in any way?
    Ms. Finn. Mr. Abe will answer.
    Mr. Abe. One of the problems with comparing Medicare and 
the VA system is that the VA system is very--their automation 
systems are very old.
    And when you talk about Medicare or any other third-party 
billing or paying claims processing centers, their automation 
is much more sophisticated, such as artificial intelligence. 
They have software edits that in itself will identify duplicate 
payments for example.
    Under the VA system, what happens in order to identify a 
duplicate payment is that the fee clerk has to manually look 
through this whole payment history.
    Mr. McNerney. Right.
    Mr. Abe. And it is very, very difficult, and it is very, 
very time consuming.
    Mr. McNerney. So it takes more time.
    Mr. Abe. Oh, very much so.
    Mr. McNerney. But it may be more able to capture misuse of 
funds.
    Mr. Abe. It is not that accurate.
    Mr. McNerney. Okay.
    Mr. Abe. I mean, it is very----
    Mr. McNerney. Ms. Finn, again, you mentioned in your 
testimony growth of a 4-year period--over a 4-year period from 
2005 to 2008 from $740 million to $1.6 billion.
    Do you have any idea what sort of causes of that explosive 
growth are for outpatient fees?
    Ms. Finn. I would be speculating if I were to give you an 
answer. I believe it would probably be due to the increase in 
claims in the veteran population and the need for more 
specialized services.
    I will note one of the things that we were kind of looking 
for and did not find was for VHA to be using the information on 
what it was paying out for fee-based services. We would hope 
that they would use that information to drive improvements in 
their medical centers and make decisions on where to provide 
the care, you know, and in various specialty areas. And we did 
not see that anywhere.
    Mr. McNerney. Okay. Let me see here. Mr. Panangala, could 
you shed some light on what the criteria was that distinguished 
what cases were sent to HERO and what cases were handled by the 
fee-based program?
    Mr. Panangala. Yes. Thank you for that question.
    Generally the way the fee basis care works is that when you 
are presented with a situation that because of some reason you 
can't provide that care, then the clinician makes a choice 
whether the consult should be sent outside.
    The way the Project HERO decision is then made is first 
they look at can it be provided within network, within our own 
facilities. Do we have an affiliate that is already having a 
contract with us to do that? In cases we cannot do that, then 
we will send it to the Project HERO network, which is already 
contracted out.
    So I think that is what we heard in some of the VISNs we 
went to and when we had briefings with them. Now some had 
mentioned that they are trying to have a penetration rate of 
about 15 percent so that they can send some of them outside the 
Project HERO.
    But the decision generally relies on can we do it inside 
first. If not, can we send it out.
    Mr. McNerney. Can I ask one more question, Mr. Chairman?
    You mentioned that the clinician looks at the case first. 
So what you are saying is that a qualified medical person is 
looking at these cases before it decides to go out to the VA in 
the first place; is that correct?
    Mr. Panangala. Well, the qualified physician says I need to 
perform this test, or I need to perform this procedure. Can the 
VA provide it within its network, within its facility.
    Mr. McNerney. So is that----
    Mr. Panangala. So that when I say I need this procedure 
performed----
    Mr. McNerney. Right.
    Mr. Panangala [continuing]. That goes to a central fee 
basis office to make that decision, yes, this needs to go 
outside, because we don't have it in house, or we don't have it 
with a group already under contract with us, so let us go to 
Project HERO.
    Mr. McNerney. Okay. Thank you, Mr. Chairman.
    Mr. Michaud. Thank you.
    Mr. Panangala, can you share your thoughts on the cost 
effectiveness of Project HERO compared to the regular fee basis 
care program?
    Mr. Panangala. Let me try to attempt to answer that 
question. Thank you for that.
    The VA briefed us about a couple of months back on looking 
at trying to cost compare within, let us say, the certain 
number of Current Procedural Terminology (CPT) procedures, of 
course, they use with what they pay Project HERO.
    Now the way VA fee basis works is that once we give an 
authorization to a veteran, the veteran then goes out and finds 
a physician and gets the service. And then the physician bills 
the VA. And then there is sort of a Medicare rate that they 
use.
    In the Project HERO, the way it works is that you send it 
to a network that has already been contracted with Humana. So 
Humana has already negotiated the rate with that physician of 
what we are going to pay for that service.
    So at the end of the day, we are sending those claims to 
the VA. And then the VA pays it back to Humana, saying here is 
the contract.
    So based on what VA has shown us or has at least briefed 
us, they say that is a cost savings when the valued added fees 
are added in of about $3 million or so in savings. So, I mean, 
the VA would be better able to answer that question. But that 
is what they have told us. So with the cost fee, because that 
is a value added fee added onto these considered services that 
they are providing.
    Mr. Michaud. Thank you. This question is actually for both 
of you.
    Project HERO is located in four VISNs. But when you look at 
the four VISNs, they have a fee-based care program as well. So 
is Project HERO really a pilot project? If we are looking to 
compare, should we, for the remaining time for this project, 
mandate that they all have to go through Project HERO versus a 
fee basis model?
    Ms. Finn. My thought would be that you need to look at the 
volume of transactions that are coming through Project HERO as 
opposed to regular fee-based care.
    I don't know that I would recommend that you totally go to 
Project HERO in a VISN. I think you might get a better view 
across a VISN by having both Project HERO and regular fee basis 
care. But I do think you have to have enough basis of both to 
make a comparison.
    Mr. Panangala. Again, the pilot project--the VA cannot or 
the pilot project as it is, HERO, cannot take on all the 
services. I think that there is a need for the VA to continue 
to provide those services. There are official agreements 
already in place. There are contracts already in place. You 
cannot say, well, we are now going to send the universities--we 
are not going to honor those agreements that have already been 
put into place.
    So it won't be practical to completely eliminate the VA fee 
basis program at the same time.
    I think the bottom line here is that we have learned 
certain things that could be applied to improve the fee basis 
program. There are quality metrics, there is where the claims 
are processed, the way the decisions are made.
    A lot of things that the VA never learned before, have come 
out of this demonstration. And I think there is an opportunity 
to apply some of that to standardize under the fee basis care 
program, because it is such a diverse program. It is very 
local. It varies from VISN to VISN, from medical facility to 
medical facility.
    And learning those lessons from Project HERO, and, again, 
it is still in the third year. We still don't know a lot of 
information. It has varied over a period of time in the 
contract. So as we move forward, I think there is the potential 
to learn from the contract and then apply to the fee basis care 
program.
    Just to add another thing. I mean, the VA's also working 
with Kaiser and other folks to have an integrated medical 
record system. And how that is going to play into this type of 
network providers will be an interesting question to look at 
down the road.
    Mr. Michaud. Thank you. Once again, I want to thank the 
three of you for your testimony today and I look forward to 
working with you as we move forward to further examine whether 
or not Project HERO is a good program, and what we can learn 
from it.
    So once again, thank you.
    I would ask the third panel to come up. Tim McClain is 
President and CEO of Humana Veterans Healthcare Services, Inc., 
and Patrick Henry is the Senior Vice President for Federal 
Government Programs for Delta Dental of California.
    We will start off with Mr. McClain.

  STATEMENTS OF TIM S. MCCLAIN, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, HUMANA VETERANS HEALTHCARE SERVICES, INC.; AND P.T. 
  HENRY, SENIOR VICE PRESIDENT, FEDERAL GOVERNMENT PROGRAMS, 
                   DELTA DENTAL OF CALIFORNIA

                  STATEMENT OF TIM S. MCCLAIN

    Mr. McClain. Mr. Chairman, thank you very much. Chairman 
Michaud, Ranking Member Brown, and distinguished Members of the 
Committee, I am Tim McClain. I am the President and CEO of 
Humana Veterans Healthcare Services, the contract partner with 
VA in Project HERO. I am accompanied today by my Chief 
Operating Officer, Mr. Brad Jones.
    On behalf of the dedicated employees of Humana Veterans 
Healthcare Services, we appreciate the opportunity to discuss 
this very important demonstration project.
    Mr. Chairman, I do ask that my written statement be made a 
part of the record.
    Mr. Michaud. Without objection, so ordered.
    Mr. McClain. And also Ranking Member Brown, from all of the 
employees of Humana Veterans and from all of the veterans 
nationwide, we would like to thank you for everything that you 
have done on this Committee. I know that you have made the 
announcement that you will not be seeking another term. But I 
wanted to convey from this side of the table our thanks for 
everything you have done for veterans nationwide.
    As this Committee is aware, the veteran-friendly concept 
for Project HERO was inspired by this Committee. And it was to 
develop a pilot project in partnership with a commercial 
company to focus on improved access to care and quality 
outcomes for veterans referred to community providers for 
specialty health care or other services.
    Through collaborative efforts and a very close partnership 
with Humana Veterans and VA, we concentrated on three areas 
that became hallmarks for this program.
    Quality health care services, as I have outlined on page 7 
of my statement, timely access to care, and cost effective 
care.
    Our collaboration with VA has resulted in what we describe 
as the HERO model. The model is described more fully in my 
written statement beginning on page 3, but it is specifically 
designed to enhance the veteran's overall health care 
experience and to ensure that quality health care is delivered 
to the veteran through a community provider.
    As you heard from the Inspector General's testimony and 
from the last panel, they make several recommendations for 
improvements in VA's administration of fee-based care. I just 
want to note that the report that they published, that the OIG 
published on August 3rd, 2009, and the testimony today, did not 
refer to Project HERO. That was to the regular fee-based 
program within VA.
    In particular, Project HERO currently addresses many of the 
issues that were raised in the Inspector General's report 
regarding quality, timely access, clinical return, and 
especially the improper payments issue that was discussed by 
the previous panel.
    And we believe that Project HERO actually could be a part 
of the solution for many of these problems in the fee-based 
office.
    Mr. Chairman, we believe the HERO model should be part of 
the solution for several other pressing initiatives within VA. 
The HERO model should be standard procedure, first of all, we 
believe, in all VA fee offices.
    The model already has been shown effectively--its 
effectiveness when deployed in rural and highly rural areas as 
defined by VA and could be effectively employed to address 
women's health care issues in many of the geographic areas.
    I would like to give an example. We did an analysis of all 
the referrals we have received in VISN 20, which is a fairly 
rural area. And of those referrals, 68 percent of the referrals 
that we have handled under this contract have been for rural 
and highly rural veterans as defined by the VA's Office of 
Rural Health Care initiatives.
    I also believe that this HERO model can be effectively 
employed to handle women's health care issues, women veterans 
health care issues. And many of the issues that are regarding 
rural health care such as, Mr. Chairman, I know Maine is a 
very, very rural area as Ranking Member Brown had mentioned. 
And I believe that the HERO model could really be of assistance 
in those types of areas.
    Mr. Chairman, thank you again for the opportunity to 
discuss Project HERO and the important contributions it is 
making to quality veterans health care. And I would be glad to 
answer any questions from the Committee.
    [The prepared statement of Mr. McClain appears on p. 65.]
    Mr. Michaud. Thank you.
    Mr. Henry.

                    STATEMENT OF P.T. HENRY

    Mr. Henry. Mr. Chairman, Ranking Member Brown, Members of 
the Subcommittee. As the Chairman indicated, I am P.T. Henry, 
and I am the Senior Vice President for Federal Government 
Programs, Delta Dental of California.
    And I would like to thank you for inviting me to join you 
this morning to talk about our partnership with the Department 
of Veterans Affairs in the execution of the demonstration 
project we refer to as Project HERO.
    Delta Dental is the Nation's oldest and largest provider of 
dental services. Through our 39 independent member plans, we 
provide dental insurance coverage to over 54 million people in 
all 50 States, the Commonwealth of Puerto Rico, the 
territories, and other overseas locations.
    Approximately four out of every five dentists in the Nation 
are affiliated with Delta Dental. And our network of 
approximately 140,000 highly qualified dentists is second to 
none. Of those, approximately 19,000 are located in the four 
Project HERO VISNs.
    We at Delta began our journey with the VA when it was then 
the Veterans Administration in the late 70s when we 
administered the VA Outpatient Dental Care Program in 
California.
    Over the years, our involvement with the Department has 
ebbed and flowed. But what has not changed, however, is our 
total commitment to the tremendous men and women who serve our 
Nation in uniform.
    Today, it is both a privilege and an honor for us to 
administer this program in collaboration with the Veterans 
Health Administration and the four participating VISNs.
    We fully understand and are committed to the goals of 
Project HERO as articulated in the underlying statute, the 
implementing contract, and the related documents.
    At Delta, we see our role not as a substitute for VA care 
but rather as an extension of that care when, for whatever 
reason, required care cannot be provided at the VA's dental 
clinics.
    By making our network of providers available, we complement 
VHA's in-house capability with high-quality, credentialed 
providers with whom we have negotiated discounted rates. 
Basically, we believe Project HERO will, in the long run, lay 
the foundation that will allow the VHA to provide necessary 
care to more veterans for less money than is currently paid for 
fee care.
    We are working in close collaboration with our partners in 
the dental clinics, in the VISNs, and the VHA to improve the 
exchange of clinical information between our network providers 
and the various elements of the VHA.
    While fostering high-quality care and patient safety, we 
improve veteran satisfaction and can provide avenues to control 
costs while eliminating waiting lists based on commercial 
practices.
    We see this as being in contrast to the traditional fee 
care in which the VA has little influence over the quality of 
care yet pays billed charges for all the work that is done.
    During the period from January 2008 through December 2009, 
we received 20,898 viable authorizations, which resulted in our 
making 20,753 appointments for care. Of those, 18,772 have been 
seen by a dentist and we have received a claim for the dental 
services rendered.
    Once treatment is authorized, our veterans are in the 
dentist chair on average in 18 days. And during calendar year 
2009, over 99 percent were seen in less than 30 days from the 
day we first received the authorization.
    We see this as a clear indication that the program is 
meeting the established objectives. We are proud of this track 
record and expect it to improve as we work through the 
remaining years of the demonstration.
    We believe that the key to this success has been the 
partnership forged between Delta Dental and the VHA to ensure 
that this demonstration program provides a solid foundation for 
future decisions about veteran's dental care.
    During the 25 months since contract award, we have worked 
to better understand the culture, the attitudes, and the 
expectations of our partners, while exposing them to the 
benefits that private sector dental plans can provide.
    There have been, and will be in the future, bumps in the 
road. But together we are working our way through them so we 
can move towards the common goals of Project HERO.
    As we go forward, we look forward to working together with 
our partners at VHA to enhance the overall contribution that 
the dental portion of Project HERO can make to the care 
provided to our veterans.
    We at Delta, from the mailroom to the Executive Offices, 
appreciate all you have done and continue to do for the great 
men and women who have served our Nation. And, again, I thank 
you for the opportunity to appear before you today.
    [The prepared statement of Mr. Henry appears on p. 73.]
    Mr. Michaud. I want to thank you both for your testimony. 
It is my understanding we will have votes at noon, so hopefully 
we will get through the last panel. I have a couple of very 
quick questions.
    Mr. McClain, it is my understanding that Project HERO 
reimburses the non-VA providers at the negotiated percentage of 
Centers for Medicare and Medical Services (CMS). What is that 
negotiated percentage? And how does that apply to all four 
VISNs? Because I know that each State gets different Medicare 
reimbursement rates. So how is it applied to all four VISNs, 
and what is it?
    Mr. McClain. Mr. Chairman, it is a very complicated answer 
to a very simple question. It is different everywhere you go. 
Our contracted rates with the provider are not a standard in 
any particular geographic area. It is indeed a negotiated 
contract rate with the provider.
    So it might be different per provider. And it is certainly 
going to be different across the board in all four VISNs.
    Essentially under the HERO contract, we have contracted 
with VA to provide services by clinical numbers by what are 
called Contact Line Item Numbers (CLINs). And they may be 
different procedures. They may be several numbers connected 
with a particular procedure. So when the VA decides to refer 
that procedure out to the HERO network, it would go to our 
provider. The provider is credentialed by our network. They 
have agreed to see the veteran within 30 days. And they have 
agreed that the veteran will not spend more than 20 minutes in 
their waiting room.
    After the care is delivered, the veteran returns to VA. And 
the provider then submits the claim for payment to Humana. So 
Humana Veterans actually pays the provider our contracted rate. 
And then we submit claims to the VA under the HERO contract.
    Mr. Michaud. My second question is what are the driving 
costs in rural areas? Is it the availability of providers?
    The full Committee actually had a hearing examining how 
money is distributed within the VISNs. And quite frankly, when 
you look at some of the rural areas, I think they are getting 
shortchanged when receiving money from the different VISNs.
    So what are the driving costs as you see so far?
    Mr. McClain. Well certainly if you have very few or even 
only one provider in a particular area, they can drive the 
costs as to what they can charge for a particular procedure.
    So certainly provider costs are an issue. Trying to get 
them under a contract is another issue. And then having some 
supporting infrastructure from a network point of view such as 
Humana's network, also there is a cost connected with that.
    And so the one area that sometimes is overlooked I think in 
the rural costs is the cost of getting to care. In other words, 
the travel expenses. And I know this Committee recently passed 
an increase in the travel reimbursement. That now needs to be 
factored into the overall costs of care, no matter whether it 
is with VA or outside.
    Mr. Michaud. Thank you.
    Mr. Henry, in your testimony you noted that from January of 
2008 to September of 2009, you received over 18,375 
authorizations, which resulted in Delta Dental making 18,205 
appointments. What happened to the remaining 170 
authorizations? Was it because you lacked the dentist in the 
network to provide those, or the veteran decided they no longer 
needed it?
    Mr. Henry. No. The difference between the authorizations 
received and the appointments we make basically fall into a 
category of individuals who either have chosen not to make the 
appointment, individuals we have been unable to contact, which 
by the way is the largest percentage of those who don't seek 
the care once we have received the authorization. The next 
largest would be those who just made an appointment and didn't 
keep it.
    So there is a list of--I wouldn't say problems--list of 
circumstances under which we would receive an authorization 
from the VA, attempt to make an appointment for the individual, 
but at the end of the day the appointment is not kept.
    Mr. Michaud. Thank you.
    Mr. Brown.
    Mr. Brown of South Carolina. This is a quick question to 
both of you. I know that--well, first of all, Mr. Henry, you 
said--I think both of you might have alluded to that you get to 
see a doctor, a dentist in your case within 30 days after 
authorization. How long does the authorization process take?
    Mr. Henry. It would vary. Unfortunately, I would have to 
defer that question to our colleagues from VHA, because 
basically we start our clock to measure against our contract 
metrics once we receive it.
    Mr. Brown of South Carolina. And how about once you provide 
the service? How long does it take to get you paid? And are you 
caught up in that 37 percent error factor?
    Mr. Henry. No. Since day one of the contract, we have been 
working collaboratively with our partners at VHA to smooth out 
the payment process to ensure that we bill accurately and that 
we get paid when we are due. And it is an ongoing process. And 
the best part about it is that you have two teams working 
together to come up with the right answer.
    Mr. McClain. Mr. Brown, if I could address that also. That 
is one of the advantage of the Project HERO structure is that 
you have much fewer improper payments.
    One of the issues with improper payments identified by the 
Inspector General's report was the fact that there had to do 
calculations on their part as to what the appropriate 
reimbursement would be for this particular provider.
    Under Project HERO, there are contract rates. And so there 
is much less of an opportunity to have an improper or an 
overpayment.
    Mr. Brown of South Carolina. Do you think it would be 
better if we went to some kind of a centralized collection 
system?
    Mr. McClain. That is certainly something VA should look at, 
I believe. But I really don't have an opinion as to whether VA 
should move to that.
    Mr. Brown of South Carolina. All right. Thank you both.
    Mr. Michaud. Once again I would like to thank you both for 
your testimony this morning. I am sure that we will have 
additional questions in writing as well. So once again, thank 
you.
    Our last panel is Mr. Gary Baker from the Veterans Health 
Administration, who is accompanied by Ms. Patricia Gheen and 
Mr. Craig Robinson.
    I want to thank all three of you for coming today. I look 
forward to hearing your testimony.

    STATEMENT OF GARY M. BAKER, MA, CHIEF BUSINESS OFFICER, 
  VETERANS HEALTH ADMINISTRATION, U.S. DEPARTMENT OF VETERANS 
 AFFAIRS; ACCOMPANIED BY PATRICIA GHEEN, DEPUTY CHIEF BUSINESS 
  OFFICER FOR PURCHASED CARE, VETERANS HEALTH ADMINISTRATION, 
   U.S. DEPARTMENT OF VETERANS AFFAIRS; AND CRAIG ROBINSON, 
   EXECUTIVE DIRECTOR AND CHIEF OPERATIONS OFFICER, NATIONAL 
 ACQUISITION CENTER, OFFICE OF ACQUISITION AND LOGISTICS, U.S. 
                 DEPARTMENT OF VETERANS AFFAIRS

    Mr. Baker. Mr. Chairman, Mr. Ranking Member, and Members of 
the Subcommittee, thank you for providing me this opportunity 
to discuss the Department of Veterans Affairs' demonstration 
Project on Healthcare Effectiveness through Resource 
Optimization or as we call it Project HERO.
    I am accompanied today by Ms. Patricia Gheen, Deputy Chief 
Business Officer for Purchased Care, and Mr. Craig Robinson, 
Executive Director and Chief Operations Officer for VA's 
National Acquisition Center.
    VA recognizes there is an ongoing need for non-VA services 
and that purchasing such services is a key component of our 
continuum of care. We understand the importance of being good 
stewards and carefully managing our programs for purchasing 
non-VA services. We have multiple initiatives focused on 
improving that management. And Project HERO is a cornerstone of 
those efforts.
    Congress directed that VA establish at least three managed 
care demonstration locations to satisfy a set of health care 
objectives related to arranging for and managing purchased care 
as has been noted earlier.
    Project HERO is now in year 3 of a proposed 5-year pilot 
using a contract approach to increase the quality oversight and 
decrease the costs of purchased that is fee care.
    This pilot is operational in VISNs 8, 16, 20, and 23. These 
VISNs have historically high expenditures for fee care and have 
substantial Veteran enrollee populations.
    Through Project HERO, VA contracts with Humana Veterans 
Healthcare Services and Delta Dental Federal Services to 
provide veterans with pre-screened networks of doctors and 
dentists who meet VA quality standards at negotiated contract 
rates.
    VA has identified the following objectives for Project 
HERO. Provide as much care for Veterans within VA as is 
practical.
    We are sensitive to the issues and concerns of the VSO 
community and the veteran community in general and do try to 
provide as much care within VA as possible.
    When we refer veterans, we refer them to high-quality 
community-based care when necessary to improve the exchange of 
medical information between VA and non-VA providers, to foster 
high-quality care and patient safety, to control operating 
costs, increase veteran satisfaction, secure an accountable 
evaluation of the demonstration project itself, and sustain 
partnerships with our university affiliates.
    Project HERO contracts with Humana and Delta Dental to meet 
VA standards for credentialing and accreditation; timely 
reporting of access to care; timely return of clinical 
information to VA; reporting patient safety issues, patient 
complaints and patient satisfaction; and a robust quality 
programs including peer review with VA participation, while 
meeting Joint Commission and other health care industry 
standards and requirements.
    Humana uses patient safety indicators, patient complaints, 
and referrals as sources for initiating peer review. VA 
monitors contract performance, audits credentialing and 
accreditation, and evaluates Humana and Delta Dental 
performance compared to VA facilities on a range of measures.
    This analysis indicates that Project HERO facilities are 
equal to or better than the national average for all non-VA 
hospitals that report to the Joint Commission.
    VA has found that 89 percent of Project HERO contracted 
medical prices with Humana are at or below Medicare rates. And 
contracted rates with Delta Dental are less than 80 percent of 
the National Dental Registry Advisory Service Comprehensive Fee 
Report level.
    We believe that Project HERO is meeting its objectives by 
improving quality oversight, access, accountability, and care 
coordination.
    Specifically we have found that patient satisfaction is 
comparable to that within VA.
    Costs for Project HERO are generally comparable to or 
slightly below VA costs for other non-VA services.
    Humana and Delta Dental providers meet VA credentialing 
standards, quality standards, and maintain extensive quality 
programs.
    Humana and Delta Dental provide timely access to care, 
providing specialty or routine care within 30 days 89 percent 
of the time for Humana and 100 percent of the time for Delta 
Dental.
    Both vendors are contracted to return medical documentation 
to VA within 30 days. Thereby enabling VA to provide informed 
and continuous patient care.
    While Humana and Delta Dental are not meeting this 100 
percent standard, the contracts provide a vehicle for tracking 
medical documentation return that did not previously exist in 
our fee program.
    We are seeing regular improvement as we work with both 
vendors on this particular issue. VA has worked with Humana, 
Delta Dental, and participating VA medical centers to make 
electronic clinical information sharing available to all 
Project HERO participating sites.
    While VA recognizes the need to learn from and act upon the 
valuable lessons learned through Project HERO, this pilot has 
confirmed our ability to address key oversight issues that have 
been identified as a program goal.
    Mr. Chairman, we appreciate the opportunity to discuss this 
initiative with you. My colleagues and I are available for your 
questions.
    [The prepared statement of Mr. Baker appears on p. 74.]
    Mr. Michaud. Thank you very much, Mr. Baker.
    So do you believe that Project HERO has actually improved 
access to care and has led to a positive change in the quality 
of care provided to our veterans?
    Mr. Baker. We believe that the HERO model provides better 
access to care in a couple of ways, sir.
    One, the concierge service, that is where our vendors make 
contact with the veteran and individually arrange for them to 
have their appointments is certainly a service that is not 
available in routine fee care.
    Additionally, we are able to monitor that access and the 
timeliest of access in a way that we simply can't do for our 
regular fee program.
    So the fact that I am able in my testimony to address the 
specific percentage of time in which the veteran is seen within 
30 days is a reflection of the benefit that we get from the 
HERO contract approach.
    Mr. Michaud. I have heard that Humana does not have access 
to the VA's computerized patient record system. The timely 
exchange of medical information, is important in ensuring a 
high quality of care for our veterans. Is there a reason for 
Humana not having this access?
    Mr. Baker. Well, VA has recognized the need for providing 
access to Humana so that in those instances where sufficient 
information isn't initially sent, they have access to the VA 
medical record.
    We have been working through that. For longer certainly we 
would desire. But my understanding is if not this month, next 
month that access will be granted. There are security issues 
and a number of requirements that have to be met. We have been 
working through those over the last several months.
    Mr. Michaud. And since this is a pilot program--and you 
heard my question to a previous panel about whether or not we 
might take one VISN or all four and say it mandates that they 
have to all go to Project HERO--my question would be, what 
percentage of medical care cases were referred to Humana versus 
the fee-based program, and similar for Delta Dental?
    Mr. Baker. Right. The aggregate number I am familiar with. 
We have compared that. And as a percent of overall fee care for 
the combination of the 2, approximately 22 percent over the 
last 6 months have gone to HERO as opposed to the fee program.
    I also was looking at some of our statistics. And for 
quarter one in 2009, the number of veterans who were seen in 
HERO was nine percent of the number that we are seeing for fee. 
In quarter one of 2010, 31 percent of the veterans seen for 
outside care were seen in HERO as opposed to fee.
    So there has been an increased utilization and penetration 
of our utilization of HERO. We have seen as we have continued 
to work with our contract partners and with the medical centers 
involved working to smooth out issues of referral and 
understanding of the program.
    Mr. Michaud. We heard that Humana actually negotiates some 
of the rates with the providers. In your fee-based service, did 
you negotiate for those rates as well?
    Mr. Baker. If we contract for care then clearly there is a 
negotiation and agreed upon rate that is identified in the 
contract. There are opportunities as we issue individual 
authorizations for care for VA to identify an anticipated cost. 
But unless the vendor accepts that, we are required to pay them 
based on their bill charged and on our fee schedule, which is 
75 percent of usual and customary charges.
    Mr. Michaud. Thank you.
    Mr. Brown.
    Mr. Brown of South Carolina. Thank you.
    Mr. Baker, you heard testimony I guess from the other 
panels and the concerns about how the billing was going and 
this sort of thing. Would you consider maybe some kind of a 
third-party billing to help the VISNs out?
    Mr. Baker. We have performed, actually had an outside 
agency perform, a review of options long term for VA in terms 
of its management of the non-VA purchase care program claims 
processing piece in particular.
    That analysis included using an outside vendor, improving 
or purchasing a new technology for VA to use to support its 
processing of claims, as well as building IT systems in house. 
The evaluation was predicated on VA moving towards a more 
consolidated or centralized claims processing piece.
    While there haven't been any final decisions on that, 
certainly we think that in the long term, there is an 
opportunity for VA to gain economies of scale, and improve 
internal controls by consolidating and centralizing some of its 
claims processing activities.
    Mr. Brown of South Carolina. Let me go further on this. 
What criteria, if any, do participating VISNs use to determine 
whether to use Project HERO or traditional fee basis care? And 
number two, does it vary from VISN to VISN? And if so, should 
there be consistent criteria across the four VISNs?
    And then also a follow-up, too. In distributing the payment 
to the fee service or to the HERO service, does that come 
directly out of the local hospital, or is that--do you have 
some kind of collective fund that the--let us say under your 
jurisdiction that pays it? How is that?
    Mr. Baker. Payment for the services obtained through HERO 
are considered part of the operating budget for the individual 
facilities. So it is paid locally. It is not paid by any 
central fund per se.
    In terms of the determination for whether to use fee or 
HERO, it is a local determination. It is one of the areas where 
as the program office responsible for overall coordination, we 
have worked to educate and worked with individual facilities to 
make sure they are aware of the HERO contract, the benefits of 
the contract.
    In some circumstances, there are existing patterns of care 
or individual veteran desire that have an impact on where the 
veteran is referred. Availability of network resources for our 
contract partners are also a factor that is taken into 
consideration.
    Mr. Brown of South Carolina. So in my case down in 
Charleston, I think we go through the Johnson VA Center, a 
veteran would call and get authorization then to go to a 
private provider?
    Mr. Baker. Generally, no. The use of and concept of HERO is 
that it is an extension of VA services, not something used in 
lieu of that.
    So generally the individual is being seen by a VA provider, 
their care is being provided by VA, and there is a 
determination that they need a specialty care or diagnostic 
service that is not available at VA.
    In that circumstance then the individual practitioner will 
request or recommend that the service be obtained and then 
there will be a decision process as to whether or not that is 
performed and obtained through a fee-basis activity, through an 
alternate existing contract, because some of our participating 
facilities have local contracts that had previously been 
negotiated, and patterns of referral, or whether they would be 
referred to a Project HERO provider through the HERO contract.
    Mr. Brown of South Carolina. So that particular entity 
would have to bear the costs of the----
    Mr. Baker. The local facility bears the costs of the 
referral. Whether they choose to do it in-house if they have 
that capability, refer them to Columbia or Atlanta if they are 
going somewhere in the VA network. Whether they went to a 
contract provider, if they contracted with the local affiliate 
as an example. Whether they went to HERO or whether they went 
to a fee provider in a case where VA provided fee authorization 
and possibly a list of known providers who could support that 
care.
    Mr. Brown of South Carolina. Do you think they are better 
served doing that than say having some kind of a central fund 
so that they wouldn't look like they would be competing with 
their own internal budget?
    Mr. Baker. Well we think that management of health care is 
a local requirement. And that when you have some of your own 
money in the mix, you are apt to be a better financial steward 
in terms of managing the care and the budget for delivery of 
that care.
    I am not sure that there was ever any intent to consider a 
centralized payment process for Project HERO per se.
    Mr. Michaud. I would like to follow up on Mr. Brown's 
question. If you have some of your own money, it would probably 
be better managed.
    The concern I have comes from a mini-MAC meeting I attended 
in Maine just recently. A concern that the VSOs had brought 
forward was that fee-based services in rural areas, because of 
the demographics, and a lack of availability of providers in 
rural areas, and the mileage, for instance, actually costs 
more.
    However, under the Veterans Equitable Resource Allocation 
(VERA), when VA distributes the money to different regions 
within that VISN, if they are inadequately funded in the first 
place, it is going to prove problematic.
    Here is an example. In Maine, for instance, we heard 
earlier that one of the costs is mileage reimbursement. The 
mileage reimbursement rate went from 11 cents to 41 cents. Now 
in Boston, it is a lot cheaper to go to the facility in Boston. 
In Maine where you have miles to go, you tend to rack up a lot 
of mileage.
    So, for instance, Togus paid out $1.5 million in 
reimbursement for mileage. It cost, I believe, over $5 million. 
So they are operating in the red automatically, because the 
funding model is not adequate.
    And, likewise, in rural States you have to probably do more 
fee-based services than you would have to in Boston, and that 
tends to increase costs as well.
    So they will have to make a determination of whether or not 
they are going to have to cut back on hiring doctors and nurses 
or put off purchasing equipment at the medical facility, which 
actually doesn't help the veterans out or where we are supposed 
to be helping the veterans out, whether you live in an urban or 
rural area.
    So it may not be true that having a little of their money 
in the process will make it more efficient, if they are not 
being adequately funded in the first place.
    Mr. Baker. Well, I don't profess to be the expert on the 
VERA allocation model. And I know that there have been 
discussions about that with our financial officer and others. 
The VERA model is an aggregate distribution mechanism. And 
certainly as an aggregation, there are variations based on a 
number of factors that when taken individually can be 
questionable. But I think whether or not the aggregate is 
equitable and provides sufficient funding is something that is 
being tested over time. And VA continues to try and tweak the 
model.
    In terms of HERO per se and fee care, they are considered 
an integral component of managing the care of the veteran. And 
as such, the individual facilities are responsible for 
delivering that care and management.
    We try to balance the needs of the individual with the 
available resources at our individual medical centers. And we 
know that there are variations based on urban versus rural, et 
cetera.
    There was previous discussion, I think, by one of the panel 
members, previous panel members, asserting that HERO supports 
rural care and makes resources more available.
    We have done some analysis there. There is some slight 
improvement in availability of resources and network through 
using HERO as opposed to straight fee. And certainly VA is very 
aware of rural issues and has a rural health office. We are 
partnering with them in working on a rural fee pilot going 
forward.
    Mr. Michaud. And when is that fee pilot expected to get up 
and----
    Mr. Baker. We have been working with Ms. Vandenberg and her 
shop in terms of that. While they have the lead for that, we 
are providing program expertise. Part of the issue has been 
developing a specific criteria and some of the requirements 
that were in the law in terms of when exceptions can be made, 
et cetera.
    I understand that regulatory process is in process and that 
those rules hope to be promulgated in the near future.
    Mr. Michaud. Looking at fee-for-service and other issues 
can you tell me the driving costs in rural areas? Do you feel 
that the VERA model is adequate to make sure that those costs 
are addressed?
    Mr. Baker. I really can't give an opinion on whether VERA 
is adequate or not adequate in terms of rural health. Certainly 
the drivers for rural health have been mentioned earlier. One 
is access and another is simple availability.
    And if there is availability, whether or not there is 
competition when there is availability, so that there is 
potential for some price competition.
    Additionally, as you indicated earlier, transport of the 
individual, even if they have a car or ready transport, the 
cost of that transport has to be taken into consideration. And 
VA is sensitive to those both in terms of costs, but also in 
terms of delivering quality service to veterans and a 
satisfactory experience to them as well.
    Mr. Michaud. My last question, which actually was brought 
up by the previous panel, is when you look at access issues and 
availability in rural areas and the fact that Project HERO 
actually negotiates for their rates, and they are based on CMS 
rates, have you looked at where that actually might be a 
disincentive, as in Maine and I am sure other States as well 
for providers? When you look at reimbursement rates, we have 
providers who are refusing to take on any more Medicare or 
Medicaid patients, because Medicare pays anywhere from 20 to 30 
percent less than what it actually costs to provide the 
service. Medicaid pays only about 65 percent of what Medicare 
pays.
    So a provider is only going to be able to operate on the 
fringe for so long. And we have heard that some providers are 
refusing to take any more Medicare or Medicaid patients.
    So what are you looking at when you look at rural health 
care, particularly if you have to negotiate for rates? That 
might be a disincentive to providers that actually provide the 
service for our veterans.
    Mr. Baker. Right. Well, VA is sensitive to the issues of 
the marketplace, rural and other factors are taken into 
consideration. As a national strategy, we are trying to link 
our reimbursement schedules to CMS rates, so that their 
standardization helps in communication with our vendor 
participants and helps in terms of internal controls, et 
cetera.
    But our authority to provide fee services and contract 
services allows us to exceed that standard if that is necessary 
for us to gain access and assure veteran access for the 
services that they require.
    And we have examples where we contract for services and 
those services are contracted at rates above and in some cases 
well above CMS to assure that veterans have access to the 
services they needed. And we would expect to continue that in 
the future as necessary.
    Mr. Michaud. Great. Thank you very much all three of you 
for your comments this morning, as well as the previous panels. 
I look forward to working with you as we address some of these 
very important issues on access and quality care for our 
veterans.
    So without any further questions, I now adjourn the 
hearing.
    [Whereupon, at 11:56 a.m. the hearing was adjourned.]



                            A P P E N D I X

                              ----------                              

        Prepared Statement of Hon. Michael H. Michaud, Chairman,
                         Subcommittee on Health
    The Subcommittee on Health will now come to order. I would like to 
thank everyone for attending this hearing. Today, we will examine 
whether Project HERO (Healthcare Effectiveness through Resource 
Optimization) is meeting the goals of delivering efficient, high 
quality contract care to our veterans.
    Each year, the VA spends more than $2 billion to purchase private, 
non-VA health care for eligible veterans. The VA has the authority to 
do this when VA facilities are not able to provide the necessary health 
care or are geographically inaccessible to the veteran. There is room 
for improvement in the way that the VA manages and coordinates contract 
care. Specifically, there is no consistent process in place to ensure 
that care is delivered by fully licensed and credentialed non-VA 
providers, that continuity of care is monitored and is part of a 
seamless continuum of services, and that clinical information flows 
back to the VA.
    It is under these circumstances that the VA developed the Project 
HERO pilot program in response to the language in the Conference Report 
accompanying the VA's 2006 Appropriations Act. As the VA was in the 
initial stages of developing and implementing Project HERO, the Full 
Committee held a hearing on this issue in March, 2006. At this Full 
Committee hearing, the VA testified that Project HERO aimed to provide 
quality cost-effective care, which is complementary to the larger VA 
health care system. In this endeavor, the VA also testified that they 
would sustain on-going communication with the VSO community.
    We have since learned that the VA is implementing Project HERO in 
VISNs 8, 16, 20, and 23. On October 1, 2007, the VA awarded the Project 
HERO contract to Humana Veterans Healthcare Services and Delta Dental 
Federal Services. We understand that the health care services became 
available through Humana on January 1, 2008 and that dental services 
became available through Delta Dental soon thereafter on January 14, 
2008.
    With nearly 2 years of rich program data, our hearing today will 
examine whether the VA has delivered on the promises of Project HERO. 
For example, was Project HERO implemented properly to meet the pilot 
program's objectives to provide improved access, quality, and cost-
effective care? Was there transparency in the implementation of this 
pilot program and was the VSO community informed and involved? Finally, 
what has Project HERO achieved and what are the potential next steps 
moving forward?
    To help us answer these questions, I look forward to hearing the 
testimonies of our witnesses.
                                 
            Prepared Statement of Hon. Henry E. Brown, Jr.,
           Ranking Republican Member, Subcommittee on Health
    Thank you Mr. Chairman.
    I appreciate your holding this hearing today to examine how well 
the Department of Veterans Affairs (VA) is providing health care to our 
veterans within their communities--when a VA facility is too far from a 
veteran's home or a service is not available within VA.
    The use of local, non-VA providers offers greater access to 
services and is vital to ensuring that our veterans get the care they 
need in a patient-centered manner. Known as the fee-basis program, VA 
spent over $3 billion dollars last year, with more than half of this 
spending for outpatient care.
    Recognizing the size and scope of the fee-basis program, in 2006, 
Congress directed VA to establish a pilot program to better manage the 
care VA purchases. In response, VA developed Project Healthcare 
Effectiveness through Resource Optimization or Project HERO.
    The purpose of the Project HERO pilot program is to more 
effectively refer and better coordinate fee-basis care, improve the 
exchange of information between VA and community providers, and 
increase veteran patient satisfaction.
    As we enter the third year of the Project HERO pilot, it is 
important that we take a critical look at the implementation of the 
pilot--its successes and challenges.
    VA does not have a standardized method to monitor fee-basis care, 
outside of Project HERO. And, it is very troubling that a VA Office of 
Inspector General audit of VA's outpatient fee care program last August 
revealed significant payment errors and oversight vulnerabilities.
    I look forward to hearing from our witnesses today and to examine 
how to strengthen controls over VA's fee-basis program to ensure both 
high quality care and good management and oversight.
    Thank you Mr. Chairman, I yield back the balance of my time.

                                 
     Prepared Statement of Denise A. Williams, Assistant Director,
    Veterans Affairs and Rehabilitation Commission, American Legion
Mr. Chairman and Members of the Subcommittee:

    Thank you for this opportunity to present The American Legion's 
views on the Department of Veterans Affairs (VA) health care contract 
program known as Project HERO. These views are based on quarterly 
update briefings given to Veterans' Service Organizations (VSOs) by VA 
as to status of the Project HERO project.
    In 2007, VA began the Project HERO (Healthcare Effectiveness 
through Resource Optimization) program as a pilot study. This study, at 
the direction of Congress, required VA to examine and execute health 
care management strategies. The strategies captured were deemed a 
success in the private and public sector. The overall purpose of the 
program was to closely manage health care services purchased by VA. 
Project HERO, now in its second year of a 5-year pilot to increase the 
quality of care and decrease the cost for fee care, is currently 
available in four Veterans Integrated Services Networks (VISNs): 8, 16, 
20, and 23.
    In accordance with congressional oversight, health care purchased 
for veterans from the private sector providers must be secured in a 
cost effective manner that compliments the Veterans Health 
Administration (VHA) system of care as well as maintains a strong 
affiliation with medical universities throughout the VA system.
    VA's objectives for Project HERO included:

      increase the efficiency of VHA processes associated with 
purchased care from outside sources;
      reduce growth of costs associated with purchased care;
      implement management systems and processes that foster 
quality and patient safety;
      make contracted providers virtual, high-quality 
extensions of VHA;
      control administrative costs and limit administrative 
growth;
      increase net collections of medical care revenues where 
applicable; and
      increase enrollee satisfaction with VHA services.

    The American Legion is concerned with quality of care, the 
timeliness of access to care, and patient satisfaction. The stated 
goals of Project HERO deal with managing the ``fee based'' health care 
services. If I may paraphrase, ``In order to streamline the process, 
reduce cost, and insure security of records, of contracted health 
care.'' In briefings received by VSOs from VA, these goals seem to be 
in reach.
    The American Legion reiterates the priority need is for quality 
health care in a timely manner to be provided. Currently, Project HERO 
sets up appointments with ``certified'' caregivers. It is our opinion 
that VA should increase its efforts to enforce criteria for the 
certification of caregivers, do follow-up investigations, and conduct 
training to assure care given by contracted caregivers meets the 
quality of care standards received at a VA facility. This oversight 
would not only assure quality health care, but it will improve customer 
satisfaction in the overall process. That is, once caregivers are VA 
``certified'' the need for extended review of recommended treatment by 
VA experts, as is now the case, would not be necessary.
    The American Legion recommends that under Project HERO, VA consider 
mirroring the Private Sector's approval practices for treatment between 
doctors and insurance companies; allowing veterans to have timely 
access to quality health care as opposed to waiting for an extensive VA 
review of the recommended treatment. Since patients would only be sent 
to ``VA approved and certified'' commercial facilities for treatment, 
it would be generally accepted that recommended procedures be allowed 
and conducted. These treatment procedures should be reviewed after 
patients are treated. If it is found that excessively expensive or 
unnecessary treatments have been preformed, the service provider should 
be charged back or decertified for repeat infractions.
    As the Department of Defense (DoD) turns to the Reserve components 
for additional manpower, the number of veterans residing in rural and 
highly rural areas significantly increases. Veterans from Operation 
Enduring Freedom and Operation Iraqi Freedom are authorized enrollment 
in VA's health care delivery system for 5 years after separation. 
Clearly, veterans in rural and highly rural areas continue to be 
underserved. These veterans should not be penalized because of their 
choice of geographical location. The American Legion urges VA to 
improve access to quality primary and specialty health care services, 
using all available means at their disposal, especially for veterans 
living in rural and highly rural areas.
    While not originally designed to address rural health care, initial 
results from the four VISNs in the pilot project indicate that Project 
HERO process could in fact be an important component to addressing this 
health care access issue.
    The American Legion urges VA to expand access to Project HERO to 
veterans in other VISNs particularly those VISNs with extensive rural 
veteran's populations or limited access to VA facilities, such as 
Alaska and Hawaii. This is to assure that veterans residing in areas 
with limited access to VA medical facilities are not subjected to 
insufficient health care. Knowledge and understanding of existing 
programs by veterans is critical to success. The American Legion urges 
that every measure be taken to assure these advances are communicated 
and implemented within the most rural and highly rural areas to provide 
all veterans with timely access to quality health care in the proper 
settings.
    Finally, The American Legion would like to emphasize that this 
program should not be utilized as a means to control the VA Medical 
Center's budget by referring veterans to Project HERO resources in 
order to save on equipment repair or purchases. For example, if the 
emphasis on cost savings becomes too great, we could see a scenario 
where an administrator would delay repair or purchase of a piece of 
equipment, justifying it by utilizing Project HERO health care and 
thereby enhancing budget numbers. We would like to encourage VA to 
continue to maintain a health care delivery system which 8 million 
veterans rely on for their care. It is imperative to note that the 
Project HERO should not be intended to replace the VA health care 
system.
    Mr. Chairman and Members of the Subcommittee, The American Legion 
sincerely appreciates the opportunity to submit testimony and looks 
forward to working with you and your colleagues on this important 
matter.
    That concludes my written statement and I would welcome any 
questions you may have.
                                 

        Prepared Statement of Adrian Atizado, Assistant National

            Legislative Director, Disabled American Veterans

Mr. Chairman and Members of the Subcommittee:

    Thank you for inviting the Disabled American Veterans (DAV) to 
testify at this important oversight hearing of the Subcommittee on 
Health. DAV is an organization of 1.2 million service-disabled 
veterans, and devotes its energies to rebuilding the lives of disabled 
veterans and their families.
    The DAV appreciates your leadership in enhancing Department of 
Veterans Affairs (VA) health care programs on which many service-
connected disabled veterans must rely. At the Subcommittee's request, 
the DAV is pleased to present our views on the VA's Health care 
Effectiveness through Resource Optimization (HERO) project. This 
demonstration project was directed to be carried out by the Conference 
Report on VA's fiscal year (FY) 2006 appropriation, Public Law 109-114. 
Congress deemed it essential that care purchased from private sector 
providers for enrollees of the VA health care system be secured in a 
cost effective manner, in a way that complements the larger Veterans 
Health Administration (VHA) system of care, and preserves important 
agency interest, such as sustaining a partnership with academic 
affiliates.
    As this Subcommittee is aware, the Department revamped the Project 
HERO solicitation from its original form and later awarded a contract 
in October 2007 to Humana Veterans Health care Services (HVHS), a 
national managed care corporation that was a major fiscal intermediary 
and private network manager under the Department of Defense (DoD) 
TRICARE program. In January 2008, contract services for dental care 
were to be made available through Delta Dental. Under this 
demonstration, participating Veterans Integrated Services Network 
(VISNs) are to provide primary care and, when circumstances warrant, 
must authorize referrals to HVHS for specialized services in the 
community. These specialty services initially included medical/
surgical, diagnostics, mental health, dialysis, and dental.
    VA indicated VISNs 8, 16, 20 and 23 were selected as they had the 
highest expenditures for community-based care, particularly relative to 
the number of enrollees in the VISN. In addition, these VISNs are some 
of the larger VA networks, together representing 25 percent of total 
enrollment and 30 percent of annual out of network expenditures. These 
selection factors were used to ensure the demonstration results are 
representative of the larger VA population and to facilitate 
measurement of proof of concept under Project HERO. Contracts for this 
demonstration project have a base year and 4 option years. Having 
recently exercised the second 1-year option, the demonstration project 
is now on its third year.
    DAV believes Project HERO is timely considering the escalating rise 
in spending for non-VA purchased care and the manner by which such care 
is managed. According to VA, total expenditure for VHA Fee Basis 
programs in FY 2007 was $2.227 billion.\1\ VA spent approximately $3 
billion in FY 2008 in non-VA purchased care and estimates it will spend 
$3.8 billion for FY 2009.\2\ Despite the growth of the program, well 
known weaknesses in VA's fee-based care program remain and have been 
subject to criticism by the veteran community,\3\ VAOIG,\4\ and the 
GAO.\5,6\ For example, VA does not track fee-based care, its related 
costs, outcomes, access, or veteran satisfaction levels.\7,8\ Also, 
unlike the contract's medical reimbursement prices under Project HERO, 
VA's fee-based care program is highly decentralized, lacks sufficient 
guidance, and subsequently suffers from wide variation in reimbursement 
prices for both facility and professional charges.
---------------------------------------------------------------------------
    \1\ Department of Veterans Affairs, Veterans Health Administration 
Directive 2009-033, Resolving Adverse Credit History Reports for 
Veterans Receiving Late Payments for Purchased Non-VA Care, July 15, 
2009.
    \2\ Joseph A. Williams, Jr., Acting Under Secretary for Operations 
and Management, VHA, testimony for hearing on ``VA's Contracts for 
Health Services'' before the Senate Committee on Veterans' Affairs, 
September 30, 2009.
    \3\ The Independent Budget for Fiscal Year 2010.
    \4\ Department of Veterans Affairs Office of Inspector General, 
Audit of Veterans Health Administration's Non-VA Outpatient Fee Care 
Program, August 3, 2009.
    \5\ Government Accountability Office, VA Health Care: Third-Party 
Collections Rising as VA Continues to Address Problems in Its 
Collections Operations, January 31, 2003.
    \6\ Government Accountability Office, VA Health Care: Preliminary 
Findings on VA's Provision of Health Care Services to Women Veterans, 
July 14, 2009.
    \7\ Washington D, ``Ambulatory Care Among Women Veterans: Access 
and Utilization,'' VA Office of Research & Development, Health Services 
R&D Service, November 2008.
    \8\ Elizabeth Yano, ``Translating Research Into Practice--
Redesigning VA Primary Care for Women Veterans,'' PowerPoint 
Presentation, DAV National Convention, Las Vegas, NV, August 2008.
---------------------------------------------------------------------------
    Mr. Chairman, we mention this because in testimony before the 
Senate Committee on Veterans' Affairs on September 30, 2009, VA has 
begun to compare Project HERO to fee-based care.\9\ Our concern here is 
that VA's fee-basis care program sets such a low bar that a comparison 
to any other non-VA purchased care program would excel almost by 
default. We believe the objectives outlined by Congress address similar 
concerns DAV has that VA has no systematic process for contracted care 
services to ensure that:
---------------------------------------------------------------------------
    \9\ Ibid.

      care is safely delivered by certified, licensed, 
credentialed providers;
      continuity of care is sufficiently monitored, and that 
patients are properly directed back to the VA health care system 
following private care;
      veterans' medical records accurately reflect the care 
provided and the associated pharmaceutical, laboratory, radiology and 
other key information relevant to the episode(s) of care; and
      the care received is consistent with a continuum of VA 
care.

    If Project HERO is to achieve all of the above, the result could 
offer our Nation's veterans a truly integrated, seamless health care 
delivery system, improved veteran satisfaction, and optimized workload 
for VA facilities and their academic affiliates while cost for non-VA 
care is reduced. For the hearing today, we wish to share with you key 
features of Project HERO that DAV believes are important for your 
consideration.
Patient Safety and Quality of Care
    Mr. Chairman, the reality of veterans who are enrolled in the VA 
health care system and receive care purchased by VA is that they lose 
many safeguards built into the Department's system through its 
evidence-based medicine, electronic medical records, and bar code 
medication administration. VHA's health care quality improvements over 
more than a decade have been lauded by many independent and outside 
observers, including the Institute of Medicine of the National Academy 
of Sciences, the Joint Commission on Accreditation of Healthcare 
Organizations (JCAHO), the National Quality Forum, and the Agency for 
Health Care Quality and Research (AHRQ) of the Department of Health and 
Human Services. In addition, VHA emphasizes a culture of safety by 
allocating resources toward establishment of special centers, enhancing 
employee education on patient safety, and providing incentives to 
promote safety. Its voluntary adverse event reporting system allows the 
reporter to remain anonymous and VHA's patient safety initiatives and 
reporting on systems issues associated with adverse events are used to 
improve its own patient safety programs.
    These unique features culminate in the highest quality care 
available, public or private. Loss of these safeguards, which are 
generally not available in private sector systems, would equate to 
diminished oversight and coordination of care, and, ultimately, may 
result in lower quality of care for those who deserve it most.
    Having communicated these concerns to VHA since the early stages of 
developing the concept of this demonstration project, VA has 
continually assured the veteran community that the quality of care 
provided through Project HERO would be equal to or better than the care 
provide directly by VA. To follow such assurances, Project HERO 
contracts require HVHS and Delta Dental to meet VA's patient safety and 
quality of care standards, which include:

      HVHS and Delta Dental providers must be credentialed;
      HVHS providers under Project HERO must practice in 
facilities accredited by JCAHO, or one of the following: the Commission 
on Accreditation of Rehabilitation Facilities, the Intersocietal 
Commission for the Accreditation of Vascular Laboratories, or the 
American Osteopathic Association;
      Establish a process for reporting patient safety, 
complaints, and satisfaction; and
      Utilize a peer review process within HVHS with VA 
participation for any such reported cases.

    The DAV believes these standards as required by VHA are an 
important step in the right direction to acquire high quality health 
care from the private sector, and should be part of all non-VA 
purchased care. However, if this demonstration project is to complement 
the VA health care system, patient safety and quality of care under 
Project HERO will continue to remain a concern of DAV until such time 
as it is determined that the required standards and processes listed 
above yield care that is in fact equal to or better than the care 
directly provided by VA.
    In addition to Patient Safety and Quality of Care, DAV has chosen 
to focus on specific domains regarding Project HERO: Patient 
Satisfaction, Access to Care (distance and timeliness), and Clinical 
Information Sharing. We understand these areas are directly affected by 
workload, which we have included in the table below. From January 2008 
through May 2009, comparing Project HERO to fee-based care on the 
number of patients served and the number of services paid in each 
program, VISN 16 is the highest user of Project HERO services, followed 
by VISN 23, VISN 20, and VISN 8.

----------------------------------------------------------------------------------------------------------------
                                                   Service Items Paid                  Number of Patients
                                         -----------------------------------------------------------------------
                                                         Project               Other Fee    Project
                                           Other Fee      HERO       Percent                 HERO       Percent
----------------------------------------------------------------------------------------------------------------
VISN 16                                     751,193      52,474       6.99%     53,544     13,430       25.08%
----------------------------------------------------------------------------------------------------------------
VISN 23                                     586,673      33,980       5.79%     48,785      5,787       11.86%
----------------------------------------------------------------------------------------------------------------
VISN 20                                     388,543      15,446       3.98%     35,734      4,099       11.47%
----------------------------------------------------------------------------------------------------------------
VISN 8                                      724,632       6,302       0.87%     77,516      5,765        7.44%
----------------------------------------------------------------------------------------------------------------
TOTAL                                     2,451,041     108,202       4.41%    162,035     15,651        9.66%
----------------------------------------------------------------------------------------------------------------

Patient Satisfaction
    Questions from VHA's Survey of Healthcare Experiences of Patients 
(SHEP) are being used to determine patient satisfaction for Project 
HERO. While HVHS providers received a 79 percent average rating from 
veterans who indicated the ``overall quality of visit'' was very good 
or excellent and Delta Dental providers received an 85 percent average 
rating, we would like to point out the low scores ranging from 54 to 61 
percent among the four VISNs for the same survey question. 
Interestingly, the trend for patient satisfaction scores for outpatient 
HVHS services have been increasing over FY 2009 as volume of authorized 
services has decreased (but the number of patients served has increased 
from about 6,000 to over 15,500 and the amount disbursed to HVHS 
roughly $5 million to $12 million). Unfortunately, even though the 
volume of authorizations for Delta Dental services has been declining 
since the beginning of FY 2009 (veterans served rose from 2,286 to 
3,303 and the amount disbursed from about $2.5 million to $4 million), 
the overall satisfaction for Delta Dental care has been declining.
    When determining how satisfied patients were with regards to the 
location of HVHS, Delta Dental, and VA facilities, surveys indicate 
patients are overwhelmingly satisfied with the location of Delta Dental 
facilities when compared to VA and HVHS facilities in all four VISNs. 
VISN 20 is the only region for which patients are more satisfied with 
the location of VA facilities versus HVHS. However, as the table below 
indicates veteran satisfaction for contractor's facility locations are 
comparable to VA across all four VISNs, the trend through May 2009 in 
rating the convenience of their locations has gone down.

------------------------------------------------------------------------
               Patient Satisfaction with Facility Location
-------------------------------------------------------------------------
                        VISN 16      VISN 20      VISN 23       VISN 8
------------------------------------------------------------------------
Project HERO HVHS          87%          89%          83%          82%
 Outpatient
------------------------------------------------------------------------
Project HERO Delta         95%          96%          98%          90%
 Dental
------------------------------------------------------------------------
VA--SHEP                   89%          86%          91%          87%
------------------------------------------------------------------------

    It should be noted that, unlike SHEP, which is aimed at overall 
quality throughout the year in 12 VA service areas, including access to 
care, coordination of care, and courtesy, Project HERO patient 
satisfaction is based on only one episode of care. The IBVSOs encourage 
VA to ensure such comparisons are indeed valid and to separate these 
comparisons for each of the four VISNs and by specific survey questions 
rather than the average.
Access to Care
    While it is an intensive exercise, VA is able to determine access 
to care by distance. Moreover, VA is able to determine by survey a 
veteran patient's satisfaction with travel time. According to VA, 
Project HERO patients travel roughly the same distance (27.44 median 
miles) as patients under the Department's fee-basis program (29.81 
miles). No data for travel to VA facilities has been provided. For FY 
2009 to date, 95 percent of respondents rated the convenience of the 
Delta Dental location as good, very good or excellent, 85 percent rated 
HVHS, and 88 percent rated VA facility locations similarly. No data for 
patient satisfaction with travel to VA facilities has been provided.
    Project HERO contract providers are also obligated to meet 
timeliness access-to-care standards that include appointment scheduling 
within 5 days, completing appointments within 30 days (once all 
information needed to authorize the care is provided by VA), and 
veteran patient office wait time of 20 minute or less. Data for the 
latter standard is gathered by survey and results indicate both HVHS 
and Delta Dental continue to meet or exceed VA's performance to see the 
patient once at the provider's office within 20 minute or less. Delta 
Dental's compliance to provide care within 30 days has a median of 99.7 
percent, whereas HVHS has 88.5 percent. Unfortunately, we do not have 
information on the four VISNs' own compliance for either VA provided 
care or other non-VA purchased care to compare the appointment 
scheduling within 5 days, completing appointments within 30 days, and 
veteran patient office wait time of 20 minute or less.
    DAV appreciates VA's concern over and actions taken regarding 
patients traveling farther for care under Project HERO than what is 
available for fee care. We would like to highlight that under Project 
HERO, VA is now able to capture timeliness of care data that VA 
purchases from the private sector through Project HERO.
Clinical Information Sharing
    Contracts require clinical information sharing and timelines be 
adhered to for each episode of care. HVHS and Delta Dental are to 
receive all necessary clinical information of the patient to complete 
the requested medical care from the authorizing VAMC. HVHS and Delta 
Dental are to upload the patient's clinical data, which includes 
digital images and/or scanned clinical notes and treatment plans for 
services rendered, to a secure server site. The referring VAMC's fee 
claims office downloads patient medical records from the secure server 
site, sends the clinical information to its Health Information 
Management Service (HIMS) and attaches these records to the consult in 
VA's Computerized Patient Record System (CPRS).
    Clinical inpatient and outpatient data generated as a result of 
referral to HVHS and Delta Dental for authorized care is to be provided 
to the VAMC within 30 days of the appointment date or inpatient 
discharge date. With 30 days for the appointment to be completed and 30 
days to return the clinical information, this metric has a lag time of 
approximately 60 days. HVHS radiology reports are to be electronically 
signed within 48 hours, and initial treatment plans from Delta Dental 
are to be submitted to VA for approval within 10 days.
    On average, HVHS compliance in FY 2009 for returning within 30 of 
``inpatient care'' and ``routine and diagnostic'' clinical data had 
been 82 and 86 percent respectively. The average HVHS compliance for 
returning ``radiology reports'' within 48 hours has been 89 percent. 
Delta Dental had a 70 percent average compliance for FY 2009 for 
submitting initial treatment plans to VA within 10 days. According to 
VA, submission of initial treatment plans is not a normal procedure for 
dental treatment in the community resulting in the consistently low 
compliance with this requirement.
    While much work needs to be done to ensure contractors meet 
compliance standards, the efforts by all parties to make this a key 
performance measure in Project HERO should be commended. All 
participating VA facilities have electronic clinical information 
sharing available with HVHS and Delta Dental--unheard of in other non-
VA purchased care programs. Moreover, HVHS is to have read-only access 
to VA CPRS by the end of January 2010. DAV applauds VA for piloting a 
program to electronically share through a secure Web site scanned 
radiological images performed by Delta Dental as well as piloting at 
limited sites read-only access to VA's electronic health records by the 
contractors. However, DAV believes electronic clinical information 
sharing is an important component to contract care coordination. Since 
meeting these contract standards is one component to consider in 
exercising optional years beyond the current contract, we expect HVHS 
and Delta Dental to continue its upward trend to meet these targets and 
if not, VA should take appropriate action.
Cost Analysis
    Mr. Chairman, some concern have been raised about the ``Value Added 
Fee'' for additional administrative services performed by HVHS and 
Delta Dental. These services include credentialed providers, accredited 
facilities, return of clinical information to VA, timely provider 
claims processing and transmission to VA for reimbursement, monitoring 
and reporting of access to care, appointment timeliness, patient safety 
and satisfaction, coordinated appointment-setting services and other 
patient advocate services.
    The DAV believes these costs should be included in any cost 
analysis performed for Project HERO. Indeed these may not be actual 
medical care per se; however, it is an inextricable part of the overall 
quality and coordination of care provided to veteran patients in this 
demonstration project. VA has indicated its contract pricing is 
comparable to or lower than market rates; however, when factoring in 
the value-added fee per claim, aggregate price exceeds market rates. 
Moreover, while we have limited information about VA's claims auditing 
procedures, but appears in need of refinement to minimize the risk of 
overpayments. Thus, our fear remains that under this demonstration 
project, VA will pay significantly more for contract care without the 
safeguards of VA's high quality standards.
Impact on VA Facilities and Affiliates
    VA has chosen to measure any impact Project HERO may have on VA 
facilities within the VISNs 8, 16, 20, and 23 and their academic 
affiliates by reporting on ``VHA full-time equivalent employees in 
Project HERO VISNs'' and the ``volume of authorizations to academic 
affiliates.'' To date, we are waiting for data from VA in order to 
determine whether such reporting accurately measures whether or not 
important Departmental interests are preserved, such as sustaining a 
partnership with university affiliates, and that Project HERO 
complements rather than supplants the larger VHA system of care.
Conclusion
    Mr. Chairman, as DAV testified before the full House Committee on 
Veterans' Affairs in March 2006, VA's unmanaged programs in purchased 
care were not only expensive and growing but were entirely 
discontinuous from VA's excellent internal health care programs and 
were absent the numerous protections and safeguards that are the 
hallmarks of VA health care today. DAV believes that more proactive 
management of fee and contract services by VA can provide greater 
continuity of care for veterans, better clinical record-keeping, higher 
quality outcomes and reduced expense to the Department.
    The delegates to our most recent National Convention passed 
Resolution No. 232 to improve VA's purchase care program. Under this 
resolution, DAV urges Congress and the Administration to conduct strong 
oversight of the non-VA purchased care program to ensure service-
connected disabled veterans are not encumbered in receiving non-VA care 
at VA's expense. Furthermore, the resolution urges VA to establish a 
non-VA purchased care coordination program that complements the 
capabilities and capacities of each VAMC and includes care and case 
management, non-VA quality of care and patient safety standards equal 
to or better than VA, timely claims processing, adequate reimbursement 
rates, health records management and centralized appointment 
scheduling.
    VA has demonstrated through Project HERO its ability to deliver on 
the ideas we expressed previously and still now to improve VA contract 
care coordination:

    1.  Oversight of clinical care quality is provided by the 
contractors and care is delivered by fully licensed and credentialed 
providers and must meet VA-defined quality standards;
    2.  Coordination of care is performed by the contractors by 
communicating directly with the veteran and prospective provider;
    3.  Continuity of care is monitored by the contractors and VA as 
patients are directed back to the VA health care system for follow-up 
when appropriate; and
    4.  Clinical information necessary to provide the care under 
Project HERO is provided by VA to the contractors, and records of care 
are scanned by the contractors and sent to VA for annotation in its 
Computerized Patient Record System (CPRS).

    Unfortunately, this list is not complete and thus our concerns 
remain. Since this matter first emerged in the FY 2006 Congressional 
appropriations arena, it has remained a significant concern that 
Project HERO, as with all other non-VA purchased care programs, does 
not become a basis to downsize or to privatize VA health care. To that 
end, DAV would like to express our appreciation for VA's effort to 
address our concerns and those of the veteran community. However, as 
indicated in our testimony, VA's goals for the Project, while laudable, 
require greater specificity to include validated and comparable data. 
The quarterly updates VA has provided to the veterans service 
organizations have been informative and DAV is working closely with 
VHA's Chief Business Office to ensure these reports provide more 
consistent and meaningful data.
    As DAV continues its work to ensure Project HERO achieves the goals 
we have advocated, we encourage this Subcommittee to continue its 
oversight, which would help ensure this demonstration project will 
provide a model for contract care coordination. This concludes DAV's 
testimony and I would be pleased to address your questions, or those of 
other Subcommittee Members.

                                 

             Prepared Statement of Thomas Zampieri, Ph.D.,

     Director of Government Relations, Blinded Veterans Association

INTRODUCTION
    Chairman Michaud, Ranking Member Congressman Brown, and Members of 
the House Veterans Affairs Subcommittee on Health, on behalf of the 
Blinded Veterans Association (BVA), thank you for this opportunity to 
present our testimony today on the Healthcare Effectiveness through 
Resource Optimization Project ``HERO.'' BVA is the only congressionally 
chartered Veterans Service Organization (VSO) exclusively dedicated to 
serving the needs of our Nation's blinded veterans and their families 
for over 64 years.
    The Veteran Service Organization Independent Budget (VSOIB) 
stresses how important and critical it is that VA solve the growing 
problem of contracted care from the old fee basis services system into 
a more coordinated, high quality care system with improved access, and 
cost effective delivery of those services for veterans. Along with 
this, any contracted care must eventually ensure full development of 
bidirectional compatible Electronic Health Record (EHR) where VA 
clinicians can immediately access all contracted care clinical notes or 
diagnostic services provided by contractors. These changes will improve 
the coordination of care plans between VA and private providers. BVA 
also believes that contracted care must not negatively impact current 
VA clinical capacity or existing specialized rehabilitative or academic 
affiliated training programs. The VA track record on the fee basis 
billing has not been good and we point to the recent VA OIG Report No 
08-02901-185 released August 3, 2009 ``Audit of Veterans Health 
Administration's Non-VA Outpatient Fee Care Program'' as evidence of 
the problems associated with the current contract system.
    During 4-year period of fiscal years FY 2005-2008, outpatient Fee 
Care Program costs have more than doubled from $740 million to over 
$1.6 billion and in FY 2008 VA paid about 3.2 million out-patient fee 
claims. VA IG reports, ``made significant number of improper payments 
(37 percent of paid claims reviewed), such as duplicate claim payments, 
and incorrect payment amounts.'' If the current contracted Fee programs 
have these issues, BVA requests assurances that the diversion of funds 
into the on going HERO project has full transparency and accounting of 
the total costs. Of concern is reports from local VA medical facilities 
of complaints that VA centers are having budgetary related staffing 
problems today, even after the large increases provided by this 
congress. One fear is expansion of contracted services hurts VA 
internal staffing more as more care is outsourced. While we appreciate 
that VHA business office staff have provided regular briefings to the 
VSOs about the status of Project HERO, there has certainly been 
concerns on information regarding total costs, types of health care 
provided to veterans ranging from primary care services verses 
expansion into specialist care, and what will determine which veterans 
are further enrolled (other than four VISN networks general geography 
being the deciding point). There should be further questions of VA 
about how Project HERO is going to evolve in the next year. Some should 
today still ask ``Why was only one large contractor used for all four 
VISN networks instead of two or more managed care competitive 
organizations for comparison purposes of access, quality outcomes, 
clinical care costs, and meeting VA contract goals?'' VHA started the 
contract of outsourcing services for Project HERO with Humana in 2007 
with this 5 year pilot now half way completed with some questions about 
if this meets the needs of VA for contracted care for evaluation 
purposes.
    In the midst of leadership changes now in VHA we stress 
accountability and transparency as essential for this health care 
program before any further decision is made on contracted care 
services. We notice one report that some 27 percent of all CBOC's now 
are contracted medical staffed clinics along with what Project HERO is 
performing for VA. In rolling out this project, some frequently 
referenced the section of the Independent Budget (IB) that recommended 
changes in the fee-basis system and current contracting of services as 
the justification. Nevertheless, the IB recommended that ``contracted 
care be used judiciously and only in specific circumstances when VA 
facilities are incapable of providing the necessary care or 
geographically inaccessible to the veteran, and in certain emergency 
situations so as not to endanger VA facilities' ability to maintain a 
full range of specialized services for all veterans.'' The idea behind 
Project HERO now at times seems to be advancing towards enrolling as 
many veterans in entire geographical regions into managed care for 
medical services possible. This idea is different from the concept of 
improving the current system with Preferred Providers so that VA's 
integrated clinical and claims information technology system becomes 
efficient, cost effective, and with high-quality processing.
    The IB stressed that participating preferred providers should use a 
provider pricing program to receive discounted rates for services 
rendered to veterans with only credentialed, high quality providers 
utilized in contracted care. Customized provider networks should 
complement the capabilities of and capacity of each VA Medical Center 
and not replace those ever as the veterans' first choice of care. The 
VA health care system has undergone tremendous positive changes in the 
past decade, bringing it recent high acclaim for its leadership in 
quality and for its outstanding utilization of information technology 
EHR in advancing health care for our Nation's veterans.
    What veterans request from Congress is the ability to obtain local 
primary care services in certain geographical locations if no VA-based 
outpatient services currently exist and those providers have the 
technological ability to interact with the VA facility that has 
provided them with other specialized services, medications, or 
diagnostic care. Having an elderly or disabled veteran who has 
difficulty traveling long distances for VA care receive locally 
contracted care and preventative medical services is an extremely 
different proposition than opening ``enrollment of veterans in a 
widespread geographical area'' to managed-care organizations. In an 
industry in which CEOs search for competitive advantages in the 
marketplace, one must ask why there were so many for-profit health care 
management organizations lined up initially in a bidding contest for 
the main contract--unless of course the profit margins--were going to 
meet the needs of the bottom line as a first priority. Now that in 2009 
all contracted VA services is going over $ 3.4 billion it is a growing 
economic target of opportunity especially with proposed large Medicare 
managed care cuts inserted into health care reform.
    Reforms have been implemented by private, for-profit managed care 
health organizations outside of VA during the past couple of decades 
and these reforms, some critics would argue, have caused consumer 
revolts. The critics also claim that such reforms have forced many new 
Federal and State regulations, more tort claims, rising inflation rates 
of 11 percent in 2003-2004 period premiums, growing deductibles, and an 
increase in for-profit corporate mergers. Strategic plans are 
frequently based on the best economic interests of investors, not the 
consumers. Stories of health care providers within HMOs being forced to 
order profitable laboratory or technological tests in order to increase 
revenue have not been uncommon. Demands to increase productivity by 
mandating minimum numbers of daily encounters in order to generate 
sufficient revenue have also occurred. VA administrators may claim that 
these are outside private sector issues, but we recommend careful 
consideration of this track record, while VA moves closer to this 
method of care in the next couple years.
    With Project HERO we do applaud that the Program Management Office 
(PMO) monitors quality by access to care, provider credentialing, 
facility accreditation, clinical information sharing patient 
satisfaction surveys, and peer reviewed triggers for safety. There is 
high level of Clinical Quality Management oversight on the care 
provided and frequent meetings between HVHS, Humana, and VA on 
reviewing the services provided is good news. Satisfaction rates from 
surveys are reported to be at 77 percent from veterans surveyed 
slightly higher than VA care surveys. The average disbursed amount per 
outpatient is $1,064 for Project HERO and higher $1,782 for other Fee 
Service care is a positive sign in the reports we have received.
    VA is confronted with extremely complex medical-social service 
challenge, in the face of American health care reform before congress 
today. With an aging veteran population with multiple conditions along 
with the returning war wounded requiring specialized resources and the 
requirement to meet rural health care access demands of veterans, while 
improving quality and increasing enrollment. These are all difficult 
challenges, with long-term co morbidities and unique mental health 
problems, the triad of access, cost, and quality continues. These 
challenges abound within the environment of the VA budgeting system and 
we thank the Members of this Congress for passage of Advanced 
Appropriations, as one step to lower stress on the system. Project HERO 
may show some cost savings with Humana but this requires more 
assessment. Reforms driven by cost-conscious market forces without 
adequate oversight are often complex, chaotic, and disabling to those 
caught up in these changes. According to the ``chaos theory'' a small 
change in input can quickly translate into overwhelming differences in 
output. As has already has been demonstrated in this country's history, 
any changes in the three basic tenets of health care delivery--quality, 
access, and cost--results in significant changes in one or more of the 
others.
RECOMMENDATIONS
    VA should establish a contracted care coordination program that 
incorporates the Preferred Pricing Program based on principles of sound 
medical management and to meet veterans' specific needs for services.
    The components of a care coordination program should include claims 
processing, health records management, and centralized appointment 
scheduling. VHA must establish current and comprehensive policies and 
procedures, core competencies with training for fee staff, and clear 
oversight procedures for the Fee Program.
    Veterans' electronic medical records are properly updated with data 
regarding any care provided by non-VA providers so records are fully 
integrated, there is seamless continuum of care that facilitates 
improved health care delivery and access to quality care.
    Contracted health care services must be able to move a veteran from 
outpatient clinic care to ambulatory care diagnostic services, and into 
all other VA medical care service, while avoiding fragmentation of the 
care. VA also should develop a series of tailored pilot programs to 
provide VA-coordinated care in a selected group of rural communities. 
As part of these pilots, VA should measure the relative costs, quality, 
satisfaction, degree of access improvements, and other appropriate 
variables, as compared to similar measurements of a like group of 
veterans in VA health care. Local VAMC budgets for staffing must be 
maintained and contracted costs should be incorporated into VISN 
budgets to prevent internal cuts in services for veterans dependent on 
the VAMC.
    In addition, the national Preferred Pricing Program's network of 
providers should be leveraged in this effort. Each pilot also should be 
closely monitored by the VA's Rural Veterans Advisory Committee. These 
same pilots can in turn be tailored to create a more formal surge 
capability addressing future access needs.
    Congress should request GAO study assessing the effectiveness of 
contracted care services, costs analysis, VA impact on staffing, and 
provide evaluation of the efficiency of Project HERO is meeting goals 
in FY 2010.
    The VHA provides a uniform medical benefits package to all enrolled 
veterans, regardless of their enrollment priority group, that 
emphasizes preventive and primary care, and offers a full range of 
outpatient and inpatient services and prescription medications. 
Accordingly, enrollment in the VHA health care program must be 
considered acceptable health care coverage and VA protected in any 
health care legislation before congress, in the same manner as members 
of the uniformed services and their dependents, including Civilian 
Health and Medical Program of the VA (CHAMPVA) coverage furnished under 
section 1781 of title 38 United States Code, so that they will not be 
subject to any tax or penalty for lack of health care coverage. Further 
the VA should be protected from other federal agencies administration 
of new health care panels or exchanges. We require that specific 
language is inserted assuring protection of the VA system of health 
care.
CONCLUSION
    Once again, Mr. Chairman, thank you for this opportunity to present 
our testimony on Project HERO. Health care problems confronting the 
Nation are complex and are going to continue to be cause of heated 
debate in this session and the VA will be impacted just like Medicare, 
Medicaid, along with the uninsured, regardless of how the final bill is 
written. The future of managed-care organizations, once considered the 
answer for many of the health care issues 20 years ago has dimmed 
considerably as rising costs still dominate every aspect of the system 
and the numbers of uninsured hit estimates of 49 million. Veterans who 
served and defended this country deserve to be guarded from being 
increased market shares. BVA again expresses thanks to the Committee 
for this opportunity to present our testimony and will answer any 
questions you have.

                                 
 Prepared Statement of Bernard Edelman, Deputy Executive Director for 
       Policy and Government Affairs, Vietnam Veterans of America
    Good morning, Chairman Michaud, Ranking Member Miller, and other 
Members of this distinguished Subcommittee. Vietnam Veterans of America 
(VVA) thanks you for holding this very important hearing today, and we 
appreciate the opportunity to offer our views on Project HERO.
    Project HERO, as you know, was born of a congressional mandate in 
Public Law 109-114, the Military Construction, Military Quality of Life 
and Veterans Affairs Appropriations Act of 2006, for the Department of 
Veterans Affairs to get a handle on the expenditures out of the VA 
system for veterans health care by establishing a comprehensive managed 
care demonstration program in at least three VISNs. While the amount 
spent outside the system varies from VISN to VISN, and the cost per 
service varies dramatically, it totals at least one out of every 10 
dollars spent by the VA on health care--not an insignificant amount of 
money--and Congress was concerned, correctly, that a lot of this money 
was not properly tracked, nor was there any evidence of efforts to 
standardize costs and secure the most quality service for the best 
price.
    The VA, to comply with this mandate, initiated in four VISNs what 
was conceived as a 5-year pilot cleverly dubbed Project HERO, its 
acronym for Healthcare Effectiveness through Resource Optimization. 
With shooting wars ongoing in Afghanistan and Iraq, ``HERO'' had a 
nice, patriotic ring. Of course, this only served to raise our 
suspicions about what the VA was planning to do and how they were 
planning to do it.
    VVA was concerned then that the pilot project would not fill in the 
gaps in care, e.g., for veterans living in rural or remote areas of the 
country, or in emergency situations, such as when a VA Medical Center's 
MRI breaks down.
    Our suspicions were further incited initially when VA officials 
shared with the VSOs a list of companies, many of them small veteran-
owned businesses, which were interested in bidding on the contract. We 
felt that this was an attempt to quell our concerns or objections; 
after all, this could mean government contracts for these businesses, 
which too often are shut out of such contracts because of a variety of 
roadblocks.
    As you know, it turns out that Humana and Delta Dental, two large 
entities, won the contracts. This was hardly a surprise. What was a 
surprise, however, was that Humana, certainly, did not have in place 
the network of providers in the areas, the rural and remote areas of 
the VISNs, in which the VA was hard-pressed to provide health care 
services on a timely basis.
    After 1 year spent recruiting clinicians for its networks, several 
of whom, we believe, had already been providing fee-basis health care 
to veterans, Humana seems pretty well geared up. But many of its 
providers appear to be located pretty close geographically to the VAMCs 
whose services they are supposed to supplement. So the question is: Are 
the health care services rendered by Humana, and by Delta Dental, 
``enhancing'' the health care at the VAMCs and CBOCs? Further, while 
this project was supposed to ``fill in'' services when VA had trouble 
recruiting key specialties for a reasonable time, is there is 
indication that the ``temporary'' fixes have now become permanent, and 
that VHA is no longer trying to fill the vacancies on its own staff at 
the relevant VAMC? And are they succeeding in filling in the gaps in VA 
service at a significant cost saving to VA?
    We are not convinced that they are.
    During our quarterly briefings with VA officials, we are given 
thick reports festooned with charts and graphs and lots of numbers. 
What we are not given is any real evidence that HERO is enhancing care 
available at VAMCs and/or CBOCs. What seems to have evolved is a 
parallel health sub-system in these VISNs. What was supposed to 
supplement VA health care seems to be supplanting basic care--and not 
only in rural and remote areas. This was not, we believe, the intent of 
Congress.
    Through the fiscal largesse of Congress for VA health care 
operations over the past 3 years, it seems to us that rather than pay a 
middleman, which is what Humana and Delta Dental in essence are, the 
VAMCs and VISNs ought to be able, on their own, to get a handle on 
dollars for doctors and other clinicians whose fee-basis services are 
necessary for the provision of timely health care to veterans who 
either reside inconveniently away from VA facilities or who cannot get 
appointments in a reasonable amount of time, either with primary care 
providers or with specialists.
    VVA sees no reason why internal units at VISNs and VAMCs can't 
assemble a roster of clinicians and ``regulate'' fee-basis care, 
insuring that such care is available, of high quality, and can be 
integrated into the VA's electronic health record system.
    Just as important, as we have written in the past, the entire 
business model of HERO threatens the underpinning of the VA health care 
system. VISN and VAMC directors can find it is fiscally advantageous in 
the short term to outsource more and more of their services. This can, 
and we believe will, eventuate in the shuttering of outpatient clinics 
as well as VA medical centers.
    In fairness, VA officials who are overseeing Project HERO 
acknowledge that they are learning from their experiences with HERO, 
and that, with hindsight, they would have structured the contracts 
differently. For this, we applaud them. But we do not believe that any 
wholesale outsourcing of health care services is either warranted or 
justified by the experiences of HERO.
    We agree with a statement by then-Chairman Steve Buyer who stated, 
on March 29, 2006: ``This initiative is not intended to undermine our 
affiliations, or lead to expanded outsourcing or the replacement of 
existing VA facilities. It should instead help us learn how to improve 
some of the contracted care we now provide, and the way we provide 
it.''
    If Project HERO accomplishes, this, then it will have been a worthy 
experiment. But that is all it ought to be: an experiment, not an 
answer.
    Thank you.
                                 
Prepared Statement of Sidath Viranga Panangala, Specialist in Veterans 
      Policy, Congressional Research Service, Library of Congress
Introduction
    Chairman Michaud, Ranking Member Brown, and distinguished Members 
of the Subcommittee on Health, my name is Sidath Panangala, from the 
Congressional Research Service (CRS). I am honored to appear before the 
Subcommittee today. As requested by the Committee, my testimony will 
highlight observations on the implementation of Project Healthcare 
Effectiveness through Resource Optimization (Project HERO). My 
testimony today is based on the CRS report on Project HERO which has 
been submitted for the record.
Background
    In general, the Department of Veterans Affairs (VA), through the 
Veterans Health Administration (VHA), provides a majority of medical 
services to veterans within its health care system. However, in some 
instances, such as when a clinical service cannot be provided by a VA 
medical center, when a veteran is unable to access VA health care 
facilities due to geographic inaccessibility, or in emergencies when 
delays could lead to life threatening situations, VHA is authorized by 
law to send the veteran outside of VA's health care system to seek 
care.
    Policymakers and other stakeholders hold a variety of views 
regarding the appropriate role of the private-sector in meeting the 
health care needs of eligible veterans. Some believe that the best 
course for veterans is to provide all needed care in facilities under 
the direct jurisdiction of the VA. On the other hand, some see the use 
of private sector providers as important in assuring veterans' access 
to a comprehensive slate of services (in particular, to specialty 
services that are needed infrequently), or in addressing geographic or 
other access barriers. Those who believe that all needed care should be 
provided by VA providers in VA-owned facilities are concerned that 
private sector options for providing care to veterans will lead to a 
dilution of quality of care in the VA health care system, and could 
fail to leverage key strengths of the VHA network, such as its system 
of electronic medical records. Still others hold the view that over the 
long term, having private sector options could improve the quality of 
services within the VHA network through competition. Reaching the 
correct balance between providing care through VA's health care network 
and through non-VA providers is an issue for policymakers, as well as 
for the VHA and other stakeholders.
    Congress established the Project HERO demonstration to determine if 
it could provide better management of non-VA provided care. At least 
two policy questions about Project HERO may be of interest to Congress:

    1.  Has Project HERO enhanced the existing fee basis care program? 
\1\
---------------------------------------------------------------------------
    \1\ S.Rept. 111-40 to accompany the Military Construction and 
Veterans Affairs and Related Agencies Appropriations Act, 2010 (S. 
1407) expressed concern about the oversight and scope of Project HERO. 
See U.S. Congress, Senate Committee on Appropriations, Military 
Construction and Veterans Affairs and Related Agencies Appropriation 
Bill, 2010, report to accompany S. 1407, 111th Cong., 1st sess., July 
7, 2009, p. 53.
---------------------------------------------------------------------------
    2.  Are there findings from the Project HERO that could be applied 
to standardize the fee basis care program throughout the VA health care 
system?

    Project HERO is primarily an outpatient program. According to VHA 
data, between January 2008 and September 30, 2009 approximately 51,000 
veteran patients have received fee basis care through Project HERO 
within the four participating Veterans Integrated Service Networks 
(VISNs) representing approximately 111,000 outpatient visits.
    The CRS report submitted for the record describes the current fee 
basis care program, how Project HERO works compared to the fee basis 
care program, and quality of care measures used in Project HERO to 
ensure that veterans receive high quality care even when that care is 
provided by non-VA providers in the community. Now let me turn to the 
two broad policy questions that were raised previously.
Has Project HERO enhanced the fee basis care program?
    During our visits to three of the four demonstration sites we heard 
mixed reviews about the pilot program. Some categorized it as a ``tool 
in a toolbox'' meaning that Project HERO was one of many options a VA 
medical facility could use to provide care outside the VA health care 
system. Some officials categorized Project HERO as a ``concierge 
service'' where Humana Veterans Health Care Services (hereafter 
referred to as HVHS) guides the veterans in scheduling appointments and 
ensures that clinical information is provided to a network provider and 
then transferred back to the VA, maintains a credentialed network of 
providers, and provides claims payment to the health care providers.
    The demonstration pilot provides a single point of contact for 
those veterans who are authorized to receive care outside the VA health 
care system. Under the demonstration HVHS works with the veteran and 
the network provider in scheduling the appointment. It also ensures the 
veteran seeks care from a credentialed provider, as well as facilitates 
the transfer of medical information, thereby assisting with care 
coordination. Furthermore, under Project HERO, VA does not have the 
responsibility for directly paying for care provided outside the system 
to non-VA providers. However, VA pays for these services through value 
added fees to HVHS. In FY2009 VA paid approximately $3.3 million in 
value added fees.
Are there lessons to be learned from the pilot program?
    The following observations are drawn from our visits to the Project 
HERO demonstration sites:
1.  Establishing a robust network of providers takes time, even when 
        dealing with a health care services provider such as HVHS.
        Most VISNs stated that early on in the pilot HVHS had fair to 
moderate success building its network of providers within the VISN, and 
that the short implementation period between the time the contract was 
awarded in October 2007 and when it became operational in January 2008 
was inadequate to establish a robust network of providers. This was 
especially true in VISNs that had rural or highly rural areas. 
According to some VISN officials, in some instances this lack of a 
network of providers has resulted in ongoing challenges in providing 
timely access to medical care. HVHS has asserted that based on feedback 
received from the Project HERO Program Management Office, it has worked 
with VA to resolve most of these issues. For example, HVHS has adapted 
to the changing clinical needs of each VISN and has attempted to 
recruit a provider network to meet those clinical needs.
2.  Establishing services and pricing, and keeping them up-to-date, is 
        a challenge.
        Some VISNs stated that clinical care services included in the 
contract were based on prior needs and did not meet the current needs 
of the network. Some VISNs maintained that some contract pricing is 
higher than what VA would have paid under the regular fee basis care, 
and that some services are cost-prohibitive when the value-added fees 
are applied. However, the Project HERO Program Management Office has 
noted that 89 percent of Project HERO prices are at or below Medicare 
rates. Furthermore, the amounts paid by HVHS to providers are less than 
7 percent of the regular fee basis care program.\2\
---------------------------------------------------------------------------
    \2\ Communication received from Department of Veterans Affairs, 
Veterans Health Administration, Chief Business Office, September 29, 
2009.
---------------------------------------------------------------------------
3.  Education is key to a successful functioning network.
        Almost all VISNs stated that there has been organizational 
resistance to change. According to VISN staff, the primary 
implementation challenge has been in providing training to staff at all 
levels of the organization, especially educating providers and fee 
basis care office staff. This has been true even for providers 
recruited by HVHS, especially when they are required to send clinical 
information back to the VA.
4.  The project has yielded information that could be applied to the 
        existing regular fee basis care program.
        First, without the electronic sharing of medical records 
between the VA health care system and non-VA providers, there are 
delays in the transfer of clinical information. In some instances this 
delay may result in a VA provider not being alerted to the need for 
immediate follow-up care required based on a diagnosis or laboratory 
result. This applies to both Project HERO and the regular fee basis 
care.
        Second, VHA's regular fee basis care program could adopt 
certain quality metrics that are currently used under Project HERO, 
such as how far the veteran travels to receive his or her care as well 
as how long the veteran waits once he or she arrives for an 
appointment. Lastly, VA could develop a provider network within each 
VISN that the veteran could be referred to so that the veteran receives 
care from a provider who has been credentialed similarly to a VA 
provider. However, prior to implementing this pilot demonstration 
throughout the VA health care system, it may be useful to conduct an 
independent evaluation to conclusively measure if Project HERO has been 
a worthwhile effort.

    This concludes my statement. I will be happy to answer any 
questions the Committee may have.
                               __________
           Veterans Health Care: Project HERO Implementation
                            February 3, 2010
        Sidath Viranga Panangala, Specialist in Veterans Policy,
       Congressional Research Service, 202-707-5700, www.crs.gov
Summary
    In general, the Department of Veterans Affairs (VA), through the 
Veterans Health Administration (VHA), provides a majority of medical 
services to veterans within its health care system. However, in some 
instances, such as when a clinical service cannot be provided by a VA 
medical center, when a veteran is unable to access VA health care 
facilities due to geographic inaccessibility, or in emergencies when 
delays could lead to life threatening situations, VHA is authorized by 
law to send the veteran outside of VA's health care system to seek 
care. In 2006, the conference report to accompany the Military Quality 
of Life and Veterans Affairs Appropriations Act of 2006 (P.L. 109-114, 
H.Rept. 109-305) directed the VA to implement a cost effective 
purchased care management program and to develop at least three pilot 
programs to encourage collaboration with industry and academia. In 
response to this requirement, VHA established a demonstration program 
to enhance the existing fee basis care program that was named Project 
HERO (Healthcare Effectiveness through Resource Optimization).
    In October 2007, VA awarded a contract to Humana Veterans 
Healthcare Services (HVHS) for medical/surgical, mental health, 
diagnostic and dialysis services, and the contract became operational 
in January 2008. Under Project HERO, HVHS maintains a prescreened 
network of health care providers who meet VA quality standards.
    In general, when a patient requires a specific service, and the 
local VA medical center does not have the specific medical expertise or 
the technologies to meet that necessity, the local VA medical center 
authorizes the specific service to be provided under Project HERO. Once 
the veteran receives care, HVHS is contractually required to return the 
patient's medical record to the local VA medical center, and HVHS sends 
the claims data to VA for reimbursement.
    VHA's contract and fee basis care expenditures are of interest to 
Congress for at least two reasons. First, expenditures for contract and 
fee basis care services are increasing, and second, concerns have been 
raised about the fee basis care program. Specifically, VA's Office of 
Inspector General (OIG) has reported that VHA has made a significant 
number of improper payments for fee basis care as well as in some 
instances has not properly justified and authorized fee basis care. 
Given these concerns, and the establishment of the Project HERO 
demonstration as a means to better manage non-VA provided care, at 
least two broad policy questions may be of interest to Congress: (1) 
Has Project HERO enhanced the existing fee basis care program? And (2) 
Are there lessons to be learned from the Project HERO demonstration 
that could be applied to standardize the fee basis care program 
throughout the VA health care system?
    This report will first provide a brief overview of the VA health 
care system, followed by a overview of Project HERO. Second, it will 
discuss the current fee basis care process as well as the 
implementation of Project HERO. The report concludes with a discussion 
of observations on the implementation of Project HERO based on VHA and 
HVHS perspectives. It should be noted that although dental care 
services are a component of Project HERO, and are provided through 
Dental Federal Services (Delta Dental), this report does not discuss 
dental care services provided under Project HERO. This report will be 
updated if events warrant.

                               __________
                                Contents


                                                                    Page

Introduction and Overview of the VA Health Care System...........     50
Project Healthcare Effectiveness through Resource Optimization        52
 (Project HERO)..................................................
Overview of Fee Basis Care.......................................     53
How Project HERO Works Compared to Fee Basis Care................     55
Project HERO Implementation......................................     56
  Utilization....................................................     56
  Quality of Care................................................     58
  Costs and Reimbursements.......................................     59
Discussion.......................................................     60
  Has Project HERO enhanced the fee basis care program?..........     61
  Are there lessons to be learned from the pilot program?........     61

                             Figures

Figure 1. Non-VA Outpatient Fee Basis Care, Pre-Authorization         54
 Phase...........................................................
Figure 2. Receipt and Processing of Fee Claims...................     54
Figure 3. Authorization Process For Non-VA Care Under Project         56
 HERO............................................................
Figure 4. Receipt and Processing of Fee Claims Under Project HERO     56
Figure 5. Number and Percent Distribution of Unique Veteran           57
 Patients Receiving Outpatient Care..............................
Figure 6. Number and Percent Distribution of Outpatient Visits...     57

                              Tables

Table 1. Value Added Fee Amounts, FY2009.........................     60
Table 2. Project HERO Payments Including Value Added Fees........     60                            AppendixesAppendix A. Veterans Integrated Services Network (VISNs).........     62                             ContactsAuthor Contact Information.......................................     62

                               __________
Introduction and Overview of the VA Health Care System
    The Department of Veterans Affairs (VA), through the Veterans 
Health Administration (VHA), operates the Nation's largest integrated 
direct health care delivery system. While Medicare, Medicaid, and the 
Children's Health Insurance Program (CHIP) are also publicly funded, 
most health care services under these programs are delivered by private 
providers in private facilities. In contrast, the VA health care system 
is a truly public health care system in that the Federal Government 
owns the medical facilities and employs the health care providers.\1\
---------------------------------------------------------------------------
    \1\ U.S. Congress, House, Economic Report of the President, 110th 
Cong., 2nd sess., February 2008, H. Doc. 110-83 (Washington: GPO, 
2008), p. 106.
---------------------------------------------------------------------------
    The VA's health care system is organized into 21 geographically 
defined Veterans Integrated Services Network (VISNs) (See Appendix A.). 
Although policies and guidelines are developed at VA headquarters, to 
be applied throughout the system, management authority for basic 
decision-making and budgetary responsibilities are delegated to the 
VISNs. VHA's health care delivery network includes 153 hospitals 
(medical centers), 135 nursing homes, 803 community-based outpatient 
clinics (CBOCs), 6 independent outpatient clinics, and 271 Readjustment 
Counseling Centers (Vet Centers), which are supported by more than 
242,000 employees.
    In general, eligibility for VA health care is based on veteran 
status, service-connected disabilities or exposures, income, and other 
factors such as former prisoner of war (POW) status or receipt of the 
Purple Heart. As required by the Veterans Health Care Eligibility 
Reform Act of 1996 (P.L. 104-262), most veterans are required to enroll 
in the VA health care system to receive care. Once enrolled, veterans 
are assigned into one of the eight priority groups based on various 
criteria. For instance, veterans who are rated 50 percent or more 
service-connected disabled or who are unemployable due to service-
connected disabilities are enrolled in Priority Group 1.\2\ According 
to VA, there are approximately 23.1 million living veterans in the U.S. 
Of these, approximately 8.3 million (36 percent) were enrolled in the 
VA health care system, and over 5.0 million unique veteran patients 
received care from the VA in FY2009.\3\
---------------------------------------------------------------------------
    \2\ For a complete discussion of eligibility for VA health care, 
priority groups, and enrollment, see CRS Report R40737, Veterans 
Medical Care: FY2010 Appropriations, by Sidath Viranga Panangala.
    \3\ Department of Veterans Affairs, FY2009 Performance and 
Accountability Report, Washington, DC, November 16, 2009, pp. I-16-I17.
---------------------------------------------------------------------------
    Generally, veterans have a choice of where they receive their care. 
While some veterans rely more heavily on care through the VA health 
care system, the majority of veterans not enrolled in the VA health 
care system receive care through the private sector which is financed 
by Medicare, private health insurance, or the military health care 
system.\4\ VHA is a direct health care provider, but it is not 
generally a third-party payer of care. For veterans who are eligible to 
receive care through the VA health care system, the decision on whether 
to receive care from the VA may depend on a variety of factors such as 
out-of-pocket costs, distance, and waiting times for appointments, 
among other things.\5\
---------------------------------------------------------------------------
    \4\ Congressional Budget Office, Quality Initiatives Undertaken by 
the Veterans Health Administration, August 2009, p. 5. Veterans who are 
military retirees have access to TRICARE, the Department of Defense 
health care plan. For more information, see CRS Report RL33537, 
Military Medical Care: Questions and Answers, by Don J. Jansen, and CRS 
Report RS22402, Increases in Tricare Costs: Background and Options for 
Congress, by Don J. Jansen.
    \5\ Congressional Budget Office, Quality Initiatives Undertaken by 
the Veterans Health Administration, August 2009, p. 7.
---------------------------------------------------------------------------
    In general, VHA provides a majority of medical services to enrolled 
veterans within its health care system. However, in some instances, 
such as when a clinical service cannot be provided by a VA medical 
center, and the patient cannot be transferred to another VA medical 
facility; or when VA cannot recruit a needed clinician; or when a 
veteran is unable to access VA health care facilities due to geographic 
inaccessibility; or in emergencies when delays could lead to life 
threatening situations; VA is authorized to send the veteran outside of 
its health care system to seek care.\6\
---------------------------------------------------------------------------
    \6\ 38 U.S.C. Sec. 1703 authorizes non-VA inpatient and outpatient 
medical services on a preauthorized basis by contract or individual 
authorization; 38 U.S.C. Sec. 1725 authorizes reimbursement for 
emergency treatment of nonservice-connected conditions in a non-VA 
facility without prior authorization; 38 U.S.C. Sec. 1728 authorizes 
reimbursement for emergency treatment of service-connected or related 
conditions in a non-VA facility without prior authorization.
---------------------------------------------------------------------------
    VHA uses two major mechanisms to provide care outside its health 
care system. These include contracts to purchase care, or non-
contracted medical care purchased on a fee for service basis from 
providers in the community. See the box below for a brief description 
of these methods.


     Methods Used to Provide Care Outside the VA Health Care System
-------------------------------------------------------------------------------------------------------------------------------------------------
Contracts to Purchase Care: Generally, VA uses two approaches under this
 method. One is regular commercial contracts that follow Federal
 Acquisition Regulations, and are awarded on a competitive basis. The
 second is contracts or agreements with academic affiliates. VA's
 academic affiliates (schools of medicine, academic medical centers and
 their associated clinical practices) provide contracted clinical care.
 Generally, these are non-competitive sharing agreements, and details
 vary considerably from agreement to agreement. Most cover specialty
 services such as anesthesiology, cardiology, neurosurgery,
 ophthalmology, orthopedic surgery, or radiology. Sharing agreements can
 be based on full-time-equivalent (FTE) employment, or on specific
 procedures. Compared to fee basis care these contracts involve many
 patients, and are longer term contracts.Fee Basis Care: Generally, fee basis care is used to provide outpatient
 care, and is authorized on a fee-for-service basis per episode of care.
 VA manages the authorization, claims processing and reimbursement for
 services acquired from non-VA health care providers. Fee basis care is
 sometimes referred to as ``purchased care.''
------------------------------------------------------------------------

    In 2006, Congress directed VHA to implement a contracting pilot 
program, that was later named Project Healthcare Effectiveness through 
Resource Optimization (Project HERO) to better manage the fee basis 
care program (discussed later in this report).
    Policymakers and other stakeholders hold a variety of views 
regarding the appropriate role of the private sector in meeting the 
health care needs of eligible veterans. Some believe that the best 
course for veterans is to provide all needed care in facilities under 
the direct jurisdiction of the VA. On the other hand, some see the use 
of private sector providers as important in assuring veterans' access 
to a comprehensive slate of services (in particular, to specialty 
services that are needed infrequently), or in addressing geographic or 
other access barriers. In addition, those who believe that all needed 
care should be provided by VA providers in VA-owned facilities are 
concerned that private sector options for providing care to veterans 
will lead to a dilution of quality of care in the VA health care 
system, and could fail to leverage key strengths of the VHA network, 
such as its system of electronic medical records. However, some propose 
that over the long term, having private sector options could improve 
the quality of services within the VHA network through competition. 
Reaching the correct balance between providing care through VA's health 
care network and through non-VA providers is an issue for policymakers, 
as well as for the VHA and other stakeholders.
    In addition to these broad concerns, Congress has been interested 
in specific aspects of VHA's use of private health care services. 
First, expenditures for contract and fee basis care services are 
increasing. In FY2008, VHA spent approximately $3.0 billion for 
contract and fee basis care. By FY2009, that amount had increased by 27 
percent to approximately $3.8 billion.\7\ These expenditures now 
comprise an estimated 9 percent of VHA's $41.9 billion total 
appropriations.\8\
---------------------------------------------------------------------------
    \7\ U.S. Congress, Senate Committee on Veterans' Affairs, A Hearing 
on VA's Contracts for Health Services, 111th Cong., 1st sess., 
September 30, 2009. Answer provided by Gary Baker, Chief Business 
Officer,Veterans Health Administration, U.S. Department of Veterans 
Affairs, to a question posed by Senator Daniel Akaka.
    \8\ CRS Report R40737, Veterans Medical Care: FY2010 
Appropriations, by Sidath Viranga Panangala.
---------------------------------------------------------------------------
    Second, specific concerns have been raised about the fee basis care 
program. The program is complex, highly decentralized, and lacks a 
standardized implementation process across the VA health care system. 
Specifically, VA's Office of Inspector General (OIG) has reported that 
VHA has made a significant number of improper payments for fee basis 
care, and in some instances has not properly justified and authorized 
care.\9\
---------------------------------------------------------------------------
    \9\ Department of Veterans Affairs, Office of Inspector General, 
Audit of Veterans Health Administration's Non-VA Outpatient Fee Care 
Program, Report No. 08-02901-185, Washington, DC, August 23, 2009, pp. 
4-10.
---------------------------------------------------------------------------
    Congress established the Project HERO demonstration to determine if 
it could provide better management of non-VA provided care. At least 
two policy questions about Project HERO may be of interest to Congress:

    1.  Has Project HERO enhanced the existing fee basis care program? 
\10\
---------------------------------------------------------------------------
    \10\ S.Rept. 111-40 to accompany the Military Construction and 
Veterans Affairs and Related Agencies Appropriations Act, 2010 (S. 
1407) expressed concern about the oversight and scope of Project HERO. 
See U.S. Congress, Senate Committee on Appropriations, Military 
Construction and Veterans Affairs and Related Agencies Appropriation 
Bill, 2010, report to accompany S. 1407, 111th Cong., 1st sess., July 
7, 2009, p. 53.
---------------------------------------------------------------------------
    2.  Are there findings from Project HERO that could be applied to 
standardize the fee basis care program throughout the VA health care 
system?

    To provide some context to the discussion of these questions, this 
report will first provide an overview of Project HERO. Second, it will 
discuss the current fee basis care process as well as the 
implementation of Project HERO. The report concludes with a discussion 
of observations on the implementation of Project HERO based on VHA and 
Humana Veterans Healthcare Services Inc. (HVHS) perspectives. This 
report is based on information received during visits to three of the 
four Project HERO demonstration sites as well as discussions with 
officials from HVHS.\11\ Although the provision of dental care through 
Delta Dental Federal Services is part of Project HERO, this report does 
not discuss this aspect of the program.
---------------------------------------------------------------------------
    \11\ To better understand Project HERO implementation, on April 22, 
2009, August 7, 2009, and August 26, 2009, Congressional Research 
Service (CRS) staff visited VISNs 8, 16, and 20 respectively. CRS staff 
did not visit VISN 23. During these meetings, CRS staff received 
briefings from VHA program staff at the respective VISNs, and held 
discussions on how the project has been implemented within each VISN. 
Lastly, on September 17, 2009, CRS staff spoke with officials of Humana 
Veterans Health Care Services Inc. (HVHS).
---------------------------------------------------------------------------
Project Healthcare Effectiveness through Resource Optimization (Project 
        HERO)
    As stated earlier, in 2006, Congress directed VHA to implement a 
contracting pilot program, to better manage the fee basis care program. 
The conference report (H.Rept. 109-305) to accompany the Military 
Quality of Life and Veterans Affairs Appropriations Act, 2006 (P.L. 
109-114) directed the VA to implement a cost effective purchased care 
management program and to develop at least three objectives-oriented 
demonstrations (pilot programs) to encourage collaboration with 
industry and academia. According to the conference report:

       The conferees support expeditious action by the Department to 
implement care management strategies that have proven valuable in the 
broader public and private sectors. It is essential that care purchased 
for enrollees from private sector providers be secured in a cost 
effective manner, in a way that complements the larger Veterans Health 
Administration system of care, and preserves an important agency 
interest, such as sustaining a partnership with university affiliates. 
In that interest, the VHA shall establish, through competitive award by 
the end of calendar year 2006, at least three managed care 
demonstration programs designed to satisfy a set of health system 
objectives related to arranging and managing care.\12\
---------------------------------------------------------------------------
    \12\ U.S. Congress, Conference Committee, Making Appropriations for 
Military Quality of Life Functions, of the Department Of Defense, 
Military Construction, the Department Of Veterans Affairs, and Related 
Agencies for The Fiscal Year Ending September 30, 2006, and for Other 
Purposes, Report to accompany H.R. 2528, 109th Cong., 1st sess., 
November 18, 2005, H. Rept. 109-305, pp. 43-44.

    The VA began developing plans based on this requirement. However, 
although the conference report language directed VA to implement a 
managed care demonstration, after meetings with various stakeholders 
VHA developed a set of objectives that led to a demonstration program 
to enhance the existing fee basis care program. Its goals were to: \13\
---------------------------------------------------------------------------
    \13\ Based on briefings provided to CRS Staff by VISN 16 and VISN 
20 program staff on August 7, 2009, and August 26, 2009 respectively. 
For a list of initial objectives see U.S. Congress, House Committee on 
Veterans' Affairs, Project Healthcare Effectiveness Through Resource 
Optimization, 109th Cong., 2nd sess., March 29, 2006 (Washington: GPO, 
2007), p. 66.

      Provide as much care for veterans within the VHA system 
as possible;
      When necessary, efficiently refer veterans to high-
quality community-based care;
      Improve exchange of information between VA and community 
providers;
      Increase veteran patient satisfaction;
      Foster high-quality care and patient safety;
      Sustain partnership with university affiliates; and
      Secure an accountable evaluation of demonstration 
results.

    To implement this demonstration VHA selected four Veterans 
Integrated Services Network (VISNs),\14\ based on data that showed that 
these four networks had the highest expenditures for community-based 
care relative to the number of veterans enrolled for care. In addition, 
these areas included some of VHA's largest networks representing 25 
percent of VHA's total enrollment.\15\ A contract for medical services 
was awarded on October 1, 2007 to Humana Veterans Healthcare Services 
Inc. (HVHS).\16\ Medical, surgical, mental health, diagnostic, and 
dialysis services became available through a network of providers 
recruited by HVHS. The demonstration program became operational on 
January 1, 2008.
---------------------------------------------------------------------------
    \14\ The VA's health care system is organized into 21 
geographically defined Veterans Integrated Services Network (VISNs). 
Although policies and guidelines are developed at VA headquarters to be 
applied throughout the VA health care system, management authority for 
basic decision-making and budgetary responsibilities is delegated to 
the VISNs (see Kenneth Kizer, John Demakis, and John Feussner, 
``Reinventing VA Health Care: Systematizing Quality Improvement and 
Quality Innovation.'' Medical Care. vol. 38, no. 6 (June 2000), Suppl. 
1:I7-16.
    \15\ U.S. Congress, House Committee on Veterans' Affairs, Project 
Healthcare Effectiveness Through Resource Optimization, 109th Cong., 
2nd sess., March 29, 2006 (Washington: GPO, 2007), p. 16.
    \16\ The VA contract with HVHS is an indefinite delivery, 
indefinite quantity (IDIQ) 1-year contract with 4 option years. In 
general, an IDIQ contract is a type of indefinite delivery contract 
that provides for an indefinite quantity of supplies or services within 
stated limits, during a fixed period. The government places orders for 
individual requirements. Quantity limits may be stated as number of 
units or as dollar values. Federal Acquisition Regulation (FAR) 16.504.
---------------------------------------------------------------------------
Overview of Fee Basis Care \17\
---------------------------------------------------------------------------
    \17\ Major portions of this section were drawn from Department of 
Veterans Affairs, Office of Inspector General, Audit of Veterans Health 
Administration's Non-VA Outpatient Fee Care Program, Report No. 08-
02901-185, Washington, DC, August 23, 2009, pp. 20-21.
---------------------------------------------------------------------------
    Services provided in non-VA health care facilities and by non-VA 
providers fall into two broad categories: contract care and fee basis 
care. Since Project HERO is a pilot to enhance fee basis care, this 
part of the report will first provide an overview of the current fee 
basis care process in the VHA. Under this system VA health care 
facilities are authorized to pay for health care services acquired from 
non-VA health care providers. VA manages the authorization, claims 
processing and reimbursement for services acquired from non-VA health 
care providers through the fee basis care program.\18\
---------------------------------------------------------------------------
    \18\ The fee basis care program is sometimes referred to as the 
purchased care program.
---------------------------------------------------------------------------
    The fee basis care program is used predominantly to provide 
outpatient care. Outpatient fee care involves two major phases: (1) 
pre-authorization of care and 
(2) claims processing. Figure 1 provides a generalized depiction of the 
pre-authorization phase.
  Figure 1. Non-VA Outpatient Fee Basis Care, Pre-Authorization Phase

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: Congressional Research Service graphic based on Department 
of Veterans Affairs, Office of Inspector General, Audit of Veterans 
Health Administration's Non-VA Outpatient Fee Care Program, Report No. 
08-02901-185, Washington, DC, August 23, 2009, p. 20, and Project HERO 
briefing by Alvin S. Haynes Jr., M.D., Chief Medical Officer, Fee Basis 
Program, Bay Pines VA Health Care System, April 22, 2009.

    As seen in Figure 1 a VA health care provider (generally a 
clinician) requests a specific health care service or procedure for the 
veteran and justifies use of non-VA care because of the lack of 
clinical capacity or capability to provide the service to the veteran. 
After the initial consult is received by the fee basis care program 
office at the local VA medical center (VAMC), the Chief Medical Officer 
(CMO) at the program office, or a designated official, reviews the 
request and authorizes the care if it is determined to be appropriate. 
Following this first stage of review, fee basis care program office 
staff reviews the authorization. They review it to see if the veteran 
is eligible for the program and whether an appropriate justification 
has been provided. Once the veteran is notified that the service is 
authorized, he or she selects a provider and receives services.
    The next phase of the fee basis care program is the processing of 
fee claims. Figure 2 provides a generalized depiction of receipt and 
payment of claims.
             Figure 2. Receipt and Processing of Fee Claims


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Source: Congressional Research Service graphic based on Department 
of Veterans Affairs, Office of Inspector General, Audit of Veterans 
Health Administration's Non-VA Outpatient Fee Care Program, Report No. 
08-02901-185, Washington, DC, August 23, 2009, p. 20, and Project HERO 
briefing by Alvin S. Haynes Jr., M.D., Chief Medical Officer, Fee Basis 
Program, Bay Pines VA Health Care System, April 22, 2009.
    Notes: Claims ``scrubbing'' broadly means a process whereby medical 
claims are validated against a set of established rules such as correct 
diagnostic codes (International Classification of Diseases, 9th 
Revision; ICD-9 codes) and procedure codes (such as Current Procedural 
Terminology (CPT) codes--a list of descriptive terms and identifying 
codes for reporting medical services and procedures).

    Once the veteran receives care from a non-VA provider, the provider 
sends a claim to the fee basis care program office at the VAMC that 
authorized the care. The fee basis care program office staff then 
reviews the claim to ensure that billed services match the services 
that were authorized. Following this review, staff determines the 
correct pricing methodology and payment rate based on the type and 
location of care provided. In the next step the claims are 
``scrubbed,'' or validated, to ensure that they are properly coded. 
After this step staff releases the claim to the Finance Services Center 
in Austin, Texas to certify fee disbursements to the Department of the 
Treasury, and the non-VA provider receives an electronic payment.
How Project HERO Works Compared to Fee Basis Care
    Under Project HERO, veterans receive primary care at their local VA 
health care facility, as is the case under the regular fee basis care 
program. Similarly, if a VA health care provider determines that the 
specific medical expertise or technology is not readily available at 
the local facility then the provider requests that the service be 
obtained from a non-VA provider. The consult request is reviewed by the 
fee basis care CMO and, if the CMO concurs, the request proceeds to the 
fee basis care program office. At this point in the process, the fee 
basis care program office determines whether to send the referral to 
Project HERO (based on whether the services are provided within a 
reasonable distance under Project HERO), and if so sends an 
authorization for care to HVHS.\19\
---------------------------------------------------------------------------
    \19\ It should be noted that each of the pilot VISNs has inter- and 
intra-VISN referral policies. For example, if a specific VA medical 
facility cannot provide the required services, the next step would be 
to see if another facility within the VISN, and within reasonable 
distance to the veteran, could provide that specific service or if an 
academic affiliate or Department of Defense (DoD) sharing agreement 
could be used to provide that service. If these options are not 
available then the referring VA medical facility could authorize the 
use of Project HERO or non-Project HERO fee basis care.
---------------------------------------------------------------------------
    Generally, authorizations are provided to HVHS for each episode of 
required care. In contrast to the regular fee basis care program in 
which the veteran selects his or her own provider, under Project HERO 
HVHS contacts the veteran by phone to schedule an appointment with an 
HVHS network provider. During this process appointment details are 
communicated back to the referring VA health care facility, and the 
veteran receives a letter with appointment details and instructions. 
According to HVHS officials, the veteran receives a reminder call prior 
to the appointment.
    HVHS coordinates the transfer of any required pre-visit clinical 
information from the local VA medical facility to the HVHS network 
provider. After the veteran is seen by the HVHS network provider, and 
if additional services are needed, HVHS sends a request back to the 
referring VAMC for authorization. Under the contract, HVHS is required 
to return clinical information from the visit back to the referring VA 
medical facility--typically within 30 days of the appointment. In 
contrast to regular fee basis care, where clinical information is 
received directly from the non-VA provider to the referring medical 
facility, under Project HERO all clinical information is channeled 
through HVHS. When possible, the information is returned in an 
electronic format. Otherwise, the information is sent through fax or in 
hard copy format. Once the clinical information is received, the 
referring VA medical center reviews it for coordination of care and 
uploads it into the Computerized Patient Record System (CPRS).\20\ 
Timely return of clinical information to the referring VA medical 
center is not a requirement under the regular fee-basis care program. 
Moreover, there is a simplification of claims payment under Project 
HERO compared to the regular fee basis care process (see Figure 2), 
whereby under Project HERO the network provider submits a claim to HVHS 
and is paid within about 30 days, and HVHS then submits electronic 
claims to VA for payment. A general depiction of this process is 
provided in Figure 3 and Figure 4.
---------------------------------------------------------------------------
    \20\ The CPRS is a single integrated system for VA health care 
providers, and a package within the Veterans Health Information Systems 
and Technology Architecture (VistA). All aspects of a patient's medical 
record are integrated, including active problems, allergies, current 
medications, laboratory results, vital signs, hospitalizations and 
outpatient clinic history, alerts of abnormal results, among other 
things. It is used in about 1,300 VHA facilities around the country. 
CPRS also incorporates data from scheduling, laboratory, radiology, 
consults and clinic notes into a single integrated patient record.
---------------------------------------------------------------------------
   Figure 3. Authorization Process For Non-VA Care Under Project HERO


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    Source: Congressional Research Service graphic based on Department 
of Veterans Affairs, Office of Inspector General, Audit of Veterans 
Health Administration's Non-VA Outpatient Fee Care Program, Report No. 
08-02901-185, Washington, DC, August 23, 2009, p. 20, and Project HERO 
briefing by Alvin S. Haynes Jr., M.D., Chief Medical Officer, Fee Basis 
Program, Bay Pines VA Health Care System.
    Notes: HVHS is Humana Veterans Health Care Services Inc. Also note 
that this is a generalized depiction and the decision-making process 
could vary from location to location.

   Figure 4. Receipt and Processing of Fee Claims Under Project HERO


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    Source: Congressional Research Service graphic based on Project 
HERO briefing by Alvin S. Haynes Jr., M.D., Chief Medical Officer, Fee 
Basis Program, Bay Pines VA Health Care System, April 22, 2009.

Project HERO Implementation
    This section provides a brief overview of implementation of the 
Project HERO demonstration in the four pilot VISNs. This section will 
discuss utilization of the program compared to regular fee basis care 
and VA provided care, quality of care under Project HERO, and 
reimbursement and cost of care under the demonstration program.
Utilization
    Project HERO is primarily an outpatient program. According to VHA 
data, between January 2008 and September 30, 2009 approximately 51,000 
veteran patients received care through Project HERO within the four 
participating VISNs, compared to approximately 481,000 patients who 
received care through VHA's regular fee basis care program (Figure 5). 
During this same time period there were approximately 111,000 
outpatient visits under Project HERO authorizations compared to 
approximately 1.8 million outpatient visits under regular fee basis 
care authorizations (Figure 6). As seen in the figures below, Project 
HERO represents a small percentage of all outpatient medical care 
provided by VHA.
          Figure 5. Number and Percent Distribution of Unique
               Veteran Patients Receiving Outpatient Care
               (Total Patients in VISNs 8,16, 20, and 23)

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: Chart prepared by Congressional Research Service based on 
data from Department of Veterans Affairs, Veterans Health 
Administration, Chief Business Office.
    Notes: Outpatient care provided from January 1, 2008 thru September 
30, 2009.

     Figure 6. Number and Percent Distribution of Outpatient Visits
          (Total Outpatient Visits in VISNs 8,16, 20, and 23)

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: Chart prepared by Congressional Research Service based on 
data from Department of Veterans Affairs, Veterans Health 
Administration, Chief Business Office.
    Notes: Outpatient visits from January 1, 2008 thru September 30, 
2009.

Quality of Care
    One objective for Project HERO is to ensure that veterans receive 
high quality care, even when that care is provided by non-VA providers 
in the community. The Project HERO demonstration includes measures of 
care along five dimensions: 
(1) timeliness of access to care, (2) return of clinical information, 
(3) facility accreditation, (4) patient safety, and (5) complaints.\21\ 
In addition, the demonstration also conducts patient satisfaction 
surveys. The demonstration project is in its early stages, and the 
metrics are evolving. However, CRS was able to obtain some preliminary 
information.
---------------------------------------------------------------------------
    \21\ Department of Veterans Affairs, Veterans Health 
Administration, Chief Business Office, Project HERO Demonstration 
Evaluation Monthly Report, July 2009.
---------------------------------------------------------------------------
    Project HERO is used to provide quality health care when needed 
health care services are not available. ``Not available'' means that 
services are not offered at all, are not available within a reasonable 
amount of time, or are not available within a reasonable distance, 
within the VA health care system. Currently, VHA policy has established 
a goal of scheduling appointments within 30 days of the desired 
appointment but not more than 4 months beyond the desired appointment 
date. When a specific appointment date is not requested, VHA policy 
requires the scheduler to use the next available appointment. 
Furthermore, VHA policy also requires that all appointment requests, 
including consult referrals to a specialist, must be acted on by the 
medical facility within 7 days.\22\ The contract requires that HVHS 
report the following metrics as part of the standard evaluation of 
access to care: number of times care is provided within 30 days, number 
of appointments scheduled within 5 days, and number of patients seen 
within 20 minutes of appointment time. HVHS reports that in August 
2009, 93.9 percent of appointments were scheduled within 5 days of 
receipt of authorization, and that the average time it took to schedule 
an appointment was 2.1 business days once an authorization was 
received. HVHS also claims that in the same month 88.2 percent of the 
referred patients were seen by a HVHS provider within 30 days.\23\
---------------------------------------------------------------------------
    \22\ U.S. Congress, House Committee on Veterans' Affairs, 
Subcommittee on Health and Subcommittee on Oversight and 
Investigations, Outpatient Waiting Times, 110th Cong., 1st sess., 
December 12, 2007. p. 35.
    \23\ Humana Veterans Health Care Services briefing, September 17, 
2009.
---------------------------------------------------------------------------
    Under Project HERO, VHA did not establish drive time or distance 
requirements in the contract with HVHS. However, due to the need for 
such a standard, a business process has been mutually agreed upon by 
VHA and HVHS. HVHS notifies the referring VA medical center if the care 
provider is more than 50 miles from the veteran's home address. The 
referring VA medical center can determine if it is a reasonable 
distance based on where the veteran lives. If the VA medical center 
staff believes they can obtain care closer to the veteran, they can 
cancel the HVHS authorization and issue a regular fee basis care 
authorization.
    With respect to the return of clinical information, under the 
Project HERO demonstration HVHS is required to provide clinical data 
generated as result of a routine referral for authorized care to the 
referring medical facility within 30 days of the appointment date, 
although this is not a requirement under the regular fee basis care 
program. Early reports from the Project HERO Program Management Office 
indicated that HVHS did not meet the 100 percent standard, and showed a 
downward trend in this measure, meaning that the percentage of records 
returned within 30 days was declining.\24\ In September 2009, HVHS 
claimed that it was working on process improvements and on educating 
noncompliant providers. HVHS reported in August that average business 
days to return clinical information is 14.3 days.\25\
---------------------------------------------------------------------------
    \24\ Department of Veterans Affairs, Veterans Health 
Administration, Chief Business Office, Project HERO Demonstration 
Evaluation Monthly Report, July 2009.
    \25\ Humana Veterans Health Care Services briefing, September 17, 
2009.
---------------------------------------------------------------------------
    Accreditation of facilities and credentialing of providers are seen 
as proxy measures to evaluate quality of clinical care provided. 
Generally, under the regular fee basis care program, once a veteran is 
authorized to receive care outside the VA health care system, the 
veteran is free to choose a provider within the community. Therefore, 
although the provider may be licensed to practice medicine within the 
State, he or she is not necessarily credentialed in a manner similar to 
the credentialing process that VHA uses to credential its own health 
care providers.\26\ However, under Project HERO requirements, HVHS has 
stated that it recruits credentialed providers using the same 
guidelines that VHA uses for its providers. Credentialing includes 
verification of appropriate education, certificates, licensing, 
criminal record, registrations and insurance. According to HVHS it only 
sends veterans to providers who meet VA credentialing requirements.\27\ 
In addition, the Project HERO HVHS network of providers is required to 
practice at Joint Commission accredited facilities. Currently all 
facilities providing inpatient care within the contractor network are 
accredited by one of the following organizations: The Joint Commission, 
the Commission on Accreditation of Rehabilitation Facilities (CARF), 
The Intersocietal Commission for the Accreditation of Vascular 
Laboratories (ICVAL), or the American Osteopathic Association (AOA). 
According to the VA, the Project HERO Program Management Office audits 
HVHS for provider credentialing and facility accreditation, and to 
date, the VA has stated that the audit results have shown that HVHS 
providers are compliant with credentialing requirements.
---------------------------------------------------------------------------
    \26\ VHA policy requires that all VHA health care professionals who 
are permitted by law and the facility to provide patient care services 
independently must be credentialed and privileged. Credentialing is 
done to ensure that a provider has the required education, training, 
experience, physical and mental health, and skill to fulfill the 
requirements of the position and to support the requested clinical 
privileges (see VHA HANDBOOK 1100.19, November 14, 2008).
    \27\ Humana Veterans Health Care Services briefing September 17, 
2009.
---------------------------------------------------------------------------
    According to the VHA National Patient Improvement Handbook, patient 
safety is ensuring freedom from accidental or inadvertent injury during 
health care processes.\28\ Under Project HERO patient safety incidents 
must be reported within one business day to the referring VA medical 
facility, and these violations are required to be investigated and 
resolved by VHA and HVHS. In its July 2009 monthly report, the Project 
HERO Program Management Office did not report any patient safety 
violations.
---------------------------------------------------------------------------
    \28\ Department of Veterans Affairs, Veterans Health 
Administration, VHA HANDBOOK 1050.01, May 23, 2008.
---------------------------------------------------------------------------
    With respect to complaints, a majority of complaints in the July 
2009 report were related to the authorization process. For example: 
``one veteran was sent to a provider who could not perform the 
procedure needed,'' ``another veteran had an appointment rescheduled 
and his medical records were not requested,'' and ``another veteran 
went to an appointment and was told that the appointment was not 
scheduled for him.'' \29\
---------------------------------------------------------------------------
    \29\ Department of Veterans Affairs, Veterans Health 
Administration, Chief Business Office, Project HERO Demonstration 
Evaluation Monthly Report, July 2009.
---------------------------------------------------------------------------
    As part of Project HERO, HVHS conducts surveys of patients to 
measure patient satisfaction, and these are reported to the Project 
HERO Program Management Office. In its July 2009 report (representing 
averaged data from October 2008-March 2009), the Project HERO Program 
Management Office indicated that over 75 percent of patients were very 
or completely satisfied with their visit and 80 percent rated the 
overall quality of the visit as very good or excellent. However, only 
52 percent were satisfied with their appointment wait times.\30\
---------------------------------------------------------------------------
    \30\ Ibid, pp. 9-11.
---------------------------------------------------------------------------
Costs and Reimbursements
    Project HERO prices for medical care are a negotiated percentage of 
U.S. Department of Health and Human Services (HHS), Centers for 
Medicare and Medicaid Services (CMS) rates based on the local market 
rates where the services are provided. In contrast, under the regular 
fee basis care, with the exception of physician services, dialysis and 
laboratory testing, VHA does not have authority to pay at CMS rates. 
VHA pays for regular fee basis outpatient care based on the lesser of 
the amount billed by the provider or the amount calculated using a 
formula developed by CMS' participating physician fee schedule for the 
period in which the service is provided. If there is no calculated 
amount under the CMS' participating physician fee schedule, 
reimbursements are based on the lesser of the actual amount billed or 
the amount calculated using the VA's 75th percentile methodology or the 
usual and customary rate.\31\ Under Project HERO, VHA pays HVHS a value 
added fee that ranges from $30.75 to $48.09 per claim, and these 
amounts vary by VISN and type of service (See Table 1.).
---------------------------------------------------------------------------
    \31\ 38 CFR Sec. 17.56. Reimbursement under the 75th percentile 
methodology is determined for each VA medical facility by ranking all 
treatment occurrences of a medical procedure (with a minimum of eight) 
under the corresponding Current Procedural Terminology 
(CPT') codes during the previous fiscal year with charges 
ranked from the highest to the lowest rate billed and the charge 
falling at the 75th percentile as the maximum amount to be paid. If 
there are fewer than eight treatment occurrences for a procedure during 
the previous fiscal year then VA pays based on the provider's usual or 
customary charges.

                Table 1. Value Added Fee Amounts, FY2009
------------------------------------------------------------------------
                         VISN 8      VISN 16      VISN 20      VISN 23
------------------------------------------------------------------------
Medical or Surgical      $30.75       $30.75       $39.50       $39.24
 Care Services
------------------------------------------------------------------------
Mental Health Care       $36.89       $36.89       $45.74       $48.09
 Services
------------------------------------------------------------------------
Diagnostic Services      $30.75       $30.75       $39.50       $39.24
------------------------------------------------------------------------
Dialysis                 $30.75       $30.75       $39.50       $39.24
------------------------------------------------------------------------
Source: Humana Veterans Healthcare Services.


    The value added fee supports provision of such services as: 
coordinating appointments for veterans; returning clinical information 
(for example medical records) to VHA; processing provider invoices for 
reimbursement to providers; and monitoring and reporting access to 
care, appointment timeliness and patient safety. As seen in Table 2, in 
FY2008 VHA paid approximately $69,000, and for FY2009 it paid HVHS 
approximately $3.3 million in value added fees.

                            Table 2. Project HERO Payments Including Value Added Fees
----------------------------------------------------------------------------------------------------------------
                         Project HERO                                 Value Added                       Total
                     Payments for Health  Project HERO     Total      Fees as a %                   Project HERO
                       Care, Excluding     Value Added    Project     of Project    VISN  Budgets    Payments as
                       Value-Added Fees     Fees \b\        HERO         HERO            \c\          % of VISN
                             \a\                          Payments     Payments                        Budgets
----------------------------------------------------------------------------------------------------------------
FY2008                    $5,223,422         $69,089     $5,292,511      1.30%      $8,973,617,617      0.06%
----------------------------------------------------------------------------------------------------------------
FY2009                   $38,669,257      $3,305,067    $41,974,324      7.87%      $9,685,045,154      0.43%
----------------------------------------------------------------------------------------------------------------
Source: Department of Veterans Affairs, Veterans Health Administration, Chief Business Office.Notes:
 a. Project HERO Payments are VHA payments to Humana Veterans Health Care Services Inc. excluding any value
  added fees (VISNs 8, 16, 20, and 23), and do not include dental care payments to Delta Dental. Payments for
  FY2008 are from January 2008 through September 2008, and payments for FY2009 are from October 1, 2008 through
  September 30, 2009.
 b. Value added fees are payments made by VHA to Humana Veterans Health Care Services Inc (HVHS) for services
  such as coordinating appointments for veterans; returning clinical information to VHA on a timely basis;
  processing provider invoices for quick reimbursement to providers; and monitoring and reporting access to
  care, appointment, timeliness and patient safety. Data are based on HVHS reporting of value added fees.
 c.  FY2008 VISN budgets (total VISN budgets for 8, 16, 20, and 23) are obligations as of September 30, 2008 and
  FY2009 VISN budgets are as of July 31, 2009.


Discussion
    Stakeholders have voiced various concerns about care provided 
outside the VA health care system, and these concerns have been voiced 
regarding both contract care and fee basis care. Some Veterans Service 
Organizations (VSO) are concerned that a mixture of government 
providers and private providers could grow over time and place at risk 
the VA health care system as a whole.\32\ Unions are concerned that 
care provided by non-VA providers would eventually lead to 
``outsourcing of functions that have traditionally been performed in-
house.'' \33\
---------------------------------------------------------------------------
    \32\ U.S. Congress, House Committee on Veterans' Affairs, Project 
Healthcare Effectiveness Through Resource Optimization, 109th Cong., 
2nd sess., March 29, 2006 (Washington: GPO, 2007), p. 76.
    \33\ U.S. Congress, Senate Committee on Veterans' Affairs, A 
Hearing on VA's Contracts for Health Services, 111th Cong., 1st sess., 
September 30, 2009. Testimony by Mary A. Curtis, Psychiatric Clinical 
Nurse Specialist and Clinical Application Coordinator Boise VA Medical 
Center Boise, Idaho, on Behalf of American Federation of Government 
Employees, AFL-CIO.
---------------------------------------------------------------------------
    Congress has expressed concern with the growth of non-VA provided 
care, and whether VHA is prudently using taxpayer dollars to purchase 
care for veterans. Congress has also expressed concern about whether 
VHA can ensure timely access to quality care when that care is provided 
by outside providers.\34\ The Project HERO demonstration is 
characterized by the VA as an effort to address these concerns and in 
the early stage of its implementation is perceived to have achieved 
mixed results. The next part of this report addresses the two questions 
posed at the beginning of this report.
---------------------------------------------------------------------------
    \34\ U.S. Congress, Senate Committee on Veterans' Affairs, A 
Hearing on VA's Contracts for Health Services, 111th Cong., 1st sess., 
September 30, 2009.
---------------------------------------------------------------------------
Has Project HERO enhanced the fee basis care program?
    During visits to three of the four demonstration sites CRS heard 
mixed reviews about the pilot program. Some categorized it as a ``tool 
in a toolbox'' meaning that Project HERO was one of many options a VA 
medical facility could use to provide care outside the VA health care 
system (other options include care through medical school affiliates or 
through existing contracts with local providers, among others). Some 
officials categorized Project HERO as a ``concierge service'' where 
HVHS guides the veterans in scheduling appointments and ensuring that 
clinical information is provided to a network provider and then 
transferred back to the VA, as well as maintaining a credentialed 
network of providers, and claims payment to providers.
    The current Project HERO demonstration could be categorized as an 
enhancement of the regular fee basis care program. The demonstration 
pilot provides a single point of contact for those veterans who are 
authorized to receive care outside the VA health care system. Under the 
demonstration HVHS works with the veterans and the HVHS network 
provider in scheduling the appointment. It also allows the veteran to 
seek care from a credentialed provider, as well as facilitates the 
transfer of medical information, thereby assisting with care 
coordination. Furthermore, under Project HERO, VA does not have the 
responsibility for paying for care provided outside the system directly 
to non-VA providers. However, VA pays for these services through value 
added fees to HVHS.
Are there lessons to be learned from the pilot program?
1.  Establishing a robust network of providers takes time, even when 
        dealing with an established health care services provider.
    Most VISNs stated that early on in the pilot HVHS had fair to 
moderate success building its network of providers within the VISN, and 
that the short implementation period between the time the contract was 
awarded in October 2007 to when it became operational in January 2008, 
was inadequate to establish a robust network of providers. This was 
especially true in VISNs that had rural or highly rural areas. 
According to some VISN officials, in some instances this lack of a 
network of providers has resulted in ongoing challenges in providing 
timely access to medical care. HVHS has asserted that based on feedback 
received from the Project HERO Program Management Office, it has worked 
with VA to resolve most of these issues. For example, HVHS has adapted 
to the changing clinical needs of each VISN and has attempted to 
recruit a provider network to meet those clinical needs.
2.  Establishing services and pricing, and keeping them up-to-date, is 
        a challenge.
    Some VISNs stated that clinical care services included in the 
contract were based on prior needs and did not meet the current needs 
of the network. Some VISNs also raised the issue that some contract 
pricing is higher than what VA would have paid under the regular fee 
basis care, and that some services are cost-prohibitive when the value-
added fees are applied. However, the Project HERO Program Management 
Office has noted that 89 percent of Project HERO prices are at or below 
CMS rates, and that amounts paid to providers are less than 7 percent 
of the regular fee basis care program.\35\
---------------------------------------------------------------------------
    \35\ Communication received from Department of Veterans Affairs, 
Veterans Health Administration, Chief Business Office, September 29, 
2009.
---------------------------------------------------------------------------
3.  Education is key to a successful functioning network.
    Almost all VISNs stated that there has been organizational 
resistance to change. According to VISN staff, the primary 
implementation challenge has been providing training to staff at all 
levels of the organization, especially educating providers and fee 
basis care office staff. This has been true even for providers 
recruited by HVHS, especially when they are required to send clinical 
information back to the VA.
4.  The project has yielded information that could be applied to the 
        existing regular fee basis care program.
    First, without the electronic sharing of medical records between 
the VA health care system and non-VA providers, there are delays in the 
transfer of clinical information. In some instances this delay may 
result in a VA provider not being alerted to the need for immediate 
follow-up care required based on a diagnosis or laboratory result. 
Second, VHA's regular fee basis care program could adopt certain 
quality metrics that are currently used under Project HERO, such as how 
far the veteran travels to receive his or her care as well as how long 
the veteran waits once he or she arrives for an appointment. Lastly, VA 
could develop a provider network within each VISN that the veteran 
could be referred to so that the veteran receives care from provider 
who has been credentialed similarly to a VA provider. However, prior to 
implementing this pilot demonstration throughout the VA health care 
system, it may be useful to conduct an independent evaluation to 
conclusively measure if Project HERO has been a worthwhile effort.
        Appendix A. Veterans Integrated Services Network (VISNs)


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: Department of Veterans Affairs, adapted by Congressional 
Research Service.

Author Contact Information

Sidath Viranga Panangala
Specialist in Veterans Policy
[email protected], 7-0623
                                 
   Prepared Statement of Belinda J. Finn, Assistant Inspector General
        for Audits and Evaluations, Office of Inspector General,
                  U.S. Department of Veterans Affairs
INTRODUCTION
    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to discuss our findings related to how the Veterans Health 
Administration (VHA) purchases health care services for veterans from 
non-VA providers. I am accompanied by Gary Abe, Director, Seattle 
Office for Audits and Evaluations, Office of Inspector General (OIG). 
As health care costs continue to increase in VA and elsewhere, ensuring 
that VA has strong controls over purchased care activities is a 
critical aspect of providing the care veterans need. To address this 
concern, over the past 2 years, we have issued two reports--Audit of 
Veterans Health Administration Noncompetitive Clinical Sharing 
Agreements and Audit of Veterans Health Administration's Non-VA 
Outpatient Fee Care Program. In addition, we are currently reviewing 
the Inpatient Fee Care Program and FSS contracts for professional and 
allied health services; we plan to issue audit reports on these issues 
later in FY 2010. To date, our audits of purchased care have identified 
significant weaknesses and inefficiencies. Specifically, we have found 
that VHA has not established effective policies and procedures to 
oversee and monitor services provided by non-VA providers to ensure 
they are necessary, timely, high quality, and properly billed.
BACKGROUND
    When we initiated our audits in fiscal year (FY) 2008, VHA's 
medical care budget totaled approximately $39 billion. In FY 2009, the 
medical care budget increased to about $44 billion. We estimate that of 
this amount, VHA spent about $5.3 billion (12 percent) to purchase 
health care services from non-VA entities such as other government 
agencies; affiliated universities; community hospitals; nursing homes; 
and individual providers. VHA uses various mechanisms to purchase 
health care services, including sharing agreements with affiliated 
universities and the Department of Defense, Federal Supply Schedule 
(FSS) contracts, the Non-VA Fee Care Program, Project HERO, and the 
Foreign Medical Program. According to VHA managers, the authority to 
purchase services from non-VA sources helps to improve veterans' access 
to needed health care services, in particular specialty care that may 
not be available at VA medical centers (VAMCs) or that VAMCs have a 
difficult time recruiting and retaining specialists to provide.
Audit of Noncompetitive Clinical Sharing Agreements
    Title 38 of the United States Code (USC), Section 8153, authorizes 
VA to enter into noncompetitive sharing agreements with affiliated 
institutions and entities associated with these institutions. In 
practice, many sharing agreements are ones in which VA buys specialized 
clinical services, such as anesthesiologists or cardiac surgeons, from 
affiliated medical schools, university hospitals, clinical departments, 
and associated medical practice groups. These medical specialists 
provide services onsite in VAMC operating rooms, clinics, and inpatient 
medical wards. When we initiated the audit in FY 2008, VHA reported 
having about 670 noncompetitive clinical sharing agreements valued at 
$575 million.
    Performance monitoring controls over noncompetitive clinical 
sharing agreements were not effective; as a result, VHA lacked 
reasonable assurance it received the services it paid for. Our review 
of 58 high cost surgical and anesthesiology sharing agreements at 8 
randomly selected VAMCs found that controls over contract performance 
monitoring for services provided onsite at the VAMCs under all 58 
agreements needed strengthening.

      For 34 full-time equivalent employee (FTE) based 
agreements, contracting officers' technical representatives (COTRs) did 
not monitor the actual amount of time contractors worked or whether the 
hours worked met the FTE levels required by the agreements. For 
example, one VAMC paid for 2.0 FTE vascular surgeons, but our review 
determined that the time provided by contract vascular surgeons equated 
to less than 1.2 FTE. The COTR acknowledged that while she reviewed the 
surgeons' workload, she did not monitor their time. As a result, the 
VAMC overpaid $333,030 for time the vascular surgeons were not at the 
VAMC.
      For 24 procedure-based agreements, COTRs did not always 
ensure that all of the services were actually received or needed and 
that contractors correctly calculated Medicare-based charges. For 
example, at one VAMC, a contractor overcharged $1,022 for 31 procedures 
because it billed rates that were higher than the Medicare rates 
applicable to the geographical area. The COTR did not review the 
charges or verify the accuracy of the rates prior to certifying 
payments. If left unmonitored, even routine procedure billings with low 
value financial errors can build over time into significant 
overpayments.

    Because of these weaknesses in performance monitoring, VAMCs 
overpaid contractors on 30 (52 percent) of the 58 agreements. 
Strengthening controls over performance monitoring would save VHA about 
$9.5 million annually or $47.4 million over 5 years.
    Specifically, we identified three areas that required 
strengthening:

      Specify Performance Requirements. The sharing agreements 
did not specifically and accurately state performance requirements for 
the contractors. Clear performance requirements tell the COTRs what 
services will be provided, who will provide the services, and the rates 
to be charged.
      Improve Oversight of COTRs. Contracting officers and VHA 
officials did not adequately oversee COTR activities. Contracting 
officers did not provide the COTRs clear guidance about their 
monitoring responsibilities, nor did they implement procedures to 
routinely review the COTRs' activities to ensure they were effective.
      Provide Specialized Training to COTRs. COTRs did not have 
sufficient training to monitor clinical sharing agreements. Although 
most of the COTRs had general contract monitoring training, they had 
not received any specialized training on how to establish effective 
monitoring systems for FTE-based and procedure-based clinical sharing 
agreements. For example, many of the COTRs were unfamiliar with 
Medicare-based charges commonly used in procedure-based agreements.

    We made seven recommendations to strengthen controls over sharing 
agreement performance monitoring. The Under Secretary for Health agreed 
with our findings and recommendations and provided acceptable 
implementation plans to address the recommendations. VHA is still in 
the process of implementing the recommendations.
Audit of Non-VA Outpatient Fee Care Program
    Title 38 of the USC, Sections 1703, 1725, and 1728, permits VA to 
purchase health care services on a fee-for-service or contract basis 
when services are unavailable at VA facilities, when VAMCs cannot 
provide services economically due to geographical inaccessibility, or 
in emergencies when delays may be hazardous to a veteran's life or 
health. The Non-VA Fee Care Program accounts for the bulk of VHA's 
purchased care spending with estimated FY 2008 expenditures exceeding 
$2.6 billion; it is also VA's fastest growing purchased care activity. 
For example, outpatient fee costs have more than doubled during the 4-
year period FY 2005-2008, from $740 million to $1.6 billion, and in FY 
2009, outpatient fee costs were just under $2 billion.
    Our recently issued audit report focused on the Outpatient Fee Care 
Program. In FY 2008, 137 VAMCs processed an estimated 3.2 million 
outpatient fee claims. These claims were for a wide range of diagnostic 
and therapeutic services including visits to primary care physicians, 
x-rays and diagnostic imaging procedures, chemotherapy and radiation 
therapy, dialysis, physical therapy, and outpatient surgical 
procedures. Based on our review of a statistical sample of 800 claims, 
we concluded that VHA had not established adequate management controls 
and oversight procedures to ensure that claims for outpatient fee 
services were accurately paid, justifications for services were 
adequately documented, and services were properly pre-authorized.

      VAMCs improperly paid 37 percent of outpatient fee claims 
by making duplicate payments, paying incorrect rates, and making other 
less frequent payment errors, such as paying for the wrong quantity of 
services. As a result, we estimated that in FY 2008, VAMCs overpaid 
$225 million and underpaid $52 million to fee providers, or about $1.13 
billion in overpayments and $260 million in underpayments over 5 years.
      For 80 percent of outpatient fee claims we reviewed VAMCs 
did not adequately document justifications for use of outpatient fee 
care or properly pre-authorize services as required by VHA policy, 
thereby increasing the risk of additional improper payments. However, 
our audit did not assess or question the clinical necessity of 
services.

    We concluded that the improper payments, justifications, and 
authorizations occurred because VHA had not established an adequate 
organizational structure to support and control the complex, highly 
decentralized, and rapidly growing fee program. We identified three 
specific areas that required strengthening:

      Develop Comprehensive Fee Policies and Procedures. VHA 
does not have a centralized source of comprehensive, clearly written 
policies and procedures for the Fee Program. Instead, fee supervisors 
and staff must rely on an assortment of resources including the Code of 
Federal Regulations, outdated VA policy manuals, and other procedure 
guides, training materials, or informal guidance.
      Identify Core Competencies and Require Training for Fee 
Staff. Because the Fee Program is very complex and requires significant 
judgment by fee staff to ensure correct payments, processing fee claims 
requires specialized knowledge and skills, such as understanding 
medical records, insurance billing concepts, and medical procedure 
coding. However, VHA does not require fee staff or their supervisors to 
attend initial or refresher training.
      Establish Clear Oversight Responsibilities and 
Procedures. Strong oversight of the Fee Program should include 
procedures and performance metrics for assessing compliance with 
program requirements, conducting risk assessments, assessing program 
controls, and monitoring accuracy and quality of claims processing. 
However, no one from VHA's Chief Business Office, National Fee Program 
Office, Veterans Integrated Services Network, or Compliance and 
Business Integrity Office is routinely performing oversight activities 
of the Fee Program.

    We made eight recommendations to strengthen controls over the 
Outpatient Fee Care Program. The Under Secretary for Health agreed with 
the findings and recommendations and provided acceptable implementation 
plans to address the recommendations. In his response, he also stated 
that information technology (IT) gaps were ``key drivers in the 
erroneous payments'' identified by our audit. He pointed out that fee 
staff manually process many claims and that few upgrades have been made 
to the VistA Fee system in the past 10 years. As part of our ongoing 
audit of inpatient fee care, we are examining the Under Secretary's 
concern about IT gaps and assessing the impact of IT systems on claims 
processing accuracy and efficiency.
CONCLUSION
    While purchasing health care services from non-VA providers may 
afford VHA flexibility in terms of expanded access to care and services 
that are not readily available at VAMCs, it also poses a significant 
risk to VA when adequate controls are not in place. With non-VA health 
care costs of about $4.8 billion in FY 2008 and future costs expected 
to increase, VHA needs to strengthen performance monitoring over 
clinical sharing agreements and improve controls over claims processing 
and the justification and authorization of fee services. Without 
adequate controls, VHA lacks reasonable assurance that it is receiving 
the services it pays for, that the services are needed, or that the 
prices paid for services are correct. Furthermore, it does not have the 
information it needs to assess whether this approach for delivering 
health care to veterans is efficient and economical.
    Mr. Chairman, thank you for the opportunity to discuss these 
important issues. We would be pleased to answer any questions that you 
or other Members of the Subcommittee may have.
                                 
  Prepared Statement of Tim S. McClain, President and Chief Executive 
           Officer, Humana Veterans Healthcare Services, Inc.
                              INTRODUCTION
    Chairman Michaud, Ranking Member Brown, and distinguished Committee 
Members, thank you for the opportunity to address the Committee on 
Project HERO (Health Care Effectiveness through Resource Optimization) 
and the supporting role Humana Veterans Healthcare Services plays in 
the delivery of excellent health care to our Nation's veterans.
    On behalf of the dedicated men and women of Humana Veterans, I 
appreciate the opportunity to provide information to the Committee on 
the three hallmarks of Project HERO: (1) Quality health care solutions 
for veterans, including personalized services tailored for each 
veteran; (2) timely Access to care; and, (3) Cost effective care.
    I am President and CEO of Humana Veterans, the company responsible 
for providing health care services for the Veterans Affairs Project 
HERO demonstration and welcome this opportunity to discuss the 
objectives, successes and efficiencies of Project HERO that make it a 
clear benefit to the Department, and most importantly, to the veterans 
relying on VA for excellent medical care.
                   OVERVIEW OF PROJECT HERO CONTRACT
    Project HERO is a demonstration project (pilot) currently 
implemented in four Veteran Integrated Service Networks: VISN 8, 16, 20 
and 23. The project is congressionally inspired and has developed into 
a partnership between the U.S. Department of Veterans Affairs, Veterans 
Health Administration (VHA) and Humana Veterans.
    Humana Veterans was awarded the contract for medical/surgical, 
mental health, diagnostics and dialysis for Project HERO on October 1, 
2007. Delta Dental Federal Services (Delta Dental) was awarded the 
contract for dental services. My testimony today addresses only the 
partnership between the VA and Humana Veterans and does not intend to 
address the contract awarded to Delta Dental.
    The purpose of the project is to determine how a personalized 
services approach to care provided outside the VA (traditionally termed 
``fee-based care'') can improve and complement the timely access and 
quality of care, preserve the fiscal integrity of VA health care 
expenditures, while maintaining high customer satisfaction. We at 
Humana Veterans believe Project HERO has succeeded in all of these 
areas.
    As displayed on the map in Exhibit A (attached), HERO is currently 
a four-VISN demonstration including the Sunshine Healthcare Network 
(VISN 8); South Central Healthcare Network (VISN 16); Northwest 
Healthcare Network (VISN 20); and the Midwest Healthcare Network (VISN 
23). We understand VA selected these four VISNs for Project HERO based 
on their considerable fee-based populations and the significant amount 
of health care funds expended on veterans care through the VA's regular 
fee-basis program.
                            CONTRACT STATUS
    Humana Veterans contract, which was awarded October 2007, consists 
of a base contract with 4 option years. Performance under the contract 
commenced on January 1, 2008 and VA has exercised an option extending 
the term of the current contract through September 30, 2010.
                               OBJECTIVES
    The Project HERO solicitation, sent out to bid in late December 
2006, clearly identified a number of overall objectives for the 
demonstration. These objectives remain steadfast today and are 
objectives Humana Veterans strives to attain as we collaborate with VA 
to improve the level of care provided to our Nation's veterans outside 
VA facilities. The objectives outlined in the solicitation included:

      Cost--providing cost-effective, consistent, and 
competitive pricing.
      Quality of Care--ensuring the quality of community care 
provided.
      Patient Satisfaction--achieving high patient 
satisfaction.
      Clinical Information--improving the exchange of patient 
care information between community providers and the VA.
      Patient Safety--fostering high quality care and patient 
safety.
      Transparency--improving care coordination so all care, 
including care provided outside of the VA, is perceived by the patient 
as VA care.
      Clinical Coordination--ensuring efficiency in the VA 
referral process and timely appointments for patients.
      Coverage--providing health services to veterans where and 
when the VA does not have capacity or capability to deliver services 
internally.

    It is important to highlight that we believe Humana Veterans has 
met or exceeded each of the contract objectives to date. The result is 
better health care services to veterans. While these objectives are 
crucial in providing services for the men and women who have honorably 
served our Nation, there is a more implicit goal of Project HERO. That 
goal is to combine all of these elements and create a standardized 
method of providing fee-basis care to ensure eligible veterans gain 
timely access to care, in a manner that is cost-effective to the VA, 
and most importantly, preserves the level of service veterans have come 
to rely on inside the VA. After nearly 18 months of working diligently 
with our partners at VA, we are delivering on these objectives.
                           PROJECT HERO MODEL
    Humana Veterans, in collaboration with VA, coordinates quality, 
timely access to health care services through Project HERO. VA refers 
patients to community health care providers when there is a need for 
specialty care or other treatment that is not readily available at the 
VA facility. This is accomplished through a model developed by Humana 
Veterans, in partnership with VA.
    The Project HERO Model includes a personalized service process for 
veterans and is outlined below:

    a.  First, the veteran receives authorization for care from the VA. 
Before issuing an authorization, the VA determines if the specialty or 
other care is available at a VA facility, if the veteran lives a 
significant distance from that facility, or makes a determination based 
on other medical reasons. The VA then determines whether to send the 
authorization directly to the veteran, send it to the Project HERO 
office at Humana Veterans, or refer the veteran directly to a community 
provider.
    b.  When an authorization is sent to Project HERO, the veteran 
receives personal assistance and specialized services. Initial contact 
with the veteran is made by a Customer Care Representative (CCR) at 
Humana Veterans. This appointment specialist provides an explanation of 
the HERO process and determines when the veteran is available for the 
medical appointment. In terms of making the encounter more veteran-
friendly, we developed our personalized services approach for three 
reasons: (a) to ensure the veteran is comfortable with what the medical 
appointment will entail; (b) the veteran understands where the civilian 
provider is located; and, (c) ensure maximum reliability in terms of 
the appointment date established between the veteran and HERO contract 
provider.
    c.  The CCR then conducts a three-way conference call with the 
veteran and a Humana Veterans network provider's office. This call 
occurs within 5 days of receiving the authorization form from the VA. 
As part of the Humana Veterans network agreement, network providers 
must schedule appointments within 30 days of the conference call. In 
any event, the veteran must agree to the scheduled date.
    d.  The veteran receives a letter confirming the provider's name, 
address, telephone number, date and time of appointment, including how 
to obtain directions to the provider's office and Humana Veterans 
customer service number should questions or problems arise. The 
referring VA facility is also informed of the appointment details.
    e.  The veteran goes to the scheduled appointment. An agreement 
with our network providers limits the veteran's wait time to no longer 
than 20 minutes when they are in the office for their scheduled 
appointment. If a copy of the veteran's medical records is required, we 
contact the VA to inform them of the provider's request.
    f.  After the appointment, we actively track the provider's written 
consult report and ensure it is returned to the VA for inclusion in the 
veteran's electronic health record. The average time for a consult 
report to be returned to VA is 16 days.
    g.  If the provider recommends the veteran have additional tests, 
procedures or services, Humana Veterans communicates the recommendation 
to the VA for review and action. When providers submit their claims to 
us, we pay the provider directly within 30 days of receipt of the 
claim. We then submit the claim for services under the contract and VA 
pays Humana Veterans.
    h.  Finally, we are committed to a seamless ``hand-off'' of the 
veteran back into the VA system and their primary care providers. This 
personalized approach is beneficial to the veteran. The return of 
clinical information in a timely manner ensures quality and continuity 
of care.
                   CONTRACT PERFORMANCE REQUIREMENTS
    The following are the specific performance metrics enumerated in 
the Project HERO contract:

       Access. Appointments with specialists and routine diagnostics 
are scheduled for veterans within 30 days of receipt of the referral by 
the provider and the provider will see veterans within 20 minutes of 
their scheduled appointment.
       Accreditation. Unless a waiver exists, all facilities providing 
inpatient care must be accredited by the Joint Commission (JCAHO), the 
Commission on Accreditation of Rehabilitation Facilities (CARF), the 
Intersocietal Commission on the Accreditation of Vascular Laboratories 
(ICAVL), or the American Osteopathic Association (AOA). Humana Veterans 
must provide proof of accreditation to the VA for providers.
       Clinical Information. All routine clinical information and test 
results must be returned within 30 days from the day of care. For 
inpatient care, clinical information must be returned within 30 days of 
the veteran's discharge.
       Credentialing. Humana Veterans provides written certification to 
the VA validating network providers are credentialed, including 
physician assistants, registered professional nurses, nurse 
practitioners, and other personnel in the network providing health care 
services to veterans. The VA conducts random inspections of our 
credentialing files guaranteeing this compliance.
       Patient Safety. Humana Veterans reports all patient safety 
reports/incidents to the VA and Contracting Officer Technical 
Representative (COTR). All safety events are investigated, confirmed, 
and resolved and the VA informed of the progress in resolving safety 
events.
       Patient Satisfaction. Humana Veterans designated a Patient 
Advocate with the responsibility of receiving veteran grievances. We 
submit all patient complaints regarding quality of care to the VISN 
Patient Advocate and COTR. We developed materials outlining the 
grievance process and assist veterans with complaints.
       Reporting Requirements. Humana Veterans submits a monthly report 
to the VA including metrics on contract performance standards plus a 
variety of other metrics. We maintain a data repository (Data Mart) and 
provide unlimited access to the VA. Anyone in the Project Management 
Office (PMO) or Fee Office at the VAMC level has access to the data and 
may pull reports on the metrics, after access is granted by the COTR.
                             MISCONCEPTIONS
    Mr. Chairman, now that I have established the rationale for the 
development of the demonstration, at this point I feel it is also 
important to address some serious, ongoing misconceptions regarding 
Project HERO. I firmly believe the perpetuation of these misconceptions 
is a disservice to veterans enjoying the many benefits of Project HERO, 
to VA as it executes this demonstration project, and to Humana Veterans 
as we continue serving veterans through our HERO Model. I will address 
two misconceptions that emerged early on in the demonstration project 
and continue to linger to some degree today. It is a ``Myth vs. Fact'' 
phenomenon.
Myth Number 1
    Project HERO seeks to undermine the care currently provided inside 
VA facilities, leading to greater levels of care in the community, and 
ultimately diminishing the VA health care delivery system as a national 
treasure for veterans.
Fact
    VA and Humana Veterans are clearly in agreement that is false. I 
want to explain why this claim is erroneous. As you know, traditional 
VA fee-basis care, and care now provided through Project HERO, are 
authorized and provided only when the requisite capacity inside VA does 
not support the timely access to care or a specialty is not available 
in VA. Simply translated, this means the VA retains ultimate control 
over who enters the community for care, including which patients are 
referred to HERO for personalized services. We understand the statutory 
mandate that the VA must provide care inside its' proverbial four walls 
whenever possible. HERO, and the processes developed under it, was 
created to serve as an effective complement to the high quality care VA 
provides internally, not an initiative to supplant it.
    Having said that, we are also aware the VA spends more than three 
billion dollars per year nationally on care outside VA facilities. We 
recognize that the demand for services is often times beyond the 
control of the VA--in such instances as veterans residing in rural 
areas or the lack of specialty providers available to the VA in a given 
geographic area. HERO could serve as an effective backstop at times 
when the VA's internal capacity is limited and the veterans' needs 
temporarily exceed the VA's ability to deliver services in a timely 
fashion. This is a clear advantage to the veteran.
Myth Number 2
    Project HERO reduces the need for the VA's current fee-basis 
offices and staff due to services being ``outsourced.''
Fact
    Mr. Chairman, we have heard this concern for some time, and while 
at face value it may sound like a reasonable suggestion, there is one 
major reason it is not accurate. The reason is the way referrals or 
authorizations for care outside VA are provided to Humana Veterans 
under the HERO Model. All referrals provided to Humana Veterans are 
generated out of the fee-basis offices at local VA facilities. Once a 
VA physician sends a referral to the fee office, it has already been 
determined that the VA does not have the capacity to provide for the 
care of the veteran. In response, the fee office determines what 
specific services are required for a veteran, and then decides what 
avenues are available to the veteran for care rendered outside the VA. 
In contrast to the myth, and based on these well-established, long-
standing processes, the fee office becomes indispensable in the process 
of generating HERO referrals or authorizations, not endangered by it.
    Humana Veterans supports the Veterans Health Administration (VHA) 
in achieving delivery of high quality, accessible, seamless, and cost 
effective health care solutions to our Nation's veterans.
                     COST SAVINGS AND EFFICIENCIES
Efficiencies
    The topic of efficiencies as it relates to health care for veterans 
generally results in a discussion about timeliness of the care 
provided. While that is undeniably one of the most important metrics 
and successes of HERO to date, efficiencies go well beyond how quickly 
a veteran is seen in a clinician's office.
    A great deal of work goes into scheduling an appointment and making 
the veteran comfortable with the nature and location of his or her 
appointment. Having a reliable, credentialed network of providers 
sufficient to handle the care required in the community and providing a 
smooth clinical transition of the veteran back to their primary care 
provider at the VA is equally important.
    The Humana Veterans provider network has grown to include over 
30,000 providers across the four VISNs, including about 5,900 in rural 
and highly rural areas. A greater concentration of potential VA 
providers exists today than at any time in the past--for both urban and 
rural areas--because of Project HERO.
Cost Savings
    Although we are not able to make a direct comparison to VA's costs 
for fee-based care, VA is benefiting from cost savings through Project 
HERO. Health care services provided under HERO are priced as a 
percentage of the applicable Medicare Fee Schedule. Under the current 
contract, 92 percent of all contract line items for health care 
services are priced below the corresponding Medicare Fee Schedule.
    A comparison of our network costs to Medicare rates shows 
significant savings. Subjectively speaking, reimbursement rates under 
HERO are generally more favorable than the traditional fee-based 
structure at the VA, and commonly below Medicare reimbursement rates in 
the geographic regions where HERO is operational. We attribute this to:

    1.  Humana Veterans is respected in the civilian community and has 
developed a reputation for on-time payments to providers; and,
    2.  Even with the indefinite delivery/indefinite quantity (IDIQ) 
nature of the contract, Humana Veterans is successful in garnering 
deeper discounts, across the four VISNs, due to corporate presence, 
reputation and on-going relationships with provider groups.

    It is important to state that even if the costs were the same for 
VA between Project HERO and the regular fee-based program, the 
advantage to Veterans through the HERO Model ensures personalized 
service, quality, timely access, and convenience resulting in superior 
value to the VA and veterans. There is a clear advantage in the HERO 
Model, which should be extended beyond the four VISNs and 
institutionalized nationally across VA facilities.
                    WHAT IS QUALITY VA HEALTH CARE?
    I am sure that if you asked 10 veterans for their definition of 
quality health care in VA you would receive many different answers. The 
answers may differ significantly from a medical professional's 
definition. There are certain attributes, however, that would be common 
in most responses from veterans and form elements of quality VA health 
care. The elements would likely include:

    1.  Respect for the individual veteran and her or his service to 
our Nation.
    2.  State-of-the-art services from the health care provider.
    3.  A level of comfort that the provider is licensed and 
credentialed for the services provided.
    4.  Timely and convenient access to the provider.
    5.  Assurance that the community provider has access to the 
veteran's medical records, if needed, to ensure excellent continuity of 
care and to avoid the need for multiple incidents of the same test or 
procedure.
    6.  Timely return of the clinical information to the VA primary 
provider and inclusion in the electronic health record.

    Humana Veterans works tirelessly with VA to ensure care provided 
through our HERO networks reflect the level of quality provided inside 
VA facilities, but our goal and the real goal of the demonstration, is 
to raise the bar compared to VA's traditional fee-basis care. A number 
of existing initiatives undertaken in the Project HERO Model contribute 
to this goal including personalized appointment services, timely access 
to care and the return of vital clinical information to VA.
Return of Clinical Information
    Accurate accounting for outside consult reports and other clinical 
information is a critical component of quality health care. VA's 
decentralized approach to its normal fee-based care makes it difficult 
to track metrics on the timeliness of outside provider consult reports. 
Humana Veterans, in partnership with VA, has established a benchmark 
requirement for the return of clinical information to VA. Humana 
Veterans expends considerable administrative effort in tracking 
clinical consult reports and has established a standard for reports to 
be returned to VA within 30 days. This ensures that treatment 
information and test results contained in the clinical consult reports 
are available to the primary care VA providers. This is simply another 
indication of the quality that Project HERO brings to care delivered 
outside of VA facilities.
    Currently, the process of entering clinical consult reports into 
VA's electronic health record is a manual process. In the future, the 
Project HERO Model could be institutionalized across VA, electronic 
consult records could be contractually required, entered directly into 
the system, and directed to the VA primary provider's desktop.
    I would like to share some metrics associated with this largely 
electronic exchange. Based on our latest data extraction, reporting all 
data from the beginning of HERO in January 2008 through the end of 
December 2009 shows:

      Seventy-one percent of clinical information is returned 
within 15 days;
      Eighty-eight percent return of routine clinical 
information to the VA within 30 days of the HERO encounter;
      Ninety-five percent return of routine clinical 
information within 45 days; and
      For the return of clinical information to the VA, the 
median is 9 days.

    More needs to be done to facilitate an increasingly electronic, 
workable exchange with Veterans Health Information Systems and 
Technology Architecture (VistA)/Computerized Patient Record System 
(CPRS), the VA's electronic health record. However, we are convinced 
efforts made to date represent significant progress in enhancing the 
continuum of care for veterans outside of VA facilities through this 
project.
                        FUTURE OF THE HERO MODEL
    I want to emphasize at this point that Humana Veterans and the VHA 
PMO for Project HERO have an excellent working relationship. The 
following recommendations are put forth to enhance Project HERO and are 
submitted for your consideration in legislating for a 21st Century 
Project HERO.
    Approach Project HERO as a true demonstration project. 
Demonstration projects take on many forms, but most have the common 
attribute of implementing a procedure or set of procedures, an 
evaluation of the processes with sufficient workload to emulate real 
world conditions, and ultimately, the implementation of identified 
improvements. Then the process is replicated, using the newly-
identified best practices and continually improving the model. We 
believe Congress desired such a demonstration process with the ultimate 
goal of improved service to veterans who are referred for evaluation or 
care in the community. VA implemented the Congressional directive by 
awarding a single contract for all four VISNs and simply administering 
the contract. There is currently no provision or contractual mechanism 
that allows for a mandatory workload adjustment after either (1) a 
specific period of performance; or (2) the effective implementation of 
improved processes. In other words, VA is not required to improve their 
larger, institutional processes as lessons are learned during the 
demonstration. Further, they are required only to send a minimal 
workload to the demonstration, thereby defeating the true purpose of a 
demonstration project, (i.e., testing new and innovative management 
initiatives and implementing best practices and lessons learned). There 
is still plenty of time, under HERO, to conduct a true demonstration 
project within the existing contract. Three years remain on the 5-year 
demonstration and a world class fee-based process can be realized if VA 
is willing to commit to realistic workloads and process adjustments to 
test proposed process improvements.
    It is difficult to run a demonstration project when there is a 
competing process in the same fee office. We suggest that Project HERO 
become a first and preferred option in at least one VISN, perhaps VISN 
8 or 16. Project HERO currently runs alongside VA's normal fee-based 
processes. The only manner to truly test the demonstration concept is 
to make referral to Project HERO the first or preferred option in a 
busy VISN fee office.
    Access to VHA's CPRS. Currently, Humana Veterans as the project 
HERO contractor does not have access to VHA's Computerized Patient 
Record System (CPRS). The written consult reports of the outside 
medical specialists are transmitted via secure email or faxed to VHA 
and either manually downloaded or scanned into CPRS. While this 
represents significant progress beyond VA's current fee-based efforts, 
this imperfect process can result in delay or lost records and remains 
subject to human error. VHA should be directed to provide direct access 
to CPRS for the Project HERO contractor. This will result in increased 
efficiencies, reduce the time for the written consult to be returned to 
the primary VA provider, and reduce delay in providing vital diagnostic 
and expert opinions to the veteran's VA primary provider. With direct 
access to CPRS, the contractor can enter an electronic or scanned 
consult into CPRS and send it directly to the VA primary care provider. 
It will also reduce the time it takes to provide a veteran's medical 
records required for the outside consult.
    VA would benefit from standardized processes, procedures and forms. 
The existing fee-based process in VA is completely decentralized. 
Standard forms exist, but many are locally modified. Further, there is 
no standard language for authorizations for care outside VA. The phrase 
``Evaluate and Treat'' means different things in different fee offices. 
Standard electronic forms and language would greatly enhance VA's 
legacy, fee-based system. Given the attributes mentioned in my 
testimony, Project HERO has the potential to go beyond its current 
form. However, the Model has not been adequately tested under 
conditions of a full-load of referrals. The numbers of Project HERO 
referrals continue to steadily decline and have for the past 6 months. 
It would be difficult to draw many conclusions on the ultimate future 
of HERO without a true test of its capabilities. The average monthly 
volume over the past 6 months has been 6,186 total from all four VISNs. 
A minimum number of referrals per month should be 10,000-12,000 in 
order to validate the HERO Model. We encourage the Committee to 
recommend VA utilize the services offered in Project HERO to the 
greatest extent practicable to enhance the demonstration project and 
validate the HERO Model.
    In addition to increasing usage of the current HERO contract, we 
see other potential areas of benefit to veterans. These include:

    1.  Humana Veterans has established networks in areas VA might 
consider rural or highly rural. Given the emerging demographics as it 
relates to new veterans from Operations Iraqi and Enduring Freedom, our 
rural footprint could be advantageous as VA seeks to provide care 
closer to where the veteran population.
    2.  Women's health is another example of where we can positively 
affect the emerging requirements of the VA. Women are among the fastest 
growing segment of eligible veterans and their numbers are expected to 
double over the next 5 years. The VA may be at a disadvantage when it 
comes to building the requisite infrastructure to meet the emerging 
demands and requirements of women depending on the VA for care. Humana 
Veterans, due to our large reach into the provider community, could be 
an effective ``backstop'' for the VA when they lack the capacity to 
deliver this care.
    3.  Finally, we have made great progress ensuring veterans' 
clinical information is returned in a timely fashion to the VA after a 
clinical encounter with a HERO provider. It would be more effective if 
we could provide it electronically through VistA and have it compatible 
with CPRS as the VA is at the forefront of enterprise-wide electronic 
health records. We want to partner with the VA to ensure clinical 
information associated with the more than three billion dollars spent 
in clinical care provided outside of VA facilities, is increasingly 
available to providers inside the VA, thus improving the clinical 
continuum of care for our Veterans.
                               CONCLUSION
    Mr. Chairman and Ranking Member Brown, I would again like to thank 
you for the opportunity to come before the Committee today to discuss, 
for the first time, the value Project HERO brings to veterans, and the 
value Humana Veterans adds through the HERO Model. I am confident at 
this early stage in the demonstration contract that Project HERO has 
delivered, and will continue to deliver, value on its three hallmarks: 
Quality, Access and Cost effectiveness. Our Nation's heroes deserve 
quality health care solutions and that is our ultimate mission at 
Humana Veterans.
    Thank you, Mr. Chairman. I would be glad to answer any questions 
from the Committee.

                               __________
                                EXHIBITS
              Exhibit A: Project HERO Demonstration VISNs


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



                 Exhibit B: Management of Quality Care
Clinical Quality Management Committee (CQMC)
    Humana Veterans understands the importance of ensuring quality 
health care delivery to our Nation's veterans. As a result, we 
initiated the Humana Veterans Clinical Quality Management Committee 
(CQMC).
    The CQMC is an interdisciplinary committee that meets at least 
quarterly and comprised of Humana associates, VA representatives, and 
representatives of delegated CQM and Credentialing services. The CQMC 
oversees and directs activities of the Clinical Quality Management 
Program (CQMP) on behalf of the Humana Veterans Executive Committee. 
The CQMC acts as an interface between the VA and delegated 
subcontractors and ensures compliance with the VA contract. The 
findings of the CQMC are reported quarterly to the Humana Veterans 
Executive Committee.
Credentialing Committee (CC)
    Credentialing of Humana Veterans providers is performed by the 
Credentialing Committee. The Credentialing Committee is responsible for 
evaluating the qualifications of professional health care practitioners 
based on appropriate industry standards. Evaluations may include data 
related to alleged misconduct, performance or competence of a provider. 
The committee reviews credentialing reports and makes final 
determinations on all provider applicants and delegated groups. The re-
credentialing of contracted providers is conducted at least every 3 
years. The decision to accept, retain, deny or terminate a provider 
shall be at the discretion of the committee, which meets as often as 
necessary to fulfill its responsibilities.
Patient Safety Peer Review Committee (PSPRC)
    The Humana Veterans PSPRC provides peer review for any potential 
clinical quality of care issue identified and delineates steps to 
resolve problems and the on-going monitoring of these issues. The 
committee performs peer review of patient safety and quality of care 
issues identified through the Potential Quality Indicator (PQI) process 
and provides input for communicating and educating providers of 
concerns related to patient safety or clinical improvement. Upon 
confirmation of a quality issue the PSPRC will assign an appropriate 
severity level, determine intervention(s) to address the issue, and 
review and monitor intervention(s) to completion.
    The levels of severity utilizes by Humana Veterans include:
        1            Quality
                    issue is
                     present
                        with
                     minimal
                    potential
                         for
                    significa
                          nt
                     adverse
                     effects
                      on the
                    patient.
----------------------------------------------------------------------------------------------------------------
        2            Quality
                    issue is
                     present
                    with the
                    potential
                         for
                    significa
                          nt
                     adverse
                     effects
                      on the
                    patient.
----------------------------------------------------------------------------------------------------------------
        3            Quality
                    issue is
                     present
                        with
                    significa
                          nt
                     adverse
                     effects
                      on the
                    patient.
----------------------------------------------------------------------------------------------------------------
        4            Quality
                       issue
                    with the
                        most
                      severe
                     adverse
                    effect(s)
                         and
                    warrants
                    exhaustiv
                    e review.
----------------------------------------------------------------------------------------------------------------

    Quality issues with minimal potential for significant adverse 
effects on the patient are assigned a Severity Level 1 by the Chief 
Medical Officer. This information is entered into the Provider Trend 
Database (PTD) for tracking and trending purposes. Cases assigned a 
Severity Level 2 are presented in summary to the committee for 
informational purposes and entered into the PTD. Cases recommended as a 
Severity Level 3 or 4 are presented to the committee for peer review 
and final determination.

                                 
   Prepared Statement of P.T. Henry, Senior Vice President, Federal 
            Government Programs, Delta Dental of California
    Mr. Chairman, Members of the Subcommittee, I would like to thank 
you for inviting us to join you this morning to talk about our 
Partnership with the Department of Veterans Affairs in the execution of 
the demonstration project on Healthcare Effectiveness through Resource 
Optimization (Project HERO).
    Delta Dental is the Nation's oldest and largest provider of Dental 
Services. Through our 39 independent member plans, we provide dental 
insurance coverage to over 54 million people in all 50 States, the 
Commonwealth of Puerto Rico, the Territories and other overseas 
locations. Four out of every five dentists are affiliated with Delta 
Dental and our network of approximately 140 thousand highly qualified 
dentists is second to none. Of those, approximately 19,000 are located 
in the four Project HERO Veteran Integrated Service Networks (VISNs).
    Delta Dental first began a journey in the late 1970s with the then 
Veterans Administration when we administered the VA Outpatient Dental 
Care Program (Fee Basis) in California. Over the years our involvement 
with the Department has ebbed and flowed. What has not changed, 
however, is our total commitment to the tremendous men and women who 
serve our Nation in uniform. Today, it is both a privilege and an honor 
for us to administer this program in collaboration with the Veterans 
Health Administration and the four participating VISNs.
    We fully understand and are committed to the goals of Project HERO 
as articulated in the underlying statute, the implementing contract and 
related documents. At Delta, we see our role not as a substitute for VA 
Care but rather as an extension of that care when, for whatever reason, 
required care cannot be provided at the VA's dental treatment 
facilities.
    By making available our networks of Delta Dental providers, we 
complement VHA's in-house capacity with high quality, credentialed 
providers with whom we have negotiated discounted rates. Basically, we 
believe Project HERO will, in the long run, lay the foundation that 
will allow the VHA to provide necessary care to more veterans for less 
money than is currently paid for Fee Care.
    We work in close collaboration with our partners in the Dental 
Clinics, in the VISNs, and the VHA to improve the exchange of clinical 
information between our network community providers and the various 
elements of the VHA. While fostering high quality care and patient 
safety, we improve veteran satisfaction and can provide avenues based 
on commercial business practices to control costs and eliminate waiting 
lists. We see this in stark contrast to traditional ``FEE CARE'' in 
which the VA has no influence over the quality of care yet pays 
``Billed Charges'' for all work done.
    During the period from January 2008 through December 2009 we have 
received 20,898 viable authorizations which resulted in our making 
20,753 appointments for care. Of those, about 18,772 have been seen by 
a dentist and we have received a claim for the dental services 
rendered. The remainder has received treatment for which we have not 
yet been billed or are awaiting their scheduled appointment.
    Once treatment has been authorized, our veterans are in the dentist 
chair on average in 18 days and, 99.82 percent are seen in less than 30 
days for the calendar year 2009. We see this as a clear indication that 
the program is meeting the established objectives. We are proud of this 
track record and expect it to improve as we work through the remaining 
years of the demonstration.
    We believe that a key to this success has been the partnership 
forged between Delta Dental and the VHA to ensure that this 
demonstration program provides a solid foundation for future decisions 
about veteran's dental care.
    During the 25 months since contract award, we have worked to better 
understand the culture, attitudes and expectations of our partners 
while exposing them to the benefits that private sector dental plans 
can provide. There have been, and will be of course, bumps in the road. 
Together we are working our way through them so we move towards the 
common goals of Project HERO.
    As we look forward, together with our partners in VHA, we have 
identified specific areas for procedural improvements that will enhance 
the overall contribution of the dental portion of Project HERO to the 
care provided to our veterans.
    These areas include:

       Empowering the Chief, Business Office and Project HERO PMO, 
under the oversight of the VHA and VA's Office of Dentistry, to manage 
the administration of the program and enhance the standardization of 
policies and procedures across VISNs and Medical Centers. If Project 
HERO is to successfully harness the benefits of leveraging a nationwide 
private sector resource, the Project cannot be operated like 32 
individual dental plans, each operating with its own rules and 
expectations.
       Maximizing the referral of patients, who would otherwise be 
referred to Fee Care, to Project HERO network dentists. Artificially 
limiting at a local level the selection of veterans referred to Project 
HERO dentists while continuing to rely on Fee Care for a preponderance 
of those veterans authorized to receive care outside the VA hospitals 
and clinics will skew the results of the pilot and magnify the impact 
of adverse selection on the overall results.

    We at Delta, from the mailroom to the Executive Offices, appreciate 
all you have done and continue to do for the tremendous men and women 
who have served our Nation in uniform. Thank you, again, for the 
opportunity to appear before you today.
                                 
   Prepared Statement of Gary M. Baker, MA, Chief Business Officer, 
  Veterans Health Administration, U.S. Department of Veterans Affairs
    Mr. Chairman, Mr. Ranking Member, Members of the Subcommittee: 
thank you for providing me this opportunity to discuss the Department 
of Veterans Affairs' (VA) demonstration Project on Healthcare 
Effectiveness through Resource Optimization (Project HERO). I am 
accompanied today by Ms. Patricia Gheen, Deputy Chief Business Officer 
for Purchased Care, and Mr. Craig Robinson, Executive Director and 
Chief Operations Officer for VA's National Acquisition Center.
    Given our focus on providing patient-centered care and recognizing 
that we may not always be able to provide Veterans in every location 
with ready access to care within our facilities, VA has a continued 
need for non-VA services. This purchasing of health care services 
represents a key component in our health care delivery continuum. VA 
understands the importance of closely managing the services purchased 
and has initiated multiple efforts focused upon improving that 
management. Project HERO is a cornerstone of those efforts.
    House Report 109-305, the conference report to accompany the 
Military Quality of Life and Veterans Affairs Appropriations Act of 
2006 (Public Law 109-114), provided that VA establish at least three 
managed care demonstration programs to satisfy a set of health care 
objectives related to arranging and managing care. The conferees 
supported VA's expeditious implementation of care management strategies 
that have proven valuable in the broader public and private sectors, 
and to ensure care purchased for enrollees from community providers is 
cost-effective and complementary to the larger VA health care system. 
The conferees also encouraged VA to collaborate with industry, 
academia, and other organizations to incorporate a variety of public-
private partnerships.
    Project HERO is in year 3 of a proposed 5-year contracting pilot to 
increase quality oversight and decrease the cost of purchased (fee) 
care. The program is currently available in four Veterans Integrated 
Services Network (VISNs): VA Sunshine Healthcare Network (VISN 8), 
South Central VA Health Care Network (VISN 16), Northwest Network (VISN 
20) and VA Midwest Health Care Network (VISN 23). Historically, these 
VISNs have had high expenditures for non-VA purchased (fee) care and 
substantial Veteran enrollee populations. When VA cannot readily 
provide the care Veterans need internally, VA Medical Centers utilize 
the traditional Fee-basis program or, in selected VISNs, Project HERO.
    Project HERO is our most comprehensive and ambitious pilot program. 
It is intended to improve the management and oversight of the purchase 
of non-VA health care services. Through Project HERO, VA contracts with 
Humana Veterans Healthcare Services (HVHS) and Delta Dental Federal 
Services (Delta Dental) to provide Veterans with pre-screened networks 
of providers, principally doctors and dentists who meet VA quality 
standards at negotiated contract rates.
    Project HERO is predominantly an outpatient program for specialty 
services, such as dental, ophthalmology, physical therapy, diagnostic 
and other services that are not always available in VA. For every 
patient, VA Medical Centers determine and authorize specific services 
and treatments referred to Project HERO contracted network doctors and 
dentists.
    Project HERO's demonstration objectives have been shared with a 
number of key stakeholders, including Veterans Service Organizations, 
the American Federation of Government Employees, Academic Affiliates 
and industry. The VHA Project HERO Program Management Office (PMO) 
presented the following objectives to the House Appropriations 
Committee and House Veterans' Affairs Committee in the second quarter 
of 2006:

      Provide as much care for Veterans within VHA, as 
practical;
      Refer Veterans efficiently to high-quality community-
based care when necessary;
      Improve the exchange of medical information between VA 
and non-VA providers;
      Foster high-quality care and patient safety;
      Control operating costs;
      Increase Veteran satisfaction;
      Secure accountable evaluation of the demonstration; and
      Sustain partnerships with Academic Affiliates.

    The VHA Chief Business Office oversees purchased care programs, 
including fee care and Project HERO. The Chief Business Office meets 
with internal and external stakeholders and monitors and evaluates 
program metrics. VA established a Project HERO Governing Board which 
oversees program activities. It is composed of the Deputy Under 
Secretary for Health Operations and Management, the VHA Chief Business 
Officer, and Network Directors from the four participating VISNs. The 
Governing Board also has advisors from General Counsel, the Office of 
Academic Affiliations, and the Office of Acquisition, Logistics, and 
Construction.
    The Contract Administration Board provides contract guidance, as 
needed, and includes contracting and legal representatives. The Project 
HERO Program Management Office (PMO) oversees the contracts to help 
ensure quality care, timely access to care, timely return of medical 
documentation to VA, patient safety and satisfaction. The PMO conducts 
contract administration, project management, performance and quality 
management; data analysis, reporting and auditing; and communication 
and training.
    Project HERO contracts require that HVHS and Delta Dental meet VA 
standards for:

      Credentialing and accreditation;
      Timely reporting of access to care;
      Timely return of medical documentation to VA;
      Reporting patient safety issues, patient complaints and 
patient satisfaction; and
      Robust quality programs including peer review with VA 
participation, while meeting Joint Commission and other industry 
requirements.

    HVHS uses patient safety indicators, developed by the Agency for 
Healthcare Research and Quality, as well as complaints and referrals as 
sources for initiating peer review. The Project HERO PMO monitors 
contract performance, audits credentialing and accreditation, and 
evaluates HVHS and Delta Dental performance compared to the VA Survey 
of Healthcare Experiences of Patients (SHEP), Joint Commission 
measures, and proxy measures based on Healthcare Effectiveness and Data 
Information Set (HEDIS) measures. This analysis indicates that Project 
HERO facilities are equal to or better than the national average for 
all non-VA hospitals that report to the Joint Commission.
    Project HERO has negotiated contract rates with HVHS and Delta 
Dental. Eighty-nine percent of Project HERO contracted medical prices 
with HVHS are at or below Medicare rates, and contracted rates with 
Delta Dental are less than 80 percent of rates in the National 
Dentistry Advisory Service Comprehensive Fee Report for dental 
services.
    While Project HERO is only in the third year of a 5-year pilot, the 
program is meeting its objectives of improving quality oversight, 
access, accountability and care coordination. As a demonstration 
project, Project HERO has provided VA with invaluable experience in 
developing future health care contracts, managing both the timely 
delivery of health care and the quality of the care provided. 
Specifically, VA has found:

      Patient satisfaction is comparable to VA. Through the 
third quarter of FY 2009, overall satisfaction with Project HERO care 
through HVHS was 77 percent and 86 percent for Delta Dental.
      Costs are generally comparable to VA costs for other non-
VA fee care. Project HERO savings, including value-added fees, are 
estimated at more than $2.5 million from January 2008 to September 
2009.
      HVHS and Delta Dental providers meet VA credentialing 
standards and quality standards, and maintain extensive quality 
programs. The Project HERO PMO audits for compliance and participates 
in their quality councils and peer review committees.
      HVHS and Delta Dental provide timely access to care, 
defined as within 30 days, providing specialty or routine care 90 
percent and 100 percent of the time respectively.
      Both vendors are contracted to return medical 
documentation to VA within 30 days for more informed, continuous 
patient care. While HVHS and Delta Dental are not meeting the 100 
percent standard, the contracts provide a vehicle for tracking return 
of medical documentation that did not exist previously in fee care and 
we are seeing monthly progress. In November 2009, HVHS met this metric 
more than 90 percent of the time, while Delta Dental returned requested 
treatment plans to VA within 10 calendar days more than 74 percent of 
the time.
      The Project HERO PMO worked with HVHS, Delta Dental and 
VA Medical Centers to make electronic clinical information sharing 
available at all Project HERO sites.
      Additionally, participating VA Medical Centers report 
that they have not reduced staff due to the introduction of the Project 
HERO contracts.

    Using a contract vehicle allows VA to impose these specific and 
rigorous requirements consistently among providers, resulting in a more 
robust oversight of these key programs. While VHA recognizes the 
continuous need for improvement, the initial demonstration has 
validated our ability to resolve the key oversight issues identified as 
a program goal.
    Mr. Chairman, we appreciate the opportunity to discuss this 
initiative with you. My colleagues and I are available for your 
questions.
                   MATERIAL SUBMITTED FOR THE RECORD

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                  February 16, 2010

Mr. Sidath V. Panangala
Specialist in Veterans Policy
Congressional Research Service
The Library of Congress
101 Independence Avenue, SE
Washington, D.C. 20540

Dear Mr. Panangala:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``Review of VA Contract Health Care: Project HERO'' that took place 
on February 3, 2010.
    Please provide answers to the following questions by March 30, 
2010, to Jeff Burdette, Legislative Assistant to the Subcommittee on 
Health.

    1.  In your testimony, you explained that the conference report 
language accompanying the 2006 Appropriations Act for Veterans Affairs 
directed VA to establish ``managed care'' demonstrations. However, the 
VA developed a set of objectives that led to a demonstration project to 
enhance the existing fee basis care program.

         a.  Please expand on their point. Since VA awarded the Project 
        HERO contract to Humana and Humana is a managed care company, 
        isn't VA testing the ``managed care'' model as required by the 
        conference report language?
         b.  Is VA were to implement a purely ``managed care'' model, 
        how would it differ from the current implementation of Project 
        HERO?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by March 30, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman
                               __________
                     Congressional Research Service
                            Washington, DC.
Memorandum
                                                       May 14, 2010

To:         House Committee on Veterans' Affairs, Subcommittee on 
Health
            Attention: Jeff Burdette
From:       Sidath Viranga Panangala, Specialist in Veterans Policy, 7-
0623
Subject:     Review of VA [Department of Veterans Affairs] Contract 
Health Care: Project HERO--Responses to Post-Hearing Questions
Introduction
    This memorandum is provided in response to the post hearing 
questions submitted to the Congressional Research Service (CRS) by the 
House Committee on Veterans' Affairs, Subcommittee on Health, following 
the oversight hearing on Project HERO (Health Care Effectiveness 
through Resource Optimization) held on February 3, 2010, where CRS 
provided testimony on the implementation of Project HERO. The questions 
have been restated here and the response follows each question.
Questions and Responses
    Question 1: ``In your testimony you explain that the conference 
report language accompanying the 2006 Appropriations Act for Veterans 
Affairs directed VA [Department of Veterans Affairs] to establish 
``managed care'' demonstrations. However, the VA developed a set of 
objectives that led to a demonstration project to enhance the existing 
fee basis care program.''

    Question 1 (a) ``Please expand on [this] point. Since VA awarded 
the Project HERO contract to Humana and Humana is a managed care 
company, isn't VA testing the ``managed care'' model as required by the 
conference report language?''

    Answer: Prior to addressing this question it is essential to 
briefly discuss the characteristics and types of managed care. Current 
managed care plans are based on managed care concepts that have been 
evolving over time. While there is no specific definition of managed 
care in the academic literature, most definitions generally 
characterize ``managed care as a range of utilization and reimbursement 
techniques designed to limit costs while ensuring quality of care.'' 
\1\ Managed care can involve a wide variety of techniques which 
includes, among other things, various forms of financial incentives for 
providers, early identification of disease, and promotion of 
wellness.\2\ A wide variety of organizations could implement managed 
care techniques.\3\ In general, managed care organizations (MCOs) 
attempt to reduce costs by focusing on lowering the price paid to 
providers, limiting the volume of care rendered to beneficiaries, and 
reducing the intensity of health services used.\4\
---------------------------------------------------------------------------
    \1\ Steven Berger, Fundamentals of Health Care Financial 
Management: A Practical Guide to Fiscal Issues and Management, 3rd ed. 
(San Francisco, CA: Jossey-Bass, 2008), p. 146.
    \2\ Peter D. Fox, ``An Overview of Managed Care,'' in The 
Essentials of Managed Health Care, ed. Peter R. Kongstvedt, 4th ed. 
(Gaithersburg, MD: Aspen Publishers, 2001), p. 4.
    \3\ Ibid.
    \4\ Steven Berger, Fundamentals of Health Care Financial 
Management: A Practical Guide to Fiscal Issues and Management, 3rd ed. 
(San Francisco, CA: Jossey-Bass, 2008), p. 92.
---------------------------------------------------------------------------
    In the early 1990's the various types of MCOs were somewhat 
distinct. Since then the differences between traditional forms of 
health insurance and MCOs have narrowed to the point where it is very 
difficult to distinguish whether an entity is an insurance company or 
an MCO. On one end of the continuum are managed indemnity plans which 
require some level of precertification of care especially for elective 
procedures.\5\ Further along the continuum are preferred provider 
organizations (PPOs) \6\ and point of service plans (POS).\7\ Towards 
the other end of the continuum are Health Maintenance Organizations 
(HMOs).\8\ It should be noted here that the structure of HMOs has also 
expanded to include models such as group-model HMOs and network-model 
HMOs, among others. A thorough discussion of these models is beyond the 
scope of this memorandum.\9\ In general, PPOs POSs, and HMOs, have an 
established provider network, negotiated payment rates for providers, 
utilization management programs to control the cost and use of health 
care services, and a gatekeeper function for coordinating and 
authorizing all medical services, laboratory studies, specialty 
referrals and hospitalizations referrals, among other characteristics. 
It should be noted that since the mid 1990's the VA health care system 
has utilized managed care principles that have been tailored to the 
complex needs of the VA's service population.\10\
---------------------------------------------------------------------------
    \5\ Eric R. Wagner, ``Types of Managed Care Organizations,'' in The 
Essentials of Managed Health Care, ed. Peter R. Kongstvedt, 4th ed. 
(Gaithersburg, MD: Aspen Publishers, 2001), p. 19.
    \6\ A PPO is an entity through which employer health benefit plans 
and health insurance carriers contract to purchase health care services 
for covered beneficiaries from a selected network of participating 
providers. Typically, participating providers in PPOs agree to abide by 
utilization management and other procedures implemented by the PPO and 
agree to accept the PPO's reimbursement structure and payment levels 
(Eric R. Wagner, ``Types of Managed Care Organizations,'' in The 
Essentials of Managed Health Care, ed. Peter R. Kongstvedt, 4th ed. 
(Gaithersburg, MD: Aspen Publishers, 2001), p. 20).
    \7\ A POS is a plan in which members do not have to choose how to 
receive services until they need them, and are allowed to choose a 
provider outside the main panel of providers without the referral from 
a primary care physician. Services received outside of the main panel 
include higher deductible, coinsurance or copayments (Eric R. Wagner, 
``Types of Managed Care Organizations,'' in The Essentials of Managed 
Health Care, ed. Peter R. Kongstvedt, 4th ed. (Gaithersburg, MD: Aspen 
Publishers, 2001), p. 22; and Steven Berger, Fundamentals of Health 
Care Financial Management: A Practical Guide to Fiscal Issues and 
Management, 3rd ed. (San Francisco, CA: Jossey-Bass, 2008), p. 150).
    \8\ HMOs are organized health care systems that are responsible for 
both the financing and delivery of a broad range of comprehensive 
health services to an enrolled population. In general an HMO can be 
viewed as a combination of a health insurer and health care delivery 
management system (Eric R. Wagner, ``Types of Managed Care 
Organizations,'' in The Essentials of Managed Health Care, ed. Peter R. 
Kongstvedt, 4th ed. (Gaithersburg, MD: Aspen Publishers, 2001), p. 23).
    \9\ For more details on managed care, see CRS Report RL32237, 
Health Insurance: A Primer, by Bernadette Fernandez.
    \10\ Kenneth W. Kizer, John G. Demakis, and John R. Feussner, 
``Reinventing VA Health Care: Systematizing Quality Improvement and 
Quality Innovation,'' Medical Care, vol. 38, no. 6 (June 2000), p. I10.
---------------------------------------------------------------------------
    As stated in the CRS report on Project HERO (which was submitted 
for the record), in 2006, Congress directed VHA to implement a 
contracting pilot program to better manage the fee basis care 
program.\11\ The conference report (H. Rept. 109-305) to accompany the 
Military Quality of Life and Veterans Affairs Appropriations Act, 2006 
(P.L. 109-114) called for VA to: \12\
---------------------------------------------------------------------------
    \11\ CRS Report R41065, Veterans Health Care: Project HERO 
Implementation, by Sidath Viranga Panangala.
    \12\ U.S. Congress, Conference Committee, Making Appropriations for 
Military Quality of Life Functions, of the Department Of Defense, 
Military Construction, the Department Of Veterans Affairs, and Related 
Agencies for The Fiscal Year Ending September 30, 2006, and for Other 
Purposes, Report to accompany H.R. 2528, 109th Cong., 1st sess., 
November 18, 2005, H. Rept 109-305, pp. 43-44.

      Implement care management strategies proven valuable in 
public and private sectors;
      Ensure care purchased for enrollees from community 
providers is cost-effective and complementary to the larger VA system 
of care;
      Preserve important agency interests, such as sustaining 
partnerships with university affiliates;
      Establish at least three care management demonstration 
programs through competitive award; and
      Collaborate with industry, academic, and other 
organizations to incorporate a variety of public-private partnerships.

    As stated before, the VA health care system utilizes managed care 
principles. Project HERO is a demonstration program that is being 
piloted in Veterans Integrated Services Network (VISNs) 8, 16, 20 and 
23 to improve the ability of VA to care for the Department's enrolled 
veterans.\13\ According to the contract, under the demonstration, VA is 
to take steps to maximize the care it provides directly and better 
manage fee basis care.\14\ A central goal of Project HERO is to ensure 
that all care delivered by VA--whether through VA providers or through 
community providers--is of the same quality and consistency for 
veterans. Under Project HERO, VA continues to manage the care of 
individual patients. Humana Veterans Healthcare Services (HVHS), Inc. 
maintains a network of providers in the local community who are 
intended to be responsive to the care needs identified by each of the 
participating VISNs and to complement the care provided within each 
VISN. Furthermore, according to the contract, services will only be 
acquired when VA staff cannot provide the service. Therefore, under the 
contract with HVHS, the Department continues to manage the care of the 
individual patient. HVHS does not control the utilization of services 
nor does it function as a gatekeeper, which generally are 
characteristics of MCOs. Based on the characteristics of MCOs, as 
previously described, it appears that the current contractual 
relationship with HVHS cannot be directly categorized as a managed care 
demonstration.
---------------------------------------------------------------------------
    \13\ The conference report (H. Rept. 109-305) to accompany the 
Military Quality of Life and Veterans Affairs Appropriations Act, 2006 
(P.L. 109-114) called for VA to establish at least three demonstration 
programs. VA established the demonstration in four sites under the 
umbrella of one program.
    \14\ Amendment of Solicitation/Modification of Contract, 
VAI01049A3-P-0270, October 1, 2007.

    Question 1 (b) ``[If] the VA were to implement a purely ``managed 
care'' model, how would it differ from the current implementation of 
---------------------------------------------------------------------------
Project HERO?''

    Answer: As discussed previously, there is no clear distinction or 
boundary between various managed care models and traditional indemnity 
insurance plans. Furthermore, some controversy exists over whether the 
term ``managed care'' accurately describes the new generation of health 
care delivery and financing mechanisms.\15\ Currently, under Project 
HERO, veterans receive primary care at their local VA health care 
facility. If a VA health care provider determines that the specific 
medical expertise or technology is not readily available at the local 
facility then the provider requests that the service be obtained from a 
non-VA provider. The consult request is reviewed by the fee basis care 
Chief Medical Officer (CMO) and, if the CMO concurs, the request 
proceeds to the fee basis care program office. At this point in the 
process, the fee basis care program office determines whether to send 
the referral to Project HERO (based on whether the services are 
provided within a reasonable distance under Project HERO), and if so 
sends an authorization for care to HVHS.\16\
---------------------------------------------------------------------------
    \15\ Eric R. Wagner, ``Types of Managed Care Organizations,'' in 
The Essentials of Managed Health Care, ed. Peter R. Kongstvedt, 4th ed. 
(Gaithersburg, MD: Aspen Publishers, 2001), p. 19.
    \16\ It should be noted that each of the pilot VISNs has inter- and 
intra-VISN referral policies. For example, if a specific VA medical 
facility cannot provide the required services, the next step would be 
to see if another facility within the VISN, and within reasonable 
distance to the veteran, could provide that specific service or if an 
academic affiliate or Department of Defense (DoD) sharing agreement 
could be used to provide that service. If these options are not 
available then the referring VA medical facility could authorize the 
use of Project HERO or non-Project HERO fee basis care.
---------------------------------------------------------------------------
    Generally, authorizations are provided to HVHS for each episode of 
required care. In contrast to the regular fee basis care program in 
which the veteran selects his or her own provider, under Project HERO 
HVHS contacts the veteran by phone to schedule an appointment with an 
HVHS network provider. During this process appointment details are 
communicated back to the referring VA health care facility, and the 
veteran receives a letter with appointment details and instructions. 
HVHS coordinates the transfer of any required pre-visit clinical 
information from the local VA medical facility to the HVHS network 
provider. After the veteran is seen by the HVHS network provider, and 
if additional services are needed, HVHS sends a request back to the 
referring VA medical center for authorization. Under the contract, HVHS 
is required to return clinical information from the visit back to the 
referring VA medical facility--typically within 30 days of the 
appointment. Therefore, under the current Project HERO implementation 
model, HVHS enhances the care coordination for veterans who receive 
authorized care outside of the VA health care system.
    Implementing Project HERO under any one of the three broad MCO 
models (that is, PPO, POS, or HMO), would mean that the VA would enroll 
a certain number of veteran patients with a MCO. The MCO would then be 
responsible for the provision of all health care services to those 
veteran patients, compared to an episode by episode basis as it is 
currently done under Project HERO. VA could reimburse the MCO based on 
a negotiated rate or on under a capitated payment system.\17\ Shifting 
the responsibility of care to a MCO, could raise potential issues on 
how care is delivered to veteran patients. For instance, the MCO could 
employ utilization management techniques to control costs of health 
services provided to their covered veteran patients, and have a greater 
degree of control over the care of those veteran patients. Whereas 
under the current Project HERO implementation model, utilization of 
health care services by veterans rests exclusively with the VA, since 
authorizations are provided to HVHS for each episode of required care.
---------------------------------------------------------------------------
    \17\ Capitation payment systems are based on the number of people 
to be served by the provider. Here, the VA pays a monthly per-capita 
payment to the provider institution to deliver a package of services to 
enrolled veterans.
---------------------------------------------------------------------------
    Furthermore, potential access issues could arise depending on how 
the MCO negotiates reimbursement rates with a provider network. For 
instance, if the MCO is unable to recruit a provider network due to low 
reimbursement rates, veterans may be faced with delays in accessing 
care. However, if the MCO has a large credentialed provider network, 
veterans could receive care closer to where they reside.
    Currently, VA uses health information technology in the management 
of patient care. All services received from VA are recorded in the 
patient's medical record; this information is available to the patients 
primary care provider as well as other VA providers who see the 
patient. By moving care outside the VA health care system to a MCO 
there could be potential situations where medical information may not 
be readily available for VA health care providers when veterans seek 
more specialized care from the VA. Although, currently HVHS is required 
to return clinical information from the visit back to the referring VA 
medical facility--typically within 30 days of the appointment, there 
may be less of an incentive for a MCO to return clinical information to 
the VA once it has a larger enrollee veteran population and a greater 
degree of control over the care of those veteran patients.
    Lastly, the VA health care system also has affiliations with 
academic medical institutions. VA's clinical training program is the 
largest provider of health care training in the United States. Of the 
total U.S. physician residents about 31 percent (34,075) receive some 
or all of their training from the VA annually.\18\ Under affiliation 
agreements, VA clinicians may be granted academic appointments to 
medical school faculty at the discretion of the academic institution 
based on the clinician's credentials. Currently, about 67 percent of VA 
clinicians at affiliated VA medical centers have faculty 
appointments.\19\ Shifting veteran patients to a MCO could potentially 
affect VA's existing relationships with academic health systems in the 
U.S., and may hinder the recruitment of clinicians to the VA as well.
---------------------------------------------------------------------------
    \18\ Department of Veterans Affairs, Veterans Health 
Administration, Office of Academic Affiliations, Briefing to the 
Congressional Research Service, April 15, 2009.
    \19\ Ibid.

                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                  February 16, 2010

Ms. Belinda Finn
Assistant Inspector General for Audit and Evaluations
Office of the Inspector General
U.S Department of Veterans Affairs
1114 I Street, N.W.
Washington, D.C. 20002

Dear Ms. Finn:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``Review of VA Contract Health Care: Project HERO'' that took place 
on February 3, 2010.
    Please provide answers to the following questions by March 30, 
2010, to Jeff Burdette, Legislative Assistant to the Subcommittee on 
Health.

    1.  In Ms. Finn's audit of the non-VA Outpatient Fee Care Program, 
she identified improper payments and found that the VA lacked documents 
justifying the use of the Outpatient Fee Care Program. Do your findings 
suggest that the VA may have improperly authorized the use of fee basis 
care, thereby improperly violating the statutory requirements that 
certain conditions must be met before the VA can authorize fee basis 
care?
    2.  Do you believe that the issues identified in your audit would 
be alleviated if the VA were to enhance the existing fee-basis care 
program with certain elements of the Project HERO demonstration 
project?
    3.  Clearly some of the VAMCs did not properly follow VHA policy 
regarding outpatient fee claims. It is hard to imagine that at the 
director level, there is not more compliance with the policy that is in 
place and more oversight. Besides an adequate follow-up plan and 
implementation by VA to correct some of the issues, does the IG have 
plans to go back and look at this program to see if improvements have 
been made?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by March 30, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman
                               __________
                                U.S. Department of Veterans Affairs
                                        Office of Inspector General
                                                    Washington, DC.
                                                     March 25, 2010

The Honorable Michael H. Michaud
Chairman, Subcommittee on Health
Committee on Veterans' Affairs
United States House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

    This is in response to your February 16, 2010, letter following the 
February 3, 2010, hearing on Review of VA Contract Health Care: Project 
HERO. Enclosed is our response to the additional hearing questions. 
This information has also been provided to Congressman Henry E. Brown, 
Jr., Ranking Republican Member, Subcommittee on Health.
    Thank you for your interest in the Department of Veterans Affairs.

            Sincerely,

                                                    GEORGE J. OPFER
                                                  Inspector General
Enclosure

[An identical letter was sent to Hon. Henry E. Brown, Jr., Ranking 
Republican Member, Subcommittee on Health, Committee on Veterans' 
Affairs.]

                               __________
    Questions for Ms. Belinda Finn, Assistant Inspector General for
          Audits and Evaluations, Office of Inspector General,
U.S. Department of Veterans Affairs, Before the Subcommittee on Health, 
                     Committee on Veterans' Affairs
       Hearing on Review of VA Contract Health Care: Project HERO
    Question #1: In Ms. Finn's audit of the Non-VA Outpatient Fee Care 
Program, she identified improper payments and found that the VA lacked 
documents justifying the use of the Outpatient Fee Care Program. Do 
your findings suggest that the VA may have improperly authorized the 
use of fee basis care, thereby improperly violating the statutory 
requirements that certain conditions must be met before the VA can 
authorize fee basis care?

    Response: Although the Veterans Health Administration (VHA) was not 
complying with their policy of formally documenting the justification 
and authorization of fee care in the veteran's medical records, we 
concluded they met the justification conditions of the statute.
    VA can justify the use of fee care if VA does not have the 
capability or capacity to provide the service or the service is 
geographically inaccessible for the veteran. In the absence of a 
formally documented justification, we reviewed each veteran's medical 
record to determine if the attending physician's comments, the 
veteran's medical condition, and the distance from a VA facility would 
justify the use of fee care. We concluded that the justifications were 
adequate for the claims reviewed.
    The authorization process is a control that ensures that the fee 
request is appropriate and medical facility management is aware of fee 
services being utilized. Although we found that VHA did not 
consistently follow its authorization process, we did not consider this 
a violation of statutory requirements.
    We have an audit in progress examining the effectiveness of VHA's 
management of the non-VA inpatient fee care program. The audit includes 
a review of whether VHA is authorizing inpatient fee care according to 
the statutory requirements as well as determining the accuracy of 
claims payment. We plan to issue a report in late May 2010.

    Question #2: Do you believe that the issues identified in your 
audit would be alleviated if the VA were to enhance the existing fee-
basis care program with certain elements of the Project HERO 
demonstration project?

    Response: Using certain elements of Project HERO could improve some 
of the payment issues discussed in the report. For example, the 
consistent use of contracted rates, such as in Project HERO, would make 
it easier for fee staff to determine the correct payment amount with 
fewer errors. Fee staff would only need to ensure that care provided 
and billed by Project HERO matches the care VA authorized.
    Using a Project HERO approach would not, however, improve other 
issues discussed in the report. VHA would still remain responsible for 
properly justifying and authorizing appropriate fee care. Further, 
duplicate payments would not automatically improve under a Project HERO 
approach.

    Question #3: Clearly some of the VAMCs did not properly follow VHA 
policy regarding outpatient fee claims. It is hard to imagine that at 
the director level, there is not more compliance with the policy that 
is in place and more oversight. Besides an adequate follow-up plan and 
implementation by VA to correct some of the issues, does the IG have 
plans to go back and look at this program to see if improvements have 
been made?

    Response: We are currently reviewing VA's fraud management program 
for the fee care programs and auditing payments for inpatient fee care. 
We will continue to follow-up on actions from this audit and conduct 
future audits of the fee care program to determine how well corrective 
actions are leading to program improvements.
                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                  February 16, 2010

Mr. Tim S. McClain
President and Chief Executive Officer
Humana Veterans Healthcare Services, Inc.
500 W. Main Street
Louisville, KY 40201

Dear Mr. McClain:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``Review of VA Contract Health Care: Project HERO'' that took place 
on February 3, 2010.
    Please provide answers to the following questions by March 30, 
2010, to Jeff Burdette, Legislative Assistant to the Subcommittee on 
Health.

    1.  An independent evaluation is needed to fully assess whether 
Project HERO improved access to care and led to positive changes in the 
quality of care provided to our veterans. In the absence of such an 
evaluation, do you have supporting data and specific examples to 
support Project HERO having accomplished or having the potential to 
accomplish improved access and quality of care?
    2.  Some of the VA staff implementing Project HERO have shared with 
the Subcommittee their personal impressions that they do not see 
significant differences in administrative costs associated with Project 
HERO compared to traditional fee care. We have also heard stories of 
Project HERO not being necessarily more efficient, since the staff 
spends the same amount of time on Project HERO case as fee-basis cases. 
How do you response to these concerns?
    3.  The Subcommittee has also heard concerns from VA personnel 
about the lack of continuity of care. This is because VA primary care 
doctors cannot have direct contact with Humana providers, as the 
contractual relationship is between Humana and the non-VA provider. Is 
this a valid concern?
    4.  Subcommittee staff have been told that some non-VA providers 
are interested in participating in Project HERO but are unaware of how 
to be a part of the network. Related to this, we learned of some VISNs 
that had informal networks for specialty care but that Humana had a 
difficult time expanding its network in the same area. Has Humana 
largely addressed the network development concerns or does this 
continue to be a challenge?
    5.  It is apparent that you see the promise and potential of 
Project HERO to improve care for our veterans. Do you believe that the 
Project HERO model is ripe for implementation in other VISNs? Or, do 
you believe that the model needs to be fine-tuned more before it is 
expanded to other VISNs? If further refinements are needed, what are 
some examples of these refinements?
    6.  In your testimony you stated that you have seen a decline in 
the number of Project HERO referrals for the past 6 months when there 
should be about 10-12,000 in order to validate the HERO model. Can you 
explain what you mean and provide practical solutions on how to 
increase referrals?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by March 30, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman
                               __________
                                Humana Veterans Healthcare Services
                                                     Louisville, KY
                                                     March 29, 2010

Honorable Michael H. Michaud
Chairman, Subcommittee on Health
House Committee on Veterans' Affairs
335 Cannon House Office Building
Washington, DC 20515

Dear Chairman Michaud:

    Thank you for the opportunity to testify at the Subcommittee's 
hearing on February 3, 2010 entitled ``Review of VA Contract Health 
Care: Project HERO.'' This letter is in response to your correspondence 
dated February 16, 2010 requesting responses to certain post-hearing 
questions. The attached provides your questions and my specific 
responses for the record.
    Thank you again, Mr. Chairman, for the opportunity to address these 
very important issues for Veterans. Humana Veterans considers it an 
honor each day to serve America's heroes in such a personal manner. We 
look forward to continuing our vital role in veterans health care 
services and expanding the Humana Veterans Personalized Services Model 
in VA. If you have any further questions, please do not hesitate to 
contact me at [email protected] or (502) 301-6984.

            Sincerely,

                                                     Tim S. McClain
                                                  President and CEO
Attachment
                               __________
    Responses of Tim S. McClain, President and CEO, Humana Veterans
        Healthcare Services, Inc. to Post-Hearing Questions from
        Subcommittee on Health hearing on Feb. 3, 2010 entitled
          ``Review of VA Contract Health Care: Project HERO''
    Question #1: An independent evaluation is needed to fully assess 
whether Project HERO improved access to care and led to positive 
changes in the quality of care provided to our veterans. In the absence 
of such an evaluation, do you have supporting data and specific 
examples to support Project HERO having accomplished or having the 
potential to accomplish improved access and quality of care?

    Response: Humana Veterans has specific data on improved access and 
quality of care under the Project HERO contract. Humana Veterans 
maintains a data repository called DataMart which contains the data for 
all contract performance metrics plus additional data that is designed 
to enhance delivery of services. Unfortunately, Humana Veterans 
possesses very little internal VA data on metrics related to access to 
care for Veterans under traditional fee basis care, which makes it 
difficult to make direct comparisons that illustrate improved access 
and quality of care under Project HERO. However, Humana Veterans offers 
the following supporting data and comments concerning performance under 
Project HERO.
Access Highlights:

      In February 2010, 93.4 percent of Veterans were seen by a 
community provider within 30 days of the VA authorization under Project 
HERO. Once Veterans were at the provider's office, 99.9 percent waited 
less than 20 minutes to be seen by the provider.
      For Project HERO inception-to-date performance, 90 
percent of Veterans were seen by a community provider within 30 days of 
the VA authorization and 99.9 percent of all Veteran appointments 
required a wait time of less than 20 minutes.
      The `access' supporting data is all the more impressive 
considering 43 percent of Veterans seen through Project HERO live in 
rural or highly rural communities where access to quality health care 
is scarce and in high demand.
Quality of Care Highlights:

      In February 2010, 92.9 percent of Veterans' clinical 
information was returned to the ordering VAMC within 30 days and 98 
percent was returned within 45 days.
      For Project HERO inception-to-date performance, 89 
percent of Veterans' clinical information was returned to the ordering 
VAMC within 30 days and 95 percent was returned within 45 days.
      Monthly complaints against providers and/or provider 
staff are less than 0.2 percent of appointments.
      Over 30,000 providers participate in Humana Veterans' 
credentialed provider network.
Veteran Satisfaction:

       Veterans provided an overall rating of 64 percent for Humana 
Veterans provider specialists. The overall satisfaction rate with VA 
health care reported in the Survey of Healthcare Experiences of 
Patients (SHEP) was 62 percent. Overall quality of Project HERO is 
rated higher than VA SHEP.
Improving Veteran Access to Outside Services:

       The Humana Veterans Personalized Services Model provides 
assistance to veterans in accessing qualified providers and scheduling 
appointments with those specialists. Humana Veterans facilitates access 
to a credentialed network of providers that currently totals in excess 
of 30,000 in the four demonstration VISNs. This personal touch has 
resulted in a very low ``No-Show Rate,'' which is one indication of 
access to quality care. Although we do not have reliable no-show rate 
for VA's Fee Based Care, we can compare the Project HERO rate with a 
comparable population (e.g., TRICARE beneficiaries with specialist 
appointments with civilian providers outside of military treatment 
facilities). The No-Show Rate for TRICARE beneficiaries is estimated 
from various sources as 24 percent, whereas the No-Show rate for 
Veterans under Project HERO is only 8 percent. The Patient Appointing 
component of Project HERO not only offers Veterans an appointment with 
an outside provider within 30 days of Humana Veterans' receipt of the 
referral 92 percent of the time, but it also utilizes a live person to 
coordinate appointments between the provider and the Veteran, thereby 
resulting in a remarkably low No-Show rate.
       I believe the Personalized Services Model adds significant value 
to the Veterans patient and reduces the stress to the Veteran when 
referred for specialty care or diagnosis. In many instances in VA's 
regular Fee Based Care program, a Veteran is given an authorization by 
the Fee Office and told to find a provider, schedule an appointment and 
return to the VA afterwards. Many Veterans are not familiar with how 
medical offices function or how they schedule appointments. The 
Personalized Services Model provides the Veterans with an advocate for 
patient appointing and consult return. The Model significantly improves 
the Veteran's overall experience and ensures the timely return of the 
specialist's consult report, thereby contributing to continuity of care 
in the VA.
Communications between VA and Outside Providers:

       VAMC providers often send Veterans to outside providers to 
obtain specialist and subspecialist clinical opinions. Those written 
opinions (written consults) are of limited value to VAMC providers 
unless they are returned in a timely fashion. In the consult return 
component of the Project HERO program, Humana Veterans actively 
searches for and retrieves those consults from outside providers and 
sends them via secure e-mail back to the VAMCs where they are entered 
into CPRS so that primary care providers have timely and ready access 
to them. Humana Veterans returns these consults to VAMCs within 30 days 
89 percent of the time. This landmark contractual requirement of 
Project HERO dramatically enhances the continuity of care for Veterans 
and represents significant progress beyond traditional VA Fee-Based 
Care, where little clinical data is shared between outside providers 
and VA primary care providers.
Addressing Special Provider Needs of VAMC Providers:

       In order to extend the same level of exemplary VAMC care to 
Veterans when services are required from providers outside of the VAMC, 
VA providers frequently request special services or providers with 
special requirements. Humana Veterans has been able to fulfill these 
special requests.
       Some of those recent efforts are listed below.

----------------------------------------------------------------------------------------------------------------
                              Special Services Requested                                        Location
----------------------------------------------------------------------------------------------------------------
Sleep study interpretations from providers certified by American Academy of Sleep      Tampa
 Medicine
----------------------------------------------------------------------------------------------------------------
MOHS (i.e., skin cancer surgery) providers who are certified by American College of    Tampa
 MOHS Surgery
----------------------------------------------------------------------------------------------------------------
Open MRI studies stratified by magnet strength                                         Fayetteville
----------------------------------------------------------------------------------------------------------------
Neuromuscular & Electrodiagnostic Medicine studies matched to providers                New Orleans
----------------------------------------------------------------------------------------------------------------
Certification requirements for sleep labs                                              Fargo
----------------------------------------------------------------------------------------------------------------

Uniformity in the Delivery of Fee Based Care:

       With Project HERO, a degree of uniform access to care across the 
four VISNs that has heretofore been unavailable is now achieved:

        Outside providers have been subjected to a rigorous and 
uniform credentialing process based upon URAC accredited credentialing 
processes;
        Standards of practice have been adopted on behalf of 
all VISNs for certain services (i.e., dermatology referrals and 
biopsies, neurodiagnostic studies, split sleep studies);
        Providers are subject to continuous clinical oversight 
by a Patient Safety and Peer Review Committee composed of civilian and 
VAMC providers; and,
        Standards for patient appointing, consult returns, 
urgent referrals, and Standards of Practice protocols are applied 
uniformly to all VAMCs in all four VISNs.
Conclusion:

       Without available data from the VA addressing ``No-Show rates'', 
consult return performance, and responsiveness of outside providers to 
the VA's special requirements, it is difficult to make direct 
quantitative comparisons of Project HERO and VA's normal fee based 
procedures. However, based upon our experience to date, we believe 
there is no doubt that Project HERO has significantly improved Veterans 
access to care and improved quality. Indirect measures (e.g., patient 
satisfaction) and proxy measures from related programs (e.g., TRICARE) 
indicate that the improvements are substantial.
  
    Question #2: Some of the VA staff implementing Project HERO have 
shared with the Subcommittee their personal impressions that they do 
not see significant differences in administrative costs associated with 
Project HERO compared to traditional fee care. We have also heard 
stories of Project HERO not being necessarily more efficient, since the 
staff spends the same amount of time on Project HERO case as fee-basis 
cases. How do you respond to these concerns?

    Response: The administrative services provided by Humana Veterans 
under Project HERO are far superior to the administrative services 
performed by the individual VA Fee Offices. The VA maintains extensive 
records (spreadsheets, performance measured reports, etc.) for any 
contract purchased service, but they do not have similar requirements 
in traditional fee based care.
    The administrative services provided by Humana Veterans are 
directly related to communication with the Veteran and the non-VA 
provider such as appointment setting, personal telephone contact with 
the Veteran, providing driving directions, and follow-up reminder 
calls. While there are a few VA Fee Offices that provide some 
appointment setting services, these functions are not normally 
performed by the VA in traditional fee care. Therefore, the perception 
that administrative costs are comparable between Project HERO and 
traditional fee care is misleading since Project HERO offers 
significantly more administrative services to Veterans. We have heard 
some VA Fee Offices state that it is easier for them to put an 
authorization in the mail to the Veteran than to use Project HERO. 
However, this traditional fee care procedure places the administrative 
burden on the Veteran. The Veteran must find a provider within the 
community, make sure that the provider can treat the specific 
condition, schedule the appointment, and request that the clinical 
information be returned to the VA. Project HERO ensures that the 
administrative burden rests on Humana Veterans instead of the 
individual Veteran. After an appointment with a network provider is 
established for the Veteran, the VA Fee Office is notified of the date, 
time, and location of the Veteran's appointment. Humana Veterans stays 
in constant contact with the VA Fee Office to provide notification of 
additional appointments and to return clinical information from each 
visit the Veteran has with the network provider.
    Another important aspect that causes administrative burden for the 
VAMCs is the way that they authorize care within the community. 
Authorizations are very limited in scope in a majority of cases. The 
network provider has very little latitude in terms of what he or she 
can do to actually treat the Veteran. The provider must evaluate and 
request that additional services be approved by the VA through Humana 
Veterans. This process of receiving approval from the VA for additional 
services can be long and arduous. If the VAMCs allowed the network 
providers to truly evaluate and treat the Veterans, the administrative 
burden of the additional services process would be significantly 
minimized.
    The concern about how efficient Project HERO is compared to 
traditional fee care is dependent upon the individual VA Fee Office. 
The differences in management of individual VA Fee Offices are an 
ongoing issue within the VA since there are no standards for staffing, 
workflow, and processes. In addition, the arrangement of the VA Fee 
Office within the overall hierarchy of management can differ from VAMC 
to VAMC. The Fee Offices can be under the direction of the Business 
Office, Fiscal Office, or in the Clinical chain of command. All 
contracted services are perceived as an additional burden on those 
offices which lack appropriate staffing. The lack of performance 
standards within the VA Fee Offices makes it difficult, if not 
impossible, to perform a true comparison of Project HERO's efficiency 
versus traditional fee care. However, the significance of the enhanced 
administrative services that Veterans receive under Project HERO must 
be considered in the comparison with traditional fee care.

    Question #3: The Subcommittee has also heard concerns from VA 
personnel about the lack of continuity of care. This is because VA 
primary care doctors cannot have direct contact with Humana providers, 
as the contractual relationship is between Humana and the non-VA 
provider. Is this a valid concern?

    Response: This is not a valid concern. There is nothing that 
prevents VA primary care doctors from having direct contact with Humana 
Veterans' providers to discuss the care of Veterans. In fact, Project 
HERO enhances a VA primary care physician's ability to discuss a 
Veteran's care with the non-VA specialist since Humana Veterans 
communicates the details of the Veteran's appointment back to the 
referring VA Medical Center. These details include the identity of the 
specialist, as well as the date and time of the appointment.
    Humana Veterans heard this concern from one of the VISNs in October 
2009. Tim McClain, President and CEO of Humana Veterans, wrote a memo 
to all associates on October 13, 2009 in order to ensure that there was 
no confusion regarding our policy. The policy memo, copies of which 
were provided to the VA Program Office, reiterates our policy:

          ``VA, our contract partner, has raised a concern regarding 
        communications between the VA primary care physician and our 
        HVHS network physicians. Apparently, some VA offices have the 
        impression that HVHS discourages any direct communication 
        between VA physicians and Humana Veterans network providers.
          In fact, HVHS encourages communication between our network 
        physicians and VA physicians at any time, and especially when 
        required by the standard of care. Our role is to administer and 
        provide a health care network of professional providers and 
        services, but never to proscribe or discourage communication 
        between medical professionals.
          HVHS recognizes the absolute necessity of physician-to-
        physician communication as an important part of excellent 
        health care services. We encourage and expect HVHS network 
        physicians to communicate with VA physicians, and vice versa, 
        whenever necessary in providing the most appropriate care to 
        our Nation's Veterans.
          If there is ever any question on the appropriateness of 
        physician-to-physician communications, please immediately raise 
        the issue to your supervisor.''

    Continuity of care is significantly enhanced through Project HERO. 
First, Veterans are much more likely to get and keep timely 
appointments with outside specialists because of the facilitation of 
the appointing process under Project HERO. For example, servicemen and 
their families who receive care from outside providers under the 
Department of Defense's TRICARE program have an estimated No-Show rate 
of 24 percent, which is three times higher than the 8 percent rate 
observed under Project HERO.
    Second, Humana Veterans directly solicits VA medical leadership on 
their specific and special needs and then locates the providers to meet 
their needs. Examples include sleep labs with American Society of Sleep 
Medicine sleep specialists (Tampa) and Open MRIs of specified magnetic 
strength (Fayetteville).
    Third, Humana Veterans invites VA physicians to participate in the 
quality oversight of network providers in order to extend the exacting 
standards of quality VAMC care into Project HERO. Not only is 
continuity of care maintained with Project HERO, more importantly, 
continuity of quality of care is also maintained.

    Question #4: Subcommittee staff have been told that some non-VA 
providers are interested in participating in Project HERO but are 
unaware of how to be a part of the network. Related to this, we learned 
of some VISNs that had informal networks for specialty care but that 
Humana had a difficult time expanding its network in the same area. Has 
Humana largely addressed the network development concerns or does this 
continue to be a challenge?

    Response: Humana Veterans Healthcare Services, Inc. is interested 
in obtaining as many high quality network providers as required to meet 
the needs of the VA and, in particular, to address the VA's rural 
health care access needs. Since future specific medical services and 
quantities, and the Veterans locations, are generally unknown to Humana 
Veterans until we receive an actual request from VA, we are constantly 
working to increase the network provider inventory. Humana Veterans 
network service representatives are responsible for recruitment of 
providers within their respective VISNs and catchments. Humana has toll 
free phone numbers available for providers to call a network service 
representative who can initiate the contracting process. We also have a 
Web site with a section dedicated specifically for providers. We have 
created several avenues for providers to find us and become part of the 
Humana Veterans network.
    Some catchments within VISNs have informal specialty care networks. 
This was a difficult issue to address and overcome during the start up 
of the Project HERO contract, and it impacted all VISNs to some degree. 
In some cases, Humana Veterans was able to impart knowledge and 
understanding of our purpose and the intent of the Project HERO program 
which enabled us to successfully recruit the provider to our network. 
However, this was not achievable in every case. In many of the 
unsuccessful cases, the providers were reimbursed by the local VA at 
rates that exceeded the Project HERO contract rates. These providers 
lacked incentive to contract with Humana Veterans at the reimbursement 
rates we were able to offer. In addition, the VA in some instances 
informed providers that they would continue to use the provider 
directly and did not intend on using Humana Veterans under the Project 
HERO contract. Although we have addressed and surpassed this problem to 
a large degree, the problem still remains today especially in VISN 20. 
This competition by the VA for the same providers has caused our 
network to not be as robust as desired in some areas and specialties. 
It is counterproductive and inefficient for the VA to compete with 
Humana Veterans for the same providers for services offered under the 
VA's Project HERO contract.

    Question #5: It is apparent that you see the promise and potential 
of Project HERO to improve care for our veterans. Do you believe that 
the Project HERO model is ripe for implementation in other VISNs? Or, 
do you believe that the model needs to be fine-tuned more before it is 
expanded to other VISNs? If further refinements are needed, what are 
some examples of these refinements?

    Response: We strongly believe that the Project HERO model is ready 
for implementation in other VISNs because we agree with VA's testimony 
that Project HERO is meeting its objectives of improving quality 
oversight, access, accountability and care coordination. In its current 
form, it represents a vast improvement for Veterans over regular non-VA 
fee care. With that said, there certainly have been some valuable 
lessons learned from the first 2 years of this demonstration pilot that 
could be applied to further improve future implementations. Some 
examples of these refinements include the following:

      The HERO model should be the first choice when care is 
needed outside of VA. We recommend implementing a Right of First 
Refusal (``ROFR'') process that would require VA to submit non-urgent 
referrals to the HERO contractor first. If the contractor is unable to 
provide the care according to contractual standards, then VA has the 
option to cancel the authorization. Timeliness standards can be built 
into the contract to ensure that this process does not delay care for 
Veterans. This would ensure that the benefits of the HERO model are 
maximized and that the program is being used to the greatest extent 
possible.
      When implementing the model in a new geographic area, a 
longer implementation period is needed in order to fully establish and 
credential the provider network. Even in cases where there is already 
an established commercial network, time is needed to educate providers 
about VA requirements related to access and timeliness, and providers 
must agree to meet those standards. Additional credentialing may be 
needed in cases where VA requirements exceed commercial practices. We 
recommend an implementation period of no less than 6 to 9 months.
      The overall performance of the model could be improved if 
the contractor was provided reliable estimates of VA anticipated demand 
by specialty and location on some regular frequency (at least 
annually). This would allow VA to ensure that the needed services are 
on the contract, and it would allow the contractor to ensure that the 
appropriate provider network and administrative staffing are in place 
to meet the demand.
      The demonstration has shown that 100 percent standards 
are not achievable on certain metrics such as appointments in 30 days 
and return of clinical information in 30 days. We recommend setting 
those standards at very high but achievable levels, not to exceed 
similar standards for care rendered inside VA.
      We believe that there are other programs that could be 
piloted in future implementations that could further enhance the care 
coordination benefits of the model. Examples include
          Improving the coordination and delivery of post-
        discharge care, such as home health care, by allowing the 
        contractor to arrange and provide this care.
          Piloting a utilization management program where 
        the contractor assumes responsibility for applying standardized 
        medical necessity criteria to all services requested through 
        the HERO model.
          Piloting disease management programs.

    Unfortunately, the current HERO contract does not contain 
mechanisms to evaluate lessons learned and make adjustments in the 
middle of the current demonstration. However, we believe that these 
adjustments, along with any recommendations that VA offers, can 
certainly be applied to future implementations of the HERO model, and 
we see no reason that this model should not be made available to all 
Veterans with these improvements sooner rather than later.

    Question #6: In your testimony you stated that you have seen a 
decline in the number of Project HERO referrals for the past 6 months 
when there should be about 10-12,000 in order to validate the HERO 
model. Can you explain what you mean and provide practical solutions on 
how to increase referrals?

    Response: According to the report published by the Congressional 
Research Service on February 3, 2010, only 5.8 percent of outpatient 
visits to non-VA providers in the VISNs covered by Project HERO were 
sent to Project HERO. We believe it would be a better test of the 
program if VA took steps to ensure that HERO was the primary model in 
use in the four demonstration VISNs for providing care outside of VA. 
This would allow for a more meaningful comparison of results in these 
VISNs to VISNs that do not utilize the HERO model. As it stands today, 
there are competing models for providing non-VA fee care in each of the 
facilities participating in the HERO demonstration, and HERO is not the 
predominant model in use.
    Low utilization also impacts the financial viability of the model 
for the contractor. Under the current contract, administrative fees are 
paid on a per-claim basis for services provided under Project HERO. 
More volume is needed to cover the contractor's administrative overhead 
of establishing and maintaining a robust provider network, operating a 
call center, etc.
    A practical solution to increase referrals is the ROFR process 
described in our response to question #5. This approach would maximize 
the benefits of the HERO model while recognizing that VA has to be able 
to make other arrangements for Veterans' care in those rare cases where 
it cannot be provided under HERO according to the terms of the 
contract.
                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                  February 16, 2010

Mr. P.T. Henry
Senior Vice President, Federal Government Programs
Delta Dental of California
11155 International Drive
Rancho Cordova, CA 95670

Dear Mr. Henry:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``Review of VA Contract Health Care: Project HERO'' that took place 
on February 3, 2010.
    Please provide answers to the following questions by March 30, 
2010, to Jeff Burdette, Legislative Assistant to the Subcommittee on 
Health.

    1.  Does Delta Dental have the capacity to meet additional Project 
HERO authorizations beyond what you currently handle? If so, how many 
more authorizations can the current Delta Dental system handle?
    2.  You identified specific areas for procedural improvements that 
will enhance the overall contribution of the dental portion of Project 
HERO to the care provided to our veterans. Specifically, you cited the 
need to empower the Chief Business Office to manage the administration 
of the program and to enhance the standardization of policies and 
procedures across VISNs and medical centers.

         a.  Do you believe that the dental portion of Project HERO has 
        accomplished this so that there are standardized policies and 
        procedures across the four VISNs and their medical centers?
         b.  If so, what are some lessons to be learned to help enhance 
        the standardization of policies and procedures if Project HERO 
        were implemented in additional VISNs?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by March 30, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman
                               __________
                        Questions for the Record
      The Honorable Michael H. Michaud, Chairman, Subcommittee on
        Health, House Committee on Veterans' Affairs ``Review of
                VA Contract Health Care: Project HERO''
                            February 3, 2010
    Question #1: Does Delta Dental have the capacity to meet additional 
Project HERO authorizations beyond what you currently handle? If so, 
how many more authorizations can the current Delta Dental system 
handle?

    Answer: The ability for Delta Dental to handle additional 
authorizations is not limited by our existing systems. Our ability to 
accept additional authorizations is, however, limited by the 
administrative costs associated with processing each authorization in 
accordance with Project HERO's requirements. Unanticipated challenges 
in contacting veterans to schedule care coupled with burdensome 
authorization processes, and case tracking and reporting requirements 
not envisioned in the program solicitation have proven to be labor 
intensive, expensive components of the program. A viable expansion of 
the current contract to additional VISNs would require either an 
increase in the Value Add Fee to reflect actual costs, or program 
revisions to streamline the administrative activities. (Note: Value Add 
Fee is the fee paid to the contractor intended to cover administrative 
costs.)

    Question #2: You identified specific areas for procedural 
improvements that will enhance the overall contribution of the dental 
portion of Project HERO to the care provided to our veterans. 
Specifically, you cited the need to empower the Chief Business Office 
to manage the administration of the program and to enhance the 
standardization of policies and procedures across VISNs and medical 
centers.

    a.  Do you believe that the dental portion of Project HERO has 
accomplished this so that there are standardized policies and 
procedures across the four VISNs and medical centers?
    b.  If so, what are some lessons to be learned to help enhance the 
standardization of policies and procedures if Project HERO were 
implemented in additional VISNs?

    Answer a: No. Despite the efforts of the Chief of the Business 
Office and the Program Office to standardize policies and procedures 
across the four VISNs and medical centers, the policies and procedures 
governing the dental portion of Project HERO remain largely the lowest 
common denominator to which all 32 dental clinics will agree and 
adhere. The institutionalized and well-intentioned autonomy with which 
individual clinics operate, if left unchecked, will preclude Project 
HERO, and the Department of Veterans Affairs, from leveraging the 
advantages provided by private sector network-based care.

    Answer b: Based on our experience, we would suggest that, prior to 
implementing Project HERO in additional VISNs, consideration be given 
to certain program modifications intended to:

    1.  Streamline patient contact and appointing by empowering the 
veteran, when feasible, to take a more active role in the process and 
requiring the veteran make first contact with the Project HERO 
contractor and encouraging the veteran to keep scheduled appointments;
    2.  Streamline authorization processing to recognize the quality 
and professionalism of credentialed network dentists and reduce 
unnecessary delays in providing care. This could be accompanied by the 
application of performance standards more in accordance with private 
sector network-based care;
    3.  Simplify and centralize the funding and billing processes;
    4.  Standardize authorization forms and associated reports; and
    5.  Require clinics to give priority to Project HERO when referring 
patients to Fee Care to facilitate VA's ability to link program 
objectives to cost effective management.
                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                  February 16, 2010

Honorable Eric K. Shinseki
Secretary
U.S. Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, D.C. 20240

Dear Secretary Shinseki:

    Thank you for the testimony of Gary M. Baker, Chief Business 
Officer for the Veterans Health Administration, at the U.S. House of 
Representatives Committee on Veterans' Affairs Subcommittee on Health 
oversight hearing on ``Review of VA Contract Health Care: Project 
HERO'' that took place on February 3, 2010.
    Please provide answers to the following questions by March 30, 
2010, to Jeff Burdette, Legislative Assistant to the Subcommittee on 
Health.

    1.  Mr. Baker's testimony noted that costs for Project HERO are 
generally comparable to VA costs for other non-VA fee care. Is it 
possible to compare the cost per referral for Project HERO versus fee-
basis care? What other cost comparison data are available?
    2.  Please list the types of outpatient services that the four 
VISNs have most often referred to Project HERO. How does this compare 
to the list of outpatient care services that the VA most commonly 
refers to the fee-basis care program?
    3.  What guidance did the central VA office provide to the four 
Project HERO VISNs on the criteria that should be used for making 
referrals to Project HERO versus fee-basis care? In addition, please 
explain the criteria that the four VISNs use in determining whether the 
referral goes to Project HERO or fee-basis care.
    4.  Humana testified that it is difficult to run a demonstration 
project when there is a competing process in the same fee office. To 
this end, Humana suggested that Project HERO become a first and 
preferred option in at least one VISN. Do you believe that a valid and 
independent impact evaluation cannot be conducted unless VA changes the 
implementation of Project HERO as suggested by Humana?
    5.  Several witnesses provided testimony pointing to the need for 
an independent evaluation of the Project HERO demonstration. Please 
walk us through the VA's evaluation plans. If the plan does not include 
a rigorous evaluation comparing a control and experimental group, how 
will the VA properly advise on the future of Project HERO?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by March 30, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman
                               __________
                        Questions for the Record
      The Honorable Michael H. Michaud, Chairman, Subcommittee on
        Health, House Committee on Veterans' Affairs ``Review of
                VA Contract Health Care: Project HERO''
                            February 3, 2010
    Question 1: Mr. Baker's testimony noted that costs of Project HERO 
are generally comparable to VA costs for other non-VA care. Is it 
possible to compare the cost per referral for Project Hero versus fee-
basis care? What cost comparison data are available?

    Response: The Chief Business Office conducts detailed analyses 
concerning the cost of care provided under the HERO contract compared 
with the cost of care purchased under the traditional Fee Basis 
Program. These analyses use industry standard comparisons of specific 
services purchased. The assessment of costs by referral does not 
provide enough information to allow a complete understanding of the 
variation. Referrals may be for one or many services, which impacts the 
usefulness of any analysis. The analyses conducted show specific cost 
data, such as costs of a chest x-ray purchased under the HERO contracts 
compared with that same chest x-ray purchased under the traditional Fee 
Basis Program.

    Question 2: Please list the types of outpatient services that the 
four VISNs have most often referred to Project HERO. How does this 
compare to the list of outpatient care services that VA most commonly 
refers to the Fee-basis care program?

    Response: The outpatient services most often referred to Project 
HERO and the Fee-basis care program in Veterans Integrated Services 
Network (VISNs) 8, 16, 20, and 23 are detailed in the following charts. 
The count in the far right column refers to the number of claim line 
items authorized from demonstration inception through fiscal year 2009. 
All data is based on transaction data.

----------------------------------------------------------------------------------------------------------------
                  Project HERO VISN 8                                       Other Fee VISN 8
----------------------------------------------------------------------------------------------------------------
                                             Procedure                                                Procedure
    Rank            CCS Description            Count         Rank            CCS Description            Count
----------------------------------------------------------------------------------------------------------------
      1      Therapeutic radiology          23,292             1      Home Health Services            114,733
----------------------------------------------------------------------------------------------------------------
      2      Physical therapy exercises,    20,763             2      Physical therapy exercises,     109,657
              manipulation, and other                                  manipulation, and other
              procedures                                               procedures
----------------------------------------------------------------------------------------------------------------
      3      Dental Services                12,695             3      Ophthalmologic and otologic      76,040
                                                                       diagnosis and treatment
----------------------------------------------------------------------------------------------------------------
      4      Other diagnostic procedures     9,560             4      Therapeutic radiology            75,667
              (interview, evaluation,
              consultation)
----------------------------------------------------------------------------------------------------------------
      5      Hemodialysis                    5,630             5      Other diagnostic procedures      62,292
                                                                       (interview, evaluation,
                                                                       consultation)
----------------------------------------------------------------------------------------------------------------
      6      Other CT scan                   3,256             6      Laboratory--Chemistry and        57,219
                                                                       Hematology
----------------------------------------------------------------------------------------------------------------
      7      Excision of skin lesion         2,806             7      DME and supplies                 51,207
----------------------------------------------------------------------------------------------------------------
      8      Other diagnostic nervous        1,910             8      Hemodialysis                     49,951
              system procedures
----------------------------------------------------------------------------------------------------------------
      9      Pathology                       1,505             9      Psychological and                43,876
                                                                       psychiatric evaluation and
                                                                       therapy
----------------------------------------------------------------------------------------------------------------
     10      Other non-OR therapeutic        1,399            10      Other therapeutic procedures     33,557
              procedures on skin and
              breast
----------------------------------------------------------------------------------------------------------------



----------------------------------------------------------------------------------------------------------------
                  Project HERO VISN 16                                      Other Fee VISN 16
----------------------------------------------------------------------------------------------------------------
                                             Procedure                                                Procedure
    Rank            CCS Description            Count         Rank            CCS Description            Count
----------------------------------------------------------------------------------------------------------------
      1      Other diagnostic procedures    19,964             1      Physical therapy exercises,     143,547
              (interview, evaluation,                                  manipulation, and other
              consultation)                                            procedures
----------------------------------------------------------------------------------------------------------------
      2      Dental Services                18,751             2      Laboratory--Chemistry and       104,078
                                                                       Hematology
----------------------------------------------------------------------------------------------------------------
      3      Colonoscopy and biopsy          8,575             3      Home Health Services             89,288
----------------------------------------------------------------------------------------------------------------
      4      Physical therapy exercises,     8,149             4      Therapeutic radiology            83,518
              manipulation, and other
              procedures
----------------------------------------------------------------------------------------------------------------
      5      Ophthalmologic and otologic     7,108             5      Peritoneal dialysis              74,885
              diagnosis and treatment
----------------------------------------------------------------------------------------------------------------
      6      Other diagnostic radiology      5,492             6      Other diagnostic procedures      62,746
              and related techniques                                   (interview, evaluation,
                                                                       consultation)
----------------------------------------------------------------------------------------------------------------
      7      Therapeutic radiology           4,888             7      Dental Services                  33,218
----------------------------------------------------------------------------------------------------------------
      8      Pathology                       4,164             8      Other diagnostic radiology       27,427
                                                                       and related techniques
----------------------------------------------------------------------------------------------------------------
      9      Laboratory--Chemistry and       3,613             9      Hemodialysis                     27,079
              Hematology
----------------------------------------------------------------------------------------------------------------
     10      Magnetic resonance imaging      3,491            10      Other therapeutic procedures    25, 248
----------------------------------------------------------------------------------------------------------------



----------------------------------------------------------------------------------------------------------------
                  Project HERO VISN 20                                      Other Fee VISN 20
----------------------------------------------------------------------------------------------------------------
                                             Procedure                                                Procedure
    Rank            CCS Description            Count         Rank            CCS Description            Count
----------------------------------------------------------------------------------------------------------------
      1      Dental Services                 6,649             1      Physical therapy exercises,      74,266
                                                                       manipulation, and other
                                                                       procedures
----------------------------------------------------------------------------------------------------------------
      2      Other diagnostic procedures     4,919             2      Other diagnostic procedures      49,566
              (interview, evaluation,                                  (interview, evaluation,
              consultation)                                            consultation)
----------------------------------------------------------------------------------------------------------------
      3      Physical therapy exercises,     3,351             3      Laboratory--Chemistry and        49,313
              manipulation, and other                                  Hematology
              procedures
----------------------------------------------------------------------------------------------------------------
      4      Magnetic resonance imaging      1,644             4      Psychological and                34,397
                                                                       psychiatric evaluation and
                                                                       therapy
----------------------------------------------------------------------------------------------------------------
      5      Other diagnostic radiology      1,519             5      Therapeutic radiology            32,985
              and related techniques
----------------------------------------------------------------------------------------------------------------
      6      Mammography                       894             6      Dental Services                  25,094
----------------------------------------------------------------------------------------------------------------
      7      Therapeutic radiology             884             7      DME and supplies                 24,602
----------------------------------------------------------------------------------------------------------------
      8      Colonoscopy and biopsy            808             8      Other diagnostic radiology       24,016
                                                                       and related techniques
----------------------------------------------------------------------------------------------------------------
      9      Ophthalmologic and otologic       704             9      Home Health Services             21,520
              diagnosis and treatment
----------------------------------------------------------------------------------------------------------------
     10      CT scan abdomen                   657            10      Ophthalmologic and otologic      14,085
                                                                       diagnosis and treatment
----------------------------------------------------------------------------------------------------------------



----------------------------------------------------------------------------------------------------------------
                  Project HERO VISN 23                                      Other Fee VISN 23
----------------------------------------------------------------------------------------------------------------
                                             Procedure                                                Procedure
    Rank            CCS Description            Count         Rank            CCS Description            Count
----------------------------------------------------------------------------------------------------------------
      1      Dental Services                18,025             1      Physical therapy exercises,     143,056
                                                                       manipulation, and other
                                                                       procedures
----------------------------------------------------------------------------------------------------------------
      2      Physical therapy exercises,    11,002             2      Laboratory--Chemistry and        59,871
              manipulation, and other                                  Hematology
              procedures
----------------------------------------------------------------------------------------------------------------
      3      Other diagnostic procedures     5,719             3      Other diagnostic procedures      55,674
              (interview, evaluation,                                  (interview, evaluation,
              consultation)                                            consultation)
----------------------------------------------------------------------------------------------------------------
      4      Ophthalmologic and otologic     5,522             4      Therapeutic radiology            38,909
              diagnosis and treatment
----------------------------------------------------------------------------------------------------------------
      5      Hemodialysis                    2,547             5      Peritoneal dialysis              36,446
----------------------------------------------------------------------------------------------------------------
      6      Hearing devices and audiology   2,057             6      DME and supplies                 32,642
              supplies
----------------------------------------------------------------------------------------------------------------
      7      Diagnostic physical therapy       935             7      Home Health Services             27,510
----------------------------------------------------------------------------------------------------------------
      8      Laboratory--Chemistry and         896             8      Ophthalmologic and otologic      25,571
              Hematology                                               diagnosis and treatment
----------------------------------------------------------------------------------------------------------------
      9      Pathology                         814             9      Dental Services                  25,033
----------------------------------------------------------------------------------------------------------------
     10      Other non-OR therapeutic          803            10      Other diagnostic radiology       23,727
              procedures on                                            and related techniques
              musculoskeletal system
----------------------------------------------------------------------------------------------------------------


    Question 3: What guidance did the central office provide to the 
four Project HERO VISNs on the criteria that should be used for making 
referrals to Project HERO versus Fee-basis care? In addition, please 
explain the criteria that the four VISNs use in determining whether the 
referral goes to Project HERO or Fee-basis care.

    Response: In general, guidance on the use of Project HERO referrals 
as well as other Fee referrals is outlined below. It is a hierarchical 
process centered around the clinical needs of the Veteran. Key 
activities in the process include:

    1.  Assessing the clinical status of the patient (e.g. is the 
Veteran stable enough to travel if necessary);
    2.  Assessing VA internal capacity (e.g. can we refer to another 
VA);
    3.  Assessing other agreements in place such as University 
affiliation agreements, DoD/Sharing Agreements etc.; and
    4.  If the above options exist, does Project HERO have network 
capacity; if yes, refer to Project HERO provider.

    Question 4: Humana testified that it is difficult to run a 
demonstration project when there is a competing process in the same Fee 
office. To this end, Humana suggested that Project HERO become a first 
and preferred option in at least one VISN. Do you believe that a valid 
and independent impact evaluation cannot be conducted unless VA changes 
the implementation of Project HERO as suggested by Humana?

    Response: While VA understands the Humana Veterans Healthcare 
Services (HVHS) desire to consider a mandate, our experience has shown 
that the capacity is not available for 100 percent of all cases that 
require services outside VA. VA has seen significant increases in the 
use of the contracts, with some sites at greater than 30 percent of 
their referrals using HERO.

    Question 5: Several witnesses provided testimony pointing to the 
need for an independent evaluation of the Project HERO demonstration. 
Please walk us through the VA's evaluation plans. If the plan does not 
include a rigorous evaluation comparing a control and experimental 
group, how will the VA properly advise on the future of Project HERO?

    Response: VA has conducted one independent analysis of the project 
which identified additional lessons learned and provided suggestions 
for consideration as the Chief Business Office decides how to move 
forward with future contracts. Significant results are included in the 
listing below:

      The contracts are cumbersome and not easy to change or 
adapt to changing VA and Veteran needs.
      The inclusion of only some medical specialty services 
rather than all inpatient and outpatient services greatly reduces the 
contracts ability to meet all VA purchased care needs.
      The pricing structure is difficult to understand and 
requires more clarity and definition for all parties involved in 
serving and using the contracts.
      The administrative fee (value added fee) approach does 
not work well or fit industry standards for service fees.
      The contract does not have distance or time travel 
standards defined.
      The VA does not have an optimal way to determine quality 
of providers in the contracted networks.
      There is a lack of standard processes within the VA that 
create an inefficient model for the contracted networks to work within.
      Stronger quality reporting and monitoring processes are 
needed to meet VA provider expectations.
      A perception exists that VA providers cannot communicate 
directly with the contracted network providers. (additional information 
contained in clarifications section of attached summary of external 
assessment report)
      Because the contracts are not ``mandatory'' use contracts 
it has been difficult to reach a volume of care purchased through the 
contracts to perform as strong of an evaluation as could be with larger 
volumes.
      The inability to accurately estimate volumes of care that 
will be purchased creates a difficult setting for the contracted 
networks to know how many specific provider types are needed in any 
given market.
      The perception of cost effectiveness and desire to pay 
less than market rates or what other Fee mechanisms for purchasing care 
has cost historically could be limiting the ability of the contracted 
networks to obtain more providers willing to serve our Veterans.
      There is a lack of industry standard claim auditing 
procedures in place. (additional information contained in 
clarifications section of attached summary of external assessment 
report)

    We currently are in the process of assessing future options, using 
a lessons learned survey to begin this process. We intend to use the 
results of the lessons learned survey to begin an additional 
independent evaluation of the pilot. Both the prior evaluation 
(completed by Corrigo--attached) as well as our future evaluations will 
be comparing the Project HERO results with our control group 
(traditional Fee Basis). Throughout our evaluations we have used this 
control group to assess impacts of change as well as determine future 
options for improving health care purchasing. Our next independent 
evaluation will assist VA in understanding the full results of the 
demonstration and how these results will inform future health care 
purchasing processes. As the demonstration contract has two remaining 
years, we intend to initiate this external review in Q1, FY11.

                                 
