VA Health Care: Issues Affecting Eligibility Reform Efforts (Chapter
Report, 09/11/96, GAO/HEHS-96-160).

Pursuant to a congressional request, GAO reviewed various proposals that
would simplify and expand eligibility for veterans' health care
benefits.

GAO found that: (1) eligibility requirements for veterans health care
benefits have become increasingly complex and a source of frustration to
veterans, Department of Veterans (VA) physicians, and administrators;
(2) VA does not have a defined or uniform benefits package and cannot
ensure the availability of covered services; (3) VA has forced
physicians to either deny needy veterans ineligible services or provide
these services illegally free of charge; (4) VA health care eligibility
reform could expand the types of services provided and allow veterans
lacking supplemental insurance access to needed services; (5) the four
legislative proposals reviewed could more than double the demand for VA
outpatient services, cause VA to ration care, and force VA to seek
larger appropriations to preserve its safety net mission; (6)
alternative approaches including limiting the number of eligible
veterans and range of benefits added or increasing cost sharing could
preserve VA ability to provide specialized services; (7) although the
American Legion proposal incorporates all three of these approaches and
is a basis for future reform proposals, changes need to be made to
reduce the number of veterans covered, exempt VA from most federal
contracting laws, and designate VA as a Medicare provider; and (8) one
option to reduce the number of veterans who would be eligible under the
proposal and target those veterans who have low incomes and lack
supplemental insurance, would be to limit VA benefits for veterans with
no service-related disabilities.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-96-160
     TITLE:  VA Health Care: Issues Affecting Eligibility Reform Efforts
      DATE:  09/11/96
   SUBJECT:  Veterans benefits
             Eligibility determinations
             Health care services
             Proposed legislation
             Health resources utilization
             Health care planning
             Health care cost control
             Employee medical benefits
             Veterans hospitals
             Eligibility criteria
IDENTIFIER:  Medicare Program
             Civilian Health and Medical Program of the Department of 
             Veterans Affairs
             Civilian Health and Medical Program of the Uniformed 
             Services
             Medicaid Program
             Allen Park (MI)
             CHAMPUS
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Veterans' Affairs, U.S.  Senate

September 1996

VA HEALTH CARE - ISSUES AFFECTING
ELIGIBILITY REFORM EFFORTS

GAO/HEHS-96-160

VA Eligibility Issues

(406116)


Abbreviations
=============================================================== ABBREV

  AEP - appropriateness evaluation protocol
  AIDS - acquired immunodeficiency syndrome
  BIRLS - Beneficiary Identification and Records Locator System
  CBO - Congressional Budget Office
  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  CHAMPVA - Civilian Health and Medical Program of the Department of
     Veterans Affairs
  DOD - Department of Defense
  GPO - U.S.  Government Printing Office
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  HMO - health maintenance organization
  ISD - intensity, severity, discharge
  MSA - medical savings account
  OIG - Office of Inspector General
  PHS - Public Health Service
  RPM - Resource Planning and Management
  VA - Department of Veterans Affairs/Veterans Administration
  VHA - Veterans Health Administration
  VISN - veterans integrated service network
  VSO - veterans service organization

Letter
=============================================================== LETTER


B-272210

September 11, 1996

The Honorable Alan K.  Simpson
Chairman, Committee on Veterans' Affairs
United States Senate

Dear Mr.  Chairman: 

This report, prepared at your request, discusses and evaluates
proposals to simplify and expand eligibility for veterans' health
care benefits.  The report identifies the major issues that the
Congress will face in considering approaches to eligibility reform. 

As agreed with your office, we are also sending this report to the
Secretary of Veterans Affairs, relevant congressional committees, and
other interested parties.  Copies also will be available to others on
request. 

GAO contacts and staff acknowledgments are listed in appendix VIII. 
If you have any questions about this report, please call me on (202)
512-7101. 

Sincerely yours,

David P.  Baine
Director, Veterans' Affairs and
 Military Health Care Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The evolution of the Department of Veterans Affairs (VA) health care
over the past 60 years has created a myriad of complex eligibility
rules.  These rules frustrate veterans, who cannot understand what
services they can get from VA, and VA physicians and administrative
staff, who have to interpret the eligibility provisions.  Proposals
to simplify and expand eligibility for veterans' health care benefits
have been developed by the Congress, the administration, and the
major veterans service organizations. 

The Chairman of the Senate Committee on Veterans' Affairs asked GAO
to identify major issues that the Congress will face in considering
these and other approaches to eligibility reform.  In doing so, GAO
studied

  -- the evolution of the VA health care system and VA eligibility;

  -- the problems that VA's current eligibility and health services
     contracting provisions create for veterans and providers;

  -- the extent to which VA provides veterans with health care
     services for which they are not eligible;

  -- legislative proposals to reform VA eligibility and contracting
     rules and their potential effect on ease of administration,
     equity to veterans, costs to VA, and clarity of eligibility for
     veterans' health benefits; and

  -- approaches that could be used to limit the budgetary effects of
     eligibility reforms. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

For fiscal year 1996, VA received an appropriation of about $16.6
billion to maintain and operate 173 hospitals, 376 outpatient
clinics, 136 nursing homes, and 39 domiciliaries.  VA facilities are
expected to provide inpatient hospital care to 930,000 patients,
nursing home care to 35,000 patients, and domiciliary care to 18,700
patients.  In addition, VA outpatient clinics are expected to handle
25.3 million outpatient visits.  Although VA expects to receive a
slight increase in its fiscal year 1997 appropriation to compensate
for medical care inflation, both the administration and the Congress
expect VA budgets to decline over the ensuing 6 years. 

The VA health care system consists of (1) a health benefits program
and (2) a health care delivery program.  In administering the
veterans' health benefits program, VA is responsible for determining
(1) which benefits veterans are eligible to receive, (2) whether and
how much veterans must contribute toward the cost of their care, and
(3) where veterans obtain covered services (that is, whether they
must use VA-operated facilities or can obtain needed services from
other providers at VA expense).  VA is also responsible for ensuring
that the health benefits provided to its beneficiaries--veterans--are
(1) medically necessary and (2) provided in the most appropriate care
setting (such as a hospital, nursing home, or outpatient clinic). 

Similarly, in operating a health care delivery program, VA strives to
ensure that its facilities (1) provide care of high quality, (2) are
used to their optimum capacity, (3) are located where they are
accessible to veterans, and (4) provide good customer service. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

The VA health care system was neither designed nor intended to be the
primary source of health care services for most veterans.  It was
initially established to meet the special care needs of veterans
injured during wartime and those wartime veterans permanently
incapacitated and incapable of earning a living.  Although the system
has evolved since that time, even today it focuses on meeting the
comprehensive health care needs of only those veterans with
service-connected disabilities rated at 50 percent or higher (about
465,000 of the nation's 26.4 million veterans).  For other veterans,
the system is primarily intended to provide treatment for their
service-connected disabilities and to serve as a safety net to
provide care for veterans with limited access to health care through
other public and private programs (about 9 out of 10 veterans now
have public or private insurance that meets their basic health care
needs). 

As the eligibility requirements for VA health care have evolved over
the years, they have become increasingly complex and a source of
frustration to veterans who are often uncertain about which services
they are eligible to receive and to VA physicians and administrators
who find them difficult to administer.  Unlike private health
insurance, VA health care does not have a defined, uniform benefit
package and cannot guarantee the availability of covered services. 
Similarly, unlike private sector providers, VA is limited to
providing only those services covered by an individual veteran's VA
benefits.  A VA facility is not permitted under current law to
provide a noncovered service even if it has the resources to provide
the service and the veteran is willing to pay for it.  This often
places VA physicians in the difficult position of having to either
(1) ignore the law and provide noncovered services for free or (2)
turn away veterans even though VA may have the space and resources to
provide the needed health care services.  As a result, VA facilities
appear to provide hundreds of millions of dollars in ineligible
treatments. 

GAO recognizes the need for eligibility reform, which, for most
veterans, might result in additional health care services not covered
under their public or private insurance.  For the approximately 10
percent of veterans who do not have other public or private insurance
to meet their health care needs, however, eligibility reform is more
important.  It could result in access to comprehensive health care
services, including preventive care. 

Four legislative proposals have been introduced in the 104th Congress
to simplify and expand veterans' eligibility for VA care.  A fifth
proposal, by the American Legion, has not yet been introduced as a
legislative proposal.  Each of the proposals has significant
implications regarding the number of veterans who would be eligible
for care as well as the cost of providing that care. 

  -- Four of the proposals, which retain the discretionary funding of
     VA health care, could more than double demand for VA outpatient
     services, forcing VA to either ration care to many veterans or
     seek larger appropriations.  Adequate resources might not be
     available to preserve VA's safety net mission. 

  -- The American Legion proposal, which would create an entitlement,
     would likely require significantly increased appropriations
     because 9 million to 11 million veterans would become entitled
     to VA health care.  Other issues in the proposal that would need
     to be addressed include provisions to exempt VA from most
     federal contracting laws and to deem VA as a Medicare provider. 

GAO's work suggests that eligibility reforms could be developed that
would both strengthen VA's safety net mission and preserve its
ability to provide specialized services.  Among the approaches that
could be pursued are placing limits on the number of veterans given
expanded benefits, narrowing the range of benefits added, or
increasing cost sharing to offset the costs of added benefits. 

The American Legion proposal, which uses all of these approaches,
provides a good starting point for developing future reform
proposals.  Changes would need to be made, however, to reduce the
number of veterans covered by the entitlement if significant
increases in VA appropriations are to be avoided.  One approach for
reducing the number of veterans who would be entitled to free care
would be to limit the entitlement to VA benefits for veterans with no
service-connected disabilities, in order to ensure entitlement for
those veterans who have low incomes and lack private or public
insurance. 

On July 30, 1996, the House of Representatives unanimously approved
eligibility reform legislation (H.R.  3118).  The Senate Committee on
Veterans' Affairs drafted eligibility reform legislation on July 24,
1996.  As of September 1, 1996, the resulting bill had not been
introduced in the Senate. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      VETERANS' HEALTH CARE NEEDS
      HAVE CHANGED OVER TIME
-------------------------------------------------------- Chapter 0:4.1

Since colonial times, the nation has pledged its continued support
for those who serve in the military.  Historically, demand for VA
care would surge during and soon after periods of war, then taper off
as returning casualties recovered from their injuries.  The Congress
expanded eligibility for hospital care to include certain veterans
with no service-connected disabilities.  First, beginning in 1924,
eligibility for hospital care was gradually extended to wartime
veterans with low incomes; then, in 1973, to peacetime veterans with
low incomes; and finally, in 1986, to higher-income veterans. 

While eligibility for hospital care steadily expanded, eligibility
for outpatient care grew more slowly.  It was not until 1960 that VA
was first authorized to treat nonservice-connected conditions on an
outpatient basis.  Initially, eligibility was limited to services
needed in preparation for, or as a follow-up to, hospital care. 
Thirteen years later, eligibility for outpatient treatment of
nonservice-connected conditions was expanded to include services that
would obviate the need for hospitalization.  Finally, in 1986, the
Congress established a means test and extended eligibility for
hospital-related outpatient care to higher-income veterans with no
service-connected disabilities. 

Changes have also occurred in veterans' health care options.  When VA
was established in 1930, there was no public or private insurance
program to help low-income veterans pay for needed health care
services.  With the subsequent growth of private and public health
insurance, over 90 percent of veterans now have other health care
coverage in addition to their VA benefits. 

The third major change affecting the future direction of veterans'
health benefits is the aging of the veteran population.  Although the
veteran population is declining, the number of veterans aged 65 and
older is increasing.  The number of veterans aged 85 and over is
projected to increase from 154,000 to 1.3 million between 1990 and
2010.  This is important because about 50 percent of people aged 85
and older are expected to need nursing home care. 

The result of VA's long history of eligibility expansions is a myriad
of complex rules governing eligibility for VA health care.  In
considering changes to those rules, the Congress faces many difficult
questions concerning the future mission of the veterans' health care
system.  For example, what is and what should be the nation's
commitment to its veterans?  Similarly, what, if any, effect should
changes in other public and private health insurance coverage have on
VA's role as a safety net provider?  Finally, with an aging veteran
population, are changes needed in VA's role in meeting the long-term
care needs of veterans? 


      ELIGIBILITY PROVISIONS
      FRUSTRATE VETERANS AND LIMIT
      VA'S ABILITY TO MEET
      VETERANS' HEALTH CARE NEEDS
-------------------------------------------------------- Chapter 0:4.2

The complex eligibility provisions that have developed over many
decades are often ill-defined and confusing--which ultimately creates
frustration for veterans and VA staff.  Veterans are often uncertain
about which services they are eligible to receive and what right they
have to require VA to provide them.  VA physicians are likewise
frustrated by requirements that they determine, before treatment can
be provided, whether a condition is related to a service-connected
disability or whether, if left untreated, the condition would require
immediate hospitalization. 

Unlike public and private health insurance, VA cannot offer
well-defined benefits or guarantee the availability of covered
services.  Further, because provision of VA care is contingent upon
available resources, whether a veteran receives care can depend on
where and when the veteran seeks care.  To add to veterans'
confusion, VA medical centers use different methods to ration care
when funds are not sufficient to meet demand.  Because of these
problems, veterans may be unable to obtain needed health care
services from VA facilities. 

Designing solutions to these problems will require both
administrative and legislative actions.  Among the difficult choices
to be made are whether to guarantee the availability of services to
one or more groups of veterans and whether to develop one or more
defined benefit packages. 


      VA PROVIDES EXTENSIVE
      NONCOVERED SERVICES
-------------------------------------------------------- Chapter 0:4.3

VA may be spending billions of dollars providing services to veterans
not eligible for the services provided.  VA officials estimate that
20 percent of the patients treated in their hospitals do not need
hospital care but are not eligible to receive the services they are
provided on an outpatient basis.  In addition, VA's Office of
Inspector General (OIG) estimated on the basis of its review at one
medical center that if the percentage of ineligible treatment found
at the medical center reviewed is representative of other VA
facilities, then VA spent between $323 million and $831 million on
ineligible outpatient treatments in fiscal year 1992.  The medical
center reviewed by the OIG was selected as a typical tertiary care
facility with the assistance of officials from the Veterans Health
Administration. 

VA cites a series of studies to support its view that 20 percent of
VA hospital patients are admitted to circumvent restrictions on their
eligibility to receive needed services on an outpatient basis.  GAO's
review of the cited studies, however, found little basis for linking
most inappropriate hospitalizations to VA eligibility provisions. 
The studies did not ascertain veterans' eligibility status and,
therefore, did not contain the types of data that would be needed to
show a potential link between eligibility restrictions and nonacute
admissions.  Studies by VA's Inspector General, however, often found
that patients were admitted for surgeries that could have been
performed on an outpatient basis because VA facilities had not
developed ambulatory surgery capabilities. 

Because nonacute admissions appear to be caused more by
inefficiencies than by eligibility restrictions, changes in the law
to expand eligibility would not appear likely to significantly reduce
nonacute admissions to VA hospitals.  However, VA's announced plans
to implement a preadmission certification program could, if
effectively implemented, essentially eliminate nonacute admissions
with or without eligibility reform.  As a result, the preadmission
certification program has important implications for VA's ability to
meet veterans' health care needs. 


      INCREASED DEMAND COULD CAUSE
      EXTENSIVE RATIONING OR
      HIGHER BUDGETS
-------------------------------------------------------- Chapter 0:4.4

Each of the major eligibility reform proposals developed during the
past year would make VA benefits easier to understand and administer. 
The four proposals that have been introduced would retain the
discretionary funding of veterans' health benefits but expand the
number of veterans eligible for comprehensive VA outpatient services
from about 465,000 to over 26 million.  Such expansions are likely to
generate significant new demand for VA care.  For example, a 1992 VA
eligibility reform task force estimated that making all veterans
eligible for comprehensive benefits could increase demand for
outpatient visits by almost 28 million visits, more than doubling the
fiscal year 1995 level. 

Under the proposals that would retain discretionary funding of VA
health care, if appropriations did not keep pace with increased
demand, VA would face the prospect of extensive rationing.  In order
to provide a broader range of benefits to veterans in the highest
priority categories, other veterans, including many current users,
would likely lose benefits.  On the other hand, increasing
appropriations to avoid extensive rationing could potentially add
billions of dollars to VA's budget.  VA's 1992 eligibility reform
task force estimated that, without new sources of revenues, expanding
eligibility for comprehensive care to all veterans could add about
$38 billion a year to the cost of VA services. 

Although VA developed a new formula to estimate the cost of its
eligibility reform proposal, the formula does not consider the
increased demand for outpatient care by veterans that would likely
result from expanded benefits, and it is based on a series of
questionable assumptions.  In its current form, the formula is
independent of the particulars of eligibility reform.  In other
words, changes in benefits covered, the number of veterans in the
mandatory and discretionary care categories, and cost sharing do not
have any bearing on the savings estimate. 

The eligibility reform proposal developed by the American Legion
would make more fundamental changes in the veterans' health care
program.  It would avert the potential for increased rationing by
converting veterans' health benefits into a true entitlement for
about 9 million to 11 million veterans.  In addition, it would
establish comprehensive, basic, and supplemental benefit packages,
with most of these veterans provided the basic benefit package at no
cost, with an option to buy an upgraded package.  VA would no longer
receive appropriations to cover the cost of services provided to
other veterans, primarily those in the current discretionary care
category for hospital care.  Such veterans, and veterans' dependents,
would be allowed to buy into VA managed care plans. 

GAO considers many of the features contained in the American Legion
proposal worthwhile, such as defined and guaranteed benefits and the
ability to purchase noncovered services, but observes that the large
number of veterans who would be covered by the entitlement could add
billions of dollars to VA appropriations.  In addition, the proposal
to exempt VA from most federal contracting rules and to deem VA
facilities Medicare providers without requiring these facilities to
meet Medicare requirements would create significant risks. 

Although discussion of eligibility reform proposals centers primarily
around increased demand for outpatient care, additional work is
needed to assess the potential effects of reforms on demand for
hospital and long-term care services.  This is because veterans
attracted to the system by expanded outpatient benefits may increase
their use of other VA services.  Similarly, further efforts are
needed to assess the potential effects of VA's attempts to improve
accessibility of services on the demand for VA services. 
Accessibility of services is key to estimating demand because
veterans living within 5 miles of a VA clinic are more likely to use
VA services, and to use them more often, than veterans living more
than 5 miles from a VA clinic. 


      APPROACHES FOR LIMITING THE
      BUDGETARY EFFECT OF
      ELIGIBILITY REFORMS
-------------------------------------------------------- Chapter 0:4.5

The cost of eligibility reform could vary greatly, depending on a
number of factors, including the benefits covered, the number of
veterans offered the benefits, and the extent to which veterans are
expected to pay for or contribute toward the cost of their health
care benefits.  The four eligibility reform proposals that would
retain the discretionary nature of VA's medical care budget would
essentially make all 26 million veterans eligible for comprehensive
inpatient and outpatient care with little or no change in the
system's sources of revenue or in the methods used to establish VA's
appropriation. 

Five basic approaches could be used, individually or in combination,
to limit the budgetary effect of eligibility reforms.  These are (1)
set limits on covered benefits, (2) limit the number of veterans
eligible for health care benefits, (3) generate increased revenues to
pay for expanded benefits, (4) allow VA to "reinvest" savings
achieved through efficiency improvements in expanded benefits, and
(5) provide a methodology in the law for setting a limit on VA's
medical care appropriation. 

Both the eligibility reform legislation approved by the House of
Representatives on July 30, 1996, and the legislation being developed
by the Senate Committee on Veterans' Affairs would set limits on the
growth in VA medical care authorizations.  In addition, the House
bill would require the Secretary of Veterans Affairs to establish
information systems to assess the effects of the legislation and to
report to the Committees on Veterans' Affairs on those effects by
March 1, 1998. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

Although GAO is not making recommendations in this report, the report
discusses major issues identified through GAO's work that would
affect eligibility reform decisions. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

VA said that GAO's report, in presenting a summation of many years of
discussion concerning eligibility reform issues, shows how confusing,
convoluted, and difficult even debate on the issues can be.  VA noted
that unanimous passage of H.R.  3118 by the House of Representatives
and the recent reporting of a bill by the Senate Committee on
Veterans' Affairs support the need for change.  See appendix VII for
the full text of VA's comments. 


INTRODUCTION
============================================================ Chapter 1

The Department of Veterans Affairs (VA) operates one of the nation's
largest health care systems, including

  -- a health benefits program for over 26 million eligible veterans
     and

  -- a health care delivery program consisting of 173 hospitals, 376
     outpatient clinics, 136 nursing homes, and 39 domiciliaries in
     fiscal year 1996. 

The two programs are closely intertwined.  For example, VA outpatient
clinics are not allowed to use available resources to provide
services to many veterans because (1) the services, such as
prosthetics, are not covered under a particular veteran's health care
benefits and (2) the clinics are not permitted under the law to sell
noncovered services to veterans. 

In administering the veterans' health benefits program authorized
under title 38 of the U.S.  Code, some of VA's responsibilities are
similar to those of the Health Care Financing Administration (HCFA)
in administering Medicare benefits and to those of private insurance
companies in administering health insurance policies.  For example,
VA is responsible for determining under the statute (1) which
benefits veterans are eligible to receive, (2) whether and how much
veterans must contribute toward the cost of their care, and (3) where
veterans can obtain covered services (in other words, whether they
must use VA-operated facilities or can obtain needed services from
other providers at VA expense).  Similarly, VA, like HCFA and private
insurers, is responsible for ensuring that the health benefits
provided to its beneficiaries--veterans--are (1) medically necessary
and (2) provided in the most appropriate care setting (such as a
hospital, nursing home, or outpatient clinic). 

In operating a health care delivery program, VA's role is similar to
that of the major private sector health care delivery networks such
as those operated by Columbia/HCA and Kaiser Permanente.  For
example, VA strives to ensure that its facilities (1) provide high
quality care, (2) are used to optimum capacity, (3) are located where
they are accessible to their target population, (4) provide good
customer service, (5) offer potential patients services and amenities
comparable to competing facilities, and (6) operate effective billing
and collection systems. 

For fiscal year 1996, VA received an appropriation of about $16.6
billion to maintain and operate its facilities, which are expected to
provide inpatient hospital care to 930,000 patients, nursing home
care to 35,000 patients, and domiciliary care to 18,700 patients.  In
addition, VA outpatient clinics are expected to handle 25.3 million
outpatient visits. 


   ELIGIBILITY FOR VETERANS'
   HEALTH BENEFITS
---------------------------------------------------------- Chapter 1:1

Any person who served on active duty in the uniformed services for
the minimum amount of time specified by law and who was discharged,
released, or retired under other than dishonorable conditions is
eligible for some VA health care benefits.  The amount of required
active duty service varies depending on when the person entered the
military, and an eligible veteran's health care benefits depend on
factors such as the presence and extent of a service-connected
disability, income, and period or conditions of military service.\1

Persons enlisting in one of the armed forces after September 7, 1980,
and officers commissioned after October 16, 1981, must have completed
2 years of active duty or the full period of their initial service
obligation to be eligible for benefits.  Veterans discharged at any
time because of service-connected disabilities and those discharged
because of personal hardship near the end of their service obligation
are not held to this requirement.  Also eligible are members of the
armed forces' reserve components who were called to active duty and
served the length of time for which they were activated. 

Although all veterans meeting the basic requirements are "eligible"
for hospital, nursing home, and at least some outpatient care, the VA
law establishes a complex priority system--based on such factors as
the presence and extent of any service-connected disability, the
incomes of veterans with nonservice-connected disabilities, and the
type and purpose of care needed--to determine which services are
covered and which veterans receive care within available resources. 

Generally, veterans can obtain health services only in VA-operated
health care facilities.  There are three primary exceptions: 

  -- VA-operated nursing home and domiciliary care is augmented by
     contracts with community nursing homes and by per diem payments
     for veterans in state-operated veterans' homes. 

  -- VA pays private sector physicians and other health care
     providers to extend care to certain veterans when the services
     needed are unavailable within the VA system or when the veterans
     live too far from a VA facility (commonly referred to as
     fee-basis care).  VA has limited the use of fee-basis physicians
     primarily to veterans with service-connected disabilities. 

  -- Veterans can obtain emergency hospitalization from any hospital
     and then be transferred to a VA hospital when their conditions
     stabilize. 

In addition, veterans being treated in VA facilities can be provided
specific scarce medical resources from other public and private
providers through sharing agreements and contracts between VA and
non-VA providers. 


--------------------
\1 A service-connected disability is one that results from an injury
or disease or other physical or mental impairment incurred or
aggravated during active military service.  VA determines whether
veterans have service-connected disabilities and, for those with such
disabilities, assigns ratings of from 0 to 100 on the basis of the
severity of the disability.  These ratings form the basis for
determining both the amount of compensation paid to the veterans and
the types of health care services for which they are eligible. 


      HOSPITAL AND NURSING HOME
      CARE
-------------------------------------------------------- Chapter 1:1.1

All veterans' health care benefits include medically necessary
hospital and nursing home care, but certain veterans, referred to as
Category A, or mandatory care category, veterans, have the highest
priority for receiving care.  More specifically, VA must provide
hospital care, and, if space and resources are available, may provide
nursing home care to veterans who

  -- have service-connected disabilities,

  -- were discharged from the military for disabilities that were
     incurred or aggravated in the line of duty,

  -- are former prisoners of war,

  -- were exposed to certain toxic substances or ionizing radiation,

  -- served during the Mexican Border Period or World War I,

  -- receive disability compensation,

  -- receive nonservice-connected disability pension benefits, or

  -- have incomes below the means test threshold (as of January 1996,
     $21,001 for a single veteran or $25,204 for a veteran with one
     dependent, plus $1,404 for each additional dependent). 

For higher-income veterans who do not qualify under these conditions,
VA may provide hospital and nursing home care if space and resources
are available.  These veterans, known as Category C, or discretionary
care category, veterans, must pay a part of the cost of the care they
receive. 


      OUTPATIENT CARE
-------------------------------------------------------- Chapter 1:1.2

VA provides three basic levels of outpatient care benefits: 

  -- comprehensive care, which includes all services needed to treat
     any medical condition;

  -- service-connected care, which is limited to treating conditions
     related to a service-connected disability; and

  -- hospital-related care, which provides only the outpatient
     services needed to (1) prepare for a hospital admission, (2)
     obviate the need for a hospital admission, or (3) complete
     treatment begun during a hospital stay. 

Separate mandatory and discretionary care categories apply to
outpatient care.  Only veterans who have service-connected
disabilities rated at 50 percent or more (about 465,000 veterans) are
in the mandatory care category for comprehensive outpatient care.  VA
may provide comprehensive outpatient care to veterans who (1) are
former prisoners of war, (2) served during the Mexican Border Period
or World War I, or (3) are housebound or in need of aid and
attendance.  In other words, all medically necessary outpatient care
is covered for these groups of veterans, subject to the availability
of space and resources. 

All veterans with service-connected disabilities are in the mandatory
care category for treatment related to their disabilities.  Veterans
seeking outpatient services needed to treat medical conditions
related to injuries suffered as a result of VA hospitalization or
while participating in a VA rehabilitation program are also in the
mandatory care category for such services.  Other medically necessary
care is noncovered unless the veteran also qualifies for
comprehensive care or meets the conditions for hospital-related care. 

Veterans (1) with service-connected disabilities rated at 30 or 40
percent and (2) whose annual incomes do not exceed VA's pension rate
for veterans in need of regular aid and attendance are in the
mandatory care category for hospital-related outpatient care.  VA
may, to the extent resources permit, furnish limited hospital-related
outpatient care to veterans not otherwise eligible for outpatient
care, providing they agree to pay a part of the cost of care.  For
veterans qualifying for outpatient care only under the
hospital-related care provisions, all other medically necessary
outpatient care is noncovered. 

Figure 1.1 summarizes VA eligibility provisions. 

   Figure 1.1:  Mandatory and
   Discretionary VA Health Care
   Benefits

   (See figure in printed
   edition.)

Source:  Based on data from Independent Budget for Department of
Veterans Affairs, Fiscal Year 1996, prepared by the major veterans
service organizations. 


   VA FACILITIES GENERALLY
   RESTRICTED TO PROVIDING COVERED
   SERVICES TO VETERANS
---------------------------------------------------------- Chapter 1:2

The distinction between "covered" and "noncovered" services in
discussing veterans' health benefits is important because VA
facilities are generally restricted to providing covered services to
veterans.  In addition, VA can sell health care services in only a
few situations.  Specifically, statutes authorize VA hospitals and
outpatient clinics to enter into agreements to sell

  -- health care services to Department of Defense (DOD) and other
     federal hospitals and

  -- specialized medical resources to federal and nonfederal
     hospitals, clinics, and medical schools. 

VA cannot, however, sell health care services directly to veterans or
others. 

To allow VA's resources to be more effectively used and avoid
unnecessary duplication and overlap of activities, VA has been
authorized for over 60 years to sell or share its resources with
other federal agencies.  For example, all VA medical centers within
50 miles of a DOD hospital currently have sharing agreements to
provide one or more services to DOD beneficiaries.\2 In 1989, the
Congress enacted legislation specifically authorizing the use of
Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS) funds to reimburse VA for care provided to CHAMPUS
beneficiaries under sharing agreements.  As of April 1996, three VA
medical centers were providing services to CHAMPUS beneficiaries. 
Finally, in June 1995, VA and DOD completed work on an agreement that
will allow VA facilities to compete with private sector facilities to
serve as providers under DOD's new TRICARE program.\3

Since 1966, VA facilities have also had limited authority to share
health care resources with federal and nonfederal hospitals, clinics,
and medical schools.  This authority, however, is limited to sharing
of "specialized medical resources," medical techniques, and
education.  Such resources include equipment, space, or personnel,
which, because of their cost, limited availability, or unusual
nature, are either unique in the medical community or can be fully
used only through mutual use.  VA facilities cannot provide routine
patient care services to veterans' dependents or other nonveterans,\4
even if they have the capacity to do so and the patients are willing
to pay for the services. 

Similarly, VA facilities cannot sell noncovered services to veterans. 
This restriction primarily affects outpatient care because hospital
care is a covered service for all veterans.  However, routine
outpatient care is not a covered service for most veterans, and VA
cannot sell routine outpatient care to most veterans even if they are
willing to pay for the care. 


--------------------
\2 Neither VA nor DOD reports on the sharing program provide data on
the volume of services actually shared. 

\3 DOD is restructuring the military health care system into a
managed care program known as TRICARE.  Under TRICARE, a managed care
support contractor establishes an integrated network of military and
civilian health care providers and offers CHAMPUS beneficiaries a
triple-option health care benefit.  For more information, see VA
Health Care:  Efforts to Increase Sharing With DOD and the Private
Sector (GAO/T-HEHS-96-41, Oct.  18, 1995). 

\4 VA does, however, administer a health benefits program called
CHAMPVA--Civilian Health and Medical Program of the Department of
Veterans Affairs--for dependents of veterans who are permanently and
totally disabled because of a disease, injury, or other physical or
mental impairment incurred or aggravated during military service. 
CHAMPVA, authorized by the Veterans Health Care Expansion Act of 1973
(P.L.  93-82), is patterned after CHAMPUS and functions much like a
health insurance plan using private sector physicians, hospitals, and
other providers.  The program is administered by the CHAMPVA Center,
which processes and pays claims for covered services. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:3

In July 1995 and March 1996, respectively, we testified before the
House and Senate Committees on Veterans' Affairs on major issues
affecting reform of VA health care eligibility.  At the request of
the Chairman, Senate Committee on Veterans' Affairs, this report
expands on the information presented at those hearings. 
Specifically, it discusses

  -- the evolution of the VA health care system and VA eligibility;

  -- the problems that VA's current eligibility and health care
     contracting provisions create for veterans and providers;

  -- the extent to which VA provides veterans with health care
     services for which they are not eligible;

  -- legislative proposals to reform VA eligibility and contracting
     rules and their potential effect on the ease of administration,
     equity to veterans, costs to VA, and clarity of eligibility for
     veterans' health benefits; and

  -- approaches that could be used to limit the budgetary effects of
     eligibility reforms. 

In addressing these objectives, we relied primarily on the results of
reviews that we conducted over the last 5 years that detailed
problems in administering VA's outpatient eligibility provisions,
compared VA benefits and eligibility with those of other public and
private health benefits programs and with the veterans' health
benefits programs in other countries, and assessed VA's role in a
changing health care marketplace.  A list of related GAO products is
at the end of this report. 

In addition, in developing information on the evolution of the VA
health care system and veterans' health benefits, we relied on the
legislative history of the veterans' health care provisions of title
38 of the U.S.  Code and articles and reports prepared by or for the
Brookings Institution (1934),\5 the House Committee on Veterans'
Affairs (1967),\6 the National Academy of Sciences (1977),\7

VA's Commission on the Future Structure of Veterans Health Care,\8
the Congressional Research Service,\9 the Twentieth Century Fund
(1974),\10 and VA.\11

In assessing the extent to which VA hospitals and clinics provide
inappropriate and noncovered services, we relied primarily on studies
prepared by VA researchers and VA's Office of Inspector General
(OIG).  In reviewing these studies, we paid particular attention to
the underlying causes for the problems identified to determine the
extent to which the problems were attributed to VA eligibility
provisions. 

In evaluating eligibility reform proposals, we focused on those
proposed by members of the Senate or House Veterans' Affairs
Committees, VA, and the major veterans service organizations (VSO). 
We focused on the extent to which the proposals would (1) change VA
health care funding from discretionary to mandatory, (2) expand
eligibility for VA health care services, (3) create a uniform benefit
package(s), (4) guarantee availability of covered services, and (5)
provide new sources of funding for expanded benefits. 

On the basis of this work and discussions with officials from VA and
the major VSOs, we identified a series of issues that could be
considered in future debate on eligibility reform. 

We did our work between March 1995 and June 1996 in accordance with
generally accepted government auditing standards. 


--------------------
\5 Gustavus A.  Weber and Laurence F.  Schmeckebier, The Veterans'
Administration:  Its History, Activities and Organization
(Washington, D.C.:  The Brookings Institution, 1934). 

\6 Medical Care of Veterans, House Committee Print No.  4, 90th
Congress, 1st Session (Washington, D.C.:  U.S.  Government Printing
Office (GPO), Apr.  17, 1967). 

\7 National Academy of Sciences, National Research Council, Study of
Health Care for American Veterans, pursuant to Section 201(c) of
Public Law 93-82 (Washington, D.C.:  GPO, June 7, 1977). 

\8 Report of the Commission on the Future Structure of Veterans
Health Care (Washington, D.C.:  VA, Nov.  1991). 

\9 Memorandum dated July 18, 1995, from Dennis W.  Snook, specialist
in Social Legislation, Education and Public Welfare Division, to the
House Committee on Veterans' Affairs. 

\10 Michael K.  Taussig, Those Who Served:  Report of the Twentieth
Century Fund Task Force on Policies Toward Veterans (Millwood, N.Y.: 
Draus Reprint Co., 1975). 

\11 VA History in Brief:  What It Is, Was, and Does (Washington,
D.C.:  VA, undated pamphlet, approximately 1986).






EVOLUTION OF VETERANS' HEALTH CARE
COVERAGE
============================================================ Chapter 2

The United States has a long tradition of providing benefits to those
injured in military service, but the role of the federal government
in providing for the health care needs of other veterans has evolved
and expanded over time.  The federal role, initially limited to a
program of financial assistance for those injured in combat, has
expanded to include a combination of financial assistance and direct
provision of health care services to a wide range of combat and
noncombat veterans. 

Just as VA's role in meeting veterans' health care needs has
broadened over time, the role of public and private health insurance
in meeting the health care needs of veterans (and other Americans)
has also grown.  About 90 percent of veterans now have public or
private health insurance or both in addition to their VA health care
benefits.  As a result, many veterans now have multiple options for
paying for basic hospital and physician services. 

Changes in the veteran population have also contributed to the
evolution of VA from a system focused on treatment of war injuries to
a system increasingly focused on treatment of veterans with no
service-connected disabilities and on treatment of disabilities
associated with aging.  For example, the number of veterans is
declining, fewer in the veteran population served during wartime, and
a growing proportion of veterans are over age 65. 

Our work identified many difficult questions facing the Congress as
it considers future changes in the mission of the veterans' health
care system.  For example, what do veterans perceive as the nation's
obligation to meet their health care needs and how does that
perception differ from the commitment made by the Congress and the
administration?  Similarly, with the growth of public and private
health insurance, are changes needed in VA's role as a safety net
provider?  Finally, with an aging veteran population, are changes
needed in VA's role in meeting the long-term care needs of veterans? 


   FEDERAL ROLE IN VETERANS'
   HEALTH CARE
---------------------------------------------------------- Chapter 2:1

In the nation's early years, the federal role was limited to direct
financial payments to veterans injured during combat; direct medical
and hospital care was provided by the individual colonies, states,
and communities.  The first colonial law establishing veterans'
benefits, enacted by the Pilgrims of Plymouth Colony in 1636,
provided that any soldier injured in the war with the Pequot Indians
would be maintained by the colony for the rest of his life.  Other
colonies enacted similar provisions. 

The Continental Congress, seeking to encourage enlistments during the
Revolutionary War, provided federal compensation for veterans injured
during the war and their dependents.  Similarly, the first U.S. 
Congress passed a veterans' compensation law.\12

The federal role began to expand in 1833 with the opening of the
first domiciliary and medical facility for veterans--the U.S.  Naval
Home.  A second federal home for disabled and invalid soldiers--the
Old Soldiers and Sailors Home--authorized in 1851, is still in
operation in Washington, D.C.  Although the federal role was no
longer limited to financial support for war-disabled veterans,
medical care was only an incidental part of the homes, which were
primarily residential facilities. 


--------------------
\12 Since 1946, VA has used the term "compensation" rather than
"pension" to refer to payments for disabilities or death related to
military service.  "Pension" is paid on the basis of financial need
for totally disabled veterans or certain survivors for disabilities
or death not related to military service. 


      DIRECT MEDICAL CARE EXPANDED
      DURING AND FOLLOWING THE
      CIVIL WAR
-------------------------------------------------------- Chapter 2:1.1

The federal role in veterans' health care significantly expanded
during and following the Civil War.  During the war, the government
operated temporary hospitals and domiciliaries in various parts of
the country for disabled soldiers until they were physically able to
return to their homes.  Following the war, the number of disabled
veterans, and veterans unable to cope with the economic struggle of
civilian life, became so great that the government built a number of
"homes" to provide domiciliary care.\13

Incidental medical and hospital care was provided to residents for
all diseases and injuries, whether or not they were service related. 

In addition to indigent and disabled veterans of the Civil War,
eligibility for admission to the homes was subsequently extended to
veterans of the Indian Wars, Spanish-American War, Mexican Border
Period, and discharged regular members of the armed forces. 


--------------------
\13 In 1865, the Congress established the National Asylum for
Disabled Volunteer Soldiers.  The Asylum operated individual homes,
known as branches, which provided domiciliary, hospital, and medical
care.  The term "home" was substituted for "asylum" in 1873.  Such
homes are now referred to as "domiciliaries."


      ONSET OF WORLD WAR I USHERED
      IN NEW VETERANS' BENEFITS
-------------------------------------------------------- Chapter 2:1.2

The modern era of the veterans' health care system began with the
onset of World War I.  During World War I a series of new veterans
benefits were added:  voluntary life insurance, allotments to take
care of the family during service, reeducation of those disabled,
disability compensation, and medical and hospital care for those
suffering from wounds or diseases incurred in the service. 

Throughout the 1800s, the federal role had been limited to the
provision of (1) compensation to war-disabled veterans and (2)
domiciliary care and incidental medical care to veterans with
injuries incurred during wartime service or to veterans who are
incapable of earning a living because of a permanent disability,
tuberculosis, or neuropsychiatric disability suffered after their
wartime service. 

During World War I, however, Public Health Service (PHS) hospitals
treated returning veterans and at the end of the war, several
military hospitals were transferred to PHS to enable it to continue
serving the growing veteran population.  In 1921, those PHS hospitals
primarily serving veterans were transferred to the newly established
Veterans' Bureau. 

Casualties returning from World War I soon overwhelmed the capacity
of veterans' hospitals to treat injured soldiers.  The Congress
responded by increasing the number of veterans' hospitals with an
emphasis on treatment of veterans' disabling conditions.  In 1921,
eligibility for hospital care was expanded to include treatment for
all service-connected conditions. 


      ELIGIBILITY EXPANDED WHEN
      SUPPLY EXCEEDED DEMAND FOR
      CARE
-------------------------------------------------------- Chapter 2:1.3

After most of the immediate, postwar, service-connected medical
problems of veterans were met, VA hospitals began to experience
excess capacity instead of a shortage of beds.  Proposals were made
to close underutilized hospitals.  The VSOs lobbied for free hospital
care for medically indigent veterans without service-connected
disabilities.  The Congress, in 1924, gave wartime veterans with
nonservice-connected conditions access to Veterans' Bureau hospitals,
provided space was available and the veterans signed an oath
indicating they were unable to pay for their care. 


      VA ESTABLISHED TO BETTER
      COORDINATE VETERANS'
      PROGRAMS
-------------------------------------------------------- Chapter 2:1.4

During the 1920s, three federal agencies--the Veterans Bureau, the
Bureau of Pensions in the Interior Department, and the National Home
for Disabled Volunteer Soldiers--administered various benefits for
the nation's veterans.  With the establishment of the Veterans
Administration (VA)\14 in 1930, previously fragmented care for
veterans was consolidated under one agency. 

During the Great Depression, demand for VA hospital care was
unprecedented.  As part of efforts to curtail federal spending,
President Roosevelt, in 1933, issued regulations making veterans
ineligible for hospital treatment of nonservice-connected conditions. 
The following year, however, the Congress restored eligibility for
treatment of nonservice-connected conditions.  Subsequently, in 1937,
President Roosevelt authorized construction of additional VA hospital
beds to (1) meet the increased demand for neuropsychiatric care and
treatment of tuberculosis and other respiratory illnesses and (2)
provide more equitable geographic access to care. 


--------------------
\14 We use the VA acronym to represent both the Veterans
Administration and, when it became a cabinet-level department in
1989, the Department of Veterans Affairs. 


      CARE DURING AND FOLLOWING
      WORLD WAR II LED TO FURTHER
      ELIGIBILITY EXPANSIONS
-------------------------------------------------------- Chapter 2:1.5

Rapidly rising demand for hospital care brought on by the onset of
U.S.  involvement in World War II led to construction and expansion
of VA hospitals.  Because of the heavy demand for care, World War II
veterans were initially eligible only for treatment of
service-connected disabilities.  In 1943, however, new eligibility
requirements were established for World War II veterans identical to
those for World War I veterans. 

Demand for care was so great, however, that in March 1946 VA had a
waiting list of over 26,000 veterans seeking care for
nonservice-connected conditions.  As had occurred following the end
of World War I, the initial high demand for medical services for
returning casualties soon declined and VA once again had excess
hospital capacity.  In 1947, the Congress created a presumption that
a diagnosis of a chronic psychiatric condition within 2 years of
discharge would be regarded as service-connected. 

The next significant expansion of hospital eligibility occurred in
1962, when legislation was enacted that defined as a
service-connected disability any condition traceable to a period of
military service, regardless of the cause or circumstances of its
occurrence.  Before that time, care for service-connected conditions
was not assured unless they were incurred or aggravated during
wartime service. 

In 1973, eligibility for hospital care was extended to treatment of
nonservice-connected disabilities of peacetime veterans unable to
defray the cost of care.  Previously, treatment of
nonservice-connected disabilities was limited to wartime veterans. 

Finally, in 1986, the Congress extended eligibility to higher-income
veterans with no service-connected disabilities.  Previously, only
those veterans with nonservice-connected disabilities who signed a
poverty oath were eligible for VA hospital care.  To be eligible for
VA hospital care, higher-income veterans must agree to contribute
toward the cost of their care. 


      ELIGIBILITY FOR OUTPATIENT
      CARE EXPANDED MORE SLOWLY
-------------------------------------------------------- Chapter 2:1.6

Eligibility for outpatient care was initially limited to treatment of
service-connected disabilities.  It was not until 1960 that VA was
first authorized to treat nonservice-connected disabilities on an
outpatient basis.  In that year, Public Law 86-639 authorized
outpatient treatment for a nonservice-connected disability in
preparation for or to complete treatment of hospital care.  So
concerned was the Administrator of Veterans Affairs about the
potential implications of this change that he wrote: 

     "The possible adverse effects of the proposed legislation should
     also, I believe, be considered.  This bill would for the first
     time mean that non-service-connected veterans would be receiving
     outpatient treatment even though we have endeavored to make
     revisions which would relate this only to hospital care.  The
     outpatient treatment of the non-service-connected might be an
     opening wedge to a further extension of this type of medical
     treatment."

Thirteen years later, the Veterans Health Care Expansion Act of 1973
(P.L.  93-82) further expanded eligibility for outpatient care.  The
act (1) made veterans with service-connected disabilities rated at 80
percent or higher eligible for free comprehensive outpatient care and
(2) authorized outpatient treatment for any nonservice-connected
disability to "obviate the need of hospital admission." Three years
later, in 1976, the mandatory care category for free comprehensive
outpatient services was extended to include veterans with
service-connected disabilities rated at 50 percent or higher. 

In 1986, the Congress expanded eligibility for outpatient care to
include higher-income veterans agreeing to contribute toward the cost
of their care.  Previously, only those veterans with
nonservice-connected disabilities who signed a poverty oath were
eligible for outpatient care. 

The last major expansion of outpatient eligibility occurred in 1988
when veterans with (1) service-connected disabilities rated at 30 or
40 percent or (2) with incomes below the maximum pension rate were
placed in the mandatory care category for outpatient treatment for
prehospital and posthospital care and for care that would obviate the
need for hospital care. 


   VETERANS' OTHER HEALTH CARE
   OPTIONS HAVE IMPROVED SINCE
   1930
---------------------------------------------------------- Chapter 2:2

When the VA health care system was established, there was no public
or private health insurance program to assist veterans in paying for
needed health care services.  Private health insurance, which
typically pays for services provided by physicians and health care
facilities on a fee-for-service basis,\15 began to emerge in the
1930s with the establishment of Blue Cross and Blue Shield and
commercial plans.  The industry expanded rapidly during the 1950s,
and in 1959, the Federal Employees Health Benefits Act authorized the
federal government to provide health care benefits to millions of
federal employees and retirees and their dependents through private
health insurance.  By 1993, over 182 million Americans were covered
by private health insurance. 

In 1965, the Congress enacted legislation establishing the two
largest public health insurance programs--Medicare, serving elderly
and disabled Americans, and Medicaid, a jointly funded federal-state
program serving low-income Americans.\16 The following year, the
Congress established CHAMPUS to enable military retirees and the
dependents of active duty and retired military personnel to obtain
health care in the private sector when services are not available or
not accessible in DOD facilities.\17

Although each of the major public and private programs has a
different target population, overlaps between target populations
result in many veterans having coverage under multiple programs. 
Table 2.1 describes potential overlaps in populations served by the
VA health care system and other health care programs. 



                         Table 2.1
          
          Overlapping Populations Served by VA and
             Other Major Health Programs, 1991


                                          Major overlaps
Description                         Size  with VA
------------------------  --------------  ----------------
VA
----------------------------------------------------------
Veterans                      26,600,000  Not applicable

DOD direct care
----------------------------------------------------------
Active duty military           2,000,000  None
 personnel
Military retirees              1,700,000  1,700,000
                                           military
                                           retirees
Dependents of active           5,300,000  None
 duty and retired
 military personnel

DOD-CHAMPUS
----------------------------------------------------------
Military retirees under        1,200,000  1,200,000
 age 65                                    military
                                           retirees
Dependents of active and       4,800,000  None
 retired military
 personnel

Medicare
----------------------------------------------------------
Elderly, disabled, and        34,900,000  7,400,000
 persons with end-stage                    Medicare-
 renal disease                             eligible
                                           veterans\a

Medicaid
----------------------------------------------------------
Low-income veterans           32,300,000  400,000
                                           Medicaid-
                                           eligible
                                           veterans\a

Federal Employees Health Benefits Program
----------------------------------------------------------
Active federal employees       2,400,000  745,000 active
                                           federal
                                           employees
Retired federal                1,700,000  754,000 retired
 employees                                 federal
                                           employees
Dependents of active and       5,300,000  None
 retired federal
 employees

Private insurance
----------------------------------------------------------
General public             185,000,000\a  22,900,000
                                           veterans\a
----------------------------------------------------------
\a Estimate based on Bureau of the Census' "Survey of Income and
Program Participation," using 1990 data. 


--------------------
\15 Fee for service refers to an arrangement in which providers
render services and are paid for each medically necessary service
rendered to a covered beneficiary. 

\16 Medicare and Medicaid are administered at the federal level by
HCFA within HHS.  Medicaid programs are primarily state-administered,
and there is considerable variation in the benefits covered. 

\17 The Dependents' Medical Care Act, effective December 7, 1956,
previously authorized care from civilian sources for spouses and
children of active duty military members.  Coverage was extended to
retired members and their dependents and to dependents of deceased
servicemembers through the Military Medical Benefits Amendments of
1966.  The program became known as CHAMPUS at that time. 


      VETERANS' UTILIZATION OF VA
      HEALTH CARE
-------------------------------------------------------- Chapter 2:2.1

With the growth of public and private health insurance, more than 9
out of 10 veterans now have alternate health insurance coverage,
decreasing the importance of VA's safety net mission.  (See fig. 
2.1.)

   Figure 2.1:  Veterans' Health
   Care Coverage

   (See figure in printed
   edition.)

Note:  Veterans covered by CHAMPUS are also eligible for care in DOD
health care facilities on a space-available basis.  Veterans losing
CHAMPUS coverage upon becoming Medicare-eligible can still use DOD
facilities on a space-available basis. 

Veterans with higher incomes, alternate health insurance coverage,
and no service-connected disabilities are significantly less likely
to seek care from VA health care facilities than are veterans with
service-connected disabilities, low incomes, and no health insurance. 
The following data illustrate: 

  -- Over 82 percent of veterans with health insurance had never used
     VA, compared with about 56 percent of veterans with no health
     insurance.\18

  -- Over 88 percent of veterans with incomes of $40,000 or more had
     never used VA, compared with over 63 percent of veterans with
     incomes under $10,000. 

  -- Over 70 percent of veterans with no service-connected
     disabilities had never used VA health care services, compared
     with 30 percent of those with service-connected disabilities. 


--------------------
\18 In 1990, about 25.6 million of the nation's estimated 28.2
million veterans (almost 91 percent) had public or private health
care coverage or both in addition to their VA coverage.  Over 81
percent of veterans (22.9 million) had private health insurance; 26
percent (7.4 million) had Medicare coverage; 5.1 percent (1.4
million) had coverage under CHAMPUS; and 1.6 percent (0.4 million)
had Medicaid coverage.  (See Veterans' Health Care:  Most Care
Provided Through Non-VA Programs (GAO/HEHS-94-104BR, Apr.  25,
1994).)


   SIGNIFICANT CHANGES ARE
   OCCURRING IN THE VETERAN
   POPULATION
---------------------------------------------------------- Chapter 2:3

Changes in the size and composition of the veteran population also
contribute to the evolution of the VA health care system from one
primarily treating war-related injuries to one increasingly focused
on veterans with no service-connected disabilities.  As the nation's
large World War II and Korean War veteran populations age, their
needs for nursing home and other long-term care services are
increasing. 

The veteran population, which totaled about 26.4 million in 1995, is
both declining and aging.  The number of veterans has steadily
declined since 1980 and is expected to decline at an accelerated rate
through 2010.  Between 1990 and 2010, VA projects the veteran
population will decline 26 percent.\19 (See fig.  2.2.)

   Figure 2.2:  Estimated Number
   of Veterans, 1965-2010

   (See figure in printed
   edition.)

Source:  VA National Center for Veteran Analysis and Statistics. 


--------------------
\19 VA's projections are based on a relatively stable number of new
veterans entering the system following military discharge.  War or
other military buildup would likely increase the number of veterans. 
Conversely, further downsizing of the military would accelerate the
decline in the veteran population. 


      VETERANS INCREASINGLY NEED
      NURSING HOME AND OTHER
      LONG-TERM CARE SERVICES
-------------------------------------------------------- Chapter 2:3.1

As the veteran population continues to age, the decrease will not be
evenly distributed among age groups.  The decline will be most
notable among veterans under 65 years of age--from about 20.0 million
to 11.5 million (42 percent).  The number of veterans aged 65 to 84
will increase from 7.0 million to 8.9 million in the year 2000, then
will drop to about 7.2 million by 2010.  In contrast, the number of
veterans aged 85 and older will increase more than eight-fold, from
154,000 to 1.3 million by 2010.  At that time, veterans aged 85 and
older will constitute about 6.3 percent of the veteran population. 
(See fig.  2.3.)

   Figure 2.3:  Estimated Veteran
   Population, by Age, 1990-2010

   (See figure in printed
   edition.)

Source:  VA National Center for Veteran Analysis and Statistics. 

Old age is often accompanied by the development of chronic health
problems, such as heart disease, arthritis, and other ailments. 
These problems, important causes of disability among the elderly
population, often result in the need for nursing home care or other
long-term care services.  With the veteran population continuing to
age rapidly, VA faces a significant challenge in trying to meet
increasing demand for nursing home care.  Over 50 percent of veterans
over 85 years old are expected to need nursing home care compared
with 13 percent of those 65 to 69 years old. 


      DECLINING NUMBERS OF
      VETERANS HAVE WARTIME AND
      COMBAT DUTY
-------------------------------------------------------- Chapter 2:3.2

Coinciding with the overall decline in the number of veterans is a
decline in the percentage of the veteran population that served
during wartime.  Because of the higher death rate of veterans who
served in World War II (they currently account for almost three of
every four veteran deaths), the population of veterans who served
during wartime will decrease faster than the total veteran
population--35 percent verses 26 percent.  VA projects the number of
total wartime veterans will decline from 21.0 million in 1990 to 13.6
million in 2010.  (See fig.  2.4.)

   Figure 2.4:  Estimated Veteran
   Population, by Wartime and
   Peacetime Service, 1990-2010

   (See figure in printed
   edition.)

Source:  VA National Center for Veteran Analysis and Statistics. 

Even more dramatic is the shift in the number of wartime veterans by
period of service.  In 1990, the largest group of wartime veterans
were World War II veterans, followed by Vietnam and Korean War
veterans, respectively.  By 1995, however, deaths of World War II
veterans had reached the point where Vietnam-era veterans outnumbered
surviving World War II veterans by about 826,000.  By 2010, Persian
Gulf War veterans are expected to outnumber both Korean War and World
War II veterans.  (See fig.  2.5.)

   Figure 2.5:  Estimated Wartime
   Veterans, by Period of Service,
   1990-2010

   (See figure in printed
   edition.)

Notes:  Excludes World War I and Mexican Border Period veterans.  In
1990, there were an estimated 62,000 World War I veterans.  This
number was expected to drop to 13,000 in 1995, 2,000 by the year
2000, and to less than 500 by 2005.  VA estimated that there were 164
Mexican Border Period veterans in 1994.

Veterans who served during more than one wartime period are counted
in each period. 

Source:  VA National Center for Veteran Analysis and Statistics. 

Most veterans who served during wartime saw no combat exposure.  As a
result, about 35 percent of U.S.  veterans were actually exposed to
combat.  (See fig.  2.6.)

   Figure 2.6:  Combat Exposure of
   the Veteran Population, 1992

   (See figure in printed
   edition.)

Source:  Based on VA's 1992 National Survey of Veterans. 

About 8.3 percent of veterans have compensable service-connected
disabilities.  Veterans who served during peacetime are almost twice
as likely to have service-connected disabilities as veterans of the
Korean War and only slightly less likely to have service-connected
disabilities than Vietnam-era and Persian Gulf War veterans.  Most
likely to have service-connected disabilities are World War II
veterans.  (See fig.  2.7.)

   Figure 2.7:  Percentage of
   Veterans With Service-Connected
   Disabilities, by Period of
   Service, 1995

   (See figure in printed
   edition.)

Source:  Data are from the Annual Report of the Secretary of Veterans
Affairs, Fiscal Year 1995 (Washington, D.C.:  VA, 1996). 

Of the over 2.2 million veterans with compensable service-connected
disabilities, over half have disability ratings of 10 or 20
percent.\20 Of the remaining veterans with service-connected
disabilities, about 464,000 had disabilities rated at 50 percent or
higher and 488,000 had disabilities rated at 30 or 40 percent.  (See
fig.  2.8.)

   Figure 2.8:  Veterans With
   Service-Connected Disabilities,
   by Degree of Disability, 1994

   (See figure in printed
   edition.)

Note:  The number of veterans with "0" percent service-connected
disabilities includes an estimated 1.2 million veterans with
noncompensable service-connected disabilities. 

Source:  Data are from the Annual Report of the Secretary of Veterans
Affairs, Fiscal Year 1994 (Washington, D.C.:  VA, 1995) and
discussions with VA officials. 


--------------------
\20 VA reported 2,217,908 veterans with service-connected
disabilities as of September 30, 1994.  However, VA does not maintain
records on most veterans with noncompensable service-connected
disabilities rated "0." VA estimates that there are about 1.2 million
such veterans. 


   MULTIPLE ISSUES FACE VA AND THE
   CONGRESS IN PLANNING CHANGES IN
   VA'S HEALTH CARE MISSION
---------------------------------------------------------- Chapter 2:4

Many of the health care benefits for which veterans are now eligible
were added after they were discharged from the military.  For
example, most World War II and Korean War veterans were discharged
before nursing home benefits were added to the VA system in 1964. 
Similarly, higher-income veterans were not eligible for VA health
care until 1986, when the means test was added.  More importantly,
outpatient benefits, other than for treatment of service-connected
disabilities, were not available even for pre- and posthospital care
until 1960.  And broader outpatient benefits to cover services needed
to obviate the need for hospital care were not added until after the
Vietnam War.  In other words, not one of the three largest groups of
veterans--World War II, Korean War, or Vietnam War--was discharged
with a promise of comprehensive health care for both
service-connected and nonservice-connected conditions. 

Although many of the health benefits for which veterans are now
eligible were not covered at the time they were discharged, were
servicemembers led to believe, either as an inducement to enlist or
as a promise upon discharge, that the government would provide for
their health care needs for the remainder of their lives? 

The first, and perhaps most important, issue to be addressed in
considering changes in veterans' health care eligibility is the
nation's commitment to its veterans.  But what is and what should
that commitment be?  Since colonial times, there has been little
doubt that servicemembers injured in combat are entitled to
compensation for their injuries.  There is less agreement, however,
on the role and responsibility of the federal government in meeting
the other health care needs of veterans. 

Decisions made with regard to what the nation's commitment is to its
veterans will largely drive decisions on whether eligibility
distinctions should continue to be based on factors such as degree of
service-connected disability and income.  If a decision is made that
all veterans should be eligible for the same comprehensive health
benefits, then eligibility distinctions will, in the future, be used
only to determine veterans' relative priorities for care.  If,
however, a decision is made that certain veterans should be given
more extensive benefits than others, then such distinctions will
continue to be used to define the differences in benefits.  For
example, certain categories of veterans might be eligible for a
broader range of services or lower cost sharing.  The question then
would become whether to keep the same distinctions as in the current
law or base the distinctions on other factors. 

In three other countries that operated direct delivery systems for
veterans (United Kingdom, Australia, and Canada), declining use of
veterans' hospitals prompted actions to open them to nonveterans.  It
was hoped that caring for community patients would allow the
hospitals and staff to maintain their medical expertise and expand
services.  Should our veterans' health care system similarly be
opened to nonveterans?  Among the options that could be considered
would be extending veterans' benefits to more dependents.  If a
veteran is uninsured and lacks health care options, his or her family
is also likely to be uninsured and without adequate health care. 

Once a benefit has been established, it can be difficult to change
the cost-sharing requirements.  As new benefits are added, however,
an opportunity exists to determine to what extent the government and
the veteran will share the cost of the added benefits. 

Because of the limitations on coverage of routine outpatient
services, VA's health care safety net is structured more like a
catastrophic health insurance plan than comprehensive health
insurance.  Most veterans are responsible for paying for routine
health care services not needed to obviate the need for hospital
care.  For veterans with other public or private insurance, this
limitation likely has a minimal effect on their use of health care
services.  But low-income veterans without public or private
insurance must either use their own funds to obtain routine health
care services or forgo needed care.  An important issue, then, in
considering eligibility reform is whether changes need to be made in
VA's safety net mission. 

Veterans frequently have unmet needs for nursing home and other
long-term care services.  Medicare and most private health insurance
cover only short-term, post-acute nursing home, and home health care. 
Although private long-term care insurance is a growing market, the
high cost of policies places such coverage out of the reach of many
veterans.  As a result, most veterans must pay for long-term nursing
home and home care services out of pocket until they spend down most
of their income and assets on health care and qualify for Medicaid. 
Although VA has a nursing home benefit, it is a discretionary benefit
for all veterans.  Should changes be made in the nursing home benefit
to enable VA to meet the long-term care needs of more veterans? 

Because of the overlapping populations, changes in one health care
program can have a significant effect on demand for care under other
programs.  For example, expanded availability of private health
insurance would likely decrease demand for VA health care.\21

Similarly, changes in the Medicare program, such as those proposed by
some in the Congress, could affect future demand for VA health care
services, although it is unclear whether they would increase or
decrease demand for VA care.  To what extent should changes in other
health care programs affect the design of VA eligibility reforms? 

These issues are discussed in more detail in appendix I. 


--------------------
\21 VA Health Care:  Alternative Health Insurance Reduces Demand for
VA Health Care (GAO/HRD-92-79, June 30, 1992). 


ELIGIBILITY PROVISIONS FRUSTRATE
VETERANS AND LIMIT VA'S ABILITY TO
MEET VETERANS' HEALTH CARE NEEDS
============================================================ Chapter 3

Unlike public and private health insurance, the VA health benefits
program does not (1) have a well-defined benefit package or (2)
entitle veterans to services or guarantee that services are covered. 
Similarly, as a health care provider, VA, unlike private sector
providers, is severely limited in its ability to both buy health care
services from and sell health care services to individuals and other
providers.  These differences help make VA's eligibility provisions a
source of frustration for veterans, VA physicians, and VA's
administrative staff.  The problems created by these provisions
include the following: 

  -- Veterans are often uncertain about which services they are
     eligible to receive and what right they have to demand that VA
     provide them. 

  -- Physicians and administrative staff find the eligibility
     provisions hard to administer. 

  -- Veterans have uneven access to care because the availability of
     covered services is not guaranteed. 

  -- Physicians are put in the difficult position of having to deny
     needed, but noncovered, health care services to veterans. 

Because of these problems, veterans may be unable to consistently
obtain needed health care services from VA facilities. 

Designing solutions to these problems will require both
administrative and legislative actions.  VA and the Congress will
face many difficult choices.  For example, in designing legislative
solutions, decisions will need to be made on whether the availability
of services should be guaranteed for one or more groups of veterans
and whether a defined benefit package should be developed. 


   VETERANS UNCERTAIN ABOUT WHICH
   SERVICES ARE COVERED
---------------------------------------------------------- Chapter 3:1

Because public and private insurance policies generally have a
defined benefit package, both policyholders and providers generally
know in advance which services are covered and what limitations apply
to the availability of services.  Defined benefit packages also
preserve insurers' flexibility by permitting them to trade benefits
against program costs.  For example, by eliminating certain benefits
(such as dental care or prescription drugs), an insurer can restrain
the growth in premiums.  An insurer can also offer multiple policies
with varying benefits, but individuals with the same policy have the
same benefits. 

Like private insurance, VA essentially offers multiple health
benefits "policies" with varying benefits.  Unlike private insurance,
however, veterans with the same "policy" will not necessarily receive
the same services.  Only those veterans whose "policy" covers all
medically necessary care--primarily veterans with service-connected
disabilities rated at 50 percent or higher--have clearly defined,
uniform, benefits.  Because coverage of outpatient services for most
veterans varies on the basis of their medical conditions, a veteran
may be eligible to receive different services at different times. 
For example, if a veteran with no service-connected disabilities is
scheduled for admission to a VA hospital for elective surgery, he or
she is eligible to receive any outpatient service needed to prepare
for the hospital admission, including a physical examination with X
rays and blood tests.  However, if the same veteran sought a routine
physical examination from a VA outpatient clinic, he or she would not
be eligible because there is no apparent need for hospital-related
care. 

The benefit packages under public and private insurance programs
frequently cover preventive health services, such as routine physical
examinations and immunizations.  In contrast, VA health benefits are
focused on the provision of medical services needed for treatment of
a "disability." For example, a woman veteran may obtain treatment for
the complications of pregnancy, but may not obtain prenatal care or
delivery services for a routine pregnancy through the VA health care
system. 

Because of the lack of a well-defined benefit package, veterans are
often confused by VA's complex eligibility provisions.  The services
they can get from VA depend on such factors as the presence and
extent of any service-connected disability, income, period of
service, and the seriousness of the condition.  The VA system limits
veterans' access to covered services (that is, it rations care to
certain veterans), rather than narrowing the scope of services
offered to all veterans in the same coverage group. 

To further add to veterans' confusion about which health care
services they are eligible to receive from VA, title 38 of the U.S. 
Code specifies only the types of medical services that cannot be
provided on an outpatient basis.  Except for service-connected
disabilities, VA outpatient clinics generally cannot provide, for
example,

  -- prosthetic devices, such as wheelchairs, crutches, eyeglasses,
     and hearing aids, to veterans not eligible for comprehensive
     outpatient services;

  -- dental care to most veterans unless they were examined and had
     their treatment started while in a VA hospital; and

  -- routine prenatal care and delivery services. 


   OUTPATIENT ELIGIBILITY
   REQUIREMENTS ARE DIFFICULT TO
   ADMINISTER
---------------------------------------------------------- Chapter 3:2

Veterans are not the only ones confused by VA eligibility provisions. 
Those tasked with applying and enforcing the provisions on a daily
basis--VA physicians and administrative staff--express similar
frustration in attempting to interpret the provisions.  Although the
criterion limiting outpatient services to those needed to obviate the
need for hospitalization is most often cited as the primary source of
frustration, VA administrative staff must also enforce a series of
other requirements, which add administrative costs not typically
incurred under other public or private insurance programs. 

VA has provided limited guidance to its facilities on how to
interpret the statutory eligibility criterion relating to obviating
the need for hospitalization.  Guidance to medical centers says that
eligibility determinations

     "shall be based on the physician's judgment that the medical
     services to be provided are necessary to evaluate or treat a
     disability that would normally require hospital admission, or
     which, if untreated would reasonably be expected to require
     hospital care in the immediate future.  .  .  ."

To assess medical centers' implementation of this criterion, we used
medical profiles of six veterans developed from actual medical
records and presented them to 19 medical centers for eligibility
determinations.\22 At these 19 centers, interpretations of the
criterion ranged from permissive (care for any medical condition) to
restrictive (care only for certain medical conditions).  In other
words, from the veteran's perspective, access to VA care depends
greatly on which medical center he or she visits.  For example, if
one veteran we profiled had visited all 19 medical centers, he would
have been determined eligible by 10 centers but ineligible by 9
others. 

Officials at VA's headquarters and medical centers agreed that the
criterion to obviate the need for hospital admission is an ambiguous
and inadequately defined concept.  A headquarters official stated
that because the term has no clinical meaning, its definition can
vary among physicians or even with the same physician.  A medical
center official noted that the criterion

     ".  .  .  is so vaguely worded that every doctor can come up
     with one or more interpretations that will suit any situation. 
     .  ..  Having no clear policy, we have no uniformity.  The same
     patient with the same condition may be denied care by one
     physician, only to walk out of the clinic the next day with a
     handful of prescriptions supplied by the doctor in the next
     office."

With thousands of VA physicians making eligibility decisions each
working day, the number of potential interpretations is large. 

In addition to interpreting the obviate-the-need criterion, VA
physicians or administrative staff must evaluate a series of other
eligibility requirements before deciding whether individual veterans
are eligible for the health care services they seek.  For example,
they must

  -- determine whether the disability for which care is being sought
     is service-connected or aggravating a service-connected
     disability, because different eligibility rules apply to care
     for service-connected and nonservice-connected disabilities;

  -- determine the disability rating for veterans with
     service-connected disabilities because the outpatient services
     they are eligible for and their priority for care depend on
     their rating;

  -- determine the income and assets of veterans with no
     service-connected disabilities because their eligibility for
     (and priority for receiving) care depends on a determination of
     their ability to pay for care; and

  -- determine whether the veteran's medical condition may have been
     related to exposure to toxic substances or environmental hazards
     during service in Desert Storm or Vietnam, in which case care
     may be provided without regard to other eligibility provisions. 


--------------------
\22 VA Health Care:  Variabilities in Outpatient Care Eligibility and
Rationing Decisions (GAO/HRD-93-106, July 16, 1993). 


   AVAILABILITY OF VA HEALTH CARE
   IS UNCERTAIN
---------------------------------------------------------- Chapter 3:3

Under private health insurance, Medicare, and Medicaid, the coverage
of services is guaranteed.  For example, all beneficiaries who meet
the basic eligibility requirements for Medicare are entitled to
receive all medically necessary care covered under the Medicare part
A benefit package.  Similarly, those Medicare beneficiaries who
enroll for part B benefits are entitled to receive all medically
necessary care covered under the part B benefit package.  Medicare is
authorized to spend as much as necessary to pay for covered services,
creating guaranteed access to covered services.  Under private health
insurance, policyholders are essentially guaranteed coverage of
medically necessary services under their benefit package.  In other
words, under both Medicare and private insurance, the insurer--either
the government in the case of Medicare or an insurance company in the
case of private health insurance--assumes the financial risk for
paying for covered services. 

Under the VA health care system, however, the government does not
assume the same degree of financial risk for providing covered
services.  Being in the mandatory care category for VA health care
services does not entitle veterans to, or guarantee coverage of,
needed services.  The VA health care system is funded by a fixed
annual appropriation; once appropriated funds have been expended, the
VA health care system is not allowed to provide additional health
care services--even to veterans in the mandatory care category. 
Although title 38 of the U.S.  Code contains frequent references to
services that "shall" or "must" be provided to mandatory care group
veterans, in practical application the terms mean that services
"shall" or "must" be provided up to the amount the Congress has
authorized to be spent.  Being in the mandatory care category
essentially gives veterans a higher priority for treatment than
veterans in the discretionary care category. 

In effect, veterans, rather than the government, assume a significant
portion of the financial risk in the VA health care system because
there is no guarantee that sufficient funds will be appropriated to
enable the government to provide services to all veterans seeking
care.  Historically, however, sufficient funds have been appropriated
to meet the health care needs of all veterans in the mandatory care
category as well as most of those in the discretionary care
categories.  Rationing of health care has occurred when individual
facilities or programs run short of funds because of unanticipated
demand, inefficient operations, or inequitable resource allocation. 

Because the provision of VA outpatient services is conditioned on the
availability of space and resources, veterans cannot be assured that
health care services are available when they need them.  Even
veterans in the mandatory care category are theoretically limited to
health care services that can be provided with available space and
resources.  If demand for VA care exceeds the capacity of the system
or of an individual facility to provide care, then health care
services are rationed. 

The Congress established general priorities for VA to use in
rationing outpatient care when resources are not available to care
for all veterans.  VA delegated rationing decisions to its medical
centers; that is, each must independently make choices about when and
how to ration care. 

Using a questionnaire, we obtained information from VA's 158 medical
centers on their rationing practices.  In fiscal year 1991, 118
centers reported that they rationed outpatient care for
nonservice-connected conditions and 40 reported no rationing. 
Rationing generally occurred because resources did not always match
veterans' demands for care.\23

When the 118 centers rationed care, they also used differing methods. 
Some rationed care according to economic status, others by medical
service, and still others by medical condition.  The method used can
greatly affect who is turned away.  For example, rationing by
economic status will help ensure that veterans of similar financial
means are treated similarly.  On the other hand, rationing by medical
service or medical condition helps ensure that veterans with similar
medical needs are treated the same way. 

The 118 medical centers' varying rationing practices resulted in
significant inconsistencies in veterans' access to care both among
and within centers.  For example, higher-income veterans frequently
received care at many medical centers, while lower-income veterans or
those who also had service-connected disabilities were turned away at
other centers.  Some centers that rationed care by either medical
service or medical condition sometimes turned away lower-income
veterans who needed certain types of services while caring for
higher-income veterans who needed other types of services. 

A recent VA survey of its medical centers found that 6 of 162
facilities had either turned away or provided only a single limited
treatment to category A (mandatory care) veterans who needed hospital
care.  The survey also found that 22 VA outpatient clinics had denied
treatment or provided only a single treatment to category A veterans. 


--------------------
\23 GAO/HRD-93-106, July 16, 1993. 


   RESTRICTIONS ON VA'S AUTHORITY
   TO SELL NONCOVERED SERVICES
   MAKES ELIGIBILITY DECISIONS
   MORE DIFFICULT
---------------------------------------------------------- Chapter 3:4

One major source of frustration for VA facilities is their inability
to provide needed health care services to veterans when those
services are not covered under their veterans' benefits.  Unlike
private sector physicians, who can generally provide any available
outpatient service to patients willing to pay, VA facilities and
physicians are generally unable to provide noncovered services to
veterans.  In the private sector, physicians and clinics can sell
their services to any person regardless of whether the service is
covered by insurance.  Essentially, the patient assumes the financial
responsibility for any services not covered under his or her health
insurance. 

Although VA health care facilities are in general restricted to use
by veterans, VA actually has greater authority to sell health care
services to, for example, medical school hospitals serving
nonveterans through sharing agreements than it does to sell the same
services directly to veterans.  Specifically, VA hospitals and
clinics cannot, under current law, sell veterans those services not
covered under their veterans' health care benefits even if the
veterans (1) have public or private health insurance that would pay
for the care or (2) agree to pay for the services out of their own
funds. 

By contrast, VA hospitals and clinics can share or sell any available
health care service to (1) other federal health care facilities and
(2) CHAMPUS beneficiaries.  VA facilities can also share with federal
and nonfederal hospitals, clinics, and medical schools, but such
sharing is limited primarily to sharing of specialized medical
resources.  VA has no authority to sell these or other health care
services directly to nonveterans. 

VA's inability to sell noncovered health care services to veterans
makes eligibility decisions more difficult.  For private sector
providers, a determination of eligibility under public or private
health insurance is essentially a determination of the source of
payment; if the service is not covered under the patient's insurance,
the physician can still provide the service and bill the patient. 
But for VA physicians, a determination that a service is not covered
under a veteran's health benefits means that the patient must be
denied care.  Even if the patient has private health insurance that
would pay for the care or is willing to purchase the service, VA
physicians are not allowed to provide noncovered services.  This puts
the physician in the difficult position of examining veterans to
identify their need for health care but then turning them away
without providing needed health care services if the service is not
one the veteran is eligible to receive from VA. 


   SOME VETERANS FORGO CARE WHEN
   TURNED AWAY FROM VA FACILITIES
---------------------------------------------------------- Chapter 3:5

In a 1993 review, we examined veterans' efforts to obtain care from
alternative sources when VA medical centers did not provide it.\24

Through discussions with 198 veterans turned away at six medical
centers, we learned that 85 percent obtained needed care after VA
medical centers turned them away.  Most obtained care outside the VA
system, but some veterans returned to VA for care, either at the same
center that turned them away or at another center. 

The 198 veterans turned away needed varying levels of medical care. 
Some had requested medications for chronic medical conditions, such
as diabetes or hypertension.  Others presented new conditions that
were as yet undiagnosed.  In some cases, the conditions, if left
untreated, could be ultimately life-threatening, such as high blood
pressure or cancer.  In other cases, the conditions were potentially
less serious, such as psoriasis. 


--------------------
\24 VA Health Care:  Veterans' Efforts to Obtain Outpatient Care From
Alternative Sources (GAO/HRD-93-123, July 14, 1993). 


   SOLVING PROBLEMS WILL REQUIRE A
   COMBINATION OF ADMINISTRATIVE
   AND LEGISLATIVE ACTIONS
---------------------------------------------------------- Chapter 3:6

Developing solutions to the problems discussed in this chapter will
require both administrative and legislative actions.  Several
approaches could be used to improve veterans' equity of access to VA
health care services without legislation.  First, VA could better
define the conditions under which the provision of outpatient care
would obviate the need for hospitalization.  Such action would help
promote consistent application of eligibility restrictions, but VA
physicians would still be placed in the difficult position of having
to deny needed health care services to veterans when treatment of
their conditions would not obviate the need for hospitalization. 
This part of the problem can be addressed only through legislative
action to (1) make veterans eligible for the full range of outpatient
services or (2) authorize VA to sell noncovered services to veterans. 

A second approach VA could take to reduce inconsistencies in
veterans' access to care would be to better match veterans integrated
service networks' (VISN),\25 and individual medical centers',
resources with the volume and demographic makeup of eligible veterans
requesting services at each center.  A third approach to improving
equity of access would be to place greater emphasis on use of the
fee-basis program to equalize access for those veterans with
service-connected disabilities who do not live near a VA facility or
who live near a facility offering limited services. 

Solutions to some of the eligibility-related problems would, however,
require changes in law.  For example, legislation would be needed
before VA could (1) sell noncovered services to veterans, (2) provide
prostheses and equipment to most veterans on an outpatient basis, (3)
admit veterans with no service-connected disabilities directly to
community nursing homes, (4) develop uniform benefit packages, or (5)
provide routine prenatal and maternity care. 

An important part of the decision about the nation's commitment to
its veterans is the extent to which VA health care benefits are
"earned" benefits, which the government should have a legal
obligation to provide.  Currently, the provision of VA health care
services, even for treatment of service-connected disabilities, is
discretionary. 

Guaranteed benefits would have important advantages for veterans. 
For example, veterans with guaranteed benefits would no longer face
the uncertainty about whether health care services will be available
when they need them.  Guaranteed funding, however, could
significantly increase government spending unless limits are placed
on the number of veterans covered by the entitlement. 

One way to control the increase in workload likely to be generated by
eligibility expansions is to develop a defined benefit package
patterned after public and private health insurance.  This could be
used to trade off services veterans obtain from VA against the level
of funding available.  VA could adjust the benefit package
periodically on the basis of the availability of resources. 

The significance of VA eligibility restrictions could be lessened if
legislation was enacted authorizing VA to sell to veterans those
health care services not covered under their veterans' health
benefits.  With enactment of such legislation, VA physicians would no
longer be placed in the difficult position of having to deny needed
health care services to veterans when not covered under their health
benefits package.  Instead, physicians, or administrative staff,
would decide whether the veteran would be expected to pay for the
service. 

Eligibility reform would address some but not most veterans' unmet
health care needs.  This is because many of the problems veterans
face in obtaining health care services appear to relate to distance
from a VA facility or the availability of the specialized services
they need rather than to their eligibility to receive those services
from VA.  Legislation to expand VA's authority to purchase care from
private sector providers would be needed to address unmet needs
created by geographic inaccessibility. 

These issues, including advantages and disadvantages of alternate
approaches where appropriate, are addressed in more detail in
appendix II. 


--------------------
\25 VISNs are groups of medical centers serving a particular
geographic area. 


VA PROVIDES SERVICES THAT VETERANS
MAY NOT BE ELIGIBLE TO RECEIVE
============================================================ Chapter 4

VA may be spending billions of dollars providing health care services
to veterans not eligible for the services provided.  VA officials
estimate that 20 percent of the patients treated in their hospitals
do not need hospital care but would not be eligible to receive the
services they are provided on an outpatient basis.  In addition, VA's
OIG estimated that from $321 million to $831 million of the money VA
spent on outpatient care in fiscal year 1992 was used to provide
veterans outpatient services that they were not eligible to receive. 

VA cites a series of studies to support its view that 20 percent of
VA hospital patients were admitted to circumvent restrictions on
their eligibility to receive needed health care services on an
outpatient basis.  Our review of the studies, however, revealed that
they do not contain the types of data needed to link nonacute
admissions (meaning the patients did not need to be admitted to the
hospital) to eligibility restrictions.  The studies, and reviews
conducted by the OIG, suggest that most of the nonacute admissions
were the result of inefficiencies in VA facilities and conservative
physician practice patterns. 

If most nonacute admissions are caused by inefficiencies rather than
ineligible treatments, then changes in the law to expand eligibility
would probably not significantly reduce nonacute admissions to VA
hospitals.  VA's announced plans to implement a preadmission
certification program, if the program is effectively implemented,
could essentially eliminate nonacute admissions with or without
eligibility reform.  As a result, it has important implications for
veterans.  If 20 percent of VA's hospital patients would not be
eligible to receive needed health care services on an outpatient
basis, then a preadmission certification program that denies
admission of patients not needing a hospital level of care could
result in significant unmet health care needs.  On the other hand, if
treatment of most of the patients on an outpatient basis would
obviate the need for hospital care, then the certification program
would reduce costs without creating unmet needs. 


   VETERANS ADMITTED TO VA
   HOSPITALS DO NOT CIRCUMVENT
   RESTRICTIONS ON OUTPATIENT
   ELIGIBILITY
---------------------------------------------------------- Chapter 4:1

VA studies issued in 1991 and 1993 found that over 40 percent of the
admissions to VA acute care hospitals could have been avoided if the
patients had been treated on an outpatient basis.  VA officials
contend that these studies show that remaining restrictions on
veterans' eligibility for outpatient care are causing inappropriate
hospitalizations.  In addition, VA officials cite anecdotes to
suggest that its hospitals are admitting patients who do not need
hospital care in order to give them crutches and eyeglasses they are
not eligible to receive on an outpatient basis.  They estimate that
20 percent of all VA hospitalizations could be avoided if eligibility
were expanded to give all veterans coverage of comprehensive
outpatient care.  Our review, however, found little basis for linking
most inappropriate hospitalizations to VA eligibility provisions. 

A 1991 VA-funded study of admissions to VA acute medical and surgical
bed sections estimated that 43 percent (+/- 3 percent) of admissions
were nonacute.  Nonacute admissions in the 50 randomly selected VA
hospitals ranged from 25 to 72 percent.  A 1993 study by VA
researchers reported similar findings.  At the 24 VA hospitals
studied, 47 percent of admissions and 45 percent of days of care in
acute medical wards were nonacute; 64 percent of admissions and 34
percent of days of care in surgical wards were nonacute. 

VA officials believe that 20 percent of veterans admitted to VA
hospitals are admitted to provide them services that they are not
eligible to receive on an outpatient basis.  In addition, they
believe that veterans admitted to VA hospitals to circumvent
outpatient eligibility restrictions are kept in the hospital an
average of 7 days.  In other words, VA estimates that it is spending
over $750 million dollars a year to provide noncovered outpatient
services to veterans on an inpatient basis. 

We believe that VA overestimates the extent to which it provides
noncovered services to veterans on an inpatient basis to circumvent
the law.  Linking the problems identified in the studies to
eligibility restrictions is problematic because the studies did not
contain the types of data needed to make such a link.  Specifically,
the studies did not ascertain the eligibility category of the
veterans.  For example, the studies did not determine whether the
patients inappropriately admitted to VA hospitals had
service-connected or nonservice-connected disabilities, the degree of
any service-connected disability, whether they were in the mandatory
or discretionary care category for outpatient care, or whether they
would have been eligible to receive the services they needed on an
outpatient basis.  Had such information been included in the studies,
it would be possible to determine whether a higher incidence of
nonacute admissions occurred for veterans eligible for only
hospital-related outpatient services than for those eligible for
comprehensive outpatient services.\26

The studies point more toward inefficiency, conservative physician
practice patterns, and the slow development of ambulatory care
alternatives as the primary causes of nonacute admissions.  Our
evaluation of the studies and VA's efforts to link their findings to
the need for eligibility reform are discussed in more detail in
appendix V. 

Similarly, while the anecdotes VA cites, such as one about a veteran
admitted to a VA hospital in order to get a pair of crutches,
represent real limitations in VA eligibility provisions that need to
be addressed, VA lacks data to show how many inappropriate hospital
admissions resulted from the limitations.  For example, how many of
the approximately 7,000 patients admitted to VA hospitals in fiscal
year 1994 for fractures of the arms and legs were treated on an
outpatient basis and then admitted for the purpose of providing
crutches?  Only 765 of the 7,000 admissions were for 1 day, the most
likely length of stay for patients admitted to enable VA to give them
a pair of crutches or other routine outpatient care. 

In a May 10, 1996, letter to the Ranking Minority Member of the
Senate Committee on Veterans' Affairs, the Veterans Health
Administration (VHA) said that all nonacute admissions are not the
result of eligibility limitations but that such limitations have been
the precursor explanation influencing many of the more specific
clinical reasons documented in the medical records.  VHA said that
VHA has very conservatively estimated that less than half of the
totally nonacute admissions can be attributed to the need for
eligibility reforms and thus could be shifted to alternative levels
of care. 

VHA's estimate of nonacute admissions attributable to eligibility
restrictions is not conservative because VHA assumed that 20 percent
of all admissions would be shifted to outpatient settings, including
admissions

  -- to long-term psychiatric and intermediate care units, when the
     studies address only acute medical and surgical care; and

  -- for veterans currently eligible for comprehensive outpatient
     services (veterans with service-connected disabilities rated at
     50 percent or higher, former prisoners of war, World War I
     veterans, and veterans receiving a pension with aid and
     attendance). 

To shift the number of patients VA assumed would be shifted to
outpatient settings from only acute medical and surgical wards, and
from only veterans not already eligible for comprehensive outpatient
care, would require that VA shift over 30 percent of acute medical
and surgical admissions. 


--------------------
\26 This is a limitation in how the studies can be used, not a
deficiency in how the studies were conducted. 


   STUDIES SHOW CONTINUING
   PROBLEMS IN ENFORCEMENT OF
   OUTPATIENT ELIGIBILITY
---------------------------------------------------------- Chapter 4:2

Studies by the VA OIG show problems in VA's enforcement of
eligibility provisions for outpatient care that have continued for
over 12 years.  VA has yet to initiate action to strengthen
enforcement of its eligibility requirements, stating that rather than
enforce current requirements, it would seek eligibility reforms that
would make the provision of the services legal. 

In a 1983 review at nine VA medical centers, the OIG found treatment
of ineligible veterans ranging from 7.2 percent to 26.8 percent of
outpatient visits.\27 The study evaluated only determinations of
whether outpatient care provided to veterans with
nonservice-connected disabilities was necessary to obviate the need
for hospital care or reasonably necessary to complete hospital care
for which the veteran was eligible.  Although medical center
directors generally agreed with the findings and promised corrective
actions, the OIG, in subsequent reviews completed in 1991 through
1992, identified a continued and possibly growing problem.  For
example, the OIG found the following: 

  -- About 24 percent of the outpatient visits reviewed at the
     Muskogee, Oklahoma, medical center were provided to veterans not
     eligible for the care provided.  The OIG reviewed a random
     sample of visits provided to veterans with service-connected
     disabilities rated at 20 percent or lower and veterans with no
     service-connected disabilities who were not receiving VA pension
     benefits.\28

  -- About 37 percent of the outpatient visits reviewed at the Fort
     Lyon, Colorado, medical center were determined to be ineligible
     for the outpatient services provided.  The OIG found that the
     medical center did not have an effective system to ensure that
     eligibility certifications were complete and current.\29

  -- About 38 percent of the outpatient visits reviewed at the Denver
     medical center were for treatments for which the veteran was not
     eligible.  The OIG found veterans with nonservice-connected
     disabilities whose outpatient treatment (1) was not discontinued
     after their conditions became stable, (2) was for conditions
     unrelated to the condition for which they were hospitalized, and
     (3) was not needed to obviate the need for immediate
     hospitalization.\30

In a review of the Allen Park, Michigan, medical center, the OIG
found that the outpatient clinic was incorrectly reporting
discretionary care patients as mandatory care patients.\31 The OIG
estimated that about one-half of the patients and one-third of
outpatient visits were provided to veterans in the discretionary care
category.  Further, the OIG estimated that more than 50 percent of
the visits provided to veterans in the discretionary care category
were provided for ineligible conditions.  The OIG estimated that from
$321 million to $831 million of the $1 billion to $1.5 billion VA
spent on discretionary outpatient care in fiscal year 1992 may have
been for ineligible outpatient treatments. 

As of April 1996, VHA had not issued guidelines to ensure that
outpatient visits are properly reported in accordance with outpatient
eligibility criteria. 

In a March 1992 report, the OIG concluded that the VHA had not
effectively disseminated criteria to physicians or other clinicians
addressing when outpatient treatment is needed to obviate the need
for hospitalization.\32 The report noted that

     ".  .  .  VHA has never requested a legal opinion of the meaning
     or intent of the language.  Also, we are unaware of any attempt
     by VHA to define the term in its own program guides or other
     instructions to clinical staff.  Instead, VHA's practice has
     been to allow each clinician to interpret its meaning and
     application for each individual patient.  In practice, we found
     the concept is either ignored or perfunctorily applied to every
     treatment provided to every patient."

The OIG recommended that VHA develop regulations that address the
conditions and circumstances under which outpatient treatment may be
provided to obviate the need for hospitalization.  VHA did not concur
with the recommendation and stated that

     "The phrase `obviate the need for hospital care' is, however, a
     very difficult, if not impossible concept to define and to apply
     at the clinical level.  It is one of the major problems
     clinicians face in attempting to determine eligibility for
     treatment.  Often, conditions which appear stable and chronic,
     will deteriorate and result in hospitalization if treatment is
     discontinued.  The decision to obviate the need for hospital
     care is made on individual cases by the clinician caring for the
     patient .  .  .  ."

The OIG report did not find the VHA arguments convincing, stating

     "We do not believe there is a basis to conclude it is an
     `impossible concept to define,' rather the absence of a
     definition creates a significant weakness in controls over VA's
     outpatient programs.  Without a policy definition or other
     instructions to clinical staff, inconsistent application of
     criteria among facilities and clinicians is certain."

VHA officials said that they have no plans to further define the
concept of obviating the need for hospital care.  They said that the
practice of medicine does not determine whether to treat patients on
the basis of whether they would otherwise be hospitalized.  VHA is
focusing its efforts on legislation to expand outpatient eligibility
rules to eliminate the obviate-the-need provisions and permit VA
facilities to provide comprehensive health care services to all
veterans.  VA submitted such a legislative proposal to the Congress
in September 1995. 

In its May 10, 1996, letter, VHA said that VA's General Counsel found
that VHA had defined the concept of obviating the need for
hospitalization reasonably well in its guidance.  VHA said that what
GAO does not recognize, and has not assessed, is that applying the
guidance at the clinical level does not automatically result in the
type of consistency of application GAO seeks because of the
complexities presented by each patient and the decisions of the
clinicians providing the care. 

We do recognize, and have assessed, the inconsistencies that result
from application of the VA guidance at the clinical level.  As
discussed in chapter 3, we asked clinicians at 19 VA medical centers
to make eligibility determinations of six veterans based on medical
profiles developed from actual medical records.  The interpretations
ranged from permissive (care for any condition) to restrictive (care
only for certain medical conditions).  We agree with VHA that because
of differences among patients and differences in the way doctors view
patients, there will always be inconsistencies in how patients are
treated.  Clearer guidance, however, should help reduce the level of
inconsistency. 

VHA also said that while documentation may have been lacking to
demonstrate that the care provided was consistent with the guidance,
it should not be assumed on the basis of the OIG study that the care
is neither appropriate nor advisable, nor that it was not necessary
to obviate the need for hospitalization.  The results of the OIG's
study of one facility should not, VHA said, be extrapolated to the
system. 

The OIG's report actually discussed problems at two facilities--the
Allen Park medical center and the Columbus, Ohio, outpatient clinic. 
The Allen Park facility was, the OIG report notes,

     "selected as the review site in consultation with VHA program
     officials because it was considered to be a typical outpatient
     environment in an urban tertiary care facility."

In addition, the report found lax enforcement of eligibility
provisions at many other medical centers as described previously. 
One of the recommendations in the report was that VHA conduct reviews
of each facility's outpatient workload in order to identify the
proportion of visits properly classified as mandatory, discretionary,
and ineligible using the definitions relevant to current law.  VHA,
however, was apparently unwilling to conduct such reviews, which
might potentially have disproved the OIG's findings or shown the
problems to be isolated to a few facilities.  As of June 1996, VHA
had not conducted the reviews. 


--------------------
\27 Audit of Outpatient Eligibility for Treatment, VA OIG, Report No. 
3AR-A02-140 (Washington, D.C.:  VA, Sept.  28, 1983). 

\28 Audit of Selected Activities, Department of Veterans Affairs
Medical Center, Muskogee, Oklahoma, Report No.  3R6-A99-053
(Washington, D.C.:  VA, Feb.  19, 1993). 

\29 Audit of VA Medical Center, Fort Lyon, Colorado, VA OIG, Report
No.  1R5-F03-026 (Washington, D.C.:  VA, Jan.  23, 1991). 

\30 Audit of VA Medical Center, Denver, Colorado, VA OIG, Report No. 
1R5-F03-050 (Washington, D.C.:  VA, Apr.  5, 1991). 

\31 Audit of the Outpatient Provisions of Public Law 100-322, VA OIG,
Report No.  2AB-A02-059 (Washington, D.C.:  VA, Mar.  31, 1992). 

\32 VA OIG, Report No.  2AB-A02-059 (Washington, D.C.:  VA, Mar.  31,
1992). 


   ISSUES NEED TO BE ADDRESSED
   CONCERNING ENFORCEMENT OF VA
   ELIGIBILITY
---------------------------------------------------------- Chapter 4:3

Many issues need to be addressed in strengthening enforcement of VA
eligibility provisions.  Strict enforcement of VA eligibility
requirements, or VA's planned implementation of a preadmission
certification program, could increase veterans' unmet health care
needs.  Enforcement of existing eligibility rules, with VHA's
interpretation of the obviate-the-need criterion, would force many
veterans to seek routine outpatient care outside the VA system or
forgo needed health care.  Similarly, to the extent that VA hospitals
admit veterans in order to provide health care services the veterans
are not eligible to receive as outpatients, then preadmission
certification procedures to prevent admission of patients who do not
need a hospital level of care could increase unmet needs. 

The VA health care benefit was not designed to meet all of the health
care needs of most veterans.  Under current law, VA is intended to
provide comprehensive health care services primarily to veterans with
service-connected disabilities rated at 50 percent or higher.  Other
veterans must find health care services from other sources when the
needed services exceed the limits of their VA eligibility or if VA
lacks the resources to provide covered services. 

Unlike private sector providers, VA facilities are not financially at
risk for inappropriate admissions, unnecessary days of care, and
treatment of ineligible beneficiaries.  Private sector health care
providers are facing increasing pressures both from private health
insurers and public health benefits programs such as Medicare and
Medicaid to eliminate inappropriate hospitalizations and reduce
hospital lengths of stay.  For example, private health insurers
increasingly use preadmission screening to ensure the medical
necessity of hospital admissions and set limits on approved lengths
of stay for their policyholders.  While private sector hospitals are
not prevented from admitting patients without an insurer's
authorization, the hospital and the patient, rather than the insurer,
become financially responsible for the care. 

Significant savings can accrue from shifting a sizable portion of
VA's inpatient workload to other settings if entire wards or
facilities are closed.  Current eligibility provisions do not,
however, appear to prevent VA from shifting much of its current
workload to ambulatory care settings through administrative actions. 
Twice before, in 1960 and 1973, the Congress expanded VA outpatient
eligibility for the express purpose of reducing inappropriate
admissions to and unnecessary days of care in VA hospitals. 

In 1960, the Congress enacted Public Law 86-639 authorizing provision
of outpatient care to veterans with nonservice-connected conditions
if such care was needed in preparation for or as a follow-up to
hospital care.  VA hospitals are still not effectively using this
authority more than 30 years after the enactment of this law.  Among
the primary reasons for nonacute days of care identified in the
studies discussed in this chapter are premature admission of patients
and delayed discharge of patients who could have been treated as
outpatients. 

Issues related to the enforcement of VA eligibility requirements and
the potential effects of eligibility expansions on nonacute
admissions to VA hospitals are discussed in more detail in appendix
III. 


INCREASED DEMAND GENERATED BY
ELIGIBILITY REFORM COULD CAUSE
EXTENSIVE RATIONING UNLESS VA
APPROPRIATIONS ARE INCREASED
============================================================ Chapter 5

Each of the eligibility reform proposals developed during the past
year would make VA benefits easier to understand and administer.\33

Four of the proposals would retain the discretionary funding of VA
health care but would expand the number of veterans eligible for
comprehensive VA outpatient services from about 465,000 to over 26
million.  Such expansions are likely to generate significant new
demand for VA care.  If appropriations are not increased to satisfy
the increased demand, VA faces the prospect of extensive rationing,
including turning away many current users.  The fifth proposal,
developed by the American Legion, would avert the potential for
increased rationing by converting veterans' health benefits into a
true entitlement for about 9 million to 11 million veterans,
potentially adding billions of dollars to VA appropriations.  Other
veterans, and veterans' dependents, would be allowed to buy into VA
managed care plans. 

Our work identified a number of issues concerning the potential
effect of the eligibility reform proposals on demand for VA health
care services.  For example, to what extent would increased demand
for outpatient services result in corresponding increases in demand
for hospital and nursing home care?  Similarly, would VA efforts to
improve customer service and make VA care more accessible to veterans
further increase demand? 


--------------------
\33 A sixth proposal, being developed by the Senate Committee on
Veterans' Affairs, would eliminate the current distinction between
"hospital care" and "outpatient care." Under the proposal, which the
Committee expects to introduce in September 1996, VA would be
authorized to provide eligible veterans with "health care." In
addition, the proposal, drafted by the Committee on July 24, 1996,
would (1) regulate access to care through an enrollment system
limiting the number of veterans enrolled to those who can be treated
with available resources; (2) establish priorities for enrollment;
and (3) limit the increase in the VA medical care authorization to
the percentage change in the cost of living for each year. 


   HOUSE VETERANS' AFFAIRS
   COMMITTEE BILL WOULD PROVIDE
   MOST MODEST ELIGIBILITY
   EXPANSION
---------------------------------------------------------- Chapter 5:1

Although each of the five eligibility reform proposals would
significantly expand eligibility for VA health care, the House
Veterans' Affairs Committee bill would provide the most modest
expansion.  Table 5.1 compares the key provisions of the five
proposals. 



                                        Table 5.1
                         
                         Key Provisions of Proposals to Reform VA
                                       Eligibility


                                                               H.R. 3118
                                                 H.R. 1385     (House
                                   S. 1563       (Montgomery/  Veterans'     American
Key provisions       S. 1345 (VA)  (VSO)         Edwards)      Affairs)      Legion
-------------------  ------------  ------------  ------------  ------------  ------------
Expands the number   X             X             X             X             X
of veterans in the
mandatory care
category

Creates an                                                                   X
entitlement to VA
care; guarantees
availability of
care

Creates a uniform                                                            X
benefit package

Eliminates obviate-  X             X             X             X             X
the-need provision

Reforms health care  X                                         X             X
contracting
provisions
-----------------------------------------------------------------------------------------
Following are other major provisions of eligibility reform proposals: 

  -- S.  1345 (VA) (1) expands the definition of covered services to
     include virtually any necessary inpatient or outpatient care,
     drugs, supplies, or appliances and (2) allows VA to retain a
     portion of third-party recoveries. 

  -- S.  1563 (VSO) (1) includes nursing home care as mandatory
     service; (2) provides that the mandatory care category would
     include catastrophically disabled veterans; (3) allows adult
     dependents to become eligible for VA care, provided they
     reimburse VA; and (4) allows VA to bill and retain collections
     from Medicare. 

  -- H.R.  1385 (Montgomery/Edwards) (1) requires VA to provide
     veterans similar access regardless of their home state, (2)
     allows VA to use a system of enrollment and priorities for care,
     and (3) allows VA to retain a portion of third-party recoveries
     to expand outpatient care. 

  -- H.R.  3118 (House Veterans' Affairs) (1) requires VA to
     establish a system of annual enrollment based on priorities for
     care, and (2) creates a new category of priority for
     catastrophically disabled veterans. 

  -- American Legion proposal (1) funds VA appropriations on a
     capitated basis; (2) establishes separate benefit packages for
     basic, supplemental, and specialized services; (3) allows VA to
     bill and retain payments from Medicare, Medicaid, the Federal
     Employees' Health Benefits Program, and private insurers; (4)
     allows dependents to enroll in VA health plans; (5) exempts VA
     from federal procurement laws; (6) deems VA to be a qualified
     provider under federal and state health programs; and (7) allows
     VA to preempt state and local regulations relating to health
     insurance or plans. 

Appendix VI contains a more detailed summary of each proposal. 

H.R.  3118 would, like the other proposals, expand eligibility for
comprehensive outpatient services to all veterans.  It contains
provisions, however, intended to make it easier for VA and the
Congress to ration care.  Specifically, the bill does the following: 

  -- Expressly states that the availability of health care services
     for veterans in the mandatory care category is limited by the
     amounts appropriated in advance by the Congress (S.  1345 also
     contains this provision).  Although services for mandatory care
     category veterans are currently subject to the availability of
     resources, such services are frequently viewed as an
     entitlement.  The language of H.R.  3118 and S.  1345 would make
     it clear that mandatory care category veterans do not have an
     entitlement to VA care. 

  -- Removes about 1.2 million veterans with noncompensable
     service-connected disabilities from the mandatory care category. 
     H.R.  1385 would also shift such veterans from the mandatory to
     discretionary care category.  By contrast, S.  1345 would move
     veterans with noncompensable service-connected disabilities to a
     higher priority within the mandatory care category than most
     low-income veterans with no service- connected disabilities. 

  -- Requires VA to establish an enrollment process as a means for
     managing demand within available resources.  Veterans with
     disabilities rated at 30 percent or higher would have the
     highest priority for enrollment.  A similar enrollment process
     would be optional under H.R.  1385. 

  -- Allows VA to determine the extent to which eyeglasses and
     hearing aids would be covered and limits the provision of
     prosthetics to veterans under VA care.  Other than the American
     Legion proposal, which would require enrollment, the other bills
     would essentially remove all restrictions on provision of
     prosthetics on an outpatient basis, allowing veterans to come to
     VA for the sole purpose of having a prescription for eyeglasses
     or hearing aids filled. 


   PROPOSALS WOULD MAKE BENEFITS
   EASIER TO ADMINISTER AND
   UNDERSTAND, BUT OTHER PROBLEMS
   WOULD CONTINUE
---------------------------------------------------------- Chapter 5:2

Each of the five proposals would make VA health care benefits easier
to administer and understand by eliminating the obviate-the-need
criterion for accessing outpatient care.  The proposals generally do
not, however, address the other provisions in current law that
contribute to inappropriate use of VA health care resources and
uneven access to health care services. 

Eliminating the obviate-the-need restriction on access to ambulatory
care would simplify administration of health care benefits because VA
physicians would no longer need to determine whether a patient would
likely end up in the hospital if he or she was not treated. 
Eliminating the restriction would also promote greater equity by
reducing the inconsistencies in eligibility decisions.  Finally,
eliminating the restriction would make benefits more understandable
by essentially making veterans eligible for the full continuum of
inpatient and outpatient care. 

Most of the proposals do not address the other major restrictions on
VA eligibility and the ability of VA to sell noncovered services to
veterans.  Specifics follow: 

  -- Four of the proposals would retain the discretionary funding of
     VA health care.  The American Legion proposal would create new
     funding mechanisms resulting in guaranteed benefits. 

  -- Under the four bills that would retain the discretionary funding
     of VA health care services, VA would continue to be unable to
     provide noncovered services directly to veterans.  Because all
     veterans would become eligible for comprehensive outpatient
     services, there would, however, be fewer noncovered services. 
     If adequate funds are not appropriated to allow VA facilities to
     serve all veterans seeking care, veterans turned away could not
     use their insurance or other resources to buy care from VA. 

  -- Current restrictions on provision of dental care would not be
     changed under any of the proposals.  Restrictions on the
     provision of prenatal and maternity care would be removed only
     under the American Legion proposal. 

  -- S.  1345 and the American Legion proposal would remove the
     restriction on direct admission of veterans with no
     service-connected disabilities to community nursing homes.  The
     other bills would not, however, remove this restriction. 

  -- Of the four proposals that would retain discretionary funding of
     VA health care, only H.R.  1385 specifically addresses the
     uneven availability of VA care.  That bill would require VA to
     expand its capacity to provide outpatient care and allocate
     resources to its facilities in a way that would give veterans
     access to care that is reasonably similar regardless of where
     they live.  The other bills do not address the uneven
     availability of VA health care services caused by resource
     limitations, VA's limited provider network, and inconsistent VA
     rationing policies.  These problems could, however, be addressed
     through the expanded contracting authority VA would be given
     under S.  1345 and H.R.  3118.  The American Legion proposal
     contains specific provisions intended to make the availability
     of services more equitable.  In addition, the American Legion
     proposal would force VA to address the uneven availability of
     services through the use of contracting because benefits would
     be guaranteed. 


   EXEMPTING VA FROM CONTRACTING
   AND PERSONNEL LAWS AND
   REGULATIONS WOULD CREATE
   SIGNIFICANT RISKS
---------------------------------------------------------- Chapter 5:3

The American Legion proposal to grant VA exemptions to most federal
contracting and personnel laws and regulations and deem VA facilities
to be qualified providers under both federal and state health
programs could create significant risks.  Specifically, the American
Legion proposal would

  -- deem a VA health plan or facility to be a qualified provider or
     carrier under a federally administered health care program,
     including Medicare, Medicaid, CHAMPUS, the Indian Health
     Service, and the Federal Employees Health Benefits Program;

  -- authorize VA to plan and implement administrative
     reorganization, consolidation, elimination, or redistribution of
     offices, facilities, functions, or activities notwithstanding
     any other provision of law;

  -- allow VA to enter into agreements with non-VA health care plans,
     insurers, health care providers, health care professionals,
     health care facilities, medical equipment suppliers, and related
     entities notwithstanding any law or regulation pertaining to
     competitive procedures, acquisition procedures or policies,
     source preferences or priorities, or bid protests;

  -- preempt and supersede any state or local law or regulation that
     relates to health insurance or health plans to the extent such
     law or regulation is inconsistent with provisions of the VA law;
     and

  -- require that a VA plan be considered a qualified provider or
     carrier under any state health care reform plan, law, or
     regulation. 

Reducing contracting requirements heightens the potential for fraud
and abuse.  VA has a long history of problems in administering
contracts and sharing agreements.  Because VA medical centers' senior
managers often receive part-time employment incomes from medical
schools that receive millions of dollars through VA contracts,
conflicts of interest could arise.  The expanded contracting
envisioned under the American Legion proposal would greatly increase
the potential for conflicts of interest. 

In addition to exemptions from general contracting requirements, VA
health plans would be exempt from specific requirements relating to
risk contracting, such as those that apply to Medicare health
maintenance organizations (HMO).  Because VA has little experience in
risk contracting, such exemptions might heighten the potential for
fraud and abuse and could affect veterans' access to needed medical
services. 

VA facilities and health plans would also not be accountable to
Medicare or other federal, state, or local health plans because of
their deemed status.  Other programs would have little recourse
against VA health plans and facilities if they failed to enforce
program safeguards. 


   ELIGIBILITY EXPANSIONS LIKELY
   TO GENERATE INCREASED DEMAND
---------------------------------------------------------- Chapter 5:4

The five reform proposals would likely generate significant new
demand for both outpatient and inpatient care.  The increased demand
could be heightened by the synergistic effects of other changes in
the VA health care system to improve access and customer service and
expand contracting. 

Under the four bills that would retain the discretionary nature of VA
funding, over 26 million veterans would become eligible to receive
services that currently are available primarily to the approximately
465,000 veterans with service-connected disabilities rated at 50
percent or higher.  Similarly, under the American Legion proposal,
about 9 million to 11 million veterans with service-connected
disabilities would become entitled to free VA health care
services.\34 The American Legion proposal would make veterans with
service-connected disabilities rated at 50 percent or higher entitled
to any needed health care service included in the comprehensive and
supplemental care packages; other veterans currently in the mandatory
care group for hospital care, with the exception of those with
noncompensable service-connected disabilities, would be entitled to
the basic benefit package for free.  Two additional groups of
veterans would become entitled to the basic benefit package: 
veterans with catastrophic illnesses that render them destitute and
veterans proven uninsurable in the private market. 

Increased demand would likely come from both increased use of VA
services by current users unable to obtain all of the health care
services they need from VA and from veterans seeking VA services for
the first time.  Even many veterans who rely on other health care
coverage for most of their needs are likely to attempt to take
advantage of added VA benefits such as prescription drugs, which are
not typically covered under other health insurance.  Medicare does
not cover most outpatient prescription drugs, making VA an attractive
alternative.  Medicare-eligible veterans already make significant use
of VA outpatient prescriptions even with the current eligibility
limitations.\35 Removing the restrictions on access to outpatient
care would likely significantly increase demand for outpatient
prescriptions. 

Another area where workload would likely increase dramatically is
prosthetic devices, such as eyeglasses, contact lenses, and hearing
aids.  In addressing the restriction in current law on provision of
crutches to veterans with broken legs, the five proposals would also
eliminate the restriction on provision of other prosthetic devices,
such as eyeglasses, contact lenses, and hearing aids.  H.R.  3118
would, however, give the Secretary of Veterans Affairs the authority
to restrict the provision of eyeglasses, contact lenses, and hearing
aids. 

A 1992 VA eligibility reform task force developed estimates of the
changes in demand likely to be generated through several alternative
approaches to eligibility reform.  VA's task force estimated that if
eligibility was reformed to make all current VA users (defined by the
task force as veterans who had used VA in the past 2 years) eligible
for the full continuum of VA health care services, then demand for
outpatient care would increase by about 8.4 million visits annually. 
Similarly, expanding eligibility to all veterans would increase
demand for outpatient care by about 32.8 million visits annually. 
The task force further estimated that demand for inpatient care would
increase by 1.8 million patients treated, primarily because of demand
generated by new users. 

The methods VA used to develop its projections were reviewed by the
Congressional Budget Office (CBO).  CBO found VA's methods
reasonable. 


--------------------
\34 Under the American Legion proposal, veterans other than those
with service-connected disabilities and veterans' dependents would
also be eligible to purchase care from VA health plans, but
appropriated funds would no longer be used to pay for their care. 

\35 Veterans' Health Care:  Use of VA Services by Medicare-Eligible
Veterans (GAO/HEHS-95-13, Oct.  24, 1994). 


      OTHER IMPROVEMENTS IN VA
      HEALTH CARE SYSTEM COULD
      HEIGHTEN INCREASED DEMAND
-------------------------------------------------------- Chapter 5:4.1

If concurrent changes are made in the accessibility of VA health care
services, in VA customer service, and in the extent to which veterans
are allowed to use private providers under contract to VA, the effect
of eligibility reforms on demand for VA care will likely be
heightened.  As it strives to make the transition from a
hospital-based system to an ambulatory-care-based system, VA is
attempting to bring ambulatory care closer to veterans' homes. 
Because distance is one of the primary factors affecting veterans'
use of VA health care, actions to give veterans access to outpatient
care closer to their homes, either through expansion of VA-operated
clinics or through contracts with community providers, will likely
increase demand for services. 

VA's recent efforts to improve access by establishing separate access
point clinics have attracted many new users.\36 As we reported in
April 1996, 12 new access points operate in a variety of locations,
including three areas that are more than 100 miles from a VA
facility; six areas between 50 and 100 miles from a VA facility; and
three areas less than 50 miles from a VA facility (including 1 access
point located 8 miles from a VA medical center in a large urban
area).  Four clinics are operated by VA; the remaining eight are
operated via contracts with county and private clinics.  The clinics
have been successful in attracting veterans who have not used VA
health care for several years as well as veterans who have never used
VA health care.  Forty percent of the 5,000 veterans enrolled at the
12 clinics had not received VA care in the past 3 years--1 clinic
served only new users. 

Three proposals, S.  1345, H.R.  3118, and the American Legion
proposal, would facilitate the expansion of access points by giving
VA broader authority to contract with private sector providers.  Such
contracting might enable veterans to use the same physicians,
clinics, and hospitals they use now but have VA rather than their
private insurance or Medicare pay for the care.  More importantly,
they would no longer be required to meet the cost-sharing
requirements of Medicare and private health insurance. 

Similarly, our reports over the past 5 years have identified
continuing problems in VA customer service, including long waiting
times, poor staff attitudes, and lack of such amenities as bedside
telephones.  As part of its response to the National Performance
Review, VA has developed detailed plans to improve customer service
that include installing bedside telephones, reducing waiting times,
and training staff.  These efforts are likely to help VA retain
current users and will likely attract new users as VA's reputation
for customer service improves.  These improvements also heighten the
potential for increased demand to be generated through eligibility
expansions. 


--------------------
\36 VA Health Care:  Efforts to Improve Veterans' Access to Primary
Care Services (GAO/T-HEHS-96-134, Apr.  24, 1996). 


   EXPANDING ELIGIBILITY WHILE
   CONSTRAINING BUDGETARY
   INCREASES COULD RESULT IN
   EXTENSIVE RATIONING
---------------------------------------------------------- Chapter 5:5

Expanding eligibility without providing adequate funds to pay for the
expected increase in demand could significantly increase the number
of veterans turned away from VA facilities.  The four bills that
would retain the discretionary funding of VA health care services
would, however, provide little or no new revenue to offset the costs
of increased demand.  Expanding eligibility with a fixed or declining
budget could give veterans false expectations of what services they
can obtain from VA.  In addition, many current users might be shut
out of the VA system as veterans with higher priority increase their
use of VA services. 

Both the President and the House of Representatives propose declining
VA medical care budgets after fiscal year 1997, although these
budgets would increase slightly after the turn of the century.  (See
table 5.2.)



                         Table 5.2
          
              Proposed VA Medical Care Budget
                    Authority, 1996-2002

Proposal          1996  1997  1998  1999  2000  2001  2002
----------------  ----  ----  ----  ----  ----  ----  ----
Administration    $16.  $17.  $16.  $14.  $13.  $14.  $16.
                     9     2     2     4     0     4     5
House             16.9  17.3  16.8  15.4  15.2  15.3  16.7
----------------------------------------------------------
Because low-income veterans would be the third or fourth highest
priority for care, and the law does not differentiate between
low-income veterans with and without other health care coverage,
reforms that provide a richer benefit package or increase the number
of higher-priority veterans, or a combination of both, could reduce
funds available to treat low-income, uninsured veterans.  For
example, under the new definition of health care in VA's reform
proposal (S.  1345), veterans in the top three priority categories
would be in the mandatory care category for virtually any service
other than nursing home care offered by VA.  Under the VA proposal,
about 1.8 million veterans currently eligible for limited outpatient
care would be placed in the highest priority group for comprehensive
care.  The VA proposal would also place veterans with noncompensable
service-connected disabilities (estimated to number about 1.2
million) above low-income veterans with no service-connected
disabilities in the priority ranking of veterans in the mandatory
care category for comprehensive outpatient services.\37

Increased demand for routine health care services generated by these
expansions could leave fewer resources available to pay for essential
health care services for uninsured veterans.  Only after the
increased demand for nonservice-connected care generated by the 3
million veterans VA proposes to add to the mandatory care category
for free comprehensive outpatient services was met could VA use its
resources to provide essential hospital and other services to
low-income, uninsured veterans without service-connected
disabilities.  With steady or declining budgets it could be
increasingly difficult for VA to fulfill its safety net mission after
meeting the increased demand for care generated through eligibility
expansions. 

Although two bills (H.R.  3118 and H.R.  1385) propose establishing
an enrollment process to help VA ration care if adequate funds are
not appropriated to meet the increased demand likely to be generated
by eligibility expansions, such a process would not protect VA's
safety net mission.  Only after veterans in the top three priority
categories were enrolled for comprehensive health care services could
low-income veterans with no public or private health insurance
enroll.  One VA official told us that she did not think VA would
enroll veterans below the highest priority category under H.R. 
3118--veterans with service-connected disabilities rated at 30
percent or higher.  As a result, veterans with no health care options
might no longer be able to use VA health care services, including the
hospital-related services they now receive. 

The four bills that retain discretionary funding of VA health care
contain few new sources of revenues to offset the costs of
eligibility expansions.  The bills essentially assume that
eligibility reform will not require new sources of revenue because
the savings generated by shifting patients from inpatient to
outpatient care would offset the costs of increased demand for
outpatient care.  Although we agree that savings can occur by
shifting nonacute hospital admissions to outpatient settings, it is
not clear that sufficient savings will occur to offset the potential
increase in demand, especially if hospital beds emptied by shifts to
outpatient care are filled with new users enticed to use VA by the
eligibility expansion. 

As discussed in chapter 3, problems in VA's methods for allocating
resources to its facilities result in unequal access to VA health
care services.  Some facilities have adequate resources to treat
veterans in both the mandatory and discretionary care categories
while others are forced to ration care to veterans in the
discretionary care category.  Because most of the reform proposals do
not address the uneven availability of VA services, the increased
demand for care generated by eligibility expansions could heighten
the problems VA already faces in trying to equitably distribute
available resources. 


--------------------
\37 Other proposals generally would not provide a special status to
such "0 percent" veterans--those with noncompensable
service-connected disabilities. 


   PROSPECTS OF EXTENSIVE
   RATIONING WOULD CREATE PRESSURE
   TO INCREASE APPROPRIATIONS
---------------------------------------------------------- Chapter 5:6

In the past, VA has been unable to provide the Congress the types of
data on VA users that the Congress would need to make informed
decisions on appropriate funding levels.  The increased demands for
care generated by the eligibility expansion proposals would put
pressure on the Congress to appropriate the additional funds needed
to avoid extensive rationing. 

A 1992 VA eligibility reform task force estimated that, without
resource constraints, expanding eligibility for comprehensive VA care
could increase VA spending by about $38 billion per year.  Although
VA and CBO arrived at strikingly different conclusions about the
budgetary effects of the current reform proposals, we find CBO's
arguments about the potential costs of eligibility expansions more
compelling because they incorporate the costs of meeting the
potential increased demand predicted by VA's 1992 eligibility reform
task force. 


      CONTROLLING BUDGETARY
      INCREASES WOULD BE DIFFICULT
-------------------------------------------------------- Chapter 5:6.1

Historically, the Congress has fully funded both VA's anticipated
mandatory and discretionary workload.  VA does not, however, provide
the Congress data on the extent to which its resources are used to
provide services to veterans in the mandatory and discretionary care
categories for hospital and outpatient care in justifying its budget
request.  Considering the significant portion of VA resources
currently used to provide services to veterans in the discretionary
care category and the limited data VA provides the Congress on which
to base funding decisions, it would be difficult for the Congress to
appropriate funds for the care of only a portion of the veterans in
the mandatory care category.  As a result, the Congress has little
basis for determining which portion of VA's discretionary workload to
fund. 

Our work shows that a significant portion of appropriated funds are
used to serve veterans in the discretionary care category.  We
matched VA's fiscal year 1990 treatment records against federal
income tax records and found that about 15 percent of the veterans
with no service-connected disabilities who used VA medical centers
had incomes that placed them in the discretionary care category for
both inpatient and outpatient care.\38 In a May 10, 1996, letter to
the Ranking Minority Member, Senate Committee on Veterans' Affairs,
VHA said that our estimate was either inaccurate or a very old
estimate.  According to VHA, only 4 percent of all veterans treated
in 1994 were in the discretionary care category. 

Our estimate more accurately reflects the extent to which care is
provided to veterans in the discretionary care category.  VHA's
estimate is apparently based on unverified data provided by veterans
when they apply for care; such data underestimate veterans' incomes. 
We developed our estimate through a match of VA treatment records and
income tax data.  Our match showed that VA may have incorrectly
placed as many as 109,230 veterans in the mandatory care category in
1990.  Tax records for these veterans showed they had incomes that
should have placed them in the discretionary care category.  We
estimated that VA could have billed as much as $27 million for care
provided to these veterans. 

Although data from our study are now 6 years old, data from VA's own
tax matches are yielding similar results.  VA has now established its
own income verification program.  Its initial match found that about
18 percent of veterans with no service-connected conditions
underreported their income.  VA's matching agreement with the
Internal Revenue Service indicates that VA expects its match of
fiscal year 1996 treatment records against tax data to generate about
$30.5 million in copayment collections for care provided to veterans
who were incorrectly classified as mandatory care category veterans. 
Accordingly, our estimate--and VA's own data--show that about 15
percent of veterans with nonservice-connected disabilities using VA
medical centers are in the discretionary care category for both
inpatient and outpatient care. 

VHA recently advised us that it cannot provide the Congress with
information on the extent to which VA services are provided to
veterans in the mandatory and discretionary care categories for
inpatient and outpatient care.  VHA advised us that VA does not have
accounting systems in place that would allow VA to differentiate
between mandatory and discretionary care.  VHA said that developing
the accounting systems capable of differentiating between the
categories would be extremely difficult and may not be
cost-effective. 

Without such information, the Congress could find it difficult to set
limits on VA appropriations.  For example, it would not know whether
the funds appropriated were adequate to meet the health care needs of
all veterans with service-connected disabilities likely to seek VA
care. 


--------------------
\38 VA Health Care:  Verifying Veterans' Reported Income Could
Generate Millions in Copayment Revenues (GAO/HRD-92-159, Sept.  15,
1992). 


      1992 VA TASK FORCE ESTIMATES
      COSTS OF ELIGIBILITY REFORM
-------------------------------------------------------- Chapter 5:6.2

In March 1992, the Acting Secretary of Veterans Affairs established a
task force to develop alternative proposals for reforming eligibility
for VA health care.  The task force developed four proposals, which
ranged from retaining current eligibility provisions to expanding
eligibility to make all veterans eligible for a full continuum of
services.  Specifically, the four proposals were as follows: 

  -- Alternative 1:  Limit the system to current users with no
     eligibility reform. 

  -- Alternative 2:  Limit the system to current users with no
     eligibility reform, but implement managed care. 

  -- Alternative 3:  Limit the system to current users, but expand
     eligibility to cover the full continuum of services without
     budgetary constraints. 

  -- Alternative 4:  Expand eligibility to cover the full continuum
     of care for all veterans with no resource constraints. 

The task force also developed cost estimates for each alternative,
assuming both no budget offsets and different combinations of veteran
cost sharing\39 and third-party recoveries from private insurers,
Medicare, and Medicaid.  The cost estimates ranged from $11.0 billion
(alternative 3 with offsets) to $53.6 billion (alternative 4 with no
offsets).\40 (See table 5.3.)



                         Table 5.3
          
              VA Cost Estimates of Alternative
              Approaches to Eligibility Reform


                                    Without    With budget
Alternative                   budget offset         offset
----------------------------  -------------  -------------
1                                     $16.0             \a
2                                      14.3             \a
3                                      21.0          $11.0
4                                      53.6           27.5
----------------------------------------------------------
\a The task force did not consider offsets under approaches 1 and 2. 

Source:  VA Eligibility Reform Task Force draft report, Nov.  1992. 

The task force noted that the cost increases would result more from
the number of new users attracted to the VA health care system than
from providing existing users the full continuum of care.  Much of
the cost increases, the task force notes, are for inpatient and
outpatient care for new users. 


--------------------
\39 Veterans would be responsible for a copayment of 25 percent for
all services except 50 percent for nursing home services and no
copayment on social services. 

\40 The task force reported to the Acting Secretary but never issued
a final report. 


      VA'S CURRENT ESTIMATE IS
      BASED ON QUESTIONABLE
      ASSUMPTIONS
-------------------------------------------------------- Chapter 5:6.3

Although its eligibility reform task force had developed detailed
estimates of the increased demand and costs of reform options, VA
developed a new formula for estimating the effects of eligibility
reform as part of its National Performance Review efforts.  Neither
the original formula, nor the recent revision to it, adequately
considered the increased demand for outpatient care likely to be
generated by the proposed eligibility expansions.  In addition, if VA
had accurately applied its original formula and assumptions, it would
have predicted an increase rather than a decrease in costs resulting
from eligibility reform.  VA made a number of other questionable
assumptions in its calculations. 

VHA originally developed what appears to be a complex formula for
estimating the cost effects of eligibility reform on the basis of the
overall assumption that eligibility reform would enable VA to divert
20 percent of its hospital patients to outpatient care.\41

The results from applying VHA's original formula were sensitive to a
series of assumptions about such things as how many veterans are
inappropriately admitted to VA hospitals because of restrictions on
outpatient eligibility; how long, on average, those veterans stay in
the hospital; how the average costs of treating patients remaining in
VA hospitals after eligibility reform would be affected; and how
eligibility reform would affect demand for outpatient care.  The
original formula could show either a decrease or increase in costs
depending on the assumptions made. 

VA did not include a key portion of the original formula--a 10-
percent increase in the costs of treating those patients remaining in
VA hospitals after eligibility reform--in its calculations and,
therefore, reported that its analysis showed that eligibility reform
would result in savings of about $268 million.  Including that
portion of the formula in the calculation results in the claimed
savings becoming a cost increase of $51 million. 

VA subsequently revised its formula to delete the adjustment for the
costs of treating those patients remaining in the hospital.  As a
result of this change, whatever assumptions are made about the
percentage of care shifted and the average days of hospital care
avoided, the formula will result in net savings.  Even under the
assumption that no inpatients are transferred to outpatient care, the
formula shows that expanding eligibility would result in savings of
about $39 million.  What appeared on the surface to be a formula
taking many factors into account is, in its current form, actually a
simple calculation--eligibility reform will save 30 percent of the
costs of inpatient care shifted to outpatient settings plus 10
percent of the total costs of fee-basis and travel reimbursements. 
The formula includes no adjustments for increased demand for
outpatient care by veterans other than those shifted from inpatient
to outpatient care. 

VA's revised formula for estimating the cost effects of eligibility
reform is also independent of the provisions of eligibility reform. 
In other words, it would yield the same result when applied to any of
the five reform proposals or if changes were made in the proposals to
increase or reduce the number of veterans in the mandatory care
category.  Specifically, it would yield the same savings estimate
regardless of

  -- which benefits are included,

  -- whether and to what extent veterans are required to contribute
     toward the costs of the expanded benefits,

  -- the number of veterans placed in the mandatory and discretionary
     care categories, and

  -- whether veterans' health benefits remain discretionary or are
     made an entitlement. 

Our specific concerns about VA's analysis are discussed in the
following sections. 


--------------------
\41 VA assumed that 5 percent of admissions would be shifted to the
outpatient setting during the first year after eligibility reforms
were implemented and an additional 15 percent would be shifted the
following year. 


         FORMULA DOES NOT
         ADEQUATELY ACCOUNT FOR
         INCREASED DEMAND
------------------------------------------------------ Chapter 5:6.3.1

The formula assumes that an increase in demand for outpatient care
would not occur other than demand generated by veterans shifted from
inpatient to outpatient care.  VA anticipates limited new demand
because, according to headquarters officials, the administration
proposal and H.R.  3118 were designed to give VA added flexibility by
eliminating the obviate-the-need-for- hospitalization criterion, not
to attract new users.  VA's 1992 task force, however, estimated that
most new demand would be generated through new users.  Although
headquarters officials anticipate few new users, some medical centers
are already aggressively pursuing new users.  As discussed earlier,
about 40 percent of the veterans using VA access points had not used
VA health care within the 3 years preceding their enrollment at the
access point. 


         ADJUSTMENT FOR HIGHER
         COSTS OF TREATING
         REMAINING PATIENTS NOT
         INCLUDED IN VA
         CALCULATIONS
------------------------------------------------------ Chapter 5:6.3.2

Because the less sick patients would theoretically be shifted to
outpatient care under eligibility reform, the costs of treating
patients remaining in the hospital should increase.  This is what
happened when Medicare beneficiaries increased their use of
outpatient surgery.  When we initially met with VHA officials to
discuss our concerns about their cost estimate, we were told that the
formula included an adjustment for sicker inpatients to account for
these higher costs.  The "Briefing Book on Eligibility Reform
Proposals for Veterans Health Administration," provided to us by VA
officials, included such an adjustment in the reinvestment formula
and the stated assumption

     "[b]ecause less sick patients will be shifted to outpatient
     care, the remaining in-patients will be sicker and will have a
     10% higher cost per admission .  .  .  ."

VHA, however, did not include the calculation in its savings
estimates.  VHA officials indicated that they would provide an
explanation for why the adjustment was not included in the
calculations, but in later discussions, the VHA economist who applied
the formula declined to provide an explanation for why the adjustment
was not made.  Including this adjustment in the original formula
would have turned VHA's projected savings of $268 million into a cost
increase of $51 million. 

In a May 10, 1996, letter to the Ranking Minority Member of the
Senate Committee on Veterans' Affairs, VHA said that GAO has
consistently misunderstood that no change is taking place with the
actual length of stay of the admissions not shifted.  The patients
with longer lengths of stay would remain as inpatients, but,
according to VHA, neither their lengths of stay nor the costs of
their care would increase. 

Research has consistently shown that moving the least costly patients
out of hospitals increases the average cost of caring for the
patients who remain even though there is no change in an individual
patient's length of stay or cost of care.  This phenomenon occurs
because removing a group of patients with shorter lengths of stay and
fewer care needs (none of the patients VA envisions shifting needed
hospital-related care) raises a hospital's average length of stay and
average cost per discharge.  The following example illustrates this. 

A VA hospital treats two inpatients.  Patient A has congestive heart
failure and spends 7 days in the hospital.  Treatment for this
patient costs the hospital $10,000.  Patient B is treated on an
outpatient basis for a broken leg and then admitted to the hospital
and provided a pair of crutches.  Patient B stays in the hospital 1
day, and the cost of providing the care is $1,000.  The average
length of stay for the two patients was 4 days [(7 days + 1 day)/2
patients], and the average cost per day of care provided to the two
patients was $1,375 [($10,000 + $1,000)/8 days]. 

If, following eligibility reform, patient B is provided crutches on
an outpatient basis rather than being admitted to the hospital, the
average length of stay and cost per day for the remaining patient(s)
would increase.  The hospital's average length of stay for the
remaining patient would be 7 days (7 days/1 patient), and the average
cost of treating the patient would be $1,429 a day ($10,000/7 days). 


         OTHER CONCERNS ABOUT VA'S
         ASSUMPTIONS AND
         CALCULATIONS
------------------------------------------------------ Chapter 5:6.3.3

Our review identified a number of other concerns about the
reasonableness of VA's assumptions and calculations.  The following
paragraphs illustrate some of these concerns: 

Eligibility reform would enable VA to eliminate 20 percent of
hospital admissions.  One argument frequently used to promote the
need for eligibility reform is that the obviate-the-need provision
prevents VA from providing care in the most cost-effective setting. 
The presumed savings from removing the restrictions on access to
ambulatory care services would then be used to offset the costs of
expanded benefits. 

It is possible to achieve savings by shifting inappropriate inpatient
services to other settings.  But, as discussed earlier in this
report, current eligibility provisions are not a major contributor to
inappropriate admissions, nor do those provisions prevent VA from
shifting a significant portion of inappropriate inpatient services to
ambulatory care settings.  Actions such as the preadmission
certification program previously discussed could, however, generate
savings that could be used to offset some of the costs of eligibility
reform. 

VA applied the assumed 20-percent reduction in hospital admissions
across all inpatient care, not just acute medical and surgical
admissions.  Although the studies VA cites as supporting its
assumption that 20 percent of admissions could be shifted to
outpatient care addressed only acute medical and surgical admissions,
VA applied the 20-percent reduction to all inpatient care, including
intermediate care and both acute and long-term psychiatric
admissions.  Such admissions account for over 25 percent of VA
admissions.  Applying the 20-percent reduction only to acute medical
and surgical admissions would reduce projected savings.  To maintain
the total number of shifted admissions, VA would have to assume that
more than 27 percent of acute medical and surgical admissions would
be shifted under eligibility reform. 

VA assumed a 10-percent savings in fee-basis costs.  The fee-basis
program is used to pay for outpatient care veterans obtain from
private sector providers when VA care is either not available or not
convenient.  Therefore, shifting veterans from VA hospital beds to
outpatient settings should have no effect on current fee-basis use or
costs. 

VA claims the savings in fee-basis costs will result from
establishment of access points.  As of April 1996, VA operated 12
access points on a pilot basis, and it is too early to tell whether
they will affect fee-basis costs.  Moreover, because access points
are attracting new users, they may increase rather than decrease VA's
fee-basis costs.  VA provides no other basis for estimating that
eligibility reform will reduce fee-basis costs. 

VA assumes that travel reimbursements will decline by 10 percent as a
result of eligibility reform.  VA indicates that travel
reimbursements will decline because of the creation of access points. 
While travel reimbursements might decline for those veterans living
near an access point, any such reduction would not result from
eligibility reform.  Under VA's assumption that veterans shifted from
hospital care to outpatient care will receive an average of 17
additional outpatient visits, beneficiary travel could significantly
increase rather than decrease.  Rather than receiving travel
reimbursement for one trip to the hospital, veterans qualifying for
beneficiary travel would, under VA's assumptions, receive travel
reimbursement for 17 outpatient visits. 

Beneficiary travel includes (1) medically necessary ambulance travel;
(2) medically necessary travel by wheelchair van, stretcher, or other
means of special travel; (3) intrafacility travel; (4) travel for
compensation and pension examinations; and (5) all other travel,
which includes transportation by common carrier, bus, taxi, or
privately owned vehicle. 

Beneficiary travel is provided at the discretion of the Secretary of
Veterans Affairs to certain types of veterans:  (1) veterans with
service-connected disabilities rated at 30 percent or higher; (2)
veterans with service-connected disabilities of 20 percent or less
for travel related to treatment of their service-connected
disabilities; (3) veterans receiving a VA pension; (4) veterans
traveling in connection with an examination for compensation or
pension, or both; and (5) veterans whose income is less than or equal
to the maximum VA pension rate with aid and attendance. 

Most of the veterans eligible to receive beneficiary travel are
already eligible to receive, on an outpatient basis, the care that
qualifies them for travel reimbursement.  For example, veterans with
service-connected disabilities rated at 20 percent or less are in the
mandatory care category for outpatient treatments related to their
service-connected disabilities, the only care for which they are
eligible to receive travel reimbursement. 

An average of 7 days of hospital care would be saved for every
patient diverted to outpatient care.  This assumption may not be
sound given VA's argument that the patients it would be diverting
were admitted in order to provide them routine outpatient care. 
Because the inpatients VA expects to shift to outpatient care are
essentially self-care patients with no acute medical need, VA would
most likely be drawing from patients with the shortest lengths of
stay--such as veterans admitted to provide them crutches or as a
prerequisite to placement in a community nursing home.  In fiscal
year 1994, about 37 percent of VA medical and surgical patients had
1- to 3-day stays.  It appears that it would be more reasonable to
assume the average length of stay of patients to be diverted to
outpatient care to be 1 to 3 days.\42

In providing comments to the Ranking Minority Member, Senate
Committee on Veterans' Affairs, on our March 20, 1996, testimony, VHA
said that it has a sound basis for its assumption that the average
length of stay for shifted admissions would be 7 days.  VHA said that
the same research that initiated the estimates of VA nonacute days of
hospital stays also provided VA information on the average length of
stay of the totally nonacute admissions included in the study. 
According to VHA, the research showed the average length of stay to
be a little longer, not less, than 7 days.  VHA said that VA's
estimate of 7 days was also confirmed by preliminary current VA
utilization management information. 

However, the average length of stay for the totally nonacute
admissions in the study cited was 5.5 days, not over 7 days.  In
addition, the average length of VA acute medical/surgical admissions
in fiscal year 1986--the year studied--was slightly over 16 days.  By
fiscal year 1995, however, the average length of stay of VA acute
medical/surgical patients had declined to 11.6 days, a 28-percent
decline.  VA's progress in reducing its average length of stay should
also be considered in its assumptions.  Finally, VA's 1992
eligibility reform task force estimated that 1- and 2-day admissions
would be shifted to outpatient settings following eligibility reform. 

Changing the assumption about average length of stay alters VA's
savings estimates.  Substituting 3 days for VA's assumption of a
7-day average length of stay would decrease VA's projected savings of
$268 million from eligibility reform to about $137 million.\43


--------------------
\42 VA's 1992 eligibility reform task force reached a similar
conclusion.  The task force assumed that short episodes of care (1 or
2 days) would be shifted to outpatient care. 

\43 VA correctly noted in its May 10, 1996, comments on our March 20,
1996, testimony that we had misinterpreted its formula in estimating
the costs of outpatient care for shifted patients.  We had assumed
that the cost of treating a nonacute admission on an outpatient basis
would be the same regardless of what assumption was made concerning
how long, on average, the shifted admissions remained in the
hospital.  VA's formula assumes that the cost of treating a shifted
admission on an outpatient basis is 70 percent of the inpatient costs
for the average length of stay that is used.  While this assumption
appears questionable, we have adjusted the figures used in this
report to apply the formula as VA intended.  The formula tends to
understate potential savings from shifting patients to outpatient
settings as assumed lengths of stay increase. 


      CBO'S CONCLUSIONS ON COSTS
      OF ELIGIBILITY REFORM
-------------------------------------------------------- Chapter 5:6.4

Last year, CBO estimated that the eligibility reform provisions
contained in H.R.  3118 could increase the deficit by $3 billion or
more annually if the Congress fully funds the increased demand for
outpatient care that the eligibility expansions would likely
generate.  CBO's estimates were based in part on tables contained in
what at the time was VA's newly released 1992 National Survey of
Veterans.\44 VA claimed that CBO misinterpreted one of the tables in
the survey--which VA acknowledged was confusing--and raised concerns
about CBO's methodology and the accuracy of its projections. 

After reviewing VA's concerns, CBO determined that any problem in
interpreting the survey data did not affect its overall conclusion
that the bill would not be budget neutral because the expanded
eligibility would generate significant new demand.  CBO assumed in
conducting budgetary impact analyses that if demand increases under a
discretionary program, funds will be appropriated to meet that
demand.  CBO estimated that the cost of providing outpatient care to
the 10.5 million veterans who are currently eligible only for
hospital-related outpatient care would far outweigh the savings from
shifting inpatients to outpatient care.  Further, CBO concluded that
VA could incur significant costs under provisions that expand VA's
authority to provide prosthetic devices on an outpatient basis. 
Finally, CBO noted that the bill could increase costs by billions
more if the induced demand for outpatient care resulted in
corresponding increases in demand for hospital care. 

On July 15, 1996, CBO provided the House Veterans' Affairs Committee
a revised cost estimate for H.R.  3118, as reported by the Committee
on May 8, 1996.  Expanding eligibility for outpatient services would,
CBO estimated, ultimately increase the cost of veterans' medical care
by $3 billion a year, assuming appropriation of the necessary
amounts.  CBO noted that the bill would affect direct spending and is
subject to pay-as-you-go procedures under section 252 of the Balanced
Budget and Emergency Deficit Control Act of 1985. 

In its July 18, 1996, report on H.R.  3118, the House Committee on
Veterans' Affairs disagreed with CBO's cost estimate and estimated
that the bill would be budget neutral for annual outlays in fiscal
year 1996 and in each of the 5 following fiscal years.\45


--------------------
\44 Washington, D.C.:  VA, National Center for Veterans Analysis and
Statistics, 1992. 

\45 H.R.  104-690, 104th Cong., 2nd Sess.  (1996). 


   FURTHER EVALUATION OF POTENTIAL
   EFFECTS OF ELIGIBILITY REFORMS
   ON DEMAND ARE NEEDED
---------------------------------------------------------- Chapter 5:7

Eligibility reforms that would increase the number of veterans
eligible for comprehensive outpatient services would likely generate
new demand for outpatient care in three primary ways.  First, current
VA users are likely to seek previously noncovered services, such as
preventative health care.  Second, veterans who previously had not
used VA because of its eligibility restrictions might begin using VA,
particularly for those services not covered under their public or
private health insurance.  Third, some care might be shifted from
inpatient to outpatient settings as patients admitted to circumvent
eligibility restrictions are treated on an outpatient basis. 

VA's 1992 Eligibility Reform Task Force conducted the most
comprehensive study of the potential effects of eligibility reform,
but it was not based on any of the current proposals.  The current VA
evaluation assesses only one of three ways eligibility reforms are
likely to increase demand for outpatient care and is based on
questionable assumptions. 

Among the issues that could be considered in future analyses are the
following: 

  -- Increased demand could be lower than anticipated if VA
     facilities are currently circumventing the eligibility
     restrictions and providing noncovered services.  As discussed in
     chapter 4, studies by VA's OIG found that VA outpatient clinics
     are providing significant numbers of noncovered services.  This
     suggests that at least some current VA users may already receive
     comprehensive health care services from VA and, therefore, their
     use of VA services might not significantly increase under
     eligibility reforms that essentially make legal what is already
     happening in practice. 

  -- Expanded outpatient eligibility could result in a corresponding
     increase in demand for hospital care.  After removing 1- and
     2-day hospital stays (assumed to be shifted to outpatient care),
     VA's 1992 eligibility reform task force estimated that demand
     for inpatient care could nearly triple from 987,000 to about 2.8
     million patients treated. 

  -- Eligibility reform that would authorize direct admission of
     veterans with nonservice-connected disabilities to contract
     community nursing homes could increase demand.  As VA moves
     patients from costly inpatient care to less intensive settings,
     demand for nursing home care is likely to increase.  The
     increased demand for nursing home care could, however, be offset
     to some degree by greater use of home care and residential care
     for patients requiring less intensive treatment. 

  -- Concurrent changes to make VA health care services more
     accessible to veterans could increase the potential effect of
     eligibility reform on outpatient, and, indirectly, on inpatient
     workload.  As it strives to make the transition from a
     hospital-based system to an ambulatory-care-based system, VA is
     attempting to bring ambulatory care closer to veterans' homes. 
     Because distance is one of the primary factors affecting
     veterans' use of VA health care, actions to give veterans access
     to outpatient care closer to their homes, either through
     expansion of VA-operated clinics or through contracts with
     community providers, will likely increase demand for services
     even without eligibility reform. 

  -- Giving VA broader authority to contract for health care services
     with private hospitals and providers might give veterans greater
     freedom to choose health care providers closer to their homes. 
     If this happens, then increased demand for VA-supported health
     care is likely with or without eligibility reform. 

In addition to further assessing the potential effects of eligibility
and other reforms on demand for outpatient care, further assessments
appear warranted to determine how reforms would affect the
availability of specialized services.  Provisions in the major VA
eligibility reform proposals could have both positive and negative
effects on VA's specialized services.  Reforms that increase VA's
efficiency could free resources that could be reprogrammed to
increase specialty services.  Unanticipated new demand for routine
outpatient services could, however, outstrip VA's capacity to provide
specialized services such as treatment of spinal cord injuries,
substance abuse, and the blind. 

These issues are discussed in more detail in appendix IV. 


APPROACHES FOR LIMITING THE
BUDGETARY IMPACT OF ELIGIBILITY
REFORMS
============================================================ Chapter 6

The cost of eligibility reform depends on a number of factors,
including the benefits covered, the number of veterans offered the
benefits, and the extent to which veterans are expected to pay for or
contribute toward the cost of their health care benefits.  The four
proposals that would retain the discretionary funding of the VA
health care system would essentially make all 26 million veterans
eligible for comprehensive inpatient and outpatient care with little
or no change in the system's sources of revenue or in the methods
used to establish VA's appropriation. 

Our work identified five basic approaches that could be used,
individually or in combination, to limit the budgetary impact of
eligibility reforms.  These are (1) setting limits on covered
benefits, (2) limiting the number of veterans eligible for health
care benefits, (3) generating increased revenues to pay for expanded
benefits, (4) allowing VA to "reinvest" savings achieved through
efficiency improvements in expanded benefits, and (5) providing a
methodology in the law for setting a limit on VA's medical care
appropriation. 

The American Legion proposal, which as of July 1, 1996, had not been
introduced, combines some of the above approaches that could be used
to constrain the growth of the VA budget.  It would make significant
changes in VA funding streams and would turn VA health benefits into
an entitlement for certain veterans.  In addition, it would authorize
VA to sell health benefit plans to other veterans and veterans'
dependents.  The number of veterans to be covered under the
entitlement--9 million to 11 million--would likely result in the
proposal, in its current form, adding billions of dollars to the
budget deficit. 


   SET LIMITS ON COVERED BENEFITS
---------------------------------------------------------- Chapter 6:1

One way to control the increase in workload likely to result from
eligibility expansions would be to develop one or more defined
benefit packages patterned after public and private health insurance. 
This would narrow the range of services veterans could obtain from
VA, allowing workload reductions from the eliminated services to
offset the workload from increased demand for other services.  Like
private health insurers, VA could adjust the benefit package
periodically on the basis of the availability of resources. 

Creating a defined benefit package could result in some veterans
receiving a narrower range of services than they receive now, while
others would receive additional benefits.  This approach would
essentially take some benefits away from veterans with the greatest
service-connected disabilities and give additional benefits to
veterans with lesser service-connected disabilities and to veterans
with no service-connected disabilities. 

One option for addressing the redistribution of benefits issue is to
establish separate benefit packages for each type of veterans.  For
example, veterans with disabilities rated at 50 percent or higher
might continue to be eligible for any needed outpatient service,
while a narrower package of outpatient benefits--perhaps excluding
such items as eyeglasses, hearing aids, and prescription drugs--could
be provided to higher-income veterans with no service-connected
disabilities. 

Of the five major reform proposals, only the American Legion proposal
would require VA to develop defined benefit packages.  The American
Legion proposal would require VA to establish both comprehensive and
basic packages as well as a supplemental benefit package to cover
specialized services. 


   LIMIT THE NUMBER OF VETERANS
   ELIGIBLE FOR VA HEALTH CARE
---------------------------------------------------------- Chapter 6:2

Another way to limit the budgetary effects of eligibility reform
would be to pay for expanded eligibility for some veterans by
restricting or eliminating eligibility for others.  Under current
law, all veterans are eligible for VA hospital and nursing home care
and at least some outpatient care, but there is a complex set of
priorities for care based on such factors as presence and degree of
service-connected disability, period of military service, and income. 
In practical application, however, these priorities have little
effect on the VA health care system.  In the preparation of VA budget
justifications, no distinction is made between veterans in the
mandatory and discretionary care categories, let alone those in
different priority groups within the mandatory and discretionary care
categories. 

Among the approaches that could be used to limit the number of
veterans taking advantage of expanded benefits is to limit VA
eligibility to those veterans who lack other public or private
insurance.  Exceptions could be made for treatment of
service-connected disabilities and for services not covered under
veterans' public or private insurance.  Such an approach might help
target available funds toward those veterans most in need. 

The Congress would face a difficult choice, however, in determining
whether VA health care is (1) a benefit of military service that
should be available regardless of alternate coverage or (2) a safety
net available only to those veterans who lack health care options. 

Limiting eligibility of veterans with nonservice-connected
disabilities to those whose income is below the current, or some new,
means test limit would allow VA to retarget some resources currently
used to provide services to higher-income veterans.  Because about 15
percent of veterans with no service-connected disabilities who use VA
health care services have incomes above the means test threshold,
eliminating their eligibility would make additional resources
available to offset increased demand for outpatient services by
veterans in higher-priority categories.  Such veterans could be
allowed to purchase services from VA facilities on a space-available
basis. 

Another way to limit the number of veterans eligible for expanded VA
benefits is to restrict enrollment in VA health care to current VA
users.  This approach would limit the potential for nonusers to be
enticed by improved benefits into becoming users and thereby reduce
the costs of eligibility reforms.  While current users might increase
their use of VA health care in response to expanded benefits, most of
these veterans already obtain those services they are unable to get
from VA from private sector providers through their public and
private insurance.  As a result, this approach might enable those
higher-income veterans with nonservice-connected disabilities already
using VA services to shift all of their care to VA, while veterans
who had not previously used VA services, but would like to start
using them, would essentially be shut out of the system.  This would
include veterans with higher priorities for care, such as those with
service-connected disabilities and low incomes.  Similarly,
restricting enrollment to current users might prevent VA from
fulfilling its safety net mission by denying care to veterans whose
economic circumstances change. 

The American Legion proposal is the only major proposal that would
specifically limit the number of veterans, and the number of
services, covered under VA's medical care appropriation.  The
expanded benefits to be provided for veterans covered under the
entitlement would, however, likely result in a significant increase
in VA's medical care appropriation. 


   GENERATE INCREASED REVENUES
---------------------------------------------------------- Chapter 6:3

Several approaches could be used to generate additional revenues to
pay for expanded benefits.  These include increased cost sharing,
authorizing recoveries from Medicare, and allowing VA to retain funds
from third-party recoveries. 


      INCREASE VETERAN COST
      SHARING
-------------------------------------------------------- Chapter 6:3.1

Increased veteran cost sharing could help offset the costs of
increased demand.  For example, through contracting reform, VA might
be authorized to sell veterans any available health care service not
covered under their current veterans' benefits without changing
existing eligibility provisions.  In other words, veterans could
purchase, or use their private health insurance to purchase,
additional health care services from VA. 

Such an approach would not eliminate the problems VA physicians have
in interpreting the obviate-the-need provision, but it would lessen
the importance of the decision.  Physicians would no longer be forced
to turn away veterans needing health care services.  Instead,
obviate-the-need decisions would determine who would pay for needed
health care services--the government or the veteran.  In addition, VA
could issue regulations better interpreting the obviate-the-need
provision.  Because uninsured veterans may be unable to pay for many
additional health care services, an exception could be made to help
such veterans. 

A second approach for offsetting the costs of eligibility expansions
through cost sharing could be to impose new cost-sharing requirements
for existing services.  For example, VA could be authorized to
increase cost sharing for nursing home care--a discretionary benefit
for all veterans--either through increased copayments or estate
recoveries.  Resulting funds could be used to help pay for benefit
expansions.  Similarly, copayments and deductibles for hospital and
outpatient care could be adjusted to be more comparable with other
public and private sector programs. 

Cost sharing could also be increased by redefining the mandatory care
group.  In other words, the income levels for inclusion in the
mandatory care category could be lowered or copayments imposed for
nonservice-connected care provided to veterans with service-connected
disabilities of 0 to 20 percent. 


      AUTHORIZE RECOVERIES FROM
      MEDICARE
-------------------------------------------------------- Chapter 6:3.2

Proposals have been made in the past few years to authorize VA
recoveries from Medicare either for all Medicare-eligible veterans or
for those with higher incomes.  For example, S.  1563 would allow VA
to bill and retain recoveries from Medicare.  Such proposals, though,
appear to offer little promise for offsetting the costs of
eligibility expansions.  First, many of the services, such as hearing
aids and prescription drugs, that Medicare-eligible veterans are
likely to obtain from VA are not Medicare-covered services.  Second,
most such proposals would not require VA to offset the recoveries
against its appropriation.  As a result, they would not affect VA's
budget request and would increase overall federal expenditures for
health care.  Authorizing VA recoveries from Medicare would, however,
further jeopardize the solvency of the Medicare trust fund.  Such an
action would essentially transfer funds between federal agencies
while adding administrative costs. 

Allowing VA to bill and retain recoveries from Medicare would create
incentives for VA facilities to shift their priorities toward
providing care to veterans with Medicare coverage.  VA facilities
would essentially receive duplicate payments for care provided to
higher-income Medicare beneficiaries unless recoveries were
designated to fund services or programs for which VA did not receive
an appropriation.  For example, if VA was authorized to sell
noncovered services to veterans and did not receive an appropriation
for such services, then veterans should be allowed to use their
Medicare benefits to help pay for the services just as they would use
private health insurance to do so. 

The American Legion proposal would allow VA to recover and retain
funds from Medicare.  The proposal is not clear, however, on whether
recoveries would be limited to those services not covered by VA's
medical care appropriation.\46 American Legion officials agreed that
the proposal is unclear, but said that they intended for VA to
recover and retain funds from Medicare only for those veterans not
covered under VA's appropriation.  Assuming that VA receives payments
from Medicare at rates no higher than private sector providers, it
would be appropriate for VA to retain recoveries under this scenario. 
One limitation to this approach, however, is that VA does not have
accounting and information systems adequate to keep funds
appropriated for patient care separate from funds generated through
such third-party recoveries. 

Another limitation is that the American Legion proposal would deem VA
facilities to be Medicare providers without requiring them to meet
Medicare quality, utilization, and reporting requirements. 


--------------------
\46 The proposal would also allow VA to retain recoveries from
Medicaid, the Federal Employees Health Benefits Program, the Indian
Health Service, and CHAMPUS. 


      ALLOW VA TO RETAIN A PORTION
      OF THIRD-PARTY RECOVERIES
-------------------------------------------------------- Chapter 6:3.3

Proposals, such as the ones contained in S.  1345 and H.R.  1385,
that would allow VA to retain a portion of recoveries from private
health insurance beyond what it needs to finance its recovery program
would also represent a form of double payment.  For the same reasons
already discussed related to Medicare, unless recoveries from private
insurance were earmarked for some purpose other than to pay for care
covered by an appropriation, proposals to allow VA to retain a
portion of its third-party recoveries would essentially result in
duplicate payments. 


   REINVEST SAVINGS FROM
   EFFICIENCY IMPROVEMENTS
---------------------------------------------------------- Chapter 6:4

During the past 5 to 10 years, we, VA's OIG, VHA, and others have
identified numerous opportunities to improve the efficiency of the VA
health care system and enhance revenues from sales of services to
nonveterans and care provided to veterans.  Savings from such
initiatives could be "reinvested" in the VA health care system to
help pay for eligibility expansions. 

VA has historically used savings from efficiency improvements to fund
new programs.  For example, VA is allowing its facilities to reinvest
savings achieved by consolidating administrative and clinical
management of nearby facilities into providing more clinical
programs.  Similarly, VA allows medical centers to use savings from
efficiency improvements to fund access points. 

Through establishment of a preadmission certification requirement
similar to those used by many private health insurers, VA could
reduce nonacute admissions and days of care in VA hospitals and save
hundreds of millions of dollars, assuming that facilities that are
made excess by this are eliminated.  While such inappropriate
admissions and days of care to a large extent are unrelated to
problems with VA eligibility provisions, savings resulting from
administrative actions to address the problem could nonetheless be
targeted to pay for expanded benefits. 

Actions to reinvest savings from efficiency improvements would,
however, limit VA's ability to contribute to deficit reduction. 


   PROVIDE A METHODOLOGY IN THE
   LAW FOR LIMITING VA
   APPROPRIATIONS
---------------------------------------------------------- Chapter 6:5

One way to control increases in VA appropriations in response to the
increased demand likely to be generated through eligibility
expansions would be to state in the law which portion of the demand
would be funded.  For example, the law would state which groups of
veterans, such as those with service-connected disabilities rated at
30 percent or higher, would be covered by the appropriation.  Other
groups that might be included in the appropriation could be veterans
already eligible for comprehensive care, such as former prisoners of
war and veterans of World War I and the Mexican Border Period.  To
preserve VA's safety net mission, funds might also be appropriated to
cover veterans with no public or private health insurance who have
incomes below the means test threshold or some other level.\47

Such an approach would make it easier to limit appropriation
increases, but they would result in significant rationing (see ch. 
5) unless revenues from other sources were available to VA.  This
approach could be combined with other approaches that increase VA
revenues to enable VA to provide any available health care service to
any veteran.  For example, VA might be authorized to sell available
health care services to veterans in eligibility categories not
covered by the appropriation.  (Such an approach would be used under
the American Legion's eligibility reform proposal.) Because VA would
have received no appropriation to serve these veterans, VA might be
authorized to bill and retain recoveries from private health
insurers, Medicare, Medicaid, and CHAMPUS.\48 Veterans' copayments
and deductibles could be administered in accordance with the
provisions of their insurance coverage.  In effect, care for veterans
not covered by the appropriation would be fully funded through
insurance recoveries and veterans' cost sharing. 

Such an approach would help control budgetary increases without
forcing VA to ration care.  All veterans would have the opportunity
to choose VA as their health care provider.  VA would, however, for
those veterans not covered by the appropriation, be competing with
private sector providers on a more level playing field. 

By limiting VA's appropriation to specified categories of veterans,
VA would be given an incentive to focus outreach efforts on those
veterans with the highest priority and greatest need for VA services
in order to maximize its appropriation.  In addition, VA facilities
would have a stronger incentive to provide cost- effective care
because they would be more dependent on recoveries from public and
private insurance to offset their operating costs.  In becoming more
dependent on outside payers, VA would be subject to many of the
cost-containment pressures exerted on private sector hospitals over
the past decade.  For example, VA facilities could no longer count on
appropriations to cover the costs of care denied by private insurers
as not medically necessary or not requiring hospitalization. 

H.R.  3118, as passed by the House of Representatives, would set a
limit on the growth of VA medical care appropriations.  It would
authorize medical care appropriations not to exceed $17,250,000 for
fiscal year 1997 and $17,900,000 for fiscal year 1998.\49 If funds
are appropriated at the authorized levels, H.R.  3118 would allow
essentially no increase in VA medical care spending for fiscal year
1997 over the levels contained in the administration's 7-year
balanced budget plan and the House budget resolution.  For fiscal
year 1998, H.R.  3118 would limit the increase in budget authority to
$1.7 billion over the administration's budget plan and $1.1 billion
over the House budget resolution. 

The final House bill also contains provisions requiring VA to assess
the effects of the bill on demand for VA health care.  For example,
VA would be required to include in a report to the Veterans' Affairs
committees detailed information on the numbers of and costs of
providing care to veterans who had not received care from VA within
the preceding 3 fiscal years. 


--------------------
\47 Provisions could also be made to appropriate funds to cover the
costs of (1) treating the service-connected disabilities of veterans
with disabilities rated at 0 to 20 percent; (2) veterans treated for
conditions related to exposure to Agent Orange, ionizing radiation,
or environmental hazards in the Persian Gulf; (3) long-term care; and
(4) specialized services. 

\48 VA would continue to collect from private health insurers for
those covered by the appropriation, but could not retain recoveries
beyond the costs of operating the recovery program. 

\49 H.R.  3118 would not set limits on authorizations beyond fiscal
year 1998.  The proposal being developed by the Senate Committee on
Veterans' Affairs would authorize an appropriation not to exceed
$17.1 billion in fiscal year 1997 with the authorization for
subsequent years increasing by the percentage change in the cost of
living for each year. 


CONCLUSIONS AND AGENCY COMMENTS
============================================================ Chapter 7

The VA health care system was neither designed nor intended to be the
primary source of health care services for most veterans.  It was
initially established to meet the special care needs of veterans
injured during wartime and those wartime veterans permanently
incapacitated and incapable of earning a living.  Although the system
has evolved since that time, even today it focuses on meeting the
comprehensive health care needs of only about 465,000 of the nation's
26.4 million veterans.  In other words, its primary mission is to
meet the comprehensive health care needs of veterans with
service-connected disabilities rated at 50 percent or more.  For
other veterans, the system is primarily intended to provide treatment
for their service-connected disabilities and to serve as a safety net
to provide health care to veterans with limited access to health care
through other public and private programs. 

Because 9 out of 10 veterans now have other public or private health
insurance that meets their basic health care needs, relatively few
veterans today need to rely on VA as a safety net.  Rather, most of
them turn to private sector providers for all or most of their care,
using VA either not at all or to supplement their use of private
sector health care. 

Reforms of VA eligibility that would significantly expand veterans'
eligibility for comprehensive care in VA facilities would
significantly alter VA's health care mission and place VA in more
direct competition with the private sector.  To the extent veterans
are given expanded benefits that are either free or have lower cost
sharing than other public and private health insurance, the VA system
will gain a competitive price advantage over its private sector
competitors.  Coupling eligibility reform with other changes, such as
improved accessibility and customer service, could heighten the
increased demand for VA services.  Because most veterans currently
use private sector providers, any increased demand generated by
eligibility expansions would come largely at the expense of those
providers. 

For most veterans, VA eligibility reform might provide an additional
option for health care services or additional services not covered
under their public or private insurance.  For those veterans who do
not have public or private health insurance, however, eligibility
reform is more important.  It could improve their access to
comprehensive health care services, including preventive health care
services. 

Historically, VA's mandatory and discretionary care workload has been
fully funded.  The four eligibility reform bills that would retain
the discretionary nature of funding of veterans' health benefits
could significantly increase demand for VA health care services by
expanding all veterans' benefits to include comprehensive inpatient
and outpatient care services.  This could result in increased VA
appropriations to fully fund at least the demand generated by the 9
million to 11 million veterans added to the mandatory care category
for comprehensive free outpatient services. 

However, by not fully funding VA's anticipated increase in workload,
VA would be faced with developing rationing policies that would
ensure the funds appropriated are directed toward those veterans with
the highest priorities for care.  This would likely entail turning
away many of the veterans currently using VA health care.  Depending
on the level of funding, those turned away could include low-income
uninsured veterans.  The funds needed to meet the increased demand
for routine health care services could also jeopardize VA's ability
to provide specialized services, such as treatment of spinal cord
injuries, not readily available through other providers. 

If eligibility reforms focus on strengthening VA's safety net mission
while preserving its ability to provide specialized services veterans
may be unable to obtain through their public and private insurance,
several approaches could be pursued that would also limit the extent
to which the government competes with the private sector.  These
approaches generally involve placing limits on the number of veterans
given expanded benefits, narrowing the range of benefits added, or
increasing cost sharing to offset the costs of added benefits.  The
American Legion proposal contains a framework for accomplishing such
changes, but is unrealistic in the number of veterans who would be
covered under the entitlement it would create.  A significant
reduction in the number of veterans covered by the entitlement would
be needed if the proposal was to be budget neutral.  For example, the
entitlement for low-income veterans might be restricted to those who
lack other public or private insurance coverage, or the income cutoff
might be lowered to reduce the number of veterans covered by the new
entitlement. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 7:1

VA said that GAO's report, in presenting a summation of many years of
discussion concerning eligibility reform issues, shows how confusing,
convoluted, and difficult even debate on the issues can be.  VA noted
that unanimous passage of H.R.  3118 by the House of Representatives
and the recent reporting of a bill by the Senate Committee on
Veterans' Affairs support the need for change.  See appendix VII for
VA's comments. 


ISSUES THAT NEED TO BE ADDRESSED
IN PLANNING CHANGES TO VA'S HEALTH
CARE MISSION
=========================================================== Appendix I

This appendix discusses issues identified during our work that should
be considered in planning changes to VA's health care mission: 

  -- What is and what should be the nation's commitment to its
     veterans? 

  -- What do veterans perceive as the nation's commitment to its
     veterans? 

  -- Should eligibility distinctions continue to be based on factors
     such as degree of service-connected disability or income? 

  -- Should dependents and other nonveterans be given greater access
     to VA's health care system? 

  -- To what extent should veterans be expected to contribute toward
     the cost of expanded benefits? 

  -- Are changes needed in VA's role as a safety net provider? 

  -- What effect would changes in Medicare and Medicaid have on the
     need for VA eligibility reform? 


   WHAT IS AND WHAT SHOULD BE THE
   NATION'S COMMITMENT TO ITS
   VETERANS? 
--------------------------------------------------------- Appendix I:1

The first, and perhaps most important, issue to be addressed in
considering changes in veterans' health care eligibility is the
nation's commitment to its veterans.  But what is that commitment and
what should it be?  Since colonial times, there has been little doubt
that service members injured in combat are entitled to compensation
for their injuries.  There is less agreement, however, on the role
and responsibility of the federal government in meeting the other
health care needs of veterans. 

Most would agree that veterans injured "in the line of duty" should
receive care for their disabilities.  But what does "in the line of
duty" mean?  Currently, any injury or illness that manifests itself
during a servicemember's period of service is considered
service-related unless it is caused by willful misconduct.  Current
eligibility for VA health care varies on the basis of the severity
but not the cause of service-connected disabilities.  Should
eligibility vary on this basis?  For example, should a veteran who
was injured in an automobile accident while on leave or in an
accident around the home be eligible for the same compensation and
veterans health care benefits as a veteran injured in combat?  For
many, such as VA and the major veterans service organizations, the
answer is yes.  They point out that military personnel are on duty 24
hours a day, particularly when stationed overseas or living on
military bases.  Others, however, argue that many military personnel,
such as most of those stationed in Washington, D.C., work regular
hours and are "off duty" and "off base" at their private homes at
other times. 

A similar debate centers around the extent to which the government
should have an obligation to provide health care to veterans
suffering from diseases that become evident during a veteran's period
of service but are not caused by that service.  For example, about 19
percent of veterans receiving VA disability compensation, and
therefore in the mandatory care category for VA hospital care, have
disabilities resulting from diseases contracted during military
service that were neither caused nor aggravated by military service. 
Many of these diseases are hereditary or related to lifestyle rather
than to military service.\50

Under current eligibility provisions, all veterans with
service-connected conditions, regardless of the cause of the
condition, are in the mandatory care category for treatments related
to that disability.  But only those with disabilities rated at 50
percent or over are in the mandatory care category for free
comprehensive outpatient care for conditions not related to their
service-connected disability.  To what extent should other veterans
with service-connected disabilities be eligible for care for
conditions not related to their service-connected disabilities? 
Should the commitment to provide nonservice-connected care to
veterans with service-connected disabilities vary on the basis of
such factors as the degree and cause of the service-connected
disability? 

For veterans with no service-connected disabilities, VA currently
serves primarily as a safety net, providing hospital-related care to
those with low incomes and limited health care options.  Certain
veterans with nonservice-connected disabilities, such as World War I
veterans, have, however, been placed in the mandatory care category
for hospital care and are eligible for comprehensive outpatient care
regardless of their incomes.  Should the priorities for care for
nonservice-connected veterans be changed?  Among the factors that
have been suggested for consideration in deciding whether to change
the priorities for care are (1) how long the veteran served, (2)
whether the veteran was drafted or volunteered, (3) whether the
veteran served during wartime or peacetime, (4) whether the veteran
was exposed to combat, and (5) whether the veteran has other health
care options (income and/or insurance to pay for health care
services).  For most veterams with nonservice-connected disabilities,
the only factor currently considered is income.  For example, a
combat veteran with no service-connected disabilities may have a
lower priority for VA health care than a veteran with 2 years of
peacetime service. 


--------------------
\50 VA Benefits:  Law Allows Compensation for Disabilities Unrelated
to Military Service (GAO/HRD-89-60, July 31, 1989). 


   WHAT DO VETERANS PERCEIVE AS
   THE NATION'S COMMITMENT TO ITS
   VETERANS? 
--------------------------------------------------------- Appendix I:2

Is there a gap between what veterans expect from VA and what the
current veterans' health care law covers?  VSO's generally maintain
that the government made certain promises to servicemembers when they
were drafted or volunteered for military service.  Although many of
the health benefits for which veterans are now eligible were not
covered at the time they were discharged, were servicemembers led to
believe, either as an inducement to enlist or as a promise upon
discharge, that the government would provide for their health care
needs for the remainder of their lives? 

Comments made by veterans participating in a series of focus group
meetings we held in 1994 suggest that they did not necessarily leave
the service with an expectation that the government would provide for
their health care needs for the rest of their lives.\51

For example, veterans made the following comments: 

     "I was in the military but I don't know whether I would be
     covered.  I don't have any disabilities or anything from the
     military.  I don't know whether I'd be eligible for anything
     through the VA or not."

     "The first problem is that when you are coming out of the
     service .  .  .  when you are going through the discharge
     processing, they don't tell you what the VA will do for you."

     "My son .  .  .  just got out of the Navy not too long ago .  . 
     .  looked at the packet of papers and phfftt and he tossed them. 
     He wasn't going to go until I insisted that he go up to the VA
     and get examined .  .  .  .  He really didn't know what he was
     entitled to because the VA doesn't advertise a whole lot of what
     you're entitled to .  .  .  ."

VA's 1992 National Survey of Veterans provides further indications
that many veterans expect little from the VA system and are not aware
that they are eligible for VA health care services.  Although all
veterans are eligible for VA hospital care, about 34 percent of
veterans using non-VA hospitals in 1992 cited as a reason for not
using a VA hospital that they did not know that they were eligible
for VA care.  Similarly, under VA's 1987 Survey of Veterans, about 18
percent of veterans who had never used VA health care services said
that they were not aware that they were eligible for them. 

The limited awareness of VA health care benefits may, however, also
reflect the important expansions of VA health care eligibility that
have occurred since most veterans were discharged from the service. 
Many of the health care benefits for which veterans are now eligible
were added after they were discharged from the military.  For
example, most World War II and Korean War veterans were discharged
before nursing home benefits were added to the VA system in 1964. 
Similarly, higher-income veterans without service-connected
disabilities were not eligible for VA health care until 1986, when
the means test was added.  More importantly, outpatient benefits,
other than for treatment of service-connected disabilities, were not
available even for pre- and posthospital care until 1960.  And
broader outpatient benefits to cover services needed to obviate the
need for hospital care were not added until after the Vietnam War. 
In other words, not one of the three largest groups of
veterans--World War II, Korean War, and Vietnam-era--was discharged
with a promise of comprehensive health care for both
service-connected and nonservice-connected conditions. 

Veterans with service-connected conditions who participated in our
focus group meetings generally seemed to feel more strongly that they
are entitled to health care from the government than did veterans
with nonservice-connected disabilities.  Still, not all veterans or
even all veterans with service-connected disabilities saw themselves
as entitled to care from VA.  For example, focus group participants
made the following comments: 

     "Every veteran in the United States feels that because we did
     our share, we did what we did, we should receive the treatment."

     "It's the VA's responsibility to take care of those injuries
     that you received in the war, not your insurance company's."

     "Anybody that has had problems in the service, they need to be
     taken care of.  I think it should only be service-connected
     disabilities."

Veterans participating in our focus groups, however, generally did
not suggest that they believed they have a lifetime entitlement to
comprehensive health care services.  Many of the veterans with
service-connected disabilities, for example, said that they use VA
only for treatment of their service-connected conditions. 


--------------------
\51 Veterans' Health Care:  Veterans' Perceptions of VA Services and
VA's Role in Health Care Reform (GAO/HEHS-95-14, Dec.  23, 1994). 


   SHOULD ELIGIBILITY DISTINCTIONS
   CONTINUE TO BE BASED ON FACTORS
   SUCH AS DEGREE OF
   SERVICE-CONNECTED DISABILITY OR
   INCOME? 
--------------------------------------------------------- Appendix I:3

Decisions made with regard to what the nation's commitment to its
veterans should be will largely drive decisions on whether
eligibility distinctions should continue to be based on factors such
as degree of service-connected disability and income.  If a decision
is made that all veterans should be eligible for the same
comprehensive health benefits, then eligibility distinctions will, in
the future, be used only to determine veterans' relative priorities
for care.  If, however, the decision is that certain veterans should
be given better benefits than others, then such distinctions will
continue to be used to define the differences in benefits.  For
example, certain categories of veterans might be eligible for a
broader range of services or lower cost sharing.  The question then
would become whether to keep the same distinctions as in the current
law or base the distinctions on other factors. 

Eligibility distinctions are seldom used to set priorities for care
under the current law.  For example, the distinction between which
services veterans "shall" and "may" (mandatory and discretionary
care) be provided has little real meaning in practice.  This is
because VA's budget requests have historically been based on the
resources needed to provide inpatient and outpatient services sought
by all veterans, both those in the mandatory and those in the
discretionary care categories.  Only when an individual facility,
program, or service runs short of resources does a facility have to
apply the priorities.  The priorities could take on new importance,
however, if increased demand generated by eligibility reform forces
increased rationing of VA health care services. 


   SHOULD DEPENDENTS AND OTHER
   NONVETERANS BE GIVEN GREATER
   ACCESS TO VA'S HEALTH CARE
   SYSTEM? 
--------------------------------------------------------- Appendix I:4

Historically, eligibility for VA health care has been expanded when
VA hospitals develop excess capacity because of declining demand.  In
three other countries that operated direct delivery systems for
veterans (United Kingdom, Australia, and Canada), declining use of
veterans hospitals prompted actions to open these hospitals to
nonveterans.  For example, Australia, in 1973, authorized its
veterans' hospitals to use their excess capacity to treat community
patients.  The action was taken, in part, because of concern that the
aging veteran population was transforming the veterans' hospitals
into geriatric facilities, resulting in poorer quality of care and
fewer services available to veterans.  It was hoped that caring for
community patients would allow the hospitals and staff to maintain
their medical expertise and expand services.  In addition, the
medical education mission of the veterans' hospitals was being
challenged because the hospitals were increasingly focusing on
geriatric care. 

If eligibility reforms are enacted in the United States that limit
the benefits provided to veterans either directly through limits on
covered services or indirectly through resource limits, then it would
be questionable to allow the sale of services to nonveterans without
first giving veterans the chance to buy noncovered services. 
Veterans should have the first right to use any excess capacity. 

Allowing VA to sell excess services to veterans or nonveterans could
help contain VA health care costs by making better use of medical
resources.  For example, if VA uses an expensive piece of equipment
only 4 hours a day, but it is staffed to operate the equipment for 8
hours, it could generate additional revenues by selling its excess
capacity.  Selling excess resources to nonveterans could offer
several other advantages, including broadening the mix of patients
seen by VA facilities.  This might enable facilities to offer a
broader range of services than they could support solely through
veteran demand.  In addition, the broader case mix of patients could
strengthen VA's education mission. 

However, treating dependents or other nonveterans would place VA in
direct competition with private providers.  Essentially, every
nonveteran treated in a VA hospital means one less patient treated in
a non-VA hospital.  Because many private sector hospitals are facing
dwindling numbers of patients, placing government hospitals in direct
competition with private sector hospitals could result in additional
closures of private sector hospitals.  On the other hand, to the
extent that VA hospitals and clinics are located in medically
underserved areas, opening VA hospitals to dependents or other
nonveterans might improve access to health care in the entire
community without putting the government in competition with the
private sector. 

Among the options that could be considered with respect to treatment
of nonveterans would be extending veterans' benefits to more
dependents.  If a veteran is uninsured and lacks health care options,
his or her family is also likely to be uninsured and without adequate
health care.  Currently, VA coverage of dependents is limited
primarily to the survivors of veterans killed in action and to the
dependents of veterans with service-connected disabilities rated at
100 percent.  The same basic factors used in evaluating the nation's
commitment to its veterans could be considered in determining whether
changes are needed in the commitment to their families.  In addition,
dependents are covered through a separate health financing program
rather than through VA facilities. 

The topic of VA offering dependent care elicited a range of responses
in our focus group meetings.  Some of the participating veterans were
strongly opposed to VA offering dependent care.  For many veterans,
VA hospitals are special because they are reserved almost exclusively
for use by veterans.  In contrast, other veterans believed that VA
would have to offer dependent care to attract veterans with families. 
Some of those veterans, however, believed that VA would be unable to
meet the needs of the family or that dependents would be
uncomfortable seeking care at VA.  One alternative that elicited a
favorable response from these veterans was for VA to provide care for
veterans in its own facilities and offer contract care for veterans'
dependents similar to what is currently done under the Civilian
Health and Medical Program of the Department of Veterans Affairs
(CHAMPVA) program. 


   TO WHAT EXTENT SHOULD VETERANS
   BE EXPECTED TO CONTRIBUTE
   TOWARD THE COST OF EXPANDED
   BENEFITS? 
--------------------------------------------------------- Appendix I:5

VA has traditionally provided virtually free care to most veterans. 
Only higher-income veterans without service-connected disabilities,
such as single veterans with incomes above $21,001, are required to
contribute toward the cost of their care.  Compared to private sector
and other public programs, VA has relatively little cost sharing. 

Increased veteran cost sharing could help to (1) offset the costs of
increased demand, (2) discourage inappropriate use of VA health care
services, and (3) reduce the financial incentive for veterans with
adequate private or public health insurance to shift from private
providers to VA. 

Once a benefit has been established, it can be difficult to change
the cost-sharing requirements.  As new benefits are added, however,
an opportunity exists to determine to what extent the government and
the veteran will be expected to pay for the benefits.  For example,
decisions could be made to create cost-sharing requirements for
veterans with 0 to 20 percent service-connected disabilities that
apply to the expanded benefits. 

Increased cost sharing could, however, put VA health care out of
reach for some veterans.  Some veterans who qualify for VA health
care under VA's safety net mission may be unable to afford increased
cost-sharing requirements; if cost-sharing requirements are set too
high, veterans may forgo needed care.  Symptoms that could have been
treated at an earlier stage at less cost could develop into more
serious conditions requiring hospitalization. 

Under current law, veterans' insurance coverage is not considered in
determining their copayment status.  When seeking care from private
providers, a veteran with a $15,000 income but no health insurance is
liable for all of his or her health care out of pocket.  By contrast,
a veteran with the same income who has Medicare or private health
insurance coverage can obtain services from private providers with
significantly lower out-of-pocket costs; he or she is responsible for
paying only the copayments and deductibles required by the policy. 
Basing requirements that veterans make copayments, in part, on
whether they have private insurance might increase the number of
veterans making copayments without placing an unreasonable burden on
low-income veterans. 

While increased cost sharing would place an added burden on some
veterans, it could also yield several benefits.  For example,
collections from copayments and deductibles could be used to provide
a broader range of services within available resources, reduce
incentives to overuse services, or reduce VA expenditures.  Cost
sharing could also be used to provide an incentive for veterans to
use VA facilities instead of contract providers--for example,
deductibles could be lowered or waived if a veteran uses a VA
hospital.  As VA increasingly competes with the private sector for
patients, a question arises about whether free VA care and low cost
sharing gives VA an unfair advantage, particularly for the
higher-income veterans with no service-connected disabilities that VA
hopes to attract. 

To reduce the effect of increased cost sharing, eligibility reform
could (1) adopt a sliding scale of cost sharing based on the
veteran's ability to contribute, (2) apply cost sharing only to
nonservice-connected conditions, (3) give VA broader authority to
bill third-party insurers, or (4) include a combination of these
three. 

Under most private health insurance, policyholders pay a portion of
the cost of their health care coverage through premiums.  While
charging veterans premiums for enrolling in VA health care benefits
would help offset the cost of expanded benefits, the premiums would
not be fair unless the benefits covered by the premiums were
guaranteed.  In addition, VA's health care appropriation would need
to be adjusted so that funds are appropriated only to cover that
portion of the cost of the benefit package not covered by the
veterans' premiums. 


   ARE CHANGES NEEDED IN VA'S ROLE
   AS A SAFETY NET PROVIDER? 
--------------------------------------------------------- Appendix I:6

From its beginnings, VA has given special consideration to veterans
who are unable to pay for their health care.  VA's role in meeting
the health care needs of low-income veterans has grown steadily in
recent years.  VA reported that about one-half of the veterans who
used VA health care in 1994 were low-income veterans with no
service-connected disabilities. 

Currently, VA serves as a safety net for low-income and unemployed
veterans who have no health insurance and for other veterans who have
catastrophic illnesses, such as acquired immunodeficiency syndrome
(AIDS) or cancer, or catastrophic injuries, such as injuries to the
spinal cord or eyes, that deplete their resources and ability to earn
a living.  Many veterans participating in our focus groups saw VA's
safety net mission as among its most critical.  For example one
veteran noted that

     "[VA is] a safety net for me [and] that's just what it's
     supposed to be.  I don't think that if I'm working, I should
     abuse it by going there and getting in line when there are
     others who don't have money [and] really need it.  If I am
     insured, I don't believe that I should abuse what's given to
     me."

Another focus group participant said that

     "I have always thought of the VA as providing medical care at
     the last resort [when] .  .  .  a veteran couldn't afford
     private care, and [he or she] would go into the Veterans
     Administration."

For most veterans, VA health care benefits resemble Medicare part A
benefits and private sector catastrophic health insurance policies
rather than comprehensive private health insurance.  The government's
role is primarily limited to paying for costly inpatient care,
including hospital care and treatment in such specialized programs as
spinal cord injury and blind rehabilitation.  Veterans are generally
expected to obtain their routine day-to-day medical care from non-VA
sources and either pay for the services themselves or use their
health insurance to pay for the services. 

VA benefits resemble Medicare part A benefits in that both focus on
hospital-related care.  Under part A, Medicare beneficiaries do not
pay premiums and are covered for medically necessary hospital care
and certain other hospital-related care such as nursing home and home
health care.  Medicare beneficiaries are not, however, covered for
routine outpatient services unless they enroll in and pay premiums
for optional part B benefits.  The cost of these optional benefits is
shared by the beneficiary and the government.  Similarly, all
veterans are eligible for hospital care and certain other
hospital-related services, including nursing home care.  Only
hospital-related outpatient care is covered for most veterans. 
Unlike Medicare, however, VA health benefits do not include an
optional health benefits package to cover routine outpatient
services. 

VA health care benefits are also similar to private sector
catastrophic health insurance coverage in that they function as a
safety net.\52 Some health insurers sell policies with high
deductibles, such as $2,000, that essentially guarantee policyholders
full coverage once they have met the deductible.  Because of the high
deductible, premiums for catastrophic insurance policies are
significantly lower than for comprehensive health insurance.  People
who purchase catastrophic insurance are essentially betting that
their health care expenses will be lower than the difference in
premiums between purchasing catastrophic and comprehensive health
insurance.  Moreover, by holding a catastrophic insurance policy they
set a limit on their risk if they incur the higher costs of a
catastrophic illness. 

Veterans' health care benefits are similar to a private sector
catastrophic insurance policy in that most veterans are eligible for
VA care only if they have a medical condition normally requiring
hospital care.  Like private sector catastrophic insurance, veterans
are responsible for paying for routine health care services not
needed to obviate the need for hospital care.  Unlike private sector
catastrophic insurance, however, there is no direct link between
veterans' out-of-pocket expenses and eligibility for VA benefits. 
Nor is there a limit on veterans' out-of-pocket expenses above which
the government assumes responsibility for further expenses. 

Broadening veterans' benefits within existing resources could
jeopardize VA's safety net mission.  Reforms that broaden benefits
without increasing resources essentially take benefits away from some
veterans in order to give expanded benefits to others.  With limited
resources, available funds might be consumed in providing free
routine health care services to veterans with higher priorities for
care, leaving less money available for VA's safety net mission. 

The primary limitation in VA's safety net mission today is the
geographic inaccessibility of VA facilities for many veterans.  By
expanding its use of private providers, VA might be able to better
meet the needs of low-income veterans living in communities without
VA hospitals.  One option for strengthening VA's safety net mission
would be to expand the use of fee-basis care.  Another option is to
expand the number of "access points." Access points include both
VA-operated clinics and contractual or sharing agreement arrangements
with non-VA providers to provide primary care services to veterans. 
The access points that have been established, however, have not been
targeted toward low-income veterans.  Rather, they have focused on
attracting veterans without regard to their service-connected status
or incomes. 


--------------------
\52 Catastrophic health care expenses can be defined in terms of
out-of-pocket expenses relative to income or of an absolute dollar
amount (such as $2,000). 


   WHAT EFFECT WOULD CHANGES IN
   MEDICARE AND MEDICAID HAVE ON
   THE NEED FOR VA ELIGIBILITY
   REFORM? 
--------------------------------------------------------- Appendix I:7

VA believes that proposed Medicare and Medicaid reforms could
increase demand for VA medical services.  Medicaid proposals
generally would permit states more latitude in setting eligibility
and service coverage rules.  Thus, their effect on VA would depend on
actions taken by the states, and we are not in a position to predict
such changes.  We agree that proposed changes in Medicare could
affect demand for VA care, but it is unclear whether they would
increase or decrease demand for VA services.  To the extent that
reforms result in more Medicare-eligible veterans enrolling in health
maintenance organizations or other managed care plans with little or
no beneficiary cost sharing, the use of VA services might decrease. 
On the other hand, if reforms result in higher Medicare deductibles
and copayments under the existing fee-for-service system, more
veterans might move to the VA system to avoid high out-of-pocket
costs. 

One area where proposed Medicare reforms could have an unintended
effect on government health care costs is the medical savings account
(MSA) provision.  This provision would enable Medicare beneficiaries
to opt out of the traditional Medicare program in exchange for a
fixed yearly government payment to be placed in an MSA.  The
beneficiary is expected to use the funds in the MSA to pay for needed
health care services and purchase a catastrophic health insurance
policy.  Funds left in the savings account at the end of the year
become the beneficiary's property. 

These provisions might encourage Medicare-eligible veterans to choose
the MSA option but seek needed health care from VA at no cost rather
than use funds in their MSA to pay for health care services.  Two
options that could address this potential interaction between the two
health benefits programs would be to (1) allow VA to charge those
Medicare-eligible veterans choosing the MSA option for services
provided or (2) require Medicare beneficiaries choosing the MSA
option to relinquish their benefits under other federal health care
programs. 

A similar interaction could occur between veterans' benefits and
Medicare and Medicaid for those enrolling in prepaid managed care
plans.  To the extent VA provides services to dually eligible
veterans enrolled in a managed care plan under Medicare or Medicaid,
the government could essentially end up paying twice for the same
services.  This is because the capitation payment the government
makes to the managed care plan covers all medically necessary care
included under the benefit plan.  However, VA is generally unable to
collect the costs of services it provides to veterans enrolled in
managed care plans because VA facilities are not participating
providers. 

Representatives from several VSOs said that many Medicare managed
care plans are encouraging their veteran enrollees to obtain needed
health care services from VA facilities.  If a veteran enrolled in
such a managed care plan obtains care from VA for a service included
under their Medicare benefits, the government ends up paying twice
for the same benefit.  The managed care plan would be the primary
beneficiary of the government's double payment. 

Two potential ways to prevent such problems would be to (1) require
dually eligible beneficiaries enrolling in managed care plans to
obtain covered services from their health plan or (2) require that
such health plans include VA in their provider networks and reimburse
VA for the care provided. 

Even if Medicaid reforms resulted in veterans losing their
eligibility for Medicaid, these reforms would be unlikely to affect
the need for eligibility reform.  First, those with incomes low
enough to have qualified them for the Medicaid program would also
qualify for comprehensive VA health care services.  This is because
the income levels to qualify for Medicaid are well below the VA
pension level.  In addition, veterans potentially losing Medicaid
coverage of nursing home care would already be eligible for VA
nursing home care, although space and resource limits might prevent
them from obtaining care. 


ISSUES RELATING TO THE DESIGN OF
ELIGIBILITY REFORMS
========================================================== Appendix II

This appendix discusses issues relating to the design of veterans'
health care benefits identified during our work.  Specifically, it
addresses the following questions: 

  -- How can the availability of veterans' health care benefits be
     made more equitable within existing legislative authority? 

  -- Which eligibility-related problems would require a legislative
     solution? 

  -- Should the availability of services be guaranteed for one or
     more of the coverage groups? 

  -- Should a defined benefit package be developed for one or more
     coverage groups?  Which benefits should be included in such
     packages? 

  -- To what extent would eligibility reform address the unmet health
     care needs of veterans? 

  -- To what extent would changes in VA's role as a health care
     provider alter the need for eligibility reform? 


   HOW CAN THE AVAILABILITY OF
   VETERANS' HEALTH CARE BENEFITS
   BE MADE MORE EQUITABLE WITHIN
   EXISTING LEGISLATIVE AUTHORITY? 
-------------------------------------------------------- Appendix II:1

Several approaches could be used to improve veterans' equity of
access to VA health care services within existing legislative
authority.  First, better defining the conditions under which the
provision of outpatient care would obviate the need for
hospitalization might lead to greater consistency and equity in
coverage decisions.  Such action would help promote consistent
application of eligibility restrictions, but VA physicians would
still be placed in the difficult position of having to deny needed
health care services to veterans when treatment of their conditions
would not obviate the need for hospitalization.  This problem can be
addressed through legislation to (1) make veterans eligible for the
full range of outpatient services or (2) authorize VA to sell
noncovered services to veterans. 

Second, VA could reduce inconsistencies in veterans' access to care
by better matching VISNs, and individual medical centers' resources
to the volume and demographic makeup of eligible veterans requesting
services at each center.  In effect, VA would be shifting some
resources from medical centers that have sufficient resources and
therefore do not ration care.  Such resource shifts could mean, for
example, that some higher-income veterans at those medical centers
might not obtain care in the future.  But the shift would also mean
that some veterans with lower incomes who had not received care at
the other medical centers might receive care in the future. 

From a veteran's perspective, VA's development of a strategy to deal
with resource shortfalls on a more equitable basis systemwide seems
preferable.  We recommended in 1993 and again in 1996 that VA modify
its system for allocating resources to its medical centers so that
veterans with similar economic status or medical conditions would, to
the extent practical, be provided more consistent access to
outpatient care. 

Although VA created a new resource allocation system, the Resource
Planning and Management (RPM) system, in part to improve the equity
of resource allocation, RPM, like its predecessor, allocates
resources without consideration of the incomes or service-connected
status of the veterans obtaining care.  VA officials told us that
they will consider including data on veteran demographics in the
system at some point in the future.  In the meantime, VA is planning
to use RPM to shift resources between VISNs on the basis of
differences in efficiency and workload. 

The increased demand for VA health care services that could be
generated through eligibility reforms could heighten the problems
caused by the unequal distribution of resources among VA facilities. 
Those facilities that historically have had more resources would be
in a better position to respond to increased demand generated by
eligibility expansions.  They may have adequate resources to treat
veterans in lower-priority categories, while other facilities are
forced to turn away veterans in higher categories.  Because VA does
not differentiate between care categories in RPM, the use of RPM will
not result in reallocation of resources that will facilitate equal
access by similarly situated veterans in accordance with the
priorities established in title 38. 

A third approach to improving equity of access would be to place
greater emphasis on use of the fee-basis program to equalize access
for those veterans who do not live near a VA facility or who live
near a facility offering limited services.  VA has specific statutory
authority to contract for medical care when its facilities cannot
provide necessary services because they are geographically
inaccessible.  While this approach would help some veterans, current
law severely restricts the use of fee-basis care by veterans with no
service-connected disabilities.  Such veterans are eligible only for
limited diagnostic services and follow-up care after hospitalization. 

VA's recent efforts to establish access points\53 will improve
accessibility for some veterans, but VA has not applied the
priorities for care in enrolling patients.  As a result, access
points actually divert funds that could be used to provide access to
VA-supported care for high-priority veterans to pay for services for
discretionary care veterans.  Although the concept of access points
appears sound--to increase competition and therefore reduce costs of
contract care--to be equitable, enrollment in access points should be
subject to the same limitations that apply to issuance of fee-basis
cards for other veterans.  Equity could be further enhanced by
applying the same restrictions to care in VA facilities that apply to
the fee-basis program.  This would likely result in shifts in
resources away from VA facilities and into the fee-basis program. 
With a fixed budget, lower-priority veterans currently obtaining care
in VA facilities would likely be denied VA-supported care, while
higher priority veterans currently unable to obtain VA-supported care
because of restrictions on the use of fee-basis care would gain
access to VA-supported care. 

Such a change is not, however, without risks.  The capacity of VA's
direct delivery system serves as a control over growth in VA
appropriations.  Without changes in the methods used to set VA
appropriations, removing the restrictions on use of fee-basis care
could create significant pressure to increase VA appropriations.  In
other words, the priorities for care covered under the fee-basis
program might be expanded to match the priorities currently covered
at VA facilities rather than be reordered within available resources. 
This can result because VA's budget request does not differentiate
between the priorities for care. 

Finally, VA could ensure that its facilities use consistent methods
to ration care when demand exceeds capacity.  This would be
particularly important if eligibility is expanded but VA budgets do
not increase. 


--------------------
\53 VA access points can be either VA-owned and -operated facilities
or local providers under contract with VA to serve veterans. 


   WHICH ELIGIBILITY-RELATED
   PROBLEMS WOULD REQUIRE A
   LEGISLATIVE SOLUTION? 
-------------------------------------------------------- Appendix II:2

Solutions to some of the eligibility-related problems would require
changes in law.  For example, legislation would be needed before VA
could do the following: 

  -- Sell noncovered services to veterans.  Authorizing VA to sell
     noncovered services directly to veterans would help reduce the
     administrative burden on VA physicians.  This is because they
     would no longer have to decide whether to provide specific
     services depending on whether the veteran is eligible for that
     service.  Instead, administrative staff would decide who pays
     for the care, the government or the veteran. 

  -- Provide prostheses and equipment on an outpatient basis. 
     Current rules prohibit VA from providing prostheses to veterans
     who obtain VA outpatient care under the obviate-the-
     need-for-hospitalization criterion.  Because of this provision,
     according to VA, patients with broken legs must be hospitalized
     in order for VA to provide them crutches.  Under title 38, the
     term "prosthesis" includes such items as crutches, wheelchairs,
     eyeglasses, contact lenses, and hearing aids in addition to
     artificial limbs.  Because some of these items are not widely
     covered under other public or private insurance, removing the
     restriction on providing all types of prostheses could generate
     significant demand for items such as eyeglasses and hearing
     aids. 

  -- Admit veterans with no service-connected disabilities directly
     to community nursing homes.  Current eligibility provisions do
     not allow VA to admit such veterans directly.  Veterans with no
     service-connected disabilities can only be transferred to
     community nursing homes after an inpatient stay in a VA
     hospital.  As a result, veterans are sometimes admitted to VA
     hospitals just so they can be placed in a community nursing
     home.  Legislation that would give VA greater flexibility to
     admit patients directly to community nursing homes could help
     reduce unnecessary admissions to VA hospitals.  It could,
     however, make it more difficult for VA to limit growth of the
     nursing home program. 

  -- Develop uniform benefit packages.  VA has limited authority to
     define or limit covered benefits.  For example, it cannot set a
     limit on the number of days of psychiatric care or prescriptions
     covered.  Nor can it establish separate benefits by category of
     veteran.  Legislation authorizing VA to establish and adjust
     benefit packages would allow VA to develop packages that would
     enable it to provide a narrower range of services to a wider
     range of veterans within available resources. 

  -- Provide routine prenatal and maternity care.  Section 106 of
     Public Law 102-585 specifically prohibits VA from providing
     routine prenatal and maternity care either through its own
     facilities or through contractors. 


   SHOULD THE AVAILABILITY OF
   SERVICES BE GUARANTEED FOR ONE
   OR MORE OF THE COVERAGE GROUPS? 
-------------------------------------------------------- Appendix II:3

An important part of the decision about the nation's commitment to
its veterans is the extent to which VA health care benefits are
"earned" benefits that the government has a legal obligation to
provide.  Currently, the provision of VA health care services, even
for treatment of service-connected disabilities, is discretionary. 

Guaranteed benefits would have important advantages for veterans. 
For example, veterans with guaranteed benefits would no longer face
the uncertainty about whether health care services would be available
when they need them.  They could essentially forgo private sector
coverage.  Guaranteed funding would also shift the financial risk of
veterans' health care from the veteran, or private insurance, to the
government.  In other words, veterans with guaranteed benefits would
no longer need to maintain separate coverage as a backup to VA in the
event that the VA system lacked resources to provide needed care.  VA
facilities could no longer deny care to veterans if they run out of
funds, because the government would have to devise a fall-back
funding mechanism.  Guaranteed funding could also create stronger
incentives for VA facilities to become efficient to avoid having to
use the fall-back mechanism. 

Guaranteed funding, however, would also force the Congress to
relinquish control over the VA budget and could significantly
increase government spending unless limits were placed on the number
of veterans covered by the entitlement.  For example, creating an
entitlement to VA health care for veterans with service-connected
disabilities rated at 50 percent or higher would limit the
entitlement to about 465,000 veterans. 

Guaranteeing benefits for some veterans could, however, limit the
availability of benefits to others.  Essentially, any increased
demand generated by the newly entitled veterans could decrease funds
available to provide care to other veterans unless VA's appropriation
were increased to maintain service levels to veterans in the
discretionary care categories. 

Guaranteed funding of comprehensive health care services would also
put VA in more direct competition with other public and private
providers and insurers.  Because veterans with guaranteed benefits
would be assured of the availability of needed care through VA, they
would have less incentive to maintain private health insurance.  The
effect on insurance coverage would be limited, however, because most
veterans would likely continue to maintain private insurance for
their families.  Medicare-eligible veterans, however, might drop
their part B coverage and supplemental private health insurance
coverage if they had guaranteed, free benefits from VA. 

Secondarily, guaranteeing benefits could also encourage veterans to
leave their private providers and seek care from VA, thus resulting
in a cost shift to the government and loss of revenues to private
providers.  The significance of this competition would depend on many
factors, including the number of veterans offered guaranteed
benefits, the benefits covered, and actions to improve the
accessibility to and customer service provided by VA facilities. 

Operating the VA health care system as both an entitlement and a
discretionary program would, however, create significant challenges. 
VA would need to establish accounting systems adequate to ensure that
funds appropriated for the entitlement program are not used to pay
for other health care services.  In addition, VA would need to ensure
that funds appropriated to pay for discretionary care are not used to
"bail out" VA facilities that are unable to meet their commitment to
veterans with guaranteed benefits within appropriated funds. 
Finally, because the benefits would be an entitlement, the Congress
would be forced to appropriate additional funds to "bail out" VA
facilities if they run out of funds or if demand for contract care
exceeds VA's ability to pay for it. 


   SHOULD A DEFINED BENEFIT
   PACKAGE BE DEVELOPED FOR ONE OR
   MORE COVERAGE GROUPS?  WHICH
   BENEFITS SHOULD BE INCLUDED IN
   SUCH PACKAGES? 
-------------------------------------------------------- Appendix II:4

One way to control the increase in workload likely to be generated by
eligibility expansions would be to develop a defined benefit package
patterned after public and private health insurance.  This could be
used to trade off services veterans could obtain from VA against the
level of funding available.  VA could adjust the benefit package
yearly on the basis of the availability of resources. 

Creating a uniform benefit package could result in some veterans
receiving a narrower range of services than they receive now while
others would receive additional benefits.  Depending on the benefits
included, this approach could essentially take benefits away from
veterans with the greatest service-connected disabilities and give
additional benefits to veterans with lesser service-connected
disabilities and to veterans with no nonservice-connected
disabilities. 

One option for addressing this problem would be to establish separate
benefit packages for different types of veterans.  For example,
veterans with disabilities rated at 50 percent or higher might
continue to be placed in the mandatory care category for any needed
outpatient service, while a narrower range of outpatient
benefits--perhaps excluding such items as eyeglasses, hearing aids,
and prescription drugs--could be provided to higher-income veterans
with nonservice-connected disabilities.  In essence, benefit packages
could be developed to reflect the extent of the nation's commitment
to different categories of veterans. 

Similarly, benefit packages could set limits on the number or
duration of covered services.  For example, mental health benefits
might be limited to a defined number of days or admissions during a
year or be subject to a lifetime limit as they are under Medicare. 
Such limits might enable available resources to be used to provide
some mental health services to a larger number of veterans, but they
might deny needed services to those veterans with the greatest
need--those who have exhausted their coverage under Medicare or other
health insurance. 

Many Medicaid programs limit the number of prescriptions covered per
month under recipients' health benefits.  Such limits on veterans'
health benefits could enable available resources to be used to
provide services to more veterans.  Again, however, such limits might
prevent veterans with the greatest need for care, such as those with
AIDS, from getting all of the prescriptions they need unless
provisions are enacted giving VA the discretion to exceed the limit
on a case-by-case basis. 

Any limitations placed on covered benefits would, however, place
veterans in a situation similar to the problems created by the
current obviate-the-need criterion.  That is, if a veteran needs a
service not covered by his or her benefit package, VA would be unable
to provide the service even if VA had the resources to provide it and
the veteran was willing to pay for it.  This problem could, however,
be addressed through legislation to allow VA to sell excess capacity
to veterans. 

Benefit packages could also be tailored to supplement, or wrap
around, veterans' other health care coverage.  Because 9 out of 10
veterans have other public or private health insurance, offering them
comprehensive health care benefits will largely duplicate their
existing coverage.  By using VA benefits to supplement their existing
coverage, VA would be able to target its coverage to those veterans
lacking other health insurance and to those services, such as
long-term psychiatric care and substance abuse treatment, not well
covered under other programs. 

Defining covered services or establishing uniform benefit packages
would clarify covered services, provide more equity in benefits for
similarly situated veterans, and ease administration of VA health
programs.  Similar to Medicare or any number of private health plans,
veterans would know in advance which services they can expect from
their health care provider. 

Unless the establishment of defined benefit packages is coupled with
guaranteed services, veterans still would not have a clear sense of
what they can expect to receive from VA.  Veterans' uncertainty and
frustration about which services they can expect to obtain from VA
could increase under reform proposals that would expand benefits
without guaranteeing them, and guaranteeing services could easily
result in a need for additional VA funding. 


   TO WHAT EXTENT WOULD
   ELIGIBILITY REFORM ADDRESS THE
   UNMET HEALTH CARE NEEDS OF
   VETERANS? 
-------------------------------------------------------- Appendix II:5

Eligibility reform would address some, but not most, veterans' unmet
health care needs.  This is because many of the problems veterans
face in obtaining health care services appear to relate to distance
from a VA facility or the availability of the specialized services
they need rather than their eligibility to receive those services
from VA. 

VA's 1992 National Survey of Veterans reported that less than 1
percent of veterans said they could not get needed hospital care in
1992.  By far the most common reason cited for not obtaining needed
care was that they could not afford to pay for the needed care (cited
by 54.9 percent of those reporting the problem).\54

While the cost of care may have prevented some veterans from
obtaining care from private sector providers, it is not a likely
reason for not seeking care from VA.  All veterans are currently
eligible for hospital care, and about 11 million are in the mandatory
care category for free hospital care.  Other veterans are required to
make only nominal copayments. 

Our analysis of the 1992 National Survey of Veterans data found that
most of the estimated 159,000 veterans who did not obtain needed
hospital care in 1992 did not live near a VA hospital.  Of the
159,000,

  -- 44 percent estimated that they lived within 25 miles of the
     nearest VA hospital,

  -- 37 percent estimated that they lived between 26 and 100 miles of
     the nearest VA hospital, and

  -- 15 percent estimated that they lived more than 100 miles from
     the nearest VA hospital. 

About 4 percent indicated that they did not know where the nearest VA
hospital was. 

By comparison, 92 percent of the 159,000 veterans indicated that a
private sector hospital was within 25 miles of their homes.  VA
currently has statutory authority (38 U.S.C.  1703) to contract for
medical care when its facilities cannot provide necessary services
because they are geographically inaccessible.  Therefore, VA could
address veterans' unmet needs for hospital care through existing
authority, assuming sufficient funds are available. 

The 1992 National Survey of Veterans also estimated that 288,401
veterans were diagnosed at some time during 1992 as needing
outpatient care that they were unable to get.  Almost 75 percent of
these veterans indicated that they did not obtain the needed care
because they could not afford it.  About 7 percent said that they had
been turned down for care at a VA facility.\55

Of those reporting that they were unable to obtain needed outpatient
care, 68 percent reported that they lived within 5 miles of a non-VA
doctor's office or outpatient facility.  By contrast, only 13 percent
reported that they lived within 5 miles of a VA facility; 25 percent
indicated that they lived between 6 and 25 miles from a VA clinic; 52
percent reported living more than 25 miles from the nearest VA
facility.  The remaining 10 percent indicated that they did not know
where the nearest VA outpatient clinic was. 

The likelihood of using VA outpatient care declined significantly for
veterans living more than 5 miles from a VA outpatient clinic.  Among
veterans living within 5 miles of a VA outpatient clinic, there were
131 users for every 1,000 veterans, compared with fewer than 80 users
per 1,000 veterans living at distances of over 5 miles from a VA
outpatient clinic. 

Unmet needs--other than those of veterans who live too far from VA to
use it as a safety net provider--appear to be largely centered around
services that veterans are already eligible to receive, such as
rehabilitation for the blind, substance abuse treatment, and programs
for the homeless.  Expanding coverage of routine health care services
could decrease funds available for those services not widely
available through other health care programs. 


--------------------
\54 Veterans cited a variety of other reasons, but none was cited by
more than 10 percent of the veterans unable to obtain needed hospital
care. 

\55 Veterans cited a variety of other reasons, but none was cited by
more than 5 percent of the veterans unable to obtain needed
outpatient care. 


   TO WHAT EXTENT WOULD CHANGES IN
   VA'S ROLE AS A HEALTH CARE
   PROVIDER ALTER THE NEED FOR
   ELIGIBILITY REFORM? 
-------------------------------------------------------- Appendix II:6

Under current law, VA physicians are often placed in the difficult
position of having to turn veterans away from their outpatient
clinics even if the veteran needs health care and the outpatient
clinic has available space and resources to provide the service.  VA
can sell its excess space and resources to the Department of Defense
or its medical school affiliates, but it cannot sell those same
excess resources to veterans.  If legislation was enacted authorizing
VA to sell to veterans those health care services not covered under
their veterans' health benefits, physicians would no longer be placed
in this position because the service is not covered under the
veterans' health benefits.  While the physicians would still need to
decide whether the care provided was covered by the veteran's
benefits, the decision would determine whether the veteran would be
expected to pay for the service, not whether the physician should
provide the service. 

Because most veterans have other insurance, decisions to charge
veterans for noncovered services would largely allow them to use
their private or public insurance to purchase care from VA.  Changes
would need to be made in the law, however, before veterans could use
their Medicare coverage to buy health care services from VA
facilities. 

One important consideration in deciding whether to allow VA to sell
services to veterans would be what to do with the funds recovered
from Medicare or private health insurance that pay for services not
covered under veterans' VA benefits.  Allowing the facility to keep
revenues generated through the sale of noncovered services could
provide a strong incentive for VA facilities to provide services in
outpatient clinics rather than hospitals whenever appropriate. 
Before such an approach would be practicable, however, budgeting and
accounting systems would have to be developed that would enable VA to
segregate funds appropriated for provision of covered services from
funds received from sale of noncovered services. 

Changes would also need to be made to ensure that VA did not receive
an appropriation to cover the cost of noncovered services provided to
veterans.  Currently, VA's methods of preparing its budget submission
result in VA's basing its budget request on the total number of
services it provides, not just on the number of covered services
provided to veterans. 


ISSUES CONCERNING THE ENFORCEMENT
OF VA HEALTH CARE ELIGIBILITY
REQUIREMENTS
========================================================= Appendix III

This appendix discusses issues identified during our work relating to
the enforcement of VA eligibility requirements.  Specifically, it
addresses the following questions: 

  -- To what extent would eligibility reform reduce inappropriate use
     of VA hospitals? 

  -- Can VA effectively enforce eligibility provisions? 

  -- To what extent would strict enforcement of VA eligibility
     requirements increase unmet needs? 

  -- To what extent can VA reduce nonacute admissions through
     administrative actions? 


   TO WHAT EXTENT WOULD
   ELIGIBILITY REFORM REDUCE
   INAPPROPRIATE USE OF VA
   HOSPITALS? 
------------------------------------------------------- Appendix III:1

One argument frequently used to promote the need for eligibility
reform is that the obviate-the-need criterion prevents VA from
providing care in the most cost-effective setting.  The presumed
savings from removing the restrictions on access to ambulatory care
services would then be used to offset the costs of expanded benefits. 

Significant savings can accrue from shifting a sizable portion of
VA's inpatient workload to other settings if entire wards or
facilities are closed.  Current eligibility provisions do not,
however, appear to prevent VA from shifting much of its current
workload to ambulatory care settings. 

The same obviate-the-need criterion that makes it difficult for VA
physicians to determine whether to provide outpatient care for
certain conditions makes it clear that care can be provided to any
veteran, regardless of income or other factors, if it would prevent
the need for hospital admission.  The eligibility provisions, for
example, allow VA to perform cataract surgery on an outpatient basis
to obviate the need for inpatient care.  VA officials, however,
suggest that VA continues to perform cataract surgery on an inpatient
basis because VA can provide veterans eyeglasses following inpatient
cataract surgery but not following outpatient surgery.  VA does not,
however, maintain statistics on how many patients were admitted in
order to provide them eyeglasses. 

The management inefficiencies that prevented VA from effectively
implementing the obviate-the-need provision and shifting care to
outpatient settings for over 20 years and from avoiding unnecessary
days of hospital care by providing prehospital and posthospital
outpatient care for over 35 years will not be eliminated by expanding
eligibility. 

Twice before, in 1960 and 1973, the Congress expanded VA outpatient
eligibility to reduce inappropriate admissions to and unnecessary
days of care in VA hospitals.  First, in 1960, the Congress enacted
Public Law 86-639 authorizing provision of outpatient care to
veterans with nonservice-connected conditions if such care was needed
in preparation for or as a follow-up to hospital care.  The 1960
Senate report accompanying the bill stated that

     "The purpose of the bill is to accelerate the rate of patient
     turnover in Veterans' Administration hospitals.  Presently the
     rate of patient turnover in VA hospitals does not compare
     favorably with the turnover rate in private hospitals. 
     Generally private hospitals conduct preadmission procedures
     before a patient actually occupies a bed.  Similarly, at the
     terminal part of the care, the patient is usually discharged
     from the hospital as soon as medically feasible, leaving various
     terminal procedures to be conducted on an outpatient basis.  In
     contrast, the Veterans' Administration has the authority to
     offer such preadmission and posthospital care only with respect
     to veterans with service-connected disabilities.... 

     "A direct approach to this problem is provided by this bill
     which authorizes a complete workup on a prehospital outpatient
     basis for those cases which are found to be eligible and in need
     of hospital care and which have been actually scheduled for
     admission.  This procedure, of course, would shorten the time of
     the patient in the hospital in many instances and it is
     essentially similar to the procedure now followed in private
     practice."\56

VA hospitals are still not effectively using this authority more than
30 years after the enactment of Public Law 86-639.  Among the primary
reasons identified in VA studies for nonacute days of care are
premature admission of patients and delayed discharge of patients who
could have been treated on an outpatient basis. 

Similarly, in 1973, the House Committee on Veterans' Affairs stated
that the basic purpose of the bill that became Public Law 93-82 was
to improve the ability of VA to deliver quality medical care to its
beneficiaries by removing certain legislative restrictions on the
scope of treatment.  Specifically, the law permits the furnishing of
medical services on an outpatient basis to any veteran eligible for
hospital care where such care is reasonably necessary to obviate the
need for hospital admission.  The House report accompanying the bill
notes that these services include, in addition to medical examination
and treatment, certain optometry, dental, and surgical services.\57

But the VA OIG found that many medical centers were still performing
too many surgeries on an inpatient basis because the medical centers
had not developed the capability for conducting outpatient surgery. 


--------------------
\56 Senate Report 1662, June 22, 1960. 

\57 H.R.  93-368, 93rd Cong., 1st Sess.  (1973). 


   CAN VA EFFECTIVELY ENFORCE
   ELIGIBILITY PROVISIONS? 
------------------------------------------------------- Appendix III:2

VA facilities must enforce a myriad of eligibility requirements in
deciding whether to provide health care to each individual veteran. 
First, VA must determine whether the individual meets the basic
eligibility requirement--that he or she is a veteran or CHAMPVA
beneficiary--but VA's databases do not include enough information to
make this an easy task.  The Beneficiary Identification and Records
Locator System (BIRLS), VA's most complete database of information on
living veterans, contains Social Security numbers on only about 18
million of the more than 26 million veterans.  In addition, BIRLS is
not promptly updated to delete records of deceased veterans. 
Finally, BIRLS contains no data on veterans' incomes and incomplete
data on service-connected disabilities.  As a result, its usefulness
in establishing a veteran's basic eligibility for care is limited. 

The second problem VA faces in enforcing its eligibility requirements
is the absence of an adequate system for determining which care
group--mandatory or discretionary--a veteran is in.  VHA does not
currently have information systems in place that will allow VA to
differentiate between mandatory and discretionary care. 

VA can quickly tell whether a veteran has a compensable
service-connected disability through a check against its computerized
Compensation and Pension File, but has no way of quickly verifying
the core group status of most other veterans.  For example, the
Compensation and Pension File does not contain records of most
veterans with "0" percent service-connected disabilities because
these veterans do not receive cash payments.  VA estimates, however,
that about 1.2 million veterans have "0" percent noncompensable
disabilities. 

Third, VA cannot quickly verify the incomes of veterans with
nonservice-connected disabilities to determine which eligibility
category to place them in.  Preliminary results from VA's first
income verification match against tax records, in December 1993,
showed that about 18 percent of veterans with nonservice-connected
disabilities underreported their incomes when applying for VA health
care.  VA began routinely using tax data to verify veterans' incomes
in 1994 and is working to develop the ability to do real- time income
verification. 


   TO WHAT EXTENT WOULD STRICT
   ENFORCEMENT OF VA ELIGIBILITY
   REQUIREMENTS INCREASE UNMET
   NEEDS? 
------------------------------------------------------- Appendix III:3

Strict enforcement of VA eligibility requirements could increase
veterans' unmet health care needs.  VA's OIG found that veterans were
not eligible for much of the outpatient care they received from VA. 
The OIG determined that the services provided were medically
necessary but were not covered under the veterans' eligibility
status.  As a result, strict enforcement of existing eligibility
rules would force many veterans to seek routine outpatient care
outside the VA system or forgo needed health care.  Similarly, to the
extent that VA hospitals admit veterans in order to provide health
care services they are not eligible to receive as outpatients,
preadmission certification procedures to prevent admission of
patients who do not need a hospital level of care could increase
unmet needs. 

The VA health care benefit was not designed to meet all of the health
care needs of most veterans.  Under current law, VA is intended to
provide comprehensive health care services primarily to veterans with
service-connected disabilities rated at 50 percent or higher.  Other
veterans must find health care services from other sources when the
needed services exceed the limits of their VA eligibility or if VA
lacks the resources to provide covered services. 

Most veterans have alternate insurance coverage to pay for health
care services not available through VA.  According to VA's 1992
National Survey of Veterans, more than one-half of the veterans in
every age group reported having public, private, or a combination of
non-VA health insurance.  Most striking is the increased coverage as
veterans age.  Nearly all veterans aged 65 and older reported having
alternate insurance--primarily Medicare.  Over 90 percent of veterans
aged 45 to 64 reported having public or private insurance.  Figure
III.1 illustrates the increased availability of alternate insurance
among older veterans. 

   Figure III.1:  Percentage of
   Veterans Without Alternate
   Insurance, by Age Group

   (See figure in printed
   edition.)

Source:  1992 National Survey of Veterans. 

While most veterans have alternate insurance coverage, those veterans
who use VA care are less likely to have health care options.  About
40 percent of veterans using VA health care facilities have neither
public nor private insurance to supplement their VA benefits.  This
increases the likelihood that actions to strictly interpret the
obviate-the-need-for-
hospital-care criterion and reduce the number of nonacute admissions
to VA hospitals would increase unmet needs for health care services
among veterans. 

Strict interpretations of VA eligibility provisions could also
increase unmet needs among veterans with other health care coverage. 
This is because veterans often use VA coverage to supplement their
private or public health insurance coverage.  For example, in an
October 1994 study\58 we reported that Medicare-eligible veterans
make substantial use of VA services not covered, or covered with
limitations, under Medicare.  Our analysis suggested that many
Medicare-eligible veterans turn to VA specifically to obtain several
of these services, particularly prescription drugs.  Because
Medicare-eligible veterans who use VA health care facilities
generally have lower incomes and less private insurance than those
who rely solely on Medicare, strict interpretations of VA eligibility
could increase Medicare-eligible veterans' unmet needs for
prescription drugs, mental health care, and dental services. 


--------------------
\58 (GAO/HEHS-95-13, Oct.  24, 1994). 


   TO WHAT EXTENT CAN VA REDUCE
   NONACUTE ADMISSIONS THROUGH
   ADMINISTRATIVE ACTIONS? 
------------------------------------------------------- Appendix III:4

Unlike private sector providers, VA facilities are not financially at
risk for inappropriate admissions, unnecessary days of care, and
treatment of ineligible beneficiaries.  Private sector health care
providers are facing increasing pressures both from private health
insurers and public health benefits programs such as Medicare and
Medicaid to eliminate inappropriate hospitalizations and reduce
hospital lengths of stay.  For example, private health insurers
increasingly use preadmission screening to ensure the medical
necessity of hospital admissions and set limits on approved lengths
of stay for their policyholders.  While private sector hospitals are
not prevented from admitting patients without an insurer's
authorization, the hospital and the patient, rather than the insurer,
become financially responsible for the care. 

Similarly, the Medicare prospective payment system and utilization
reviews provide financial incentives for hospitals to provide
services in the most appropriate care setting and to discharge
patients as soon as their medical conditions allow.  The financial
incentive is particularly strong for hospital care financed under
Medicare because the hospital is, in general, not allowed to charge
beneficiaries for services determined to be medically unnecessary or
inappropriate. 

VA hospitals and veteran patients do not face these same risks.  VA
hospitals are not subject to the same payment limitations and
external utilization reviews that private sector hospitals face. 
And, although VA hospitals can recover funds from veterans' private
health insurance, failure to comply with private health insurers'
preadmission screening and length-of-stay requirements has little
direct financial impact on the hospital.  This is because (1) before
1994, VA facilities were funded primarily on the basis of their
inpatient workload and (2) medical care cost recoveries are returned
to the Department of the Treasury, not retained by the providing
facility.  In other words, in past years, providing medically
unnecessary care could actually benefit VA facilities through larger
resource allocations.\59 Similarly, veterans assume no financial
responsibility for unnecessary care furnished by VA hospitals other
than any applicable copayments for veterans in the discretionary care
category. 

VA has initiated several actions to reduce inappropriate hospital
admissions and days of care.  For example,

  -- RPM creates a stronger financial incentive to shift care to the
     most cost-efficient setting;

  -- VHA set performance expectations for its VISN directors that
     call for establishing ambulatory surgery capabilities at all VA
     medical centers by October 1, 1996, and set goals for the
     percentage of surgeries to be performed on an outpatient basis;
     and

  -- VHA plans to establish a preadmission certification program for
     hospital admissions. 

These actions, if effectively implemented, should help prevent
nonacute admissions.  Unless changes are made to shift financial risk
from veterans to the VA, however, facilities that do not effectively
implement such changes could compensate for their continued
inefficiency by rationing care to veterans. 


--------------------
\59 In 1994, VA implemented a new method for allocating resources to
its medical centers that should help alleviate the incentive to
provide inappropriate care.  The new method, the RPM system, measures
workload on the basis of numbers of unique veterans served rather
than on hospital workload. 


ISSUES CONCERNING THE POTENTIAL
EFFECTS OF ELIGIBILITY REFORM
PROPOSALS ON DEMAND FOR AND
AVAILABILITY OF VA SERVICES
========================================================== Appendix IV

This appendix discusses the potential effects of eligibility reform
on demand for and availability of VA services.  Specifically, it
addresses the following questions: 

  -- How would eligibility reform proposals affect demand for VA
     outpatient services? 

  -- How would eligibility reform affect demand for hospital care? 

  -- How would eligibility reform affect demand for nursing home
     care? 

  -- What effect would changes to make VA health care more accessible
     to veterans have on demand for care under eligibility reform? 

  -- How would eligibility reform affect the availability of
     specialized services? 


   HOW WOULD ELIGIBILITY REFORM
   PROPOSALS AFFECT DEMAND FOR VA
   OUTPATIENT SERVICES? 
-------------------------------------------------------- Appendix IV:1

Eligibility reforms that would make all veterans eligible for
comprehensive outpatient services would likely generate new demand
for outpatient care in three primary ways.  First, current VA users
are likely to seek previously noncovered services, such as
preventative health care.  Second, veterans who previously had not
used VA because of its eligibility restrictions might begin using VA,
particularly for those services not covered under their public or
private health insurance.  Third, some care might be shifted from
inpatient to outpatient settings as patients admitted to circumvent
eligibility restrictions are treated on an outpatient basis. 

Veterans currently eligible for comprehensive health care services
make significantly more use of VA health care services than do
veterans with more limited outpatient eligibility.  For example,
among service-connected veterans living within 5 miles of a VA
outpatient clinic, those with service-connected disabilities rated at
50 percent or higher and, therefore, in the mandatory care category
for comprehensive outpatient care, obtained an average of 20 visits
per user.  By contrast, those veterans with service-connected
disabilities rated at less than 50 percent and eligible only for
outpatient care related to their service-connected disabilities and
hospital-related outpatient care, obtained an average of only 11
visits per user.\60

Although many factors, such as income and the availability of private
health insurance coverage, also contribute to differences in the
rates at which veterans use VA services, the differences in the
richness of the benefits available to these groups of veterans likely
contribute to the greater use of VA benefits among those eligible for
comprehensive outpatient services.  Similarly, VA's 1992 eligibility
reform task force recognized the greater use of outpatient care by
veterans with service-connected disabilities rated 50 percent or
greater--those eligible for comprehensive outpatient care.  The task
force evaluated usage rates for veterans with full and limited access
to VA outpatient care, then adjusted its workload projections upward
to reflect the anticipated demand from veterans who would have
greater access to VA outpatient care. 

VA's Management Sciences Group also predicted that eligibility reform
would generate significant increases in outpatient use by current
users.  As part of the 1992 eligibility reform task force, the
Management Sciences Group developed a multivariate model to predict
the effect of eligibility reform on outpatient demand. 

The model measures how various characteristics, such as (1) how far
veterans live from the nearest VA facility, (2) degree of service-
connected disability, (3) income, (4) availability of alternate
insurance coverage, (5) health status, and (6) age, combine to
determine whether, and how often, veterans seek VA outpatient care. 
For example, the model predicted that veterans with no
service-connected disabilities and those with service-connected
disabilities rated "0" who currently use VA care would increase their
use of VA outpatient care by 35 percent if they were authorized
comprehensive outpatient care. 

Eligibility reforms that would expand VA's contracting authority
could also provide veterans access to VA-sponsored care closer to
home.  The added convenience of using local providers might even
increase the use of VA care by even those veterans with
service-connected disabilities rated 50 percent or higher.  Although
such veterans are currently eligible for comprehensive outpatient
services, improved access would likely lead to greater use. 

Eligibility reform that would clarify and expand veterans' access to
VA health care services would likely generate demand for care from
veterans who had not previously used VA health care.  Each of the
eligibility reform proposals would significantly expand eligibility
for a wide range of outpatient services, making it feasible for many
veterans, for the first time, to rely on VA as their sole or primary
source of health care coverage.  Currently, only those approximately
465,000 veterans with service-connected disabilities rated at 50
percent or higher are in the mandatory care category for free
comprehensive outpatient services. 

VA's 1992 task force found that most of the increased demand
resulting from eligibility expansion would come from new users
attracted to the VA health care system, not from increased usage by
current users.  Likewise, projected cost increases will result more
from new users than from providing current users a full continuum of
care.  Further, with a full continuum of care, new users will
significantly increase VA costs of providing outpatient services. 

Veterans participating in a series of focus group meetings held in
early 1994 often cited being ineligible for VA health care or being
uncertain about their eligibility as impediments to use of VA.  For
example, several veterans were reluctant to use VA because they did
not know whether they were eligible.  In other instances, veterans
who thought that they might be eligible only clarified their status
when they needed VA services.  Such comments suggest that eligibility
reform that would simplify eligibility might be expected to generate
additional demand. 

VA's belief that eligibility reform would enable it to attract
higher-income Medicare-eligible veterans suggests that VA expects to
be able to attract new users through eligibility reform.  If
higher-income beneficiaries, who generally have other health care
options and can obtain care from any source, are likely to seek care
from VA in increasing numbers, then lower-income Medicare
beneficiaries who lack other coverage are also likely to increasingly
seek care from VA.  VA's suggestion that proposed changes to Medicare
such as increasing deductibles and copayments could increase demand
for VA health care services by up to 400,000 users (an increase of 16
percent) even with VA's current eligibility restrictions also
suggests that changes in VA health care benefits could generate new
users. 

The effect of eligibility reform on demand for outpatient care will
also depend on the extent to which VA facilities are currently
circumventing the eligibility restrictions and providing noncovered
services.  As discussed in chapter 4, studies by VA's OIG found that
VA outpatient clinics are providing significant numbers of noncovered
services.  This suggests that at least some current VA users may
already receive comprehensive health care services from VA, and
therefore their use of VA services might not significantly increase
under eligibility reforms that essentially make legal what is already
happening in practice. 


--------------------
\60 VA Health Care:  How Distance From VA Facilities Affects
Veterans' Use of VA Services (GAO/HEHS-96-31, Dec.  20, 1995). 


   HOW WOULD ELIGIBILITY REFORM
   AFFECT DEMAND FOR HOSPITAL
   CARE? 
-------------------------------------------------------- Appendix IV:2

Reforms that attract new users to the VA health care system will
create an increase in demand for hospital care.  After removing 1-
and 2-day hospital stays (assumed to be shifted to outpatient care),
VA's 1992 eligibility reform task force estimated that demand for
inpatient care could nearly triple from 987,000 to about 2.8 million
patients treated. 

Veterans would have even greater access to VA-sponsored hospital care
if, in addition to eligibility reform, contracting reforms allow them
to use nearby non-VA providers under contract to VA.  Under such a
scenario, new users attracted to VA outpatient or long-term care
would generate additional inpatient demand.  The extent to which this
new demand is served in VA hospitals or non-VA hospitals would depend
on the proximity of new users to VA hospitals and the flexibility
established in the contracting reform.  Preliminary results from our
study of VA's access point pilot program found 40 percent of the
5,000 veterans enrolled at VA's 12 access points were new users to
the VA system.  Access point physicians are directed to refer any
veterans needing specialized services or inpatient care to a VA
medical center.  The high percentage of new users suggests that
demand for care in VA hospitals would increase under eligibility
expansions.  CBO, in its analysis, noted that eligibility expansions
could increase costs by billions of dollars if the induced demand for
outpatient care resulted in corresponding increases in demand for
hospital care. 

Other eligibility reform provisions, as well as federal and state
health reform efforts, could affect the demand for VA-supported
hospital care.  The following items illustrate such reform efforts: 

  -- Contracting reforms that give veterans greater access to
     community providers could reduce demand for care in VA
     facilities but increase overall demand for VA-supported hospital
     care.  Because veterans, like most patients, prefer to receive
     their care close to home, they would likely seek care from
     nearby providers.  These providers may be reluctant to refer
     patients to distant VA hospitals if closer alternatives exist. 

  -- Reforms that give dependents and other nonveterans greater
     access to VA care could increase demand for VA hospital care. 
     For example, the two VSO proposals would allow VA to furnish
     hospital and nursing home care to certain dependents of veterans
     if they agree to pay for their treatment. 

  -- Proposed changes in Medicare and Medicaid could either increase
     or decrease demand for VA hospital care.  Changes that reduce
     program benefits, deny coverage to some current recipients, or
     increase cost-sharing requirements could cause more veterans to
     seek VA care.  But changes that result in more Medicare-eligible
     veterans enrolling in managed care plans could reduce demand for
     care in VA hospitals. 


   HOW WOULD ELIGIBILITY REFORM
   AFFECT DEMAND FOR NURSING HOME
   CARE? 
-------------------------------------------------------- Appendix IV:3

As VA moves patients from costly inpatient care to less intensive
settings, demand for nursing home care is likely to increase. 
Eligibility reform that would authorize direct admission of veterans
with nonservice-connected disabilities to contract community nursing
homes could significantly increase demand.  The increased demand for
nursing home care could, however, be offset to some degree by greater
use of home care and residential care for patients requiring less
intensive care. 

Three eligibility reform proposals would change nursing home care
from a discretionary to a mandatory care benefit for certain
veterans.  The other two proposals would retain nursing home care as
a discretionary care benefit for all veterans.  S.  1563 would make
nursing home care a mandatory benefit for about 9 million to 11
million core group veterans.
S.  1345 would include nursing home care, respite care, home care,
and domiciliary care in the definition of health care services that
VA is to provide in accordance with established priorities.  Although
the wording of S.  1345 indicates that nursing home care would be
shifted from a discretionary to a mandatory benefit for core group
veterans, VA officials told us their intention was to keep nursing
home care a discretionary benefit for all veterans. 

The American Legion proposal would create an entitlement to extended
care services for veterans with service-connected disabilities rated
at 50 percent or higher, but would eliminate the government-funded
nursing home benefit for all veterans.\61 VA would, however, be
authorized to sell supplemental health care plans providing nursing
home coverage to other veterans. 

A mandatory nursing home benefit would likely generate significant
new workload, particularly if guaranteed funding is also included in
the reform legislation.  At a cost of $1.5 billion in fiscal year
1994, VA planned to provide services to less than 16 percent of
veterans needing nursing home care.  Any significant expansion of VA
nursing home benefits is likely to cost hundreds of millions of
dollars. 

To the extent that eligibility reform would draw new users to the VA
system, an increase in demand for nursing home care would be likely. 
Increased availability of VA nursing home care could attract veterans
who otherwise would have to spend their resources on nursing home
care before they could qualify for Medicaid coverage.  Even a
relatively small increase in demand could cost hundreds of millions
of dollars given the high cost of nursing home care--an average of
$32,371 per patient in a VA nursing home in fiscal year 1994. 

Eligibility reform could make additional nursing home space available
if VA is successful in shifting hospital patients to outpatient care. 
VA could then convert unneeded inpatient wards to intermediate and
long-term care.  VA has already successfully made such conversions in
some facilities that had declining inpatient populations.  Further
conversions could provide additional nursing home beds needed by the
aging veteran population. 

VA's 1992 eligibility reform task force also examined several reform
scenarios and their effect on demand for VA long-term care.  Their
projections ranged from a twofold increase (assuming that current
users receive a full continuum of care) to an eightfold increase
(assuming a full continuum of care to all veterans who seek VA care). 
The cost of the full continuum for all veterans, which includes
community-based care, home care, and support services, was estimated
to exceed $11.3 billion. 


--------------------
\61 The proposal would create an entitlement to "extended care
services," which an American Legion official said was not intended to
include nursing home care. 


   WHAT EFFECT WOULD CHANGES TO
   MAKE VA HEALTH CARE MORE
   ACCESSIBLE TO VETERANS HAVE ON
   DEMAND FOR CARE UNDER
   ELIGIBILITY REFORM? 
-------------------------------------------------------- Appendix IV:4

Concurrent changes to make VA health care services more accessible to
veterans could significantly increase the potential effect of
eligibility reform on outpatient and, indirectly, inpatient workload. 
As it strives to make the transition from a hospital-based system to
an ambulatory-care-based system, VA is attempting to bring ambulatory
care closer to veterans' homes.  Because distance is one of the
primary factors affecting veterans' use of VA health care, actions to
give veterans access to outpatient care closer to their homes, either
through expansion of VA-operated clinics or through contracts with
community providers, will likely increase demand for services even
without eligibility reform. 

Living within 5 miles of a VA hospital or outpatient clinic
significantly increases the likelihood that a veteran will use VA
health care services.  Although most veterans live within 25 miles of
an outpatient clinic and about half of all veterans live within 25
miles of a VA hospital, use of VA facilities, both in terms of the
likelihood of VA use and the frequency of use, declines significantly
among veterans living more than 5 miles from a VA facility.  Only
about 11 percent of veterans live within 5 miles of a VA hospital
providing acute medical and surgical care and about 17 percent live
within 5 miles of a VA outpatient clinic. 

VA plans to improve veterans' access to outpatient care by
establishing "access points"--either VA-owned and -operated clinics
or primary care physicians in private practice who contract with VA
on a capitation basis to provide primary care services to veterans. 
As of April 1996, 12 clinics were operational--4 are owned and
operated by VA and the remaining 8 were established through contracts
with county and private clinics.  Forty percent of the 5,000 veterans
enrolled at the 12 access point clinics were new users--1 clinic,
with 208 enrollees, served only new users.\62

Similarly, if VA's authority to contract for health care services
with private hospitals and providers is broadened and VA uses such
authority to allow veterans greater freedom to choose health care
providers closer to their homes, then increased demand for
VA-supported health care is likely with or without eligibility
reform. 

Many veterans, given a choice between care in non-VA facilities close
to their homes and more distant VA facilities, with no difference in
out-of-pocket costs, would likely choose non-VA care.  Our prior work
suggested that VA facilities might lose as much as 47 percent of
their acute inpatient workload and 41 percent of its outpatient
workload if veterans obtained better access to community providers
through a universal health care program.  Expanding services to
veterans through contracts with community providers might have a
similar downward effect on demand for care from VA facilities, but at
the same time significantly increase overall demand for VA-supported
care.  Through contracting, veterans might be able to see the same
physicians and use the same hospitals they could through Medicare or
private insurance, but without the higher out-of-pocket costs. 

Currently, over 40 percent of veterans using VA acute medical and
surgical hospitals live more than 25 miles from the VA hospital and
over 30 percent live more than 25 miles from the nearest VA
outpatient clinic.  While an expansion in the number of providers is
essential if VA is to improve accessibility of VA-supported health
care, actions to allow veterans to obtain VA-funded health care
closer to their homes could result in decreased demand for care from
VA facilities. 

If veterans currently using VA facilities choose to get care from
community providers through access point clinics or other forms of
contract care, VA would need to attract new users or increase the
volume of services provided to the remaining veterans if it is to
maintain the workload at its existing facilities.  Essentially, VA
cannot improve accessibility of outpatient care without either
increasing overall outpatient workload to compensate for veterans who
shift to community providers, or reducing the capacity of its current
facilities. 

Contracting reforms that give veterans greater access to non-VA
outpatient care but retain limits on referrals to non-VA hospitals
could increase demand for VA inpatient care.  As VA attracts new
outpatient users, either through additional access point clinics or
eligibility reform, these new patients would likely generate
concomitant demand for VA hospital care. 

Unless VA increases its market share of the veteran population or
veterans are replaced by other patients, overall use of VA health
care facilities will continue to fall.  In other words, if VA
continues to support about 930,000 hospital admissions and 25 million
outpatient visits, but supports them through a network of VA and
community providers, then those veterans' use of VA facilities will
decline. 


--------------------
\62 (GAO/T-HEHS-96-134, Apr.  24, 1996). 


   HOW WOULD ELIGIBILITY REFORM
   AFFECT THE AVAILABILITY OF
   SPECIALIZED SERVICES? 
-------------------------------------------------------- Appendix IV:5

Provisions in the major VA eligibility reform proposals could have
both positive and negative effects on VA's specialized services. 
Reforms to increase VA's efficiency could free resources that could
be reprogrammed to increase specialty services.  Unanticipated new
demand for routine outpatient services could, however, outstrip VA's
capacity to provide specialized services such as spinal cord injury
rehabilitation, substance abuse treatment, and care for homeless
veterans. 

Because of space and resource limitations, VA is currently unable to
meet the specialized care needed by some veterans.  Specific data on
unmet needs are not generated by VA, but there are indications that
space and resource restrictions are limiting VA's ability to meet
veterans' needs.  The following examples illustrate this point: 

  -- Specialized VA post-traumatic stress disorder programs are
     operating at or beyond capacity, and waiting lists exist
     particularly for inpatient treatment.  Treatment waiting lists
     have hovered between 900 and 1,000 veterans for the past 3
     years.  While VA has been able to reduce the waiting lists, the
     number of veterans seeking post-traumatic stress disorder care
     continues to increase even though the Vietnam War ended 20 years
     ago. 

  -- Limited resources make it difficult for VA to care for homeless
     veterans.  VA's current programs constitute a small portion of
     what is likely needed to fully address the needs of the homeless
     veteran population.  For example, in the San Francisco area, the
     Homeless Chronically Mentally Ill program, established to locate
     and provide clinical care to mentally ill homeless veterans, had
     only 11 beds available to meet the needs of an estimated 2,000
     to 3,300 homeless veterans in the area at the time of our
     review.  Similarly, those veterans who apply may wait up to 2
     months before being admitted to a residential program. 

  -- A similar situation regarding homeless veterans exists in
     Washington, D.C.  Its Homeless Chronically Mentally Ill program
     had an average of 11 contract beds to serve an estimated 3,300
     to 6,700 homeless veterans at the time of our review.  Eligible
     veterans who applied had to wait up to 6 weeks for admission to
     the program. 

  -- In April 1994, VA reported that its substance abuse programs
     were providing services near their capacity as of January 1,
     1992.  Extended care programs for substance abuse were more
     restrictive in their admissions and maintained longer waiting
     lists. 

The availability of specialized services would improve under the
American Legion proposal because benefits would be guaranteed.  Under
the other proposals, however, the availability of specialized care
would not be guaranteed.  Because VA would be required to meet the
comprehensive health care needs of veterans in the highest- priority
groups before using resources to provide specialized services to
veterans in lower-priority groups, the availability of such care
might deteriorate in an environment of budget constraints. 

For example, H.R.  3118 would require VA to establish a system of
enrollment.  Enrollment would give VA a better basis for creating
benefit packages, planning for potential demand, and allocating
resources.  However, veterans who fail to enroll might be locked out
of needed specialty care.  Similarly, if VA does not have sufficient
capacity to enroll all veterans who seek to enroll, some veterans may
not receive needed specialty care. 

Some reform proposals, such as H.R.  1385, would attempt to
counteract incentives to reduce specialty care by requiring VA to
maintain current capacity in these programs.  As veterans age,
however, their needs for specialty care services targeted toward
older veterans will increase.  Thus, maintaining current capacity in
some specialty care programs may not be sufficient to meet increasing
demand.  Conversely, if demand decreases (as it has for spinal cord
injury rehabilitation), requiring VA to maintain a minimum capacity
would consume resources better used elsewhere.  One option suggested
by the Paralyzed Veterans of America would be to allow VA facilities
to use the excess capacity in its spinal cord programs to treat
nonveterans as long as veterans continued to have the highest
priority for care. 


STUDIES DO NOT SUPPORT VA
CONTENTION THAT ELIGIBILITY
RESTRICTIONS ARE A MAJOR CAUSE OF
NONACUTE ADMISSIONS
=========================================================== Appendix V

In 1985, we reported that about 43 percent of the medical and
surgical days of care in the VA hospitals reviewed could have been
avoided.\63 Since then, a number of studies by VA researchers and
VA's OIG have found similar problems.  VA, the Vice President's
National Performance Review, and VSOs frequently claim that these
studies show that restrictions on VA outpatient eligibility force VA
to admit patients to VA hospitals in order to provide them necessary
health care services.  Our review of the studies does not support
this contention. 

A 1991 VA-funded study of admissions to VA acute medical and surgical
bed sections estimated that 43 percent (+/- 3 percent) of admissions
were nonacute.\64 \65 Nonacute admissions in the 50 randomly selected
VA hospitals studied ranged from 25 to 72 percent.  The study found
that the most frequent reason (about 60 percent of cases) for
nonacute medical admission was that care could have been performed on
an outpatient basis.  Another 17 percent of admissions were
determined to need a lower level of institutional care.\66 All of the
surgical admissions determined to be nonacute were found to (1) be
procedures that VA had determined could be done on an outpatient
basis and (2) lack documented risk factors indicating a need for
inpatient care.  The study concluded that, based on medical
necessity, a large proportion of acute medical/surgical care in VA
medical centers could potentially be shifted to outpatient and
long-term care settings. 

The study suggests several reasons why there is a higher rate of
nonacute admissions to VA hospitals than has been found using the
same methodology in studies of private sector facilities: 

  -- VA is required to maintain a minimum number of beds. 

  -- VA facilities do not have the necessary financial incentives to
     make the transition to outpatient care. 

  -- VA, unlike the private sector, does not have formal mechanisms,
     such as mandatory preadmission review, to control nonacute
     admissions. 

  -- VA, unlike the private sector, has a significant social mission
     that may influence use of inpatient resources.\67

With respect to VA's social mission, however, the study noted that
reasons such as travel distance or presence of an insufficient
social/home support system to maintain the patient outside the
hospital were infrequent reasons for nonacute admissions. 

The authors, in a separate article, also estimated that 48 percent
(+/- 2 percent) of the days of care at the 136 VA medical centers
providing acute medical and surgical care were nonacute, ranging from
38 to 72 percent.\68 They estimated that the entire stay was
completely acute for only 25 percent of VA acute medical or surgical
hospitalizations; for 31 percent of hospitalizations the stay was
determined to be completely nonacute.  The remaining 44 percent of
hospitalizations were a mix of acute and nonacute days, with a
greater proportion of the nonacute days falling in the final third of
the hospital stay.  The study identified a number of reasons for the
nonacute days of care, but most frequently cited was conservative
patient management.  Not frequently cited, the study noted, were
reasons associated with VA's social mission, such as VA eligibility
or social/economic considerations delaying discharge.  The study also
noted, however, that the extent to which such reasons are documented
in medical records is unknown. 

The authors concluded that

     "The results of this study suggest that changes in admitting and
     continued stay practices may be needed to reduce the level of
     nonacute hospital level care.  In particular, the finding that
     31% of the hospitalizations were completely nonacute suggests
     that stringent reviews of the need for hospitalization should be
     undertaken either before admission through mechanisms such as
     preadmission review and certification or soon after admission
     through explicit concurrent review practices."

In a May 10, 1996, letter following our March 20, 1996, testimony on
eligibility reform, VHA stated that it believes we misinterpreted the
research findings.\69 According to VHA, in determining whether an
admission was nonacute, the study (1) assumed that the patient needed
the care given (2) assumed that all levels of care were potentially
available at the medical center, and (3) considered only clinical and
social factors documented in the medical record.  VHA said that VA
believes that eligibility reform would allow VA to shift 20 percent
of hospital admissions to outpatient settings.  VHA also said that it
is not surprising that "lack of eligibility" was not cited as a
reason for the nonacute admissions when the research study "assumed
outpatient settings were available for all (i.e., there were no
eligibility problems)."

Both our March 20 testimony and this report state that the study does
not support VA's contention that eligibility restrictions were the
cause of the nonacute admissions.  It is inconsistent for VHA to cite
the study as evidence that eligibility restrictions are the cause of
20 percent of nonacute admissions and then maintain that the study
assumed there were no eligibility problems. 

In a 1993 pilot study to test the validity and reliability of the
InterQual ISD (intensity, severity, discharge) system for assessing
the appropriateness of admissions and days of care on VA acute
medical, surgical, and psychiatric services, researchers found that

  -- 47 percent of admissions and 45 percent of days of care in
     medical wards were nonacute and

  -- 64 percent of surgical admissions and 34 percent of days of care
     in surgical wards were nonacute. 

High rates of nonacute admissions and days of care were found in all
24 hospitals studied.\70 \71 Reasons cited for nonacute admissions
and days of care included nonavailability of outpatient care,
conservative physician practices, delays in discharge planning and
factors such as homelessness and long travel distances from home to
the hospital.  (See table V.1.) The authors suggested that VA
establish a systemwide utilization review program.\72



                                        Table V.1
                         
                         Reasons for Nonacute Admissions and Days
                                         of Care

                                   (Numbers in percent)


                                  Days of                 Days of                 Days of
Type of reason     Admissions        care  Admissions        care  Admissions        care
-----------------  ----------  ----------  ----------  ----------  ----------  ----------
Practitioner             32.2        42.6        21.1        41.4        50.7        58.4
Administrative           17.9         3.1         6.8        11.9         9.5         6.6
Service                  17.7        12.9        36.1         4.7         3.3        10.4
 availability
Social\a                 11.3        11.9         4.8        12.8        24.8        11.7
Environmental\b           8.4         9.2         7.8        10.2         2.2         5.1
Scheduling                8.2        10.2        16.5        13.9         0.0         1.0
Communication\c           2.0         3.3         2.0         1.7         1.6         1.8
None given                2.5         6.4         3.0         1.8         6.8         4.6
-----------------------------------------------------------------------------------------
\a Social reasons, such as "no support," "no family," and "homeless,"
were the second most common cause for nonacute admissions in
psychiatric service (24.8 percent), fourth most common for medical
services (11.3 percent), and a less frequent reason for nonacute
admissions to surgical services (4.8 percent). 

\b Environmental reasons for nonacute admissions include living more
than 75 miles from the hospital and lacking a housing alternative. 
Scheduling reasons meant that the admission was premature because the
necessary procedure, surgery, or test was not performed by the day
after admission. 

\c Communication reasons meant either that the hospital received the
wrong information about the patient's need for care or that the
inability to communicate with family resulted in the nonacute
admission. 

Source:  Pilot Study of the ISD* Measurement of Appropriateness of
Bed Utilization. 

Practitioner-related reasons were most frequently identified as the
reason for nonacute admissions to psychiatric and medical services
(50.7 percent and 32.2 percent, respectively) and were the second
most common reason for nonacute admissions to surgical services (21.1
percent).  These admissions were generally attributed to
"conservative practice," meaning that no other social, VA system, or
regulatory reason for the acute admission of the patient was found. 
A VHA economist told us that reasons citing conservative physician
practices were an indication that veterans were admitted to provide
them services that they were not eligible to receive on an outpatient
basis.  When we followed up with the economist to determine the basis
for this assertion, she was unable to provide any explanation. 

Administrative reasons were the second most common category for
nonacute admissions to medical services (17.9 percent) and were often
cited for surgical and psychiatric admissions (6.8 percent and 9.5
percent, respectively).  These reasons included transfers from
another medical center, admissions for transfer to a nursing home,
and a variety of other reasons. 

The nonavailability of outpatient services was the most common
category for nonacute admissions to surgical beds (36.1 percent) and
was frequently cited as a reason for nonacute admissions to medical
bed sections (17.7 percent).  The specific reason cited was generally
lack of an ambulatory surgery alternative or nonavailability of an
ambulatory care alternative for medical admissions. 

The study noted that laws and regulations governing eligibility for
VA health care also contribute to inappropriate admissions and days
of care.  Specifically, the study notes that

  -- the requirement that veterans with nonservice-connected
     disabilities be admitted to a VA hospital before they are
     eligible for nursing home care accounted for over 5,000
     admissions to VA hospitals in 1992;

  -- regulations that prevent veterans from receiving travel
     reimbursements when visiting clinics lead to inappropriate
     admissions because such reimbursements can be made when veterans
     are hospitalized; and

  -- requirements that certain services, such as prosthetic devices,
     be provided only to inpatients also lead to nonacute admissions. 

According to VHA, two of the three broad recommendations contained in
the study are related to limited outpatient eligibility and its
impact on the development and availability of outpatient care.  The
recommendations, as stated in the study's executive summary, were as
follows: 

     "A.  VA should establish a system-wide program for using the
     ISD* criteria for utilization review with emphasis on
     identifying the local and systemic reasons for nonacute
     admissions and days of care and for monitoring the effectiveness
     of changes in policy. 

     "B.  VA physicians need to be encouraged to make greater use of
     ambulatory care alternatives and to be more effective and timely
     in planning for patient discharges. 

     "C.  VA needs to facilitate the shift of care from inpatient to
     the outpatient setting.  This should include incentives in the
     reimbursement methodology for providing ambulatory care, changes
     in eligibility regulations that promote rather than prohibit
     ambulatory care, prioritization of construction funds and seed
     funds for new programs to support the shift to ambulatory care."

Our work suggests that VA does not need eligibility reform to begin
implementing the first two recommendations.  VA recently announced
plans to establish a preadmission authorization program to reduce
inappropriate admissions to VA hospitals.  In addition, VA has,
through its emphasis on primary care, encouraged the shift to
ambulatory care.  Nor does VA need eligibility reform to change its
reimbursement methodology to promote ambulatory care (such a change
is under way through RPM) or to prioritize construction funds to
facilitate the shift toward ambulatory care (VA continues to seek
funds for construction of new hospitals). 

With respect to the recommendation to change eligibility
"regulations," the detailed section of the study report recommended
that legislation be enacted to (1) allow veterans with
nonservice-connected disabilities to be placed in VA-supported
community nursing homes without first being admitted to a VA hospital
and (2) remove limitations on eligibility for outpatient care
compared with inpatient services such as dental services and
provision of needed prosthetic devices.  The eligibility reform
proposal developed by VA and submitted to the Congress in September
1995 would allow direct admission of veterans with
nonservice-connected disabilities to community nursing homes and the
provision of prosthetic devices on an outpatient basis for treatment
of nonservice-connected conditions.  The VA proposal would not remove
the limitations on provision of dental services on an outpatient
basis. 


--------------------
\63 Better Patient Management Practices Could Reduce Length of Stay
in VA Hospitals (GAO/HRD-85-52, Aug.  8, 1985). 

\64 Brenda Booth, Robert L.  Ludke, Douglas S.  Wakefield, and
others, "Nonacute Inpatient Admissions to Department of Veterans
Affairs Medical Centers," Medical Care, Vol.  29, No.  8, Supplement
(Aug.  1991), pp.  AS40-50. 

\65 In conducting the study, registered nurses did retrospective
medical record reviews of fiscal year 1986 medical and surgical
hospitalizations from 50 randomly selected VA medical centers.  A
total of over 6,000 admissions were reviewed using the
appropriateness evaluation protocol (AEP).  A medical admission was
considered nonacute if none of the AEP clinically based criteria
indicating the need for inpatient hospital care on the day of
admission were documented in the medical record.  A surgical
admission was considered nonacute if it was on the VA list of
procedures approved for outpatient surgery and none of the AEP
outpatient surgery risk factors were documented in the medical
record.  The study was conducted under the assumption that the care
was medically necessary regardless of where it was provided. 

\66 Other reasons cited were admission for detoxification, admission
as a transfer from another institution, premature admission,
admission for placement in a nursing home, admission of patients too
frail for outpatient care, admission for transfer to another acute
care facility, and admission because the patient was a high risk for
outpatient therapy or the patient was unlikely to comply with
prescribed treatment. 

\67 For example, VA facilities may admit patients who travel long
distances for care or keep veterans in the hospital longer than
medically necessary because they lack a social support system to
assist them after they are discharged. 

\68 Booth, Ludke, Wakefield, and others, "Nonacute Days of Care
Within Department of Veterans Affairs Medical Centers."

\69 Letter to the Honorable John D.  Rockefeller IV, Ranking Minority
Member, Committee on Veterans' Affairs, U.S.  Senate, dated May 10,
1996. 

\70 Charles B.  Smith, Pilot Study of the ISD* Measurement of
Appropriateness of Bed Utilization, Health Services Research and
Development Project, SDR #91-010 (Washington, D.C.:  June 16, 1993). 

\71 The study did not validate the ISD criteria for acute psychiatric
services. 

\72 VA expects its VISN directors to establish a VISN-wide
utilization review program by the end of fiscal year 1996. 


   VA INSPECTOR GENERAL STUDIES
   IDENTIFY LACK OF AMBULATORY
   SURGERY AS CAUSE OF
   INAPPROPRIATE SURGICAL
   ADMISSIONS
--------------------------------------------------------- Appendix V:1

A series of audits by VA's OIG in 1991 and 1992 identified the
nonavailability of ambulatory surgery or other outpatient
capabilities as the primary cause of unnecessary admissions and days
of care in VA surgical wards.  For example, the OIG estimated the
following: 

  -- 931 of the 2,921 days of surgical care at the New Orleans VA
     medical center could have been avoided had the medical center
     established an ambulatory surgery program.\73

  -- About 32 percent of the Denver VA medical center's 1- to 4-day
     surgical admissions were for medical care that could have been
     provided on an outpatient basis without jeopardizing the welfare
     of the patient.  In addition, the report noted that patients
     scheduled for surgery were unnecessarily admitted the day before
     surgery because Medical Administration Service personnel were
     not, according to the Chief of Surgical Services, available
     early enough in the morning to do the paperwork necessary to
     admit the patient the day of the surgery.\74

  -- About $400,000 was spent by the Ft.  Lyon VA medical center on
     patients who did not need to be admitted to a hospital or could
     have been outplaced earlier.  The OIG attributed the problems
     primarily to physicians' failure to (1) follow the medical
     center's admission criteria and (2) promptly identify and
     transfer eligible patients to nursing homes.\75

  -- About 45 percent of the 2-day surgical admissions at the Togus,
     Maine, VA medical center could have been avoided by treating the
     patients on an outpatient basis.  The medical center agreed with
     the finding and attributed the inappropriate admissions to the
     perception that VA's resource allocation method did not cover
     the cost of ambulatory surgery.\76 \77

  -- About $766,000 in unnecessary expenses were incurred at the
     Dallas VA medical center because physicians admitted patients
     who did not require inpatient care and hospitalized veterans
     longer than medically necessary.  The lack of facilities
     dedicated to outpatient surgery was the sole reason cited for
     the inappropriate admissions.  Poor scheduling of surgical
     procedures and inadequate coordination of testing and
     consultations were cited as causing unnecessary days of care. 
     Medical center officials agreed with the findings and indicated
     that corrective actions were under way.\78

  -- About 72 percent of inpatient cataract surgeries and 29 percent
     of other short-term minor surgical admissions reviewed at the
     West Los Angeles medical center could have been done on an
     outpatient basis.\79

VHA's recently established performance measures for VISN directors
(1) include measures to encourage those facilities that lack
ambulatory surgery programs to establish them and (2) set
expectations for what portion of surgeries should be done on an
outpatient basis. 


--------------------
\73 Audit of VA Medical Center, New Orleans, Louisiana, VA OIG,
Report No.  2R6-F03-121 (Washington, D.C.:  VA, Apr.  17, 1992). 

\74 VA OIG, Report No.  1R5-F03-050 (Washington D.C.:  Apr.  5,
1991). 

\75 VA OIG, Report No.  1R5-F03-026 (Washington, D.C.:  VA, Jan.  23,
1991)). 

\76 Audit of Medical Center Operations at Department of Veterans
Affairs Medical and Regional Office Center, Togus, Maine, VA OIG,
Report No.  1R1-F03-027 (Washington, D.C.:  VA, Jan.  25, 1991). 

\77 VA's resource allocation method was replaced by the RPM system. 

\78 Audit of VA Medical Center, Dallas, Texas, VA OIG, Report No. 
2R6-F03-151 (Washington, D.C.:  VA, June 10, 1992). 

\79 Audit of VA Medical Center, West Los Angeles, California, VA OIG,
Report No.  2R7-F02-022 (Washington, D.C.:  VA, Oct.  30, 1991). 


KEY PROVISIONS OF PROPOSALS TO
REFORM ELIGIBILITY FOR VA HEALTH
CARE
========================================================== Appendix VI

Each of the five leading reform proposals contains unique provisions
that would affect both which veterans are eligible for care and how
VA delivers health care.  The following sections describe these
provisions. 


   THE DEPARTMENT OF VETERANS
   AFFAIRS IMPROVEMENT AND
   REINVENTION ACT OF 1995
-------------------------------------------------------- Appendix VI:1

The Department of Veterans Affairs Improvement and Reinvention Act of
1995 (S.  1345) was introduced at the administration's request on
October 19, 1995.  In addition to reforming VA health care
eligibility, S.  1345 would expand VA contracting authority and amend
VA housing and education benefits.  The health care eligibility
reform provisions would do the following: 

  -- Previous provisions covering hospital care, outpatient care,
     respite care, pharmaceuticals, supplies, equipment, appliances,
     and other items and services would be combined into a new
     "health care" provision.  Health care would be defined as "the
     most appropriate care and treatment for the patient furnished in
     the most appropriate setting."

  -- All veterans would be eligible for the expanded benefits offered
     under the new definition of health care. 

  -- The current fixed categories of eligibility would be replaced by
     a priority system. 

  -- The highest priority groups of veterans in the mandatory
     category for comprehensive care would be expanded to include
     veterans (1) with any compensable service-connected disability,
     (2) who are former prisoners of war, (3) whose discharge or
     release was for disabilities incurred or aggravated in the line
     of duty, and (4) who are receiving disability compensation. 

  -- VA would be allowed to provide, subject to available funding,
     comprehensive health care services to lower-priority veterans. 

  -- The obviate-the-need-for-hospitalization criterion for
     outpatient care would be eliminated. 

  -- The discretionary nature of VA funding would be retained by
     making the availability of services subject to annual
     appropriations. 

The administration's proposal would also expand VA contracting
authority.  It would allow VA to share (purchase or sell) health care
resources with health plans, insurers, organizations, institutions,
or any other entity or individual who furnishes any health care
resource.  Under current law, such sharing agreements are limited to
medical schools, health care facilities, and research centers. 

Finally, S.  1345 would allow VA to retain a greater portion of its
third-party collections.  Currently, VA must return all third-party
collections, less the administrative costs of collection activities,
to the Treasury.  Under the administration's proposal, VA would be
allowed to retain an additional 25 percent of recoveries to be
distributed to its health care facilities. 


   SENATE BILL 1563
-------------------------------------------------------- Appendix VI:2

S.  1563 was introduced at the request of the VSOs on February 7,
1996.  The VSOs' highest priority, according to VSO representatives,
is eligibility reform that authorizes a full range of medical
services for veterans currently in the mandatory category for
hospital care, and funding to ensure the availability of those
services.  As a practical matter, the VSOs did not attempt to include
all of the eligibility reforms recommended in their 1996 Independent
Budget in this year's proposal.  In the scaled-back version,
S.  1563 would

  -- add catastrophically disabled veterans to the mandatory category
     for comprehensive health care;\80

  -- expand the mandatory care category (Category A) for hospital
     care to apply to outpatient, nursing home, domiciliary, and
     long-term care;

  -- allow VA to treat adult dependents of veterans, provided they
     reimburse VA for the cost of their care;

  -- broaden VA's authority to provide primary and preventive health
     care services;

  -- require VA to provide prosthetic appliances and aids for
     veterans in the mandatory care category who are blind or
     hearing-impaired;

  -- authorize VA facilities to participate as Medicare providers and
     retain reimbursements from Medicare;

  -- require VA to maintain current capacity in specialized services
     for mandatory care category veterans, including those with
     spinal cord dysfunction, blindness, and mental illness; and

  -- eliminate the obviate-the-need provision, making all veterans
     eligible for comprehensive outpatient care. 

Some reforms described in their 1996 Independent Budget for VA were
not included in S.  1563.  VSO representatives said these initiatives
will be retained for future consideration.  For example, the VSOs
also recommended that the Congress

  -- switch VA health care funding from a discretionary to a
     mandatory spending account,

  -- authorize VA to provide pre- and postnatal care for women
     veterans,

  -- provide investment funds to improve VA's infrastructure, and

  -- allow VA medical centers to conduct marketing activities. 


--------------------
\80 "Catastrophically disabled" is defined in S.  1563 as any veteran
whose expenditures for hospital and nursing home care exceed 7.5
percent of his or her gross adjusted income for federal income tax
purposes during the preceding year. 


   THE VETERANS HEALTH CARE REFORM
   ACT OF 1995
-------------------------------------------------------- Appendix VI:3

Introduced April 4, 1995, by Congressmen Edwards and Montgomery, the
Veterans Health Care Reform Act of 1995 (H.R.  1385) would, on a
temporary basis for the period ending September 30, 1999,

  -- expand the mandatory care category for comprehensive outpatient
     medical treatment to include all veterans in the mandatory care
     category for hospital care (core group) other than those with
     noncompensable service-connected disabilities (nursing home and
     dental services would remain discretionary);

  -- require VA to expand its capacity to provide outpatient care and
     allocate resources to its facilities in a way that would give
     veterans access to care that is reasonably similar regardless of
     where they live;

  -- include preventive health services and prosthetic appliances in
     the definition of services that are provided to core group
     veterans;

  -- include home health services in the definition of services that
     may be provided to core group veterans;

  -- authorize the Secretary of Veterans Affairs to use systems of
     patient prioritization and to set up a system of enrollment of
     eligible veterans;

  -- allow VA to retain a portion of third-party recoveries to expand
     outpatient care; and

  -- require VA to ensure that any veteran with a service-connected
     disability is provided all benefits to which he or she is
     entitled. 

Like the administration's proposal, H.R.  1385 would not shift VA
funding from a discretionary to a mandatory account.  That is,
availability of benefits would still be dependent upon available
funding--benefits would not be guaranteed.  In addition, VA would be
required to ensure that its capacity to provide for the specialized
treatment and rehabilitative needs of disabled veterans is not
reduced. 


   THE VETERANS' HEALTH CARE
   ELIGIBILITY REFORM ACT OF 1996
-------------------------------------------------------- Appendix VI:4

On March 20, 1996, the Chairman of the House Veterans' Affairs
Committee introduced the Veterans' Health Care Eligibility Reform Act
of 1996 (H.R.  3118).  The bill is similar to a proposal that was
approved by the House in its budget reconciliation package (H.R. 
2491) but was deleted in conference with the Senate.  The Committee's
proposal would, among other provisions, reform eligibility for VA
health care to

  -- specifically state that provision of care for both mandatory and
     discretionary care category veterans is subject to the amounts
     provided in advance in appropriations, thus clearly stating that
     VA health care services are not an entitlement for veterans in
     the mandatory care category;

  -- expand the mandatory care category for comprehensive outpatient
     care to include all veterans in the mandatory category for
     hospital care except those with noncompensable service-connected
     disabilities (about 1.2 million veterans);

  -- remove the obviate-the-need criterion and other limitations on
     the provision of outpatient care, making all veterans eligible
     for comprehensive outpatient care;

  -- retain nursing home care as a discretionary benefit for all
     veterans;

  -- require VA to establish a system of annual patient enrollment
     based on priorities for enrollment contained in the bill
     (veterans with service-connected disabilities rated at 30
     percent or higher would have the highest priority for
     enrollment);

  -- create a new category of priority for veterans who are
     catastrophically disabled; and

  -- expand VA contracting and sharing authority. 


   VETERANS' HEALTH CARE SECURITY
   ACT
-------------------------------------------------------- Appendix VI:5

This eligibility reform proposal, developed by the American Legion,
would make more fundamental changes to the VA health care system than
any of the other reform proposals.  Under the Veterans' Health Care
Security Act, VA would adopt characteristics typical of a private
sector health insurer, including guaranteed benefits, annual
enrollment, and dependent coverage.  As of July 1, 1996, the proposal
has not been introduced in the Congress. 

Unlike the other bills, the Veterans' Health Care Security Act would
guarantee the availability of covered services by creating an
entitlement to care.  VA appropriations would be based on a capitated
method covering the cost of care for veterans entitled to free or
discounted VA care.  Veterans would be entitled to free or discounted
care on the basis of the degree of their service-connected
disabilities or if they are special category veterans, which is
similar to today's mandatory care category. 

The bill would also

  -- reorganize the VA health system into regional Veterans Health
     Plans;

  -- replace current restrictions on outpatient care with several
     benefit packages that offer wider coverage including hospital,
     outpatient, emergency, and preventive services;

  -- establish three enrollment options:  basic, comprehensive, and
     specialized services;

  -- entitle veterans with service-connected disabilities at 50
     percent or greater to all medically necessary services,
     including extended care services, at no cost to the veteran;

  -- entitle other veterans currently in the mandatory care category
     for hospital care (other than veterans with noncompensable
     service-connected disabilities) to a basic benefit package at no
     cost, or to a premium discount on the purchase of the
     comprehensive benefit package;

  -- entitle veterans who (1) suffer catastrophic illnesses that
     render them destitute or (2) are proven uninsurable in the
     private market to the basic benefit package at no cost;

  -- allow higher-income veterans with no service-connected
     disabilities and veterans with noncompensable service-connected
     disabilities to purchase the basic, comprehensive, or
     supplemental benefit packages;

  -- allow dependents of enrolled veterans to enroll in the basic or
     comprehensive plans upon payment of a premium intended to cover
     the costs of their care;

  -- deem VA as a qualified provider, authorized to retain
     reimbursement from the Medicare, Medicaid, Federal Employees
     Health Benefits, CHAMPUS, and Indian Health Service programs for
     those veterans not covered under the entitlement;

  -- expand VA's authority to contract with private sector
     facilities, providers, health plans, insurers, suppliers, or
     related entities; and

  -- exempt VA from federal procurement regulations. 




(See figure in printed edition.)Appendix VII
COMMENTS FROM THE DEPARTMENT OF
VETERANS AFFAIRS
========================================================== Appendix VI


GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
======================================================== Appendix VIII

GAO CONTACTS

James R.  Linz, Assistant Director, (202) 512-7110
Terence M.  Saiki, Evaluator-in-Charge, (206) 287-4819

STAFF ACKNOWLEDGMENTS

Evan L.  Stoll conducted the computer analyses of data from the 1992
National Survey of Veterans.  Joan K.  Vogel conducted the computer
analyses of data from VA's treatment files. 




RELATED GAO PRODUCTS
============================================================ Chapter 1

VA Health Care:  Efforts to Improve Veterans' Access to Primary Care
Services (GAO/T-HEHS-96-134, Apr.  24, 1996). 

VA Health Care:  Approaches for Developing Budget-Neutral Eligibility
Reform (GAO/T-HEHS-96-107, Mar.  20, 1996). 

VA Health Care:  Opportunities to Increase Efficiency and Reduce
Resource Needs (GAO/T-HEHS-96-99, Mar.  8, 1996). 

VA Health Care:  Issues Affecting Eligibility Reform
(GAO/T-HEHS-95-213, July 19, 1995). 

VA Health Care:  Challenges and Options for the Future
(GAO/T-HEHS-95-147, May 9, 1995). 

VA Health Care:  Retargeting Needed to Better Meet Veterans' Changing
Needs (GAO/HEHS-95-39, Apr.  21, 1995). 

VA Health Care:  Barriers to VA Managed Care (GAO/HEHS-95-84R, Apr. 
20, 1995). 

Veterans' Health Care:  Veterans' Perceptions of VA Services and VA's
Role in Health Care Reform (GAO/HEHS-95-14, Dec.  23, 1994). 

Veterans' Health Care:  Use of VA Services by Medicare-Eligible
Veterans (GAO/HEHS-95-13, Oct.  24, 1994). 

Veterans' Health Care:  Implications of Other Countries' Reforms for
the United States (GAO/HEHS-94-210BR, Sept.  27, 1994). 

Veterans' Health Care:  Most Care Provided Through Non-VA Programs
(GAO/HEHS-94-104BR, Apr.  25, 1994). 

VA Health Care:  A Profile of Veterans Using VA Medical Centers in
1991 (GAO/HEHS-94-113FS, Mar.  29, 1994). 

VA Health Care:  Restructuring Ambulatory Care System Would Improve
Service to Veterans (GAO/HRD-94-4, Oct.  15, 1993). 

VA Health Care:  Comparison of VA Benefits With Other Public and
Private Programs (GAO/HRD-93-94, July 29, 1993). 


*** End of document. ***