VA Health Care: Approaches for Developing Budget-Neutral Eligibility
Reform (Testimony, 03/20/96, GAO/T-HEHS-96-107).

GAO discussed various proposals to reform eligibility for Department of
Veterans Affairs (VA) health benefits. GAO noted that: (1) VA health
care has evolved from a system primarily providing hospital care to
veterans injured during wartime to a system focused on the treatment of
low-income veterans with medical conditions unrelated to military
service; (2) the eligibility provisions of the VA health care system are
vague, provide uneven services, do not guarantee services, and cannot
provide the total care that low-income veterans need; (3) while VA
health care eligibility provisions should be reformed to better suit
veterans' health care needs, none of the proposed legislation would be
budget neutral; (4) present eligibility provisions do not cause
inappropriate hospitalizations; (5) several legislative proposals to
reform VA eligibility provisions would eliminate the restrictions on
outpatient care and create a uniform benefit package, but inappropriate
use of resources, uneven access, and some restrictions would continue to
exist; (6) the proposed legislation to reform VA eligibility provisions
would increase service availability, demand, and program costs; and (7)
approaches for developing budget-neutral eligibility reforms include
limits on covered benefits, limits on the number of veterans eligible,
an increase in veteran cost-sharing, the authorization of recoveries
from Medicare, VA retention of a portion of third-party recoveries, and
reinvestment of savings from efficiency improvements.

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

 REPORTNUM:  T-HEHS-96-107
     TITLE:  VA Health Care: Approaches for Developing Budget-Neutral 
             Eligibility Reform
      DATE:  03/20/96
   SUBJECT:  Veterans
             Balanced budgets
             Veterans hospitals
             Eligibility criteria
             Proposed legislation
             Health care costs
             Health care cost control
             Health care programs
             Health care services
             Health resources utilization
IDENTIFIER:  National Performance Review
             Federal Employees Health Benefits Program
             VA Preadmission Certification Program
             
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Cover
================================================================ COVER


Before the Committee on Veterans' Affairs, U.S.  Senate

For Release on Delivery
Expected at 10:00 a.m.
Wednesday, March 20, 1996

VA HEALTH CARE - APPROACHES FOR
DEVELOPING BUDGET-NEUTRAL
ELIGIBILITY REFORM

Statement of David P.  Baine, Director
Health Care Delivery and Quality Issues
Health, Education, and Human Services Division

GAO/T-HEHS-96-107

GAO/HEHS-96-107T


(406122)


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

  CBO - CBO
  DOD - DOD
  HCFA - HCFA
  IG - IG
  VA - VA
  VSO - VSO

============================================================ Chapter 0

Mr.  Chairman and Members of the Committee: 

We are pleased to be here today to discuss proposals to reform
eligibility for Department of Veterans Affairs (VA) health care
benefits.  Eligibility reform would present a significant challenge
even with unlimited resources.  But with the Congress and VA facing
increasing pressures to limit VA health care spending as part of
governmentwide efforts to reduce the budget deficit, this challenge
has become even greater. 

Over the past several years, we have conducted a series of reviews
that have detailed problems in the administration of VA's outpatient
eligibility provisions, compared VA benefits and eligibility with
those of other public and private health benefits programs, and
assessed VA's role in a changing health care marketplace.  My
comments this morning are based primarily on the results of those
reviews and ongoing work for this Committee.\1

Specifically, we will discuss

  the problems VA's current eligibility and contracting provisions
     create for veterans and providers,

  the relationship between inappropriate admissions to VA hospitals
     and VA eligibility provisions,

  legislative proposals to reform VA eligibility and contracting
     rules and their potential impact on the deficit, and

  options for achieving budget-neutral eligibility reform. 


--------------------
\1 A list of related GAO products is in app.  II. 


   SUMMARY
---------------------------------------------------------- Chapter 0:1

In summary, VA health care has gradually evolved from a system
primarily providing hospital care to veterans injured during wartime
service to a system increasingly focused on the treatment of
low-income veterans with medical conditions unrelated to military
service.  For most veterans, eligibility for veterans' health
benefits is still limited primarily to hospital-related care. 

Budget-neutral reforms of VA eligibility provisions could enable VA
to function more like a private insurer and provider.  Unlike private
insurance, VA does not have a well-defined, uniform benefit package
and does not guarantee the availability of covered services.  In
addition, a VA facility is not allowed to provide a noncovered
service even if it has the resources to provide the care and the
veteran is willing to pay for it.  This often places VA physicians in
the 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. 

Generally, VA's current eligibility provisions create uneven and
uncertain access to VA health care and limit VA's ability to meet
veterans' health care needs.  Veterans with similar medical needs,
service status, and incomes may get treated or turned away depending
on what type of care they seek and where and when they seek care. 
This frustrates veterans, who cannot understand what services they
can get from VA, and VA physicians and administrative staff, who have
to interpret the subjective eligibility provisions. 

During the past year, four major bills were introduced to reform VA
eligibility.  These bills would eliminate the current restrictions on
veterans' eligibility for outpatient care, essentially making all
26.4 million veterans eligible for comprehensive outpatient care,
whereas fewer than 1 million are currently eligible.  In addition,
the bills would increase the number of veterans in the mandatory
category for comprehensive outpatient care (that is, the category for
which the law says VA "shall" or "must" provide covered services)
from 465,000 to between 9 million and 11 million.  The bills
generally would not address most of the other problems with current
VA eligibility provisions, such as the lack of guaranteed funding. 

Although we support the need for reform, we do not believe any of the
four major eligibility reform proposals achieves budget neutrality. 
For example, making all 26.4 million veterans eligible for
comprehensive outpatient care would likely generate significant new
demand for both outpatient and inpatient care.  These increases are
likely to come both from VA users previously unable to obtain all of
their health care services from VA and from veterans seeking care
from VA for the first time. 

In addition, the synergistic effects of other needed changes in the
VA health care system will likely heighten the effects of eligibility
expansions on future demand for care.  For example, VA's plans to
make its health care more accessible to veterans will probably
generate new demands for care.  Generally, when VA opens a new
outpatient clinic, a large proportion of the users are new to the VA
system.  In addition, current VA users living near the new clinic
tend to use VA services more often.  Similarly, actions taken to
improve customer service, such as installation of bedside telephones,
reducing waiting times, and establishing primary care teams, will
likely attract new users. 

Nine out of 10 veterans have other public or private insurance that
they typically use to purchase care from private sector providers. 
As a result, changes in the VA system to expand benefits, improve
accessibility, and improve customer service will put VA in more
direct competition with private sector providers and insurers. 
Because the proposed eligibility expansions would offer 9 million to
11 million veterans comprehensive free care, VA could gain a strong
competitive advantage over private sector providers. 

Because the bills would not provide for major new sources of revenue
to help pay for the expanded services, their enactment would place
considerable pressure on the Congress to appropriate additional funds
to meet the increased demand.  It would be particularly problematic
for the Congress not to appropriate funds to meet the health care
demands of the large group of veterans who would be added to the
mandatory category for comprehensive outpatient care. 

VA and the Congressional Budget Office (CBO) have arrived at starkly
different assessments of the potential budgetary impact of the
proposal included in the House of Representatives' budget
reconciliation package last year.  VA concluded that the bill would
be budget neutral and might save $268 million a year.\2 By contrast,
CBO estimated that the bill could add $3 billion or more to the
deficit. 

We find CBO's arguments more compelling for two principal reasons. 
First, CBO's estimate predicts that significant increases in demand
for outpatient care would likely result from enactment of the bill,
whereas VA estimates no increase.  Second, VA's cost analysis is
sensitive to a series of assumptions.  Changing the assumptions can
quickly turn a potential savings into a potential cost increase.  For
example, VA assumed that it would divert 20 percent of hospital
patients to outpatient care through eligibility reform and that 7
days of hospital care would be avoided for every patient diverted. 
One to 3 days seems a more likely length of stay for patients who do
not need a hospital level of care but are admitted to VA hospitals
just to provide them services they are not eligible to receive as
outpatients.  Avoiding an average of 3 days of hospital care, rather
than 7, would turn a claimed savings of $268 million into a cost
increase of $167 million under VA's formula. 

In addition, VA has provided little evidence to support its
assumption that eligibility reform would enable it to divert 20
percent of its hospital patients to outpatient clinics.  In fact,
studies done by VA and others show little evidence to link nonacute
admissions to problems with VA eligibility provisions.  Generally,
nonacute admissions result from conservative physician practices and
the lack of outpatient care capabilities.  Unlike the private sector,
where insurers often require policyholders to obtain approval from an
external reviewer before they are admitted to hospitals, VA has no
preadmission certification program.  While hundreds of millions of
dollars may be saved by reducing inappropriate admissions to VA
hospitals, we believe that such savings should not be "spent" before
administrative actions, such as establishment of an external
preadmission certification program, are in place to ensure that
nonacute admissions are, in fact, reduced. 

Although the current proposals are not budget neutral, many
approaches could be used to help design budget-neutral eligibility
reform.  These approaches include

  increasing veterans' cost sharing or allowing VA to sell noncovered
     services to veterans;

  establishing uniform, but more limited, benefit packages; and

  expanding eligibility for some veterans but reducing or eliminating
     eligibility for others. 

Through the use of a combination of these approaches, we believe
budget-neutral eligibility reform can and should be developed. 


--------------------
\2 The eligibility reform provisions were later dropped during the
House and Senate Conference. 


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

For fiscal year 1996, VA sought an appropriation of about $17 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.  The Congressional Budget Resolution, however,
would essentially freeze the VA medical care appropriation at the
fiscal year 1995 spending level--$16.2 billion--for the next 7 years. 
Final action on VA's fiscal year 1996 appropriation is pending. 

The VA health care system consists of (1) a health benefits program
and (2) a health care delivery program.  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 the
veterans' health care benefits and (2) the clinics are not permitted
under the law to sell such noncovered services to veterans. 

In administering the veterans' health benefits program, VA's
responsibilities are similar to those of the Health Care Financing
Administration (HCFA) in administering Medicare benefits and to those
of private health insurance companies in administering health
insurance policies.  For example, 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, (3)
whether the health care services veterans need are covered under
their benefits, and (4) 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).  Similarly, VA, like
HCFA and private insurers, is responsible for ensuring that the
health benefits provided to its "policyholders"--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/Hospital Corporation of America and
Humana.  For example, VA strives to ensure that its facilities (1)
provide care of an acceptable quality, (2) are used to their optimum
capacity, (3) are located where they are accessible to its 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. 


      SIGNIFICANT CHANGES
      OCCURRING IN THE VETERAN
      POPULATION
-------------------------------------------------------- Chapter 0:2.1

The veteran population, which totaled about 26.4 million in 1995, is
both declining and aging.  Between 1990 and 2010, VA projects the
veteran population will decline 26 percent.  The decline will be most
notable among veterans under 65 years of age--from about 20.0 million
to 11.5 million.  By contrast, the number of veterans aged 85 and
older will increase more than eight-fold.  At that time, veterans
aged 85 and older will make up about 6 percent of the veteran
population. 

Coinciding with the overall decline in the number of veterans is a
decline in the percentage of veterans who served during wartime.  VA
projects the total number of wartime veterans to decline from 21
million in 1990 to 13.6 million in 2010.  Even more dramatic is the
shift in the number of wartime veterans by period of service.  By
1995, deaths of World War II veterans had accelerated to the point
that Vietnam-era veterans outnumbered World War II veterans by about
826,000.  By 2010, Persian Gulf veterans are expected to outnumber
both Korean War and World War II veterans. 

Most veterans who served during wartime had no combat exposure. 
About 35 percent of U.S.  veterans were actually exposed to combat. 
(See fig.  1.)

   Figure 1:  Combat Exposure of
   Veterans, 1992

   (See figure in printed
   edition.)

Source:  Based on data from VA's National Survey of Veterans
(Washington, D.C.:  National Center for Veteran Analysis and
Statistics, VA, 1995). 

About 8.3 percent of veterans have compensable service-connected
disabilities.  Surprisingly, 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 veterans.  (See fig. 
2.)

   Figure 2:  Veterans With
   Service-Connected Disabilities,
   by Period of Service, 1994

   (See figure in printed
   edition.)

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

Of the more than 2.2 million veterans with compensable
service-connected disabilities, over half have disability ratings of
10 or 20 percent.  Of the remaining veterans with service-connected
disabilities, about 488,000 had disabilities rated at 30 or 40
percent.\3 (See fig.  3.)

   Figure 3:  Veterans With
   Service-Connected Disability
   Ratings, by Degree of
   Disability, 1994

   (See figure in printed
   edition.)

Note:  Numbers include 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. 


--------------------
\3 A service-connected disability is one that results from an injury
or disease or other physical or mental impairment incurred or
aggravated during 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. 


      ELIGIBILITY FOR VA HEALTH
      CARE BENEFITS
-------------------------------------------------------- Chapter 0:2.2

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
currently eligible for VA health care benefits.  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. 

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.  As
a result, VA facilities are not allowed to provide other services
directly to veterans or others even if they have the capacity to
provide the services and the patient agrees to pay for them.\4

Certain veterans, commonly referred to as Category A, or mandatory
care category, veterans, have the highest priority for hospital and
nursing home 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 toxic substances or ionizing radiation,

  served in the Mexican Border Period or World War I,

  receive disability compensation,

  receive nonservice-connected disability pension benefits, and

  have incomes below the means test threshold (as of January 1995,
     $20,469 for a single veteran or $24,565 for a veteran with one
     dependent, plus $1,368 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, commonly known as Category C, or
discretionary care category, veterans, must pay a part of the cost of
the care they receive. 

VA also 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 categories apply to outpatient
care.  Only veterans with service-connected disabilities rated at 50
percent or higher (about 465,000 veterans) are in the mandatory
category for comprehensive outpatient care.  All veterans with
service-connected disabilities are in the mandatory care category for
treatments related to their disabilities; they are also eligible for
hospital-related care of nonservice-connected conditions, but, with
the exception of veterans with disabilities rated at 30 or 40
percent, they are in the discretionary care category.  Most veterans
with no service-connected disabilities are eligible only for
hospital-related outpatient care and, with few exceptions, are in the
discretionary care category. 

Table 1 summarizes VA eligibility provisions. 



                                         Table 1
                         
                          Mandatory and Discretionary VA Health
                                      Care Benefits

                                                           Outpatient      Nursing home
Veteran category                           Hospital care   care            care
-----------------------------------------  --------------  --------------  --------------
Service-connected disabilities rated 50-   Mandatory       Mandatory       Discretionary
100%, for any condition

Service-connected disabilities rated 0-    Mandatory       Mandatory       Discretionary
40%, for a service-connected condition

Discharged for disability                  Mandatory       Mandatory       Discretionary

Service-connected disabilities rated 30-   Mandatory       Mandatory,      Discretionary
40%, for a nonservice-connected condition                  limited to
                                                           hospital-
                                                           related care

Pensioner or has income under $12,855      Mandatory       Mandatory,      Discretionary
                                                           limited to
                                                           hospital-
                                                           related care

Injured in VA                              Mandatory       Mandatory,      Discretionary
                                                           limited to
                                                           hospital-
                                                           related care

Prisoner of war                            Mandatory       Discretionary   Discretionary

World War I or Mexican Border Period       Mandatory       Discretionary   Discretionary
veteran

Pensioner receiving aid and attendance     Mandatory       Discretionary   Discretionary
payments

Service-connected disabilities rated 0-    Mandatory       Discretionary,  Discretionary
20%, for a nonservice-connected condition                  limited to
                                                           hospital-
                                                           related care

Nonservice-connected, with an income of    Mandatory       Discretionary,  Discretionary
$12,855-$20,470 (no dependents)                            limited to
                                                           hospital-
                                                           related care

Exposed to Agent Orange or radiation, or   Mandatory       Discretionary,  Discretionary
Medicaid-eligible                                          limited to
                                                           hospital-
                                                           related care

Nonservice-connected with income over      Discretionary,  Discretionary,  Discretionary,
$20,470                                    with copayment  with            with copayment
                                                           copayment,
                                                           limited to
                                                           hospital-
                                                           related care
-----------------------------------------------------------------------------------------
Source:  Based on data from Independent Budget for Department of
Veterans Affairs, Fiscal Year 1996, prepared by the major veterans'
service organizations. 


--------------------
\4 Studies by the VA Office of Inspector General indicate that about
56 percent of the discretionary care outpatient visits VA facilities
provide are for noncovered services that the veterans were not
eligible to receive. 


      ELIGIBILITY FOR VA HEALTH
      CARE HAS EVOLVED
-------------------------------------------------------- Chapter 0:2.3

Eligibility for VA health care has undergone a gradual evolution
since the 1930 establishment of VA.  Initially, the only veterans
eligible for VA health care were those (1) with injuries incurred
during wartime service or (2) incapable of earning a living because
of a permanent disability, tuberculosis, or neuropsychiatric
disability suffered after their wartime service. 

Originally, eligibility was for hospital and domiciliary care only. 
Eligibility for hospital care was later expanded to include veterans
injured during other than combat duty and subsequently to all
veterans without service-connected disabilities. 

When outpatient care was added to the VA system, eligibility was
initially limited to veterans with service-connected disabilities. 
It was not until 1960 that VA was first authorized to treat veterans
with nonservice-
connected disabilities on an outpatient basis.  In that year, P.L. 
86-639 authorized outpatient treatment for a nonservice-connected
disability in preparation for, or to complete treatment of, hospital
care.  So concerned was the then 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 extended outpatient treatment for veterans with
nonservice-connected disabilities, authorizing outpatient treatment
for any disability to "obviate the need of hospital admission."
Although there have been a number of further revisions to outpatient
eligibility since 1973, most veterans' eligibility for ambulatory
care services continues to be restricted to hospital-related care. 


      VA SYSTEM INCREASINGLY
      FOCUSES ON VETERANS WITH NO
      SERVICE-CONNECTED
      DISABILITIES
-------------------------------------------------------- Chapter 0:2.4

With the gradual evolution of VA eligibility, the VA system now
provides a wide range of inpatient, outpatient, and long-term care
services to veterans both with and without service-connected
disabilities.  VA has gradually shifted from a system primarily
providing treatment for veterans with service-connected disabilities
incurred in wartime to a system increasingly focused on the treatment
of low-income veterans with medical conditions unrelated to military
service.  For example, in fiscal year 1995, only about 12 percent of
VA hospital patients were treated for service-connected disabilities. 
By contrast, about 59 percent of the patients treated had no
service-connected disabilities.  (See fig.  4.)

   Figure 4:  VA Hospital Users by
   Purpose of Treatment, FY 1995

   (See figure in printed
   edition.)

Note:  SC = service connected; NSC = nonservice connected. 

Source:  Data are from draft tables prepared for VA's Annual Report
of the Secretary of Veterans Affairs, Fiscal Year 1995, expected to
be issued in April 1996. 


      VA OPTIONS AS A HEALTH CARE
      PROVIDER ARE LIMITED
-------------------------------------------------------- Chapter 0:2.5

VA has limited authority to (1) buy health care services from non-VA
providers and (2) sell health care services either to veterans or
others.  Generally, veterans can use their health benefits only in
VA-operated health care facilities.  There are several exceptions
that allow VA to purchase care from non-VA providers: 

  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 provide services 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).  The authorization to use fee-basis physicians is
     primarily limited to service-connected veterans. 

  VA pays for hospitalization in non-VA facilities in medical
     emergencies.  Patients are expected to transfer to VA hospitals
     when their conditions stabilize. 

  Veterans treated in VA facilities can be provided scarce medical
     specialist services from other public and private providers
     through sharing agreements and contracts between VA and non-VA
     providers. 

  VA hospitals have limited authority to contract with other
     providers for specialized medical resources, including
     equipment, personnel, or techniques, that because of costs,
     limited availability, or unusual nature are unique in the
     medical community. 

Similarly, as a health care provider, VA can sell health care
services only on an exception basis.  Specifically, VA hospitals and
outpatient clinics can sell

  health care services to the Department of Defense (DOD) and other
     federal health care facilities and

  specialized medical resources to nonfederal hospitals, clinics, and
     medical schools.\5

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


--------------------
\5 Medical resources can be sold to DOD and the private sector only
if the sale does not adversely affect health care services available
to veterans. 


   VA ELIGIBILITY PROVISIONS
   FRUSTRATE VETERANS AND LIMIT
   VA'S ABILITY TO MEET VETERANS'
   HEALTH CARE NEEDS
---------------------------------------------------------- Chapter 0:3

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, or guarantee the availability of, covered
services.  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 what 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 untenable 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. 


      VETERANS ARE UNCERTAIN ABOUT
      WHAT SERVICES ARE COVERED
-------------------------------------------------------- Chapter 0:3.1

Because public and private insurance policies generally have a
defined benefit package, both policyholders and providers know in
advance what services are covered and what, if any, limitations apply
to the availability of services.  Defined benefit packages also
preserve insurers' flexibility in responding to funding constraints
by allowing them to adjust covered benefits on the basis of funds
available.  An insurer might offer multiple policies with varying
benefits, but individuals with the same policy have the same
benefits. 

Like private insurance, VA essentially offers multiple health benefit
"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 those veterans with service-connected
disabilities rated at 50 percent or more--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 for an examination, X rays, or blood tests because there
is no apparent need for hospital-related care. 

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.  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 the
types of medical services that cannot be provided on an outpatient
basis.  For example, VA outpatient clinics cannot provide

  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 treatments started while in a VA hospital; and

  routine prenatal care and delivery services through the VA health
     care system. 


      OUTPATIENT ELIGIBILITY
      REQUIREMENTS ARE DIFFICULT
      TO ADMINISTER
-------------------------------------------------------- Chapter 0:3.2

Veterans are not the only ones confused by VA eligibility provisions. 
Those tasked with applying and enforcing the provisions daily--VA
physicians and administrative staff--express similar frustration in
attempting to interpret the provisions.  Although the criterion 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 broadly defined 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.\6 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 will depend
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, to say the
least, very 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 rules apply to service-connected and
     nonservice-connected care;

  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; and

  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. 


--------------------
\6 VA Health Care:  Variabilities in Outpatient Care Eligibility and
Rationing Decisions (GAO/HRD-93-106, July 16, 1993). 


      AVAILABILITY OF OUTPATIENT
      CARE IS UNEVEN
-------------------------------------------------------- Chapter 0:3.3

Under private health insurance, Medicare, and Medicaid, the
availability of covered 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.  As an entitlement program, Medicare spending increases as
utilization increases, creating guaranteed access to covered
services. 

Under the VA health care system, however, being in the mandatory care
category does not entitle veterans to, or guarantee the availability
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 required to, and in fact 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 if
adequate resources have been appropriated to pay for them.  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 and most of those in the discretionary care categories. 

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.\7

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 served or turned away.  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. 


--------------------
\7 VA Health Care:  Variabilities in Outpatient Care Eligibility and
Rationing Decisions (GAO/HRD-93-106, July 16, 1993). 


      RESTRICTIONS ON PROVIDING
      NONCOVERED SERVICES ADDS TO
      FRUSTRATION
-------------------------------------------------------- Chapter 0:3.4

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 any patient 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 or for any charges that exceed insurance coverage. 

Although VA health care facilities are primarily restricted to use by
veterans, VA actually has greater authority to sell health care
services to nonveterans through sharing agreements than it does to
sell these same services 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 they (1)
have public or private insurance that would pay for the care or (2)
agree to pay for the services out of their own funds. 


      SOME VETERANS' HEALTH
      CONDITIONS GO UNTREATED
-------------------------------------------------------- Chapter 0:3.5

In a 1993 review, we examined veterans' efforts to obtain care from
alternative sources when VA medical centers did not provide it.\8
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. 


--------------------
\8 VA Health Care:  Veterans' Efforts to Obtain Outpatient Care From
Alternative Sources (GAO/HRD-93-123, July 14, 1993). 


   STUDIES DO NOT SHOW STRONG LINK
   BETWEEN ELIGIBILITY PROVISIONS
   AND NONACUTE ADMISSIONS
---------------------------------------------------------- Chapter 0:4

VA hospitals too often serve patients whose care could be more
efficiently provided in alternative settings, such as an outpatient
clinic or nursing home.  VA, the major veterans' service
organizations, and the Vice President's National Performance Review
attribute many of the inappropriate admissions to VA's eligibility
provisions, citing (1) studies showing that over 40 percent of
admissions could have been avoided through use of outpatient care and
(2) anecdotes, such as the one about a patient who had to be admitted
to the hospital to get a pair of crutches.  Our review, however,
found little basis for linking most inappropriate hospitalizations to
VA eligibility provisions. 

In 1985, we reported that about 43 percent of the days of care
medical and surgical patients spent in the VA hospitals reviewed
could have been avoided.\9 Since then, a number of studies by VA
researchers and VA's Office of Inspector General (IG) have found
similar problems. 

For example, 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 studied ranged from 25 to 72 percent.  The
study suggested several reasons why there is a higher rate of
nonacute admissions to VA hospitals than private sector hospitals,
including the following: 

  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 to
     control nonacute admissions, such as mandatory preadmission
     review. 

  VA, unlike the private sector, has a significantly expanded social
     mission that may influence the use of patient resources.\10

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. 

Reasons cited for nonacute admissions and days of care included
nonavailability of outpatient care, conservative physician practices,
inadequate discharge planning, and social factors.  The authors
suggested that VA establish a systemwide utilization review program. 
VA, however, has not established either an internal utilization
review requirement or contracted for external reviews. 

We recently testified that establishing preadmission certification
procedures similar to those used by private health insurers could
save VA hundreds of millions of dollars by reducing nonacute
admissions to VA hospitals.  We noted that all fee-for-service health
plans participating in the Federal Employees Health Benefits Program
are required to operate a preadmission certification program to help
limit nonacute admissions and days of care.  VA's Under Secretary for
Health announced plans to implement a preadmission certification
program at the same hearing.\11

Although the VA study also cited eligibility as contributing to some
inappropriate admissions and days of care, the study identified only
minor changes needed in VA eligibility provisions.  Specifically, it
recommended changes in the law 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) allow prosthetic devices to be furnished to veterans on an
outpatient basis. 

Trying to link the studies discussed here to VA eligibility
provisions is, in our view, inappropriate because the studies did not
contain the types of data needed to make such a link.  In other
words, the studies did not determine whether the patients
inappropriately admitted to VA hospitals had service-connected or
nonservice-connected disabilities, 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 in the discretionary care
category for outpatient care than for those in the mandatory care
category.\12

Similarly, while the anecdotes VA cites 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. 

Studies by the VA IG show limited enforcement of outpatient
eligibility provisions.  VA's IG estimated that over half of the
outpatient visits of veterans in the discretionary care category were
to receive services that were not covered under the veterans' VA
benefits.  This suggests that VA physicians are more likely to
"stretch" the outpatient benefit to provide crutches to veterans with
broken legs than to admit the veteran to the hospital for that
purpose. 


--------------------
\9 Better Patient Management Practices Could Reduce Length of Stay in
VA Hospitals (GAO/HRD-85-52, Aug.  8, 1985). 

\10 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. 

\11 Testimony before the Subcommittee on VA, HUD, and Independent
Agencies, Senate Committee on Appropriations, on March 8, 1996. 

\12 This is a limitation in how the study can be used, not a
deficiency in how the study was conducted. 


   PROPOSED BILLS WOULD ELIMINATE
   RESTRICTIONS ON OUTPATIENT
   ELIGIBILITY, BUT OTHER PROBLEMS
   WOULD CONTINUE
---------------------------------------------------------- Chapter 0:5

Eligibility reform proposals introduced during the past year would
eliminate the restrictions on veterans' access to outpatient care. 
In doing so, however, the proposals would likely generate significant
new demand for VA outpatient care services.  In addition, the bills
generally do not address the other provisions in current law that
contribute to inappropriate use of VA health care resources and
uneven access to health care services.  (See table 2.)



                                         Table 2
                         
                         Key Provisions of VA Eligibility Reform
                                        Proposals


                                          S. 1563                         H.R. 2491
                                          (veterans'      H.R. 1385       (House
                                          service         (Montgomery/    Veterans'
Key provisions            S. 1345 (VA)    organizations)  Edwards)        Affairs)
------------------------  --------------  --------------  --------------  --------------
Creates an entitlement    No              No              No              No
to VA care/guarantees
availability of care

Expands the number of     Yes             Yes             Yes             Yes
veterans in the
mandatory care category

Creates a uniform         Yes             Yes             Yes             Yes
benefit package/
eliminates obviate-the-
need provision

Reforms contracting       Yes             No              No              Yes
provisions

Other provisions          --Expands the   --Includes      --Requires VA   --Requires VA
                          definition of   nursing home    to provide      to establish a
                          covered         care as         veterans        system of
                          services to     mandatory       similar access  annual
                          include         service         regardless of   enrollment
                          virtually any   --Mandatory     their home      based on
                          necessary       care category   state           priorities for
                          inpatient or    would include   --Allows VA to  care
                          outpatient      catastrophical  use a system    --Creates a
                          care, drugs,    ly disabled     of enrollment   new category
                          supplies, or    veterans        and priorities  of priority
                          appliances      --Allows adult  for care        for
                          --Allows VA to  dependents to   --Allows VA to  catastrophical
                          retain a        become          retain a        ly disabled
                          portion of      eligible for    portion of      veterans
                          third-party     VA care,        third-party
                          recoveries      provided they   recoveries to
                                          reimburse VA    expand
                                          --Allows VA to  outpatient
                                          bill and        care
                                          retain
                                          collections
                                          from Medicare
----------------------------------------------------------------------------------------

      BILLS WOULD CREATE A UNIFORM
      BENEFIT PACKAGE
-------------------------------------------------------- Chapter 0:5.1

Each of the four major bills introduced during the past year would
create a uniform benefit package by eliminating the obviate-the-need
restriction on coverage of outpatient care.  The bills would make all
26 million veterans eligible for comprehensive outpatient services. 
In addition, the four bills would expand the number of veterans in
the mandatory care category for comprehensive outpatient care from
about 465,000 to 9 million to 11 million veterans. 

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. 


      OTHER MAJOR RESTRICTIONS NOT
      ADDRESSED IN MOST BILLS
-------------------------------------------------------- Chapter 0:5.2

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

  VA would continue to be unable to provide noncovered services
     directly to veterans under all of the bills.  Because all
     veterans would become eligible for comprehensive outpatient
     services, there would be fewer noncovered services. 

  Current restrictions on provision of dental, prenatal, and
     maternity care would not be changed under any of the proposals. 

  S.  1345 would remove the restriction on direct admission of
     veterans with no service-connected disabilities to community
     nursing homes. 

  All of the bills would retain the discretionary funding of VA
     health care.  H.R.  1385 would, however, require VA to ensure
     that veterans have reasonably similar access to VA health care
     regardless of where they live. 

  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. 

Appendix I contains a more detailed description of the major
provisions of the four bills. 


   ELIGIBILITY REFORM BILLS NOT
   LIKELY TO BE BUDGET NEUTRAL
---------------------------------------------------------- Chapter 0:6

By making all 26.4 million veterans eligible for comprehensive
outpatient care, the four bills 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. 

The bills would, however, provide little or no new sources of revenue
to offset the costs of the new services.  This would put increased
pressure on the Congress to appropriate funds to meet the health care
demands generated through eligibility expansions, particularly for
the 9 million to 11 million additional veterans who would be placed
in the mandatory care category for comprehensive outpatient benefits. 
Although VA and CBO arrived at strikingly different conclusions about
the budgetary effects of the bills, we find CBO's arguments more
compelling because they address the potential increased demand. 


      BILLS REPRESENT A MAJOR
      EXPANSION OF OUTPATIENT
      ELIGIBILITY
-------------------------------------------------------- Chapter 0:6.1

Under the four bills, 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.  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 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.\13 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 four bills would also
eliminate the restriction on provision of other prosthetic devices,
such as eyeglasses, contact lenses, and hearing aids.  H.R.  2491
would, however, give the Secretary of Veterans Affairs the authority
to restrict the provision of eyeglasses, contact lenses, and hearing
aids. 


--------------------
\13 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 0:6.2

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 impact
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. 

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. 

Finally, increased contracting with private sector providers closer
to veterans' homes could attract new users.  Both S.  1345 and H.R. 
2491 would expand VA's 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. 


      BILLS WOULD PROVIDE FEW NEW
      SOURCES OF REVENUES
-------------------------------------------------------- Chapter 0:6.3

Three of the bills--H.R.  2491, S.  1345, and S.  1563--would provide
new sources of revenue, but they would not offset the costs of
eligibility expansions.  The provisions in those bills, which would
allow VA to retain certain third-party recoveries, would not be used
to offset VA appropriations and therefore would not change the
budgetary impact of these reform proposals.  The bills essentially
assume that eligibility reform will not require new sources of
revenue because they will generate significant savings by making it
possible for VA to treat on an outpatient basis 20 to 40 percent of
veterans currently in VA hospitals.  These savings would then be used
to pay for the increased outpatient workload generated by the
patients diverted to outpatient care.  There is, however, little
evidence to suggest that eligibility reform alone will result in
significant numbers of veterans being diverted to outpatient care. 


      CONTROLLING BUDGETARY
      INCREASES WOULD BE DIFFICULT
-------------------------------------------------------- Chapter 0:6.4

Expanding the number of veterans in the mandatory care category while
retaining current resource constraints might force rationing of care
to veterans in the mandatory care group.  Expanding the mandatory
care category would place great pressure on the Congress to fully
fund services for veterans in the mandatory care category. 
Historically, the Congress has fully funded both VA's mandatory and
discretionary workload. 

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 exceedingly difficult for the Congress to
appropriate funds for the care of only a portion of the veterans in
the mandatory care category.  About 15 percent of veterans using VA
medical centers have no service-connected disabilities and have
incomes that place them in the discretionary care category for both
inpatient and outpatient care.  But VA does not differentiate between
services provided to veterans in the mandatory and discretionary care
categories in justifying its budget request.  As a result, the
Congress has little basis for determining which portion of VA's
discretionary workload to fund. 

Although two proposals (H.R.  2491 and H.R.  1385) propose
establishment of an enrollment process, such a process may jeopardize
VA's safety net mission.  Because low-income veterans are typically
the fourth highest priority for care in the proposed enrollment
process, 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 veterans. 

For example, under the new definition of health care in S.  1345,
veterans in the top three priority categories would be in the
mandatory care category for virtually any service offered by VA. 
Further, VA would be required to provide comprehensive care to about
3 million veterans previously eligible for limited outpatient care. 
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.\14

Only after the needs are met for the top three priority categories
could VA fund care for low-income veterans.  We are concerned that
sufficient funds might not be available to fulfill VA's safety net
mission after meeting the expanded demands for care of
higher-priority veterans.  Because most of the reform proposals do
not address the uneven availability of VA services, however, the
increased demand for care generated by eligibility expansions would
likely heighten the problems VA already faces in trying to equitably
distribute available resources. 


--------------------
\14 Other proposals generally would not provide a special status to
such "0 percent" veterans--those with noncompensable
service-connected disabilities. 


      CBO'S COST ESTIMATE IS MORE
      COMPELLING THAN VA'S
-------------------------------------------------------- Chapter 0:6.5

VA and CBO estimated the budgetary impact of H.R.  2491, the most
modest of the reform proposals, with strikingly different results: 

  VA concluded that because the bill was similar to the
     administration's proposal, it would be budget neutral,
     generating net savings of $268 million that could be reinvested
     to expand outpatient care or construct new facilities. 

  CBO estimated that the bill could add $3 billion or more to the
     deficit annually. 

A number of problems have been identified with both cost estimates
that reduce their usefulness in assessing the potential impact of the
bill on VA's budget.  We agree with CBO's overall conclusion,
however, that any broad expansion in benefits will generate
significant new demand for VA health care that could potentially add
billions to the budget deficit. 


         VA'S ESTIMATE IS BASED ON
         QUESTIONABLE ASSUMPTIONS
------------------------------------------------------ Chapter 0:6.5.1

VA did not adequately consider the increased demand for outpatient
care likely to be generated by the eligibility expansions,
incorrectly assumed a strong link between inappropriate admissions to
VA hospitals and VA eligibility provisions that would be addressed
through the reform proposals, and made a number of questionable
assumptions in its calculations. 

VA developed a complex formula for estimating the cost effects of
eligibility reform based on its overall assumption that eligibility
reform would enable it to divert 20 percent of its hospital patients
to outpatient care.  The results, however, are 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; and how eligibility reform would affect demand for
outpatient care.  We have the following concerns about VA's
assumptions or how they were used in VA's calculations of savings to
be realized from eligibility reforms: 

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. 

We agree that significant savings can accrue from shifting a sizable
portion of VA's inpatient services to other settings.  But we do not
believe that current eligibility provisions prevent VA from shifting
much of its current inpatient services to ambulatory care settings. 

The same obviate-the-need provision discussed earlier as making 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 a hospital admission.  The eligibility provisions,
for example, allow VA to perform cataract surgery on an outpatient
basis to obviate the need for inpatient care.  Accordingly, we do not
believe it would be appropriate to assume that the management
inefficiencies that have prevented VA from effectively implementing
the provision and shifting care to outpatient settings for over 20
years would be eliminated and the planned savings actually realized. 

Actions such as the preadmission certification program previously
discussed could, however, generate savings that could be used to
offset the costs of eligibility reform. 

An average of 7 days of hospital care would be saved for every
patient diverted to outpatient care.  This assumption is not 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. 
We believe 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. 

Changing the assumption about average length of stay dramatically
alters VA's savings estimates.  Substituting 3 days for VA's
assumption of a 7-day average length of stay would change VA's
projected savings of $268 million from eligibility reform into an
overall increase in VA costs of almost $167 million. 

Because the less sick patients would be shifted to outpatient care,
the costs of treating patients remaining in the hospital would
increase by 10 percent per admission.  Although VA's formula
originally included this adjustment, VA did not include the
calculation in its savings estimates.  Including this adjustment
would turn VA's projected savings of $268 million into a cost
increase of $51 million. 

An increase in demand would not occur for outpatient care 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.  2491
were designed to give VA added flexibility, not to attract new users. 
Although headquarters officials anticipate few new users, medical
centers are already aggressively pursuing new users. 


         CBO'S CONCLUSIONS APPEAR
         SOUND
------------------------------------------------------ Chapter 0:6.5.2

CBO estimated that the eligibility reform provisions of H.R.  2491
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.  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 assumes 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. 


   APPROACHES FOR DEVELOPING
   BUDGET- NEUTRAL ELIGIBILITY
   REFORMS
---------------------------------------------------------- Chapter 0:7

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
current reform proposals 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.  Three
basic approaches could be used, individually or in combination, to
develop budget-neutral eligibility reform.  These are (1) set limits
on covered benefits, (2) limit the number of veterans eligible for
health care benefits, and (3) generate increased revenues to pay for
expanded benefits.  Another approach would be to allow VA to
"reinvest" savings achieved through efficiency improvements in
expanded benefits. 


      SET LIMITS ON COVERED
      BENEFITS
-------------------------------------------------------- Chapter 0:7.1

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 to be reduced by the eliminated services to
offset the workload from increased demand for other services.  Like
private health insurers, VA could adjust the benefit package annually
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 this problem is 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 entitled to 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. 


      LIMIT THE NUMBER OF VETERANS
      ELIGIBLE FOR VA HEALTH CARE
-------------------------------------------------------- Chapter 0:7.2

Another way to develop budget-neutral 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 service, and income.  In practical application,
however, these priorities have little effect on the VA health care
system.  In 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.  Two of the reform bills
(H.R.  1385 and H.R.  2491) would authorize VA to control demand for
VA services through the use of priorities for care and an enrollment
process. 

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 service that should be
available regardless of alternate coverage or (2) a safety net
available only to those 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 VA users 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 could limit the potential "woodwork" effect 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 such 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. 


      GENERATE INCREASED REVENUES
-------------------------------------------------------- Chapter 0:7.3

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 0:7.3.1

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 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 pay for additional health care services. 

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.  Recoveries 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 0:7.3.2

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,
the proposals would not require VA to offset the recoveries against
its appropriation.  As a result, it would not affect VA's budget
request.  Authorizing VA recoveries from Medicare could, however,
further jeopardize the solvency of the Medicare trust fund and
increase overall federal health care costs.  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
strong 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 were 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
their private health insurance. 


         ALLOW VA TO RETAIN A
         PORTION OF THIRD-PARTY
         RECOVERIES
------------------------------------------------------ Chapter 0:7.3.3

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 not reduce VA's budget request and therefore would not generate
the revenues needed to offset the costs of expanded benefits.  Just
as allowing VA to retain Medicare recoveries would essentially result
in duplicate payments unless they 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 0:7.4

During the past 5 to 10 years, GAO, VA's IG, the Veterans Health
Administration, and others 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.  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. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 0:8

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, 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 clear competitive 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, the Congress has fully funded VA's mandatory and
discretionary care workload.  The four eligibility reform bills that
have been introduced could significantly increase demand for VA
health care services, putting pressure on the Congress to increase 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. 

If the Congress decides not to fully fund VA's anticipated 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 available through other programs. 

Eligibility reforms should 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 to develop
budget-neutral reforms 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. 


-------------------------------------------------------- Chapter 0:8.1

Mr.  Chairman, this concludes my prepared statement.  We will be
happy to answer any questions that you or other Members of the
Committee may have. 


   CONTRIBUTORS
---------------------------------------------------------- Chapter 0:9

For more information on this testimony, please call Jim Linz,
Assistant Director, at (202) 512-7110.  Terry Saiki,
Evaluator-in-Charge, also contributed to the preparation of the
statement. 


KEY PROVISIONS OF SELECTED
PROPOSALS TO REFORM ELIGIBILITY
FOR VA HEALTH CARE
=========================================================== Appendix I

This appendix contains a synopsis of the key provisions in the four
major eligibility reform bills introduced during the past year. 


   THE DEPARTMENT OF VETERANS
   AFFAIRS IMPROVEMENT AND
   REINVENTION ACT OF 1995
--------------------------------------------------------- Appendix I: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 eligibility reform provisions
would do the following: 

  Previous provisions covering hospital care, outpatient care,
     respite care, pharmaceuticals, supplies, equipment, appliances,
     and other material 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. 


      S.  1563
------------------------------------------------------- Appendix I:1.1

S.  1563 was introduced at the request of the veterans' service
organizations (VSO) 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;\15

  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. 


--------------------
\15 "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 I:2

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 RECONCILIATION ACT
   OF 1995
--------------------------------------------------------- Appendix I:3

In October 1995, the House approved a budget reconciliation package
(H.R.  2491) that contained a Veterans' Affairs Committee
proposal--the Veterans Reconciliation Act of 1995.  The bill would,
among other provisions, reform eligibility for VA health care to

  subject provision of care to amounts provided in advance in
     appropriations, thus retaining VA's discretionary funding;

  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;

  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;

  create a new category of priority for veterans who are
     catastrophically disabled; and

  expand VA contracting and sharing authority. 


RELATED GAO PRODUCTS
========================================================== Appendix II

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 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). 

Health Security Act:  Analysis of Veterans' Health Care Provisions
(GAO/HEHS-94-205FS, July 15, 1994). 

Veterans' Health Care:  Efforts to Make VA Competitive May Create
Significant Risks (GAO/T-HEHS-94-197, June 29, 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). 

VA Health Care:  Veterans' Efforts to Obtain Outpatient Care From
Alternative Sources (GAO/HRD-93-123, June 30, 1993). 


*** End of document. ***