Chairman Akaka, Senator Craig, Members of the Committee,

    It is a rare privilege to testify before the Committee today on the compelling need to reform VA health care funding.

    As former House Chairman, I deeply appreciate and respect all the work that this Committee has done and is doing to ensure that our men and women who have served in uniform have all of the benefits and services they need and have earned.

    No one on earth has done more to protect and preserve freedom, democracy, and fundamental human rights than our veterans. When the dust settles, it is the veteran and his or her family who bear the physical and emotional scars of war, for some it’s the ultimate price. A grateful nation must at all times and in every circumstance put veterans first.

    As we meet here this morning, the President’s Commission on Care for Returning Wounded Warriors is meeting with President Bush to provide its recommendations on how to improve the transition, health care, and benefits for injured servicemembers and veterans. I commend Senator Dole and Secretary Shalala and all the members of that Commission for their service and I look forward to reading their recommendations.

    However, unless we resolve the underlying funding problems that have plagued VA health care since at least 1990, I am not optimistic about the prospects of seeing any meaningful reforms implemented. Notwithstanding a potentially huge plus-up in the FY’08 VA Medical Appropriations—the funding mechanism remains broken.

    As I am sure most of you know, this is not the first commission or task force created to address problems in the delivery of care to injured and disabled servicemembers and veterans. In fact, it is not even the first one convened by President Bush.

    Four years ago, the President’s Task Force to Improve Health Care Delivery for Our Nation’s Veterans presented two dozen solid recommendations on how to resolve decades old problems of cooperation and collaboration between VA and DOD in order to improve health care. That Task Force, chaired by Dr. Gail Wilensky, who is also a member of the President’s new Commission, spent almost two years studying both the VA and DOD health care systems. Among that Commission’s key findings – even though it was not part of their original mandate – was the conclusion that, “the mismatch between funding for the VA health care system and the demand for services from enrolled veterans affects the delivery of timely health care...”

    Even a cursory look at the recent shortfalls in veterans health care funding shows that the “mismatch” remains a serious and vexing problem. Remember the summer of 2005? First $975 million had to be added for FY’05 only to be followed just one a month later by over a $1.9 billion increase for FY 2006. Unless we fix the funding process for VA health care, all efforts to improve its delivery will continue to be impeded, and worse, we risk new Walter Reed-like problems at VA facilities in the future.

    From 2001 through 2004, I had the honor of chairing the House Veterans’ Affairs Committee during a time when usage of the VA health care system rose dramatically. The consequence of expanding coverage and eligibility, the VA’s low co-payment for prescription drugs, and the huge growth in Community Based Outpatient Clinics made utilization skyrocket. If you build access points, men and women will use the system. It was—and is—a great news story.

    Thus, no single issue garnered more of the Committee’s attention than ensuring that VA received the funds it required to provide the services veterans needed. Both my good friend and Ranking Member, Lane Evans, and I spent hundreds of hours examining the Administration’s budget requests and made bipartisan recommendations to the Budget Committee, Appropriations Committee and all our colleagues at large, on the proper level of funding required to allow VA to faithfully discharge its functions. We began not with the Administration’s budget submission, but rather with VA’s “full demand model”, which is its internal projection of the level of funding needed each year, based upon their latest actuarial and cost data.

    Our analysis showed that VA’s full demand model was extraordinarily accurate. However, the process that occurs along the way from VA’s internal estimate to the President’s budget submission to final Congressional appropriations is one that often replaces sound data and prudent policy with other agendas.

    As a result, VA’s budget requests—under both Presidents Clinton and Bush—have often been lackluster, deficient and infirm. Virtually every year Congress has had to add millions, sometimes billions, of dollars to the Administration’s request. Compounding the problem, Congress’ budget and appropriations process has been consistently late and totally unpredictable.

    It is astonishing to me that since 1990, sixteen of the eighteen VA appropriations were late—on two occasions 5 months late, once 7 months late. How can the Secretary, VISN directors and medical directors plan and execute delivery of medical services under those adverse circumstances?

    No one can honestly look at and dispute the evidence that VA’s health care funding has been woefully inadequate. Persistent shortfalls have resulted in long waiting times, a cutoff for Priority 8 veterans, and very public and embarrassing admissions by the last two Secretaries that budget requests were sometimes a billion dollars less than needed.

    There has also been an array of budget gimmicks routinely employed to cover these shortfalls—such as billions of dollars of so-called “savings” through which is euphemistically called “management efficiencies” and overly rosy expectations of third party collections that never materialized, as well as repetitive and unrealistic annual policy proposals to shift the cost of care to veterans with new user fees and co-payment increases.

    A GAO analysis done last year of the VA health care budget process concluded that:

            “Unrealistic assumptions, errors in estimate, and insufficient data were key 
            factors in VA’s budget formulation process that contributed to the requests 
            for additional funding for fiscal years 2005 and 2006.”

    Moreover, GAO concluded that:

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

    In plain English, when VA’s internal estimates of what it would cost to provide health care services to veterans was greater than the amount of budget authority that OMB designated for VA health care, they plugged it with unspecified “management efficiencies.” And during the four years I was Chairman, despite repeated requests, VA failed to document any significant savings through these so-called efficiencies, much less the billions of dollars they purported to save.

    The effect on VA has been extremely harmful, leading to huge management and staffing problems, as well as construction funding shortfalls that threaten VA’s physical infrastructure. The VA health care system—a system that has been hailed as the best health care in America by authoritative studies and leading publications—could be threatened if we do not correct the underlying funding problems.

    That’s the very same conclusion that the President’s Task Force came to back in 2003 when they recommended a “full funding” system, and offered two alternatives: a mandatory funding system; or the establishment of an independent panel of experts charged with submitting the Administration’s request absent OMB vetting and veto.

    In the summer of 2002, I introduced legislation HR 5250 to move VA’s health care funding from a discretionary system—which is subject to political forces in both Congress and the Administration—to one that is mandatory and driven by formula measuring demand for care and the cost of care. Opposition to new entitlement spending in the House however was strong and there were admittedly potential weaknesses in this approach. But our goal was to jumpstart the debate, to ensure full funding that is predictable and delivered on time.

    In 2005, and again this year, I have introduced another bill, HR 1041, based upon the second model offered by the President’s Task Force. My current bill would create an independent, expert panel—the Veterans Health Care Funding Review Board—to determine the level of funding required to meet projected demand with accepted access standards. The Board’s estimate would bypass OMB and be submitted to Congress as the Administration’s budget request. Although Congress would still have discretion to adjust that amount either up or down, the imprimatur of an impartial and expert body would make it very hard from a political standpoint to go below the Board’s spending floor, although further increases would certainly be possible.

    Despite some drawbacks in both approaches, I believe that either of these bills—or perhaps a hybrid of both or perhaps some other alternative—would be a dramatic improvement over the status quo.

    Mr. Chairman, while the aggregate number of veterans is likely to decline, the number of veterans who rely on VA continues to rise, and this trend is likely to continue over the next decade. Furthermore, with the devastating types of injuries being suffered in war today, and the long term care needs of so many veterans on the rise, we must ensure that the VA continues to provide world class medicine far into the future. 

    I want to commend this Committee for holding this hearing on this most important issue and I urge you to move forward with recommendations for a systemic reform of VA’s health care funding system that provides sufficient, timely, and predicable funding.