(PDF provides a complete and accurate display of this text.)
105th Congress Report 105-186
HOUSE OF REPRESENTATIVES
1st Session Part I
VETERANS MEDICARE REIMBURSEMENT DEMONSTRATION ACT OF 1997
July 16, 1997.--Ordered to be printed
Mr. Stump, from the Committee on Veterans' Affairs, submitted the
R E P O R T
[To accompany H.R. 1362, as amended]
[Including cost estimate of the Congressional Budget Office]
The Committee on Veterans' Affairs, to whom was referred the
bill (H.R. 1362) to establish a demonstration project to
provide for Medicare reimbursement for health care services
provided to certain Medicare-eligible veterans in selected
facilities of the Department of Veterans Affairs, having
considered the same, reports favorably thereon with an
amendment in the nature of a substitute and recommends that the
bill as amended do pass.
The amendment in the nature of a substitute reads as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Veterans Medicare Reimbursement
Demonstration Act of 1997''.
SEC. 2. ESTABLISHMENT OF MEDICARE REIMBURSEMENT DEMONSTRATION PROJECT.
(1) In general.--The Secretary of Veterans Affairs and the
Secretary of Health and Human Services shall jointly carry out
a demonstration project under which the Secretary of Health and
Human Services provides the Department of Veterans Affairs with
reimbursement, determined in accordance with section 4, from
the medicare program for health care services provided to
targeted medicare-eligible veterans in or through medical
centers of the Department of Veterans Affairs selected under
(2) Duration.--The Secretaries shall conduct the
demonstration project during the three-year period beginning on
January 1, 1998. The Secretaries may extend such project for an
additional period of up to two years.
(3) Authority to waive certain medicare requirements.--The
Secretary of Health and Human Services may, to the extent
necessary to carry out the demonstration project, waive any
requirement of part B of title XI of the Social Security Act,
title XVIII of that Act, or a related provision of law.
(b) Selection of Participating Medical Centers.--
(1) In general.--The Secretary, in consultation with the
Secretary of Health and Human Services, shall establish a plan
for the selection of up to 12 medical centers under the
jurisdiction of the Secretary and located in geographically
dispersed locations to participate in the project.
(2) General criteria.--The selection plan shall favor
selection of those medical centers that are suited to serve
targeted medicare-eligible individuals because--
(A) there is a high potential demand by targeted
medicare-eligible veterans for their services;
(B) they have sufficient capability in billing and
accounting to participate;
(C) they have favorable indicators of quality of
care, including patient satisfaction;
(D) they deliver a range of services required by
targeted medicare-eligible veterans; and
(E) they meet other relevant factors identified in
(3) Medical center near closed base.--There shall be at least
one medical center selected that is in the same catchment area
as a military medical facility which was closed pursuant to
either of the following laws:
(A) The Defense Base Closure and Realignment Act of
1990 (part A of title XXIX of Public Law 101-510; 10
U.S.C. 2687 note).
(B) Title II of the Defense Authorization Amendments
and Base Closure and Realignment Act (Public Law 100-
526; 10 U.S.C. 2687 note).
(c) Voluntary Participation.--Participation of targeted medicare-
eligible veterans in the demonstration project shall be voluntary,
subject to the capacity of participating medical centers and the
funding limitations specified in section 4, and shall be subject to
such terms and conditions as the Secretary may establish. In the case
of a demonstration project at a medical center described in subsection
(b)(3), targeted medicare-eligible veterans who are military retirees
shall be given preference in participating in the project.
(d) Cost Sharing.--The Secretary shall establish cost-sharing
requirements for veterans participating in the demonstration project.
Those requirements shall be the same as the requirements that apply to
targeted medicare-eligible patients at nongovernmental facilities.
(e) Crediting of Payments.--A payment received by the Secretary under
the demonstration project shall be credited to the applicable
Department of Veterans Affairs medical appropriation and (within that
appropriation) to funds that have been allotted to the medical center
that furnished the services for which the payment is made. Any such
payment received during a fiscal year for services provided during a
prior fiscal year may be obligated by the Secretary during the fiscal
year during which the payment is received.
SEC. 3. USE OF MANAGED HEALTH CARE PLAN.
(a) Managed Health Care Plans.--(1) In carrying out the demonstration
project, the Secretary may establish and operate managed health care
(2) Any such plan shall be operated by or through a Department of
Veterans Affairs medical center or group of medical centers and may
include the provision of health care services through other facilities
under the jurisdiction of the Secretary as well as public and private
entities under arrangements made between the Department and the other
public or private entity concerned. Any such managed health care plan
shall be established and operated in conformance with standards
prescribed by the Secretaries.
(3) The Secretary shall prescribe the minimum health care benefits to
be provided under such a plan to veterans enrolled in the plan. Those
benefits shall include at least all health care services covered under
the medicare program.
(4) The establishment of a managed health care plan under this
section shall be counted as the selection of a medical center for
purposes of applying the numerical limitation under section 2(b)(1).
(b) Medical Center Requirements.--The Secretary may establish a
managed health care plan using one or more medical centers and other
facilities only after the Secretary submits to Congress a report
setting forth a plan for the use of such centers and facilities. The
plan may not be implemented until the Secretary has received from the
Inspector General of the Department of Veterans Affairs, and has
forwarded to Congress, certification of each of the following:
(1) The cost accounting system of the Veterans Health
Administration (known as the Decision Support System) is
operational and is providing reliable cost information on care
delivered on an inpatient and outpatient basis at such centers
(2) The centers and facilities have operated in conformity
with the eligibility reform amendments made by title I of the
Veterans Health Care Act of 1996 (Public Law 104-262) for not
less than three months.
(3) The centers and facilities have developed a credible plan
(on the basis of market surveys, data from the Decision Support
System, actuarial analysis, and other appropriate methods and
taking into account the level of payment under section 4 and
the costs of providing covered services at the centers and
facilities) to minimize, to the extent feasible, the risk that
appropriated funds allocated to the centers and facilities will
be required to meet the centers' and facilities' obligation to
targeted medicare-eligible veterans under the demonstration
(4) The centers and facilities collectively have available
capacity to provide the contracted benefits package to a
sufficient number of targeted medicare-eligible veterans.
(5) The entity administering the health plan has sufficient
systems and safeguards in place to minimize any risk that
instituting the managed care model will result in reducing the
quality of care delivered to enrollees in the demonstration
project or to other veterans receiving care under subsection
(a)(1) or (a)(2) of section 1710 of title 38, United States
(c) Reserves.--The Secretary shall maintain such reserves as may be
necessary to ensure against the risk that appropriated funds, allocated
to medical centers and facilities participating in the demonstration
project through a managed health care plan under this section, will be
required to meet the obligations of those medical centers and
facilities to targeted medicare-eligible veterans.
SEC. 4. DETERMINATION OF REIMBURSEMENT AMOUNTS.
(a) Payments Based on 95 Percent of Regular Medicare Payment Rates.--
(1) In general.--Subject to the succeeding provisions of this
section, the Secretary of Health and Human Services shall
reimburse the Secretary of Veterans Affairs for services
provided under the demonstration project at the following
(A) Non-capitation.--Except as provided in
subparagraph (B) and subject to paragraphs (2)(A) and
(4), at a rate equal to 95 percent of the amounts that
otherwise would be payable under the medicare program
on a non-capitated basis for such services if the
medical center were not a Federal medical center, were
participating in the program, and imposed charges for
(B) Capitation.--Subject to paragraphs (2)(B) and
(4), in the case of services provided to an enrollee
under a managed health care plan established under
section 3, at a rate equal to 95 percent of the payment
rate otherwise applicable under a risk-sharing contract
under section 1876 of the Social Security Act (42
U.S.C. 1395mm) with respect to such an enrollee.
In cases in which a payment amount may not otherwise be readily
computed, the Secretaries shall establish rules for computing
equivalent or comparable payment amounts.
(2) Exclusion of certain amounts.--
(A) Noncapitation.--In computing the amount of
payment under paragraph (1)(A), the following shall be
(i) Disproportionate share hospital
adjustment.--Any amount attributable to an
adjustment under subsection (d)(5)(F) of
section 1886 of the Social Security Act (42
(ii) Direct graduate medical education
payments.--Any amount attributable to a payment
under subsection (h) of such section.
(iii) Percentage of indirect medical
education adjustment.--40 percent of any amount
attributable to the adjustment under subsection
(d)(5)(B) of such section.
(iv) Percentage of capital payments.--67
percent of any amounts attributable to payments
for capital-related costs under subsection (g)
of such section.
(B) Capitation.--In computing the amount of payment
under paragraph (1)(B), the payment rate shall be
computed as though the amounts excluded under
subparagraph (A) had been excluded in the determination
of the adjusted average per capita cost under section
1876(a)(4) of the Social Security Act (42 U.S.C.
(3) Periodic payments from medicare trust funds.--Payments
under this section shall be made--
(A) on a periodic basis consistent with the
periodicity of payments under the medicare program; and
(B) in appropriate part, as determined by the
Secretary of Health and Human Services, from the
Federal Hospital Insurance Trust Fund and the Federal
Supplementary Medical Insurance Trust Fund.
(4) Annual limit on medicare payments.--The amount paid to
the Department of Veterans Affairs under this section for any
year for the demonstration project may not exceed $50,000,000,
of which not more than $10,000,000 may be for the conduct of
the project through managed health care plans under section 3..
(b) Reduction in Payment for VA Failure to Maintain Effort.--
(1) In general.--In order to avoid shifting onto the medicare
program costs previously assumed by the Department of Veterans
Affairs for the provision of medicare-covered services to
targeted medicare-eligible veterans, the payment amount under
this section for the project for a fiscal year shall be reduced
by the amount (if any) by which--
(A) the amount of the VA effort level for targeted
veterans (as defined in paragraph (2)) for the fiscal
year ending in such year, is less than
(B) the amount of the VA effort level for targeted
veterans for fiscal year 1997.
(2) VA effort level for targeted veterans defined.--For
purposes of paragraph (1), the term ``VA effort level for
targeted veterans'' means, for a fiscal year, the amount, as
estimated by the Secretaries, that would have been expended
under the medicare program for VA-provided medicare-covered
services for targeted veterans (as defined in paragraph (3))
for that fiscal year if benefits were available under the
medicare program for those services. Such amount does not
include expenditures attributable to services for which
reimbursement is made under the demonstration project.
(3) VA-provided medicare-covered services for targeted
veterans.--For purposes of paragraph (2), the term ``VA-
provided medicare-covered services for targeted veterans''
means, for a fiscal year, items and services--
(A) that are provided during the fiscal year by the
Department of Veterans Affairs to targeted medicare-
(B) that constitute hospital care and medical
services under chapter 17 of title 38, United States
(C) for which benefits would be available under the
medicare program if they were provided other than by a
Federal provider of services that does not charge for
(c) Assuring No Increase in Cost to Medicare Program.--
(1) Monitoring effect of demonstration program on costs to
(A) In general.--The Secretaries, in consultation
with the Comptroller General, shall closely monitor the
expenditures made under the medicare program for
targeted medicare-eligible veterans during the period
of the demonstration project compared to the
expenditures that would have been made for such
veterans during that period if the demonstration
project had not been conducted.
(B) Annual report by the comptroller general.--Not
later than December 31 of each year during which the
demonstration project is conducted, the Comptroller
General shall submit to the Secretaries and the
appropriate committees of Congress a report on the
extent, if any, to which the costs of the Secretary of
Health and Human Services under the medicare program
increased during the preceding fiscal year as a result
of the demonstration project.
(2) Required response in case of increase in costs.--
(A) In general.--If the Secretaries find, based on
paragraph (1), that the expenditures under the medicare
program increased (or are expected to increase) during
a fiscal year because of the demonstration project, the
Secretaries shall take such steps as may be needed--
(i) to recoup for the medicare program the
amount of such increase in expenditures; and
(ii) to prevent any such increase in the
(B) Steps.--Such steps--
(i) under subparagraph (A)(i) shall include
payment of the amount of such increased
expenditures by the Secretary from the current
medical care appropriation of the Department of
Veterans Affairs to the trust funds under the
medicare trust program; and
(ii) under subparagraph (A)(ii) shall include
suspending or terminating the demonstration
project (in whole or in part) or substitution
of a lower percentage for 95 percent under
SEC. 5. PRIOR NOTICE TO CONGRESS.
The Secretary may not carry out the demonstration project at a
medical center (either on a fee basis under section 2 or under a
managed health care plan under section 3) until 30 days after the date
on which the Secretary submits to Congress a report on the Secretary's
plans for the selection of medical centers and on the rationale for the
medical centers selected.
SEC. 6. EVALUATION AND REPORTS.
(a) Ongoing Evaluation and Annual Reports by Independent Entity.--
(1) Ongoing evaluation.--The Secretaries shall arrange for an
independent entity with expertise in the evaluation of health
services to conduct an ongoing evaluation of the demonstration
(2) Annual reports.--The entity shall submit a report on the
project jointly to the Secretaries and to the appropriate
committees of the Congress not later than March 1 following
each year during which the project is conducted.
(3) Assessment.--Each such report shall include the results
of the ongoing evaluation under paragraph (1), including an
assessment of each of the following:
(A) The cost to the Department of Veterans Affairs of
providing care to veterans under the project.
(B) Compliance of participating medical centers with
applicable measures of quality of care, compared to
such compliance for other medicare-participating
(C) A comparison of the costs of medical centers'
participation in the program with the reimbursements
provided for services of such medical centers.
(D) Any savings or costs to the medicare program from
(E) Any change in access to care or quality of care
for targeted medicare-eligible veterans participating
in the project.
(F) Any effect of the project on the access to care
and quality of care for targeted medicare-eligible
veterans not participating in the project and other
veterans not participating in the project.
(G) The provision of services under managed health
care plans under section 3, including the circumstances
(if any) under which the Secretary uses reserves
described in section 3(d) and the Secretary's response
to such circumstances (including the termination of
managed health care plans requiring the use of such
(b) Report on Extension and Expansion of Demonstration Project.--Not
later than six months after the date of the submission of the
penultimate report under subsection (a), the Secretaries shall submit
to the Congress a report containing their recommendation as to--
(1) whether to extend the demonstration project (in addition
to the extension authorized under section 2(a)(2)) or make the
(2) whether to expand the project to cover additional sites
and areas and to increase the maximum amount of reimbursement
(or the maximum amount of reimbursement permitted for managed
health care plans under section 3) under the project in any
(3) whether the terms and conditions of the project should be
continued (or modified) if the project is extended or expanded.
SEC. 7. DEFINITIONS.
For the purpose of this Act:
(1) Demonstration project; project.--The terms
``demonstration project'' and ``project'' mean the
demonstration project carried out under section 2(a).
(2) Medicare program.--The term ``medicare program'' means
the programs of health benefits provided under title XVIII of
the Social Security Act (42 U.S.C. 1395 et seq.).
(3) Military retiree.--The term ``military retiree'' means a
member or former member of the Armed Forces who is entitled to
(4) Secretary; secretaries.--Unless otherwise provided, the
term ``Secretary'' means the Secretary of Veterans Affairs and
the term ``Secretaries'' means the Secretary of Veterans
Affairs and the Secretary of Health and Human Services acting
(5) Targeted medicare-eligible veteran.--The term ``targeted
medicare-eligible veteran'' means an individual who--
(A) is a veteran (as defined in section 101(2) of
title 38, United States Code) and is described in
section 1710(a)(3) of title 38, United States Code; and
(B) is entitled to hospital insurance benefits under
part A of the medicare program and is enrolled in the
supplementary medical insurance program under part B of
the medicare program.
On September 12, 1996, the Honorable Bob Stump, Chairman of
the House Veterans' Affairs Committee, was joined by the
Honorable G.V. (Sonny) Montgomery, the Honorable Floyd Spence,
the Honorable Lane Evans, the Honorable Terry Everett, the
Honorable Chet Edwards, the Honorable Steve Buyer, the
Honorable Frank Tejeda, and the Honorable Joel Hefley in the
introduction of H.R. 4068, legislation to establish a
demonstration project to provide that the Department of
Veterans Affairs may receive Medicare reimbursement for health
care services provided to certain Medicare-eligible veterans.
On September 18, 1996, the Committee on Veterans' Affairs
ordered H.R 4068 reported amended to the full House by a vote
of 17-0. The Ways and Means Committee, which had primary
jurisdiction, heard testimony on the bill. No further action
was taken on the bill in the 104th Congress.
On April 17, 1997, the Honorable Bob Stump, Chairman of the
House Veterans' Affairs Committee, was joined by the Honorable
Lane Evans, the Honorable Cliff Stearns, the Honorable Luis
Gutierrez, the Honorable Chris Smith, the Honorable Joe
Kennedy, the Honorable Terry Everett, the Honorable Bob Filner,
the Honorable Jack Quinn, the Honorable Jim Clyburn, the
Honorable Dan Schaefer, the Honorable Corrine Brown, the
Honorable Jerry Moran, the Honorable Peter Doyle, the Honorable
John Cooksey, the Honorable Frank Mascara, the Honorable Asa
Hutchinson, the Honorable Collin Peterson, the Honorable Helen
Chenoweth, the Honorable Julia Carson, the Honorable Ray
LaHood, the Honorable Silvestre Reyes, the Honorable J.D.
Hayworth, the Honorable Vic Snyder and the Honorable Bill
Barrett in the introduction of H.R. 1362, legislation to
establish a demonstration project to provide for Medicare
reimbursement for health care services provided to certain
Medicare-eligible veterans in selected facilities of the
Department of Veterans Affairs.
The Subcommittee on Health met on May 8, 1997 to hear
expert testimony on three pieces of legislation, including H.R.
1362, the Veterans' Medicare Reimbursement Demonstration Act of
1997. Testifying on H.R. 1362 at the hearing were Mr. Paul Van
de Water, Assistant Director for Budget Analysis at the
Congressional Budget Office; Dr. Kenneth Kizer, Under Secretary
for Health at the Department of Veterans Affairs; Ms. Kathleen
Buto, Associate Administrator for Policy at the Health Care
Financing Administration; Mr. John Vitikacs, Assistant Director
of the National Veterans Affairs and Rehabilitation Commission
of the American Legion; Mr. Dennis Cullinan, Deputy Director
for National Legislative Service of the Veterans of Foreign
Wars; Colonel Charles Partridge, Legislative Counsel for the
National Military and Veterans Alliance; Mr. Chuck Burns,
National Service Director of AMVETS; Ms. Kelly Willard West,
Director of Government Relations of the Vietnam Veterans of
America; Mr. John Bollinger, Deputy Executive Director of the
Paralyzed Veterans of America; and Mr. Larry Rhea, Deputy
Director of Legislative Affairs of the Non Commissioned
On May 15, 1997, the Subcommittee on Health met and ordered
H.R. 1362 reported favorably to the full Committee by unanimous
voice vote with an amendment in the nature of a substitute.
On May 21, 1997, the full Committee met and ordered H.R.
1362, as amended, reported favorably to the House by unanimous
Summary of the Reported Bill
H.R. 1362, as amended, would:
1. LCreate a three-year demonstration project in up to 12
geographically dispersed VA medical centers allowing the VA to
be reimbursed by Medicare for the care of certain category C
2. LProvide that Medicare payments be capped at $50 million
annually; of that amount, a managed care component would be
limited to $10 million, and care furnished under the
traditional fee-for-service model could not exceed $40 million.
3. LSpecify that VA may implement a managed care component
only after submitting a plan on proposed demonstration sites to
include certifications from its Inspector General that the
participating facilities have: (1) a reliable cost-accounting
system in place; (2) implemented eligibility reform; (3)
developed a plan on the basis of market surveying, actuarial
analysis, and other business techniques; to minimize the risk
that appropriated funds will be needed to subsidize the
demonstration; (4) the capacity to provide the contracted
benefits package; and (5) sufficient systems and safeguards in
place to ensure provision of high-quality care.
4. LSpecify criteria for selecting demonstration sites, and
require that at least one site would be near a military medical
facility which had closed under the base realignment and
closure process, with military retirees having preference for
participation at that site or sites.
5. LRequire VA to maintain its current level of services to
Medicare-eligible veterans and effectively limit payments to
the additional episodes above that baseline level.
6. LProvide that the Secretaries of the Departments of
Health and Human Services and Veterans Affairs monitor
expenditure levels during the project in relation to
expenditures that would have been made but for the project, and
provide for annual audits by the Comptroller General to ensure
that Medicare is not incurring additional costs.
7. LProvide for adjusting payment rates, or shrinking or
terminating the program, at any point if Medicare costs rise
under the demonstration.
8. LAuthorize reimbursement at 95 percent of otherwise
9. LEstablish a rigorous evaluation of the program by
Background and Discussion
The Medicare Program
Created in 1965, the Medicare program, title XVIII of the
Social Security Act, is a statutory entitlement for health
insurance coverage for the aged and certain disabled persons.
Those 65 years of age or older and eligible for Social Security
or railroad retirement cash benefits are automatically entitled
to hospital insurance under Medicare Part A, which is financed
by payroll taxes. Part A provides coverage for inpatient
hospitalization, up to 100 days of post-hospital skilled
nursing home care, home health services, and hospice care.
Physician and outpatient services are provided under Medicare
Part B, which is financed through a combination of payments by
beneficiaries who elect to enroll and general revenues.
Some 88 percent of the 38 million Medicare beneficiaries
obtain services under a fee-for-service system through
providers of their choice, with Medicare making payment for
each service rendered. Payments for inpatient hospital services
are made in accordance with a prospective payment system with
rates based on the patient's diagnosis. Payments for
physicians' services are based on a fee schedule.
Under Medicare's risk contract program, Medicare pays
participating health maintenance organizations a predetermined
monthly ``capitation'' payment for each Medicare enrollee,
regardless of the amount of care provided. The payments equal
95 percent of the estimated adjusted average per capita cost
(AAPCC) of providing Medicare services to a given beneficiary
under the fee-for-service-system. The HMO must provide any
needed services offered under its contract, regardless whether
it can do so within the capitation payment. Managed care plans
participating in the Medicare program are required to offer
beneficiaries either benefits in addition to those available to
beneficiaries who opt for fee-for-service care or lower cost-
VA and the Medicare Program
Provisions of Medicare law (codified at section 1395f(c )
of title 42, United States Code) specify that no Medicare
payments may be made to a Federal provider of services, except
a provider which the Secretary determines is providing services
to the public generally as a community institution or agency,
and no payment may be made to any provider for services which
the provider is obligated by law to render at public expense. A
narrow exception to that policy, in section 8153(d) of title
38, United States Code, requires that VA be reimbursed by
Medicare (notwithstanding any condition, limitation, or other
provision in title XVIII) when it provides services to
Medicare-covered individuals who are not eligible for care
under chapter 17 of title 38 and who are afforded VA care or
services under a ``sharing'' agreement. Under existing law,
therefore, although many of its patients are Medicare-eligible,
VA may not seek payment from the Medicare program when it
provides care to a Medicare-covered veteran.
Eligible veterans who cannot gain access to VA care
VA's obligation to provide care to eligible veterans is
effective ``only to the extent and in the amount provided in
advance in appropriations Acts for such purposes.'' 38 USC
section 1710(a)(4). Eligibility reforms enacted in 1996
established priorities for categories of eligible veterans to
govern their relative standing for registration or enrollment
for VA care. VA may enroll only such numbers of veterans as it
can reasonably expect to be able to treat within available
funds. Service-connected veterans rated 10 percent or more
disabled have highest priority for enrollment. This statutory
priority system assigns its lowest priority to veterans who
have no other special eligibility status and whose incomes
exceed a statutory ``means test'' (that is, income above
$21,610 in the case of an individual with no dependents).
While eligible for VA care subject to co-payment
requirements, so-called ``category C'' veterans have generally
been denied access to VA care because the system lacks
resources to treat them. Authorizing VA to collect and retain
Medicare reimbursement for Medicare-covered services provided
higher-income dual-eligible veterans would allow VA to provide
care to more of these veterans.
The VA medical care appropriation has generally been
sufficient only to enable VA to serve veterans in high-priority
classifications (notably, the service-connected disabled, those
with limited financial means, and such special cohorts as
former prisoners of war and Persian Gulf veterans).
Nevertheless, some individual VA facilities have had capacity
to provide some level of services to higher-income veterans.
Current Level of Effort
VA has estimated that in Fiscal Year 1996 it would treat
some 34,200 Medicare-eligible ``category C'' veterans who were
at least 65 years old and another 5,300 whose Medicare
eligibility is based on disability. While VA information
systems do not provide a basis to ascertain with precision the
extent to which it has subsidized Medicare in treating dual
eligible veterans, VA does have substantial data. In a 1995
analysis, the Veterans Health Administration identified VA
facilities which in 1994 were treating the greatest number of
individual dual-eligible category C veterans. Northport, NY;
Hines, IL; and Amarillo, TX VA Medical Centers saw the greatest
number of individual patients, while Hines, West Los Angeles,
and Northport treated more veterans on an inpatient basis than
other VA facilities. Of the 25 sites serving the greatest
number of these dual-eligible, category C veterans, almost one-
third (8) were in the Northeast. A VA draft report on this
analysis indicates that most of these inpatients were seen for
mental disturbances or illness (the most frequent diagnosis
related groups include organic disturbances and mental
retardation, degenerative nervous system disorders, and
psychoses). The most common surgical procedures these veterans
received were cystoscopy, cataract surgery, and transurethral
prostatectomy. Outpatient services most frequently provided
these veterans included nursing care, general internal
medicine, and laboratory services.
The General Accounting Office, in a 1994 report,
``Veterans' Health Care: Use of VA Services by Medicare-
Eligible Veterans (GAO/HEHS)'' reviewed FY 1990 data to
determine the types of care Medicare-eligible veterans sought
at VA. GAO examined inpatient and outpatient services,
including prescription drugs (for which Medicare does not
provide coverage). While it considered income, the report did
not attempt to differentiate between Category A and C veterans.
The study found that Medicare-eligible veterans tended to use
VA for services or products for which Medicare provided little
or no reimbursement such as prescription drugs. Dual users
obtained almost as many drugs from VA as veterans who only used
VA for care. The report also found that VA users used slightly
fewer audiology services (which Medicare does not reimburse)
than dual users, but slightly more optometry and dental
services (also benefits Medicare does not cover). The report
also notes that VA is an important source of inpatient
psychiatric care and nursing home care (services for which
Medicare provides limited reimbursement under certain
Health Care Reform Within the VA
The VA health care system is a vertically integrated
delivery system, and this ability to provide veterans with a
full continuum of health care services makes VA a unique
provider. While VA had long seemed a relatively static hospital
based system, VA health care is undergoing major changes in
delivery systems, organization, and management philosophy.
These changes, which have accelerated in the last two years,
have included a shift in much of VA care from inpatient to
outpatient settings. With accompanying decentralization of
decisionmaking, downsizing of VA's workforce and its middle-
management layer, and consolidation of numbers of its medical
centers, VA is becoming a more cost-effective provider. At the
same time, VA is seeking to improve its service-delivery and
the level of its beneficiaries' satisfaction with VA care. VA
is also increasing its number of community-based outpatient
clinics to make care more accessible and reduce the cost of
care-delivery. It is also attempting to improve case management
and continuity of care by assigning each veteran to a primary
In its May 1997 report to Congress, entitled ``Journey of
Change'', on its national strategic plan, VA states that, as of
October 1996, 97 percent of its facilities had developed
primary care teams, and that 53 percent of its patients had
enrolled in primary care as of September 30, 1996. All of its
networks had implemented utilization management programs to
increase the efficiency and appropriateness with which services
are provided and resources used. VA describes its shift to
managed care as a major strategy to transform its delivery
system, and reports that accordingly, it is developing and
implemented clinical guidelines for treating specific health
problems. Guidelines for treating stroke, amputation, ischemic
heart disease, major depression disorder, and major depression
with post traumatic stress disorder were implemented in fiscal
year 1996. VA plans to disseminate another 12 clinical practice
guidelines this year.
While VA's shift to outpatient care, primary care, and
increasingly more convenient access appear to be markedly
improving its ``customer service'', relatively few higher
income veterans are likely to benefit from these changes.
Although VA seeks to increase the numbers of veterans it
treats, it is unlikely, given current law and a constrained
budget, that the VA health care system can expand significantly
the numbers of these veterans it serves. To the contrary, one
might anticipate that the numbers served would, in fact,
decline. The new access criteria established in the Veterans'
Health Care Eligibility Reform Act of 1996 (Public Law 104-
262), for example, may alter facilities' abilities to deliver
care to some of these prior users. That law assigns higher
income veterans the lowest priority for enrollment. VA medical-
care budgets which do not keep pace with inflation will, in
general, reduce VA's capability to serve veterans whose
eligibility for care is based on the availability of resources.
Moreover, VA is also changing the way individual facilities
have been funded. Funds are now distributed to networks based
on the type and number of individuals served; network directors
are free to distribute funds to the facilities in their
catchment area. Facilities which had provided care to higher-
income veterans in the past, may be struggling for resources
today under the new resource allocation methodology.
Rationale for H.R. 1362
Many of these considerations have for some time led this
Committee--as well as Medicare-eligible higher-income
veterans--to urge that they be offered greater choice under the
Medicare program. The VA health care system, which is otherwise
largely closed to them as veterans because of funding
constraints, should not also be closed to them as Medicare
beneficiaries, particularly not if such access would be
beneficial both to VA and the Medicare program.
This Committee proposed legislation in the 104th Congress
to mount a demonstration project that would permit certain
veterans to use Medicare benefits in the VA and also require
that VA accept a discounted reimbursement rate. It has been
this Committee's view that the Medicare program, VA, and these
veterans can all benefit from establishing VA as a choice for
category C, Medicare-covered veterans. Given fiscal pressures
on the Medicare trust funds, it has been proposed that this
concept be implemented on a limited basis through a
demonstration program so that its underlying assumptions can be
tested. H.R. 1362, as amended, would provide for such a test.
Allowing VA to collect and retain Medicare funds would
allow VA to provide care to a greater number of veterans. To
the extent that VA can serve Medicare beneficiaries without
needing to expand its staffing or other overhead costs,
Medicare reimbursement will bring down VA's cost of care per
patient. (VA has articulated a strategic goal of cutting costs
per individual patient by 30 percent; increasing veterans'
access to health care by 20 percent; and relying on non-
appropriated funds for 10 percent of funding.)
The Reported Bill
H. R. 1362, as amended, would for the first time allow
certain Medicare-eligible veterans to elect VA as their
Medicare-provider. This legislation would authorize the
Department to establish a three-year test program to
demonstrate that VA can help reduce Medicare costs and at the
same time improve access to care for certain veterans. The
veteran-beneficiaries of this legislation are unique in being
eligible for VA care but, because of VA funding levels and
because of personal income exceeding VA's ``means test'',
generally have been denied care by a system designed to serve
them. The bill is designed to achieve Medicare savings through
provisions which call for reimbursement levels to VA at 95
percent of otherwise applicable reimbursement rates.
The demonstration program would have two components--a
traditional fee-for-service model (subject to the limitation
that annual Medicare payments may not exceed $40 million) and a
managed care plan (subject to a $10 million cap). Under the
reported bill, these tests would be mounted in up to 12
geographically dispersed VA medical centers. The VA Secretary
is to develop a site selection plan in consultation with the
Secretary of Health and Human Services. In selecting medical
centers to participate in the demonstration project, the
Secretary is to select at least one medical center within the
catchment area of a military medical facility which has been
closed; VA is to give military retirees preference to
participate in the demonstration at that site or sites.
The Committee is concerned that facilities selected to
participate in the demonstration be suited to serve the
targeted beneficiaries, based on such factors as high potential
demand, capability and capacity to provide a range of required
services, a sophisticated cost-accounting and billing
capability, and favorable indicators of quality of care,
including high levels of patient satisfaction. Accordingly, the
reported bill requires that, before implementing a
demonstration project at a proposed site, the Department report
to Congress regarding the medical center or centers which have
been selected for participation and the rationale for site or
The reported bill would impose specific additional
reporting requirements applicable to carrying out managed care
demonstration projects. The Committee has established these
additional requirements in light of its finding that many
elements associated with successful provision of care under a
risk contract are not yet in place at any VA medical centers.
Yet the harm which may result from VA's lack of experience with
managing a risk-contract, as well as its lack of cost-
accounting capability and of sufficient actuarial and other
data, ultimately fall not on either VA as a provider or on VA
administrators, but on other veterans. The Committee is
concerned that those now depending on VA could fall through its
``safety net'' if appropriations were diverted to subsidize the
cost of care to new Medicare beneficiaries.
The Committee has made every effort to ensure that the
reported bill would impose no additional cost on the Medicare
trust funds. Among those provisions, the measure takes specific
account of the fact that VA has provided Medicare-covered
services to some number of dual eligible veterans who would be
among the targeted beneficiaries of the bill. That level of
services may be said to represent a VA subsidy to the Medicare
trust funds. Insofar as that ``level of effort'' has been
supported by the VA's medical care appropriation, the bill
seeks to avoid a situation where medicare-covered services VA
would otherwise have provided (but for this legislation)
declines because of the legislation. That is, the reported bill
seeks to avoid any shifting of costs from the VA medical care
appropriation to Medicare. The reported bill, accordingly,
requires VA to maintain an ``effort level for targeted
veterans'' reflecting the level provided in fiscal year 1997.
The level of effort for these targeted veterans represents
an amount (which must be estimated) which the Health Care
Financing Administration (HCFA) would have paid for VA-provided
medicare-covered services to targeted veterans for a fiscal
year. To avoid shifting costs onto Medicare, the reported bill
provides that VA would be reimbursed in any fiscal year only
for covered services exceeding the level of effort for fiscal
In addition to accounting for maintenance of prior level of
effort, the reported bill includes other elements to help
ensure that the medicare trust funds are held harmless under
the demonstration. The reported bill would task the
Secretaries, in consultation with the Comptroller General, to
closely monitor expenditures made under the demonstration
project and compare them with expenditures which would have
been made if the demonstration had not been conducted. In
addition, the measure calls on the Comptroller General to
report to the Secretaries and the Congress on the extent to
which the demonstration has resulted in increasing Medicare
costs. The reported bill affords specific remedies to address
such cost-shifting, including recoupment of the increase in
expenditures and suspension or termination of the demonstration
Under the reported bill, once VA had met its required
``level of effort'' it would receive discounted reimbursement
from HCFA. The rates would be discounted in two ways. First,
HCFA would eliminate all or part of the reimbursement it makes
to other providers for disproportionate share hospitals,
indirect and direct medical education, and capital investments.
Second, HCFA's intermediaries would reimburse VA at 95 percent
of the rate it would provide to non-federal providers.
The Congressional Budget Office (CBO) analysis of the
reported bill, printed herein, projects that ``Medicare's cost
would probably increase, but CBO cannot estimate the amount.''
CBO explains that data limitations make it difficult to
determine accurately VA's ``current level of effort'' to
targeted veterans. In postulating that it would not be possible
to determine if VA was actually maintaining its level of effort
even if that level could be estimated accurately, however,
CBO's ``analysis'' veers off a rational course. CBO states
The nature of the demonstration would encourage VA to
serve targeted veterans at facilities where Medicare
would provide reimbursement. As a result, spending on
medical care for targeted veterans would rise at VA
facilities participating in the demonstration, and VA's
spending on medical care for targeted veterans at
nonparticipating facilities would fall. VA could appear
to meet or exceed its maintenance-of-effort requirement
while actually falling short of the target.
This analysis offers no foundation for the assumptions made
in the above-quoted paragraph. In essence, CBO assumes that VA
health care administrators, in the face of a law that requires
a maintenance of effort throughout its health care system, will
ignore that requirement with resultant shifting of costs to
Medicare. CBO, thus, appears to assume not only that VA's most
powerful incentive is to shift costs, but that it also has the
will to defy a requirement of law and that it has the means to
do so and evade detection. The VA's own internal budget
documents for Fiscal Year 1998 make it apparent that the
Department's objective is quite the opposite. VA's goal for the
demonstration is to achieve success so as to demonstrate the
benefit of expanding this model into a nationwide program.
Accordingly, it is inconceivable that VA would seek to pursue a
short-term advantage at a handful of facilities at the expense
of its national strategy. Moreover, it is inconceivable that a
drop in numbers of ``targeted veterans'' at ``nonparticipating
facilities'' could escape detection, whether by the General
Accounting Office or Inspectors General of the VA or Department
of Health and Human Services.
In essence, H.R. 1362, as amended, seeks to establish a
modest demonstration to test the view that VA can provide
certain dual eligible veterans a choice not now available to
them as veterans or Medicare beneficiaries and reduce costs to
Medicare. The qualified CBO view that Medicare costs would
``probably'' increase under the bill is equally untested, and
flawed in this Committee's view. In favorably reporting
H.R.1362, as amended, the VA Committee advances legislation
which should be tested.
Section 1 would name the Act the ``Veterans Medicare
Reimbursement Demonstration Act of 1998''.
Section 2(a)(1) would authorize the Secretaries of Veterans
Affairs and Health and Human Services to jointly carry out a
VA-Medicare subvention demonstration project.
Section 2(a)(2) would specify that the demonstration
project would begin on January 1, 1998 and last three years.
Section 2(a)(3) would, to the extent necessary to carry out
the demonstration project, authorize the Secretary of Health
and Human Services to waive otherwise applicable Medicare
Section 2(b)(1) would require the Secretary, in
consultation with the Secretary of Health and Human Services to
establish a plan for selection of up to 12 sites.
Section 2(b)(2) would specify that participating medical
centers must be suited to serve targeted veterans and specify
criteria to be used by the Secretaries in making these site
Section 2(b)(3) would specify that at least one medical
center selected would be in close proximity to a military
medical facility which closed during the Base Closure and
Realignment (BRAC) process.
Section 2(c) would provide that veterans' participation in
the demonstration project is to be voluntary; subject to
participating facilities' capacities and available resources;
and is to be subject to terms and conditions that the Secretary
Section 2(d) would require the establishment of the same
cost-sharing policy applicable to participating veterans as
would apply under the Medicare program at nongovernmental
Section 2(e) would establish a policy for crediting
Medicare payments to ensure that such funds would be retained
and made available to the facility which provided services.
Section 3(a) would authorize the Secretary to establish and
operate managed care plans within the demonstration; any one of
the managed care plans would constitute one of the 12 pilots
which may be undertaken under the demonstration, and may be
carried out through one or more VA medical centers and may
involve the provision of services by or through other public or
Section 3(b) would require that the Inspector General
review any proposed managed care site, and certify that
specified criteria are met, before the Secretary may implement
a managed care plan.
Section 3(c) would require the Secretary to maintain
reserves from monies held for contingency purposes in VA's
headquarters office to ensure that appropriated funds allocated
to participating VA facilities to meet obligations to veterans
who are not participating in the demonstration project are not
used to meet the obligations of the demonstration project.
Section 4(a) would establish a Medicare reimbursement
formula to involve a rate of 95 percent of the amount that
would otherwise be payable to a non-Federal provider, and
specify those elements to be excluded in whole or in part from
the payment. The section would also cap the annual payment made
to the VA at $50 million, of which not more than $10 million
can be used for projects employing managed care plans.
Section 4(b) would provide that to avoid shifting any costs
previously assumed by the VA for category C, Medicare-eligible
veterans to the Medicare program, payment to VA would only be
made for ``VA-provided medicare-covered services for targeted
veterans'' for services which exceed the ``VA effort level for
targeted veterans'' for fiscal year 1997. The subsection would
also define the quoted terms.
Section 4(b)(2) would define the term ``VA effort level for
Section 4(b)(3) would define the term ``VA-provided
medicare-covered services for targeted veterans.''
Section 4(c)(1)(A) would direct VA and HHS, in consultation
with the Comptroller General, to closely monitor the program to
ensure that no increases in the cost of the Medicare program
will be incurred.
Section 4(c)(1)(B) would require that the Comptroller
General submit a report on the extent to which the cost of the
Medicare program had changed due to enactment of this
Section 4(c)(2)(A) would direct VA and HHS to take
appropriate action if it is determined that Medicare costs have
risen due to enactment of this legislation.
Section 4(c)(2)(B) would specify what steps should be taken
should such cost increases be found.
Section 5 would require that the Secretary notify Congress
of the location of any proposed demonstration sites and
rationale for the site-selection, and defer carrying out such
demonstration at the proposed site or sites for 30 days.
Section 6(a)(1) would require VA and HHS to arrange for an
independent agency to conduct an ongoing evaluation of the
Section 6(a)(2) would require that entity to submit an
annual report to Congress on its findings.
Section 6(a)(3) would specify what criteria the entity
should use in assessing the demonstration project.
Section 6(b) would direct VA and HHS to submit
recommendations to Congress--after studying the independent
entity's assessment--on whether to extend or expand the
Section 7 would define various terms used in the
No oversight findings have been submitted to the Committee
by the Committee on Government Reform and Oversight.
Statement of Administration's Views
In May 8, 1997 testimony before the Subcommittee on Health,
Dr. Kenneth Kizer, VA's Under Secretary for Health, offered the
Department's support for the enactment of H.R. 1362 ``with some
changes.'' The testimony strongly urged that the legislation be
revised to authorize VA to test not only a fee-for-service
model but a capitation model as well. The bill, as amended,
incorporates changes to reflect that recommendation as well as
a number of specific revisions suggested by VA in its
The Department has since expressed formal support for
section 5047 of H.R. 2015, legislation passed by the Senate
which is very similar to H.R. 1362, as amended.
Congressional Budget Office Cost Estimate
The following letter was received from the Congressional
Budget Office concerning the cost of the reported bill:
Congressional Budget Office,
Washington, DC, May 28, 1997.
Hon. Bob Stump,
Chairman, Committee on Veterans' Affairs,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1362, the Veterans
Medicare Reimbursement Demonstration Act of 1997.
If you wish further details on this estimate, we will be
pleased to provide them.
The CBO staff contacts are Shawn Bishop, who can be reached
at 226-2840, and Tom Bradley, who can be reached at 226-9010.
June E. O'Neill,
CONGRESSIONAL BUDGET OFFICE COST ESTIMATE
H. R. 1362--Veterans Medicare Reimbursement Demonstration Act of 1997
As ordered reported by the House Committee on Veterans'Affairs
on May 21, 1997
Summary. H.R. 1362 would establish a demonstration project
for Medicare reimbursement to the Department of Veterans
Affairs (VA) for care that VA provides to certain veterans
eligible for Medicare, a program sometimes called Medicare
subvention. Although the bill would probably raise Medicare's
costs, CBO cannot estimate the amount of the increase. Any
increase in Medicare's outlays would represent an additional
source of funds for VA; thus, the needed authorization of
appropriations for veterans' medical care would decline by the
same amount. Because it would affect direct spending, H.R. 1362
would be subject to pay-as-you-go procedures under section 252
of the Balanced Budget and Emergency Deficit Control Act of
1985. H.R. 1362 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act of 1995
and would not have a significant impact on the budgets of
state, local, or tribal governments.
Estimated Cost to the Federal Government. H.R 1362 would
establish a demonstration project in which Medicare would
reimburse VA for the care that VA provides to certain veterans
who are also eligible for Medicare. The demonstration project
would have the following characteristics:
LThe project would be conducted during the
1998-2000 period at up to 12 VA medical centers in
diverse locations where there would be a high demand
for the program.
LMedicare would reimburse VA at 95 percent of
the rate paid to private providers for Medicare-covered
services furnished to certain veterans. Those veterans
would have to be eligible for Medicare, participate in
Medicare Part B, and have no service-connected
disability. Such veterans currently receive care from
VA if resources are available and if the veteran pays a
share of the costs. Participants in the demonstration
would be subject to Medicare's cost-sharing
LAlthough Medicare would reimburse VA
primarily on a fee-for-service basis, VA could
establish and operate managed health care plans as part
of the demonstration.
LVA would be responsible for maintaining a
basic level of effort to be eligible for reimbursement
by Medicare. The required level of effort would be
based on an estimate of the amount of Medicare-covered
services provided by VA to targeted veterans in 1997
(VA's effort level would not include services
reimbursed by Medicare.)
LVA and the Department of Health and Human
Services (HHS), in consultaton with the General
Accounting Office, would monitor Medicare's
expenditures in an attempt to ensure that it spent no
more than it would have spent without the
LMedicare's payments under the demonstration
would be limited to $50 million a year, of which not
more than $10 million could be for managed care plans
operated by VA.
One of the legislative goals is that the demonstration
project not increase either VA's or Medicare's costs. In
theory, VA would continue to pay for the care that it would
provide under current law to beneficiaries eligible for
Medicare, and Medicare would continue to pay for people
currently receiving care in the private sector. Medicare's
costs would experience no net change because lower payments to
private-sector providers would offset payments to VA. VA's net
costs would remain the same because the receipts from Medicare
would be matched by higher outlays for the care it would
provide to extra patients. In practice, however, Medicare's
cost would probably increase, but CBO cannot estimate the
Assuring budget neutrality for Medicare would be diffcult
to achieve for two reasons. First, available data do not allow
an accurate determination of the portion of VA's current
workload that is attributable to providing Medicare-covered
services to targeted veterans. Second, VA could shift future
costs to Medicare while nominally meeting its maintenance-of-
Medicare's costs would rise if VA's basic level of effort
is underestimated, and that level cannot be measured very well.
Establishing a base level for 1997 requires knowing the number
of targeted veterans who seek care from VA, the extent of that
care, and the costs of providing it. This information is not
available for individual VA facilities or in the aggregate and
must be estimated based on accounting and survey data.
Even if VA's current level of effort could be estimated
accurately, it would not be possible to determine if VA was
actually maintaining that level of effort in future years. The
nature of the demonstration would encourage VA to serve
targeted veterans at facilities where Medicare would provide
reimbursement. As a result, spending on medical care for
targeted veterans would rise at VA facilities participating in
the demonstration, and VA's spending on medical care for
targeted veterans at nonparticipating facilities would fall. VA
could appear to meet or exceed its maintenance-of-effort
requirement while actually falling short of the target.
Under these circumstances, differences in the access to
information and funding make it likely that some of VA's
spending would be shifted to Medicare. Because annual
discretionary appropriations limit VA's health care funding,
the department would have to reduce the size of its program if
it overestimated its required level of effort or underestimated
its actual effort in the future. Medicare's costs, however, are
paid from a permanent, indefinite appropriation that would not
readily reveal a loss stemming from a demonstration program
such as this one. It would not be easy for the General
Accounting Offfice or any other auditing agency to determine
the financial outcome of the demonstration. It, too, would have
to rely on estimates and assumptions about events and behavior
that would have been different under current law.
Pay-as-you-go considerations. Enactment of the bill would
probably increase direct spending in fiscal year 1998, but CBO
cannot estimate the amount of the increase.
Intergovernmental and private-sector impact. H.R. 1362
contains no intergovernmental or private-sector mandates as
defined in the Unfunded Mandates Reform Act of 1995 and would
not have a significant impact on the budgets of state, local,
or tribal governments.
Estimate prepared by:
Veterans Costs: Shawn Bishop
Medicare Costs: Tom Bradley
Impact on State, Local, and Tribal Governments: Marc
Impact on the Private Sector: Neil Singer
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis
Inflationary Impact Statement
The enactment of the reported bill would have no
Applicability to Legislative Branch
The reported bill would not be applicable to the
legislative branch under the Congressional Accountability Act,
Public Law 104-1, because it would apply only to certain
Department of Veterans Affairs and Health and Human Services
programs and facilities.
Statement of Federal Mandates
The reported bill would not establish a federal mandate
under the Unfunded Mandates Reform Act, Public Law 104-4.
Statement of Constitutional Authority
Pursuant to Article I, section 8 of the U.S. Constitution,
the reported bill would be authorized by Congress' power ``(T)o
provide for the common Defence and general Welfare of the