<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:22366.wais]
The Department of Veterans Affairs Health Care Budget Modeling and Methodologies
thursday, June 23, 2005
U.S. House of Representatives,
Committee on Veterans' Affairs,
Washington, D.C.
The Committee met, pursuant to call, at 10:30 a.m., in Room 334, Cannon
House Office Building, Hon. Steve Buyer [Chairman of the Committee] presiding.
Present: Representatives Buyer, Bilirakis, Moran, Brown of South
Carolina, Miller, Evans, Filner, Brown of Florida, Michaud, Herseth, Berkley,
and Udall.
The Chairman. The full Committee on Veterans' Affairs will come to order.
Today, June 23, 2005, we will conduct a hearing examining the budget modeling
and methodologies used by the Department of Veterans' Affairs to develop
veterans' health cost and utilization projections for future years. This
hearing will come to order.
We are here today to examine the budget modeling and methodologies used by
the Department of Veterans' Affairs to forecast the cost of veterans' health
care and to project usage of the system for future years. The discretionary
budget for health care accounts for about half of the VA's funding. More
than 7 million veterans are enrolled in the VA system, and 5 million of them
currently use the system. In 1996, before eligibility reform, there were
about half that number in the system.
Since 1996, there has been a 1,200 percent increase in the lower priority
enrollees, veterans who have no compensable service connected disabilities,
who are not catastrophically disabled, or who have higher incomes. That is a
twelve-fold increase in utilization. And we are treating the nonservice
connected injuries and illnesses of our service disabled veterans.
In 1996, we did not see this coming. Yet, as anyone in the health care
industry would tell us, forecasting is critically important to providing high
quality care to those who are eligible to receive it. A budget is only as
good as the data that informs it and the assumptions that are used to create
it. And we must not only have good data, but we must also have the right
data, and we also must have the right assumptions in our forecasting. It is
the heart of the budgetary process.
The purpose of today's hearing is to learn how we can more accurately
forecast the health care demand. That job is complicated by operational
challenges that we must acknowledge.
I suggest forecasting challenges of the model include not only the
economic assumptions that are used, the effects of eligibility reform, the
rise in pharmaceutical costs, and uncertainties of demand in connection with
veterans returning from the global war on terror, the wars in Afghanistan and
Iraq in particular, medical inflation, dental costs, accurate and adequate
collections, expenditures, et cetera.
We must have a thoughtful and responsive process to ensure that health
care will be there for our veterans. We must ask difficult questions today.
We must question the assumptions, the data, the input, and assume that we can
do better.
Our dialogue should help shed light on this very complex process that is
critical to the long-term vitality of the health system for America's
veterans. We owe our veterans the best of care.
Today, VA will provides quality health care that in many respects is the
envy of the medical community, and we must preserve that quality. And I am
proud of the jobs that are done by the men and women, the employees who care
for our veterans in the VA. In fact the VA's new Under Secretary for Health,
Dr. John Perlin, in his previous position was the first Deputy Under Secretary
to regularly see patients at the Washington VA Medical Center. His new job
has changed that a bit, but I understand that he has volunteered for the
midnight shift, and I respect you for that. He exemplifies the very best and
what is good about our system.
It is the responsibility of Congress and this Committee to ensure that Dr.
Perlin has the resources necessary to do his job. Sound health care
forecasting is essential to doing precisely that, and I look forward to this
hearing and the engagement of my colleagues.
The only experience I share with my colleagues that I had with this prior
to the TRICARE for Life, when we were under the CHAMPUS and we had the
military retirees going through base closures. We were trying to figure out
health care budgets, and we had this huge ebb and flow of a ghost population
in and out of the health system, so our modeling had tremendous errors. We
had a very extensive hearing on how to improve that. Once we went to TRICARE
for Life we also brought predictability into the system. I don't know if you
can call it a science. I suppose you can, you know, the science of health
modeling, and then we can begin to be more accurate.
What is often being done in this town is everybody throws and uses numbers
out there with regard to our budgets. Let's try to figure this out, and I
have not seen that done in the 13 years I have been on this Committee. And so
we are going to do this today. This will be hard. It will be a heavy lift.
And I think by reading the statements last night, all of you have put a
tremendous effort in this, and I appreciate your efforts.
I now yield to Mr. Evans for opening statement.
Mr. Evans. Thank you, Mr. Chairman.
Budgets are not just numbers. They order our national priorities and
establish policy. Sometimes it is easy to forget the human component when we
talk about these numbers. Sometimes it is hard to remember that often the
numbers we use are poor substitutes for the reality we are trying to measure.
I look forward to hearing from all of our witnesses that appear before us
today.
It is vitally important to accurately identify the real resource
requirements of the VA health care system. It is vital that we then provide
these resources free from arbitrary fiscal considerations. Sadly, it does not
matter how accurate budget forecasts turn out to be, if those forecasts are
not fully funded.
I agree with the voices of veterans who across the country have called our
attention to the disparity between what the VA needs and what it too often
gets. There was a concern with the presidential task force which drew
attention to, quote, current mismanagement, including the demand for VA
services and funding. My Assured Funding bill would do just that by requiring
the Federal Government to provide adequate funding based on the number of
veterans enrolled. I am looking forward to the hearing on H.R. 515. I look
forward to the day when we are developing and providing veterans with benefits
based on their need and their support.
Thank you, Mr. Chairman.
The Chairman. Thank you, Mr. Evans. Any other colleagues have an opening
statement?
Mr. Filner.
Mr. Filner. Just a question, if I may, for the Chairman. Clearly, the
balance of powers in the Constitution gives us oversight authority over the
executive branch, and this hearing is very important for the VA to come to us
and let us know how they are doing. I would associate myself with the remarks
Mr. Evans made about the budget process.
I frankly don't understand the second panel. That is, we do not have
oversight over independent groups. The motivation for this panel is
suspicious to me. The American Legion can say anything they want about the
budget, and we can ask them when they testify how they came up with those
figures. But for us to put VSOs in the equivalent position of the VA and
demand that they be here and explain how they did something seems to me a
hidden agenda, or not so hidden, a pretty open agenda. On the record, I want
to object to the structure of this hearing.
Mr. Miller. Mr. Chairman, if I could ask Mr. Filner a question.
The Chairman. You are recognized for an opening statement.
Mr. Miller. My opening statement is without fail, year after year, that
the annual budget for VA Health Administration is subject to great debate and
we all know that more and more veterans are relying on VA for their health
care needs. And it is important that we do understand the Department's
methodology for forecasting health care costs and utilization projections.
I do look forward to hearing from all of today's witnesses, and I do have a
question for Mr. Filner.
I must be blind, but I don't understand. What do you think the agenda is
with the second group of folks? I am sorry.
Mr. Filner. If the gentleman would yield, the Chairman has taken issue
with the legitimacy of the Independent Budget in open hearings where some of
us have used it as a Bible, and he wants to undermine the credibility of the
Independent Budget in my view.
Mr. Miller. You may be a little mistaken when the hearing is over, but we
all question the validity of the Independent Budget. So I put myself and
associate myself with the Chairman in this particular case.
The Chairman. Does the gentleman yield back? Ms. Brown.
Ms. Brown of Florida.Thank you, Mr. Chairman. I want to thank all the
witnesses here today to enlighten us as to how they determine future costs. I
appreciate your explanations. But all of this discussion does not get to the
root of the question. Every year the VA does its budget modeling, OMB has its
views as to what the numbers should be and the Independent Budget comes out
with its own numbers.
It seems almost as if everyone agrees that the VA needs more funding to
complete its mission, the mission being to provide the best health care to our
nation's veterans.
Everyone is discussing numbers. How can we cut costs, save a little bit
here, cut some fat there? We are talking about people, and many of them come
to my office. Are we budgeting for better health care for our veterans or are
we budgeting for saving money?
The Independent Budget comes out with its estimates every year. A coalition
of veterans groups get together and figure out what veterans need. The
President comes out with his budget every year. This budget effects every
aspect of our lives, and he decides to pay for the war in Iraq on the backs of
our veterans.
The Independent Budgets say that we need an additional $3 billion, and I
don't disagree with them. How can these two numbers be so different?
Everyone begins with the same starting point. There is a known number of
veterans and a procedure costs X amounts of dollars. What happens to the VA's
numbers after they are modeled when OMB gets ahold of them and cuts it by
almost 90 percent? I mean the budget that VA starts out with and then when it
goes to OMB, it is totally different. What is the rationale for cutting
veterans benefits?
Whether the veterans have a service connected rating of 100 percent or is
Priority 8 and not homeless, each served his or her country honorably and
deserves care from the VA.
I am hoping that this Committee can get back to its purpose of serving the
veterans. We are independent from the administration, and we should act that
way.
I yield back the balance of my time.
The Chairman. Mr. Brown.
Mr. Brown of South Carolina. Thank you, Mr. Chairman. I would like to
thank you and the Ranking Member for holding today's hearings and highlighting
an issue that I think is critical for all veterans, health care costs modeling
and appropriate funding for health care of the VA.
First, Mr. Chairman, let me begin by welcoming and congratulating Dr.
Perlin on his recent nomination and confirmation for his position of Under
Secretary of Health at the VA. I believe that his assumption of that post
marks an important milestone as this Committee continues to work with the VA
to improve the quality of care provided to our Nation's veterans. So again
welcome and congratulate you, Dr. Perlin.
In addition to Dr. Perlin, I believe we have two panels of folks here
today that can help us better understand the efforts that VA goes through in
determining how much funding is annually required to maintain the excellent
care VA is providing nationwide.
It is my hope that my colleagues will come away today with a better sense
of two important issues: Number one, the inherent challenge that faces those
who try to accurately forecast the demands for care inside the VA; and number
two, the level of strain it puts on the Department and our veterans when those
projections fail to meet the mark. To that end I am interested in hearing
today how the VA's modeling process compares to that of the Department of
Defense, the Independent Budget, the American Legion demand model, and
finally to help us look towards the private sector to gauge health care costs
and demand for medical services.
More importantly, I want to explore how the VA can become more efficient
in accurately engaging the demands for health services and how we as Members
of the Congress can be assured that our veterans will continue to receive the
level of care they have come to rely on.
Mr. Chairman, again I thank you and Ranking Member Evans for holding this
hearing today. I look forward to the testimony of our panels in the hopes
that we can explore the modeling process today. We continue to remember that
the numbers are important, but our main concern should always be that our
veterans are treated with respect and afforded the level of care that VA has
become so efficient in providing.
Thank you, Mr. Chairman, and I yield back the balance of my time.
The Chairman. Thank you, Mr. Brown.
Ms. Berkley.
Ms. Berkley. Thank you, Mr. Chairman. I also think this is a very
important hearing today, and I am very delighted that we are discussing the VA
budget process and the modeling used to determine the future needs of our
vets.
As you have heard me say on many occasions, southern Nevada has one of the
fastest growing veteran populations in the country. Over 50,000 of my
veterans depend on the VA for their health care needs. Every year it is very
difficult going back home after our hearings and explaining to my veterans
that their service organizations' projections and the amount of money that we
know it would require to take care of our veterans adequately is not what we
are voting on. They don't understand the disparity and they don't understand
the difference.
Not only in my opinion should the VA use the most accurate tools to
determine what veterans' needs will be in the future but we, Congress, must
provide the resources that are necessary to provide health care services to
our veterans, and I can never get out of my mind when we had hearings with
then VA Secretary Principi and somebody asked the Secretary after he made his
presentation on how much money he was requesting of Congress to satisfy the
health care needs of the veterans. The question was asked, is this the amount
that you presented to the President? His response was no. And apparently his
presentation to the President had requested at least, if I am not mistaken,
$1.2 billion more than he actually presented to Congress.
Mr. Filner. Would you yield on that point?
Ms. Berkley. Yes, I will yield.
Mr. Filner. You bring up the key question that is going to be neglected
on the first panel. I would ask the Chairman if he invited OMB to be here
because it doesn't matter what the VA models. If OMB says no, OMB has the
word on what the budget is going to be, and these models do not matter. OMB
makes that decision, and we ought to be checking that; this is what we ought
to be doing.
I yield back.
Ms. Berkley. Thank you, Mr. Filner. And if I could reclaim my time,
although I agree very much with what you are saying, I am also very concerned
with our returning soldiers. The VA has treated more than 85,000 of the
360,000 veterans from Operation Iraqi Freedom and Enduring Freedom deployment
as of May 2005.
Mr. Chairman, I have another protocol hearing for IR that I have to be at
by 11 o'clock, but I have a question that I would like to submit, and I am
very sorry I am not going to be here to listen to this.
The Chairman. Mrs. Berkley, do you have it?
Ms. Berkley. Yes.
The Chairman. Why don't you ask it? They will write it down.
Ms. Berkley. Great. If you can incorporate this into your comments, I
would like to know how the VA is ensuring that returning soldiers are being
put in these models and ensuring that they accurately project and provide the
needed resources for these new veterans in the VA health care system.
Southern Nevada is going to be overwhelmed by people coming home from Iraq,
and not necessarily our current residents, but that is the place that the
returning veterans are going to be moving, and we are going to need to ensure
that we have the adequate resources for the needs of these veterans. And I
suspect that they are going to be extraordinary needs, not only physical, but
mental as well.
And I thank you, Mr. Chairman, for your courtesy.
The Chairman. Thank you. Any other opening statements? Mr. Michaud.
Mr. Michaud. Thank you very much, Mr. Chairman. I would like to thank
you and Ranking Member Evans for having this hearing. I am looking forward to
hearing the panel. I believe that budgets are a reflection of our priorities,
Mr. Chairman. In the interest of time, I would ask that my opening statement
be submitted for the record.
The Chairman. Without objection.
Any other members have opening statement to be submitted for the record?
Hearing none, what I would like to do for my colleagues -- I don't
normally do this, but I am going to introduce each one of these individuals
that are in front of us on the first panel and I will also introduce right now
the second panel and explain an opportunity that we have to be very
constructive in the process here. And the reason I need to do this is the
second panel is the Independent Budget and the American Legion that operates
outside the Independent Budget. As we all know, under the rules the minority
has rights and we in cooperation decide who the witnesses are going to be and
the second panel is the request of the Democrats.
Dr. Jonathan Perlin serves as the Chief Executive Officer of the Veterans
Health Administration, the country's largest integrated health system. Dr.
Perlin recently was sworn in as the current Under Secretary for Health in the
Department of Veterans' Affairs, having served as acting in that role since
April of 2004. He has a background in health care quality management, health
information technologies, medical education, and health service research.
To his right is Ms. Rita Reed. She manages and directs all VA budget
activities as the Deputy Assistant Secretary for Budget. She is responsible
for managing over 68.5 billion under the fiscal year 2005 enacted budget. Ms.
Reed has worked on budget issues since she started with VA in 1978.
We also have directly in front of me Mr. Jimmy Norris. He serves as the
principal financial advisor to the Under Secretary for Health in his role as
Chief Financial Officer of the Veterans' Health Administration and he oversees
the budget formulation, justification and execution process of the VHA, as
well as the financial management systems.
Over here on our far left is Mr. Arthur Klein. He oversees the actuary's
health care demand model and its integration into development of health care
policy, impacting VHA as the Director of Policy Analysis and Forecasting
Office in VHA's Office of the Assistant Deputy Under Secretary for Health for
Policy and Planning.
We also have to the right of Mr. Norris, Mr. John Kokulis.
Mr. Kokulis. Yes.
The Chairman. To our right is Mr. Norris.
He serves as the Deputy Assistant Secretary of Defense for Health Budgets
and Financial Policy, and is the Chief Financial Officer for the TRICARE
management activity.
He is also the principal staff assistant and advisor to the Assistant
Secretary of Defense for Health Affairs for all financial policies, programs
and activities for the military health system in the Department of Defense.
He also provides the medical financial interface between DOD and VA.
To his right -- his left, as I appear to the right -- is Ms. Kathi
Patterson. She serves as a principal and consulting actuary for Milliman
Incorporated with a background of 19 years in health actuarial experience.
She leads this company's practice in research and analysis of veteran data as
an expert in actuarial modeling for the veteran population. That is our first
panel.
So let me now yield to Mr. Perlin.
STATEMENTS OF THE HON. JONATHAN B. PERLIN, M.D.,
PH.D., MSHA, FACP, UNDER SECRETARY FOR HEALTH,
DEPARTMENT OF VETERANS' AFFAIRS; ACCOMPANIED BY
RITA A. REED, DEPUTY ASSISTANT SECRETARY FOR BUD-
GET; JIMMY A. NORRIS, VHA CHIEF FINANCIAL OFFICER;
ARTHUR J. KLEIN, DIRECTOR, POLICY AND FORECAST-
ING SERVICE; THE HON. JOHN KOKULIS, DEPUTY ASSIS-
TANT SECRETARY OF DEFENSE FOR HEALTH AFFAIRS
FOR HEALTH BUDGETS AND FINANCIAL POLICY, DEPART-
MENT OF DEFENSE; KATHI S. PATTERSON, F.S.A, M.A.A.A.,
SENIOR CONSULTING ACTUARY, MILLIMAN, INC.
STATEMENT OF THE HON. JONATHAN B. PERLIN
Dr. Perlin. Good morning, Mr. Chairman, Ranking Member Evans, members of
the Committee.
First, let me start by thanking you for your support to veterans and the
VA and the opportunity to be here this morning to discuss the Department of
Veterans' Affairs actuarial health care demand model.
Mr. Chairman, I will present a summary of my testimony with your approval
and submit my full statement for the record.
The Chairman. No objection. So ordered.
Dr. Perlin. Mr. Chairman, the Veterans' Health Care Eligibility Reform
Act of 1996 established a uniform package of health care services for
enrollees. The legislation also established a priority based enrollment
system and required the VA Secretary to annually assess veteran demand for VA
health care to determine whether resources are available to provide timely
quality care for all enrollees.
In the past VHA budgets were based on historical expenditures and were
adjusted for inflation and then increased based on proposed new initiatives.
With the implementation of eligibility reform and a shift to ambulatory care,
VHA needed to more rationally budget for veteran requirements in the
transformed health care system. We also needed to be able to continually
adjust budgetary projections for the effects of shifting trends in the veteran
population and health care delivery.
As a result, the VA engaged the firm of Milliman, Incorporated to produce
actuarial projections of veteran enrollment health care utilization and
expenditures. Milliman consults to health insurers and as such is the largest
and most respected actuarial firm in providing actuarial health care modeling.
The VHA Enrollee Health Care Demand Model develops estimates of future
veteran enrollment and the enrollees' expected utilization for 55 discrete
health care services, the costs associated with that utilization. These
projections are consolidated and are available by
fiscal year, enrollment priority, age, VISN, market and facility and are
provided for a 20-year period.
The actuarial data are then used to support budget planning and future
resource requirements. Because of the federal budgeting process, data are
used for budget planning approximately 2 to 3 years forward. Of course, the
near term projections, such as for the one-year window, are more reliable than
further out.
The model provides risk adjustment and reflects enrollees' morbidity,
mortality and their changing health care needs as veterans age. Because some
enrollees have other health care options, the model reflects how much care
enrollees received from the VA health care system versus that of other health
care providers. And this concept is knownas VA reliance.
Each year the model is updated with the latest data on enrollment, health
care service utilization, and service costs. The methodology and assumptions
used in the model are also reviewed to ensure that the model is projecting
veteran demand as accurately as possible. VHA and Milliman develop annual
plans to improve data inputs on the model and the modeling methodology. On
average for the past 3 years, patient projections have been within minus 0.6
percent of actual patients and enrollee projections have been within plus 1.9
percent of actual enrollees. There might be slightly more variants this year,
and in a system as large as VA a modest percentage change equates to a very
large number of veterans.
Some services the VA provides are not modeled by Milliman. These include
readjustment counseling, dental services, the foreign medical program,
CHAMPVA, spina bifida and non-veteran medical care. Demand estimates and
budgets for these programs are developed by their respective program managers.
Enrollee demand for long-term care services is modeled by VHA. The VHA
long-term care model uses utilization rates from nationally recognized surveys
adjusted for the characteristics of the enrollee population and known reliance
factors to account for such attributes as distance, multiple eligibilities,
and case management and then to project demand for both nursing home care and
community-based care.
In conclusion, the development of the actuarial model has been an
evolutionary process. Future planned improvements include access to data on
enrollees' use of Medicaid, TRICARE and the military treatment facilities, as
well as the integration of the VHA long-term care modeling into the actuarial
model and modeling of additional services such as dental care.
Mr. Chairman, the VHA enrollee health care demand model is a valuable
budgeting and planning tool for projecting VHA health care utilization to
ensure that VA can provide safe, effective, timely, efficient and
compassionate health care to veterans. We combine VA's substantial experience
with a contractor with unrivaled expertise in health care modeling to achieve
best actuarial projections possible.
This completes our statement. We would be pleased to answer your questions.
The statement of Dr. Perlin appears on p. 46]
Mr. Miller. [presiding.] Mr. Kokulis.
STATEMENT OF THE HON. JOHN KOKULIS
Mr. Kokulis. Mr. Chairman, and distinguished members of this Committee, I
want to thank you for the opportunity to discuss modeling and budgeting for
health care costs in the Military Health System. We have three distinct
missions in the MHS: First, to deploy a healthy military force; second, to
deploy a ready medical force; and third, to manage our beneficiary care
through the administration of our TRICARE benefit. In my statement here
today I will focus on our forecasting and our modeling of the TRICARE benefit
since it makes up the largest portion of our MHS budget.
The Department of Defense offers the TRICARE benefit to approximately 9
million eligible beneficiaries. 19 percent of this population is made up of
uniformed services personnel. Their family members make up another 27 percent
and retirees and their family members and survivors account for the remaining
54 percent.
TRICARE offers our beneficiaries a variety of options for attaining this
health care coverage. Beneficiaries can obtain health care coverage at a
military treatment facility, from a civilian provider who is part of our
private sector network, or from a certified civilian provider of their choice.
Our beneficiaries can also obtain their prescriptions through our MTFs,
through retail outlets or through our TRICARE mail order pharmacy.
The challenges we face as we prepare our annual budget requests include
predicting how many of our eligible beneficiaries will use the TRICARE
benefit, what options they will select, how often they will require care and
prescriptions, what inflation rates will impact on procurement of services,
and the impact of recently enacted changes in benefits.
In developing projected trends for these underlying care costs our
analysis includes consideration of the following: An actuarial forecast of
our population for the coming year; second, recent trends in our contractors'
health care costs due to the attraction of new users, volume trends and
inflation; third, recent and projected trends in private sector health plans
and the national health care sector in general; and fourth, effects and
changes in the TRICARE program itself, such as benefit changes, changes in
provider reimbursement policies and contract transitions.
Using our claims database, we then decompose the historical trends in
these underlying health care costs to determine what factors would be ongoing
versus one-time events. These factors includes the global war on terrorism,
changes in the number of TRICARE eligibles under the age of 65, changes in
the percentage of that group who actually use TRICARE, and changes in the cost
per user, including changes in unit costs and the volume of services per user.
In addition, we assess the forecast growth in pharmacy, both for increase
in users and increase in unit price. These methodologies enable us to
construct a forecast for our expenditures for the coming year.
Given the growth and volatilities of these expenditures our department is
engaged in the continuous effort to reduce our costs and improve the
predictability of our obligations. These activities have included: One, a
consolidation and realignment of the TRICARE health care regions from 12
regions down to three, allowing us a more streamlined administration of those
plans and enhanced portability for our beneficiaries; second, a movement to
performance based budgeting for our MTFs with a phased implementation of a
new prospective budgeting approach. We intend to base MTF budgets on workload
output such as hospital admissions and clinic visits rather than relying on
historical resource levels such as number of staff employed, supply costs and
other materials. Once fully implemented, prospective payment should allow us
for better management performance at our MTFs.
And third, the redesign of our pharmacy program into a single integrated
program allowing us to more effectively manage this effort. We are also
standardizing formulary management and are promoting the use of more cost
effective products and points of service.
In addition to these and other activities, we are also actively working
with the Department of Veterans' Affairs where we can share resources to
increase access, improve quality and more efficiently deliver the health care
benefit to our beneficiaries. We currently have 12 projects being funded
this year from our joint DOD-VA intensive fund.
In summary, the Military Health System has many factors that drive its
annual expenditures. The Department has made progress in our efforts to
better forecast and control these expenditures and will continue these
efforts in the future. There is more work to be done. Through it all we
will continue to focus on job one, which is to appropriately fund our
medical readiness requirement and to provide exceptional care to our active
duty personnel, their families and our retirees who have sacrificed so much
for our country.
Thank you, Mr. Chairman, for inviting me here today, and at your convenience
I will be happy to respond to your questions.
[The statement of Mr. Kokulis appears on p. 56]
The Chairman. [presiding.] Thank you very much. I don't know the answer
to this. I just have to ask, with regard to your budgets, when we did one of
the supplementals did you participate, did DOD Health participate in one of
the supplementals we sent over to the VA for 2005? For the 2005 supplemental,
did you give monies out on supplemental?
Mr. Kokulis. Yes, we did.
The Chairman. Do you remember in what amount?
Mr. Kokulis. I want to say it was approximately $680 Million.
The Chairman. 680 million.
Mr. Kokulis. Yes, for the GWOT supplemental.
The Chairman. Now you are transitioning to a performance based budgetary
methodology?
Mr. Kokulis. Yes.
The Chairman. And your provider methodology was more demand?
Mr. Kokulis. It was more based on what is your historical cost.
The Chairman. Trends, simplify it.
Mr. Kokulis. And now we are actually saying okay, what workload are you
doing in terms of number of visits, hospital visits, number of clinic visits,
and then taking a reimbursement rate based on the private sector and then
reimbursing the MTFs for those visits versus paying them on a historical
average.
The Chairman. So the VA and their model, do you have any knowledge about
their modeling? Just basically what you know.
Mr. Kokulis. No. I joined the DOD in April so I am busy ramping up on my
own.
The Chairman. Have you read Dr. Perlin's testimony?
Mr. Kokulis. I have not.
The Chairman. Your model, is it a one year?
Mr. Kokulis. No. We actually go out many years. It is like Dr. Perlin
says, a 3-year look in terms of our obligation.
The Chairman. This is two and a half?
Mr. Kokulis. Yes, but basically when you get into -- the key to our whole
modeling is that actuarial forecast of your population, and that is really
where you got the granularity so that you can have some numbers that you can
have some confidence in, and that is really a 12-month look.
The Chairman. Ms. Patterson, the private sector is what you use for your
model?
Mr. Kokulis. Private sector. You do your 3-year plan or --
The Chairman. Ms. Patterson.
Mr. Kokulis. I am sorry.
[The statement of Ms. Patterson appears on p. 69]
Ms. Patterson. I am sorry. It is more typical to budget out for one year
rather than 3 or 5 or 10.
The Chairman. Your company does budget contracting for a lot of the
private health systems in the country, does it not?
Ms. Patterson. That is correct.
The Chairman. So in the private sector when it comes to for profit, they
are doing it for one year. So DOD is doing a 3-year model and VA is doing a
two and a half year model?
Dr. Perlin. Two and a half to 3-year window.
The Chairman. Two and a half to 3 window, all right.
With regard to DOD's budget, you participated in this supplemental in
2005?
Mr. Kokulis. Yes.
The Chairman. Did you participate in the supplemental in 2004 and in
2003?
Mr. Kokulis. I will have to take that for the record and get back to you.
I am not sure.
[The information follows: Yes. In 2004 we received $658 million and in
2003 we received $596 million.]
The Chairman. I know that that operations, OIF, OEF, are having some
strains on your system, are they not?
Mr. Kokulis. They are definitely.
The Chairman. And so 680 was your bogey that we have to plus up?
Mr. Kokulis. Yes.
The Chairman. Any other with regard to your modeling in your trends and
forecasts or methodologies; as you move to this new model, were their errors
or corrections or things that you needed to do for better forecasting?
Because we already gave you, we passed your 2006 budget. So are you in a
little more comfort?
Mr. Kokulis. There are always things that pop up such as emerging
requirements, whether it be all of a sudden we need a Tamiflu vaccine for
avian flu virus. And that is an emerging requirement that has to be funded
and we have to find offsets. But as far as the implementation of prospective
payment, we are in its infancy and as we roll it out and do lessons learned
on ourselves what we are finding in the initial round is we did a poor job
on incorporating readiness.
We have a dual mission. We have the regular health care mission, and then
you have readiness. So we get into what is the cost of readiness and how do
you reimburse the MTFs for things they are doing to prepare the troops as
they get prepared for battle. So we need to do a better job there.
The Chairman. So Dr. Perlin, now that we recognize that the military
health delivery system was short about 680 million covered in the supplemental
appropriations, in practical terms, if OIF and OEF contribute to actuarial and
budgetary challenges for fiscal year 2005 or 2006 within DOD, it has got to be
there for you too.
Can you please comment on OIF, OEF's challenges with regard to what it is
doing to your budget forecasting.
Dr. Perlin. Sure. First, we are proud, privileged to take care of our
U.S. Combat veterans. In the last few years we are aware, as we testified,
in a recent period of seamless transition that as of -- in April we were
aware of 360,674 separated from service in that period. Of that, as of in
April, about 85,857 had presented for care in VA. Most of them are the issues
of the younger generation, and another 17,274, so together in excess of
100,000, that 17,000 had presented to our Veterans Readjustment Counseling
Center. Two and a half to three and a half years ago when this budget was
formulated, there would have been no way to predict that these combat veterans
would have come to VA.
The Chairman. Let's break it out. Part of the medical services that you
are providing for them, part of this surge in utilization is coming from what?
Dr. Perlin. Sir, it ranges the spectrum. Unfortunately, the majority of
young men and women coming to us come with the issues and illness of that age.
We are prepared for and have taken care of additional mental health care needs
and there are a number who are grievously injured and that we provide very
intensive care, rehabilitation to those.
The Chairman. And is it not true there is a trend with DOD right now,
saying with regard to guardsmen and reservists, that see, Congress has said,
"Tell you what, we will open up the VA, we will take care of these guardsmen
and reservists and give them access to the VA." We recognize that was in not
in your budgeting forecast, okay. But with regard to dental, what is
happening?
Dr. Perlin. Well, we are working together with DOD. It is very close
collaboration. But there is a difference between dental health, which VA is
helping to restore, and operational readiness. In the area of dental we have
collectively identified a number of $90 million of unanticipated dental health
care needs in this alone.
The Chairman. If you have identified 90 million that you didn't
anticipate with regard to dental and you have got this surge in medical
utilization from these other soldiers that are now accessing your system, have
you been able to put a number on that?
Dr. Perlin. We are working on identifying a number, but obviously we are
using additional resources that we didn't anticipate at the time that we
budgeted two and a half years ago.
The Chairman. I know, my colleagues, I have exceeded my time. If I could
go for two more questions, because I think we are getting close here.
With regard to your forecasting, you are two and a half years out, you
have some challenges today that were not anticipated. Does the VA usually do
a midyear review? Do you not?
Dr. Perlin. Yes, sir we do.
The Chairman. With regard to your budgets, you make sure how you are going
to do right?
Dr. Perlin. Yes, sir.
The Chairman. Congress, authorizes DOD to be able to have a carryover,
right?
Mr. Kokulis. Yes, 2 percent.
The Chairman. What do you carry over?
Mr. Kokulis. Two percent.
The Chairman. Two percent, which is actually 400-plus million?
Mr. Kokulis. 298 million this year.
The Chairman. Normally it will carry over?
Mr. Kokulis. For next year it will be approximately 350 million, so close
to your 400 million.
The Chairman. What is your normal carryover, Dr. Perlin?
Dr. Perlin. 2006 we had anticipated bringing forward $482 million. At
this point we have assessed and we think it will be closer to 75, perhaps as
low as 50 in that particular account.
The Chairman. Because of some --
Dr. Perlin. Unanticipated increased utilization has committed us,
unanticipated by the actual model, increased health care associated in part
with new combat veterans coming to us for service, as well as unanticipated
increase because of projections that weren't on the mark from the actuarial
model required us to use resources that at the point of budgeting had been
intended to carry forward and, to be fair, we are bringing all resources to
make sure that we can provide timely and effective care to veterans. That is
going beyond their budget projections for 2005 as well.
The Chairman. Can I keep going for a second?
How far off do you believe you may be from, you know, the contracted model
that you have to where we are potentially right now?
Dr. Perlin. Right. Well, this is the most rational and effective way to
predict. I think we have to realize that we are pushing the performance
envelope on this model. As Ms. Patterson said, it is at its best when one
projects in the immediate year ahead, because with the Federal budgeting
process we are projecting two and a half to three and a half years ahead, and
in fact the plan was for 2.3 percent growth and the actual growth is 5.2
percent. And that is at 2.9 increase, annualized. We have had some months
this year where we are headed further to 3.4 percent ahead. I know 3.4
percent sounds pretty darn good on an actuarial model, and it is, but that
small number translates into a very large number of veterans.
The Chairman. A large number of veterans, large with regard to projected
dollars. You know, if you project this out between now and the beginning of
the next fiscal year, you are going to have to be moving some monies around
in order to maintain the quality of care and the access of care to those
veterans. So you are going to have to be moving some funds, are you not?
Dr. Perlin. That is correct.
The Chairman. And you know about how much or from what sources you are
going to be able to do that?
Dr. Perlin. Right, in addition to using resources which had been intended
to be carryover, we have used some of the funds associated with capital, of
nonrecurring maintenance. Now I do need to tell you that after 4 years of
very robust support by the administration we have invested in the
infrastructure, but this year we are using some of those capital dollars to
make sure that we provide timely care to the veterans who are coming to us.
The Chairman. Right now based on your testimony, if we take about 80 on
dental and you talk about the carryover, around 350, we are approaching half a
billion.
Are there some other challenges out there that we don't know about with
regard to getting to the fiscal year end, maybe a surge from 7s and 8s or
something else?
Dr. Perlin. There appears to be increased utilization among -- you
referred to the concept of ghost users. What we have, the patients who use
the system and the enrollees there appears to be very instrumental as well in
terms of the relationship of patients to enrollees, with greater utilization
there as well.
The Chairman. And are you able to give a projection dollar figure that
you are going to have to use from potential capital accounts, as you
indicated?
Dr. Perlin. We are still working on the final number but it could be as
high as $600 million.
The Chairman. I can do pretty easy math. That is a billion dollars.
Dr. Perlin. Yes, sir.
The Chairman. So can I go one more? Can I keep going for a second?
Congratulations on your new job. You have a tremendous challenge in front
of you. We have a challenge also. We have a model, and we do everything we
can to address forecasting, assumptions, actuarial data, morbidity,
utilization, you name it. On top of that, we are engaged in a global war on
terror and so we also are taking care of soldiers who are coming back, plus we
have an increase in utilization by our veterans of the past, which causes a
variance in your present budget in a model that has pressed the boundary of
its forecast. Am I close, Ms. Patterson?
Ms. Patterson. Actually you would press the boundaries of any forecasting
model to go out 3 years.
The Chairman. This is already constructive. Last one, and I am going to
yield, unless you have something off of what I just said.
Ms. Herseth. Thank you, Mr. Chairman. I would like to get this question
before I have to leave momentarily because I think it goes along the line of
questioning you are pursuing and a comment you made at the beginning, and that
is how you are integrating base realignment and closure rounds into the model?
Because I just came from Ellsworth Air Force Base, which is on there
currently, and if we have people that work in that area that may lose their
employee sponsored coverage because of businesses that are affected, then they
are seeking access to the VA system as we have seen in other parts of the
country whether it is a BRAC closure or a closure of a mill or what have you.
Has that been incorporated? I think the Chairman mentioned in the past
there has been a concern about whether or not a BRAC was incorporated in the
model, and if you are looking two and a half to three and a half years out is
this another anticipated cost we could be seeing, maybe not this year's end
because the closures won't happen for about another 2 years?
Dr. Perlin. I would ask our Art Klein to elaborate on how the model
incorporates such actions as potential realignments under base realignment
economies.
Mr. Klein. We know it is going to take time, especially when some of
these construction actions are going to take place, and what we are doing is
planning to include that into our actuary model in the future.
The Chairman. Before I am going to yield to Mr. Evans, it appears we have
some tremendous challenges in front of us, the Committee, with regard to
oversight. We are going to continue to get into how you do your methodology
and your forecasting. At the same time we now realize that you have a
tremendous challenge in meeting the present need and requirements, and that
you have money and you are about to move around accounts. We are going to
need to learn and understand more about how you are going to be moving monies
to meet particular needs and what effect that is going to have if you have
this shortfall of approximately 1 billion in 2005.
I yield to Mr. Evans.
Mr. Evans. Thank you, Mr. Chairman. I would like to yield my time to the
gentlemen from Wisconsin, Mr. Michaud.
The Chairman. No objection.
Mr. Michaud. Thank you, Mr. Chairman, and Ranking Member Evans. I have
got a couple sets of questions.
Early in the process, the VA must estimate the funding gap it will be
faced with. What is the, what does it attempt to do, you know, to close that
gap? At what point in time does the ideal model become affected by nonhealth
care considerations? Second part of that question is, when are we essentially
modeling to fit predetermined outcomes and not modeling based on health care
and patient requirements?
Those are my first two questions. The next two relate to an article on
Tuesday in the Washington Post which was entitled Health Care Costs Spending
Up: More Middle Class Could Join Ranks of Uninsured. The article points out
that spending for those with private insurance rose 8.2 percent in 2004. The
medical cost growth has outstripped the growth in wages, and that 45 million
Americans, nearly 50 percent of our population, are uninsured and many
veterans who previously relied on their health care insurance are now turning
to the voicing similar concerns to Congresswoman Herseth and the Chair, how
are the effects of growing numbers of uninsured accounted for in the models?
And it is not only the BRAC process which will definitely affect but all the
number of job losses. How does that affect, the outside factors in the model?
Dr. Perlin. Thank you, Mr. Michaud, for the question. I think I will
divide it into a couple of parts, your first and second comments. The model
runs independently. It factors in the transient health utilization and
secular and environmental trends in terms of the health services delivery and
use of health insurance for anything else that may be going on in the
environment.
In terms of how these things are factored in, I would defer to the actuary
who really is most knowledgeable about describing that aspect in the operation
of the model.
Ms. Patterson. The model has two components that can address that. One
is we project enrollment into the VA health care system, and once those
veterans have enrolled then we project their health care needs. Dr. Perlin
addressed the trend rates that we employ in the model to address some of the
health care changes over time, anticipated health care changes over time.
With respect to enrollment, if in fact there is an increase in the
unemployment rate in particular areas and what not, that would need to be
handled within the enrollment projections and we base enrollment projections
on historical trends.
We have what we call priority transition within the model which also takes
into account -- just one tiny example of this transition is Priority 7 and
Priority 8 veterans transitioning into Priority 5 veterans. So those would be
the poorer of the nonservice connected disabled veterans. And so it takes it
into account in many different aspects.
It also has the functionality to actually measure the impact of a
potential major downturn in the economy and such. We have not modeled that to
date, but it does have the capability of doing that the way it is set up.
Mr. Michaud. If I might follow up, Mr. Chairman, that is a good point.
You are using averages in models. What really concerns me is we have heard a
lot of -- particularly in the last year, in the election year, how well the
economy is going around the country. But that might not be necessarily
factual in certain regions. And that is my big concern because we have had
labor markets in Maine whose unemployment rate was as high as 35 percent.
Particularly when you look at Maine, 16 percent of our population are
veterans. We have a high number who are in the Guard and Reserve who have
been over in Iraq and Afghanistan.
So that is why I am requesting the overall model and assumptions, how
accurate is that model when you look at the unemployment rate particularly in
separate regions of the country.
Ms. Patterson. Right, and we can address that and yes, it does use
historical data to develop some of the future assumptions. But our enrollment
assumptions are at the sector level, they are not at the county level. We
have something we called sectors which are groupings of counties and for the
most part large counties become a sector but some of the rural counties that
are quite small are grouped into sectors. But we do calculate enrollment
rates at that detailed level and by three different age bands, so that
hopefully if there has been a chronic unemployment issue in a particular area
that will be reflected in the enrollments rates. If there is something that
is happening or expected to happen in the future, if we are made aware of
that, we can certainly model that in the current modeling program.
Mr. Michaud. And Dr. Perlin, the second part of that question is, at what
point in time do you throw out the model and your budget request is primarily
driven by monetary aspects in --
Dr. Perlin. The model comes forth intact, and basically in any given year
it will be development of new policy initiatives. I believe they are pretty
transparent though we had vigorous debate and discussion of some of the policy
initiatives that came forward in the year. So the model comes forward intact.
Mr. Michaud. So in other words the budget that the VA requested to the
administration reflects what the model actually impacts and it is not
inaccurate so, in other words, does the VA disagree with the Independent
Budget as far as the assumptions put together in the Independent Budget?
Dr. Perlin. In general, the model comes forward and then there are policy
initiatives, as I mentioned, and then perhaps other assumptions, such as
efficiencies, that constitute the entirety of the overall budget that is
presented.
Mr. Michaud. If I may, one other question, Mr. Chairman.
You had mentioned using capital funds, which might be good for the short-
term. -- two-part question. I guess my concern is, even though you are using
capital funds to meet your current needs now, which is strained, what
long-term effect will that have on the budget, whether it is cost-effective?
The other concern is, and I can tell you, using Togus hospital in Maine,
the Togus facilities had to put up scaffolding over the doors to block bricks
from falling on patients or staff. It is a big concern of mine, shifting
money around like that. Have you done analysis on the long term -- actually
increase the budget of the VA by taking away those capital dollars?
Dr. Perlin. Thanks for the question.
We appreciate the robust support that the VA budget has had over the last
4 years which has allowed us to invest in a number of capital areas. We
recognize this is a short-term strategy. The short-term strategy ensures,
between that and using the carryover, we have enough resources to care for
veterans this year. It is not viable in perpetuity not to invest in the
infrastructure. Sooner or later, you have to make that investment. And the
things that are curtailed first are -- those things are, first cut, cosmetic;
deeper cuts, modernization, remodeling.
The Chairman. Thank you.
Before I yield to Mr. Bilirakis, I have to correct a statement prior to my
yielding to Mr. Evans when I referred to this billion dollar challenge for
'05, or as I call it, a shortfall. I am trying to figure out what you have
for '06, not for '05. You have monies that you are utilizing for a
workaround, moving dollars from your capital accounts and using a cushion
account. But we just passed a budget with regard to '06 and an appropriation
that gave you an additional billion over and above what the President had
requested. We are going to have to get in here and figure out how we need to
help you with regard to your '06.
I yield now to Mr. Bilirakis.
Mr. Bilirakis. Thank you, Mr. Chairman.
Ms. Patterson, you have been assigned by Milliman to VA since 1996.
Ms. Patterson. I didn't work directly for VA back in 1996, but I was
involved in the first discussions of a new model.
Mr. Bilirakis. You also do private work, I mean, other than the VA,
private firms?
Ms. Patterson. Yes, but my major other clients are Medicaid, either
States or health plans.
Mr. Bilirakis. All government. You have done actuary work for private
clients?
Ms. Patterson. Yes, I have.
Mr. Bilirakis. What was the age of the data that you used for those
private clients?
Ms. Patterson. For private sector, depending on whether we are using our
health cost guidelines from our firm or whether we are using some of the
client's actual data, it is usually as most current as it can be. We have
something called lag or run-out where you make sure your claims data is complete
and the providers have had time to actually get it submitted, paid and into the
system. But using the most recent year of data is incorporated into any
modeling effort.
Mr. Bilirakis. Most recent year --
Ms. Patterson. Six-month to a nine-month lag.
Mr. Bilirakis. What is your opinion about the fact that VA uses 2-plus-
year-old data?
Ms. Patterson. I guess in consideration of the fact that you need to
budget out that far, you don't really have a choice.
Mr. Bilirakis. You are budgeting out that far ahead. I am talking about
using old data.
Ms. Patterson. We are using the most recent projection for fiscal year
2004.
Mr. Bilirakis. For 2007?
Ms. Patterson. Yes, that is the most complete data at the time we do the
modeling; and that is very consistent with what is done in the private sector.
It is just they would be budgeting for a more current period.
Mr. Bilirakis. This $1 billion that has been talked about, this
shortfall, call it what we will, which is being made up for on an internal
basis, as the good doctor explained, that is the result of what, in your
opinion? It is not bad actuarial figures on your part, right?
Ms. Patterson. I don't know that is an appropriate question for me, but I
will go with it.
My opinion is that the model forecasts as well as the data that goes into
it, I think some of the things that have occurred over the past year or so
were not reflected in the model because they occurred in the last year or so
and they weren't anticipated. The biggest miss is simply due to the fact the
assumptions going forward did not hold true.
Mr. Bilirakis. I would ask, I guess, both you and Dr. Perlin, based on
this current history, $1 billion shortfall, is that the result of a reasonable
error that nobody could do anything about or is that the result of lack of
efficiency or whatever the case might be? But your request for next year,
2006, and the bill is already at the Senate, is it already off by at least
that $1 billion?
Dr. Perlin. Sir, I think if your summation of that --
Mr. Bilirakis. I don't know if it is a good summation.
Dr. Perlin. The statement you make, has the use of resources in 2005
affected the budget assumptions going into 2006? And I think it is absolutely
fair to say that it has. We had intended to carry over more than we would be
able to, but --
Mr. Bilirakis. You talked about the capital in responding to Mr. Michaud.
You talked about using capital dollars. So those capital dollars, assuming
they are needed dollars, will now have to be made up for in '06, but that is
already past us now unless the Senate can do something with it. It might even
carry over to '07. Are we robbing Peter to pay Paul?
Dr. Perlin. The investments in infrastructure will eventually have to be
made.
Mr. Bilirakis. They have to be made up somewhere along the line.
Dr. Perlin. The resources are there to assure the care for veterans in
2005. It doesn't factor 2006.
Mr. Bilirakis. I appreciate the fact that resources are there for 2005;
and, based on the question here, we were satisfied that that is the case. But
we have 2006 ahead of us, and that is being compounded by virtue of the fact
that some of the resources used in 2005 for this purpose were intended to be
used for another purpose.
I am just going to ask one quick question, and this is the fastest 5
minutes I have ever experienced. But, Ms. Patterson, are you getting complete
cooperation from the VA in terms of your advice to them and whatnot?
Ms. Patterson. Yes, they provide any data I request. They provide
experts when I need additional information.
Mr. Bilirakis. Are they using the data that you recommend to them, the
actuarial data that you recommend to them?
Ms. Patterson. I can't attest to that. I provide it, and that is as far
as I go.
The Chairman. Mr. Udall.
Mr. Udall. Thank you, Mr. Chairman.
I guess my first question is for Mr. Perlin and Mr. Kokulis. How is the
VA making sure that returning soldiers are being put into these models and how
are you ensuring that they are accurately projected and that they provide the
needed resources for these new veterans as they come into the VA health care
system?
Dr. Perlin. Thank you, Mr. Udall, for that question.
The Secretary has made an absolute commitment that new combat veterans
receive priority and accessing care in our system. Let me assure you, with
the good partnership with the Department of Defense, we have more awareness
than ever in terms of meeting the clinical needs of new veterans. They send
us rosters to help us identify these new veterans; and, in fact, when a
veteran needs care at a military treatment facility, we have social workers
and they have uniformed personnel placed in military treatment facilities and
VA hospitals.
To the point of your question, 2-1/2 to 3-1/2 years ago, the budgeting
couldn't anticipate these current numbers with the numbers that we are now
commenting on. These veterans have come to us with their eligibility
following combat service. That is being incorporated into the model going
forward.
Mr. Udall. Let me just follow up on that. What you are saying is 2-1/2
to 3 years ago, because this was a new situation, having as many troops in
combat as we had, it was a very unpredictable situation, how many injuries you
would get, the kinds of things that you would see, now, having a more stable
kind of situation, you are able to predict? Is that a fair characterization
what you are saying?
Dr. Perlin. Previously, we used separation data, and we got that
periodically in 2001 because the trends of separation were fairly constant.
With the increased OPTEMPO and veterans who have unique eligibility by virtue
of combat service, they have 2 years of eligibility, and we welcome those
veterans, that couldn't have been anticipated 2-1/2 to 3-1/2 years ago. It is
to the best we could incorporate it. But 2005 predicts for 2008; 2004 for
2007.
Mr. Kokulis. The only thing I could add to of Dr. Perlin's comments would
be it really gets into that first snapshot you take in the beginning of your
fiscal year with regard to your population. Rather than using a static
snapshot of where everybody is, you really need to take that actuarial look
that estimates where people are going to be based on deployments, expected
major movements in retirement, et cetera, to get the best idea where everybody
is going to be, so when you do put that forecast in place with that
population, you can appropriate the money in the right places for those
people.
Dr. Perlin's comment that partnership between DOD and VA works well in
that sharing of information, for the DOD specifically where our forecast is
challenged is in the whole TRICARE benefit. Discussions a little bit earlier
about as retirements come in and where do people get their health care, our
ability to forecast the take rate for these people who are eligible for
TRICARE and those who decide to keep their own private insurance has been the
tougher part. The actual care for the active duty and then going to the VA we
feel we have a good handle on it. That take rate for that retiree group, you
know, the under 65 retired or over 65 retired, is where we find our biggest
challenge.
Mr. Udall. I am shifting direction a little bit here. One of the big
problems that I see is Congress passing laws and requiring that health care be
given to veterans and then we give discretion to the Department to create
priorities and categories and all of that. Clearly, we have this big debate
about Category 7 and 8 and the different kind of care that different veterans
get. I think many of us on this Committee would like to see the Congress
fully fund health care for all veterans, and there have been bills to that
effect. When you do your modeling, could you tell us what it would cost in
terms of dollars to not have these kinds of categories in various priorities
and say we are going to make sure that all veterans have the kind of health
care they need? What kind of numbers would we be looking at?
That is what the next panel tries to do, I think, when they look at an
Independent Budget. They are not looking at the constraints the various
departments have. They are looking at what kind of dollars are you going to
put into the system to make sure that every veteran gets health care --
adequate health care in a timely way and that is quality health care.
Dr. Perlin. Congressman, that is really the point of the model, the
ability to predict the utilization, be it by category or disease or condition,
exactly what resources are needed to provide safe, timely, effective,
efficient, compassionate care for the veteran. And I defer to the actuary for
any elaboration, because we do believe it is a useful tool, albeit this year
we pushed the performance envelope in terms of the lag time and missed the
mark by about --
Ms. Patterson. The model itself has the capabilities of estimating the
impact of many policy decisions. And one -- if you are going to open up the
system even more, we can estimate the impact of that and the actual dollars
associated with opening the doors even wider and maybe even enticing more
veterans to enroll and seek health care. It is absolutely in the realm of an
eligible projection.
Mr. Udall. I see my time is out, and I appreciate that very much.
The Chairman. There is a vote on the rule. I intend to stay here and
keep this going.
Mr. Brown.
Mr. Brown of South Carolina. Mr. Chairman, just one question. I noticed
in our discussion that the Department of Defense really acknowledged they were
having a shortfall in their health care and asked for some money in the
supplemental. And I was -- my question goes to Dr. Perlin. Did you not all
sense that or did you not have the opportunity to do the same?
Dr. Perlin. Thank you, Congressman Brown, for that question.
When we look at the utilization numbers, the number of veterans requiring
care every month, through February things were looking pretty on target.
Actually, in the months -- really, in April began to ramp up and see more
increase against utilization.
As mentioned earlier, thanks to the robust support in the past years going
into this year and because of being fairly much on target, we felt that and
still do believe we have the resources for this year, 2005. It has been
discussed, and it does predict some challenges in 2006.
Mr. Brown of South Carolina. If I might follow up on that.
I notice the -- is there some kind of a trend that maybe the enlisted
personnel is not re-upping as regular -- are we getting more folks leaving the
service earlier that might be shifting more of the costs to the VA that if
they stayed in service their health care would be funded by DOD? Is there any
trend in that direction?
Mr. Kokulis. I will take that for the record.
[The information provided is as follows: No Active duty enlisted
retention remains strong. We anticipate that the Army and Marine Corps meet
or exceed FY 2005 retention goals. Navy and Air Force retention is sound
although below historical averages -- a deliberate response as both Services
reduce their end strength by retraining and converting members from overmanned
skills to undermanned skills to balance their forces. The bottom line is that
DoD enlisted retention is very sound and we are retaining the right mix of
quality members.]
I can't speak of any trend that I have seen. To reiterate, the trend we
have seen is, in the enlisted population, the actuarial analysis and the
estimates tend to be rather consistent with what we modeled. It is that
retired over 65 and under 65 and the take rates that end up surprising us on
any given forecasting period.
Mr. Brown of South Carolina. Just one follow-up question then. Is there
any -- in the trend model, is the projected amount of money coming from third-
party pay? Is that on target or is there a shortfall in that projection?
Mr. Kokulis. I guess the best way to answer, it is never where you want
it to be. We have some targets, and we continue our efforts, but there is a
lot more we can do, and we are always looking for good ideas whether it is
in-house, whether it is working with contractors. I know the Navy does both
in-house and contracts out for third-party collections. The Air Force is 100
percent contracted out, and the Army does its own in house. So everybody is
looking for best practices in trying to up it and increase our third-party
collections.
Mr. Brown of South Carolina. Thank you for coming and being part of this
discussion and helping us work through a tough situation.
The Chairman. I don't know how well prepared, Dr. Perlin, you are to put
some dollars on this, but I am trying to understand this a little bit better.
So as we go into the '05 budget, that was sort of laid out in '03?
Dr. Perlin. '05, based on '02 data.
The Chairman. Based on '02 data for '05.
Dr. Perlin. That is right.
The Chairman. And in '02 data, I am trying to figure out what is the
variance to come up with this present-day challenge that you have to face and
you have to move funds around? So outside OIF, OEF, dental, cat 7s and 8s
utilization, what else was there? Pharmaceutical? Or is that part of the
utilization costs?
Dr. Perlin. We have tried to anticipate the pharmaceutical growth. We
have made efficiencies in pharmaceutical utilization, but we continue to push
for those efficiencies, and they have gotten harder. Once you have gone from
equally effective drugs to ones that are equally effective but less expensive,
there is no more there. We are pushing in that regard. Mr. Kokulis mentioned
the avian flu, unanticipated.
The Chairman. The what?
Dr. Perlin. Mr. Kokulis from the Department of Defense gave an example of
a completely unanticipated contingency. As you know, people have concerns
about the avian flu being a world pandemic and with our population,
particularly with a lot of older and chronically ill veterans, we had to
expend $25 million to make sure we had adequate storage of this treatment for
that avian flu.
The Chairman. Tsunami wasn't in yours either, and that was a large cost.
With regard to medical inflation, the medical inflation data was input
from '02, and then what happened in '05, how were we off? Not off?
Mr. Klein. The model certainly looks at the health care industry trends,
and Milliman has a very robust price trending that they use. Obviously, it is
looking at historical, but it does go out into the future, too. If '02 was
the time frame for which actual data was available for the budget, the actuary
would come forward to VA and bring in their price trend experts and we would
discuss which of those trends and utilizations are related to VA and then we
would resolve and agree to the price trending for the future. That is
incorporated in the model every year, and we update that annually.
The Chairman. Is this a work product that belongs to your company that
others utilize or do you rely on data input from someone else?
Ms. Patterson. We have certain experts within the firm who every year
update some of our tools that are strictly for measuring health care cost
trends. They are involved in these meetings, and they fully understand the
health care trends and what moves them in different directions and why and
when. Those discussions are held with many folks at VHA to determine which
ones are applicable to the VA health care systems and which ones are not.
For instance, typical provider discounts aren't typically applicable in
the VHA, and so we know to remove the impacts of those. The actual research
that goes into these products are used by private sector and other government
entities, but we do modify it for VHA.
The Chairman. Let us get into your last statement on the modification for
VHA. Over the last 5 years, would you be able to tell me what numbers you
utilized in the private sector, if they range from 9 to 16 percent? Is that
about right?
Ms. Patterson. I would not be able to give you a number for that, no.
The Chairman. Am I close when I say between 9 and 16 percent?
Ms. Patterson. It depends. When you are looking at a full, comprehensive
health care package, trends can be deceiving, because each benefit package can
generate a different trend.
I apologize for not being able to answer.
The Chairman. Let me ask you this, why pick a number? Let us say that
you call it the health care cost index.
Ms. Patterson. That is what our product is called, yes.
The Chairman. Let us say, for example, hypothetical, it is 8 percent next
year. You come up with a different number with regard to what you put in the
model for VHA. Why?
Ms. Patterson. Why?
The Chairman. Why do we use a different number for VHA?
Ms. Patterson. Well, for one thing, we don't use a single number. We use
many different trend rates for different things. We have a utilization trend
rate, we have an inflationary trend rate, we have an intensity trend rate, and
they all differ by type of service. When you say 8 percent, that could be 8
percent inflation and intensity trends for pharmacy. We look at that and say
the pharmacy trends in the private sector are going up by X amount. But in VA
you have much more price control -- VA is a huge purchaser of prescription
drugs, so they have a lot of buying power. So that is dampened and we want to
reflect that and we don't want it to skyrocket like the private sector.
The Chairman. Are you comfortable with regard to the calculation of that
number that is utilized within the model?
Ms. Patterson. Yes, I am, sir.
Dr. Perlin. Mr. Chairman, forgive me, but the follow-up -- we are having
an internal discussion, and I think we can flesh out the question you asked a
little bit better. You asked what other sorts of things can vary, and let me
give you some examples.
In terms of building off of what we have been discussing, the increased
utilization by veterans in this current year, that has the effect not only of
producing health care costs for the care of those individuals but caring for
additional staff on board; and that is an additional and unanticipated
expense.
There are other items that are outside the actuarial model. The actuarial
model accounts for 87 percent of the clinical budget, and some of those areas
are also inflating. One is a program, CHAMPVA, which is the program for 100
percent service-connected veterans' families, dependents or the families and
dependents of deceased 100 percent service-connected veterans; and those
expenditures increase as well.
Not in the actuarial model is the long-term care, and we have had robust
discussion about long-term care with this Committee previously. But, as
everyone is aware, that is a very important area, an area we are trying to
extend our dollars by serving veterans in the community to an even greater
extent; and there are some assumptions that we think are overly ambitious. I
note that there have been reports about what possibilities there might be in
contracting care as a new example. But some of those are extremely ambitious;
and, in an aggregate, that really is what generates the challenges we are
discussing.
The Chairman. I guess what I am going to try to do here -- I am going to
take all of your testimony and take the statements and be a very good student
and get the input also from my colleagues and staff with regard to the model
itself, looking at, yes, how Congress also does its budgeting processes,
recognizing that, understandably, that DOD wants to go to a more predictable
model. So I am going to be sensitive to why you made these judgments and
decisions. At the same time, I am going to say, are there lessons learned
that can be applicable here; and, hopefully, you two can have those
discussions --
Dr. Perlin. By all means.
The Chairman. -- so we can have some better predictability. Because I am
tortured here that we have passed recently an 2006 budget that came to us from
the administration. Even though we plussed it up $1 billion, I now don't know
what the right number is supposed to be for 2006. So we have to carry on
discussions with regard to these trends.
And you mentioned about these risk adjustments. So somewhere in here that
even though you are pressing the bounds or going to the horizon on these
projections, there really is, we call it the nebulous, that risk adjustment
area. It is that gut check at the end of what are the possibilities or the
potentials that we missed, you missed, right? And these things just weren't
calculated. Congress has to be responsive; and that is where we want to work
with you with regard to these '06 numbers.
Be watchful and good listeners with regard to workaround and with regard
to its impact in the system and, as I just heard you say in your testimony, to
maintaining the quality of care.
Obviously, there will be an interest with regard to access also,
recognizing that Congress set up the prioritization with regard to access of
care. I know in your testimony the first words out of your mouth were, we are
taking care of those men and women coming back.
I want to thank all of you for coming. This is very constructive, what
you have done here today. You have been very helpful, and we are going to
continue with regard to the actual science of this. It is hard. It is
difficult. You have an expertise, I am appreciative. We are going to need
that.
Please don't become so defensive of the model. Allow us to figure out how
we use this model from the private sector and how to best forecast with regard
to our budgets and predictability, recognizing now, today, that we are
pressing the limits of your model, correct?
Ms. Patterson. That is correct, of any model.
The Chairman. Especially the one we care about is the veterans piece and
equally the DOD piece.
I want to thank you.
The second panel let me do by way of an introduction, and then I have to
exit, and hopefully I can make it back. If any of you can stay, that is
wonderful. If you can't, if you could have some of your staff stay, it would
be wonderful.
The second panel is:
Mr. Steve Robertson. He serves as Director of the National Legislative
Commission of the American Legion. Prior to joining the American Legion, Mr.
Robertson served as Disabled Veterans Program Specialist for the Job Service,
North Dakota, and as a military policeman in the D.C. Army National Guard. He
is also a veteran of the Gulf War.
Testifying also is Mr. Doug Vollmer, Associate Executive Director of
Government Relations for PVA. Mr. Vollmer is involved in a variety of issues
concerning PVA's members, such as the veterans and disability rights, for 26
years for the PVA.
We also have Tim Feeser. He is a principal with Reden & Anders, with a
background in actuarial consulting services in the management of health care
for 18 years. He has previously worked extensively with forecasting health
care demand and has provided assistance to hospitals regarding service demand
planning.
So I want all of you to know what we have attempted to do here today is
not only examine what you do in the private sector, what you have done within
DOD, the transitions you are doing to DOD through a new model and what your
model has done. Even though it has pressed the horizons, you have been very
fortunate for the last 4, 5 years. This year, regarding the challenges and
workaround solutions for which we will be attentive and provide our oversight,
please help us in a bipartisan fashion as we move forward into 2006.
We will receive our input from the veterans service organizations. We are
all advocates. That is what I like about this. Whether on the Committee or
in the VA or DOD or the VSOs, no one has the corner on the advocacy for our
veterans.
Thank you very much. Panel one is excused.
Mr. Boozman. [presiding.] We appreciate you all coming.
Our second panel consists of Mr. Steve Robertson, who serves as Director
of the National Legislative Commission of the American Legion. Prior to
joining the American Legion, Mr. Robertson served as the Disabled Veterans
Program Specialist For Job Service, North Dakota, and is a military policeman
in the D.C. Army National Guard. He also served in the U.S. Air force for 12
years. My father was retired Air Force.
Mr. Douglas Vollmer is the Associate Executive Director, Government
Relations, for Paralyzed Veterans of America. Mr. Vollmer has been involved
in a variety of issues concerning PVA's members, such as veterans and
disability rights for 26 years at PVA.
Mr. Tim Feeser is a principal with Reden & Anders, Limited, with a
background of actuarial consulting services in the managed health care arena
for 18 years. He has previously worked extensively with forecasting health
care demand and has provided assistance to hospitals regarding service demand
planning.
Your prepared statements will be entered into the record.
STATEMENTS OF STEVE ROBERTSON, DIRECTOR, NATIONAL
LEGISLATIVE COMMISSION, THE AMERICAN LEGION;
DOUGLAS K. VOLLMER, ASSOCIATE EXECUTIVE DIREC-
TOR, GOVERNMENT RELATIONS, PARALYZED VETERANS
OF AMERICA; AND TIM FEESER, FSA, PRINCIPAL, REDEN
& ANDERS, LTD.
Mr. Boozman. I now recognize Mr. Steve Robertson.
STATEMENT OF STEVE ROBERTSON
Mr. Robertson. Thank you, Mr. Chairman; and I do agree this is a very
important hearing.
The American Legion continues to advocate for adequate funding levels to
ensure America's veterans receive the health care and benefits they have
earned through their honorable military service.
The basic difference between the American Legion's VA budget
recommendation and that of the President's budget request and the Congress'
budget is that the American Legion's budget is demand-driven, whereas yours
are often budget-driven. The American Legion's recommendations are probably
more consistent with what the VA sends to OMB before the initial pass-back.
Mr. Chairman, of all of the budgeting models and methodologies available,
Congress' budget process is probably the least effective to provide proper
funding for the VA. The VA's Office of Assistant Secretary for Management and
the folks who were here earlier are well staffed and are very competent
professionals. However, the Congress and the American taxpayers are not
getting their money's worth. The true budgetary needs of the VA are
submitted to the OMB.
Clearly, if Congress and the American people were allowed to see the
initial product, rather than the watered-down version, everyone involved in
the budget process could work towards a solid product -- supported by the
President, supported by Congress and supported by the American people.
Nobody wants to shortchange America's veterans and their families. Nobody.
The American Legion does not advocate simply throwing money at a problem
without accountability. However, we do believe that VA needs the fiscal
resources to operate the very best system possible. Maintaining a strong
national defense is a top national priority, while VA is the end-product of
winning wars and maintaining peace.
Clearly, there are tremendous differences between the budgeting models and
methodologies between VA and DOD medical care. In the VA health care delivery
system, not all veterans have equal access to the quality of care that they
want to receive, even if they are willing to pay for it. Currently, new
Priority Group 8 veterans -- those most likely to have resources and
third-party insurance coverage -- are denied enrollment regardless of their
honorable military service in combat or peacetime.
Within the Department of Defense, all eligible beneficiaries are welcomed
to enroll and have equal access to timely health care within their assigned
regions.
The American Legion's budget methodology basically relies on internal and
external factors. Some of the internal factors are: A System Worth Saving, a
publication we put out each year; the CARES Task Force, another internal
organization -- program of our organization; a formal network of service-
officers that actually work in and around VA medical facilities; a network of
homeless veterans program advocates and providers; information we receive from
other advocacy groups; and, of course, informal government resources.
External factors include such things as the Presidential task force that
we just completed that was to look into ways to improve health care delivery
for our Nation's veterans. The President's budget request is very helpful.
The budget resolution gives us a look ahead of where you are planning on
going. Of course, the annual VA budget.
The American Legion's health care modeling. We were deeply concerned in
the '80s with the fact that few veterans had access to the system. Primarily
service-connected disabled veterans, economically indigent, and CHAMPVA
eligibles were the ones that had access, but even that access was very, very
complicated. Military beneficiaries were also having trouble with CHAMPUS,
having trouble with timely access and soaring costs. The American Legion
believed there was a better way to meet the health care needs of American
veterans and their families. After much deliberation, the American Legion
offered to Congress a new health care model that was extremely visionary for
the VA health care delivery; and we called it the GI Bill of Health.
Some of the key factors of that talked about mandatory versus
discretionary funding, Medicare reimbursement for the VA, third-party
reimbursements not being counted as an offset to the discretionary account,
the enrollment process, the defined benefits package so there was no doubt as
to what kind of health care you were entitled to, timely access standards,
availability of services, and also how the money was distributed within a
VSIN.
Mr. Chairman, VA, Congress and the American Legion all share the same
goal. That is, meeting the needs of America's veterans. Working together,
we can achieve that goal. It is all about national priorities.
Mr. Chairman, that concludes my testimony.
Mr. Boozman. Thank you, Mr. Robertson.
[The statement of Steve Robertson appears on p. 75]
Mr. Boozman. Mr. Vollmer.
STATEMENT OF DOUGLAS K. VOLLMER
Mr. Vollmer. Thank you, Mr. Chairman; and I want to thank the members of
the Committee on behalf of Paralyzed Veterans of America. We appreciate this
opportunity to present our views and experiences on the methodology used in
formulating the annual recommendations contained in the Independent Budget.
In general, I will keep my remarks centered on the major budget accounts
supporting the provision of VA medical care.
The first Independent Budget was published 19 years ago. The former VA
Chief Medical Director and Surgeon General of the Navy, Retired Vice Admiral
Donald Custis, suggested that the four veterans' service organizations form a
unique partnership to develop and publish yearly VA budget views and
estimates. The resulting Independent Budget would be used to demonstrate the
actual financial needs of VA health care and other programs in the face of
administration budget requests and congressional appropriations that were far
too often influenced more by political considerations and the changing
pressures of Federal budget policy than by objective budget modeling.
The Independent Budget presents a full budget model. It is the same model
that VA uses at the beginning of its annual budget process. The VA and
administration generally abandon this process at that point. At this time the
VA budget then leaves the arena of pure budget modeling and enters the long
road to OMB and the congressional budget and appropriations process, as being
shaped by "what the freight will bear" in the competition for funding with all
other domestic discretionary programs.
The IB does not take this course. It simply takes the amount of the
current year appropriations and adds to each account assumptions regarding
inflation and salary increases to arrive at a current services estimate for
the upcoming year. The current services baseline is a commonly understood
concept in Congress. In fact, the Congressional Budget Office is mandated by
law to treat discretionary funding in what is essentially a current services
model.
A current services estimate provides a baseline that presents a
theoretical value of what it would cost to provide the same level of services
in the following year as was provided in the current year. From that point,
the Independent Budget presents an estimate as to the cost of individual
recommendations found within the document, such as increased FTE, increased
patient loads and changes to current policies.
I am attaching a white paper prepared and submitted to the Committee at
the request of the Chairman earlier this year, and I request that it be
placed in the record. This paper provides additional technical detail of
how we assess the impact of annual wage and salary increases as well as
formulas for estimating the effect of general inflation and other specialized
indices on the VA budget accounts.
[Information provided appears on p. 89]
In closing, PVA, on behalf of the other Independent Budget veterans'
services organizations, believes we can present and defend the full funding
methodology that provides our annual recommendations. By contrast, any
similar medical model that VA itself might put forward in initial
recommendations for the following fiscal year becomes muddied in the actual
ensuing budget and appropriations processes that follow. Overall budget
increase requests are artificially skewed, claiming so-called increases that
are only unrealistic management efficiencies. Budgets are inflated by equally
unachievable third-party collections.
In terms of real requests for real additional appropriations, most
administrations submit budgets on the cheap. They use no real medical model
and leave it to the Congress to try to make the fix. The end result has no
reality to the actual need, cost and demand of health care services. And
from year to year, with the uncertainty of the budget and appropriations
process, VA managers and the veterans they serve have little assurance that
full support for their programs will be there when they need that support.
The Independent Budget VSOs can only come to the realization that the
current budget system is flawed, unscientific and does not meet the true needs
of the veteran population. For this reason, we endorse a new approach that
will apply a realistic medical model to a guaranteed funding base that will
support veterans' health care services to the extent that veterans need them
and when veterans need them. Such a system is good public policy and good
medicine.
This concludes my testimony, and I will be happy to answer any questions
you may have.
Mr. Boozman. Thank you, sir.
[The statement of Douglas K. Vollmer appears on p. 84]
Mr. Boozman. Mr. Feeser.
STATEMENT OF TIMOTHY J. FEESER
Mr. Feeser. Thank you, Mr. Chairman and distinguished members of the
Committee on Veterans' Affairs. I thank you for the opportunity to testify
before you on the private sector approach to health care expense forecasting.
I am Tim Feeser, a principal with Reden & Anders. We are a national
actuarial, clinical and management consulting firm that specializes in
financial and business support decisions for the health care industry. In
discussing our approach to the health care expense forecasting process, I
would like to summarize how historical health care claims experience is used,
how health care expense trend assumptions are developed and their application
to historical experience to produce a forecasted health care expense budget.
I will conclude with comments regarding the emerging practices seen as
improvements to the health care expense forecasting process.
First, I will address the use of historical experience.
We would like to collect as much historical experience as we possibly can
for an existing block of business as referred to in the industry. We would
like to go back at least a minimum of 2 years, more if the data has been
collected.
We then need to make adjustment to that information for estimated unpaid
claims. That involves performing a lag analysis, which is used to complete
that recent year's worth of experience, since at the time of performing your
projections the total payments have not been made for all services delivered
in that last calendar year of experience to be projected.
That is an important point in that, if you do not complete that
experience, your base period will be understated; therefore, your future
forecast would be understated, assuming your trends were correct.
After performing the lag analysis and completing your experience, you want
to summarize that experience into meaningful expense categories before
performing your projections. Typically within the industry we see groupings
such as hospital inpatient care, with inpatient setting defined by type of
stay, be that a medical stay, surgical stay, deliveries and the like. For
outpatient hospital care, patient categorizations in the facilities include
emergency room services, surgeries, diagnostic tests and other services.
On the physician side, services are grouped based on definition of
service, using the CPT codes as the definition of classification. Meaningful
categorizations are sensitive to how benefits change over time and helps in
the modeling process, for example, categorizing physician services by routine
office visits, elective surgeries, allergy, immunizations and the like, which
are high-volume services delivered to the patient population.
Prescription drugs are also summarized separately by brand name
prescriptions and separately for generic prescriptions.
Finally, you want to track your historical experience and segment it into
what is referred to as allowed claims versus net paid claims, the difference
being what the member pays as their out-of-pocket costs, whether that is
copayments, deductibles and co-insurance.
I will address trend assumptions. In developing trend assumptions, we
want to develop them specific to the medical expense categories that we
discussed. We want to break out trend components, utilization and unit price,
often referred to as medical cost inflation.
As an example to illustrate how the private sector drills down into
analyzing the cost component, I will focus on the inpatient setting. A large
insurer has several contracts with various hospital facilities across the
country. Those contracts are renegotiated in a staggered way over time such
that a high-volume hospital could become due for renegotiation and the health
plan may expect a spike in their unit price that year for the hospital due to
the hospital having not renegotiated their contracts for several years.
At the onset of those negotiations, the plan tries to gauge how rapidly
those inpatient costs may increase, which could be as much as 20 percent if
the hospital has not updated the contract with the health plan for several
years. Inflator clauses are built into those agreements that may last 2 to 3
years out at a much lower rate.
So this drill-down analysis involves getting to an aggregate unit price
trend based on how the individual facilities contracts come due over time,
which affects the ultimate trend assumption implied for the unit price on the
hospital side. This approach is used on the outpatient, physician and
prescription drug side as well in developing unit costs.
After your trend assumptions are developed, you apply them to your
historical experience to arrive at a forecasted budget, whether you are a
self-insured employer or a health plan, forecasting your total expenses that
underlie your pricing.
Finally, in closing, some advanced recent practices that are being used to
help improve the forecasting process include more drill-down analysis of the
impact of past technologies and new emerging technologies, a look at brand
prescriptions going off patent and the impact of lower-cost generic
prescriptions and the impact on trends and increased utilization of lower-cost
generics and, finally, the importance of new disease management vendors that
are having a great impact on managing chronic disease cohorts within an
insured population base.
That concludes my testimony on the private sector's approach to health
care expense forecasting. I would be happy to take any questions.
[The statement of Timothy Feeser appears on p. 93]
Mr. Boozman. Mr. Vollmer, a lot has been made about the disparity between
the VA budgeting process and the Independent Budget. Can you describe again
the basic fundamental differences as to how you arrive at your information
versus the VA?
Mr. Vollmer. I believe we start at the same place the VA does, and we use
a lot of VA data. We look at current services, what was appropriated for the
given year. We look at what the projected salary or wage increases will be,
the rates of inflation, medical inflation, and build those up to make a VA
budget for the next year that will reflect the same level of services that
are currently being provided. At that time, we look at any additional costs
or recommendations we would then be recommending within the context of the
Independent Budget.
The VA does that at the same time when they initially develop their
budget. But when they go through the pass-back series and it moves away from
modeling and gets into the realm of political policy, their budget begins to
be muddied and is pressured by the requirements for other domestic programs,
for administration priorities, for all kinds of things; and it loses the true
clean nature, I think, that it had when the first numbers were put together.
That is when certain policies or decisions might be made to reduce 7s or 8s.
We predicate the Independent Budget funding for all veterans that would
come into the system and not restricting access to certain categories of
veterans. I think that is where we depart, particularly at the time of the
pass-back and it moves out of the VA and into the broader political arena.
Mr. Boozman. The VA uses Milliman to validate their process. Do you use
an outside source to validate it?
Mr. Vollmer. In the original development of the Independent Budget some
19 years ago, we had outside sources that worked with us. We brought some of
those sources in house. We have had consultants over time that tweak or
fine-tune the mechanism we need; and, in fact, in some modeling at VA we work
with the Milliman people on developing modeling, various spinal cord injury
care, for example.
Mr. Boozman. Mr. Robertson, your modeling is a little bit different in
that it is a demand-based model, can you reiterate as to why you feel that is
more accurate?
Mr. Robertson. Ours is validated by patients being turned away from the
system, patients being denied timely access, facilities that are in need of
repair, backlogs of inventory and equipment, robbing Peter to pay Paul
accounts to keep the system going, to where we had to shut the doors at the
end of the year. That is a pretty good validation process, because it deals
with the lives of veterans.
I mentioned our program, that we have a system. We started this 3 years
ago, where our national commander is visiting facilities -- our national
commander right now is in Denver visiting the VA facilities in that area -- to
compile a report.
A lot of the information we get comes back from VA employees. We sent
questionnaires to all the facilities. We got back 125 out of the 163 we
distributed. And this is all done with the help of the VA. In fact, we
focused strictly on budget issues, and we sent out a second questionnaire
that was a more narrowed focus on the facilities.
So, clearly, we can have all kinds of models and they can work really well
if they are done the way they are advertised. But once it gets into this
bureaucratic process --
And we all understand budgets. My boss sends me a thing telling me to do
a budget. I put down what I want; and he tells me, this is what you are going
to get. Do we run short? Absolutely. Does he know we are going to run
short? Absolutely. And we deal with it down the road.
When you are dealing with the lives of veterans and their family members,
we shouldn't be playing that kind of game. When we are talking about a
decision to give them the best prescriptions possible or find the cheapest
deal we can get away with, that is not honoring the service of the men and
women that are allowed to go to the VA facilities.
Mr. Boozman. You mentioned mandatory funding as a method to make things
better, and certainly that is being discussed here. I guess one of the
concerns I have is that if you look at the countries that have done that then
it seems inevitably it leads to the rationing of care. In other words, you
wait a long time to get your hip replacement or knee replacement and things
like that. Can you comment on that?
Mr. Robertson. There was one comment about setting up a system where all
veterans would have access to the system.
First of all, if you look at every other health care system that is out
there, whether it is DOD, Medicare or whatever, their enrollment participation
of the number of people that are eligible versus the number of people actually
enrolled probably runs 85 to 90 percent. People that are entitled to those
benefits are using those benefits in large numbers.
Out of the VA health care system, there are 24 million veterans. Seven
million have enrolled. So there is a little self-governing in here that needs
to be understood.
If you do a mandatory funding formula or the guaranteed full funding
formula that the American Legion has talked about, that still complies with
the laws on the books. In other words, 7s and 8s, if they are being treated
for nonservice-connected conditions, they will reimburse the government.
There is still the obligation of them helping to pay for their care, which
will help drive down the formula because of how much is actually having to be
spent on health care.
Secondly, the VA, if you look at the cost per patient, is probably the
best deal in the entire health care industry; and I think that was verified
during the Presidential task force when they would show the cost of care for
VA versus Medicare and versus DOD.
I think it is something that needs to be looked at. I think there are
veterans that we say, in title 38, the Secretary shall provide care for and
without question they should be included in that mandatory funding cycle. All
other veterans that come into the system, we have no objections with them
paying for their care.
The final point is the Medicare reimbursements. I guarantee you there is
not a health care professional in this country -- and I guess I am including
you, too -- that you have a Medicare patient and the government told you you
couldn't bill them, I don't think you would think that is a very good idea.
And that is what we have done with the VA system. Right now, the VA is
subsidizing Medicare to the tune of $3 billion because we can't bill for
treatment of nonservice-connected medical conditions.
So many of these Medicare-eligible veterans want to come to the VA for so
many good reasons: quality doctors, a database that maintains all their
records in one place, a prescription plan that is affordable. I mean, the
fact that if you go to a doctor on the outside, you have to find someone who
is accepting new Medicare patients. If he sends you to a specialist, you have
to go find a specialist that is accepting new Medicare patients. It is a
hassle.
The VA system, because of its reputation of the quality of care, because
of its accessibility, is a natural magnet for a lot of these folks. Why can't
we take advantage of that? Why can't Medicare reimburse VA for the services
it is rendering, because that is part of the discretionary budget?
Finally, counting the third-party collections as an offset, you have already
talked about how bad the collection process is. That is a major part of the
problem. When you offset the discretionary account, you are already putting
everybody in the hole. When every distribution is made and the goals are
given out to every medical facility, they are unachievable, and everybody
knows it. So the VA directors are already working at a disadvantage.
And places where the collections are very good, what is their reward?
They get a higher goal the next year. Places that do miserable, what is their
reward? They get a higher goal. So there are a lot of problems that need to
be fixed.
Our funding model, it may not be the most scientific in the world, but it
is the most realistic in the world because we base it upon the services that
are actually getting to GI Joe and Jane.
Mr. Boozman. Mr. Michaud.
Mr. Michaud. The first question goes to Mr. Feeser. What would you do
that would be dramatically different from what Milliman is currently doing in
their modeling effort, if anything?
Mr. Feeser. It would be difficult to really answer the question
accurately without knowing a lot about the VA program in the level of detail
that I need to know to comment on differences on modeling techniques.
But from what I gathered in the conversation this morning, it appears as
such that the mechanics seem fairly standard of the industry in the approach
taken, looking at historical utilization experience, and unit pricing
assumptions and attempting to complete that experience for lag and then
projecting that out to a future point in time.
I believe the point was also made that the model's forecast is as accurate
as it can be for the first year of the budget you are projecting. The ensuing
years after that, the projections would be very soft. As more information
emerges that was unknown and gets accounted for in a second forcast, that
forcast should be improved.
It is hard for me to specifically point to differences in what we do
versus what has been done.
Mr. Michaud. My next question is both for Mr. Robertson and Mr. Vollmer.
You both talked a lot of your members, and I guess I am looking at the
outcome. And we heard the Assistant Secretary of the VA talk this morning
about taking care of the veterans needs. Are you hearing that from your
veterans as far as demand for health care? Is it being met?
Mr. Vollmer. Steve, if I may.
Mr. Robertson. Go ahead.
Mr. Vollmer. I would say that with the veterans returning from Iraq and
Afghanistan getting into the system, as Dr. Perlin has said, the things that
concern us is that the older veterans are getting pushed out the back end as
they are moving in the front end. They have been put on the curb. But their
appointments are being delayed. Time is being stretched out. I think we will
see more of that as we talk to individual hospital directors and health care
providers around the country.
The shortfall Dr. Perlin acknowledged for this year where they are
borrowing from all types of accounts to keep the ship afloat, they realize
come October first, if not sooner, that when they are dealing with the 2006
appropriated level they are going to be in even more trouble.
We talk about the problems that transpire with just the budget that is
sent from down the street up to here for the Congress to wrestle with. Well,
that included a 2.3 percent salary increase and just this week the
Appropriations Committee passed a 3.1 percent increase for pay raises for
employees. The VA has over 180,000 employees. That money is going to have to
be eaten by managers in every station around the country, and the only way
that gets eaten is by either having fewer employees or treating fewer
veterans.
So while the statement is made that we aren't turning veterans away by
extending either waiting times or services available -- and I got a call other
day, you know. There are some beds that are closed because they haven't been
able to recruit staff and that may be a manager's way of just extending his
budget as far as possible.
Mr. Robertson. As far as how is it coming out at the other end of the
pipeline, every veteran that I know, most of the ones that I know who use the
VA system rave about the quality of care. They are happy about going to VA
and it is usually their health care provider of choice. The problem is the
ones that can't get in or the ones that have delayed access and they have to
go some place else because their medical condition needs more timely
attention.
But it is things like this, the letter that came out of the VA medical
facility in Alexandria where they are acknowledging to the new 7s that maybe
want to enroll in the system that they have suspended -- the suspension of
appointments is temporary, depending on the availability of resources. It
will affect all VA medical facilities within the south central VA hospital
health care network. This came from the hospital director to folks, telling
them you can enroll but we are not going to be making any appointments for
you. That is the most classic example.
The most shocking thing I think I heard today, I think, is the comments
made about, well, we plussed up the budget by about a billion dollars. If
you look at that account, most of that billion dollars came from taking money
away from VA administration and VA facilities, the exact same thing Dr. Perlin
was talking about, shifting money from one pot to the other.
So, yes, in the press release we have got a one billion dollar increase,
but in reality we just rearranged the deck chairs. And I think that that is
-- when you take the money away from those accounts, that is where the doctor
gets his money to be able to stretch out the budget to the end of the year,
and you have already done that for him.
Mr. Michaud. Mr. Chairman, I would ask that that letter be submitted for
the record.
The Chairman. Without objection.
[The information appears on p. 111]
Mr. Michaud. Did you have a follow-up.
Mr. Vollmer. Yes, sir, we sat here and heard about all this modeling and
how surprised people were that there is a billion dollar plus shortfall and
there may be shortfalls in the future. I would just like to mention 2 years
ago then Under Secretary of Health, Dr. Robert Roswell, testifying before this
Committee, when questioned about mandatory funding just kind of on the back of
an envelope sketched out how he viewed, without a lot of sophisticated
modeling, where prices would go and just in a sentence I would quote Dr.
Roswell. So a 7 percent increase associated with the enrollment in our
highest priority groups coupled with another 2 to 3 percent of increased
utilization costs coupled with a conservative estimate of health care
inflation rates of 4.5 to 5 percent yield a 13 or 14 percent per year increase
in the money available to take care of just our core population. I think
that, you know, using 13 to 14 percent every year we shouldn't be off by a
billion dollars.
Mr. Michaud. I notice there is a rep still here from Milliman. I am just
wondering what was the total dollar figure as far as using their funding
model, and what was actually needed?
Mr. Robertson. I don't think that information was given out to date. I
didn't hear it. I would have loved to have heard it.
Mr. Michaud. Mr. Chairman, actually since we are talking about doing
models, and I know since someone here is still from Milliman, I was wondering
what the funding model that was presented, what the dollar figure was. And
she is here. And I was wondering what that dollar figure was, if she could
let me know.
Mr. Boozman. Sure.
Ms. Patterson. I don't have the numbers with me. I apologize. I didn't
realize I was coming today to testify about values. We provide many different
models.
Mr. Michaud. Would you provide that model to the Committee, the dollar?
Using your modeling method, you came up with a number and I would like to know
what that number is. If you can provide it to the Committee.
Ms. Patterson. It is -- I apologize. It is not mine. I develop it for
VHA.
Mr. Boozman. Why don't you come up and say that in the microphone.
Ms. Patterson. The model is produced for VHA by my firm and, given their
permission, we will provide whatever it is that you would like to see.
Mr. Michaud. Is there still someone in here from the Department?
Mr. Boozman. Come on up. I know it is a hassle.
Mr. Klein. When the budget is presented, it passes through what one would
assume is a current services budget, but it includes the assumptions of other
policies that change that dollar level. For instance, in the 2006 budget it
had the 250 dollar enrollment fee, which reduces the overall dollar estimate
for the medical care appropriation. It also contained the increase in the
pharmacy copay. So you could almost back into the number that the actuary
model would provide. It also included -- in that budget are efficiencies that
--
Mr. Michaud. If I might interrupt. I don't want to back into anything or
do any assumptions. I would like to get to the point where we are talking
about modeling and how accurate it is, the Independent Budget, you know their
modeling. And I would like to know what that model recommended that was
adequate to take care of the VA. And I think if we get that number of what
that model is and what it is going to take to deal with the VA, I think we
have a better idea on the assumptions, you know, where the model might be
going wrong versus what actually was submitted because what was submitted does
not take into account -- will take into account but it is driven by dollars.
It is not driven by a natural model. If we are going to figure out whether
that model is accurate we have to figure out what that number is in that
model, not what we are dealing with in terms of the actual budget, and that is
why I would like to know under that modeling what is that number so we can
figure out whether it was accurate or not and where we have to adjust the
model to make sure we do get an accurate account.
Mr. Klein. I think we can provide that for the record.
Mr. Michaud. Thank you very much, appreciate it.
[The information follows: Although I must adhere to the embargoed nature
of the information and discussions that go into building a President's budget,
it is important to address your request. The model is one of many inputs to
building the budget. Taken out of context, the model projections do not
represent the entire health care requirements supported by the budget as it
excludes non-modeled programs such as readjustment counseling, dental care,
long-term care and CHAMVA. In addition, since the model was used to estimate
teh impact of the user fee proposals, the model's total expenditure projection
would have been reduced by these budgeted policies.]
Mr. Robertson. I do have one concern with that model because as it was
pointed out during the testimony there are several different models that are
used in conjunction with that. And I think about CARES that we just
completed. The long-term care in the mental health portion of CARES was not
included as part of the evaluation of CARES because they said the modeling for
that was not what they really thought it should be.
So I mean we have got a situation now where we have veterans coming back
where they are going to be in need of long-term care and yet we don't even
know if we have the modeling to adequately provide for the treatment of
long-term health or mental health problems of those returning veterans.
Mr. Michaud. That is a good point and I guess if we are going to look at
modeling and trying to figure out what the actual dollar amount is going to be
needed to take care of our veterans, I think we have to be aboveboard and look
at what we currently have and look at the whole system. And as you heard a
statement made earlier, at the earlier panel, that former Secretary Principi
was aboveboard and honest with the Committee when he said he needed another
$1.2 billion to adequately meet the needs of our veterans.
I appreciate someone who is willing to be honest with the Committee, and I
think it is important that we have that not because we are going to try to
point blame or anything. It is just that as elected officials, if we are
going to do our job and do a job that is effective, we have got to have
accurate information. And I am not looking at pointing blames. I want to
make sure we take care of our veterans. And that is why I think it is
important to know, number one, what the VA actually requested versus what we
are dealing with but also, number two, what the modeling was actually given to
VA just so we can compare the three. And I think it is very important for us
to have that information.
Mr. Robertson. Well, piggybacking on the comment the gentleman just made,
when the initiatives were listed in the budget for third party -- I mean for
increased copayments for prescriptions and the enrollment fee, the modeling
said that there would probably be 1.1 million veterans that would probably
disenroll from the system rather than pay those increased rates. So it does
have an impact on what is going to be the reaction of the veterans population.
Are we really in the business of driving people out of the system? And I
think the answer is no.
Mr. Michaud. And I agree.
Mr. Boozman. I want to thank our panel. Do you have any other things?
You are free to go. Okay, good.
Again I want to thank both panels for being here today. I think this was
a very, very good hearing. Certainly, we all share frustration, I think, of
trying to get this right. As Mr. Michaud said, we need accurate information
to be able to make a determination of where we go with this. I was in
Landstuhl, Germany 3 or 4 weeks ago and visited with a young guy -- we were
there at 2 o'clock in the afternoon. This individual had run over a explosive
device at 4 o'clock the previous morning Iraqi time. Cleaned him up and flown
him there -- and literally was just coming out of surgery. But he wanted to
tell us his story as to what had happened. He lost both legs below his waist
and he wanted to know two things. He wanted to know about his wife. He
hadn't been married very long, was she going to come, and they reassured him
that yes, she would be reunited with him the next day. They were going to fly
him to Walter Reed or Bethesda and that was taken care of. And the last thing
he said to us, he said I saw it happen to my friends and my buddies. I saw it
happen to my other guys in my unit. I never thought it would happen to me.
And then he said, do you think I will ever get to walk again? And so we
reassured him that was going to be the case.
So that is why I am on this Committee. Mr. Michaud and the rest of us, we
do want to get this right.
The other problem is that tomorrow I am going to a funeral of my favorite
uncle, he is a World War II guy and he has been very ill for the last 6 months
and died as a result of congestive heart failure leading to needing massive,
really significant surgery and just didn't come out of that. His medical
bills in the last 6 months have exceeded all of his medical bills up to now.
So there really are things like that, that are going on and make it so
difficult.
We are running into the same problem with health care, not only with the
VA system, which is a wonderful system right now, but we are running into the
same thing with Medicaid. We are running into it with private insurance.
Health care now is very difficult to model by any sector that is doing it,
whether it is the insurance company, whether it is the VA or whatever. So it
is not something that I think there is any blame. I appreciate the Chairman,
I appreciate the Ranking Member, for calling this meeting and this hearing.
This is something that we do have together to get our arms around and I think
there is a commitment to do that.
Mr. Robertson. May I make one comment in reference to the young man that
you visited in the medical facility? You know we are going to take care of
him, and we are going to take care of his family. But we also need to take
care of the guys that rescued him off the battlefield, the ones who that flew
him to the hospital and the ones that are going to treat him until he is
discharged from the military. All of them should have access to the system,
not just him.
Mr. Boozman. I understand and look, I said my wife's uncle, he was a
World War II guy, and we have taken care of him. So I agree with you totally.
And you can see when you go over to Iraq and you see those young guys and then
you see our older vets, and can just see in the faces of both. They are just
the same folks. I agree with you totally, so again that is our commitment,
and I think today was a good step in that direction. So thank you very much.
[Whereupon, at 12:46 p.m., the Committee was adjourned.]