STATEMENT OF
DR. LEO S. MACKAY, JR.
DEPUTY SECRETARY
DEPARTMENT OF VETERANS AFFAIRS
ON
VA-DOD HEALTH CARE SHARING
BEFORE THE
SUBCOMMITTEE ON MILITARY PERSONNEL
COMMITTEE ON ARMED SERVICES
AND THE
SUBCOMMITTEE ON HEALTH
COMMITTEE ON VETERANS' AFFAIRS
U. S. HOUSE OF REPRESENTATIVES

March 7, 2002

Thank you for the opportunity to speak to you this morning about the status of coordinating health care resources between the Department of Veterans Affairs ( VA) and the Department of Defense ( DOD). As you know, the President has identified expanded collaboration between the VA and DOD health care delivery systems as a top priority for his Administration, listing improved interagency coordination between VA and DOD as one of his top management agenda items to benefit both VA and DOD beneficiaries. The President further demonstrated his personal commitment to veterans and military retirees by signing an Executive Order on Memorial Day 2001 establishing the President's Task Force to Improve Health Care Delivery for Our Nations Veterans ( PTF). You will hear more about the PTF this morning from Dr. Gail Wilensky, Co-Chair of the President's Task Force; however, I want to express the Department of Veterans Affairs strong commitment to supporting the activities and deliberations of the PTF as the Members review barriers to VA and DOD cooperation and identify opportunities for improved partnerships. We view the work of the PTF as vital to shaping our future relationship with DOD and look forward to receiving the interim report from the PTF this summer and the final report in March 2003.

There is no question enhanced collaboration between VA and DOD has the potential to improve services to our respective beneficiary populations, increase government efficiencies by decreasing the costs of providing bifurcated health care services and veteran's benefits to DOD and VA beneficiaries, and improve utilization of our health care facilities. Over the years VA and DOD have been actively engaged and have enjoyed successes; however, much work remains to be done and VA welcomes the opportunity to expand our partnership with the Department of Defense. As a matter of fact, the Secretary of Veterans Affairs recently identified for the President eight areas of emphasis for increased coordination of services between VA and DOD. I understand that DOD has also proposed additional opportunities for increasing efficiency and coordination of benefits between our two departments. I am confident that working together, we will reach agreement on developing a common set of recommendations that our Departments can implement and our beneficiaries can endorse.

To accomplish the goal of improving coordination to achieve greater benefits for our beneficiary populations, the Departments have established two joint executive councils to explore areas where we can improve or enhance sharing activities. The VA/ DOD Health Executive Council is an ongoing collaborative venue between the leadership of the Veterans Health Administration and the DOD Health Affairs. This council has been reinvigorated in the last year through establishment of new goals, work groups, and accountability. Based on the successful Health Executive Council model, the VA/ DOD Benefits Executive Council was recently established to provide an official forum for senior level interaction between the Veterans Benefits Administration and the DOD Office of Force Management Policy.

To increase the substantive actions taken by our two Departments and demonstrate leadership commitment to providing our beneficiaries with a seamless transition from military to veteran status, Dr. David S.C. Chu, Under Secretary of Defense for Personnel and Readiness, and I have recently begun to hold joint meetings of the Executive Councils to ensure that we receive regular updates on joint strategic planning activities and initiatives, provide guidance and policy direction on collaborative initiatives, and ensure that Department level administrative issues are not overlooked in individual Executive Council discussions. We plan to hold these joint meetings on a quarterly basis. I was privileged to host our first joint meeting on February 11, 2002, at the Department of Veterans Affairs. During our inaugural meeting we had an opportunity to focus on several key issues that have direct impact on the future success of our VA/ DOD collaborative initiatives. The specific areas of discussion included: standardized billing and reimbursement rates; joint procurement initiatives; computer based patient medical record initiatives; Defense Enrollment Eligibility System (DEERS); coordination of capital Investments; and planning for the receipt of the recommendations of the Presidential Task Force to Improve Health Care Delivery for Our Nation's Veterans.

While much work remains to be done, it is important to note that VA and DOD executive leadership at the National, regional, and local levels have been working jointly for several years to improve and expand sharing with significant accomplishments to our credit. Nationally, VA and DOD have made progress in the joint development of clinical practice guidelines. VA has taken a leadership role in the promotion of patient safety and DOD has benefited from our experience and is adopting aspects of our program. We are saving significant taxpayer dollars through joint procurement efforts, primarily in pharmaceuticals. We are pursuing better transmission of health data between the two agencies, improved coordination of capital facilities planning and use, and improved resource sharing between our regional organizations and local facilities as well as increased VHA treatment of DOD TRICARE beneficiaries.

Although we will need to engage in significant discussions to iron out potential implementation details, both VA and DOD have identified improved partnering for health care procurement as an action needed to ensure better coordination of DOD and VA services. Experience has clearly demonstrated that our combined purchasing power results in significant financial savings to both VA and DOD, allowing us to better utilize our budgets to the benefit of our respective beneficiary populations. For example, VA and DOD entered into a Memorandum of Agreement (MOA) in December 1999 to combine the overall purchasing power of our two Departments and eliminate redundancies. The MOA has two completed appendices, one dealing with pharmaceuticals, the second, encompassing medical and surgical supplies. A third appendix covering high-tech medical equipment is being finalized.

As part of the MOA, and in an attempt to reduce duplication between the two departments, DOD agreed to eliminate their Distribution and Purchasing Agreements (DAPAs) for pharmaceuticals and to rely upon VA's Federal Supply Schedule ( FSS) for pharmaceuticals by late 2000. As a result, DOD's DAPAs were eliminated in January 2001 for all pharmaceuticals that are available under VA's FSS program. Thus, in FY 2001 DOD purchased $1 billion dollars of pharmaceutical items through its own prime vendor program, using FSS pricing. Utilizing its own prime vendor program, VA purchased $2.5 billion of pharmaceutical supplies. This same process, converting DOD DAPAs to VA's FSS program, is being utilized for medical and surgical supplies. The first data feed was completed in December 2001 and conversion is expected to be completed by December 2002. Once the appendix for high-tech medical equipment is signed, contracting responsibilities will alternate between the Departments and will allow both Agencies to place orders against the resulting contracts.

Another important area of the MOA focuses on joint procurement of pharmaceuticals. As of February 20, 2002, there were 57 VA/ DOD joint contracts for pharmaceuticals; 35 additional joint contracts pending award; and 30 proposed joint contracts waiting to be processed. The estimated cost savings in FY 2001 for both Departments from these contracts totaled $98.3 million ($80.1 million for VA and $18.2 million for DOD). These savings were obtained from 43 contracts. We have not yet received the actual cost savings figures for the contracts awarded to date during this fiscal year, but believe savings will continue to grow. To further improve collaboration and reduce health care costs for both departments, VA is proposing legislation to allow DOD to directly utilize the VA Revolving Supply Fund for medical supplies, equipment and services procurement. We believe that enactment of this provision will facilitate cooperative management of significant VA/ DOD acquisition programs.

The development of compatible information technology systems may be one of the most important areas that VA and DOD address in an interagency manner in the coming year. Both VA and DOD spend significant amounts of taxpayer funds annually on the information technology and information management programs supporting our two missions. Yet, in spite of our best efforts to date and the requirements of both departments for similar information over the life-cycle of a member of the armed services, incompatibility of VA and DOD information management and technology systems is one of the most frequently noted impediments to increased coordination between the two departments. This results in duplication of workload, promulgation of inefficiencies, inability to communicate critical data in an efficient manner, and increased paperwork for our veterans. We currently do not have a complete single repository of active service members' and veterans' health data that can be used to ensure continuity of care, improve health care delivery, and provide valid, reliable data for disability claims. DOD tracks all relevant information for active duty members and their families. However, when these individuals go to VA for medical or other services or benefits they must enroll at VA, often providing the same information already on file at DOD. We are now investigating the possibilities of using the DOD Defense Enrollment/Eligibility Reporting System (DEERS).

The improvement of information technology compatibility and establishment of an interoperable electronic patient record system top the VA/ DOD coordination agenda of this Administration. With respect to information technology coordination and health data repositories or databases, specific actions are being taken through the VA/ DOD Health Executive Council and are being monitored by senior department leadership through our Joint Executive Councils forum.

For example, the VA/ DOD Health Executive Council Information Management and Information Technology Work Group manages the VA/ DOD interagency Government Computer-based Patient Record (GCPR) program, recently renamed the Federal Health Information Exchange (FHIE) to better reflect the intent of the program. The goal of FHIE is to make DOD and VA medical data available to VA and DOD clinicians with the highest functionality at the lowest cost. VA and DOD are establishing a national repository under the GCPR/FHIE Project that allows for sharing of select DOD patient data at VHA locations. The transfer of DOD data to VA is in the testing phase. In this fiscal year, VA and DOD are developing a joint business case and implementation plan to address the interoperability of GCPR/FHIE with CHCS II, DOD's new system in development, and VistA, VA's patient information system. Additional phases of this project will support DOD viewing of VHA information. Other information technology sharing efforts already underway between DOD and VA through the VA/ DOD Health Executive Council include: Health Insurance Portability and Accountability Act of 1996 (HIPAA) standards development; pharmacy initiatives; technology integration laboratories; VA/ DOD Laboratory Data Sharing and Interoperability; and collaboration for a VA/ DOD Consolidated Mail Order Pharmacy (CMOP) pilot.

While these ongoing efforts are significant and we hope to realize substantial progress through them in moving toward more seamless information transfer, we are continuing to explore additional opportunities for collaboration to improve delivery of care at the patient level and to better utilize taxpayer dollars. For example, DOD is establishing a national patient record using a Health Data Repository product from a commercial vendor. VA intends to pursue a comparable solution and has staff working with DOD on a regular basis. VA also intends to explore the potential with DOD to create a second phase to this effort that supports creation of government-owned repository architecture/software, not dependent on vendor technology. This architecture/software could also be used throughout government to create health care repositories that can easily share patient information.

Looking to the future, last fall VA, DOD, the Indian Health Service, and other agencies began to look at the potential for a substantially expanded health information system, entitled HealthePeople, whose purpose is to improve sharing of health information; develop and adopt common standards; seek appropriate opportunities for joint procurements and/or building of systems; work toward improved, model health information systems; and explore the potential convergence of VA and DOD health information software applications.

As we pursue the short, mid and long term goals of delivering health care and maintaining adequate medical records for our nation's military and veterans in a seamless fashion, it is important to recognize the magnitude of the undertaking and remain focused. The complexity and magnitude of the two health care delivery systems and their health information systems present a challenge in building health data repositories for each organization that can handle the large number of health records, appropriately ensure privacy and security, and support sharing of information. To address these unique challenges in establishing better linkage between the VA and DOD information management and technology, DOD and VA are currently considering separate data repositories to ensure privacy and security and to reduce the consequence of any failures. It is our expectation that both repositories will be operational before 2005, with common data standards to support retention of records from DOD and VA.

For a number of years, consideration of potential sharing with local DOD facilities has been part of VA's Major Construction planning process. As a result, several joint facilities are currently in operation. VA recently completed a review of capital asset infrastructure in the Chicago area and plans to complete reviews of needs for the rest of the country during the next two years. As we conduct these reviews we will involve DOD counterparts at both the local and national levels to assure that we do not miss opportunities to better serve our beneficiaries.

VA and DOD collaboration in the North Chicago area provides an outstanding example of the mutual benefit of interagency capital asset sharing. The Secretary of the Navy and I recently signed an agreement to transfer 48 acres of VA land at the North Chicago VA Medical Center to the Great Lakes Naval Training Center. The land will help the Navy modernize their recruit training facility and, in exchange for the land, the Navy has agreed to purchase electricity and steam from a VA-sponsored co-generation energy center that will result in substantial energy savings in the future. Additionally, through a special North Chicago Task Force established by the Co-chairs of the VA/ DOD Health Executive Council and the Surgeon General of the Navy, VA and DOD are continuing to explore short and long term options for improved coordination of health care delivery, including review of the possibility of establishing a joint medical facility serving both veterans and Navy personnel.

As the VA/ DOD Health Executive Council has established a number of work groups to make recommendations to improve cooperation, including a group specifically reviewing joint facility utilization and resource sharing, VHA and DOD leadership across the country have begun to engage in more vigorous coordination initiatives. For example, DOD's Mid-Atlantic Region (Region 2) and VA's Veterans Integrated Service Network (VISN) 6 recently met in November 2001 to discuss potential measures to maximize interagency use of federal resources in the area. The group plans to build on successful collaboration efforts in laboratory and pathology. Laboratory and pathology "Centers of Excellence" have been designated for facilities to purchase laboratory and pathology services at considerable savings. Region 2/VISN 6 are currently exploring establishing a joint community based outpatient clinic in eastern North Carolina and consolidated surgery services in the Portsmouth/Hampton, Virginia area.

Also, VHA's VISN 20 and DOD's Northwest Region 11 held meetings in the fall and winter of 2001 to discuss additional opportunities for improved coordination. Many areas of promise were identified including: physician staff support in a number of specialties; nursing support and education; VA use of DOD operating rooms, VA clinics' use of DOD military treatment facilities (MTFs) for referral laboratory services, inpatient urology, and emergency hospitalizations; VA's use of DOD's contract for referral laboratory services; and examining 220 region contracts in excess of $24 million to consolidate procurements and make use of existing shared-use contracts.

Although the senior leadership of VA and DOD are providing leadership support and direction for improved interagency coordination at all levels of interaction, sharing between VA and DOD at the local level is not a new or static concept. As a matter of fact, health care officials almost universally declare that "health care is local," making facility level coordination efforts extremely important to improving health care delivery to our beneficiary populations. The recognition of the value of interagency collaboration between VA and DOD is at least 20 years old and the nature of collaboration over the past two decades has been dynamic, reflecting changes in law, changes in leadership, and changes in the way we deliver health care in the United States.

As you know, Congress passed the " VA and DOD Health Care Resources Sharing and Emergency Operations Act" in 1982, and amended it in 1992. Innovative leadership at the local and regional levels has leveraged this authority to benefit military and veteran beneficiaries.

Currently, there are 165 VA Medical Centers with at least one sharing agreement with a DOD partner. Most MTFs also participate. At the close of FY 2001 there were 604 agreements covering 6,602 services. Most agreements cover diagnostic and ancillary services such as clinical pathology, radiology, audiology, and nuclear medicine. These agreements provide both VA and MTFs with a cost effective mechanism to secure expanded capacity to meet the health care needs of their beneficiary populations and also provide both departments an alternative to procuring services through potentially more costly private sector sources.

It should be noted, however, that the direct sharing relationship between VA and DOD has changed over the years and is currently in decline. The number of agreements has declined from nearly 1,000 to 604 from FY 1998 to FY 2001 while the total number of services covered in all agreements dropped from nearly 10,000 to 6,602 in the same time period. Total VA reimbursable collections from agreements reached a high figure of $32.5 million in FY 1999, declining to $27.9 million in FY 2001. VA purchased from DOD $23.9 million in services in FY 1999. This figure declined to $20.4 million in FY 2001. With the DOD roll-out of the TRICARE managed care support contract program, use of many of these direct sharing agreements between local facilities have been suspended (even though the departments still list these agreements as "active") because local facilities frequently do not formally cancel their interagency direct sharing agreements. We are committed to working together at the national level to increase VA's presence in the TRICARE networks and use of VA when clinically appropriate.

We also have many VA/ DOD agreements that involve reserve units from the Army, Army National Guard, Naval Reserve, Air Force Reserve, and Air Force National Guard. Eighteen of VHA's 21 Veterans Integrated Service Networks (VISNs) have agreements to provide physicals to Army Reservists working with the Department of Health and Human Services' Federal Office of Occupational Health.

Joint ventures are designed to avoid duplication of medical facilities, expand access to services for federal beneficiaries, and to curtail federal health expenditures through 'economies of scale.' The seven main VA/ DOD joint venture sites are listed below:

JOINT VENTURE SITES

Recently, this list of joint ventures has been informally expanded to include an eighth site, recognizing the significant collaboration efforts between the VAMC Lawton, OK and Ft. Sill.

The VA/ DOD Health Executive Council Joint Facility Utilization and Resource Sharing Work Group has been tasked to make recommendations for improved coordination of services where VAMCs and MTFs are in close proximity as well as in those areas where either a VA or DOD health care facility may be used to provide medical care to the beneficiaries of both departments.

In 1995, DOD established the TRICARE program to deliver health care services to its beneficiary population through regionally based managed care support contracts. VA provides services to TRICARE beneficiaries as long as veteran beneficiaries are not negatively impacted. VA Medical Centers currently have 134 contracts to provide services. TRICARE earnings, still relatively small, are steadily increasing ($ in millions):

Tricare Earnings

However, as of September 30, 2001, only 90 VA Medical Centers reported reimbursable earnings from TRICARE. The degree of participation varies considerably from one facility to another based on a number of factors.

Prior to implementation of the TRICARE program, it was relatively easy for local VA and DOD officials to develop an interagency agreement to share health care resources. Under TRICARE, however, the nature of interagency sharing has shifted from direct sharing between equal federal partners to VA primarily functioning in a subcontractor role, making sharing between DOD and VA more complicated. VA administrative costs are higher under TRICARE than with sharing agreements established directly between a DOD facility and a VA medical center. Moreover, given the cost advantage of VA, and the administrative expenses associated with the TRICARE contracts, the government likely pays more for the services provided under TRICARE than would be the case with direct purchase from VA without going through the TRICARE provider networks.

Many VA facilities do not have the capacity to offer primary care to large numbers of TRICARE beneficiaries, even though VA can provide outstanding specialty care and advanced diagnostics in the same area. However, under TRICARE, if a provider does not supply primary care services, referrals are less likely to be made to that provider for specialty care and advanced diagnostics. While not a universal trend, in some locales TRICARE contractors have been less than enthusiastic in welcoming VA participation when they already have well established networks of providers or, in some instances, there are exclusive contracts or special relationships with other providers. As well, a further disincentive under TRICARE is that DOD beneficiaries incur co-pay and deductible expenses out-of-pocket for care at a VAMC unlike at an MTF where there is no cost-sharing for care.

Finally, VA Medical Centers have had difficulty performing administrative functions eliminating TRICARE billing inefficiencies such as collection of co-payments at the point of service, data and coding accuracy, and billing of other "primary" health insurance (after which TRICARE is secondary payer). However, progress is being made. VHA plans to issue a directive outlining proper TRICARE billing procedures. A variety of different formats are being explored using a variety of methods such as training software, videotapes for individual training credit, and satellite broadcasts. In FY 2001, 21 VAMCs were reimbursed at least $100,000, up from 19 in FY 2000.

We are continuing to work with DOD to assure that TRICARE beneficiaries can avail themselves of health care from VA. Over one million veterans are dually eligible for both VA and DOD health services, and we believe there are opportunities to better serve them and to do so cost effectively. Agreement on the appropriate future role of VA in the DOD TRICARE program is important to future collaboration between VA and DOD. This issue is also under discussion with the President's Task Force.

VA and DOD are working at all levels to expand and improve our sharing relationships. In addition to those specifically discussed, we continue to cooperate on homeland security, contingency planning, and emergency management. We have made progress in recent years, but I believe we can do more. Dr. Chu and I have committed to ensuring that both our departments work together as effectively as possible.

This concludes my statement. My colleagues and I will be pleased to answer any questions members of the Committees may have.