16

Mr. MONTGOMERY. The only way you can get in is if everybody
moves out of Minnesota, there are only a few veterans left up
there, and we have a big hospital with a lot of beds open, then you
could go into that hospital.

Mr. HouGuTon. I guess that answers it. Fine, thank you.

Chairman THOMAS. Perhaps we need to, just before we go to the
gentleman from Connecticut, understand prior to the other testi-
mony what we are dealing with.

What we currently have in the bill that was moving earlier is a
demonstration program between the Department of Defense and
HCFA dealing with military retirees and their dependents.

Mr. Stump. That is correct.

Chairman Tuomas. Now, all military retirees are veterans. But
not all veterans are military retirees, because they have got to
spend what, a minimum of 20 years, to reach the military retiree
status.

So by definition, the military retiree universe is a smaller one
than the veterans.

By the structure that the Veterans Administration has estab-
lished, not all veterans as per the discussion with the gentleman
from New York, being a veteran is not sufficient to be eligible for
care at a VA hospital, you have to meet additional criteria.

What are you planning in this bill to expand the criteria for vet-
erans to be eligible in the veterans structure? Anything at all?

Mr. Stump. None, Mr. Chairman.

Chairman THomas. Let me wait until all the visitations have oc-
curred.

Do you agree, Sonny?

No additional expansion of veterans for treatment at veterans fa-
cilities with your bill?

Mr. Montcomery. I would think under the demonstration that
that would bring—I am not sure of this—but I think that would
bring in more dollars, and then we could treat other veterans. That
is kind of the idea of——

Chairman Tuomas. I understand that. I am not concerned about
how you manage the money, I am concerned right now about the
universe of eligibility for people who may use it.

Now, what would occur is you might—I believe the current uni-
verse is 11 million of the 26 million—you maybe go beyond the cur-
rent 2.9 million who use the service closer to 11 million if you
added this additional service which would attract people who were
otherwise eligible into the system. But that does not increase the
universe of eligibles. It merely offers another program which those
who are in that universe might feel that it would be more attrac-
tive for them to go to the veterans facility. That is what we are
talking about.

Mr. Stump. Mr. Chairman, if I may, we are only talking about
veterans.

Chairman THOMAS. Veterans.

Mr. Stump. Category C veterans who are Medicare eligible.
These are veterans who are 65 and not currently covered under the
indigent status or under the disability status.

To answer your question, the expansion is only to those that are
65 who have not previously used the VA.


37

(CONGRESSIONAL BUDGET OFFICE Neill
U.S. CONGRESS Deeetor one
WASHINGTON, D.C. 20515.

September 17, 1996

Honorable Floyd Spence
Chairman

Committee on National Security
USS. House of Representatives
‘Washington, D.C. 20515

Dear Mr. Chairman:
The Congressional Budget Office has prepared the enclosed cost estimate of H.R. 3142, the
Uniformed Services Medicare Subvention Demonstration Project Act, as ordered reported
by the House Committee on National Security on September 12, 1996.

The bill would affect direct spending and thus would be subject to pay-as-you-go procedures
under section 252 of the Balanced Budget and Emergency Deficit Control Act of 1985.

Ifyou wish further details on this estimate, we will be pleased to provide them

Sincerely,

Enclosure

ce: Honorable Ronald V, Dellums
Ranking Minority Member


33

‘THE DOD-MEDICARE SUBVENTION DEMONSTRATION

‘The Departments of Health and Human Service and Defense have forged an
agreement to coordinate the Medicare program and the military health care services
system in a three-year demonstration of Medicare “subvention.”

“The demonstration will involve dual-cligible beneficiaries (military retired personnel
and their family members and survivors who are also eligible for the Medicare
Program).

twill take place over three years in five geographic areas in Washington state and
DoD Region 6 (Texas, Oklahoma, Louisiana, and Arkansas), including (1) Tacoma-
Seattle, and (2) San Antonio, Approximately 60,000 dual-eligible beneficiaries live in
these sites (the exact number will depend on the location of the other three areas).

Medicare will give DoD capitated payments for beneficiaries who enroll in TRICARE-
-DoD’s regional managed care program modeled on health maintenance organization
(HMO) plans offered in the private sector--but only after DoD surpasses its “level of
effort” (ie., the dollar amount DoD now spends delivering health care services to
dual-eligible beneficiaries in military treatment facilities in the demonstration sites).

Enrollment will be limited to dual-eligibles who previously used military treatment
facilities and who agree to participate in Part B of Medicare.

DoD will provide the complete Medicare benefit, including skilled nursing facilities
and home health care, and will mect Medicare’s quality standards and conditions of
participation as a Medicare HMO.

For every enrollee above the level of effort, DoD will receive 93 percent of the
adjusted average per capita cost (AAPCC) in the first year. (Medicare risk HMOs
receive 95 percent of the APC.) In later years, DoD will receive 90.25 percent of
the AAPCC, adjusted to exclude some or all of the costs associated with direct and
indirect graduate medical education, disproportionate share hospital payments, and
capital expenditures.

‘An independent evaluator will assess the costs to DoD and Medicare, the quality and
accessibility of care for dual-ligible beneficiaries, and any effects on local health care
providers and other beneficiaries.

Because of the Administration's concer about the solvency of the Trust Funds, the
demonstration will include these key protections: (1) a $65 million annual cap on
Medicare payments; (2) an end-of-year reconciliation process to correct for any
mistaken overpayments; and (3) audits of DoD facilities by the DHHS Inspector
General and HCFA,

Beneficiaries will have enhanced choice. They will be able to use their Medicare
benefits to enroll in and easily disenroll from TRICARE, obtain care from civilian
providers, or continue to seek care from DoD on a space-available basis.


STATEMENT OF
DAVID M. TUCKER, ASSOCIATE LEGISLATIVE DIRECTOR
PARALYZED VETERANS OF AMERICA
FOR THE RECORD OF THE
HEALTH SUBCOMMITTEE,
OF THE
COMMITTEE ON WAYS AND MEANS
REGARDING HLR. 4068

“THE VETERANS MEDICARE SUBVENTION DEMONSTRATION PROJECT ACT”
SEPTEMBER 17, 1996

Mr. Chairman, and members of the Subcommittee, the Paralyzed Veterans of America (PVA)
appreciates this opportunity to share our views regarding the creation of a demonstration project
to explore the feasibility of allowing the Department of Veterans Affairs (VA) to retain Medicare
reimbursement for health care provided to Medicare-ligible veterans in certain geographic

areas. Allowing the VA to retain third-party reimbursements in general, and Medicare
reimbursements in particular, remains an important goal of PVA. Medicare subvention is a
significant tool in enabling the VA to meet the health care challenges of the present, and the
challenges facing it in the future. Of primary concem to PVA is the retention and improvement
of specialized services, such as spinal cord injury and disease medicine, that are the hallmark of
the VA system, and the key to its survival, Medicare subvention is an important step in this
process,

Specialized services within the VA are a unique resource, one not easily obtained nor matched in
the private-sector health care universe. The VA's noted leadership in areas such as spinal cord
medicine and sustaining care isa resource that should not be squandered, and a leadership that
should not be forsaken. PVA has worked tirelessly and diligently to protect specialized services
within the VA reform movement, and we shall continue to do so. We shall continue in our
endeavors to promote over-all reform in the VA medical system. We must take steps to ensure
that this system provides eligible veterans with the health care they deserve. while ensuring that
the VA becomes ever-more effective and efficient in the provision of this car,

We believe that Medicare subvention will strengthen the VA system, yet not cause harm to the
Medicare trust funds. In fact, the demonstration project established by H.R. 4068 would help
protect these precious trust fund dollars. By establishing the rate of reimbursement at less than
that established for private-sector providers, Medicare would preserve resources while ensuring.
that veterans receive needed health care, We believe that the VA will be able to provide
cost-effective care to Medicare-eligible veterans while providing veterans with care that is often
‘not matched in the private sector.

PARALYZED VETERANS OF AMERICA

‘S01 Eighteenth Street. NW + Washington. DC 20006-3517 + 202} USA. 1200 Voice + (202) 416-7622 TDD + (202) 783-482 FAX


42

This estimate also assumes that the demonstration project would take place in three
of DoD’ administrative regions--Region 6 (Texas), Region 1] (Washington/Oregon),
and Region 12 (Hawaii/Pacific). ‘Those regions contain approximately 220,000
retired military personnel and their dependents who are entitled to Medicare insurance
coverage in addition to being eligible to receive care in DoD medical facilities. The
estimate assumes that 30 percent of the eligible population in those regions would
ultimately enroll in DoD's managed care program to continue to receive their care
from DoD. Finally, Medicare is assumed to reimburse DoD at a rate of $5,425 per
capita in 1997, a rate that would rise to about $6,775 in 2000.

‘Spending Subject to Appropriations Action

In terms of its relationship with DoD, HCFA would pay more to DoD than it now
pays to the private sector, and DoD would be free to spend the extra reimbursement
on things other than medical care for the beneficiaries eligible for Medicare.

The increase in mandatory spending would allow discretionary authorizations to
decline by the same amount because DoD would be able to spend the receipts from
Medicare. The same factors that would lead to higher Medicare costs would obscure
whether or in what amounts this demonstration project was providing net additional
resources to DoD. Whether discretionary savings would actually occur would depend
on annual appropriation action.

On the other hand, discretionary costs would rise to cover HCFA's and DoD's
administrative costs to manage and evaluate the demonstration project. These costs
would probably amount to a few million dollars.

PAY-AS-YOU-GO CONSIDERATIONS:
‘The Balanced Budget and Emergency Deficit Control Act of 1985 sets up pay-as-you-

go procedures for legislation affecting direct spending or receipts through 1998. The
bill would have the following pay-as-you-go impact:


10

Additionally, the House has passed H.R. 3118, which
reforms VA's eligibility criteria, further accelerating this
shift to more cost effective care.

However, like Medicare-eligible military retirees, many
Medicare-eligible veterans cannot gain access to the
treatment facilities established to serve them.

Veterans have trouble understanding why they can’t get
their care from the VA and have Medicare reimburse VA,
just like it would any other provider of health care.

I strongly believe Congress should establish Medicare-
subvention demonstration projects for both DoD and the
Department of Veterans Affairs.

H.R. 4068 does exactly that for the VA.

! urge you to act on both proposals before this Congress
adjourns.

Thank you Mr. Chairman.


10

medical care for dependents. You also remain welcome at
military commissaries, clubs and exchanges. Free space-
available travel on some military flights allows retirees to
travel to exotic foreign lands..."

"Noncontributory medical care during active duty and
retirement for both officer and dependents."

Brochure, "Army Bey
(RPT 909, November 1991)(Still in use by recruiters in 1993),

“Superb Health Care. Health Cure is provided to you and your
family members while you are in the Army, and for the rest_of
your life if you serve a minimum of 20 years of active Federal
‘service to earn your retirement."" (Emphasis added)

Ay further evidence of the lifetime health care commitment, it is instructive 1p
reflect on a 1991 study by the Gpngressional Revearch Service, titled Military
Health Care/CHAMPUS Management Initiatives. , prepared by David F. Burrelli,
an analyst in National Defense, Foreign Aftairs and National Defense Division, on
May 14, 1991

“sauThe Dependents’ Medical Care Act (P.L. 84--569; June 1956;
70 Stat. 250) described and defined _retiree/dependent
eligibility for health care at military treatment facilities (MTFs)
us heing on a space-available basis. Thus, for the first time, the
dependents of active duty personnel were entitled to health care
at MTFs on a space-available basis. Authority was also provided
to care for retirees and their dependents at these facilities
(without entitlement) on a space-available —basis..... Although no
authority for entitlement was extended ta retirees and their
dependents, the avai yof health care was almost_assured,
given_-the. small pumber of such persons, Therefore, while. not

legally authorized, for many the of “free” health care

“for life" was functionally true, "promise" is ely
believed and and continues to be a useful top) for

MEDICAL COVERAGE SECOND TO MOST?

Unfortunately, the American public -- and many in Congress = awe the
misperception that uniformed servives retirees have better-than-average health
eae benefits. This is correct in terms of the quality of care for those who are
able tw access military treatment facilities, However, tor an ever increasing
humber of beneficiaries, particularly those age 65 and older, this wccess ts a
myth, The Department of Defense is_virwally the only [urge employer tht
terminates its rettees’ health coverage when they turn 65

‘arly all of the largest U.S. corporate and government employers
wo

In contrast, ni
provide their retirees substantial employer-paid health coverage in uddi
Medicare. Data from a 1994 survey by Hay Associates (one of the nation’s
respected firms in the fea of employee benefits), indicates that the majorit

corporate employers provide at least some employer-paid coverage in dd
to Medicare -- and the larger the employer. the more they provide. Th
Department of Delense -- Americw’s largest employer -- daes mot stack up welll 1m
Hus department The gap ix even wider when the uniformed services’ health

care package is compared to the benetit afforded to employees who have retired
from. the very largest private sector corporations, Far example, the four largest


52

This is why the subvention demonstration project is defined in
relatively narrow terms. For instance, participation is limited to
beneficiaries who are already in the system. The project will also
consider the issue of whether, given the two different ways in
which the Federal Government finances health services for these
beneficiaries, we can change the mix of financing to some extent.
However, we hope that any change will have no net increase in cost
to the Federal Government and will continue to protect the avail-
ability of these services to our dual beneficiaries.

Mrs. JOHNSON. Just to return to my question, I understand what
you are trying to do, and I think there is some good rationale for
doing it across the country, both for the retirees, and for veterans.
But for your own enlisted people, you have done this sort of cold
turkey. Now, dependents only have space available. It is a terrible
system. It was not working. I am delighted you have offered
TRICARE.

But why do you not just say to retirees, “Look, you can join this
in order to have access to the military hospitals,” and then just
that part of the budget that you have used for reimbursing military
hospitals, you just segregate those dollars and they go to pay
TRICARE premiums. I do not see why you do not just make it com-
petitive. I mean, military retirees can choose TRICARE, and if the
military hospital is good enough to get the TRICARE business, or
let them choose another managed care plan, let them have their
choice of managed care plans including TRICARE. Put the military
hospital with its space available limitations up against other hos-
pitals in the other areas.

But our only concern is that our veterans have access to care, in
this case military retirees. But I do not see that the system you
have set up about current level of efforts and all that stuff, I mean,
I hear what you are saying, but I do not know if we are going to
do this. I cannot imagine doing this. I cannot imagine expanding
this demo to nationwide with this kind of complexity. Now, the way
we do it for other retirees has worked abominably. We capped Med-
icare, Medicare is a capped program. It has a target. If seniors use
more services than the target anticipated, we cut rates. And that
is what you are doing to TRICARE. You are saying the cap is 65
million, if you go over it, you eat the cost. And that is the risk you
take.

Now, this does not work very well in Medicare, because we do
not have anyone to take the risk, except ourselves, so the rates go
down. That is what happens. And people lose access.

But if you make a mistake, and your 65 million is too low, it is
fine to say we have capped it. The fact is people are going to get
lousy care, because the risk will be too great.

So it seems to me that giving retirees the choice of TRICARE or
of other managed care plans in the area, serves them far better
and particularly in terms of the national demonstration project, be-
cause you are not going to have a lot of people, retirees, who are
going to live near military hospitals. As you said, we have already
closed 30 of them, and I think you are demonstrating the wrong
thing. You are demonstrating just military retirees, near military
hospitals, only ones who have been served, and all we are going to
do is try to shift the real cost of that service to Medicare.


50

Mrs. JOHNSON. In other words, you would see retirees through-
out——

Dr. JosEPH. [continuing]. Outside the-——

Mrs. JOHNSON [continuing]. The country rather than getting ac-
cess to Medicare part B, getting access, and paying their own part
B premium, and their own Medigap premium, getting access to
TRICARE, which would be essentially a zero premium Medicare
HMO, correct?

Dr. JOSEPH. Well, if that is what they chose, number one. Num-
ber two, it would be be zero premium, because it is not for the eligi-
ble retirees. Number three, to go back to your previous ——

Mrs. JOHNSON. It’s not for whom?

Dr. JOSEPH. I beg your pardon, ma’am?

Mrs. JOHNSON. It is not for which retirees?

Dr. JOSEPH. It is not a zero premium. There is an enrollment fee
for the retirees.

Mrs. JOHNSON. But is it an annual enrollment fee?

Dr. JOSEPH. Yes, ma’am.

Mrs. JOHNSON. Is it equal to the part B premium?

Dr. JOSEPH. It is not equal to the part B premium. It is some-
what less than the part B premium. But if I may, just to pursue
that——

Mrs. JOHNSON. But it covers both part B services and Medigap
services?

Dr. JOSEPH. It does not cover the current complete range of Med-
icare provided services. That is why the demonstration is written
the way it is.

Mrs. JOHNSON. Does it cover some Medigap services?

Dr. JOSEPH. It covers some Medigap services, yes. And that
is—

Mrs. JOHNSON. So it would be less than the part B premium for
a larger than Medicare plan?

Dr. JOSEPH. And that is the point I was trying to get to before,
that the eligible—the dual eligible retiree today can choose to go
downtown to an HMO or to a private physician, and that health
care provider is reimbursed for the care. That the same eligible re-
tiree can choose, and very often does, to come back into the mili-
tary hospital where for a whole series of reasons, he or she may
well rather be, get that care if they can get it on a space available
basis, and there is no reimbursement to us for it.

Chairman THOMAS. On that point, in the Washington area, are
there any HMOs that are zero premium? Or do you have to pay,
given the AAPCC in the area?

Mr. VLADECK. I am sorry, Mr. Chairman, I did not fully hear
that.

Chairman THomas. Do you have to pay for an HMO out-of-pocket
in the Washington area? Is there any HMO or—

Mr. VLADECK. I believe that we have zero premium Medicare
plans. I know that we do in Maryland.

Chairman THOMAS. I did not say Maryland or-——

Mr. VLADECK. I do not know about the District.

Chairman THoMAS. We do not have—that region is not in the
two regions. It is the Seattle area that we are dealing with.


56

11 as to what might be an appropriate average adjusted per capita
cost payment with the takeouts, carve-outs that have been in-
volved.

Do you have data to support your-——

Mr. VLaDECK. We do not have data specific to the area, Mr.
Chairman. We have some research which we have recently pub-
lished, and it is consistent with the earlier research done by
Mathematica Incorporated. This research suggests that on average,
95 percent of AAPCC for the Medicare Risk Program is probably
too high given the actual selection of risk experienced by Medicare
HMOs through 1994, rather something between 90 and 91 percent
is probably a more appropriate estimate of the relative risk. This
is where that number comes from.

Chairman THomas. Explain to me the logic of locking in a spe-
cific reimbursement rate, different in the last 2 years than the first
year, but providing a reconciliation structure if in fact that pay-
ment is too high.

Mr. VLADECK. Well, it is not the payment which the reconcili-
ation addresses, and that is——

Chairman THOMas. What happens then if the payment is too
high?

Mr, VLADECK. If the payment is too high, again, the two Depart-
ment Secretaries would have the opportunity under the agreement
to annually revisit the payment rate. We had ensured this provi-
sion in the agreement. If the legislation is drafted differently, then
we need to correct it.

Chairman THOMAS. Why do we not eliminate any specific num-
bers in the legislation so that you can work it out and adjust it so
it can be a true demonstration project. If you believe the current
rate is too high, you can move it to wherever you want with the
figures, and if they are substantiated, it would certainly be a very
useful argument to present as to what the appropriate AAPCC per-
centage should be for HMOs.

Mr. VLADECK. Mr. Chairman, it was our perception that a speci-
fication of the reimbursement mechanism in the legislative pro-
posal would facilitate favorable Congressional Budget Office scoring
of the legislation. However, our perception appears to have been in-
correct,

Chairman THomas. And you felt that the discussion in the Na-
tional Security Committee on the AAPCC rate, and the 93 percent
shifting to 90, and the withhold on the DSH payments was an en-
lightening one? I am sure they went into that discussion on the
way you had structured it.

Mr. VLADECK. Mr. Chairman, I was not present for that discus-
sion. I must say, however, that——

Chairman Tuomas. A discussion, anyone who was present there?

Dr. JOSEPH. The technical discussion you describe was not—did
not take place.

Chairman THomas. I did not think there would be.

Mr. VLADECK. I am not familiar with the way in which Congress
establishes the order in which Committees with overlapping juris-
diction act on proposals, but as I am sure you can understand, we
never had any belief, desire, or illusion that this legislation would
go forward without the Committee on Ways and Means acting on


60

Chairman THomas. I guess my concern would then go back par-
tially to the Ranking Member's question earlier, to the degree this
is a successful program, and your military hospitals cater to a larg-
er number of military retirees, and your hospitals begin to—per-
haps specialize is too strong a word—but clearly meet the needs of
competition, because as you said, these military retirees are going
to vote with their feet, and if you do not maintain military hos-
pitals at least on a minimum par with what is going on in the pri-
vate sector for retirees, you may in fact be devoting authorized ap-
propriated dollars through the DOD to change the military hos-
pitals gradually or significantly to meet those military retirees’
needs, to maintain the program for the reimbursement from the
regular Medicare Program; and the last time I checked, in terms
of military preparedness, geriatrics was not a significant aspect of
military preparedness for field operations, which was one of your
earlier rationales for doing it.

Dr. JOSEPH. Well, it is still one of my very strong rationales, and
I think that your statement and mine both bear a little closer ex-
amination. To go to war, we need well prepared neurosurgeons,
chest surgeons, orthopedic surgeons. I will leave out the primary
care issues for the moment. To be a well prepared neurosurgeon,
or a chest surgeon, you have to do neurosurgery or chest surgery
on a frequent basis; you have to do it with complicated cases; you
have to do it with sick people; and particularly relevant to the war-
time requirement setting, you have to do it with patients who have
multiple, multiorgan system problems. I think you would agree
with that.

You do not find that range or level of intensity of problems in
healthy 23-year-old active duty military persons. So I could draw
out many more examples. I think there is a very strong case to be
made. I am not trying to—

Chairman THOMAS. I understand the direction you are going. I
think your arguments are valid in my instances. The problem is
this, when you convert from peacetime to military medical needs,
in the old system, the large universe of your patients went with
you. You were tied to the military, you were like the camp struc-
ture, you packed up and went with them.

What you are now proposing is to move far more radically into
taking care of those who do not move with you when the camp
moves for military purposes and you have structured your hospitals
and those doctors who do all those cases are still going to have to
do all those cases if you are going to maintain your military retiree
profile through your structure that you have established, and then
you are going to come back and ask for even more people when you
have got to decamp and go on to a military structure. And my con-
cern is, you are building in an establishment structure which you
cannot take with you, which is the primary argument you have
made, even in terms of working on those patients. Those patients
are not going with you. They are going to be back there, they are
going to have demands on the system, and they are going to want
people in the hospital taking care of them.

Dr. JOSEPH. No, sir. Two points. One point is that the reserve
medical structure, and now the responsibilities of the managed care



48

J understand this demonstration is aimed at people who are eligi-
ble for care in the military hospitals, and are Medicare eligible, is
that correct?

Dr. JOSEPH. Yes, ma’am.

Mrs. JOHNSON. And it has to be people who have already re-
ceived some care before June 30 in the military hospitals?

Dr. JOSEPH. That is correct.

Mrs. JOHNSON. Now, first of all, DOD is already being reim-
bursed for these folks. I mean, you have been providing care for
them.

Dr. JosEPH. We have been providing care for them on a space
available basis. We certainly have not been reimbursed, certainly
not fully reimbursed for them. That is the issue. Back in the old
days, 20 or 30 years ago when there was plenty of open space in
military hospitals, and plenty of excess capacity, those beneficiaries
who were entitled to care on that space available basis, found it
quite easy to get that care. As resources have shrunk down,
and——

Mr. STARK. You are spending more money now than you were 20
years ago.

Dr. JOSEPH. Well, we have closed—I am not sure Mr. Chairman,
whether I should persist in trying to answer Mrs. Johnson’s re-
mark and come back to Mr. Stark. I would be happy to do either.
We have closed 30-——

Chairman THOomas. In the response to Mrs. Johnson, if you will
be specific in terms of numbers and dollars, that would be inclu-
sive.

Dr. JOSEPH. We have come down since 1988, 30 hospitals out of
approximately 150. We have come down almost 30 percent in per-
sonnel, and there has been—we have closed hospitals on bases such
as you yourself were referring to in your initial comments. And on
the other hand, the portion of our beneficiary population which
comprises this retiree group, particularly the over 65 retiree group,
is our fastest growing portion of the population. So what has hap-
pened in recent years is that it has become more and more difficult
for beneficiaries who were entitled to care on a space available
basis to actually go in and get that care.

Now, we are not budgeted, we are not funded, for that care on
a space available basis. Over the years, we have taken it out of
hide, so to speak, and it used to be easy to do that.

Mrs. JOHNSON. One moment. Let me try to get this clear, Mr.
Secretary.

Nationally, that is absolutely true. Nationally we have reduced
the number of military hospitals, and we have an increasing num-
ber of retirees.

But in the areas where you are going to pilot this, for instance,
in Bremerton, you had a growing number of retirees, but we also
have been allocating more and more money to the hospital there
to take care of them.

In other words, right now, we are paying for everybody who has
been cared for before July 1, and the only people who are going to
be eligible is that same group of people.


20

The veterans are saying if in fact this is moving, we would like
to have the same treatment. That bill will be marked up in Veter-
ans’ Committee as the Chairman said——

Mr. Stump. That is correct.

Chairman THomas [continuing]. Tomorrow. It is just that this
hearing occurred today, and out of courtesy, the Members get to go
first, so in essence, they are talking about the cart; the horse will
come up when we are finished with the Members. I do not mean
that——

Mr. MonTcoMERy. Mr. Chairman, I am sure these witnesses be-
hind us who come up next learned a lot here.

Chairman THOMAS. They are chomping at the bit.

Mr. MontGcome_rY. Yes, I am sure they are with the tough ques-
tions you have given us——

Mrs. JOHNSON. Another bullet here is that enrollment will be
limited to dual eligibles who previously used military treatment fa-
cilities and who agree to participate in part B of Medicare. I guess
this refers to the other bill.

I am looking forward to working with you. I think these are very
important issues, and I think we have to be much more aggressive
in dealing with the relationship between our system of health care
for veterans, and our system of health care for retired Americans.
And as we get at the end of the hearing, I am sure my questions
will be refined and we will be able to move forward.

Thank you.

Mr. Stump. Those military retirees that we see are those with
service-connected disabilities, using the VA system over the DOD
system.

Mr. MonTGOMERY. And we tried, when we were closing these
military hospitals, and I am sure one of the Assistant Secretaries
can talk about that with Defense, probably when they close a mili-
tary base, if the VA could, and we might have done it in one or
two places, but have come in and set up some type of outpatient
clinic, I think that would solve a lot of problems of the military not
having a place to go.

Mrs. JOHNSON. But at the very least, they ought to——

Mr. MonTGoMe_RY. It was another money matter.

Mrs. JOHNSON. Right, and the very least, they ought to be able
to provide a list to Medicare of the retirees that are affected, so
that they do not have to pay the penalty for part B to get back into
part B, which would then give them access to the health care re-
sources of the region.

Anyway, thank you very much for your leadership on this, a real-
ly difficult issue, and I look forward to working with you.

Chairman THomas. Any additional questions?

I want to thank both of you. This is an example of the timeliness
and the concern that both of you have shown in making sure that
veterans are adequately taken care of, and I commend you for your
continued vigilance.

Mr. Stump. Thank you, Mr. Chairman.

Chairman Tuomas. Thank you very much.

Now, I would ask Bruce Vladeck, Administrator of the Health
Care Financing Administration, and Dr. Stephen Joseph, Assistant
Secretary of Defense, Health Affairs, to come forward and perhaps


38

Congressional Budget Office
Cost Estimate

September 17, 1996
BILL NUMBER: H.R. 3142
BILL TITLE: Uniformed Services Medicare Subvention Demonstration Project Act

BILL STATUS: As ordered reported by the House Committee on National Security
on September 12, 1996,

BILL PURPOSE: The bill would create a demonstration project to allow Medicare
to reimburse the Department of Defense (DoD) for health care that Medicare
beneficiaries receive in military treatment facilities through the managed care option
of the Tricare program.

ESTIMATED COST TO THE FEDERAL GOVERNMENT:

The table below summarizes the budgetary effects of the bill. It shows the effects of
the bill on direct spending and authorizations of appropriations.


69

Therefore, the language should be changed — from ity present,
permissive nature by substituting the word SHALL for the word
MAY in those sections, This change would clarify and establish
the right (0 such care for military retirees. and their
dependents.’

In 1965, Congress enacted Medicare legislation. One year later, as a means to
further improve the military health benefit for non-active duty beneficiartes,
Congress established the Civilian Health and Medical Program of the Uniformed
Services (CHAMPUS). In adopting this legislation, the House Armed Services
Committee reasoned:

“(a) The benefits of this legislation should be considered a
transitional civilian program for retirees, who now enter the
rolls at about age 44, until they become eligible for Sucial
Security Medicare at age 65.

(hb). military retirees would
reachi 65 -- the use of the military

medical facilities on a space-available basis and the Social

Security Medicare program. e_circumst

‘ 5
fair pragram af assistance.” (Emphasis added)

More recently, this obligation way reaffirmed in remarks made by Dr. Stephen
Joseph, Assistant Secretary of Detense tor Health Affairs, at a hearing before the
House Government Reform and Oversight Committee's Subcommittee on Civil
Service. On September 12. 1995, Dr. Joseph acknowledged that recruiters and
commanders had led members (0 believe that they had a lifetime commitment 10
military health care. While Dr Joseph did not stipulate that the commitment
was a contractual obligation, he stated that there was an tmplied moral
commitment to provide health care to those currently serving and those who
retired following their service careers. A review of recruiting and retention
Inerarure further corroborates the commument to lifetime health care by the
Services to all waiformed services heneficiaries. ‘The following provides
indisputable evidence that the free lifetime medical promise was being made as
te as 1993,

a ine Corps: (Undated, but in use)

“Benefits... These are only a few of the great extras you'll find
when you join the Marine Corps. And the nice part is, should
you decide to make a career of the Corps, the benefits don't

stop when you retire, In addition to medical and commissary
privileges, you'll receive excellent retirement pay...""
Fo e stment__Counseling Guide. (Chapter S$ Medical

Care, Section 5-2,f,, dated | April 1986)

"One very important point, you never lose your eligibility for
treatment in military hospitals and clinics.”

United States Coast Guard Career Information Guide, (USGFO 1991-)
“Retirement -- Mast career Coast Guardsmen retire after serving
between twenty and thirty years of service. Current retirement

programs allow you (0 collect about half of your base pay at
twenty years and up ta three-fourths base pay at thirty years.

“Retirement benefits mean more than pay foo. You continue to
receive free medical und dental treatment for yourself plus


MEDICARE SUBVENTION

TUESDAY, SEPTEMBER 17, 1996

HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
SUBCOMMITTEE ON HEALTH,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:13 p.m., in room
1100, Longworth House Office Building, Hon. Bill Thomas (Chair-
man of the Subcommittee) presiding.
{The advisory announcing the hearing follows:]

qd)


12

military treatment facilities, but only on a “space availible’ basis. Although
exact figures are not available, DoD estimates that an equivalent of abou 30
percent, or 324,000 of these dual-eligible beneficiaries, regularly use the military
health care system. DoD pays un estimated $1.4 billion per year o1

annual appropriations to deliver health care services to this population Most of
the remaining beneficiaries use providers in the civilian community under
standard Medicare.

DE its.

To meet the needs of CHAMPUS-eligible beneficiaries, DoD, with Congressional
direction, is implementing the Tricare program throughout CONUS by September
1997, Tricare Prime is designed to provide improved access to health cave it
MTFs for CHAMPUS-cligible beneficiaries at a lower cost for many than under
Treare Standard. If these expectations are met, Tricare will provide improved
access 10 health care in MTFs for CHAMPUS eligibles who enroll in Tricare Prime
However, Medicare-eligible beneficiaries have been set out adrift and will he
denied the opportunity to enroll in Tricare unless Congress intercedes. Space
available care in the MTFs is hecoming increasingly limited for those
beneficiaries who do not, or cannot, enroll in Tricare Prime because hospital
commanders are required to provide care in the MTF on a priority basis to
Tricare Prime enrollees. An aggravating side effect is that as space-available care
becomes limited, so too will access to the military pharmacy - a major loss tor
Medicare-eligible beneficiaries who do not have CHAMPUS and its prescription
benefit as a fall-back,

‘The Miltary Coalition has already begun to hear reports about the de
availubility of care for those who do not or cannot enroll in Tricare Prime. For
example, military beneficiaries who currently receive care in the Bglin AFB, FL.
Family Practice Clinic Program recently received notices from the Eglin AF
Hospital that untess they enrolled in Tricare Prime, the hospital would not be
able to guarantee that it could continue to offer beneficiaries regular
participation in Family Practice Clinic. A Medicare-eligible retiree who has
always been able to receive care on a space-available basis from the McDill AFB
hospital was told in June that he can no longer make any appoiniments tor
medical care because he 1s not eligible to enroll in Tricare Prime. Another 70
year-old retiree who had a heart attack and numero catherizations and
desperately needed to see a cardiologist at the Naval Medical Center San Diego

(NMCSD) received a letter from that facility that said ".. Unfortunately, current
staffing in that clinic [cardiology] does not allow us to make available all of the
care we would like (o provide... I must therefore regretfully inform you of the

need to disengage you from NMCSO (or this care

Communications like these reflect. a dispassionate callousness, though
unintended, that is demoralizing. The retirees bearing the brunt of these
decisions are those who served without equivocation in WW I -- Iwo Jima,
Bataan, Corregidor and Normandy (0 name a few, and they cannot fathom why
Uncle Sam would now turn his back on them during their twilight years.
Regrettably, the Coalition receives these reports on almost a daily basis,

Not only is the health care lockout for Medicare-cligible retirees seriously
eroding morale, it 1s in some cases, spawning drastic action. For example, two
class action lawsuits are already underway with more sure to follow. ‘The bad
press associated with these actions will deny us the services ot our best
recruiters - the retired community - and 1s sure to adversely smpact on the
propensity of young men and women to serve in the uniformed services,

MEDICARE SUBVENTION
The Military Coalition has sought legistution for the past six years, and mounted

4 particularly intensive effort in the 104th Congress, to change Section 1876 of
the Social Security Act (42 U.S.C, 1395) to allow the Health Care Financiag


7

U.S. corporations either fund virtually the entire health care premium (includi
heavily subsidized prescription drug benefits) or cap their retirees’ oul-of-pockel
medical expenses at modest levels

Health Plans of the Four Largest U.S. Corporations for Their
Retired Medicare-Pligible Employees,

Enuployes
Subsidized
Heal Other Subsidized
Phan Covensge
Employer
Paid Rotwee
No.of Shue wt Dect ——-Retee Ra
Com, Bei Rel eam Resmuum Singls/fam — Cost Share Doug Dewsal Vision
cat 350,000 Yes Yes 75-80% —$300/600—Zerut Yes Yes Yes
ord 99,000 Yes Yes (m0 —$200/250 20% oA visits: Yes Yes Yes
3510 cut-or-pkt
op for all other
IBM 74.800 Yes Yes 100% $250 20% ourpanent Yes Yes Yex
(8340 hosp) 0% inpatient
I 80,000 Yes Yes 100% NTA 20801 Yes No

Medic:

 wupay

+ GM plan_pays_all charges shove Medicwre payment

In a similar vein, the United States Government provides significantly subsidized
health care insurance coverage for retired Federal civilian employees and the
families -- including retired Members of Congress and retired Congressional staff
members. Yet, over the years, Administration and Congresstonal cost
containment efforts have progressively stripped older uniformed services
retirees of nearly all DoD-funded health benefits

For generations, military health care has been towed as second to none, It iy
past time to recognize that. compared to what iy provided by other large
employers, Medicare-eligible uniformed services. beneficiaries’ health care hay
become second to almost all others Service members who have given their
country decades of service and sacrifice deserve better.

TRENDS FOR ACCESS TO CARE.
IN MILITARY TREATMENT FACILITIES (MTFs) (1996-2000)

‘The greatest problem facing all retirees and their families who rely on mititary
medicine for thetr health care is the increasing decline of access to care in
military treatment facilities (MTFs). A Congressional Budget Office (CBO) report
iRestricturing Miltary Medical Care, July 1995) states that although 70% of the
total eligible nitormed services population currently lives within 40 miles ot 4
military hospital, only $5% of the age 65 and older Medicare-eligible poputation
five this close. This situation will he exacerbated by continuing base closures
‘which have closed or will close 39 MTFs and downsize many others, GAO reports
that the military drawdown has also resulted in an 8 percent reduction of
military medical personnel since (991 and will further reduce i by another %
percent by the year 2000

Approximately 1.168 million uniformed services beneficiaries age 65 and older
ue. entitled (0 Medicare insurance coverage (projected to increase 10 1.436
rnillion by 2002), They ate also eligible to receive health care in DoD operated


14

demonstration. Even if Medicare were to change its mind and allow DoD
to shift costs, the DoD/HCFA draft demonstration legislation tasks the
General Accounting Office to provide an independent audit of the
demonstration to the Congress. This GAO audit would determine whether
or not DoD and/or HCFA were in violation of lavw

+ CBO Analysis: -- DoD will enroll a disproportionate share of healthy
Medicare-eligible individuals and/or curcent MTF-reliant_ Medicare-eligible
individuals. Both of these groups currently cost the Medicare program
very little, If DoD enrolls these individuals and exceeds its current Jevel
of-effort, the Medicare program would be obligated to pay DoD the
adjusted AAPCC rate which is much higher than current Medicare costs tor
these individuals.

DoD Analysis -- Since DobD'S baseline costs are based on the current
Medicare population served by MTP’s and the baseline is based on dollars
expended and not enrollees served, DoD does not get any benefit im the
demonstration from having served healthier beneficiaries during the
haseline period. As for the operational part of level of effort and the cost
per enrolice, DoD will be reimbursed at the adjusted AAPCC rate and, like
any private HMO, will be reimbursed by enrollee cohorts (reducing the
‘opportunity for "skimming"), and will offer Medicare an additional two
percentage point discount, In addition, because DoD as a federal agency
cannot make a “profit” off another federal agency, DoD and Medicare will
reconcile their costs each year to ensure that Medicare costs are not
increasing due to favorable selection

+ CBO Analysis: -- The estimate assumes an arnual rate of increase
ranging from 7.4 to 8.5 percem.

DoD Analysis -- The above annual rate of increase is three to f
percentage points higher than the DoD medical program budget for the
years 1997-2001

To overcome the problems created by CBO's scoring and to eliminate other
potential roadblocks, an amendment has been adopted in the FY 1997 Detense
Authorization Bill which directs DoD/HCFA to develop a detailed plan by
September 6 to implement Medicare subvention in one or more Tricare regions
Once the plan has been submitted, and the House and Senate Oversight
Committees and the CBO have had a chance to closely examine it, the intent is 10
have additional legislation enacted in September to actually authorize a
Medicare subvention test in 1997.

The Coulition was elated to hear that on September 4, DoD and HCFA signed the
agreement {0 test Medicare subvention, We are encouraged that with timely
submission of this plan, we now have a chance to get implementing legislation
introduced in the House and Senate and signed into law before Congress
adjourns for the year

The Coalition has had the opportunity to review the proposed test and is
generally pleased with its parameters, although the proposed test represents a
significant compromise from the initial thrust of the Medicare subvention
initiative advocated by The Military Coalition. Traditionally, when Medicare
subvention was defined, it was in the context of having Medicare reimburse DoD
fot care provided 10 Medicare-eligible beneficiaries on both a capitated and a

= basis. Under this fundamental definition of subvention, when a
Medicare-cligible beneficiary is enrolled in Tricare Prime, that individual would
be able to use the entire network of providers, as well as the MTF. Those not
enrolled would be allowed to use MTFs on a space available basis with Medicare
reimbursing DoD for the cost of such care that they would otherwise bill 10



31

health care needs between providers outside the Military Health Services System and the
space-available military facilities, these beneficiaries would be able to access the military
medical treatment facilities the same as our other enrolled retirees. It is the ability to
receive care from the military system that these beneficiaries want.

As the individual responsible for the military health care delivery system, I want
them to have access to this system, the Surgeons General of the military services want to
care for them, and the military's senior leadership want them to be able to come to military
treatment facilities. Many ask why?, why not just have these beneficiaries go downtown
using their Medicare eligibility, it would be less expensive for the military services. Our
response is threefold. First, because we want to honor the commitments made to them;
second because they are our patients, and itis the military system where they are most
comfortable especially when they are in need of health care; and third, because we need
them for the variety of health problems they present, which contributes to our medical
readiness training.

Alter significant negotiation and examination of how the Medicare system works
and how our system would satisfy the Medicare risk HMO requirements, we have worked
‘ut an arrangement that will allow a demonstration of the Medicare subvention concept.
(See Attachment)

The demonstration will cover San Antonio plus three other sites in our TRICARE
Region 6, and the Madigan-Bremerton area in TRICARE Region 11. We will also
identify three sites in Region 6 to serve as comparison sites. ‘The demonstration will last
three years, and both agencies have the option of extending it for 18 months for enrolled
beneficiaries. We plan to begin the demonstration 60 days following enactment of
legislation or on January 1, 1997, whichever is later. Either agency may withdraw from
the demonstration with 12 months written notice,

People eligible for participation in the demonstration will include those who:

‘Are cligible both for care from DoD and through Medicare's aged program,
Enroll in TRICARE Prime,

‘Are covered by Medicare Part B,

Agree to receive covered services only through TRICARE,

Are residents of the geographic areas covered by the demonstration and where
enrollment in the demonstration is offered,

+ As dual-cligibles, used a military treatment facility before July 1, 1996, or became
dual-eligible starting after June 30, 1996.

‘The services covered under this demonstration include the standard Medicare
benefit in addition to specific TRICARE Prime benefits. One of the major considerations
in developing this arrangement is the agreement that DoD will continue to maintain its
level of effort in providing care for the dual-eligible population in order to avoid imposing
these costs on the Medicare Trust Funds. This commitment to continuing our current


17

Chairman THoMas. OK. Then it is not the 11 million that are
currently, it is the 11 million who are 65 or older, is that correct?

Well, we will sit down and work out the numbers. I am trying
to understand the potential universe if this benefit were added to
the VA structure of those who would otherwise be eligible but now
do not currently use the VA system. Am I making sense?

Mr. Stump. Yes, Mr. Chairman, you are to me. I would say that
there is no reason to ever expect we would attract that number of
people.

Chairman THomas. I understand. You and I make sense a lot of
times with each other, it is just that the rest of the world listening
to us sometimes——

Mr. Stump. We do not know that number.

Chairman THomas. Well, and that, of course, is a concern, and
we will just have to sit down and work these numbers through, be-
cause what happens is the whole question—and I do not want to
get into the details of what we do here, but we have been wrapped
up for the better part of several years now dealing with adverse
risk selection, and the question of if you set up a program which
attracts someone who would be cheaper if they stayed in the old
program, and because of the managed care comprehensive costing
structure, they come into this program, it actually costs us more
than it would if we left them alone. And this is a magnet to mili-
tary and veterans that may attract some people who would other-
wise stay out of the system and to the society be cheaper in their
treatment.

And so that is why we have got to be concerned about the way
in which we open up programs, especially under managed care
structures.

Mr. Stump. Mr. Chairman, it is hard for me to imagine that we
would attract those people. Certainly there are many, many, in-
stances where we cannot compete with the modern up-to-date
private-sector hospitals. We are only looking for those veterans
that for convenience or other reasons may prefer to go to the VA
hospital. These are veterans who are Medicare eligible, and do not
qualify because of their disability, or do not qualify because of their
income.

Chairman Tuomas. I understand that, and Mr. Chairman, I am
only concerned that if we OK the program, then 1%, 2, 5 years
down the road, there is not a vote on the floor of the House to up-
grade the facilities because after all, we do treat Medicare eligible,
and they deserve the same treatment facilities that the private sec-
tor gets. And so I just want to know what I am buying when I—-

Mr. Montcomery. Mr. Chairman, there is a provision in the
bill——

Chairman THOMAS, I understand the demonstration project, but
I am talking about the—I am talking about the other side of the
demonstration project.

Mr. MONTGOMERY. Well, there are two secretaries, the Secretary
of Health and Human Services, and the Secretary of the Veterans
Department have to establish a maximum number of Medicare eli-
gible veterans for which payment may be made. That is in the

il]1——.

Chairman Tuomas. That is for the demonstration project.


23

We are confident that after a very lengthy and complicated proc-
ess, with thanks to the persistence and good efforts and cooperation
of the Department of Defense and our own staff, we have put to-
gether a project that holds considerable promise for improving the
availability of health care to 1 million of our beneficiaries who cer-
tainly deserve all the help and support which we can give them.
This project also limits all the risks which have been considered in
previous projects.

We are hopeful that the demonstration will succeed. We are cer-
tain the project has been established in a way that will let us know
whether it has succeeded or not. This idea has been considered for
a long time. It is something that the President feels very strongly
about, and we are pleased to be in a position to go forward with
a test that will give us information about the project’s real implica-
tions.

In conclusion, I am pleased to appear before you again today. I
know Dr. Joseph has some comments, and then obviously, we are
happy to respond to any questions.

‘The prepared statement follows:]


19

ble in including both VA and military hospitals into the larger sys-
tem. We hope to do this through Medicare.

I mean, we worked—I have been an advocate of that approach
for a long time, so I am very sympathetic to what you are trying
to do here.

Does your bill look at guaranteeing military retirees in areas
where a military hospital has closed? This is a big problem I am
running into, military retirees in an area where military hospitals
have closed, having penalty-free access to part B of Medicare. I
mean, now they can get back into Medicare, but they have to pay
a penalty. Well, they should not have to pay a penalty to get back
into part B Medicare because they did not choose it because they
were military retirees.

So we might want to get a cost of that, too, because that should
be a fairly inexpensive matter to fix. And just as retirees in Amer-
ica, anyone over 65 in America, they ought to have access, and it
is not their fault that we told them they were going to get military
coverage, and then we withdrew it.

So that, I gather, is not part of your demonstration, but I would
ask your staff to look at that as we move forward.

Then, I just need to understand a little more clearly, in the bill,
apparently Medicare will give DOD capitated payments for bene-
ficiaries who enroll in these TRICARE options but only after DOD
has surpassed its level of effort. In other words, Medicare would
not put new money in until DOD spends all the money it is given
by us for retiree health care. And I find that a little confusing.

How are we going to know when they hit that? Aren’t they al-
ready there? I mean, we only appropriate as much as it requires
to keep them open and care for a certain number of patients.
Would we do that on census, that if their census exceeds a certain
amount, and they’re Medicare eligible, then we would compensate
them for those Medicare patients?

You see, we need to sit down in a little different forum than this
and understand these, sort of, you know, technical aspects of how
this would work.

Mr. Stump. Mr. Chairman, if I may attempt to answer that; in
a sense, Mrs. Johnson, we do not—I do not—I cannot concur in the
figures you are using. I want to get those figures. But most mili-
tary retirees are above the income level. They would not qualify.
They would use the DOD. Now, we are mixing DOD and VA here.

Mrs. JOHNSON. Does this bill only apply to VA?

Mr. Stump. There are two bills, the one that armed services put
out last week and our bill. We have introduced a new bill that we
are going to mark up tomorrow, H.R. 4068, that applies only to VA.

What we are asking for, and have been working for for a long
time, is Medicare subvention. DOD has a bill. We have a bill. We
are trying to get part of that, nothing more, hopefully nothing less.
We just want to be included in this whole movement if we are
going to go to Medicare subvention.

Chairman THomas. If the gentlewoman would yield, we partly
have the cart before the horse here, because the horse is the
TRICARE, the DOD Medicare agreement which is in legislative
form, and has been moving.


32

level of effort has generated a series of very detailed conditions, reimbursement criteria,
and evaluations by both agencies. DoD will meet, or be deemed to meet, the applicable
and agreed upon requirements similar to a Medicare risk HMO. With respect to
reimbursement, it is based on capitation, the same as for Medicare health maintenance
organizations. The reimbursement rate is at a level at least two percentage points less than
for Medicare HMOs and with rate adjustments to avoid double payment for MHSS costs
funded by appropriations,

Enabling legislation for this demonstration has been submitted to the Congress and
we look forward to working with a bipartisan coalition of Members to quickly enact
legislation this year.

‘The comerstone of this historic agreement is that there be mutual benefit..for our
dual-cligible beneficiaries, for the Medicare Trust Fund, for DoD, and for the American
taxpayer. This agreement is designed such that it will not increase the total cost of
Medicare. In partnership with the Department of Health and Human Services, our goal is
to implement a cost-effective alternative for delivering accessible and quality care to dual-
cligible beneficiaries,

In closing, Mr. Chairman, I want to specially thank the many advocates in the
military beneficiary associations who have worked relentlessly to pave the way for this
agreement. 1 want also to thank Dr. Vladeck and the members of his staff who have
joined us in negotiating the details of the agreement, and who will continue our new
partnership through the course of the demonstration.

I want to recognize the powerful support from those here in Congress who have
championed this effort. Without the very essential bipartisan drive and the support of
many Members in both Houses and on both sides of the aisle, we would not be at this
threshold of implementation. Mr. Chairman, we need your support, and that of your
Committee, as we move to enact the enabling legislation.

1 would be happy to respond to your questions at your convenience. Thank you.


14

Chairman THOMAS. Sure.

Mr. Stark. I only have 2 years of active duty and 8 years or
something of reserve, so I am a veteran, but I am not retired. Now,
when I get Medicare in a couple of weeks, could I then go to a vet-
erans hospital? Would I be one of the new eligibles?

Mr. MonTGOMERY. You can go to the veterans hospital as long
as you have an honorable discharge, and you have one. The prob-
lem is how the Veterans Department would classify you. If the beds
are available, you can get in there. But it is the classification——

Mr. Stark. Under your bill, would I then be able to use my Med-
icare at a veterans hospital?

Mr. MONTGOMERY. Yes, you would be. You would be eligible. And
you would have a better chance if we could have Medicare eligible.
That is one of the purposes, to open it up some more.

Mr. Stark. Thank you, Mr. Chairman.

Chairman THOMAS. Certainly. And obviously, what we would
need to do is to get a handle on the number of folks we are dealing
with here, at least in terms of the DOD HCFA one. We have some
figures that we have been able to look at in the three project areas
in the potential universe.

Now, as CBO will indicate, there is a potential problem with that
universe by virtue of how many would have used fee-for-service
who now move into managed care, and it begins to create the same
problem that our friends on the other side of the aisle discussed in
terms of medical savings accounts; that is, if you are sending fixed
amounts of money that otherwise would not have been spent under
managed care because healthy people are going to be able to be
counted in these groups as well, we need to figure out the mag-
netism of a Medicare Program tied to veterans; and the same prob-
lem with the DOD Medicare Program tied to military retirees that
may attract people who actually require us to spend more money
than we otherwise would have spent if they stayed in the tradi-
tional Medicare fee-for-service.

So the numbers become fairly significant if you are going to look
at multipliers as you carry out the program. So we are going to
have to sit down and work out numbers.

Mr. Stump. Mr. Chairman, I think that the VA could supply
those figures to us almost immediately.

Chairman THomas. And obviously—my assumption is, not obvi-
ously, my assumption is that because the bill is so recent, we do
not have a cost estimate from CBO. I know we just got the——

h Mr. Srump. We requested a CBO cost estimate, but we do not
ave it.

Chairman THOMAS. Right, it is going to take some time.

Mr. MONTGOMERY. Mr. Chairman, we are really making major
changes in our VA health care system, and they are all for the bet-
ter. And 95 percent of all the VA applicants or persons who go into
a VA hospital, mainly go into outpatient clinic care. And Mr.
Stump and I have introduced a bill where more could use it.

So we are really trying to open it up, and this is just another
step forward that we presented to you today.

Chairman THoMas. The reason I said it was very appropriate
that you folks did introduce your bill is that we have a situation
where we have had separate medical structures of the military for


86

1y Suipanman

ONIIOOHOS ONY
ONIddOHS ‘ONISNOH ‘38VD HLIV3H

SLIdIN3a AWAY

REXEL


73

Administration (HCFA) to reimburse DoD for the care provided to Medicare-
eligible uniformed servicey retirees und their spouses in the Military Health
Services System (MHSS), a concept called Medicare subvention. Current law
prohibits Medicare payments to federal providers of health care services and,
therefore, precludes the Department of Defense from being reimbursed for the
care provided to Medicare-eligible uniformed services beneticiaties. if DoD is
reimbursed for such cure, it should be able 3 allow Medicare-eligibles to enroll
im Tricare Prime and otherwise use the full range of services available through
the Military Health Services Systems. Since DoD's cate is fess costly than private
sector care, Medicare subvention will actually save Medicare money--a win-win
‘win situation for Medicare, the taxpayers, and Medicare-ehigible beneficiaries.

We've said this earlier, but it's worth reemphasizing. Without subvention,
heneficiaries under age 65 who are enrolled in ‘Tricare Prime will he
pushed out of the program when they become Medicare-eligible at
age 5 and join those already disenfranchised. Further, as military and
civilian networks are sized to meet the health care needs of the enrolled
population, access to “space available” care in MTFs will diminish greatly, ‘The
net effect iy that older retirees and their spouses will be shut out of a system of
health care they thought would always be there for them, unless Congress
‘amends the taw to permit Medicare subvention,

Legislation:

The Military Coalition has sought Medicare subvention legislation for the past six
years and was finally successful in January 1995 when Rep. Joel Hefley (R-CO)
introduced HR 580 to implement subvention nation-wide. However, the
Congressional Budget Office (CBO) contended that H.R, 580 would increase
Medicare expenditures by $1.4 billion (the amount that DoD now spends 10
provide “space available” care to Medicare-eligible retirees) and the bill was not
considered in committee. To. overcome this impasse, DoD hay agreed to
maintain its current level of funding effort for Medicare-eligible beneficiaries
currently provided space available care in the military health care system, and
to seek reimbursement only for_beneisirigs whe_ar¢_now using thie Medicare

a Four bills have now been
introduced to test this new concept of Medicare subvention,

Despne the obvious safeguards 10 preclude Medicare from paying any costs for
retirees currently using military medical facilities, the CBO has scored these
proposals as having a negative impact on Medicare. From our perspective, the
CBO cost rationale relies on faulty premises to make its case. The following
examples, extracted from a March 4, 1996 letter from Dr. Steven Joseph to HCFA
are ilustrative:

+ CBO Analysis: «+ The CBO paper states that SO percent of the costs will
be shifted from DoD to. the Medicare program and, implies tha
v w¥, DoD will move to shift and increase Medicare's costs

forthe Health Care Financing Adminisvation (HCFA),

DoD Analysis -- As clearly delineated in both Senator Dole’s legislation
and the DoD/HCFA draft demonstration legislation, the demonstration
cannot increase costs for either Medicare or DoD. To increase costs would
clearly violate the law. DoD does have adequate management controls to
assure that costs do not increase.

+ CBO Analysis: - CBO implies that DoD and Medicare might both agree
10 allow DoD «o shift costs to Medicare.

DoD Analysis -+ Clearly, Medicare has a disincentive against allowing
DoD to shift costs to Medicare and has the authority to end the


58

So I do not want to see that bomb planted in your demo, and I
would want to see some provision for an additional payment from.
HCFA, for any patient referred to and treated in a medical center.
That is an issue I would consider very open in this legislation.

Thank you.

Chairman THOMAS. Dr. Joseph, I am interested in your response
to Mrs. Johnson about the fact that the statement that she made
was not true. Having expanded on it, do you believe that her state-
ment is not so?

Dr. JOSEPH. My comment that her statement was not correct was
with respect to the fact that we do provide services through aca-
demic health centers in our existing managed care support con-
tracts.

Chairman THoMas. What we have in front of us is a demonstra-
tion project that specifically pulls out of the reimbursement those
payments with no structure for feeding it back through—all of the
direct medical education, the disproportionate share and 40 percent
of the indirect.

Dr. JOSEPH. The pullout in the demonstration is I believe a dif-
ferent issue than the one Mrs. Johnson raised. The pullout in the
demonstration is with respect to what Medicare reimburses to the
DOD for our direct medical—graduate medical education, and re-
lated costs.

Chairman THOMAS. And if you do contract with a teaching hos-
pital in the greater Seattle area, how do they get their payment?

Mrs. JOHNSON. Does Medicare have any obligation to reimburse
in addition to what they are reimbursing you outside of your reim-
bursement system? See, if this demonstration project does not ad-
dress that, I understand for you, it does not matter. For health
quality in America, it matters a lot. Not only do those medical cen-
ters have teaching costs, they have the highest disproportional
share, often because they have the really poor patients who are ter-
ribly, terribly, ill, and require intensive care.

So you really have to look at that from the larger policy area, Mr.
Vladeck, and I think we need to look at that if this is going to go
forward.

Mr. VLADECK. Mrs. Johnson, that is exactly why the impact of
this demonstration on the other providers of service in the commu-
nities served is so central a part of our evaluation.

Mrs. JOHNSON. But Mr. Vladeck, we are already seeing that this
is harming our medical centers. Would it be responsible to put a
3-year demonstration project in place that clearly denied them re-
imbursement for 3 years for anyone covered under this when we
already see it? I hear it out there in the real world from my medi-
cal centers that managed care is negotiating out their medical re-
imbursement dollars, and they are hurting.

So I think we cannot ignore it in structuring this demonstration
project.

Mr. VLADECK. Well, if I may, Mrs. Johnson, our expectation is
that the bulk of the inpatient hospital services in this demonstra-
tion will be provided in the military hospitals which do conduct
medical education activities, supported by appropriated funds.

Therefore, the issue of taking these funds out for purposes of this
demonstration is an issue of avoiding double payments.


6

Mr. Chairman, let me first thank you for holding this hearing on
Medicare subvention. It is something that a lot of us have been
working toward for a long time.

Last week as you stated, the National Security Committee did
mark up H.R. 3142. Mr. Montgomery and I had an amendment
that we were prepared to try to attach to that bill which eventually
passed the Committee by unanimous vote. But after some persua-
sive arguments from Mr. Hefley, we decided perhaps it was best for
us to go our own route. We in turn, introduced a freestanding bill
which is H.R. 4068, which we will mark up tomorrow in the VA
Committee.

Since your Committee has primary jurisdiction over these mat-
ters, we wanted to call our Bill to your attention. We appear today,
on behalf of H.R. 4068, and on the DOD subvention bill, H.R. 3142.

Ours is quite similar, Mr. Chairman. It would establish a 3-year
demonstration project for Medicare subvention for the Department
of Veterans Affairs. It is very similar in policy and scope to H.R.
3142 and contains the same cost containment provisions that are
part of H.R. 3142.

It calls for the Department of Veterans Affairs and the Depart-
ment of Health and Human Services to establish a demonstration
project under which the VA would collect and retain Medicare pay-
ments for Medicare eligible veterans. This project would operate
over a 3-year period for approximately 30 VA medical centers se-
lected by the Secretary of Veterans Affairs. To ensure cost neutral-
ity, the Health Care Finance Administration would reimburse the
VA at only 93 percent of the adjusted per capita cost.

VA would receive reimbursement only for new users, those Medi-
care eligible veterans not currently being treated by the VA. These
are veterans who most likely fall below the disability level of 50
percent, and above the poverty level which is roughly $21,000. We
are talking about new users.

We have been moving aggressively in this direction on the VA
Committee. We have already passed H.R. 3118, which mandates
that the VA offer more outpatient care, trying to get away from
costly inpatient care.

CBO stated that this bill would cost a fantastic sum of money,
and to answer that, we agreed to cap our cost on H.R. 3118. We
have also agreed to do this, as I believe I am correct in saying that
the DOD bill has already been capped at $65 million. Mr. Stark
mentioned the cost of CBO was in the neighborhood of $200 mil-
lion. And I believe the bill that covers DOD has already agreed to
a cap at a cost of $65 million.

We are sure that eligibility reform will work. We have argued for
a long time that we can treat many people for less money if we can
get away from this archaic business of having to hospitalize every-
one to treat them. It is my opinion that we should never build an-
other VA hospital bed in this country. We have ample, though
there may be exceptions in the Sun Belt.

With regard to outpatient care, we are in a sense an HMO; we
operate on a capitated budget. I know that it may not answer your
question, Mr. Stark. It may be a little too technical for me to an-
swer without information from the VA. I can tell you that we are
working in that direction, because we want to offer these services


29

STATEMENT OF STEPHEN C. JOSEPH, M.D., M.P.H.
ASSISTANT SECRETARY OF DEFENSE FOR HEALTH AFFAIRS
U.S. DEPARTMENT OF DEFENSE

Mr. Chairman, Distinguished Members of the Committee, it is with great pleasure
that I am bere today to speak with you about the just-concluded agreement between the
Departments of Health and Human Services and Defense for a demonstration of Medicare
Subvention.

This demonstration embodies a concept offered by the President in his health care
reform package, it is a concept that President Clinton strongly supports today. In his
round-table discussions with veterans and military retiree representatives, the President
hhas sought to learn of the key issues these groups face. Each session has included a strong
plea by beneficiaries that the health care benefits of older veterans and military retirees not
be forgotten, that they be allowed to continue using the system, the hospitals, the
physicians they have come to (rust..and that their entitlements (o Medicare be available

for use in the Military Health Services System. Very recently, at one such round-table
discussion, Major General Jim Pennington, President of the National Association of
Uniformed Services, sought the President's commitment to move more expeditiously on
plans to test Medicare subvention. The President gave his commitment, directed his staff
to move expeditiously, and I am here today to present to you the significant progress we
have made in meeting the President's commitment.

Medicare subvention is an idea that has been discussed for over a decade. tis not
an easy-to-implement idea and will require the enactment of legislation. It involves
tremendous cooperation and synchronization of very different federal health care
programs, For the past two years, members of the mititary medical departments and my
Health Affairs staff have incrementally and painstakingly built the conceptual design that
has led to the agreement just signed. In building that demonstration design, we sought
and gained strong support from the Secretary and Deputy Secretary of Defense, the
‘Chairman and the Joint Chiefs of Staff as well as other senior leaders within the
Department. This is a moment of realization for all who have worked with such
dedication to achieve this agreement with the Department of Health and Human Services.

‘As you well know, Medicare subvention is not solely an Administration
‘commitment, This issue has reached the offices of many Members of Congress. There
have been bills sponsored in the Senate and here in the House, last year and this year, with
‘over 200 Members co-sponsoring the bills introduced by Mr. Hefley.

‘This is a measure that transcends politics, it has the backing from Members on
both sides of the aisle, on both sides of the Capitol. It is a measure that responds to the
concerns of tens of thousands of our older military retirees who have served this nation
well,

‘This widespread support recognizes the fact that military Medicare-cligible people
are living across this nation, in every state, and they take an active role in voicing their
concern that commitments made must be kept. It also recognizes the determined
advocacy and tireless efforts of The Military Coalition and the National Military and



65

inflation) for dually eligible military retirees in the geographic area of the demonstration. AAHP
has serious concerns about the methodology that DoD plans to use to estimate its baseline
“Level-of -Effort” (LOE) for the demonstration, making it difficult to assure cost neutrality. The
Memorandum of Agreement itself discusses the difficulties of estimating service utilization and
costs of outpatient care for Medicare beneficiaries at military facilities. We do not believe that
HCFA has sufficiently studied or addressed the possible disruptive impact that the payment or
benefit design of this demonstration will have on markets covered by the demonstration. The
payments to MTFs may permit them to offer significant incentives to beneficiaries to elect the
‘option available under the demonstration rather than existing options offered by Medicare risk
contractors. Unless this is an explicit goal of the demonstration, this impact should be of concern
to all parties.

During his statement before the Subcommittee on Health, House Committee on Way's and Means
‘on September 17, 1996, Bruce Viadeck, HCFA Administrator, commented that the payment
methodology under the demonstration reflected HCFA’s thinking on the direction of payments to
Medicare risk contractors. The payment levels established for the purposes of the demonstration
‘were the result of negotiations between DoD and HHS and reflected the unique characteristics of
the MTFs and the link between DoD and Medicare funding streams. AAHP strongly cautions
against using a demonstration of this type to establish future policy on AAPCC payments t0
Medicare risk contractors that are substantially dissimilar in their delivery networks, quality
assurance programs, and financing structures to MTFs.

Although this demonstration program was not enacted by Congress, this type of demonstration
program will likely be considered during the next session. ‘The Association is looking forward to
working with members of the committee to ensure consumer protections and a sound financing
mechanism for any future demonstration.


67

INTRODUCTION

For nearly (wo centuries, uniformed services retirees have been led to believe
that they have a right to medical care in military facilities following retirement
In lwief, this lifetime right had ity genesis in 1798, when service members in the
U.S. Marine Corps, and then the U.S. Navy, made a monthly contribution to the
Hospital Fund to pay for such care for a period of more than 145 years -- a
contribution that continued after retirement. Records indicate that money fan
the Moypital Fund was used to build the Brooklyn, Philadelphia and Chelse.
Naval Hospitals. When the contribution was discontinued by Congress in 1943,
Congressional hearings made clear that members were to retain the right to care
It is equally clear that members of the other services have always heen fed to
believe they would he provided care for life im military treatment facilities. The
assurance of such care was one of the important factors in indueimg service
members to endure the extraordinary demands and personal sacrifices inherent
toa career in uniform,

In 1965, Congress enacted Medicare tegistation, One yeur later, as a means of
further improving the military health benefit for non-active duty heneficiaries,
Congress established the Civilian Health and Medical Program of the Uniformed
Services (CHAMPUS). In adopting this legislation, which terminated CHAMPUS,
eligibility at age 65, the House Armed Services Committee reasoned "...
military retirees would continue to have two medical programs upon
reaching age 65 -- the use of the military medical facilities on a
space-available lasis and the Social Security Medicare program.
Under the circumstances, it appears that the (wo remaining medical
sources would provide a fair program of assistance."

If retired service members did not have an implied right to hospital case, the
government would have no responsibility to provide such care. The fuct is,
however, that for more than three decades, key officials have acknowledged the
government's responsibility in this area. It was affirmed clearly by Dr. William
Gorham, the Deputy Assistant Secretary of Defense for Spectal Projects, Office of
the Assistant Secretary of Defense for Manpower, during hearings on the 196%
military pay bill. During this hearing the following exchange took place between
Representative Charles Gubser of California and Dr. William Gorham:

MR.GUBSER: Now I realize that the Department of Defense as
of the early part of this month has initiated a
study by which they are going to thoroughly
explore the question of retired persons. Are
‘you at liberty 10 say whether or not the fact
‘that this study has been instituted is a
recognition that there is a responsibility to
retired persons on the part of the government?

MR.GORHAM: 1 don't think there is any question about that,
‘Mr. Gubser.

MR.GUBSER: 1 am not asking for a prediction, because you

don't know what that study is going to reveal,

‘but would you presently anticipate that insofar

as medical care is concerned is there going to

be something provided for retired personnel
in the future?
Yes.

In other words, we are not going to be put in

the position of raising their retired pay in this

Dill and then taking it away by taking away

fringe benefits?

MR. GORHAM: Absolutely not.

MR. GORHAM:
MR. GUBSEI



68

In a statement
Defense sit,

nnounciag the above-mentioned study, the Department of

“Health care for retired military personnel and their
dependents in military hospitals iy a traditional military
benefit. In the statute which specifically authorizes this
benefit, Congress indicated that its purpose is ‘...t0 create and
‘maintain high morale in the uniformed services'."”

In the completed version, the study clearly established the Government's moral
obligation {0 provide medical care to military retirees and their dependents

Considerable evidence of the government's commitment is cited ain the
Department af Defense's study, Medical Cure for Retired _ Military
Personnel and Their Dependents, dated June 1964. On page 21 of thal

study are the following quotations fiom official service recruiting publications:

"And let's not forget those many other benefits of this act
which go a long way toward providing the SECURITY that both
you and your family want, and lifetime security and protection
for you and yours =» tirement through guaranived
medical care at military facilites."

(From "Army Benefits” Department of Army, 1956,611-180-RPC)

"He retires -- while still a young man -- equipped to start a
second career. He has retirement pay, benefits and full medical
care." (From “Your Son's Future”, Department af the Army

1962, me 62--125B, 250M)

"Ay a Navy man, you... receive free medical_and dental care
now and after retirement,” (From "Figuring Your Future",
Department of Navy NRAF--26502)

"Just think when you do retire or go into Fleet Reserve, you
retain almost all of the benefits you enjoyed while an active
duty, including HOSPITALIZATION far you AND YOUR
DEPENDENTS for life." (From Navy Career Appraisal Team
Representation Guide", Department of Navy, NAVPERS 15897-A)

The Department of Defense study also concedes that there Is a legal obligation
in the Government's part 10 provide care 10 those retirees who paid into the «ld
Naval Hospital Fund.

Subsequent hearings before the House Armed Services Committee, March 1966
shed more light on the commiument,

After careful study of the Secretary of Defense's propasal to
provide medical care for retired military personnel and their
dependents, we find that the proposal does nat address itself to
the correction of the inequities of the space-available language
of Chapter 55, Title 10, U.S.C... specifically, Sections 1074(b),
1076(b), and 1083. The problem of medical care for retirees
came about because of a legistativi etation of the
language in those two sections. The Special Subcommittee in its
report (No, 67), dated 30 September 1964, stating the
Subcommittee's findings of its comprehensive — hearings
recommended: That amendatory language be added to the

Dependents’ Medical Care Act, it art
called _space-available concept__may not be used as_a
o_limit_o1 ce av a ilitars


26

Chairman THomas. Thank you very much, Mr. Assistant Sec-
retary, any written testimony will be made a part of the record.
You may inform us in any way you see fit.

STATEMENT OF HON. STEPHEN C. JOSEPH, M.D., M.P.H.,
ASSISTANT SECRETARY OF DEFENSE FOR HEALTH AFFAIRS,
U.S. DEPARTMENT OF DEFENSE

Dr. JOSEPH. Thank you, very much, Mr. Chairman. With your
permission, I would submit my entire testimony, and summarize
verbally, focusing my remarks on some of the issues and questions
that have been raised in the prior panel, and now here.

Bruce Vladeck, just as he used to try to do in New York, has sto-
len my best line about who is which end of the horse, but since I
get to go last, I guess I know.

But it is a pleasure to be here before this Subcommittee today
and talk about this agreement which has been worked out, ham-
mered out is probably a better word, between the Departments of
Defense and Health and Human Services for a Medicare sub-
vention demonstration.

This is an idea that has been in discussion and debate for over
a decade. It is not easy to implement, because of many of the fac-
tors that you have already mentioned, and many others, and will
require the enactment of legislation.

ne thing that I think is important to keep in mind, Mr. Chair-
man, is that military medicine has a mission to provide health care
wherever and whenever our men and women in uniform need it.
And that mission thus has two interlinked responsibilities.

The first which we must never forget, and which is really dif-
ferent from any of the other Federal health systems, is to oper-
ationally deploy medical capability, people, equipment, and sup-
plies, with the troops when they deploy, in order to provide that
care on the battlefield.

The second part of that mission is to operate a vibrant health
care delivery system to provide health care, what we call peacetime
health care, as opposed to the wartime health care, the first part
of the mission; to provide health care to our 8.3 million bene-
ficiaries; and to ensure that our medical personnel who must be
prepared for wartime deployment, physicians, nurses, technicians,
corpsmen, medics, are trained, and sharp, and ready to deploy.

In meeting the requirements of that second so-called peacetime
health care responsibility, the military health services system must
have a large and varied patient population.

For that reason, the Congress years ago authorized the MHSS to
provide care to the families of our active duty personnel, and then
to our retirees and their families. This care, however, and this is
the central fact, was put on a space available basis so that nothing
interferes with care for the active duty force.

Military medicine today is rapidly moving toward a managed
health care delivery framework, known as TRICARE which you
have mentioned. By next year, we will have fully implemented
TRICARE in our 12 regions across the Nation, and in our overseas
commands, and we believe that we already have strong evidence of
success.


78

could use those facilities. During the early 1950s and since that time the services used
the lifetime promise of free medical care as a recruitment and retention incentive for
the large military force required to fight the Cold War.

In 1956 Congress made space available medical care an entitlement for active
duty dependents by the enactment of The Dependents’ Medical Care Act (P.L. 84-569;
June 7, 1956; 70 Stat. 250), Authority was also provided to care for retirees and their
dependents at these facilities (without entitlement) on a space available basis.

Also in 1956, Congress concluded that the direct care medical system was
inadequate to care for the dependents of active duty personnel and enacted legislation
authorizing the defense department to contract with private sources to supplement the
inadequate in-house care for dependents of active duty members who due to travel
distances or other reasons could not use MTFs. This was the forerunner of the Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS) enacted by
Congress to he effective in 1967, With the enactment of CHAMPUS, military retirees,
their families and survivors were included.

The CHAMPUS program was designed to provide a quality health care benefit
comparable to “Federal Employees Health Benefits Program hi-option Blue Cross/Blue
Shield or hi-option Aetna health insurance”, (The Military Medical Act, P.L. 89-614).

+ CHAMPUS required the Defense Department to pay 80 percent of medical
costs for active duty dependents and 75 percent of the cost for retired members under
age 65, and their dependents. CHAMPUS beneficiaries were required to pay the
remaining balance of the cost of the medical care they received from private sector
providers.

* Changes in the CHAMPUS program over the years have been disastrous for
beneficiaries. In many areas, physicians consider CHAMPUS beneficiaries as charity
patients. This is embarrassing and insulting to our military personnel and their
families.



WAYS AND MEANS SUBCOMMITTEE ON HEALTH
PAGE 2

DETAILS FOR SUBMISSION OF WRITTEN COMMENT!

Any person or organization wishing to submit a written statement for the printed
record of the hearing should submit at least six (6) copies of their statement, with their
address and date of hearing noted, by the close of business, Tuesday, October 1, 1996 to
Phillip D. Moseley, Chief of Staff, Committee on Ways and Means, U.S. House of
Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those
filing written statements wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this purpose to the
Subcommittee on Health office, room 1136 Longworth House Office Building, at least one
hour before the hearing begins.

FORMATTING REQUIREMENTS:

‘Each statment procaned for pag to the Commo by 2 wisn, a5y wren stslement or ashi ethaitad fr the pind rcard
7 wa emer ge i rt omens snes hus a lw. ny seat
ent net wl aut be pra, bat wl be ‘es fr review and usa by the
Comune.

‘A satameot and any accompanying esibt fr printing must bo typed in age space on Logalctve paper and may aot
ee to 1 page endagtonomeae

2 Copten of whole dacumentssabaltiod at ext malate! wet be accaped for printing. Instead shit malate should be
teferacod snd quoted or parnphrisod. All nhl materi not mowing these spectNeaios wl be manned [a the Came Aes for
‘ead wa by the Cmmaan.

Sc nhs wd x ie ang sang mae rats be bg tag an
a reponse ta ‘unet ict on hie ‘ae of a

he abore sat spat oy wo material Ya nd ethan
suri bind sat dafaaen te Member, prs and he pose outage Conse «pe Yury mayb rebel a
‘aber forma.

Note: All Committee advisories and news releases are now available on the World Wide
Web at 'HTTP://WWW.HOUSE.GOV/WAYS_MEANS/” or over the Intemet at
*GOPHER.HOUSE.GOV" under HOUSE COMMITTEE INFORMATION’.


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE CONTACT: (202) 225-3943
September 13, 1996
‘No. HL-24

Thomas Announces Hearing On
Medicare Subvention

Congressman Bill Thomas (R-CA), Chairman of the Subcommittee on Health of the
Committee on Ways and Means, today announced that the Subcommittee will hold a hearing
on Medicare subvention. The hearing will take place on Tuesday, September 17, 1996, in
the main Committee hearing room, 1100 Longworth House Office Building, beginning at
2:00 pam.

Oral testimony at this hearing will be heard from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may submit a written
statement for consideration by the Committee and for inclusion in the printed record of the
hearing.

BACKGROUND:

‘The Health Care Financing Administration and the Department of Defense (DoD) have
developed an agreement to coordinate the Medicare program and the military health care
services system in a three-year demonstration of Medicare subvention. The demonstration
would involve dual-eligible beneficiaries (military retired personnel and their family members
and survivors who are also eligible for the Medicare program). Under this arrangement, the
Medicare program would treat the DoD) and its Military Health Services System as a risk-type
health maintenance organization for the dual-cligible Medicare\DoD beneficiaries. The DoD
would continue to maintain its current Jeve! of effort in terms of financial commitment to
caring for the dual eligible population. Medicare would pay for dual-eligibles receiving care
from the DoD managed care program above the DoD's current level of effort. The
demonstration would take place over three years in selected gcographic sites in Washington
State and Texas (including the Tacoma-Seattle and San Antonio a.ces). Approximately
60,000 dual-eligible beneficiaries live in these sites.

In addition, H.R. 3142, the "Uniformed Services Medicare Subvention Demonstration
Project Act” would establish a demonstration project tv allow the DoD to receive Medicare
capitated payments for health care coverage provided to Medicare-eligible military
beneficiaries under the TRICARE program. The bill, as introduced, was referred to the
Committee on Ways and Means, and in addition, to the Committees on Commerce and
National Security. The National Security Committee recently considered the legislation.

FOCUS OF THE HEARING:

The hearing will focus on issues surrounding the establishment of a Medicare
demonstration program on subvention, and the implications of such a demonstration.

(MORE)


15

a long time, and we are beginning to move in a direction of merg-
ing, or at least contracting from the general to the specific. And in
the back of my mind, I am wondering why we do not just go com-
pletely general for everybody. Somebody has got to tell me why it
makes more sense funneling money from the larger societal struc-
ture into the specific structures.

The primary reason to do it would obviously be cost savings, and
we are going to have to begin working on just how much it does
cost. The assumption is it is cheaper. But I think as we begin to
analyze it, we will find that perhaps the ability to determine cost
centers is not as easy as we might think based upon the way in
which traditionally these programs have determined their cost.
And these are just concerns. We need to get at it. The timing is
good. It is appropriate, because as we begin to look at plans for all
of the society, you folks need to make sure that you are at the
table, because some of the restructurings that you are suggesting
may in fact make a lot of sense. And then again, based upon the
numbers, they may not.

Does the gentleman from California wish to inquire?

Mr. Stark. Thank you, Mr. Chairman. I think you let me inter-
rupt to get my inquiry in, and I appreciate the witnesses bringing
this to us. I am not quite sure where we are procedurally with this,
or when the other bill, which—you want this amended to the bill
that is going to bring up the Defense Department demonstration,
or do you want a separate bill?

Mr. Stump. Mr. Stark, we have introduced a separate VA sub-
vention bill. Mr. Montgomery and I will mark up H.R. 4068 in
Committee tomorrow. We had originally wanted to include it with
the DOD bill, but we did not do this. We have a clean bill.

Let me say one more thing. We would be perfectly willing to
work to put additional caps on this legislation. We are that sure
this bill will not cost additional money. We want to get a dem-
onstration product project off the ground and prove that we can do
it at less cost than Medicare is now doing.

Mr. Stark. Thank you.

Chairman THomas. Does the gentleman from New York wish to
inquire?

Mr. Houghton.

Mr. HouGuTon. Thank you, Mr. Chairman.

Just let me understand this. I am a veteran, and I have diabetes.
How am I treated differently now than I would be under the dem-
onstration project, and also who pays for it?

Mr. Montcomery. Well, you are certainly not eligible for free
care right now, I can answer that because of your other means. I
will put it like that. But if the beds were available, you would be
eligible, if you paid the required copayments and you have an hon-
orable discharge.

On a diabetic condition, if you are not service connected, and you
do not qualify as low income, the criteria that has been set up by
the Veterans Department, they could not take you in unless they
had extra treatment capacity and you paid a copayment. So your
diabetic condition would not be treated. Does that answer it?

Mr. HOUGHTON. Under either condition?


5

of Defense carries out a significant medical program for not just
military retirees but their dependents as well, the integration in
some way of all of these Programs needs to be in our thinking as
we examine Medicare for the larger population as well.

So I would turn to my Ranking Member, the gentleman from
California, for any opening statement he might make.

Mr. STARK. Thank you, Mr. Chairman. Thank you, for holding
this hearing. My questions, or my concerns, deal with how this
demonstration can ensure quality for our retired servicepersons,
and I want to make sure that the military and veterans hospitals
stay current with the latest quality standards, and that they allow
access to a full range of centers of excellence. I also worry that in
this expansion, for example, what would happen to the bene-
ficiaries that I know my distinguished colleagues Mr. Stump and
Mr. Montgomery will suggest, who could use their Medicare go to
veterans hospitals, what if they gave up Medigap policies, and then
wanted to return, or moved? How would they get back into a
Medigap policy at a reasonable price without waiving preexisting
conditions? It is one thing to move people into a program, but peo-
ple do change their mind, or move, or veterans hospitals have been
known to close. What do you do then if the person has relied on
the veterans hospital treatment and cannot get back into the AARP
Medigap policy, and really then is at risk for the 20-percent copays.
This could really shove them over into a Medicaid problem.

I am somewhat reluctant to get started into something like that
until we make sure that we have covered all the bases for the peo-
ple who are coming into it.

dust for example, it is my understanding that we now pay about
$150 million a year for 60,000 retirees. That is $2,500 a head. You
can buy the best Medigap policy in the country for $1,500 a year,
which gives you pharmaceuticals, and care in Europe if you happen
to be traveling, and everything you could want. We would save 360
million a year if we just went out and bought them a Medigap pol-
icy.

Now, you have to tell me that they are getting $1,000 a year
worth of something that we should not give to private insurers for
the same thing.

I think there are a lot of unanswered questions that could work
to the disadvantage of the broad population of military retirees, if
we do not make sure that this all fits together smoothly. Each
group does what they do best. And I look forward to hearing the
testimony of our distinguished colleagues in HCFA and in the De-
partment of Defense as we wind through all this.

ank you.

Chairman Tuomas. Thank you.

Mr. Chairman, Ranking Member, we have your written testi-
mony. It will be made a part of the record, and you may inform
us in any way you see fit about your idea and where you think the
veterans and Medicare ought to go.

STATEMENT OF HON. BOB STUMP, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ARIZONA

Mr. Stump. Thank you, Mr. Chairman.
With your permission, I will summarize my statement.


87

MILITARY MEDICAL CARE PROMISES

Army Recruiting Brochure, “Superb Health Care. Health care is provided to you and your family mem-
bers while you are in the Army, and for the rest of your file if you serve a minimum of 20 years of active
Federal service to earn your retirement.” [RPI 909, November 1991 U.S.G.P.O. 1992 643-711}

Life in the Marine Corps, p. 36. “Benefits..should you decide to make a career of the Corps, the bene-
fits don't stop when you retire. In addition to medical and commissary privileges, you'll receive excellent
retired pay...”

Guide for Educators and Advisors of Student Marines, p. 35. “Retired Marines are generally eligi-
ble to receive any type of health and dental care at those facilities provided for active duty personnel.”

Navy Guide for Retired Personnel and Their Families. ». 51. “Covered under the Uniformed Services
Health Benefits Program (USHBP) are retired members. dependents of retired members and survivors of
deceased active duty or retired members. This care is available anywhere in the world either in a unt-
formed services medical facility (meaning Army, Navy. Air Force and certain Pubhe Health Service facilt-
ties) and under the part of the USHBP called CHAMPUS” [NAVPERS 15891D November 1974]

The Bluejackets Manual, p. 257. “What Navy Retirement means to ¥
for you and your dependents in government facilities.” {1969}

1u - pay. Continued medical care

Air Force Preretirement Counseling Guide, Chapter 5 Medical Care 5-2f..“One very important pornt,
you never lose your eligibility for treatment in military hospitals and clinics.” [1 April 1986]

Air Force Guide for Retired Personnel, Chapter 1. “Treatment authorized. Eligible retired members
will be furnished required medical and dentat care." [1 April 1962]

United States Coast Guard Career Information Guide, USGPO. “Retirement...You continue to
receive free medical and dental treatment for yourself plus medical care for dependents.” [1991]

U.S. Coast Guard Pamphlet Be Part of the Action, “Reap the Rewards..You can earn retirement,
benefits - like retirement income...Plus medieal, dental care...” (1993]

Hearings on CHAMPUS and Military Health Care, HASC No. 93-70, 93rd Congress ’..the gov-
ernment has a clear moral obligation to provide medical care to retired personnel and their depen-
dents..this Committee has found numerous examples of recruitment and retention literature which
pledged... medical care for the man and his family following retirement." [Oct-Nov 197.4]



80

insurance plan but not the basic Medicare benefit.

Over the past two decades the Congress and various Administrations have
expressed interest in requiring the Health Care Financing Administration (HCFA)
which administers the Medicare Trust Fund to reimburse the military treatment
facilities for care given to Medicare-eligible beneficiaries.

In 1995, Dr. Joseph, ASD(HA) and Dr. Bruce Viadeck, Director, HCFA,
agreed to conduct a joint DoD/HCFA HMO Medicare Demonstration Project.
Unfortunately, the Department of Health and Human Services perceived legal
restrictions which prevented these agencies from conducting the test without legislation.

Senator Gramm introduced legislation calling for a demonstration project S.
1487; shortly thereafter, Senator Dole introduced S. 1639, Companion bills were
introduced by Representatives Hefley H.R. 3142 and J.C, Watts, H.R. 3151. These bills
followed earlier legislation by Representatives Cunningham and Hefley which would
have provided for Medicare reimbursement. In June of this year President Clinton, in
a meeting with The National Military/Veterans Alliance and other association
representatives, expressed the determination to “make a Medicare reimbursement
demonstration project happen”. Even with this clear direction, objections and delays
by the Department of Health and Human Services have slowed progress and forced
compromises by the Department of Defense that are not in the best interests of
beneficiaries. in addition, cast analyses by CBO have inhibited development of a
demonstration project that will meet the needs of military beneficiaries. However,
congressional support has been made abundantly clear (See Exhibit B). We know this
committee has long supported Medicare reimbursement and we urge you to support a
demonstration project. There are features which we believe should be incorporated
into Medicare subvention as the demonstration proceeds. We understand that DoD and
HCFA have worked for over a year on this and have a carefully structured plan. We
understand the need for each Department to represent its interests. However, this
demonstration and departmental considerations should not be used to rule out
innovations that could improve care for beneficiaries and provide beneficiaries with


83

EXHIBIT B

MEDICARE REIMBURSEMENT (SUBVENTION)

I. On 23 March 1995, Dr, Stephen C. Joseph, M.D., M.P.H., Assistant Secretary of
Defense (Heaith Affairs) before the Subcommittee on Personnel, Committee on
Armed Services, United States Senate, made the following statement in his
testimony...

“With continuing reductions in military medical facilities and
end-strength, our ‘space available’ will decline. As this
occurs, there is little doubt that our Medicare-eligible patients
will be forced to seek care from civilian providers under the
Medicare system. First, this may turn out to be more costly
for the government. Second, we believe there is a moral
obligation for DoD to care for these former members of the
Armed Forces and their families and survivors. Third, this
older group of patients presents the wealth of clinical
workload needed by our military medical personne! to
maintain their skills for readiness missions.”

II. Over the past years Congress has expressed interest in requiring the Health Care
Financing Administration (HCFA) which administers the Medicare Trust Fund to
reimburse the military treatment facilities for care given to Medicare-eligible
beneficiaries. The following are two recent examples:

© Sec, 726, FY93 National Defense Authorization Act (P.L. 102-284):
“It is the sense of Congress that
(1) members and former members of the uniformed services, and their

survivors, should have access to health care under the health care
delivery system of the uniformed services regardless of the age or


21

provide us with an understanding of the current legislation that
has been marked up between the Department of Defense and
HCFA in this 3-year Medicare subvention demonstration project.

Mr. Viadeck, you are on my left, your right, so you might as well
begin. The written testimony will be made a part of the record, and
you may inform us in any way you see fit.

STATEMENT OF HON. BRUCE C. VLADECK, PH.D, ADMINIS-
TRATOR, HEALTH CARE FINANCING ADMINISTRATION

Mr. VLADECK. Thank you very much, Mr. Chairman.

Chairman THOMAS. Welcome back to the big room.

Mr. VLADECK. Thank you, sir. I am pleased to be here today, as
always. I am especially pleased to appear with my colleague of
many years, Stephen Joseph. He and I worked together in New
York a decade ago, and I have been pleased that we have had the
opportunity to work together again in Washington. We did have
some discussion on our way up to this table as to which of us was
representing which end of the horse, and we will defer that until
a later time. We have worked very closely with the Department of
Defense, Dr. Joseph's office, for the past year to come to an agree-
ment for a demonstration project on Medicare subvention under
which Medicare would pay for dually eligible Medicare military re-
tirees in the Department of Defense managed care program.

In forging this program, we believe that we have set the stage
for a project that will provide quality service for dual eligible bene-
ficiaries, while at the same time addressing the concerns about the
well-being of the Medicare Trust Funds, and the trust funds’ avail-
ability for all current and future Medicare beneficiaries.

More than 1 million of our current 38 million Medicare bene-
ficiaries are also eligible to receive health care through the Depart-
ment of Defense. Over the years, we have had these two parallel
systems. The demonstration which we have proposed in the legisla-
tion will provide us the opportunity to very carefully and system-
atically assess the effects of working more closely together on im-
proving the efficiency of care. The demonstration will also ensure
access to services and the quality of care for that portion of the 1
million beneficiaries, who live around a number of military facili-
ties in Texas, the State of Washington, Oklahoma, Louisiana, and
Arkansas.

In working together on this demonstration, we had two major
concerns. The first is that we wanted to make sure that Medicare
beneficiaries who were also military retirees could be assured of re-
ceiving high quality care, no matter which system they received it
in.

Second, we are of course concerned about the fiscal impacts of
the demonstration and the potential longer term policy decisions on
the Medicare Program. We are aware of the CBO scoring of an ear-
lier version of subvention legislation to which the Chairman re-
ferred earlier.

A large part of our discussion with the Department of Defense
over the last number of months has revolved around mechanisms
to protect the Medicare Trust Funds, to limit Medicare’s liability
under this program, and to be sure that we could get the informa-


MEDICARE SUBVENTION

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
SECOND SESSION

SEPTEMBER 17, 1996

Serial 104-81

Printed for the use of the Committee on Ways and Means

es

U.S. GOVERNMENT PRINTING OFFICE
39-921 CC WASHINGTON : 1997

For sale by the U.S, Govemment Printing Office
‘Superintendent of Documents. Congressional Sales Office, Washington, DC 20402
ISBN 0-16-055307-5


84

health care status of the person seeking the health care;

(2) such health care delivery system should include a comprehensive
managed care plan;

(3) the comprehensive managed care plan should involve medical
personnel of the uniformed services (including reserve component
personnel), civilian health care professionals of the executive agency of
such uniformed services, medical treatment facilities of the uniformed
services, contract health care personnel, and the Medicare system;

(4) the Secretary of Defense, the Secretary of Health and Human Services,
and the Secretary of Transportation should continue to provide active
duty personnel of the uniformed services with free care in medical
treatment facilities of the uniformed services and to provide the other
personnel referred to in paragraph (1) with health care at reasonable
cost to the recipient of the care; and

(5) the Secretaries referred to in paragraph (4) should examine additional
health care options for the personnel referred to in paragraph (1)
including, in the case of persons eligible for Medicare under title XVIII
of the Social Security Act, options providing for-

(A) the reimbursement of the Department of Defense by the Secretary of
Health and Human Services for health care services provided such
personnel at medical treatment facilities of the Department of Defense;
and

(B) the sharing of the payment of the cost of contract health care by the
Department of Defense and the Department of Health and Human
Services, with one such department being the primary payer of such
costs and the other such department being the secondary payer of such


44

Chairman THOMAS. Well, notwithstanding the $200 million num-
ber, what we have is a stop loss of $65 million, is that correct?

Dr. JOSEPH. Well, sir, if I might add to that, I think there are
two provisions——

Chairman THomas. I am just trying to understand the statement
that Bruce made about the $65 million amount.

Mr. VAN DE WATER. May I comment on that, Mr. Chairman?

Dr. JOSEPH. That is only a partial—that is only a part of the stop
loss that exists. As both Bruce and I said in our testimony, there
is also a reconciliation process to assure no further loss, and there
is also the adjustments to items within that 93 percent of AAPCC,
that would further ensure against loss.

Chairman THomMas. And how—would it in fact extend to a
change in the 93 percent, plus the deducts during the reconciliation
process? My concern is locking in legislatively a new number, and
then reconciling it around that number, when in fact, the number
may be the problem.

Mr. VLADECK. There are two issues. One is that the reconcili-
ation process, as I understand it, actually focuses less on what
Medicare has paid than on the level of effort. This level of effort
refers to the maintenance of the Department of Defense’s level of
expenditure on behalf of its beneficiaries, before and after the dem-
onstration.

Chairman THOMAS. You have to be comfortable that in fact they
have carried out their level——

Mr. VLADECK. That is correct. Basically, the primary purpose of
the reconciliation process, is to assure that there has not been a
shifting of cost from preexisting patterns of expenditure by the De-
partment of Defense to Medicare in the course of the demonstra-
tion.

Second, our agreement requires an annual review by the two De-
partment Secretaries with the assistance of a neutral third party,
if called for, of the way in which the payment methods and the per-
cent of AAPCC are working. The agreement also ensures an oppor-
tunity to reconsider the level of payment for the subsequent year.

Although the agreement ensures a projected level of Medicare
payments under the demonstration, it also provides for a mecha-
nism which may be adjusted over the life of the demonstration in
the event experience runs very different from expectations.

Chairman THOMAS. Well, and that is of concern as CBO has indi-
cated in their analysis on page 4 where it says “Moreover, DOD
has a greater incentive to shift its costs to Medicare than the
Health Care Financing Administration has to prevent shifting.”

I am concerned about cost shifting. I am very concerned about
the adverse risk selection concerning people who are in fee-for-
service versus the attraction of the military retiree on a managed
care structure, especially, since you are moving into an area that
has managed care, a more mature, as Dr. Joseph indicated, a more
mature managed care structure. Many of these people who may be
moving into the TRICARE HMO may be coming from another
HMO, so that you have a significant march of people, not just from
one HMO to another HMO, which might affect the risk mix, but
also fee-for-service into this new military-based HMO which might
in fact deal with risk selection as well.


Statement of Honorable Bob Stump
on
H.R. 4068, Veterans Medicare Subvention
Demonstration Project Act
before the
Ways and Means Subcommittee on Health
September 17, 1996

Mr. Chairman, | appreciate the opportunity to appear
before the Subcommittee today with my good friend,
Sonny Montgomery, -- and | want to compliment you, Mr.
Chairman, for holding this hearing on the topic of
Medicare-subvention.

Last week the Committee on National Security, which
Sonny and | also serve on, marked up H.R. 3142, to
establish a demonstration project for DoD Medicare-
subvention.

| had prepared an amendment to that bill, which we were
prepared to offer at the National Security mark-up.
However, instead of offering the proposal as an
amendment to H.R. 3142, we introduced it as a free
standing bill, H.R. 4068.

The Ways and Means Committee has primary jurisdiction
over H.R. 4068, with the bill also being referred to the VA
Committee and the Commerce Committee.

Mr. Chairman, H.R. 4068 would establish a 3-year
demonstration project for Medicare-subvention for the
Department of Veterans Affairs.

This bill is very similar in policy and scope to H.R. 3142,
and contains the same cost containment type provisions.


7

to veterans. Veterans have trouble understanding why they cannot
go to a VA facility now, and have VA pick up the cost.

Mr. Chairman, this concludes my remarks. I will now let my col-
league, Sonny Montgomery testify. Between the two of us, we hope
we can answer your questions, and thank you very much for hold-
ing this meeting today.

Thank you, Mr. Chairman.
(The prepared statement follows:]


57

it. Please understand that we have no confusion or illusions about
jurisdiction over the Medicare Program, and—from our perspective,
the timing of the two, of the work of the two Committees, is unre-
lated to our understanding of your jurisdiction over anything hav-
ing to do with Medicare.

Chairman THOMAS. Would you assume that the numbers that
you worked out with DOD on this particular subvention program
would be appropriate numbers for the veterans VISN Program?

Mr. VLADECK. Yes, we have talked about the same kind of num-
bers for the capitated part of the veterans program.

Chairman THomas. And have your discussions reached the stage
that you would have geographic regions in mind similar to the way
in which you selected regions 6 and 11 for veterans, or is that a
bit more informally spread out?

Mr. VLADECK. Well, that is just a part of the discussion that is
not as far along with the Veterans Affairs as with the DOD. We
have not yet gone to the level of specifying sites for the demonstra-
tion with the VA.

Mrs. JOHNSON. I would like to clear up one issue. Can the
TRICARE plans contract with any hospital in the area they choose
to?

Dr. JosepH. The managed care support contractor develops a pre-
ferred provider network, and essentially has freedom of choice in
the development of that network. I can consider a situation that if
we thought that a provider was not—

Mrs. JOHNSON. Yes, there is a problem here you are overlooking.
The TRICARE managed care provider will not be able to contract
with the medical center in Washington, because they do not have
any ability to compensate for the costs of teaching medical edu-
cation, because you have taken that out. Have you made any provi-
sion for where TRICARE plans need to use teaching hospitals for
those teaching hospitals to get a special separate supplemental
payment to cover the cost of medical education?

Dr. JOSEPH. Actually, Mrs. Johnson, the most recently concluded
managed care support contractor in the upper Midwest and Rocky
Mountain West, the alliance of providers in that network includes
a number of the university teaching hospitals in those States, so
T do not think that you are—and in other regions as well, there are
university medical centers who are part of the provider network. So
your point is not correct.

Mrs. JOHNSON. Well, it may be correct that we are letting man-
aged care hospitals negotiate and include medical centers in their
negotiated rate, but it is also true that that rate does not include
the medical education provision, or if it does, it goes into profit, and
it is absolutely true that this is stripping dollars out for medical
centers across America.

So I am concerned that you would by law take the medical edu-
cation portion out and then not have any way to feed it back into
our teaching centers. If a patient needs to go to that component of
a managed care system, it is not healthy for the managed care sys-
tem to be reimbursing the teaching hospital the same way it reim-
burses other hospitals, and this is a bomb waiting to explode in the
Medicare system as HMOs take more and more of the business.


40

that the project is limited to three of the Department of Defense's administrative
regions--fewer than the bill would allow, but more than anticipated in a recent
memorandum of agreement (MOA) between DoD and the Health Care Financing
Administration (HCFA). The MOA defines a demonstration at several specific sites,
but CBO assumes that under legislation that would give broader authority the MOA
would be revised.

Under the bill, Medicare would reimburse DoD for expenditures above a base level
of effort, which would be determined by DoD and HCFA in order that the
demonstration project not raise overall Medicare costs. (The MOA contains a similar
objective but would attempt to achieve it in a different way.)

Direct Spending

Even though the bill aims at no change ii Medicare's or Do's costs, CBO believes
Medicare costs would rise by about $200 million a year. This increase would stem
from informational and administrative problems in determining what each agency
‘would have spent under current law.

The stipulation that the project be budget neutral for both DoD and Medicare would
be extremely difficult fo implement. Although one could argue that the measurement
problems could go either way, there are at least three reasons to believe that
Medicare's costs would rise under the subvention demonstration program.

First, knowing how many Medicare beneficiaries will seek care directly from DoD
is difficult enough in the short term, and that uncertainty only grows over time as
populations change and the availability of discretionary funding for DoD's health care
programs varies. DoD does not have complete information about the extent to which
its beneficiaries currently receive additional care from other sources, such as
Medicare. Thus, establishing a baseline level is subject to considerable uncertainty
about the numbers of beneficiaries, the extent of their receipt of care from non-DoD
sources, and their response to being included in the Tricare enrollment system
Despite the current lack of an enrollment system, data from DoD indicate that it
provides all health care to the equivalent ‘of 68,000--or about 30 percent-of the
220,000 Medicare-eligible retirees or dependents living in the three regions. Probably
many more people receive atleast some care from DoD, but the number averages out
to being the equivalent of all care for 68,000 people. If healthy retirees are
‘undercounted in the baseline level, they would become the financial responsibility of
HCFA under the bill, even though they now get most of their care from DoD.


81

choice and flexibility. Therefore. Congress should ensure that legislation does not
restrict the opportunity to test innovative ideas and in fact we urge you to include
language that would assure both HHS and DoD that you encourage testing innovative
solutions and that they have the authority to do so.

‘Some features which we recommend be incorporated into Medicare subvention include:

«A fee-for-service option, The current demonstration would limit participation to
those who are willing to give up their Medicare benefit except as part of the DoD
TRICARE-Prime program. We believe those who do not want to enroll in
TRICARE-Prime should be allowed to use military treatment facilities on a space
available basis and the MTF should be allowed to bill Medicare for treatment at a
DoD/HCFA negotiated rate.

* Waive TRICARE-Prime enrollment fee for Medicare eligibles. Currently,
Medicare HMOs require no enrollment fee for beneficiaries. We believe “fee
stacking” by requiring participation in Part B Medicare and payment of TRICARE
enrollment fees will place the TRICARE-Prime out of reach for some beneficiaries.
A couple would pay $1,020 for Medicare Part B plus $460 for the enrollment fee for
a total of $1,480 per year. This would be before co-payments and other fees
required under the TRICARE program.

* Solve Medicare Part B premium problems. Waive Medicare Part B penalties for
Medicare eligibles who do not have Medicare Part B, but would like to enroll in Part
B and participate in the joint DoD/Medicare demonstration project.

« Authorize TRICARE-Prime network contractors to act as Primary Care Managers
for Medicare eligible beneficiaries. Currently DoD believes that to do so would
require rebidding the TRICARE contract. For purposes of the demonstration
project, the requirement to rebid the contract should be waived so that the
subvention concept can be tested in areas where there are no MTFs. Unless this is
done, there will be no test involving contractors as PCMs in areas outside of MTF


28

ered services only through TRICARE; are residents of the geo-
graphic areas covered by the demonstration, and where enrollment
in the demonstration is offered; and who as dual eligibles, used the
military treatment facility before July 1, 1996, or became dual eli-
gible starting after June 30, 1996.

The services to be covered under this demonstration include the
standard Medicare benefit in addition to specific TRICARE Prime
benefits. One of the major considerations in developing this ar-
rangement is the agreement that DOD will continue to maintain
its level of effort in providing care for the dual eligible population,
in order to avoid imposing these costs on the Medicare Trust Fund.

This commitment to continuing our current level of effort has
generated a series of very detailed conditions, reimbursement cri-
teria, and evaluations by both agencies.

DOD will meet or be deemed to meet the applicable and agreed
upon requirements similar to a Medicare risk HMO. With respect
to reimbursement, it is based on capitation, the same as for Medi-
care health maintenance organizations. The reimbursement rate is
at a level at least 2 percentage points less than for Medicare
HMOs, and with rate adjustments that would avoid double pay-
ment for MHSS costs already funded by appropriations.

Enabling legislation for this demonstration has been submitted
to the Congress, and we look forward to working with a bipartisan
coalition of Members to quickly enact it this year.

The cornerstone of this historic agreement is that there be mu-
tual benefit for our dual eligible beneficiaries, for the Medicare
Trust Fund, for DOD, and for the American taxpayer. The agree-
ment is specifically designed such that it will not increase the total
cost of Medicare. In partnership with the Department of HHS, our
goal is to implement a cost effective alternative for delivering ac-
cessible and quality care to dual eligible beneficiaries.

In closing, Mr. Chairman, I want to recognize the powerful sup-
port from those here in Congress who have championed this effort.
Without the very essential bipartisan drive, and the support of
many Members in both Houses, and on both sides of the aisle, we
would not be at this threshold of opportunity. We need your sup-
port, that of your Subcommittee, as we move to see the enactment
of enabling legislation.

I will be happy to respond to your questions, or your comments
on the specifics, or on the concepts. Thank you.

[The prepared statement and attachment follow:]


45

Is this part of the demonstration project to determine the uni-
verse where they came from and the impact, not just on DOD but
on the area itself in terms of health care delivery?

Mr. VLADECK. We are explicitly concerned in the evaluation, and
this is an issue that has come up before in the history of the sub-
vention discussions. We are concerned about the impact of the dem-
onstration project on other providers of care to Medicare in the
area. If every potentially eligible military retiree sought all of their
care through the TRICARE system, that would clearly have an im-
pact not only on the other Medicare HMOs in the community, but
also on the community hospitals and on some of the physicians’
networks.The project’s impact on other providers is an explicit part
of the demonstration.

Let me just add one other point if I may about the specifics of
our agreement.

Eligibility for the demonstration is limited to military retirees
who have either just become Medicare eligible, or who have already
established user-——

Chairman Tuomas. The July 1, 1996, date, right.

Mr. VLADECK [continuing]. Of military facilities. In terms of a
significant shift in the patient population in San Antonio, or Ta-
koma, we would not anticipate that, because this segment of the
population is already in the system.

I Chairman THOMAS. Except for those who become eligible after
Fune——

Mr. VLADECK. Except for those who become eligible in the course
of the demonstration.

Second, the TRICARE system’s lock-in is analogous to other
Medicare risk contractors. For instance, when beneficiaries elect
the TRICARE option, beneficiaries would be eligible for Medicare
reimbursement only within the TRICARE system, unless they had
emergency out of area kinds of services. Both of these issues affect
the nature of the risk to Medicare that would be presented by this
demonstration.

T have not had a chance to discuss these issues with Mr. Van de
Water before this hearing. This is not the time for us to get into
details, but I believe concerns with earlier legislation and H.R.
3142 have been addressed. Some of these concerns were quite ap-
propriately raised by CBO and have been addressed, or at least
carefully considered quite a great deal as we refined this project.
We will need to have further conversations with CBO to see if we
can come to some closer meeting of the minds about the potential
budgetary impacts.

hairman THOMAS. And finally for this round, you indicated—
both Dr. Joseph and you have indicated—that there has been a de-
gree of spadework done over a long period of time moving to this
legislation. The Chairman and the Ranking Member of the Veter-
ans’ Affairs Committee are offering a proposal which would extend
it into the veterans.

Do you, Mr. Viadeck, believe that you can come to a conclusion
with them in the next several months, or early next year to create
what would be in essence a parallel project for the Veterans Ad-
ministration as well?


27

But unfortunately with our move to managed care in TRICARE,
the one group of beneficiaries who are not fully participating in
this success is the growing number of our Medicare eligible bene-
ficiaries, some 1 million in all.

Medicare subvention, or the reimbursement from Medicare for
care that the military health services system provides to dual eligi-
ble personnel, would allow our Medicare eligible beneficiaries to en-
roll in our managed care system, TRICARE Prime.

After significant negotiation and examination of how the Medi-
care system works, and how our system would satisfy the Medicare
risk HMO requirements, we have worked out an arrangement that
will allow a demonstration of the Medicare subvention concept.

Permit me to say here in response to Mr. Stark's earlier com-
ments, CBO has not scored this demonstration. The CBO figures
which you mentioned earlier, Mr. Stark, were a scoring of an ear-
lier proposal on actually a theoretical rather than a real proposal.

Furthermore, as Bruce Vladeck has already mentioned, the dem-
onstration that is on the table now has a $65 million cap on trans-
fer expenditures after current level of effort is met, and also there
is a rather elaborate process for reconciliation at the end of each
year’s period, which would keep this from being a cost increase to
Medicare, or to Federal outlays total for that matter.

Chairman THomas. Dr. Joseph, just to make sure the record is
straight now rather than wait in until the conclusion of your testi-
mony, we have in our possession dated today, and I know it only
came this afternoon, you may not be in possession of a CBO analy-
sis, which I believe is on the actual bill, not a theoretical.

Dr. JOSEPH. Sir, you may be correct, but the best of any informa-
tion was that the Hefley bill has not been scored, the President’s
legislative submission has not been scored, and the $200 million
figure, which is a figure very familiar to Mr. Vladeck and I—

Chairman THOMAS. I apologize for interrupting. Go ahead with
your testimony, and then we will have CBO come up, so we can
begin to clear some of this up.

Dr. JOSEPH. Fine.

Chairman THomaS. I apologize, and would you please continue.

Dr. JosEPH. The demonstration as proposed would cover the area
of San Antonio, plus three other sites in our region 6, which is that
region of the country; and the Madigan-Bremerton area in
TRICARE region 11, which are the States of Washington and Or-
egon.

We will also identify three sites in region 6 to serve as compari-
son sites.

The demonstration will last for 3 years, and both agencies have
the option of extending it for 18 months for enrolled beneficiaries.
The agreement stipulates that we would begin the demonstration
60 days following enactment of legislation, or on January 1, 1997,
whichever is later. And there is a provision for each agency, or ei-
ther agency, to withdraw from the demonstration with 12 months
written notice.

People who would be eligible for participation in the demonstra-
tion will include those who are eligible both for care from DOD and
through Medicare’s agent program; enroll in TRICARE Prime, our
HMO option, or covered by Medicare part B; agree to receive cov-


64

STATEMENT OF KAREN iGNAGNI
PRESIDENT AND CEO
AMERICAN ASSOCIATION OF HEALTH PLANS

‘The American Association ot Health Plans represents 1.000 HMOs, PPOs, and similar network
health plans. Together, AAHP member plans provide eate tor over 100 million Americans
nationwide.

Over the past 1wo years, the number of beneficiaries enrolied in Medicare 1iMOs has grown by
twenty-five percent, Today. nearly 4.4 million Medicare beneficiaries have chosen to enroll in
Medicare HMOs. HMO Medicare enrollees benefit from the many advantages offered by our
plans. including an emphasis on preventive services and carly intervention when health
conditions arise, affordable and predictable out-of-pocket costs, litte or no paperwork, and
access to a coordinated care system. These advantages are the foundation for the success of the
present Medicare HMO contracting program and reflect our philosophy of care: quality,
affordable health care trom health plans where the patient comes first

the Department of Health and Iuman Services (HHS) and the Department of Defense (DoD)
have entered into a Memorandum of Agreement (MoA) on the terms of a demonstration project
under which military retirees who arc Medicare-cligible would be permitted to elect enrollment
in DoD’s TriCare program. ‘The demonstration is intended to test Medicare subvention --
Medicare reimbursement to DoD for services provided to Medicare-cligible military retirees in
military treatment facilities (MTFs)

The American Association of Health Plans has serious concerns about this demonstration, Our
concerns focus on MTFs" readiness fora managed care demonstration, the standards of care
placed upon MTFs under the demonstration, and the impact of the cost of the demonstration on
the Medicare Trust Funds

First, before the military enters the Medicare risk contract business, DoD and HHS need to
ensure that MTFs are adequately prepared to meet the challenges of serving Medicare
beneficiaries through a risk contracting program. MTFs ate not accustomed to operating as an
TIMO. nor are they experienced in meeting the needs of an older population. As our health plans
can attest, managing a Medicare risk contract can be complex. Many of our health plans have
spent years developing prevention services, education and outreach programs, and provider
networks tailored to the needs of Medicare beneficiaries

As the range of offerings to Medicare beneficiaries expands, itis critical to maintain strong and
comparable standards for all options. Medicare beneficiaries need assurances that all plans they
are choosing among have comparable standurds related to access, quality of care, and consumer
protection. Beneficiaries enrolled under the proposed demonstration should have tme seme
consumer protections guaranteed to over 4 million Medicare beneficiaries enratled in the isk
contracting program. While the Memorandum of Agreement between HHS and DoD hold:
Military Treatment Facilities (MTFs) accountable to many of the same requirements placed on
Medicare risk contractors, in some cases, the MOA appears to place lesser standards on these
facilities. In fact, under the MoA, DoD is required to meet or wil! be deemed fo meet, the
applicable and agreed upon requirements similar to those required of Medicare risk HMOs.
AAHP opposes a demonstration that would use deeming to excuse the military health system.
from meeting the same standards placed on Medicare risk contractors.

For example, AAHP is especially’ concerned regarding the Mod's requirement for a DoD quality
assurance program. Medicare risk contractors must have an ongoing, intemal, quality assurance
program that includes a written quality assurance plan, a process for review by the plan’s Board
‘of Directors, and an active quality assurance committee. ‘The MoA states that DoD has a
“corporate program for ensuring quality of care mn the MHSS” thus satisfying quality assurance
program requirements, We have concerns that DoD’s quality assurance program is not sufficient
to monitor the quality of care provided to Medicate beneficiaries at different MTF locations.
Such a centralized program lacks the dedicated personnel to conduct continuous quality
assurance activities that stress health outcomes. This section of the MoA appears to place a
lower standard on DoD than on Medicare risk contractors and raises concer that MTF lack the
strong quality assurance and uilization review programs necessary for effective care
management

Under the demonstration, DoD must maintain is current expenditure level (adjusted for


4

Chairman THOMAS. Good afternoon. Today’s hearing will focus on
the proposed demonstration for Medicare for military retirees. We
are also going to examine the question of expansion to veterans.

The Medicare subvention proposal would authorize the Depart-
ment of Defense and the Department of Health and Human Serv-
ices to conduct a 3-year demonstration project that will provide cer-
tain military retirees the option to use their Medicare benefits to
join a Defense Department-sponsored health maintenance organi-
zation, I believe, called TRICARE.

In other words, Medicare would begin to pay premiums to the
Department of Defense for the medical coverage of military retir-

ees.

The legislative goal of both departments is to provide better care
for military retirees and their eligible dependents without increas-
ing Medicare’s costs.

Some believe the proposal will actually reduce Medicare expendi-
tures. However, the CBO has estimated the program will cost $200
million a year.

The Medicare Board of Trustees tells us that the Part A Trust
Fund will be exhausted in 2001. Based upon all of the data that
we have seen on snapshots on year to date and the July funding,
that date may in fact move to the year 2000 or earlier.

It concerns me that we may be placing additional costs and bur-
dens on the part of the Medicare Part A Trust Fund. If it can be
shown that CBO is wrong, I am all for giving beneficiaries more
choices. After all, that was one of the main thrusts of our proposal
in restructuring Medicare to provide options to beneficiaries. My
concern is that we were dealing primarily with the private sector
where cost factors are on the surface and broken down, especially
in the private sector in the business arrangement. We may not be
able to get complete cost center data for the Department of Defense
that would create a comfort level.

The last thing we want to do—at least the last thing I want to
do—is to simply use Medicare to prop up military treatment facili-
ties that are already funded through appropriations, or to provide
funds as the CBO indicated where the Department of Defense
through this demonstration project would be supplied money that
may or may not be used for health care.

I look forward to hearing from Dr. Vladeck, Administrator of
HFCA, and Dr. Stephen Joseph, the Assistant Secretary of Defense
for Health Affairs on these important issues.

In front of me is the Chairman of the Veterans’ Affairs Commit-
tee, Bob Stump of Arizona, and Ranking Member, Sonny Montgom-
ery. They have a proposal to establish the same type of demonstra-
tion project that would require Medicare reimbursement for health
care services to certain Medicare eligible veterans.

This proposal opens up a whole host of issues because of the very
nature of how health care is delivered to veterans. I look forward
to their testimony, and frankly, I am very pleased, although it is
at a time late in this session, that we are finally beginning to look
at these government health programs and at the concern that
every World War II veteran is now Medicare eligible. All of us
agree that bricks and mortar is not something that the Veterans
Administration is going to be heavily into, and as the Department


18

Mr. MONTGOMERY. That does put some control on the demonstra-
tion project.

Chairman THomas. Right. That is for the demonstration project.
I understand that.

Mr. MONTGOMERY. That is correct.

Chairman THomMaS. All right.

Mr. Lewis, do you wish to inquire?

Mr. Lewis. Thank you, Mr. Chairman. I do not think I want to
inquire, but I want to take this opportunity to commend Mr. Stump
and Mr. Montgomery for their long commitment and dedication to
the need and welfare of veterans. And with Mr. Montgomery’s deci-
sion to retire, I want to take that opportunity to also say that I
first met Chairman Montgomery in May 1961 when he was the
General of the Mississippi National Guard.

And over the years, since I have been here, I have seen him as
a friend, as a person who has kept his eyes focused with a vision,
with a dream, to do what he considered was best for veterans, and
for the people of this country, and I just want to say to you, Chair-
man Montgomery, we are going to miss you, and thank you for
being here, and Mr. Stump, thank you also for being here to testify
today.

Mr. MontcoMery. I thank the gentleman for the comments on
Mr. Stump and myself. We were on the same bus, the Freedom
Riders bus, we are very close friends, and it shows you what a
great country we have got that go are here to help us, and we
were there, back in those days. So thank you for our long friend-

ship.

Chairman THoMas. Thank you very much. The gentlewoman
from Connecticut.

Mrs. JOHNSON. Thank you. As I followed this discussion about
numbers, the conclusion that I am coming to is that there are 9.2
million veterans over 65, veterans including military retirees, is
that correct?

Mr. MONTGOMERY. We will have to get that number.

Mrs. JOHNSON. You have to get back to that, because I am draw-
ing the conclusion there are 9.2 million veterans. I do not know if
that includes retirees.

Mr. MONTGOMERY. All retirees are veterans.

Chairman THOMAS. Yes, 1.3 military retirees using military hos-

itals, and 2.9 military—I mean, just veterans, using VA hospitals.

that would give me 3.1 million veterans who are using either
military hospitals or VA hospitals already out of the 9.2 eligible.

So, I mean, those are the kind—you can get back to us on this.
I mean, this is I think not a good thing to try to clear up here, but
we need a clear understanding of who the universe is, and whether
there would be any new choices for current veterans who are part
of that 2.9 million who use our VA hospitals, would they now have
access to the military hospitals? Would the 1.3 million retirees now
have the choice of military hospitals or VA hospitals? Are we creat-
ing a larger universe of choice for all veterans, whether they are
retirees, or just veterans? No? So, I think that if we are doing that,
then we are actually eliminating the old definition of “low income,”
or “service connected,” something that we all anguished at the time
that we did it, and would really like to find a way to be more flexi-


82

catchment areas.

+ Ensure that Medicare eligible beneficiary enrollees are given the same priority care
that other enrollees receive.

Include authority for all uniformed services Medicare eligibles to participate, not
just those of the Armed Services.

© Provide clear guidance and safeguards to make participation in the demonstration
and any follow-up program completely voluntary. Some retirees are in satisfactory
health care programs and would object to any provision that would require
participation in a Medicare subvention program.

In the course of our Medicare subvention campaign some officials have asked if
enacting Medicare subvention will settle the military medical care issue. The answer is
no. It is one element of the military health care system that should be fixed but it does
not completely solve the problem.

Medicare subvention will benefit some 35% of Medicare eligible beneficiaries.
However, 65% will receive no benefit. For this huge majority of older military retirees
and their families, there is no military medical benefit despite the promises. Therefore,
in addition to Medicare subvention, military retirees need a solution not tied to location
of MTFs nor dependent on DoD’s ability to set up managed care networks. Such a
solution exists. It has been proven to be cost effective and it’s beneficiaries are satisfied
with it. That is the Federal Employees Health Benefits Program. The Alliance (except
the Non Commissioned Officers Association) strongly recommends that retired military
beneficiaries be allowed to participate in FEHBP as an option.

Mr. Chairman, military beneficiaries want choice and flexibility in their health
program. Some like HMOs, some like the freedom of a fee-for-service system, some
like the options provided by preferred provider organizations. They want the freedom
to choose as other federal employees have. We believe it can be done without
sacrificing cost effectiveness.

Finally, the Military/Veterans Alliance thanks this committee for its support of
Medicare reimbursement, for holding this hearing and its interest and concern for our
service members, their families and survivors.


55

Mr. VLADECK. I think it is fair to say, Mr. Thomas, that it was
essentially a negotiated figure. The Department of Defense initially
suggested it. We subsequently suggested a lower percentage——

Chairman THOMAS. Suggested pulling the GME out of it? Who
suggested pulling the GME out of it? Who suggested that?

Mr. VLaDECK. We did that.

Chairman THomas. You did that. And then you negotiated the
second and the third year at 90 percent?

Mr. VLADECK. That is correct.

Chairman THomas. What happens if you are wrong?

Mr. VLADECK. Well, again, that is why we have a process to an-
nually review the demonstration to determine if it is working and
the ppportunity

Chairman THomas. But those percentages are locked into the
legislation. They are not negotiable.

Mr. VLADECK. I believe the review process is also ensured by the
legislation.

Mrs. JOHNSON. Would the gentleman yield?

Mr. VLADECK. It is the reconciliation process that would then——

Chairman THomas. I understand, but the reconciliation process
will take place outside of the 93 and 90 percent. What you have
just told me is that perhaps 93 is too high, and you will then pay

ack some money, notwithstanding the fact that you keep the 93
percent in place. Or more appropriately, in the second and third
year, since you knew from the first year that maybe the 93 percent
was too high, you may work out a reconciliation process in which
you reconcile dollars but you are legislatively locked into the 90-
Percent payment. Why do you lock in a specific payment rate? Why

lo you not make that part of the reconciliation so that we can have
a true understanding of what that amount would be?

Mr, VLADECK. Mr. Chairman, if we did in fact do that in the way
in which the legislation was drafted, then we should not have
drafted it that way, and we need to correct it.

Dr. JOSEPH. It is a 3-year demonstration period.

Chairman THomas. That is the reason I have been pointedly
making the comment that a Committee without the jurisdiction to
adjust the Medicare reimbursement rate passed legislation which
readjusted the Medicare reimbursement rate, and changed what
was included in the AAPCC for this demonstration project, which
I believe, Mr. Viadeck, HCFA was very pleased to use as a wedge
in attempting to get in reality numbers which do not now exist,
and for which you would have to go through this Committee to get.
By doing this, you do not. My concern is the amount that you have
locked in is in fact more than you should be paying, and I am very,
very, concerned about the math and the structure for which DOD
will account for its portion of the dual eligibility aspect to be fed
back through. I know you have got a number of checks on that, and
one of the reasons I would like to go ahead with the project is to
begin to look at these kinds of numbers. They may not be suffi-
ciently compelling, but it is very interesting in terms of what those
numbers might be.

I hope that the 93 for the first year, and the 90 for the second
and third year were not completely the subject of negotiations. I as-
sume you have some facts, charts, understanding, of regions 6 and


719

Exhibit A is an extract of some of the promises made in recruiting and retention
literature over the years. Despite these promises, the availability of health care
continues to be a problem. Deep cuts in both military and civilian medical personnel
have left military medical treatment facilities (MTFs) severely understaffed.

Physicians are preparing examining rooms and performing administrative tasks which
means they see fewer patients than do private sector physicians who have adequate
nursing and administrative help available to them. Meantime, patients not seen in
MTFs must be referred to more expensive CHAMPUS or TRICARE contractor care.

To correct the problem facing military medical beneficiaries today no
single option will solve the problem of providing medical care to DoD's diverse
beneficiary population. However, improving access to cost effective, top quality care
while meeting wartime training and mobilization requirements can be accomplished at
reasonable cost. The proposal we have been asked to comment on today is:

Medicare Reimbursement (Subvention)

‘The promise of lifetime medical care in exchange for a career of military service

hhas been proven and acknowledged. Despite this, military retirees, their families and

survivors are the only Federal employees who lose their entitlement to medical care

from their employer at age 65 upon becoming eligible for Medicare. This is age

discrimination on a huge scale which disenfranchises hundreds of thousands of retired
veterans and their families.

Retirees especially resent the fact that after earning what they thought was free
lifetime medical care by a military career of 20 to 35 years they are now being turned
away from that care. They cannot use a military hospital with Medicare paying part of
the costs even though they paid mandatory Medicare payroll deductions from their
active duty military pay since January 1, 1957, and most of them participate in
Medicare Part B paying $42.50 per month or $510 per year per person. In addition,
many have purchased Medigap supplemental policies at $100 or more per month or
$1200 per year. The ultimate irony is that the MTFs bill their Medicare supplemental




costs.”

* Sec. 718, FY96 National Defense Authorization Act (P.L. 104-106)
“Sense of the Congress Regarding Access to Health Care Under
TRICARE Program for Covered Beneficiaries Who are Medicare
Eligible.

(a) Findings - Congress finds the following:

(1) Medical care provided in facilities of the uniformed services is generally
less expensive to the Federal Government than the same care provided at
Government expense in the private sector.

(2) Covered beneficiaries under the military health care provisions of chapter
55, United States Code, who are eligible for Medicare under title XVII of
the Social Security Act (42 U.S.C. 1395 et seq.) deserve health care options
that empower them to choose the health plan that best fits their needs.

(b) SENSE OF CONGRESS - In light of the findings specified in subsection
(a), it is the sense of Congress that-

(1) the Secretary of Defense should develop a program to ensure that such
covered beneficiaries who reside in a region in which the TRICARE
program has been implemented continue to have adequate access to health
care services after the implementation of the TRICARE program; and

(2) as a means of ensuring such access, the budget for fiscal year 1997
submitted by the President under section 1105 of title 31, United States
Code, should provide for reimbursement by the Health Care Financing
Administration to the Department of Defense for health care services
provided to such covered beneficiaries in medical treatment facilities of
the Department of Defense.”


92

demonstration. However, any new enrollees at these two USTFs who
are 65 or older would be in the demonstration as well as current

enrollees who become Medicare beneliciaries.

The demonstration project will allow the Sisters of Charity and Pacific
Medical Clinics to continue to accept military beneficiaries as new
enrollees into their programs, avoiding the unfortunate situation I
described earlier, If the USTFs are no: in the demonstration, many
DoD beneficiaries will not have access to military facilities, and will
use their Medicare benefits, at higher costs to the federal government
and significantly higher costs to themselves, which many cannot afford.
Without the USTFs, these individuals will not have access to the
benefits they earned as military perscnnel in service to their country.

It is only right and just that these individuals, who did so much for
their country, have access to the benefits they earned. Space is limited
in military treatment facilities (MTFs) in the Seattle area for Medicare
beneficiaries and there are no MTFs i1 Houston. The USTFs in these
locations can accommodate additiona: military beneficiaries, allowing
these individuals access to the benefits they so richly deserve.

Besides allowing the military beneficiaries access to their benefits,
participation of the USTFs in the demonstration will lower health care
costs for both Medicare and DoD. For beneficiaries enrolled in the
subvention demonstration, the USTFs will accept the same payment
Medicare pays to HMOs, Thus, the Medicare trust funds will save on
all individuals who enroll in this demonstration at the USTFs.

Unlike other TRICARE programs, the JSTFs will be fully at risk for the
cost of care provided to individuals in the subvention demonstration,
just as the USTFs are now fully at risk for other enrollees in the USTF
Program, There cannot be any cost overrun for DoD or HCFA. The
USTFs are fully at risk, not with risk corridors, not with any risk
sharing between the USTFs and DoD; there is no cap on potential risk
for the USTFs,

Because the USTFs are fully at risk, the subvention demonstration,
that includes the USTFa, will allow a -eduction in the federal budget.
This is a significant benefit for the federal government and is indicative
of the direction health care financed by the federal government is
going: reliance on the private sector which is fully at risk.


62

plemented, and we have got to work with these numbers to get a
little higher comfort level than I have right now.

Dr. JOSEPH. If I may, Mr. Chairman, just add one factor to that
chain you drew, I think quite accurately, of this complicated syner-
gistic stuff, you have left out one very important thing, it is that
the dual eligible beneficiaries want to be cared for in the military
health system, and that is what starts that change.

Chairman THOMAS. You should not have placed that on the table,
Dr. Joseph. The problem we have has been too many people
“want.” We do not have enough money to fund the needs. We are
going to have to go back in and make some very, very, difficult
judgments about what people are going to be able to receive as far
as benefits, how much they are going to have to pay. And for you
to come before this Subcommittee dealing with Medicare and say
you want to structure this program because somebody wants to do
it this way is in no way a rationale that this Subcommittee, this
Full Committee, or this Congress, will entertain. If it saves money,
if in fact there are benefits to it without costing money, then we
can talk about moving forward with the program.

But to come here and justify a program because somebody who
has a particular position in life wants it, and therefore they should
get it even if it costs more money, is not a rationale that should
be provided at all.

Dr. JOSEPH. No, sir. A poor choice of words on my part. The
needs remain the same wherever the dual beneficiaries get their
care——

Chairman THOMAS. And our goal is the most cost effective way
of delivering it, and——

Dr. JOSEPH. Yes, sir.

Chairman THOMAS [continuing]. All your other arguments ought
to be presented. Do not present that one.

Dr. JOSEPH. I think wisdom says I will hold my response to that,
but I think it is an accurate response.

Chairman THomas. I understand. And coming where you are
coming from, I understand that as an argument as well. Because
just as unions like the idea of what we proposed, a seamless trans-
fer from the workplace to retirement so that they could maintain
their seniors’ affinity to the hiring hall and the structure that it
provides in a social as well as an economic and health care way is
an argument that is applicable to the military as well. And I un-
derstand that. But that is way down on our list of making changes
in the system.

The gentlewoman from Connecticut.

Mrs. JOHNSON. Yes, I just wanted to pursue your comments
about preparing a medical capability to serve an at war force in
peacetime. I think this is a very big problem. I think you are right
about that. And I am glad to see you sort of beginning to plan. I
do not think that this demonstration goes very far to satisfy that,
because you are limiting it to people who have already had care in
the military hospital.

Now, if they have had a transplant, they are unlikely to have an-
other one, or if they have had hip replacement. | mean, what you
really need is new people coming in. So this demonstration is not
central to the solution to that problem. Eventually, what you are


35

of the executive branch. We would then be able to tell the Congress
that based on our agreement; ‘we were knowledgable of what the
proposed project would accomplish. Congress would know what
they were buying by the authorization. We could promise Congress
that implementation of any legislation would not be slowed up, or
impeded by issues of interagency relations.

fhairman THOMAS. And that could not have been fulfilled with
a general statement of budget neutrality, or that current level of
effort would be exhausted by the DOD prior to payment for Medi-
care.

I guess my concern is that what you are doing also on this legis-
lation is to a degree setting a precedent, so you are very com-
fortable in indicating to this Subcommittee that the specific pay-
ment arrangement on this contract is in no way an indication that
this is a structure that HCFA would like to expand beyond this
demonstration project, whether or not it proves successful.

Mr. VLADECK. Clearly, Mr. Chairman, the establishment of a
payment level below 95 percent of the AAPCC in the second and
third years—in all 3 years of this demonstration, and the separate
treatment in the second and third year of the AAPCC that can be
attributed to graduate medical education, or disproportionate
share, or capital expenses, parallels our thinking about changes in
Medicare payment policy involving managed care plans. This posi-
tion is reflected in the President’s balanced budget proposal which
we have previously discussed in hearings before this Subcommittee.

We wanted the demonstration to be consistent with our thinking
on broader policy issues. At the same time, we didn’t want to have
any uncertainty or confusion about what we were requesting from
the Congress in this legislation. The legislation specifically author-
izes this project, and does not broaden the authorities of the Sec-
retary, or of HCFA, relative to the Medicare Program. We wanted
to provide you with a relatively well defined package so that we
could say in good faith, “This legislation permits us to do exactly
this.

Chairman THomas. I guess you might understand the sensitivity
of this Subcommittee which believes it has jurisdiction over the
subject matter when in fact changing the AAPCC risk contract
structure ‘is now being done in a bill that has another Committee
as its primary jurisdiction. That concerns us very much.

Mr. VLADECK. Yes, sir.

Chairman THOMAS. On the memorandum of agreement, I under-
stand you are going to be doing it in two regions, so perhaps for
the record, we need to supply some rationale for the selection of re-

‘ions 6 and 7 of largely Texas and the Southwest area, and the

‘ashington-Oregon area. What was the thinking in terms of going
with these particular areas?

Dr. JOSEPH. The rationale basically comes in two parts. The first,
we wanted regions that were as mature as any in the TRICARE
managed care process, which involves triservice orientation of the
military facilities, and a relationship with a managed care support
contractor.

Second, we wanted regions where we had both a good mix of dif-
ferent kinds of facilities, different levels of facilities, if you will, and
also where we had sophisticated medical centers that could give us


75

Medicare for visits to private sector providers. The Coalition recognizes that in
order to move forward at all, a compromise may he required. Accordingly,
under the plan contemplated by the Authorization Bill, the Medicare subvention
test would extend only to Medicare-eligible beneficiaries who agree to enroll in
Tricare Prime. However, the conference agseement directs DoD/HCFA to submit
a study to Congress (by January 3, 1997) on the feasibility of extending the
subvention concept to fee-for-service care, too (ie., case-by-case health care
provided to service retirees and family members who are not enrolled in Tricare
Prime).

Mr. Chairman, after reviewing the DoD/HCFA proposal, the Coalition believes
DoD has bent over backwards to accommodate HCFA's concerns. For example,
DoD has agreed to accept a discounted capitation rate as reimbursement, and
has agreed that the rate can be further reduced by backing out the costs of
Graduate Medical Education, Indirect Medical Education, capital building, and
disproportionate share hospital costs that go into the formula for the capitation
tale. DoD has also agreed to exclude its costs for outpatient pharmacy services
and the USTF program from its level of effort computations, which is also
advantageaus to HCFA

These concessions clearly reinforce the most fundamental point we
wish to underscore again, Medicare cannot be financially damaged
by subvention. The test is just that, a test, with a sunset period and
@ statutory guarantee that Medicare will not lose. Therefore, Mr.
Chairman, the Coalition requests your assistance in ensuring that the
Medicare subvention test is implemented without delay. Th e
Coalition respectfully requests this Committee 10 — support
implementing legislation to actually authorize the test in time to
allow final passage prior to adjournment of the 104th Congress. DoD
has indicated it is prepared to go forward with its implementation
plan on a@ moment's notice. Conducting a test demonstration will be
the only way to resolve the funding question and validate the
financial viability of subvention,

Before closing Mr Chairman, the Coalition would also like to see one important
provision incorporated into final implementing legislation, Medicare-eligible
beneficiaries who participate in the test must be afforded some protection in
case the test must be ended prematurely for some reason, Therefore, Tricare
Prime must be designated a Medicare at risk HMO so that Medicare-
cligible beneficiaries will be able to renew their Medigap supplemental policies
without incurring pre-existing condition limitations, Without this designation,
Medicare-eligible beneficiaries will not be able to drap their supplemental
policies, and will be financially penalized compared to other Medicare-cligibles
who join other Medicare at-risk HMOs. The requirement to keep supplemental
insurance would also likely decrease the incentive to participate in Tricare
Prime,

CLOSING COMMENTS

This Committee has a great challenge to restore the health benefit to a level
equal 10 what most employees of large corporations have and to that available
for all retired federal civilians have. The Coalition stands ready to work with
this Committee to reform military health care without jeopardizing military
readiness or the national security. Bul, the time has now come to honor the
commitments that were made to those who served their country when they were
called to do so. Mr. Chairman, the Coalition is grateful for your continuing
support and appreciates the opportunity to present its views on this topic which
is $0 vital to retired service members.



36

a look at the widest range of services provided to our beneficiaries.
In San Antonio, both the Army and the Air Force have flagship
hospitals, if that is not mixing a metaphor, and we also have a
large retiree population. And in Takoma, Madigan Army Hospital
is a large medical center, and we also have several smaller facili-
ties, Navy and otherwise, in that area.

So on the grounds of both maturity and in essence, a kind of sci-
entific selection of demonstration sites, those two regions stood out.

In those two regions, we would estimate that in the areas within
those regions that we choose as demonstration sites, there are
probably up to 60,000 dual eligible Medicare and military retiree
individuals, and the demo will probably involve 15,000 of them, in
terms of its actual execution.

Chairman THOMAS. Notwithstanding the fact that as you de-
scribe it, it is a mature managed care area that we are operating
in in both regions 6 and 11, we do not have the ability to determine
whether we can be smart shoppers in the area among contractors,
is that true?

Dr. JOSEPH. That is correct, sir. We have existing managed care
support contracts in both, and I think I carefully said “more ma-
ture.” I do not think any of our TRICARE regions at this time
would qualify as what people sophisticated in the health care busi-
ness would call a mature HMO region; but they are most mature
of our system, and meet most of the criteria of development of utili-
zation management, quality assurance, oversight of the contract,
and so forth.

Chairman THOMAS. Was there any discussion about the fact that
the demonstration might not be as completely useful as possible
since you have preselected the contractor in the area and will not
have an opportunity to do some sharp shopping for price?

Dr. JOSEPH. I do not think so. We believe, and I can furnish you
those figures if you wish, that the bargaining and negotiation over
the development of those contracts were within the last 2 years in
both instances, has resulted in contracts that are quite favorable
on a cost basis to the government.

Chairman THomas. Now, we have had some discussion about the
costs, and I believe that the information that we have in front of
us from CBO covers the bill as it is written, and it is not theoreti-
cal, is that correct, Mr. Van de Water?

Mr. VAN DE WATER. The estimate which we prepared, Mr. Chair-
man, is for the bill that was reported by the National Security
Committee last week, H.R. 3142. The proposals that Dr. Vladeck
and Dr. Joseph have made do not comport in some significant re-
spects with the bill as reported by the Committee. In particular,
the administration’s proposal is more limited with respect to the
number of locations at which the demonstration could be carried
out. As Dr. Vladeck said in his statement, there would also be a
$65 million limit on Medicare’s gross reimbursements to the De-
partment of Defense. That is an important—a_ significant—dif-
ference. Therefore, although we have not seen the legislative pro-
posal which goes along with the administration’s plan, our estimate
of it would not be identical to our estimate of H.R. 3142.

[The following was subsequently received:]


51

Mr. ViAaDECK. That is correct. I believe that we have zero pre-
mium plans in San Antonio and not in Seattle, that is correct, sir.

Chairman THomas. All right. Now, back to my original ques-
tion——

Mr. VLADECK. Let me amend——

Chairman Tuomas [continuing]. There are no zero premium
plans in the greater Seattle area?

Mr. VLADECK. There are now zero premium plans in the Seattle
area; but there have not been any historically. In the last couple
of years, there have been new entrants into the Seattle market who
are offering a zero premium Medicare plan.

Chairman THoMas. And my assumption is that the military re-
tirees will not have to pay out of pocket?

Dr. JOSEPH. In the current demonstration agreement, there is no
enrollment fee for the demonstration. However, the enrollees would
pay the part B premium in the demonstration.

Chairman THomas. No, they would in a zero premium as well.
That is nonresponsive. My concern is that we are creating a dem-
onstration program in an area, and I do want to see the data, that
shows how many people are signed up for zero premium HMO not-
withstanding the fact that it is offered versus the number of people
who are paying out of pocket who are nonmilitary retirees for an
HMO program in the greater Seattle area for which military retir-
ees will receive a program with no out-of-pocket payment. And that
is a concern.

Mr. VLADECK. Mr. Chairman, if I may, and partially in response,
or in additional response to Mrs. Johnson’s question, there are a
significant number of military retirees who for reasons of geo-
graphic accessibility, continuity of care, availability of particular
specialties’ services, or for reasons of absolute preference, continue
to receive care on a space available basis through the military
treatment facilities. These retirees choose this option even when
they have a Medicare card with which they could get care from
other providers in other institutions.

Although we have yet to completely convince CBO, this dem-
onstration proposal is to see if we can find a way to ensure that
military retirees who are Medicare beneficiaries and prefer to re-
ceive their services through the military system can continue to do
so. This project will be conducted in an environment in which the
expectation is that the availability of military facilities for people
who are not enrolled in the TRICARE Program will diminish over
time.

We have already had some instances in some parts of the coun-
try in which military hospitals were closed. Beneficiaries who were
accustomed to using military facilities were able to get care else-
where, but in many cases at the cost of some considerable incon-
venience, disruption of services, or disruption of the continuity of
care.

I think what our duly eligible beneficiaries are concerned about
is that over time, as the military and the military health care sys-
tem evolve, the military may be without some sort of subvention
arrangement. It may also be less and less possible for these bene-
ficiaries to continue to receive care from the providers from whom
they have been receiving care with a very high level of satisfaction.


24

STATEMENT OF BRUCE C. VLADECK, PH.D.,
ADMINISTRATOR
HEALTH CARE FINANCING ADMINISTRATION

"MEDICARE SUBVENTION"

Tam pleased to be here today to discuss Medicare subvention, a
demonstration project that will be conducted by the Health Care Financing
‘Administration (HCFA) and the Department of Defense (DOD) whereby
Medicare will pay for dual-eligible Medicare/DOD beneficiaries in the DoD
‘managed care program In forging this agreement, we believe the stage
has been set for a project that will provide quality service to these
dual-cligible beneficiaries and, at the same time preserve and protect

the Medicare Trust Fund for all Americans.

We are happy to be joining with our colleagues in the Department of
Defense (DoD) in moving forward with this test. Of the 38 million
Medicare beneficiaries, more than one million are dually-eligible to
receive health care through the Department of Defense's military health
services system and through the Medicare program Over the years, DoD
and Medicare have separately provided access to quelity care for these
dual-eligible beneficiaries This demonstration will give us the
opportunity to assess the effects of coordination on improving

efficiency, access, and quality of care for this population in a selected
ttumber of sites in Texas, Washington State, Oklahoma, Louisiana and
Arkansas

As HCFA and DoD collaborated to design this demonstration, we at HCFA
kept our eyes on two imperatives: We must protect beneficiaries and we
‘must protect the Medicare Trust Funds. As you know, this Administration
has expressed its concern about the solvency of the Trust Funds, and has
proposed measures to strengthen them each year since coming into office
We must ensure that Medicare benefits are available forall

beneficiaries As we worked on the design of this program, strategies to
prevent further depletion of the Trust Funds were utmost in our thinking

1 like to detail for you some of the provisions of our agreement with
DOD and the safeguards that we have created

Our agreement protects the Medicare Trust Funds against the risks of
cost-shifting, First and foremost, DoD will receive Medicare payments
only after it surpasses its current “level of effort", ie. the dollar
amount DoD now spends rendering health care services to dual-eligible
beneficraries in military treatment facilities in the demonstration

sites. This level of effort will be updated for each year of the
demonstration

Some services that are covered under Medicare are not covered by DoD,
such as skilled nursing facility and home health care Enrollees in the
demonstration will be provided with the full Medicare benefit package

‘After DoD meets its level of effort in the area covered by the
demonstration, Medicare will reimburse DoD on a capitated basis equal to
2 percentage of the Adjusted Average Per Capita Cost (AAPCC) applicable
to the beneficiaries enrolled in the demonstration. We have agreed to

adjust the applicable AAPCC to exclude some of the costs associated with
capital, indirect and graduate medical education and disproportionate

share hospitals. These exclusions are believed to be outside the purview

of the Medicare payments under the demonstration. The reimbursement rate
will be set at 93 percent of the applicable AAPCC in the first year This

is two percentage points less than the 95 percent that Medicare currently
pays to risk HMOs, It reflects the increased efficiency of the DoD in
providing care to Medicare beneficiaries In years two and three, this

ate will be set at 90,25 percent At the end of each year, DHHS and DoD
will reconcile any payment discrepancies and correct for any mistaken



54

onstration so you can pilot, really, all the managed care plans out
there, because for the same premium, they are growing and ex-
panding, and offering far more benefit. And we ought to have that
option for our retirees as well, rather than restricting them in a
sense to government controlled options.

Mr. VLADECK. Well, Mrs. Johnson, if I may, I think doing so puts
us on the track of the question and the discussions which we have
had with this Committee and the leadership as to whether we
wanted to take the part of the budget bills, specific to Medicare
demonstration projects and moving these separately from the rec-
onciliation process or in a separate process this year.

Mrs. JOHNSON. I understand that, but if you are doing——

Mr. VLADECK. I think we all decided not to do that.

Mrs. JOHNSON. If you are doing a demo that is Medicare eligi-
bles, the goal is to give Medicare eligibles as much choice as they
want, and as they care to take advantage of. And if you are going
to give them now Medicare risk products, and Medicare fee-for-
service, and the military HMO product, why not at the same time
offer them any other product in the Bremerton area?

Thank you.

Chairman Tuomas. Thank you gentlelady.

Dr. Joseph, you have talked about the dual eligible. You have
that now, obviously. We are dealing with dual eligible, correct?

Dr. JOSEPH. Yes, that is correct, sir.

Chairman THOMas. And the military pays a portion? Let us take
somebody in the Seattle area right now. Does the DOD pay a por-
tion of their Medicare eligibility? Do they assume a portion of the
cost?

Dr. JOSEPH. No, sir.

Chairman Tuomas. Medicare is carrying that price totally?

Dr. JOSEPH. Yes, sir.

Chairman Tuomas. Can that military retiree avail themselves of
the military hospital on a space available basis?

Dr. JOSEPH. Space available basis.

Chairman THOmas. And some are?

Dr. JOSEPH. And many are. As many as can get in are, yes, sir.

Chairman THOMAS. You are not now being reimbursed by Medi-
care?

Dr. JOSEPH. That is correct.

Chairman THOMAS. What you want to do is create not a fee-for-
service, but an HMO structured reimbursement from the Medicare?

Dr. JOSEPH. Exactly, sir, under the belief that we can do that at
a lower cost to Medicare than Medicare is currently carrying.

Chairman THOMAS. And this demonstration project is to simply
take the Medicare portion of the dual eligible and send it through
the DOD?

Dr. JOSEPH. This demonstration is to give a choice to those Medi-
care eligibles, to come into DOD on a space guaranteed basis with
their care financed with those moneys that Medicare would expend
for them otherwise.

Chairman THOMAS. And how did we arrive at a 93-percent reim-
bursement rate?


63

going to need is to have some arrangements with other hospitals
in the area where your surgeons work there, or they feed people
in, because you are absolutely right, if your people are not doing
complicated surgery regularly, when they get out in the battlefield
circumstances, they will not be good. And we cannot afford that.

So I appreciate the problem, and some aspects of how this will
address it, but it does concern me that this demonstration is lim-
ited only to those who have already used military hospitals.

Now, I know you are trying to control costs, but could we not fig-
ure out some way that those who have been cycled out, new ones
could come in?

Dr, JOSEPH. Well, I think I am really stealing a little bit from
Mr. Vladeck’s expertise here. But the purpose of that was to assure
that the demonstration itself did not attract into the military so-
called “ghosts,” people who had never, or did not use it before, and
now would use it. And with respect to your first point, I would
have to respectfully say that if I have routine care or care for my
mild hypertension last June, and now I have carcinoma of the pan-
creas, that does not make me any less—that is not any less inter-
esting a patient or important a patient to the MTF.

Mrs. JOHNSON. There is an impact on the nature of your popu-
lation, since it is the same, and as you do more and more medical
service to it, you get less and less experience. That is the only point
I was making. And I think you ought to at least consider how you
could write this so that as people either die off, or cycle out, or
move and go someplace else, maybe you get some refreshment of
your pool. I understand the risk selection problems.

Thank you very much for your patience.

Chairman THOMAS. I want to thank you folks. We are supposed
to be budget neutral in this. And any numbers that you can get to
us as quickly as you can, Bruce, so that we can get a comfort
level—obviously, the third gentleman at the table that I called up
is someone that I am looking for a comfort level from, Mr. Van de
Water. CBO has done an outstanding job of trying to stay on top
of this changing legislation. The fact that we have a $65 million
stop loss in there does not give me a comfort level of budget neu-
trality. You need to look at these numbers. If you need a letter to
do it, we will authorize it. And I guess at the same time, if you can
piggyback the veterans bill so that we can see from any kind of a

roposed timeline, we will have to look at this legislation which
Boks to me like it was written primarily by taking the Hefley legis-
lation, pulling out DOD, and writing in “Veterans Administration.”
That is a quick way to write a bill. I do not know if it produces
the result that we are looking for with the VA.

Bruce, I guess we will be asking HCFA also if you have been car-
rying out those negotiations to give us some comfort level on as ac-
curate a timeline as possible for moving it into a similar program.
I assume through their VISN managed care structure, and we have
got to do this in a relatively short period of time so that we can
try to make some decisions.

Thank you very much.

The Subcommittee hearing is adjourned.

(Whereupon, at 4:30 p.m., the hearing was adjourned.]

(Submissions for the record follow:]




MU

12.

43

(By fiscal year, in millions of dollars)

1996 1997 1998
‘Change in Outlays 0 150 200
‘Change in Receipts Not Applicable

ESTIMATED COST TO STATE, LOCAL, AND TRIBAL GOVERNMENTS:
The bill contains no intergovernmental mandates as defined by the Unfunded
Mandates Reform Act of 1995 (Public Law 104-4) and would have no significant
impacts on the budgets of state, local, or tribal governments.

ESTIMATED IMPACT ON THE PRIVATE SECTOR:

This bill would impose no new federal private-sector mandates as defined in Public
Law 104-4.

PREVIOUS CBO ESTIMATE: None.
ESTIMATE PREPARED BY:

Federal Cost Estimate: Michael A. Miller (226-2840)

Impact on State, Local, and Tribal Governments: Pepper Santalucia (225-3220)
Impact on Private Sector: Neil Singer (226-2900)

ESTIMATE APPROVED BY: Fad can de le ch

Paul N. Van de Water
Assistant Director
for Budget Analysis



41

Second, DoD and HCFA face different incentives and access to information. Asa
result, DoD would have an advantage in the negotiations with HCFA over the
baseline level of care that would work against budget neutrality. The demonstration
would tend to attract beneficiaries who had previously used a military treatment
facility. DoD would therefore have information on potential participants’ medical
histories and would have a financial incentive to steer relatively healthy, lower-cost
people to the demonstration. Moreover, DoD has a greater incentive to shift its costs
to Medicare than HCFA has to prevent shifting. Because annual discretionary
appropriations currently limit DoD's health care funding, the department would have
to eliminate personnel or otherwise reduce its program in the face of losses from an
inaccurate baseline level (alternatively, it could expand its programs if it can shift
costs to Medicare). However, HCFA pays Medicare costs from a permanent and
indefinite appropriation that is very large and would not readily reveal a loss
stemming from a demonstration program such as this one. Even after the fact, it
‘would not be easy for the General Accounting Office or any other auditing agency to
determine the financial outcome of the demonstration because it, too, would have to
rely on estimates and assumptions about events and behavior that would have
otherwise occurred under current law.

Third, because Medicare's current method of paying risk plans does not adequately
adjust for differences in health status among beneficiaries, Medicare's costs would
tise if relatively healthy beneficiaries who would otherwise receive care in the private
sector on a fee-for-service (FFS) basis choose to receive it in DoD's managed care
(MC) program. (The demonstration program would pay slightly less for participants
who would otherwise be enrolled in a managed care plan under Medicare.) The
sector in which participants would otherwise be enrolled has important implications
for the bill's potential costs. Maximum enrollment in the demonstration project would
depend on an estimate of whether the participants would otherwise be enrolled in FFS
‘or MC. If the estimate was that a large number of MC enrollees would participate,
the maximum enrollment permitted under the bill would be high. If participants
actually would have been FFS enrollees, however, the demonstration would incur
costs for a large number of participants.

On balance, CBO estimates that DoD could shift 50 percent of its costs under the
demonstration to Medicare because of measurement problems and institutional
features. First, a 20 percent to 30 percent error could easily occur in measuring
current efforts, and uncertainty about the future could add another 20 percent to 30
percent at least. Second, the differing incentives and access to information would
lead to errors that compound rather than offset.


66

‘STATEMENT OF CDR MIKE LORD, USN (RET.), AND
LCDR VIRGINIA TORSCH, MSC, USNR
MILITARY COALITION

MISTER CHAIRMAN AND DISTINGUISHED MEMBERS OF
COMMITTE!

The Military Coalition (TMC) would like 10 express appreciation to the Chairman
and distinguished members of the Howse Ways and Means Committee's
Subcommittee on Health for allowing TMC to express its views on this health cae
imperative for retired service members and their families. This statement
provides the collective views of the following military and veterans organization
which represent approximately $ million current and former members of the
seven uniformed services, officer and enlisted, active, reserve and retired plus
theiv families and survivors

+ Air Force Association

+ Army Aviation Association of America

+ Association of Military Surgeons of the United States

+ Association of the United States Army

+ Chief Warrant Officer and Warrant Officer Association,
United States Coast Guard

+ Commissioned Officers Association of the United States
Public Health Service, Ine

+ Enlisted Association of the National Guard of the United States

+ Fleet Reserve Association

+ Jewish War Veterans of the United States of America

+ Marine Corps League

+ Marine Corps Reserve Officers Association

+ National Guard Assoctation of the United St

+ National Mititary Family Association

+ National Order of Battlefield Commissions

+ Naval Enlisted Reserve Association

+ Navy League of the United States

+ Reserve Officers Association

+ The Military Chaplains Association of the United States of America

+ The Retired Enlisted Association

+The Retired Officers Association

+ United Armed Forces Association

+ United States Army Warrant Officers Association

+ United States Coast Guard Chiet Petty Officers Association

+ Veterans of Foreign Wars


ef

STATEMENT OF HON. G.V. (SONNY) MONTGOMERY, A REP-
RESENTATIVE IN CONGRESS FROM THE STATE OF MIS-
SISSIPPI

Mr. Monrcomery. Thank you, Mr. Chairman. This is kind of a
first for Mr. Stump and J. We have never testified in the big room
before, so thank you for giving us this opportunity. We have been
in Pete Stark’s little room in years past talking about this same
subject.

Chairman THOMAS. I am sure you sit on your wallets in this
room.

Mr. Montcomenry. I will follow my chairman. I will be brief and
cover some points.

This veterans bill, as he said, closely parallels H.R. 3142, and the
Veterans’ Committee, as Mr. Stump said, will take up H.R. 4068
tomorrow, and I assume we will pass a bill.

The VA health care system, Mr. Chairman, has transformed it-
self into a modern primary care delivery system. The demonstra-
tion project authorized by the bill we have introduced should make
VA health care available to some of the veterans who are turned
away for such care today. And I think that is really the bottom line
for us, to get more veterans to be treated at our VA hospitals.

At the same time, there should not be any increase in Medicare
costs.

Now, I think this is what the—we need the demonstration for.
The bill would ensure that there would be no increase in two ways.
First it guarantees that Medicare will only pay 93 percent of what
it normally pays for health care for veterans carried under the
demonstration project.

Second, it requires the VA to continue to pay for the care of the
veterans it currently serves. In other words, Medicare will not pay
a cent for a veteran now under VA care. Medicare will only pay for
new patients that the VA serves above the VA current level.

Now, this is only a demonstration project. We would like to be
included with the military if this Subcommittee sees fit to move
ahead with that other bill.

And Jet me emphasize this, I kind of believe that we can do this
work for less than Medicare is costing now in private hospitals.
And I have said this over and over again, we have our own brick
and mortar; we have our hospitals; they are paid for. Yes, the tax-
payers paid for them. We have the largest volunteer system in
world. People, these Legionnaires behind us, they work every day
in these VA hospitals. And one of the best things we have is the
university medical school support.

You get a knee operation, which I have had, it is about $6,000
in a private hospital. In a VA hospital, it will cost from $2,000 to
$3,000. So I just cannot believe that we cannot service Medicare
veterans at a lower cost in our VA hospitals than in the private
hospitals. We have the system, we are ready to go, and we think
we can save money. That is why we want to have this demonstra-
tion project.

Thank you.

(The prepared statement follows:]


53

Dr. JOSEPH. Ma’am, giving the military—giving the dual eligible
beneficiary that choice that you described is exactly what the dem-
onstration does.

Mrs. JOHNSON. So you are going to give them more than a
TRICARE plan? Can they choose any plan?

Dr. JOSEPH. They have the option to either stay with or join any
of the Medicare options they already have, plus——

Mrs. JOHNSON. They have a Medicare fee-for-services option. In
these areas, do they have Medicare HMOs?

Mr. VLADECK. Yes, they do, and in each of the metropolitan areas
in the demonstration, there are a range of Medicare HMOs, includ-
ing several with zero premium.

rs. JOHNSON. And then they will have a TRICARE HMO?

Dr. JOSEPH. And they will have a TRICARE HMO option.

Mrs. JOHNSON. Now, the ideal thing would be to give them the
other HMOs. I mean, that is what we are trying to do in Medicare
Plus is to give them other HMOs that guarantee the proper serv-
ices.

Dr. Josep. I do not understand how they would not have that
option.

Mrs. JOHNSON. Well, they would have that option under Medi-
care Risk Programs, and under yours. What we are saying is that
there are a lot of PPOs out there that are very good, and they
ought to have that option, too, because it might provide better serv-
ices than we are able to provide under HMO models, which both
of these are.

And so if you are going to demonstrate, why do you not dem-
onstrate HMO access, and PPO access as long as the PPOs guaran-
tee the services that you have to have under Medicare or for retir-
ees?

Dr. JOSEPH. Well, I think there is another aspect of this you
might also consider. I heard this morning some preliminary figures
that looked at a sample of Medicare eligible DOD retirees hospital-
ized in a San Antonio military hospital, and the preliminary num-
bers I got were that 30 percent of them were also enrolled in other
health care for which Medicare was paying. So you are paying for
it twice now.

Mr. VLADECK. We do have exactly that concern. It is part of the
evaluation. But I would only say on the PPO issue, Mrs. Johnson,
as you know, we are trying to do the most straightforward kinds
of demonstrations we can. We are testing the availability of Medi-
care and PPOs through our Choices Demonstration Program.

Mrs. JOHNSON. But we did discuss that, that you needed author-
ity in the Choices Demonstration. We are not going to pass that au-
thority this year, so why do you not get the authority to at least
test that in this demo as you are doing it——

Mr. VLADECK. No, Mrs. Johnson, I believe you may not be re-
membering correctly. We believe that we have the authority for the
Choices Demonstrations. We are proceeding to enter into these con-
tracts right now.

Mrs. JOHNSON. Well, my recollection was that you can proceed to
a certain degree, but there are areas, ways, in which you cannot
proceed because you do not have the legal authority. Why do you
not get that whole legal authority to do that in this closed dem-


59

Mrs. JOHNSON. Well, that is why I asked whether these
TRICARE plans only were going to deal with military hospitals. I
understand that military hospitals have different funding streams.
Nonetheless, you need to make provision in this for when non-
military hospitals provide sophisticated care, when medical centers
that provide medical education provide sophisticated care, they
need to be guaranteed a medical education reimbursement because
we did not pass the Medicare Preservation Act which began to sep-
arately fund medical education. We have no system for separately
funding medical education.

So it would be irresponsible to have a demonstration project that
took those dollars out, and then did not give them back to the very
institutions that we wrote the law to fund.

And likewise, in disproportionate share. You cannot get care—
maybe not the teaching hospital, but if TRICARE includes any
county hospital which may or may not be teaching, it has a high
disproportionate share, and you cannot just ignore that. So I do
want to look at the reimbursement structure for the nonmilitary
hospitals that TRICARE contracts with, and make sure that they
get a fair level of reimbursement. That is my only point. And I
think that has to be addressed before this goes forward. This is the
problem with a nonreimbursement-oriented committee because this
is a terrible quagmire now in our law. But other Committees do not
talk about it. I do not blame them. It is terribly boring. But it is
terribly important.

So I think we have to get HCFA back involved in a more honest
reimbursement structure, reimbursement payment system, for the
nonmilitary hospitals involved.

Thank you.

Chairman THOMAS. If in fact we are using military hospitals as
the anchor, and you assume the single contractor you have already
negotiated with will provide a lot of the ancillary necessities for
Medicare beneficiaries—skilled nursing facility, home health care,
and so on—what comfort level do you have that the military hos-
pitals are in fact able to provide the full medical hospital compo-
nent, geriatrics, and so forth, for the retirees, and that you may not
have to contract out, and what provision are you going to include
for those individuals—and I wish some of my colleagues from the
other side of the aisle were here—are you going to include an “any
willing provider” structure in your HMO package called TRICARE?

Dr. JOSEPH. On your first point, I think we feel confident and in

art, it is a matter of the beneficiaries who have voted with their
eet to try and get into the space available structure, that those
services which we do provide, and in our larger hospitals, that real-
ly is a full range of services from a quality—from a quality point
of view, or entirely adequate. We have—we can provide you with
lots of material that supports that assertion.

As to your second question, Mr. Chairman, I do not believe we
have in any willing provider a clause in any of our TRICARE man-
aged support contracts, but I need to check that to be sure, and we
will get back to you. I do not believe-——

Chairman THoMas. And you are utilizing the military hospitals
as the primary anchor.

Dr. JOSEPH. Yes.


13

Chairman THOMAS. Thank you both very much.

Sonny, you say you have got the system, you are ready to go.
One of the things that has occurred is that the Department of De-
fense has set up its so-called TRICARE, and they are ready to go.
Whether they make sense or not is the question that we are deal-
ing with, but they are in fact ready to go.

ere are we with the managed care concept with the VA, I be-
lieve it is called VISN, V-I-S-N. Could they take on a demonstra-
tion project such as this within the next 6 months or early next
year? Are they comparable in terms of up and running?

Mr. Montcomery. I have this comment I would like to make
that, in fact the VA has done a great deal of planning to prepare
to establish managed care plans. It is in the workings. We have a
new system working downtown at the VA health care center, and
I think they can do it. And they are prepared to do it. I was told
that. You probably could ask the VA Administrator if he thinks
they could do it. But our studies show, and we anticipated your
question, we can do it.

Chairman THOMAS. And anyone, Mr. Chairman, or any of your
resources, how many veterans currently use the VA health care
system?

Mr. Stump. I believe the figure is 2.2 million veterans.

Mr. Montcomery. Is 2.2 million; that is a year.

Chairman THomas. So 2.2 million use it. And what is the uni-
verse of eligible veterans to use the system?

Mr. Stump. About 9 to 10 million veterans are eligible for VA
care. There are 26 million veterans. I believe approximately 11 mil-
lion veterans are qualified to use the VA. These are veterans with
disability and indigent status.

Chairman THOMAS. So if we have 26 million veterans, approxi-
mately 11 million of the 26 million currently meet the disability
and/or income threshold, which makes them eligible. My under-
standing is your legislation would remove the disability and income
requirement?

Mr. Stump. Do you mean this bill, Mr. Chairman?

Chairman THOMAS. Yes.

Mr. Stump. No, it would not.

Chairman THOMAS. It would still be limited to that group that
is eligible to use the VA——

Mr. Stump. It would be limited to that group between the indi-
gent status and the 50-percent disabled group, the new user's that
are not using it now.

Chairman Tuomas. How many would that be?

Mr. Stump. Mr. Chairman, I cannot answer that. I do not know
whether Mr. Montgomery has an answer or not. I do not know.

Mr. MontGomeEry. I know the problem you are aiming at. We
have the service-connected——

Chairman THOMAS. I do not know what problem I am aiming at,
Sonny, I am just trying to get numbers.

Mr. Montcomery. OK. Say the service-connected veteran, and
the low-income non-service-connected veteran, we should continue
to take care of them and not put them under Medicare. But I do
not think the bill spells that out, but that should be done.

Mr. Stark. If the Chair would yield?


CONTENTS

Advisory of September 13, 1996, announcing the hearing ..
WITNESSES

Health Care Financing Administration, Hon. Bruce C. Viadeck, Ph.D., Admin-
istrator .
U.S. Department of Defense, Hon. Stephen C. Joseph, M.D., M.P.H. Assistant
Secretary of Defense for Health Affairs

Montgomery, Hon. G.V. (Sonny), a Representative in Congress from the State
of Mississippi
Stump, Hon. Bob, a Representative in Congress from the State of Arizona

SUBMISSIONS FOR THE RECORD

‘American Association of Health Plans, Karen Ignagni, statement .
Military Coalition, Alexandria, VA, Mike Lord and Virginia Torsch, statement
and attachment
National Military/Veterans Alliance, Springfield, VA, Charles ©.” Partridge
and James Lokovic, statement and attachments ..
Paralyzed Veterans of America, David M. Tucker, statement
Sisters of Charity of the Incarnate Word Health Care System, Houston,
TX, Hon. William Sarpalius, statement

am

Page


34

Chairman THOMAS. Thank you very much.

Since we are going to be discussing some numbers that have
been generated, I think it would facilitate the discussion if, Mr.
Van de Water, you would come up and then we can either clear up,
or establish some degree of certainty.

Mr. Vladeck, and Dr. Joseph, receive, both of you indicated—ex-
cuse me, I know Dr. Joseph indicated—Bruce you may not have—
I think in your written testimony that there was need for legisla-
tion, that we have to pass legislation.

What is it that requires us to pass legislation—well, let me ask
Bruce a different way.

You cannot do this under your demonstration authority, right?

Mr. VLADECK. Yes, sir.

Chairman THOMAS. Why?

Mr. VLADECK. I believe it is section 1814 of the Social Security
Act—please do not hold me to that the exact citation—but there is
a specific provision in the act that forbids Medicare payments to
the Department of Defense’s facilities, Veterans Affairs’ hospitals,
facilities operated by the Indian Health Service, and other Federal
Government-operated facilities.

HCFA’s demonstration authorities, as you know, are in several
other places in the law, and involve relatively specific sorts of dem-
onstrations that we may undertake. HCFA’s demonstration au-
thorities have to do largely with payment or covered services, and
in some instances, types of providers.

HCFA’s General Counsel’s reading of the statute indicates that
the demonstration authorities elsewhere in the law are not broad
enough to waive the section of the bill that specifically forbids pay-
ment to a military facility.

Chairman THOMAS. So legislation is necessary to broaden the
scope for entering into demonstrations?

Mr. VLADECK. We have written this legislation to specifically au-
thorize this demonstration. The legislation is not designed to repeal
or to undermine the broader restrictions that currently exist in the
law, nor to broaden our general demonstration’s authorities.

Chairman THOMAS. Was it or was it not necessary in this specific
legislation to also specifically spell out, if that is not redundant, the
payment structure, 93 percent of the adjusted average per capita
cost, and what you do with graduate medical expenses attached to
ordinary Medicare payments. Was that necessary to be done in this
legislation?

Mr. VLADECK. No, sir.

Chairman THOMAS. Why didn’t you just get a general agreement
and then work out the pricing without locking in a specific struc-
ture that is different than current risk contracts?

Mr. VLADECK. Frankly, I think it is fair to say that the adminis-
tration wished to avoid problematic relationships with the Con-
gress. Therefore, we decided not to propose legislation of this sort
until there was an agreement within the executive branch on ex-
actly what the demonstration would constitute. In addition, we did
not want to put ourselves in the position of having the Congress
authorize or mandate a demonstration project. We might have had
difficulty reaching an agreement. It was decided that we would in-
troduce legislation once we had agreement among the various parts


76

Documenting the
Lifetime Health Care
Commitment

Many contend that the government never
iMetime health care te service members. The
secord shows ¢
sailors age requir
Is par month tn the Hospital Fund

ce contimied

World War Uf, Congress decided it
impose health care charges or
duties were So hazardous.
1956: The first document-

«ed evidence of the
Superb i te oat services advertising

Sar Jy pnembers eile you AF “tree health care for
or life’ ie receuiting and

se “retention fterature

advertisements

continue 1993

7 {see graphic}, when
retiree protests that DoD was reneging an the promise ted the

my to change the wording i ds brochures,

s to extend ceamPus eliginility beyond age 65, asserting that the
abundance of space available medical care in mibtary facilities plus Medicare offered
uniformed Services retirees a viable “two-track” health care system.

199%: Congressional Re! Service report concludes that the “tree health care for life’

promise was functionally true and had been used to good advantage tor recruiting and
retention

1995: Stephen Joseph. M.D. assistant secretary of defense (health affairs:. testities

before Congress that DoD has an “implied moral commitment” to provide bealth care te
ail eligible beneficiaries



22

tion that would permit us to fairly evaluate the fiscal impacts of
this project without any substantial risk to the trust funds.

Our agreement provides that the Department of Defense will
maintain its existing level of effort on behalf of beneficiaries who
participate in the demonstration project. We have very elaborate
procedures for measuring, updating, and applying the existing level
of effort. Through contract of services, the Department of Defense
will make available to demonstration participants the same serv-
ices which Medicare beneficiaries are entitled. Currently, the De-
partment of Defense does not provide these services, such as skilled
nursing facilities and home health care.

We have also capped Medicare’s total payments under this dem-
onstration at a total of $65 million a year. Perhaps most impor-
tantly, in terms of the financial impacts of this demonstration pro-
gram, we have provided for an annual reconciliation process. This
process would involve the two departments jointly and possibly in-
clude the participation of the General Accounting Office to review
in detail the outlays, both on our part, and on DOD’s part, for
beneficiaries served in the demonstration’s DOD facilities. In addi-
tion, this reconciliation process would ensure that the effects on the
Medicare Trust Funds are limited

At the same time, and this is the bottom line for us in a most
fundamental way, the agreement as it is incorporated into the pro-
posed legislation not only protects, but expands the freedom of
choice of Medicare beneficiaries. As is now the case, they can con-
tinue to receive Medicare services in the fee-for-service system, or
enroll in any of a number of different managed care plans that are
available to them in the communities in which they live. However,
beneficiaries who are already using the military system, and choose
to do so, could under this demonstration have the additional choice
of receiving all of their services through the DOD system without
having to worry about issues of availability of services, or of space
available kinds of care.

We believe that we have taken all the necessary and prudent
steps to protect the trust funds. We believe that we have taken all
the necessary steps to improve the choices and the quality for our
beneficiaries, without putting them at risk.

The question is whether this will succeed at demonstrating that
indeed we can adopt these new policies without additional cost to
the Medicare Program, or to the Federal Treasury in general. The
answer is that we do not know.

That is why we have called for a demonstration project under
very carefully defined terms. That is why the legislation calls for
an independent evaluation and for an evaluator who will monitor
performance as we go. The demonstration will give us hard an-
swers to such questions, not only about cost impact, but on the
changes in access to care and the quality of care for our bene-
ficiaries. In addition, the demonstration will determine quite im-
portantly the impacts on other local providers of health services
and any shift in utilization toward military treatment facilities.

After 3 years, we should see the effects of coordination between
our two programs, including overall spending on beneficiary satis-
faction, access to care, and quality of care.


COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ANDY JACOBS, Jr, Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut
JIM McCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, lowa JOHN LEWIS, Georgia

SAM JOHNSON, Texas LF. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts
MAC COLLINS, Georgia MICHAEL R. MCNULTY, New York

ROB PORTMAN, Ohio
JIMMY HAYES, Louisiana
GREG LAUGHLIN, Texas
PHILIP S. ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
PHILLIP D. MOSELEY, Chief of Staff
JANICE Mays, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH
BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
SIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada JIM McDERMOTT, Washington
JON CHRISTENSEN, Nebraska GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia

AMO HOUGHTON, New York
SAM JOHNSON, Texas

ap


91

‘The USTFs can make the subvention demonstration a success. The
USTRs have the administrative and medical systems in place now and
can accommodate additional military beneficiaries who want to join.
The experience of the USTFs make these facilities logical additions to
the demonstration. In fact, Pacific Medical Clinics in Ggattle has been
consulted by Madigan Army Medical Center in Region 11 during its
planning for implementation of the subvention demonstration.

As private sector organizations, although with a special designation as
USTFs and a fifteen year commitment to military beneficiaries, these
organizations have significant experience with Medicare HMO risk
contracts and all aspects of managed care. In addition, the USTFs are
full service programs serving not only military beneficiaries but also
many other individuals through Medicare, Medicaid and various HMO
and commercial insurance plans, St. Joseph’s Hospital, operated by
the Sisters of Charity, is the second largest Medicare provider in
Houston.

‘The USTFs have a unique position ir the Military Health Services
System (MHSS). The USTFs are deemed to be facilities of the
Uniformed Services for purposes of Chapter 5S of Title X. Because of
the leadership of this subcommittee, the FY 1997 Defense
Authorization legislation, approved by both Houses of Congress and
now awaiting the president’s signature, continues the special status of
the USTFs as designated providers within the MHSS.

This legislation is based on a set of Guiding Principles accepted by
both DoD Health Affairs and the seven USTFs. Principle #6 states that
the USTF can enroll additional DoD teneficiaries because of Medicare
Subvention, “if there is a demonstration project in place between DoD
and HCFA that is operational in an area in which the USTF is located.”

‘The USTFs, at the request of the staf’ of the Senate Finance
committee, have submitted proposed anguage describing how the
USTFs would fit into subvention demonstration legislation that
committee is preparing. A copy of this proposed language is included
with my written testimony.

This demonstration is important for both DoD and the USTFs in Texas
and Seattle. These USTFs should be included in the demonstration
because TRICARE is operational in their regions. These two USTFs now
serve the largest number of Medicare eligible military beneficiaries in
their regions. The USTF in Texas serves 5,919 individuals 65+ and the
USTF in Seatue serves 5,719. These individuals and their current costs
would be part of DoD’s continued level of effort and are not part of the


46

Mr. VLADECK. We actually have a parallel project and a parallel
understanding with the Veterans Affairs. In many ways, the Veter-
ans Affairs’ health care system is less sophisticated than the De-
partment of Defense’s system. For example, the VA subvention
would involve a fee-for-service component as well as a capitated
component.

We also are not as far along in being able to estimate the exist-
ing level of effort in the VA. However, the administration has pro-
posed parallel VA legislation, and it is not identical to the DOD
proposal, because the two systems are not identical.

Chairman THOMAS. And is that a yes, you would have no prob-
lem at all having a program up and running by the beginning of
the year or shortly thereafter?

Mr. VLADECK. I believe that if we were to enact the corrected ver-
sion of H.R. 3142, or whatever tomorrow, we could have a dem-
onstration up and running with the Department of Defense by Jan-
uary 1. I am not confident that we would be able to start quite as
quickly with the Veterans Affairs. We have a little bit more pre-
paratory work to do with the VA.

Chairman THomas. What does that mean?

Mr. VLADECK. For example, they have not yet-——

Chairman THOMAS. One year, two years, three years?

Mr. VLADECK. We could begin it during the next fiscal year, fiscal
1997.

Chairman THomas. Mr. Van de Water, any comments?

Mr. VAN DE WATER. Only that Dr. Vladeck is correct. Based on
what we have seen in the testimony and our cursory review of the
very extensive memorandum of understanding, the administration
certainly has made attempts to deal with the problems that we
have raised. I do not think that we would find that the cost of the
adininistration’s proposal is quite down to zero, but my initial reac-
tion is that it would be somewhat less than H.R. 3142, as reported
by the Committee.

Chairman THOMAS. Well, don’t we have a requirement for budget
neutrality here?

Dr. JOSEPH. In the agreement, sir, yes.

Chairman THomas. To what extent, notwithstanding the cap
structure, do you believe any of these changes have moved us to-
ward budget neutrality?

Mr. VAN DE WaTER. Yes. We believe that the changes have
moved in that direction. But as you——

Chairman THOMAS. Has it reached budget neutrality?

Mr. VaN DE WaTER. Probably not.

Chairman THOMAS. OK. We will have to examine the “probably
not” aspect, then.

Mr. Stark.

Mr. Stark. Thank you, Mr. Chairman.

If I understand this, Dr. Joseph, your staff, I guess, has said that
you are prohibited by statute from using CHAMPUS appropria-
tions to assist people over 65, but you could change that statute,
couldn’t you? You could ask us to change that law, could you not?

Dr. JOSEPH. The Congress could certainly change that law.

Mr. Sark. All right. And then you got $9 billion more than you
asked for, than the President asked for, in your budget, and you


30

Veterans Alliance. These representatives of military beneficiaries have sought Medicare
subvention for many years, so this demonstration should be a welcomed one, and a
proposal that they should feel proud to have played a major part in achieving.

Mr. Chairman, military medicine has a mission to provide health care wherever and
whenever our men and women in uniform need it. That mission has two interlinked
responsibilities. First, 10 operationally deploy medical capability -- people, equipment and
supplies -- with the troops in order to provide that care. Second, to operate a vibrant
health care delivery system to ensure our medical personnel -~ physicians, nurses,
technicians, corpsmen and medics - are trained and ready to deploy. In meeting the
requirements of that second responsibility, the Military Health Services System must have
a large and varied patient population. For that reason the Congress, years ago, authorized
the MHSS to provide care to the families of our active duty personnel, and then to our
retirees and their families. This care, however, is on a space available basis so that nothing
interferes with care for the active duty force,

In the last thiny to forty years much has changed. The Armed Forces have grown
smaller, the military infrastructure has shrunk, the budget grows tighter, and the national
security strategy has dramatically changed. In each of these evolutions,
Health Services System has participated. We have fewer health care faciliti
medical personnel, more -- and more-intense -- missions to support, and we must find
ways to be mote accountable to the American public for the dollars we spend,

In keeping with these changes, and with definitive guidance from our
Congressional oversight Committees, military medicine began its shift to managed health
care delivery. By next year, we will have fully implemented TRICARE across the nation
and in our overseas commands. This is a total transformation, a revitalization of the
Defense medical system. It involves our beneficiaries making a choice for how they will
receive their health care...and many are choosing our Health Maintenance Organization
option: TRICARE Prime. The reasons are many, but among them are the improved
access to high quality care and the assurance that they can receive care in military medical
facilities. TRICARE is proving to be a great success.

Unfortunately, the one group of our beneficiaries not fully participating in this
success is the growing number of our Medicare-eligible beneficiaries. These men and
‘women have served their country and they have paid faithfully into the Medicare Trust
Fund. They are covered by Medicare if they choose to seek care from physicians outside
the Military Health Services System, and they are able to seck care in military medical
facilities on a space-available basis. But, that space availability is at risk es more
beneficiaries sign up for TRICARE Prime, The Prime enrollees are filling the appointment
schedules of out military providers,

Medicare subvention, or the rcimbursement from Medicare for care the Military
Health Services System provides to military Medicare-eligible personnel, would allow our
Medicare-eligible beneficiaries to enroll in TRICARE Prime. Rather than splitting their


39

(By fiscal year, in millions of dollars)

1996 1997 1998-1999 2000» 2001-2002

DIRECT SPENDING

‘Spending Under Current Law
Estimated Budget Authority 198,191 217,200 238,144 259,683 281,215 304,913 330,923

Estimated Outlays 196,051 215,516 236,419 257,411 279,466 303,179 328,522

Proposed Changes

Estimated Budget Authority 0 150 200-200 50 ° 0

Estimated Outlays 0 150 200-200 580 ° 0
Bill

Estimated Budget Authority 198,191 217,350 238,344 259,883 281,265 304,913 330,923

Estimated Outlays 196,051 215,668 236,619 257,611 279,516 303,179 328,522
SPENDING SUBJECT TO APPROPRIATIONS ACTION

‘Spending Under Current Law

Estimated Auth. Level" 15,117 15,17 15,17 15117 15,117 15,117 15,17

Estimated Outlays 15,166 15,196 15,092 15,080 15,084 15,084 15,084

ed Chi
Estimated Auth. Level 0 «150-200-200 -50 0 0
Estimated Outlays © 100-200-200 100 ) 0

Bi
Estimated Auth. Level 15,117 14,967 14,917 14,917 15,067 15,117 15,117
Estimated Outlays. 15,166 15,096 14,892 14,880 14,984 15,084 15,084

12 The 1996 Ggue isthe amount akeady appropriated

Amouns fal yar 1997 thogh 2002 we astray seo apopatin aon anda at
‘eprops unde curent law eran athe 1996 ve hey are adjusted for lation the base amounts would increase
‘by about $450 millon «yea, but the ropoesd changes would remain as shown in he abe

These! the cots to sod evaluate the: program.

BASIS OF ESTIMATE:

The bill would require that the demonstration occur in two or more geographic
regions over a three-year period beginning on January {, 1997, The estimate assumes


89

Although PVA believes that Medicare subvention will result in ultimate cost-savings to
American taxpayers while ensuring the best possible care to veterans, especially those veterans
in need of specialized services, we are also cognizant of the fact that data to support these
contentions are scarce. It is for this reason, and also to ensure that current and future veteran
users are afforded the very best medical care, that we support the demonstration project as
established in H.R. 4068. Let it be demonstrated that Medicare subvention works for the
betterment of veterans, and does indeed lead to efficiencies in the allocation of federal health
care dollars. The evaluation process contained within H.R. 4068 should provide us with these
answers. Once we are assured that this demonstration project is successful let us not hesitate to
move boldly forward,

H.R. 4068 provides reimbursement only for new users of the VA medical system within the
demonstration areas. This ensures that the federal government is not billed twice for care
granted to veterans, By encouraging new users, the entire VA health care system would be
strengthened, while not reducing the quality of care given to veterans who currently rely upon
the system. H.R. 4068 is a strong step forward in the ongoing attempt to reform and revitalize
the VA health care system while guaranteeing that veterans, especially veterans in need of
specialized services. receive the very best health care that their service to this country has
earned

Mr. Chairman, and members of the Subcommittee, PVA strongly urges the passage of H.R.
4068. PVA stands ready to assist this Committee, Congress, and the Administration as we
explore ways to improve health care for veterans, never forgetting their service, and their
sacrifice, as we move forward to meet the challenges of the coming century. PVA appreciates
this opportunity to present our views regarding this vital issue.


25

overpayments,

The maximum total Medicare reimbursement to DoD for any demonstration
year will not exceed $65 million, Further, DoD has agreed to open its
facilities to audits by HCFA, and the Department of Health and Human
Services Inspector General. We have designed this demonstration so that
there will not be an_ increase in the total costs of Medicare. Ifit is

found that Medicare costs are more than they would have been without the
demonstration, the two departments have agreed to take any necessary
corrective action. For example, DoD may reimburse HCFA, we may suspend
or terminate the demonstration, or, we may adjust reimbursement rates or
levels of effort. These are some of the most significant steps that we

have taken to limit the total risk to the Medicare Trust Fund

Our agreement protects, indeed expands, beneficiaries’ freedom of choice--they can use their
Medicare benefits to enroll in and easily disenro!t

from TRICARE, or they can obtain care from civilian providers and

continue to seek care from DoD on a space-available basis. Our agreement

protects beneficiaries’ quality of care because DoD will provide the

complete range of Medicare benefits (including skilled nursing facility

and home health care services not normally provided by DoD), and in so

doing will adhere to Medicare's conditions of participation and quality

standards.

Thus, we strongly believe that we have taken all possible steps to
protect both beneficiaries and the Trust Funds from harm, Will we
succeed? The answer will lie in a rigorous evaluation of this
demonstration by an independent evaluator Over the demonstration’
three years, the independent evaluator will monitor performance and
collect data to answer these crucial questions:

© Is there an impact on the costs to either the Medicare Trust Funds
or DoD?

‘© Do beneficiaries experience improved access to health care?

© Is there any change in quality of care provided to the enrolled
population?

© Is there any effect on local health care providers and other
Medicare beneficiaries in the surrounding community?

At the end of three years, we will see how coordination between our two
programs improves efficiency, access, and quality of care for dual-eligible benet
Congress should decide on a GAO study of the

demonstration, both DoD and DHHS have agreed to jointly assist GAO with
that review and report. In the meantime, we have put the necessary
safeguards in place to protect beneficiaries and protect the Medicare

Trust Funds

The President strongly supports this demonstration. Secretary Shalala
enthusiastically approved the agreement between the Health Care Financing,
Administration (HCFA) and DoD to coordinate our two programs in this
three-year demonstration of Medicare "subvention.”

We are hopeful that this demonstration will succeed, and that through it
the beneficiaries we share in common with DoD will receive enhanced
choices and improved services -- the real "bottom line” in this effort


90

STATEMENT OF HON. WILLIAM SARPALIUS
SISTERS OF CHARITY OF THE INCARNATE WORD
HEALTH CARE SYSTEM

Dear Mr. Chairman:

T appear before you today at the request of the Sisters of Charity of the
Incarnate Word Health Care System in Houston, Texas and the other
six Uniformed Services Treatment Facilities (USTFs), I want to express
the strong support of the Sisters of Charity and the other USTFs for
the Medicare Subvention Demonstrat on Project proposed by the
Department of Defense (DoD) and the Health Care Financing
Administration (HCFA).

I want to take this opportunity to male two important points. First, if
the USTFs are included, the USTFs will make the demonstration a
success and lower health care costs for both DoD and the Medicare
Trust Funds. Second, I want to explain the importance of this
demonstration project to military beneficiaries and the Sisters of
Charity and the other USTFs.

Before ] comment on these two points, I want to describe the possible
plight of an enroliee in the Texas USTF as an example why subvention
is needed. Mrs. 10 is 64 years old ancl soon will become Medicare
eligible. If she was enrolled in TRICAHE Prime, she would be forced out
of Prime when she reaches 65 and would face significant out of pocket

costs.

As you know, Medicare does not cover prescription drugs and this
individual, because of her medical condition, needs prescriptions
costing over $200 per month. On a lirtited income, this is a real
burden. Fortunately, she is enrolled with the USTF Program so her
enrollment will not be canceled, as would have happened if she was
enrolled in TRICARE Prime without Medicare Subvention.

However, Mrs, 10’s situation is repeated many times and other military
beneficiaries will face her problem. If Medicare subvention is enacted
and the USTFs are included in the demonstration, other individuals
will be able to join the USTF program. with the cost of their care split
between Medicare and DoD. Subvention will allow Medicare-eligible
military beneficiaries to obtain the benefits they earned, often at great
personal sacrifice.


It calls for the Department of Veterans Affairs and the
Department of Health and Human Services to establish a
demonstration project under which the VA would collect
and retain Medicare payments for Medicare-eligible
veterans.

The project would operate for a three-year period in
approximately 30 VA medical centers selected by the
Secretary of Veterans Affairs.

The bill requires the VA to establish managed care plans
and enroll veterans who desire to participate under this
demonstration.

To ensure cost neutrality, the Health Care Financing
Administration would reimburse the VA at only 93 percent
of the adjusted per capita cost.

VA would only receive reimbursement for “new users”,
those Medicare-eligible veterans not currently being
treated by the VA.

To avoid double billing, the cost of Medicare- eligible
veterans currently receiving care at the VA would still be
covered by VA's annual appropriation.

Finally, the bill subjects the VA to a thorough reporting and
evaluation system on which to judge the merits of the
demonstration project and whether it should be modified or
continued in the future.

Mr. Chairman, the VA is moving aggressively to transform
its health care delivery system from one that has
traditionally been hospital and inpatient-based, to a
modern system based upon the principles of primary and
outpatient care.


61

support contractor are to backfill those requirements when a medi-
cal contingent moves out, and deploys.

In fact, again, I can give you specific figures referring to the de-
ployment in Bosnia. There was basically no sag in our ability to
Maintain access, both in Germany, and in the United States be-
cause of that. That backfill structure is very important to us.

My second point, the other side of that practice, availability to
have sick complicated patients to keep that surgeon sharp, the
other side of that is the ability to recruit, to retain, to keep profes-
sionally satisfied the quality of people that we want and need in
the system. And in some contrast to previous decades—and again,
I can give you specifics on this if you wish—we have by any stand-
ards of measure and accreditation, an extraordinarily well qualified
medical and health professional cadre in the military.

Without the kind of broad population experience, interest, if I
may sort of in the jargon, we would not be able to recruit and re-
tain that quality young orthopedist, or critical care nurse, or neuro-
surgeon. That is the other side of the requirement to have a full
up round, busy complicated, medical practice, in our setting.

Chairman THOMAS. Now, that is a rationale that has not been
completely explored, and J understand that argument.

T guess we have come largely full circle, because on your previous
arguments, I did not understand why when you are going to rely
on the private sector to backfill, and that was——

Dr. JOSEPH. And reserves, sir, excuse me.

Chairman Tuomas. I understand. The point is, why not simply
allow the military retirees to be what triggered this whole Medi-
care discussion in the first place; that is, 65 years old and Medicare
eligible. All of the others are secondary criteria, and you are trying
to create a new structure, which will take the secondary criteria
and elevate it to the primary criteria. We are concerned that these
people ought to go rather than to have the backfill structure avail-
able when you pull up your operation and leave, they should be at
the backfill structure to begin with, private sector.

Your argument about attracting people because their medical
practice is more interesting because we have been able to fund
military retirees coming back to the bases and therefore it is a lit-
tle bit like bombers and airplane pilots, they get to fly multiengine
jets and transports, which has a direct applicability to the private
sector in getting a pilot's ticket to fly, and these doctors will come
out of the military more fully prepared to enter the private sector
having had this kind of training.

That is an argument that we will have to look at through all of
the numbers that are being generated, because if in fact, all of this
synergistic po itive stuff that you are talking about can be carried
out at no additional cost, or preferably, at a savings, then I am in-
terested in looking at it.

My problem is right now, the way the numbers go together with
dual eligibles, and what you are asking for and what you may run
through your appropriated structure to take care of it, and espe-
cially CBO’s analysis about the question of adverse risk selection
from the fee-for-service into this kind of a program does not give
me a level of confidence that in fact it will be budget neutral, zero
cost, on this demonstration project, or if in fact, this were fully im-


TT

STATEMENT OF
COLONEL CHARLES C. PARTRIDGE, U.S. ARMY (RET.), AND
CHIEF MASTER SERGEANT JAMES LOKOVIC, USAF (RET.)
NATIONAL MILITARY/VETERANS ALLIANCE

Mr. Chairman and distinguished members of the Committee, the National
Military and Veterans Alliance would like to express its appreciation to you for holding
these important hearings. The testimony provided here represents the collective views
of our members.

The Alliance includes 13 military and veterans organizations. These
organizations represent over 3,500,000 members of the seven uniformed services,
officer and enlisted, active duty, reserve, National Guard and retired plus their families
and survivors. These organizations are listed below:

Air Force Sergeants Association Naval Enlisted Reserve Association
American Military Retirees Association Naval Reserve Association

American Retirees Association Non Commissioned Officers Assn
Korean War Veterans Association ‘Tragedy Assistance Prog for Survivors
Military Order of the Purple Heart Veterans of Foreign Wars

Military Order of the World Wars Women Marine Association

National Assn for Uniformed Services

Surveys of military personnel and their families consistently sbow that medical
care along with adequate pay and inflation protected retired pay and commissaries are
the top concerns of the military community. In fact, with base and hospital closures
and reductions in medical personnel, the increasing lack of available health care is a
major concern to active and retired personnel alike.

The promise of lifetime medical care for career service members, their families
and survivors is contained in law and tradition and dates back to the 18% century.
Later, in 1885 the 48th Congress provided in a War Department Appropriations Bill
that, "The Medical Officer of the Army and Contract Surgeon shall, whenever
practicable, attend the families of officers and soldiers free of charge.”

Prior to the early 1950s the promise to provide military medical care for retired
military personnel was not questioned because throughout their military careers and in
retirement, medical care was provided in military treatment facilities for personnel who

2


AT

could just spend some of that $9 billion to take care of these people,
right?

Dr. JOSEPH. Well, sir, I do not have the $9 billion——

Mr. Stark. Yes, but you are getting it. So, I mean, now you are
back here—the trust fund is going broke and you want us to give
you money, and you got $9 billion extra. I think that is pretty
gutsy. But you say that it will help you prepare for wartime readi-
ness.

Now, explain to me, I happen to be in this age category, how my
health care is going to help you make us ready in wartime. Would
you explain that to me?

Dr. JOSEPH. I certainly would, and I would like to respond to
your first comment afterward, if you would allow me to.

I think it is clear that for good medical care in wartime, we need
highly accomplished orthopedic surgeons——

Mr. Stark. That is right. The Governor of Pennsylvania when we
had the Gettysburg invasion called out the militia, all the people
15 to 60, and I suppose you have got a bunch of old folks, too, that
you are going to call up. I will not come anymore. But, you know,
I guess that—my point—doctor, this—look, come on——

Dr. JosEPH. I would be happy to respond to your question, Mr.
Stark, if you will allow me to.

Mr. Stark. You guys——

Dr. JOSEPH. Otherwise, I will not.

Mr. Stark [continuing]. Do not waste my time. The military did
not want the Hebert School when Hebert forced it on you, now it
has become an institution, and you want the Medicare Trust Fund
to bail out your budget when you could pass this law in the De-
fense Committee. There is no reason on God’s green Earth why
Medicare should get in there and bail you guys out. This does not
make sense. It is the dumbest thing I ever heard. And I hope that
you will go back to the Secretary and the President, and tell them
so. I will if you don’t. It does not make any sense. Six hundred mil-
lion dollars, and you guys are wasting money away on weapons
systems that will not work. We have senior citizens who are not
getting good medical care, and you want to reach in here—you
ought to be ashamed of yourself. This just does not make any sense
at all. And believe me, the President ought to be ashamed of him-
self. We have made a case in our party for defending Medicare, and
here you guys are wasting money hand over foot. I see these stupid
generals flying these helicopters every morning, you would think
you would have generals smart enough to learn how to drive their
own cars.

So I am afraid you ought to go back and redo this. You want this
bill changed, change your own laws, and then you got all the
money you need, and you can leave the Medicare Trust Fund alone.

Thank you very much, Mr. Chairman.

Chairman THOMAS. The gentleman’s time is not expired.

Mr. HouGHTON. Well, we will go back and do some more.

Chairman THomas. The gentlewoman from Connecticut.

Mrs. JOHNSON. I just want to clarify a few facts, and raise some
concerns.


49

Dr. JOSEPH. No, ma’am, we would say that we have not been
paying for all the people whose care has been supplied on a space
available basis.

Mrs. JOHNSON. OK. Explain that.

Dr. Josepu. The facilities, the uniformed personnel, contract per-
sonnel, and the moneys to buy supplies and equipment, are not
based on the care that is provided on the space available basis to
those eligible beneficiaries. They are based on ——

Mrs. JOHNSON. In other words, are you saying that the reim-
bursement for retirees treated on a space available basis has been
inadequate?

Dr, JOSEPH. It has been—it is inadequate to provide that care,
that is correct.

Mrs. JOHNSON. Of course, we do have that same complaint from
many Medicare hospitals, that our reimbursement is inadequate to
their costs, and we have gone through terrible problems with that
over the years, to try to identify adequacy.

What I hear you saying is that you want us to reimburse because
Medicare reimburses better than DOD reimburses, and therefore
you get a more adequate benefit, is that really it?

Dr. JosePH. No, ma’am, I think that is—excuse me—I do not be-
lieve that is what we are saying. What we are saying in its sim-
plest terms are that a space available beneficiary who believes
quite correctly that at some time in the past was promised free life-
time care from the Department of Defense——

Mr. STARK. When was that?

Dr. JOSEPH. I beg your pardon, sir?

Mr. Stark. When was that? When were they promised that?

Dr. Josepu. In the recruiting brochures that——

Mr. Stark. But not in the law?

Dr. JOSEPH. But not in the law.

Mr. Stark. Yes, we should put those recruiting sergeants in jail.
They were not promised that. That is not in the law.

Mrs. JOHNSON. Mr. Secretary, have you looked at the numbers
as to what it would cost to allow every military retiree who used
to have access to a military hospital, and therefore was covered by
military appropriations to let every one of them have access to
Medicare part B without penalty, and then, if the DOD thinks that
it should be picking up what would be the effect of Medigap pre-
mium, then we should do that, see? But the demo you are talking
about is never going to help people who do not live near a military
hospital, because they are never going to qualify. This is not going
to eventually affect all retirees because the eligibility criteria are
too narrow.

Dr. JOSEPH. I do not think the eligibility criteria are too narrow,
and our position would be that—— .

Mrs. JOHNSON. Well, I know in Connecticut with the reduction,
there are plenty of people who now live too far from military hos-
pitals to use them for their regular care, and what they need is ac-
cess to some plan in our area, and better access to the VA hospital.

Dr. JOSEPH. And under our managed care system, our TRICARE
system, that is precisely what the managed care support network
provides. It provides access to care provided by the contractor-———


93

To illustrate the risk the USTFs have assumed, | return to the
example I cited earlier in my testimory. This individual has serious
health problems but, fortunately, she is enrolled in the USTF at St.
Joseph’s Hospital in Houston and thus does not face significant out of
pocket costs. However, the cost of the her care during the past twelve
months is $44,817.41 and the USTF has received capitation payments
in the amount of $2,730 from DoD as compensation for this individual
The Sisters of Charity have assumed this risk for Mrs. 10 and consider
this as part of their mission to care for those in need.

In closing, I want to thank the Members for the opportunity to address
this subcommittee on the important issue of Medicare Subvention and
the inclusion of the USTFs in the pro;ect. The involvement of USTFs
will benefit both the USTFs and the federal government. More
importantly, this subvention demonstration and the participation of
the USTFs will be a very significant benefit for the many military
beneficiaries in Texas and Seattle.

10)


12

REMARI jOMERY
EFORE THE COMMITTEE ON WAY:

SUBCOMMITTEE ON HEALTH
SEPTEMBER 17, 1996

MR. CHAIRMAN, THANK YOU FOR THE OPPORTUNITY TO APPEAR BEFORE
YOU TODAY. | WILL BE BRIEF. FOR THE LAST SEVERAL YEARS, VETERANS.
GROUPS AND MILITARY RETIREES HAVE SEEN THEIR HEALTH CARE OPTIONS
SHRINK. ALTHOUGH THEY MAY BE ELIGIBLE FOR MEDICARE, DOD-SPONSORED
HEALTH CARE, AND VA CARE, RESOURCES TO SUPPORT THEIR CARE THROUGH
VA OR DOD TREATMENT FACILITIES HAVE NOT KEPT PACE WITH THE DEMAND
FOR SERVICES.

| SUPPORT FAVORABLE CONSIDERATION OF H.R. 3142. THIS
LEGISLATION, WHICH WAS FAVORABLY REPORTED BY THE NATIONAL SECURITY
COMMITTEE LAST WEEK ESTABLISHES A WORTHWHILE DEMONSTRATION
PROJECT FOR MEDICARE ELIGIBLE MILITARY RETIREES. | ALSO ASK THAT YOU
CONSIDER H.R. 4068, A VETERANS’ BILL THAT CLOSELY PARALLELS H.R. 3142.
THE VETERANS’ COMMITTEE IS EXPECTED TO FAVORABLY CONSIDER H.R,
4068 ON WEDNESDAY, SEPTEMBER 18.

AS MR. STUMP HAS SAID, THE VA HEALTH CARE SYSTEM IS
TRANSFORMING ITSELF INTO A MODERN PRIMARY CARE DELIVERY SYSTEM.
THE DEMONSTRATION PROJECT AUTHORIZED BY THE BILL WE HAVE
INTRODUCED SHOULD MAKE VA CARE AVAILABLE TO SOME OF THE VETERANS
WHO ARE TURNED AWAY FROM SUCH CARE TODAY. AT THE SAME TIME,
THERE SHOULD NOT BE ANY INCREASE IN MEDICARE COSTS. THE BILL
WOULD ASSURE THIS IN TWO WAYS. FIRST, IT GUARANTEES THAT MEDICARE,
WILL ONLY PAY 93% OF WHAT IT NORMALLY PAYS FOR HEALTH CARE FOR
VETERANS CARED FOR UNDER THE DEMONSTRATION PROJECT.

SECOND, IT REQUIRES VA TO CONTINUE TO PAY FOR THE CARE OF THE
VETERANS IT CURRENTLY SERVES. IN OTHER WORDS, MEDICARE WON'T PAY A
CENT FOR THE VETERANS NOW UNDER VA CARE. MEDICARE WILL ONLY PAY
FOR NEW PATIENTS VA SERVES ABOVE THE LEVEL CURRENTLY RECEIVING VA
CARE.

THIS IS ONLY A DEMONSTRATION PROJECT, MR. CHAIRMAN. | THINK IT
1S WORTH TRYING. IF IT DOESN'T LIVE UP TO OUR EXPECTATIONS, IT WILL
EXPIRE. BUT THE ADMINISTRATION AND ALL OF THE VETERANS’ GROUPS
THINK IT’S WORTH TRYING, AND SO DO |. PLEASE GIVE IT YOUR FAVORABLE
CONSIDERATION.