PHARMACEUTICAL PRICES, AND DRAFT 

LEGISLATION ON HOMELESS VETERANS' PROGRAMS AND ISSUES RELATED 

TO PERSIAN GULF WAR ILLNESS 

HEARING 

BEFORE THE 

SUBCOMMITTEE ON HEALTH 

OF THE 

COMMITTEE ON VETERANS' AFFAIRS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFrH CONGRESS 

FIRST SESSION 

JULY 10, 1997 

Printed for the use of the Committee on Veterans' Affairs 

44-896 CC 

Serial No. 105-16 

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1997 

For sale by the U S Government Pnntmg Office 

Supenntendent of Documents. CongressIonal Sales Office. Waslungton, DC 20402 

ISBN 0-16·055879-4 
COMMITl'EE ON VETERANS' AFFAIRS 

BOB STUMP, Arizona, Chairman 

CHRISTOPHER H. SMITH, New Jersey LANE EVANS, Illinois 

MICHAEL BILIRAKIS, Florida JOSEPH P. KENNEDY II, Massachusetts 

FLOYD SPENCE, South Carolina BOB FILNER, California 

TERRY EVERETT, Alabama LUIS V. GUTIERREZ, Illinois 

STEVE BUYER, Indiana JAMES E. CLYBURN, South Carolina 

JACK QUINN, New York CORRINE BROWN, Florida 

SPENCER BACHUS, Alabama MICHAEL F. DOYLE, Pennaylvania 

CLIFF STEARNS, Florida FRANK MASCARA, PeDD8ylvania 

DAN SCHAEFER, Colorado COLLIN C. PETERSON, Minnesota 

JERRY MORAN, Kansas JULIA CARSON, Indiana 

JOHN COOKSEY, Louisiana SILVESTRE REYES, Texas 

ABA HUTCHINSON, Arkansas VIC SNYDER, Arkansas 

J.D. HAYWORTH, Arizona CIRO D. RODRIGUEZ, Texas 

HELEN CHENOWETH, Idaho 

RAY LAHOOD, ILUNOIS 

CARL D. COMMENATOR, Chief COUnMl and Staff Director 

SUBCOMMITI'EE ON HEALTH 

CLIFF STEARNS, Florida, Chairman 

CHRISTOPHER H. SMITH, New Jersey LUIS V. GUTIERREZ, Illinois 

MICHAEL BILIRAKIS, Florida JOSEPH P. KENNEDY II, Massachusetts 

SPENCER BACHUS, Alabama CORRINE BROWN, Florida 

JERRY MORAN, Kansas MICHAEL F. DOYLE, Pennaylvania 

JOHN COOKSEY, Louisiana COLLIN C. PETERSON, Minnesota 

ABA HUTCHINSC" Arkansas JULIA CARSON, Indiana 

HELEN CHENOWETH, Idaho 

(II) 
CONTENTS 

Page 

OPENING STATEMENTS 

Chairman Steams ................................................................................................... 1 

Hon. Luis Gutierrez ................................................................................................. 2 

Prepared statement of Congressman Gutierrez ................... .... ........... ...... ..... 27 

Hon. Asa Hutchinson ................................................................ ............................... 3 

Hon. Lane Evans ..................................................................................................... 30 

WITNESSES 

Boone, Linda, Executive Director, National Coalition for Homeless Veterans.. 19 

Prepared statement of Ms. Boone ........... ........... .... .... ... ..... ..... ................ ........ 62 

Garthwaite, Thomas, M.D., Deputy Under Secretary for Health, DeF.artment 

of Veterans Affairs; accompanied by Gay Korber, Associate Chie, Mental 

Health Strategic Health Group, Department of Veterans Affairs; and Richard Robinson, Deputy Assistant General Counsel, Department of Veterans 

Affairs .................................................................................................................... 11 

Prepared statement of Dr. Garthwaite ........................................................... 44 

Ogden John, Chief Consultant, Pharmacy Benefits Management Strategic 

He;;ith Group, Department of Veterans Affairs; accompanied by Mel Noel, 

Esq. ........................................................................................................................ 6 

Prepared statement of Mr. Ogden, with attachment ................................ ..... 66 

Piaro, Robert, Chairman, Veterans Organizations Homeless Council ................ 17 

Prepared statement of Mr. Piaro .................................................................... 58 

Rosenheck, Robert, M.D., Director, Northeast Prop-am Evaluation Center, 

Department of Veterans Affairs; accompanied by Paul Errera, M.D., Profes- sor Emeritus, Psychiatry, West Haven VA Medical Center ............................. 15 

Prepared statement of Dr. Rosenheck ............................................................ 52 

Steinhardt, Bernice, Director, Health Services Quality and Public Health 

Issues, General Accounting Office; accompanied by John C. Hansen, Assistant Director, Health Services Quality and Public Health Issues, General 

Accounting Office; Joei Hamilton, Analyst ........................................................ 3 

Prepared statement of Ms. Steinhardt ........................................................... 34 

MATERIAL SUBMITTED FOR THE RECORD 

Statements: 

Pharmaceutical Research and Manufacturers of America ........................... . 

Maria Foscarinis, Executive Director, National Law Center on Homeless- ness and Poverty .......................................................................................... . 

Written committee questions and their responses: 

Chairman Steams to Department of Veterans Affairs ................................ . 

Congressman Evans to U.S. General Accounting Office .............................. . 

Congressman Gutierrez to John Ogden, Department of Veterans Affairs .. 

CArru:~.~ ... ~~.~~~~~ ... ~ ... ~~· ... ~~~~~~: ... ~~~~~~~~ ... ~~ .. ~~~.~~~ 

C°Arru:~.~ ... ~~~~~~~~ ... ~ ... ~.~: ... ~~~~~~~: ... ~~.~~~~.~~ ... ~~ .. ~~~.~~.~ Congressman Gutierrez to National Coalition for Homeless Veterans ....... . 

(Ill) 

72 

76 

83 

80 

87 

90 

94 

97 

PHARMACEUTICAL PRICES, AND DRAFT LEGISLATION ON HOMELESS VETERANS' PROGRAMS AND ISSUES RELATED TO PERSIAN 

GULF WAR ILLNESS 

THURSDAY, JULY 10, 1997 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON VETERANS' AFFAIRS, 

Washington, DC. 

The subcommittee met, pursuant to call, at 9:30 a.m., in room 

334, Cannon House Office Building, Hon. Cliff Stearns (chairman 

of the subcommittee) presiding. 

Present: Representatives Stearns, Moran, Cooksey, Hutchinson, 

Gutierrez, Evans, Kennedy, and Peterson. 

OPENING STATEMENT OF CHAIRMAN STEARNS 

Mr. STEARNS. Good morning. The Subcommittee on Health will 

be in order. We'll start with my opening statement. 

This morning's hearings provide us an opportunity to review aspects of some of VA's most important programs. One is important 

because of its sheer size. It is VA's Pharmacy Program. Viewed 

simpl)" as a procurement effort, VA buys and dispenses more than 

$1 billion in pharmaceuticals. VA's entire medical care budget is 

some $17 billion, to put it in perspective. 

The second area is important because of the sheer size of the 

problem it attempts to tackle. I'm referring now to VA's efforts to 

assist homeless veterans. The statistics are quite remarkable. Data 

suggests that one third of all homeless adults are veterans. 

We face legislative questions in both of these artlas. Studies indicate that substantial numbers of those who rely on VA care are 

homeless or at risk of becoming homeless. 

VA has developed many specialized programs to assist homeless 

veterans. Significantly, several of these programs are based on 

statutory provisions that expire this year. 

Congress has not to my knowledge examined these programs 

comprehensively in some time. We have that opportunity this 

morning. We will also consider draft legislation that would consolidate, clarify, and strengthen these programs. 

In the pharmaceutical area, statutory provisions which have not 

yet been implemented as well as recent legislative proposals pose 

a risk of substantially raising VA drug prices. 

Given the budget pressures the VA medical system already faces, 

a marked increase in drug prices could have far-reaching effects, 

(1) 
2 

adverse effects, on veterans' care. We should examine this potential 

and consider whether there is a need for further legislation to help 

safeguard our veterans. 

I look forward to the testimony of our witnesses and to working 

with Mr. Gutierrez and the members of the Subcommittee in addressing these complex issues. Now I tum to my colleague for his 

opening statement. 

OPENING STATEMENT OF HON. LUIS GUTIERREZ 

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

you for holding this important hearing today. We have a variety of 

critical issues to deal with today. And I want to make a few brief 

comments on each of the topics our witnesses will address and then 

allow the experts to speak for themselves. 

I think the first one you have already heard, Mr. Chairman. Between 1990 and 1991, the Department of Veterans Affairs explained that Medicaid rebates caused an unanticipated $79 million 

pharmaceutical price increase for VA drug purchases. 

On the review of the GAO testimony and the VA's analysis, I 

fear that this costly situation may occur again if State and local 

providers are allowed to make their purchases from federal supply 

schedule that VA negotiates with federal pharmaceutical providers. 

I have recently been informed that legislation permitting federal 

providers to purchase pharmaceuticals off the supply schedule is 

being considered in Congress. Allow me to reiterate my basic 

contention. 

Based on past experience, we know that VA drug manufacturers 

can and most likely will raise the prices for VA and other federal 

health programs. I'm deeply concerned about this. 

The second issue that I want to address is the reauthorization 

of a number of other vital programs. I believe that the VA's comprehensive approach in treating homelessness, this highly vulnerable porulation, is something. More should be done. 

And just want to make echo of the fact that one-third of all the 

homeless males are veterans. Assisting these individuals who 

served our nation is not inexpensive. The answers to their problems are very complex. However, I don't know that you can place 

a dollar amount on the work that needs to be done for them and 

with them. 

I am also pleased that we are going to receive testimony regarding the proposed legislation to implement a new grant program to 

establish treatment programs for Persian Gulf veterans. They have 

been suffering too long, and I hope that these programs see the 

light of day in their implementation so that we can guide the VA 

once again into this area of such importance. 

Once again I want to thank Chairman Steams for convening this 

important hearing. And I look forward to working with you to pass 

these critical bills we will examine today. Mr. Chairman I would 

also ask unanimous consent that the entirety of my opening statement be placed in the record. 

Thank you so much, Mr. Chairman. 

[The prepared statement of Congressman Gutierrez appears on 

p.27.] 

Mr. STEARNS. Thank you. Mr. Hutchinson. 
3 

OPENING STATEMENT OF BON. ABA HUTCHINSON 

Mr. HUTCHINSON. Thank you, Mr. Chairman. I want to express 

my thanks also to xou for conducting this hearing. These issues 

that the panelists will present today are very important. 

In my District, I have a very large veterans' population. And the 

price of pharmaceuticals is a critical part of their daily life that 

they have to deal with. I am concerned about the effect or the possible effect of price increases that could be imposed on the pharmaceuticals purchased by veterans if access to the federal supply 

schedule is expanded. So this testimony is very important. 

And also in regard to the homeless, it's amazing to me that we 

have such a large veteran population that still suffers from homelessness. Certainly the veterans' programs and the homeless programs that deal with the issue are very important, but I think it's 

appropriate to look at the possible consolidation and make sure 

that they're effective. 

So I look forward to the testimony today. Mr. Chairman, I thank 

you. 

Mr. STEARNS. I thank my colleague. 

Mr. Peterson? 

Mr. PETERSON. I don't have a statement, Mr. Chairman, but I 

want to thank you for calling this hearing and for your leadership 

on these issues. 

Mr. STEARNS. Thank you. We'll have the first panel: the director 

of Health Services Quality and Public Health Issues from the GAO, 

Ms. Bernice Steinhardt; accompanied by: John C. Hansen, the Assistant Director of Health Services Quality and Public Health Issues, General Accounting Office. We also have John Ogden, Chief 

Consultant, Pharmacy Benefits Management Strategic Health 

Group, Department of Veterans Affairs. 

Good morning to you. And let me welcome all of you. We're glad 

to hear your testimony this morning. 

Ms. STE~T. Thanks very much. 

STATEMENT OF BERNICE STEINHARDT, DIRECTOR, HEALTH 

SERVICES QUALITY AND PUBLIC HEALTH ISSUES, GENERAL 

ACCOUNTING OFFICE; ACCOMPANIED BY JOHN C. HANSEN, 

ASSISTANT DIRECTOR, HEALTH SERVICES QUALITY AND 

PUBLIC HEALTH ISSUES, GENERAL ACCOUNTING OFFICE; 

JOEL HAMILTON, ANALYST; AND JOHN OGDEN, CHIEF CONSULTANT, PHARMACY BENEFITS MANAGEMENT STRATEGIC 

HEALTH GROUP, DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY MEL NOEL, ESQ. 

STATEMENT OF BERNICE STEINHARDT 

Ms. STEINHARDT. Good moming, .Mr. Chairman and members of 

the Subcommittee. We appreciate very much the chance to be here 

today. If I may, I'd like to just make a couple of introductions. John 

Hansen was the director in charge of our work. And Joel Hamilton, 

who is in the audience, was the principal analyst. 

With your permission, I'd like to submit my full statement for 

the record and summarize my remarks here. 

Mr. STEARNS. Without objection. 

[The prepared statement of Ms. Steinhardt appears on p. 34.] 
4 

Ms. STEINHARDT. Thank yOU. 

We would like to share with you this morning what we learned 

about how VA and other government purchasers might be affected 

if the federal supply schedule for pharmaceuticals were open to 

State and local governments. 

The Federal Government, as you pointed out, is a large purchaser of pharmaceuticals. We spent almost $1.3 billion on drugs 

purchased from the schedule in 1996. 

VA is by far the largest of these federal buyers, accounting for 

more than 70 percent, or over $900 million, of that total. About six 

percent of VA's discretionary budget went towards drug purchases 

last year and about seven and a half percent of its medical care 

budget. So any potential changes in federal drug prices can obviously have important consequences for the Department. 

Before I tum to our findings, let me just provide some background here. You may recall that F ASA, the Federal Acquisition 

Streamlining Act of 1994, authorized GSA to establish a cooperative purchasing program with State and local governments based 

on the assumption that combining purchasing power would benefit 

both the Federal as well as State and local governments. In essence, the program was intended to give State and local governments access to the same prices that vendors give to federal purchasers under negotiated supply schedules. 

Last year in the Klinger-Cohen Act, the Congress suspended 

GSA's authority for this program and directed GAO to assess its 

potential effects on Federal agencies, State and local governments, 

and on industry. 

Our colleagues in GAO have reported on the overall program, but 

the pharmaceutical industry is unique and the Federal Government is a big purchaser of drugs. Twenty percent, in fact, of all dollars spent on supply schedule purchases last year were for drugs. 

That's one-fifth of all supply schedule purchases. We in the health 

group, therefore, took a separate look at the effects of opening the 

pharmaceutical schedule to non-federal purchasers. 

To sum up, we concluded that it isn't really possible to predict 

how federal drug prices would be affected if State and local governments were allowed to buy pharmaceuticals from the supply schedules since prices ultimately are determined by negotiations between VA, which acts as the Government's agent, and industry. 

But the factors involved in negotiations, particularly the size of 

the market that would be created, has the potential to produce an 

upward pressure on prices. If prices were, in fact, to rise, VA and 

a few other federal purchasers would be somewhat protected by the 

Veterans Health Care Act, which sets a cap on prices for over a 

quarter of the drugs on the schedule. 

VA believes, however, that it could still experience increases in 

costs for generic drugs which are not subject to the caps and for 

those drugs whose prices are now below the ceiling. Other Federal 

agencies would not be protected at all. 

For State and local governments, there could be benefits but only 

to the extent that schedule prices were lower than what they could 

negotiate on their own. Let me just take each of these points in 

tum. 
5 

First, as I said, VA's negotiations with manufacturers will ultimately determine the prices on the schedule. Up to now, VA has 

been able to get substantial discounts from manufacturers, in part because the Veterans Health Care Act requires it and in part because manufacturers are willing to give good prices in return for 

access to VA hospitals, where many of the nation's physicians receive their training. 

However, if manufacturers had to make these prices available to 

a larger market, they might be considerably less willing to continue 

to offer these prices. Currently the federal market accounted for by 

the FSS, the federal supply schedule, represents about one and a 

half percent of domestic pharmaceutical sales. Depending on how 

one were to define an eligible State or a local entity, though, this 

market could increase by at least 4.4 percent; that is, a threefold 

increase. 

Public Hospital Coalition, speaking for State and local government purchasers, argues that the increase would be much smaller 

because of restrictions in State procurement laws. But even if the 

increase were just a half percent, as the coalition has argued it 

might be, this would still be a 33 percent increase in the size of 

the supply schedule market. 

While we don't know what the actual size of the increase in the 

market might be, we do know from historical experience that having to offer discounted prices to a larger market puts an upward 

pressure on drug prices. After the Medicaid rebate program was 

enacted in 1990, manufacturers were required to give State Medicaid programs rebates for outpatient drugs on the basis of the lowest prices they charged other purchasers. In reaction, manufacturers substantially raised the prices they charged other purchasers. 

If p'rices were to rise once the schedule was opened, the effects 

on different government purchasers would vary. For VA, DOD, the 

Public Health Service, and the Coast Guard, the four agencies covered under the Veterans Health Care Act, roughly one-quarter of 

the drugs on the supply schedule would still be subject to ceiling 

prices, which are currently set at about 75 percent of the average 

manufacturers wholesale price. 

For VA, the drugs that come under the price caps account for 

about three-quarters of the Department's drug costs, but the schedule prices of some of the drugs are currently below the ceiling 

price. So VA has estimated that its costs for these drugs could go 

up almost 30 percent, or close to $70 million, a year if prices were 

to rise to the ceiling. 

For the non-protected drugs, which are mostly _generics, VA estimates that it would have to pay almost $84 million a year more 

if it were paying wholesale, rather than schedule, prices. Altogether, then, VA believes that its costs could increase by over $153 

million a year if schedule prices were to rise. 

Federal purchasers other than those protected by: the Veterans 

Health Care Act would pay full schedule prices on all dru~s bought from the schedule. According to the Public Hospital Coalition, State 

and local governments would benefit from access to the schedule 

because the coalition assumes there would be little effect on prices. 

They estimate that State and local government drug prices are 

now 17 percent higher on average than supply schedule prices. So 
6 

if schedule prices were to rise, they might still be lower than what 

State and local ~overnments have been accustomed to paying. On 

the other hand, if the schedule prices were higher, then State and 

local governments could try to negotiate better prices for themselves. 

So, with that, Mr. Chairman, I will end my remarks. And I look 

forward to your questions. Thanks. 

Mr. STEARNS. Thank you. Mr. Ogden. 

STATEMENT OF JOHN OGDEN 

Mr. OGDEN. Yes. Good moming. Before I begin, I'd like to introduce Mr. Mel Noel. Mr. Noel is an attorney who is also an expert 

on the drug pricing sections of Public Law 102-585 as well as all 

aspects of the federal supply schedule process. 

Mr. STEARNS. Welcome. 

Mr. OGDEN. I am pleased to have this opportunity to discuss with 

you today the potential effect on VA of opening the pharmaceutical 

federal supply schedule to State and local entities. 

Currently, the Veterans Health Administration expends $1.5 billion annually on pharmaceuticals and related medical supplies. Approximately three-quarters of our drug expenditures are for pharmaceuticals for outpatient veterans. As the Veterans Health Administration reinvents itself to provide health care in a primary/ 

ambulatory care-based model, the amount of our health care dollars expended for pharmaceuticals is anticipated to increase based 

on increased utilization of pharmaceuticals in the ambulatory care 

setting. 

Therefore, any additional increases in prices paid for pharmaceuticals caused by the potential cumulative effects of opening the 

FSS schedules to State and local governments could interfere with 

our ability to care for eligible veterans. 

No one can predict with certainty what would happen to VA's 

contract pharmaceutical prices if those prices became available to 

State and local governments. The collective concern of VA officials 

involved in the management of the pharmacy benefit is that opening the FSS for pharmaceuticals to non-federal entities could adversely affect the expenditures for pharmaceuticals for not only VA 

and other federal buyers but also the groups this action is intended 

to assist. 

This concern stems from the price increases we experienced following implementation of the Medicaid rebate drug pricing provisions included in the Omnibus Budget Reconciliation Act of 1990. 

Specifically, the highest increases that we experienced were seen in 

items that were deleted from the federal supply schedule at that 

time by pharmaceutical manufacturers after the enactment of 

OBRA 1990. 

Prices for these deleted prices increased on average 80 percent. 

Prices of items remaining on the FSS increased 14 percent. The 

cost of items in VA depots at that time increased in price by 12.4 

percent. Subsequently, Public Law 102-585, the Veterans Health 

Care Act of 1992, put an end to the steep and sudden price increases. 

Now let's fast forward a little bit today. Conversations with drug 

manufacturers in the recent past suggest that many non-covered 
7 

items under the public law could be removed from the federal sup- ply schedules and prices could be increased on other items not currently capped by the public law if the contracts were open to State 

and local government entities. The latter action alone could result 

in a $75 million annual increase in pharmaceutical expenditures for VA. 

The 5-year impact of Section 603, the federal drug pricing provision of the public law, has been dramatic. Section 603, federal ceiling price requirements, have resulted in a cost avoidance in pharmaceutical expenditures for VA in excess of $1 billion since its implementation m January 1993. That's VA alone. 

Additionally, we believe the following three over-arching facts 

support our concerns. First, virtually all manufacturers of expen- sive covered drugs have complied with Section 603 of the public 

law since its inception. There has been no formal resistance or 

blocking litigation, thus providing the $1 billion benefit cited 

earlier. 

Secondly, the same pharmaceutical manufacturers and many generic drug producers currently find the federal supply schedule 

pharmaceutical availability to be an efficient, favored marketing 

vehicle that encourages pricing which is more favorable than federal ceiling prices and even better than most favored commercial 

customer prices. 

Currently, there are 1,729 covered drugs that are priced below 

the federal ceiling price as defined in the statute. Additionally, 80 

percent of the covered drugs are now single priced by their manufacturers. By that we mean the federal ceiling prices are given to 

non-VA, DOD, and Public Health Service agencies that are not 

mentioned in the public law. These agencies benefit from this pricing strategy. Opening up the FSS to State and local entities could 

result in a two-tiered pricing schedule with higher costs being passed on to non-VA buyers. 

Third, as we discussed earlier, we saw that when the Medicaid 

rebate provisions of OBRA 1990 were enacted with no exemption of FSS sales for pharmaceuticals from the best price calculation, 

covered drug manufacturers sought to protect their margins whenever possible or wherever possible and removed low-priced items 

from their federal supply schedule contracts. 

If similar tactics are employed in 1997 in response to opening 

FSS pharmaceutical contracts to State and local entities, just as a 

new round of FSS contracts are being negotiated for the next 5 

years or more, VA alone could suffer an increase in pharmaceutical 

costs of as much as $250 million per year. 

To balance the concerns and uncertainties just described and 

which echo Ms. Steinhardt's comments and also the GAO report, 

with the possibility of reducing prices, the administration now supports a limited pilot expansion of access to the pharmaceutical FSS 

schedule for a 2-year period for HIV and HIV-related therapies. 

The administration proposes that VA and HHS evaluate the impact of the pilot program and make recommendations to the administrator of the General Services Administration regarding its continued use or limit expansion to other life-threatening conditions. 

And, for the record, we have attached the administration's 

proposal. 
8 

And, with that, I'll close my formal remarks. Thank you. 

[The prepared statement of Mr. Ogden, with attachment, appears 

on p. 66.] 

Mr. STEARNS. Thank you, Mr. Ogden. 

Let me start off with questions to you. Just as a general comment, what I heard was that you presented what the administration is proposing, but I didn't hear that you endorsed it. Is that correct? Correct me if I'm wrong. 

Mr. OGDEN. You're directing that comment toward me? 

Mr. STEARNS. Yes. 

Mr. OGDEN. Yes. I think in my own personal opinion having just 

looked at that proposal in a cursory fashion over the last 48 hours, 

I can't say whether I support it or not support it. I think it has 

some intrigue to me personally in it in regards to what the definition of life-threatening health care conditions are and also, for example, just in the area of HIV. 

And when we're talking about treating HIV and HIV-related conditions, we're talking about health care conditions in the area of infections, cancer therapy, pain management, nutritional support, 

and other conditions with the upper respiratory system, GI problems, and also dermatological problems. So there's a whole bunch 

of ramifications here that I'd personally need to spend some more 

time reviewing. 

Mr. STEARNS. I appreciate your delicate answer, but wouldn't it 

be fair to say that if we do this experiment, as suggested by the 

administration, that, much like the pressure in a balloon, it's going 

to come out somewhere and it would increase, affect the overall 

pricing structure within the system? Is that a fair assumption on 

your part? 

Mr. OGDEN. I think that's a fair assumption. 

Mr. STEARNS. Yes. Would you agree with that, the rest of the 

panelists? 

Ms. STEINHARDT. Yes. Actually, I was smiling at your metaphor 

because it's one we've used ourselves. It is sort of like squeezing 

a balloon, the consequence elsewhere. 

Mr. STEARNS. I think that's important to put on the record that 

it's not so much your personal feeling but your feeling that this 

could have larger ramifications, and that this experiment, although 

what it sounds like is perhaps an exploratory way to see what the 

immediate effect might be. That veterans in themselves might have 

difficulty getting drugs at the present prices is what I'm hearing. 

Mr. Ogden, would it be fair to say that as manager of the federal 

supply schedule, VA is probably the most knowledgeable Executive 

Branch office to gauge the effects of changing the rules on access 

to the supply schedule? If you could just give me a ''Yes'' or "No"? 

Mr. OGDEN. Yes. 

Mr. STEARNS. Okay. Is there a substantial risk that it would result in raising VA drug prices, just ''Yes'' or "No',? 

Mr. OGDEN. Yes. 

Mr. STEARNS. Do you believe the enactment of this legislation 

would be beneficial to VA or to the VA pharmacy program, "Yes" 

or "No"? 

Mr. OGDEN. No. 
9 

Mr. STEARNS. No? Okay. I think you've answered this already: 

Would the administration's proposed legislation help the VA keep 

its drug prices low? 

Mr. OGDEN. Would the administration's proJ>Osal--

Mr. STEARNS. Yes. Would the administration's proposed legislation help the VA keep its drug prices low? 

Mr. OGDEN. No. 

Mr. STEARNS. Okay. Let's see. According to a letter submitting 

the administration's proposal to Senator Campbell yesterday, the 

administration's legislation is based upon the idea that more advantageous prices could be obtained through expanded buying 

power. Tell me in your personal opinion what you think of tha 

idea as it applies to combined federal, state, local pharmaceutic a 

purchasing off the federal supply schedule. 

Do you want me to repeat the question? 

Mr. OGDEN. Yes, please. 

Mr. STEARNS. Let's see if we can adjust it for you. Tell me in 

your personal opinion what you think of the administration's proposal that they submitted to Senator Campbell yesterday to combine federal, state, and local pharmaceutical purchasing off the federal supply schedule. 

Have you seen Senator Campbell's proposal? 

Mr. OGDEN. Yes, I have. In a cursory fashion, I've reviewed it. 

I think the example that Ms. Steinhardt used a few minutes a~o 

in regards to if the market, the current federal market, changes m 

regards to the exposure to the contracts that somehow, someway, 

somewhere, somebody is going to pay for increasing. that market 

share and the federal buyers could be, we could be, affected by that 

pushing the balloon, in one direction, if you will-it's going to pop 

out in another direction. And I personally think that we may be the 

target of that pushing out. 

So I think the idea that the combined federal/state purchasing 

power could be enhanced, I think, is again an intriguing one. When 

you realize that the States and local entities already, many of 

them, have group purchasing arrangements, many of them already 

have contracts, many of them already have access to the Section 

602 of the current statute, that's why I feel the way I feel. 

Mr. STEARNS. Okay. And my last question is directed to Ms. 

Steinhardt. The administration proposal would expand FSSpurchasing for a broad spectrum of pharmaceuticals to, quotel "a State 

and department or agency of a State and any political sUDdivision, 

including a local government," end quote. 

The administration proposal does not appear to limit State and 

local entities to purchase for their own use or for dispensing drugs 

in their own facility. Would you agree that the FSS market could 

expand many-fold under this proposal if we followed the administration's proposal and perhaps State, department, agency, State, 

any political subdivision, including local government, were 

involved? 

Ms. STEINHARDT. Absolutely. Even if one limited it in a much 

more narrow way, it would still expand many fold. Even at a much 

narrower definition, it would expand threefold--

Mr. STEARNS. Threefold? 

Ms. STEINHARDT (continuing). From where it is today. 
10 

Mr. STEARNS. Well, I appreciate your frank comments. 

Mr. Evans. 

Mr. EVANS. Thank you, Mr. Chairman. I had an opening statement I'd like to put in the record, if I may. 

Mr. STEARNS. Yes, without objection. 

[The prepared statement of Congressman Evans appears on p. 

30.] 

Mr. EVANS. I commend you for holding this important hearing on 

a variety of issues and commend you specifically for holding the 

panel on homeless veterans. This is clearly an important issue that 

has not received as much attention as it should have in the last 

few years. 

I just have one question for the VA. Will VA be able to sustain 

potential increases, which its own analysis said could result due to 

allowing state or local purchasers access to the federal supply 

schedule? And what will it do to either improve its negotiations or 

find savings to accommodate price increases? 

Mr. OGDEN. In regards to or in response to your first question 

about sustaining our situation, I think obviously if our expenditures for pharmaceuticals go up dramatically, as we are now moving patients and treating patients in an ambulatory care setting, 

this action will effect our ability to care for eligible-and I'll just 

give you some numbers. 

In fiscal year 1995, the average outpatient drug cost per patient 

per year was $392; in fiscal year 1996, the average outpatient drug 

cost per patient per year was $430. We anticipated that kind of increase, as we moved patients from inpatient to outpatient care. 

And it's going to continue because as we treat patients in an ambulatory care setting, we're going to use pharmaceuticals to treat 

them. So we anticipate, notwithstanding an increase in prices 

caused by opening schedules, that we are going to spend more 

money for pharmaceuticals. 

In regards to improving our negotiating capability, again, it goes 

back to expanding the market share. If the market share goes up 

for the entire federal sector, including DOD and IHS and the other 

federal buyers, somehow, someway, somebody has got to pay for 

that affecting the bottom lines of the pharmaceutical industry. So my guess is it's not going to improve our negotiating capability. It could hinder our negotiating capability. 

Mr. EVANS. So, in essence, you anticipate an increase in per-capita user of--

Mr. OGDEN. Right. And so if we also had an increase in pharmaceutical prices just because of the contractual issues, that may 

mean and that may equate to us being able to treat fewer eligible 

veterans. 

Mr. EVANS. All right. Thank you, Mr. Chairman. 

Mr. STEARNS. Thank you, Mr. Evans. 

Mr. Moran. 

Mr. MORAN. Mr. Chairman, thank you. I appreciate the opportunity of attending these hearings, but I have no opening statement and no questions at this time. Thank you. 

Mr. STEARNS. Well, thank you. I want to thank the first panel. 

Appreciate your time. And now we'll go to the second panel. 
11 

Mr. STEARNS. We have Dr. Thomas Garthwaite, Deputy Under 

Secretary for Health, Department of Veterans Affairs. And I understand Dr. Horvath is not here. 

Dr. GARTHWAITE. Right. 

Mr. STEARNS. And then you will introduce the other people. 

Dr. GARTHWAITE. Right. 

Mr. STEARNS. We welcome you to the Committee, and we look 

forward to your opening statements. 

Dr. GARTHWAITE. Thank you very much, Mr. Chairman and 

members of the Subcommittee. My complete testimony has been 

submitted. I have just a few summary comments. 

STATEMENT OF THOMAS GARTHWAITE, M.D., DEPUTY UNDER 

SECRETARY FOR HEALTH, DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY GAY KORBER, ASSOCIATE CHIEF, 

MENTAL HEALTH STRATEGIC HEALTH GROUP, DEPARTMENT OF VETERANS AFFAIRS; AND RICHARD ROBINSON, 

DEPUTY ASSISTANT GENERAL COUNSEL, DEPARTMENT OF 

VETERANS AFFAIRS 

STATEMENT OF THOMAS GARTHWAITE 

Dr. GARTHWAITE. I am pleased to be here to discuss the legislation that will extend authorities and improve the functioning of 

VA's homeless program and special programs for Persian Gulf 

veterans. 

At the Subcommittee's request, Mr. John Ogden has discussed issues with regard to the procurement of pharmaceutical products. 

Dr. Robert Rosenheck will follow this panel and discuss the effectiveness of the homeless programs. With me here at the table are 

Gay Korber, who is the Associate Chief of our Mental Health Strategic Health Group; and Mr. Richard Robinson, General Counsel's 

Office, who are knowledgeable in these areas. 

We appreciate and strongly support your efforts to consolidate 

and clarify authority for several VA homeless activities. Your proposal would provide clear authority for VA to furnish care and 

services to veterans with serious mental illness, many of whom are 

also homeless, and would replace a patchwork of currently existing 

program authority. Dr. Rosenheck will discuss the effectiveness of 

these programs and why they're critical to our continuing efforts to 

address the needs of homeless veterans. 

Another provision of the draft bill would extend VA's homeless 

provider grant and per diem payment program for 2 years, require 

VA to formally evaluate the effectiveness of programs established 

using the grants, and lift caps on the number of grants VA may 

make to homeless providers for use in funding new service center 

projects and for the purchase of vans. We strongly support these 

changes. 

This program has been successful in assisting public and nonprofit entities to establish new programs, to furnish supportive 

services and housing for homeless veterans. We would urge the 

Subcommittee to consider adding provisions to the draft bill that 

would allow VA to recapture grant funds from recipients if they 

cease to continue using facilities established with grant funds for 

the purpose of assisting homeless veterans. 
12 

We also support permanently authorizing VA to furnish veterans 

with noninstitutional care as an alternative to nursing home care. 

VA currently uses this authority to furnish many veterans with 

health-related services through contracts with appropriate public 

and private agencies. This enables many veterans to continue living in their homes when they would otherwise have to receive care 

in a much more expensive nursing home setting. 

The draft bill also includes provisions pertaining to the care of 

Persian Gulf war veterans, which we support. It would create a 

new program under which VA would fund demonstration projects 

that use novel approaches to treat Persian Gulf veterans with 

undiagnosed and ill-defined disabilities. 

The legislation would authorize demonstrate projects involving 

up to ten geographically disbursed VA medical centers, specify general treatment approaches for a number of these projects, and establish a process for the selection of these sites. 

At present we generally treat Persian Gulf veterans' unexplained 

illness symptomatically in accordance with accepted medical standards and practice given the limits of scientific and medical knowledge in this area. We agree, however, that some non-traditional 

modes of medical treatment may indeed play a valuable role in the 

care and treatment of these veterans. 

Importantly, the proposed legislation would provide congressional 

sanction for use of medical care funds to provide non-traditional, 

innovative, but scientifically and ethically sound medical treatments to expand and improve our clinical understanding and handling of these patients' complex medical conditions. 

The draft bill would clarify VA's authority to provide treatment 

to Persian Gulf War veterans for conditions that might be associated with the veteran's service. And, finally, a draft bill would clarify VA's obligation to verbally inform and counsel Persian Gulf War 

veterans concerning the registry examination results themselves. 

As I mentioned earlier, we support enactment of these provisions. And we appreciate the Committee's advancing all of these 

proposals, including the Committee's draft bill. 

This concludes our remarks, and we look forward to answering 

your questions. 

[The prepared statement of Dr. Garthwaite appears on p. 44.J 

Mr. STEARNS. Thank you, Dr. Garthwaite. 

Do you mind just introducing the two people that have accompanied you? 

Dr. GARTHWAITE. Gay Korber from our Mental Health Strategic 

Health Care Group and Rich Robinson from our Office of General 

Counsel. 

Mr. STEARNS. Welcome. The first question I have for you is I appreciate, first of all, your positive statement on our draft bill. Given 

the budget pressures that the VA faces-and we do this every year 

up here-what kind of impact would additional drug costs of up to 

$250 million or even $150 million have on the VA? 

Dr. GARTHWAITE. That would have a profound effect on the number of veterans we could treat. 

Mr. STEARNS. Can you give percentages? 
13 

Dr. GARTHWAITE. Just do relatively simple mathematics. The 

complete care on average for an ill veteran over the course of a 

year is around $5,000. 

So if I did the calculations on the effects of the previous drug legislation, that $75 million range that it cost us before the correcting 

legislation, we're talking about 15,000 veterans not being able to 

get care. So for a larger number, it's a larger number of veterans. 

Mr. STEARNS. This is a more difficult question: If we had a $250 

million increase in additional drug costs, what would that mean 

per veteran? I mean, is there any way you can put this to a downhome personal level to a veteran? I mean, what kind of additional 

costs would the average veteran--

Dr. GARTHWAITE. That's 50,000 veterans essentially we would be 

unable to give care to. 

Mr. STEARNS. So 50,000 veterans we would be unable to give care 

to? 

Dr. GARTHWAITE. These would be sick veterans because that's 

our average cost for the veterans that we are treating. Since it's 

an average cost, it would have a significant effect. 

Mr. STEARNS. Very significant. Without putting words into your 

proposal today, my observation is that you're basically not fully 

supportive of this demonstration program. Would that be, in effect, 

an accurate statement on my part? 

Dr. GARTHWAITE. I think the way I look at this is that we have 

articulated the view from the VA perspective. 

Mr. STEARNS. That's a better way of putting it. 

Dr. GARTHWAITE. We have articulated the view and the effect on 

veterans and the view from the VA Department. The administration looks at a much broader picture that includes others. My concern is the presumed savings from an enactment of such a bill--

Mr. STEARNS. Presumed. 

Dr. GARTHWAITE (continuing). Would go to someone else. And if 

there were actu.al increases, they would come to the VA. 

You know, if part of the savings then from the savers came to 

the VA to offset any increases, then I think that's a different story. 

But if the net result is that money leaves our pockets and savings 

are accrued somewhere else, the people that are affected are those 

50,000 veterans who don't get care or whatever number that might 

be. And that's our concern. 

If the view from a different place is that overall there might be 

savings to the Government, that's a different perspective. And we 

are pleased that this is limited to an experiment of smaller proportion of possible pharmaceuticals so that the number of veterans potentially affected by this would be minimal. 

Mr. STEARNS. To your knowledge, how extensive an opportunity 

did VA have to study the specific proposal on which Mr. Ogden testified before it was adopted as the administration policy?" Do you 

know anything about that? 

Dr. GARTHWAITE. If you're talking about the language from the 

administration recently, we've not had an extensive opportunity to 

review and comment. As you're aware, it's a very complex issue. 

Mr. STEARNS. Oh, I understand. 

Dr. GARTHWAITE. And so we've had, really, I think, the language 

only a couple of days. 
14 

Mr. STEARNS. I'm going to follow a little further by saying it. 

Isn't it OMB's policy to obtain agency comments on administration 

legislation before it is submitted to Congress? In other words, that's 

the procedure we understood. 

Dr. GARTHWAITE. Usually, yes. 

Mr. STEARNS. Yes, usually might be. And if you had been, let's 

say, fully informed regarding the contents of this proposal and its 

implications, which you've pointed out and which you've heard from 

our first panel, would you have advised the Under Secretary for 

Health or the Acting Secretary? Wouldn't you have given some 

comments on this legislation? 

Dr. GARTHWAITE. I think we have consistently commented from 

the VA point of view. So I think we've been fairly consistent for a 

long period of time about our concerns, as Mr. Ogden, I think, very 

well-articulated in the previous panel. 

So I think my answer to you is that we have consistently tried 

to make people aware of the concerns we have with the effect on 

veterans. However, we recognize there are other views when you 

factor in other departments and other parts of government. 

Mr. STEARNS. You know, this is just for the record perhaps. This 

is the opinion of the Chairman. I also think that the price hikes 

that we've been talking about might result in the States not getting 

favorable prices either. 

Having been in this position-and this is the first position I got 

elected ~I have seen these types of things, like we pointed out, 

like a balloon, in which it just goes up and down. And I think. one 

of the things we have some concern about is the implications it 

would have for the States and the prices that would be affected. 

You might want to comment on that. 

Dr. GARTHWAITE. Well, I am certainly not the expert on all of 

this, but in several conversations over the last couple of years and 

especially more recently, I don't think there's anybody that begins 

to discuss this issue with experts who doesn't walk away with the 

belief that this is an extraordinarily complex issue. 

There are complex interrelationships in law. There are complex 

interrelationships in the marketplace. There are complex interrelationships in government policies. Predicting if you push here 

which ones will play out which way I think is very difficult. 

We keep going back to the fact that we have one significant experience which was relatively negative to the tune of about $75 million. So that's what's made us especially cautious. 

Mr. STEARNS. Thank you. Mr. Gutierrez. 

Mr. GUTIERREZ. No questions. 

Mr. STEARNS. I want to thank the panel. Appreciate your time. 

And now we'll go to the third panel. 

Mr. STEARNS. We have Dr. Robert Rosenbeck, Director, Northeast Program Evaluation Center, Department of Veterans Affairs; 

accompanied by: Paul Errera, Professor Emeritus, Psychiatry, West 

Haven VA Medical Center; Robert Piaro, Chairman, Veterans Organizations Homeless Council; and Linda Boone, Executive Director, National Coalition for Homeless Veterans. So we're--

Mr. GUTIERREZ. Mr. Chairman? 

Mr. STEARNS. Yes? 
15 

Mr. GUTIERREZ. I have to go out and get on a bus to go to the 

White House to meet with the Vice President. That's why I left a 

moment ago since some people from the White House wanted to 

speak to me before I went to the White House. I have to go get on 

the bus. 

So I apologize sincerely since I have to leave. I apologize for not 

being able to be here. 

Mr. STEARNS. Well, thank you for your courtesy and remarks. We 

will continue. 

We want to welcome each of you here. You're our third panel, 

and you've heard a little bit about what the other two panels have 

indicated. So at this point let me open it up to you for your comments. Dr. Rosenheck, we'll start with you. 

Dr. ROSENHECK. Thank you. 

STATEMENT OF ROBERT ROSENHECK, M.D., DIRECTOR, 

NORTHEAST PROGRAM EVALUATION CENTER, DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY PAUL 

ERRERA, M.D., PROFESSOR EMERITUS, PSYCHIATRY, WEST 

HAVEN VA MEDICAL CENTER; ROBERT PIARO, CHAIRMAN, 

VETERANS ORGANIZATIONS HOMELESS COUNCIL; AND 

LINDA BOONE, EXECUTIVE DmECTOR, NATIONAL COALITION FOR HOMELESS VETERANS 

STATEMENT OF ROBERT ROSENBECK 

Dr. ROSENHECK. I'm Robert Rosenheck, Director of VA:s Northeast Program Evaluation Center. I'm Professor of Psychiatry at 

Yale. 

Since 1987, I have been responsible for evaluating the several 

hundred specialized VA programs that provide assistance nationwide to veterans who are homeless and mentally ill. .During the 

past decade, these programs have treated over 200,000 veterans, 

over 30,000 in the last year. 

These programs are unique. They reach out to homeless veterans 

in places that VA professionals have avoided in the past. For example, in the last 12 months alone, 20,000 veterans have been contacted in shelters and soup kitchens, under bridges, and in airport 

terminals and bus stations. These programs have widespread impact, increasing interest and concern throughout the VA system for 

the plight of homeless veterans. 

But we do not work alone. Shoulder to shoulder with community 

partners, VA clinicians are breaking down the mistrust of VA felt 

by many non-VA agencies. A special program, the CHALENG program, has brought over 3,700 non-VA representatives to work with 

V ~rofessionals to develop new programs. 

The services we provide are diverse. We offered over 6,000 episodes of residential treatment in the last year in over 1,000 VA 

domiciliary beds and 120 homelike residential treatment facilities. 

Just this week, one of the major national mental health journals 

published a research study showing that over 60percent of severe 

alcoholic patients in VA's Compensated Work Therapeutic Residence Program were totally sober during the first 3 months after 

discharge, their most vulnerable period. The study showed that 

what helped those veterans stay sober were those elements of the 
16 

treatment program that required them to take responsibility for 

themselves, that required them to work, to pay rent, to have their 

urine tested for substance use. And these programs are low-cost. At 

only $19 a day, they are the lowest residential treatment programs 

in our repertoire. 

On an average day, there are 600 VA employees who are graduates of these programs. They have worked their way back into the 

labor force and joined the VA. 

Now, in addition to my job with the VA and as part of it, I'm a 

Yale professor. And for the past decade, I've been applying the tools 

of science to the enterprise of helping homeless veterans. 

The Congress wrote my job into Public Law 10~ 10 years ago. 

You did not ask VA just to develop programs for homeless veterans. You asked for programs that work. And every year we publish 

a report card that goes to everr medical center in the country that 

has one of these programs. It mcludes 21 measures which address 

the core performance areas. Every program in the country knows 

where they stand on these measures. 

In our first reports, we showed you that 50 to 60 percent of the 

seriously mentally ill veterans who completed these programs were 

well-situated with housing, jobs, and health care when they completed that part of the treatment. And that record has improved 

over the years. Last year, 45 percent were employed or in training 

and over 70 percent showed improvement in substance abuse. 

In an intensive study published 2 years ago, we followed up 400 

veterans with detailed interviews every 3 months for a full year. And we showed that the improvements are long-lasting. We saw 25 

percent reductions in psychiatric symptoms, 40 percent reduction 

m substance abuse, and a doubling of employment. 

After the first 2 years of running this program, we summarized 

our scientific data and brought in a panel of independent outside 

experts to review our work. They recommended that we strengthen 

our ties with community providers and with other Federal 

agencies. 

In response, we joined with HUD to develop the largest supported housing program in the nation, linking experienced VA case 

managers with HUD Section 8 vouchers. And our evaluation shows 

that this program works, even better then the standard VA progr_aIIl' What we call the HUD VA-Supported Housing Program, 

HUD-V ASH, has 50 percent better housing outcomes than our 

standard programs. 

With the Social Security Administration, we developed a special 

outreach pro~am for veterans who are ineligible for VA benefits 

but who qualified for SSI. We increased the award and application 

rates and cut decision times. And, furthermore, we showed that 

these desperately needed monetary benefits do not increase substance abuse, even among veterans with severe alcohol and drug pr~£l'ams, but that they do increase the good housing outcomes. 

We established a grant and :per diem program that received 350 

applications from non-VA proVlders and distributed $17 million to 

help community providers in 32 States and the District of Columbia expand their pro~ams. These funds will support 1,700 new, 

supported housing umts, 8 service centers, and 3 mobile treatment 

units. We have expanded our performance-monitoring system so 
17 

that our community partners, along with us, can track their results 

as well, scientifically generating objective documentation that the 

job they do is well-done. 

The homeless problem has not gone away. In 1996, we saw 4,500 

more homeless veterans than in 1995. The techniques of modem 

managed care that you hear so much about will not do for homeless 

people with severe mental illness. 

Behavioral health care firms have not been dealing with homeless mentally ill veterans or with homeless non-veterans, for that 

matter. In most places, they have left this difficult work exclusively 

to VA and to our community partners. The practice of clinic-based 

primary care will just not work for people who sleep on steam 

grates and who come to the hospital needing so much more than 

prescriptions and stitches. 

I believe we have demonstrated the effectiveness and the high 

level of accountability that goes with these VA programs. I cannot 

tell you why, but I can tell you for sure that the triumphs of Wall 

Street are not changing the situation of homeless veterans on Main 

Street or Market Street or Broadway. 

We are proud of our accomplishments during the past decade and 

are prepared for the challenge of the next decade. I want to thank 

you both personally and on behalf of the veterans who have been 

helped for your commitment to them and for your determination 

that this job be done and done well. Thank you. 

[The prepared statement of Dr. Rosenheck appears on p. 52.1 

Mr. STEARNS. Thank you. 

Dr. Errera, you were kind enough to come. I want to just give 

you an opportunity if you want to say any other comments in reference to your colleague's opening statement. 

Dr. ERRERA. I'd like to thank you, Mr. Chairman. It was the 

House Veterans Affairs Committee and your Senate counterparts 

that created these programs. And you're now helping them mature. 

All of us are very grateful for that. 

Mr. STEARNS. Thank you. 

We have now Robert Piaro. 

Mr. P1ARO. Thank you, Mr. Chairman. 

STATEMENT OF ROBERT PIARO 

Mr. PIARO. I am presently the Chair of the Veterans Organizations Homeless Council. And at this hearing, I am representing the 

following veterans' service organizations, which include the Vietnam Veterans of America, AMVETS, The American Legion, The 

Blinded Veterans Association, Jewish War Veterans, Paralyzed 

Veterans of America, and the Veterans of Foreign Wars. 

VOHC has met over the last 2 years with the common goal of 

improving the situation of homeless veterans throughout the United States. VOHC endorses programs and legislation designed to 

help improve the lives of an estimated more than 250,000 homeless 

men and women who have served their country in times of peace 

and war. 

As a member of the council, I am exposed to many reports concerning the plight of homeless veterans. Many of these reports deal 

with the limitations on services either from public social services, 
18 

or for those veterans who do not have service-connected disabilities, 

the U.S. Department of Veterans Affairs. 

I am also President and Chief Executive Officer of Veterans Assistance Foundation, a nonprofit (c)(3) that was founded in 1994. 

The V AF currently receives funds from Wisconsin Department of 

Veterans Affairs to operate three full-service programs within that 

State. In this capacity, I and my staff have direct contact on any given day with 90 homeless veterans to provide them shelter, 

meals, limited counseling, and full-time, nonclinical case management services. 

Since accepting the first contract with the Wisconsin Department 

of Veterans Affairs, our VAF staff have worked in some capacity with more than 2,500 homeless veterans and provided residential 

services to over 500 veterans at our 3 assistance centers. 

As a disabled veteran myself, I have received treatment from 

various VA centers in nearly 30 years. I have seen the VA system 

and level and quality of care to the veterans change over the years. I truly wish I could say that all the changes I've witnessed have 

been for the better. Good and bad programs have come and gone, 

as have good and bad doctors, medical staff, and so forth. We need 

to take time to see how the newest change, the VISN networks, 

will work in the overall program. Those hit the hardest by the latest changes may be those who 

were once targeted as high-priority cases: the homeless. Included 

are veterans who cannot establish a service-connected. disability as 

well as veterans who suffer from chronic substance abuse problems, 

the lingering effects of PrSD and other mental illness, or a host 

of other minor physical ailments. 

I have been asked to provide testimony on homeless chronically mentally ill, compensated work therapyltransitional residence, the 

homeless providers and per diem grant, and the VA's contract half- w~y house program for substance abuse problems. The foundation runs a program in Madison that has a very close 

relationship with the Community Support Program, which is called. 

esp, a facility which is operated under the HCM! Program. The 

V AF and the CSP staff have worked. very closely since the foundation opened in 1996. In fact, the CSP staff has provided office space 

to V AF since the date of the opening. Likewise, CSP clinicians have 

provided support services for veterans eligible under HCM! criteria 

that have been residents in the Veterans Assistance Program. Additionally, CSP staff have provided the means for our staff to access computers regarding veterans as non-compensated VA 

employees. The association between CSP and the V AF staff and residents is 

truly "seamless," a term used in many partnerships between VA 

and non-VA personnel providing services to disadvantaged veterans. The HCM! staff in Madison is a compassionate group dedicated to helping improve the lives of veterans who place themselves 

within their care. This program has had nothing but a positive influence on the many veterans it has served, homeless or otherwise, 

who suffer from chronic mental illness. 

Stepping into the other pro~am, which is run by V AF at Fort 

McCoy, WI, we actively particIpate at the V AMC Tomah CWTfI'R 

programs. From the beginning, our involvement has been nothing 
19 

but a continuing success story on how this program has worked 

and how it has been getting better every day. The work experience that CWTtrR gives these veterans only helps reinforce their work 

habits, which leads to gainful employment for the veteran. 

There is a continuing need for this program to be funded in order 

for the veterans to transition into mainstream America with gain- ful employment. I have no dealings with the VA Transitional Program. So I am unable to address this issue at this time but do support the program for funding. 

The homeless provider per diem grant has truly been the one 

homeless veterans' money available to homeless veteran providers 

around the country. Each year U.S. DVA is working on making the 

grant user-friendly, but the biggest worry in our country is the 

funding of this program. Each year it has declined, down in 1997 

to 3.8 million from 5.5 in 1997. This money has made possible community-based organizations and the U.S. Department of Veterans 

Affairs to perform partnerships all around the country which have 

proven that they work. 

The homeless veterans provider grant per diems are the only 

truly homeless-specific monies left in America. The funding of this 

program is the lifeline of the homeless veterans in America. 

The DVA's contract program for a halfway house for veterans 

with substance abuse problems has been a successful program. 

V AF has seen the effectiveness of this program and has a very good relationship with the VA contract halfway houses. We believe that 

operation of the VA contract halfway house is a very positive factor 

in the lives of the homeless veterans in America. 

In summary, the above-mentioned programs I have discussed in 

this testimony should receive recommendations for continued funding and additional funding from the House. There are many veterans in America that depend on these programs. 

I very much appreciate the opportunity to provide the testimony 

in these areas, Mr. Chairman. Thank you for your time. 

[The prepared statement of Mr. Piaro appears on p. 58.] 

Mr. STEARNS. Thank you. 

Our next panelist is Linda Boone. Linda, welcome. 

Ms. BOONE. Yes. 

STATEMENT OF LINDA BOONE 

Ms. BOONE. Mr. Chairman, the National Coalition for Homeless 

Veterans is committed to assisting the men and women who have 

served our nation well to have decent shelter, adequate nutrition, 

and acute medical care when needed. NCHV is committed to doing 

all we can to help ensure that organizations, agencies, and groups 

who assist veterans with the most fundamental human needs receive the resources adequate to provide these services to perform 

this task. 

NCHV believes that there is no generic or separate group of people who are homeless veterans as a permanent characteristic. 

Rather, NCHV takes the position that there are veterans who have 

problems that have become so acute that a veteran becomes homeless for a time. In a great many cases, these problems and difficulties are directly traceable to the individual's experience in military 

service or his or her return to civilian society. 
20 

It is clear that the present way of organizing the delivery of 

vitally needed services has failed to assist the 250,000 veterans 

who are so overwhelmed by their problems they find themselves 

homeless. 

The transmutation of the Veterans Health Administration from 

a traditional hospital facility-based system into a services-oriented 

system that is organized into the 22 divisions has produced significant reduction in services needed by many veterans, particularly 

homeless veterans. 

NCHV recognizes the significant effort that the VA has demonstrated in addressing the needs of the homeless veterans in the 

past few years. We know of many extremely dedicated employees within the VA that go well beyond their normal workday to volunteer in community activities and often provide leadership to expand services to homeless veterans. 

The reduction and curtailment of services are perhaps the most 

drastic in neuropsychiatric care, which concerns NCHV. Inpatient 

care for post traumatic stress disorder has been drastically reduced 

in both duration and availability. Many mental health and substance abuse treatment programs have been eradicated, effectively 

eliminated, or drastically truncated. For example, in VISN I, the 

New England area, a substance abuse inpatient program went 

from 21 days to an outpatient 5-day, 8 hours per day program. 

NCHV strongly supports the portion of this bill requiring each 

medical center to make an assessment of needs and services available. We would further request establishment of specific requirements or e?q>ectations for each vision to participate in homeless 

veterans initiatives. 

A February 7. 1996, report on the fiscal year 1995 end-of-theyear survey in homeless veterans in VA inpatient and domiciliary 

care programs done by the NEPEC organization within the VA 

found 23 percent of all inpatients had been homeless at the time 

of their admissions. Currently, with the exception that each medical facility have a homeless coordinator, participation by the individual VA medical centers is voluntary for homeless initiatives. 

This seems a gross neglect of almost one-fourth of the patients in 

theVHA. 

Additionally, as further noted in the NEPEC report, this population is more likely to need inpatient care admission to get their 

treatment started. 

With these significant cuts occurring throughout the nation, we 

urge this Committee to examine the strategy of reinvestment of the 

perceived savin~s achieved through the reordering of the way 

health care sel"Vlces are delivered. Specifically, we would like to see 

language to assure that a portion of those resources saved are reinvested to meet the unmet needs of homeless veterans, not simply reassigned to some other type of care. We believe a required percent reinvestment should be set forth in the program dollars that 

have already been cut and will be cut in each division. 

Many community-based organizations, or CBOs, have a strong 

record of performance in the delivery of services to homeless veterans and could do a great deal more in patient care if resources 

were available to meet those unmet needs of veterans. CBOs are 

a vital link in any continuum of care chain, particularly in an era 
21 

where there is such concern toward finding the most cost-effective 

means possible for meeting the vital needs of veterans in each community while preserving the highest standard of quality care. 

Traditionally, the VA has been reluctant to contract out delivery 

of health care services. However, it is clear that the old paradigms 

do not apply in this rapidly changing environment. The VHA must 

do what it does best: providing front-line clinical support and channeling resources to the CBOs to do what they can do best. Therefore, we support this portion of the bill that allows contracting with 

community-based organizations for services. 

Additionally, the management assistance committees, the MACs, 

and the VISNs must include representatives from the communitybased organizations that provide direct services on a regular daily 

basis to veterans who are homeless. 

NCHV also supports the continuation of the Homeless Veterans 

Comprehensive Services Act, which is the grant per diem as proposed in this bill. This program has provided the needed resources 

for programs to get started that might never have had an opportunity otherwise. We would like to see authorization language that 

sets an amount to be granted each year delineating the separate 

amounts for the housing acquisition and amounts for supportive 

services. 

NCHV agrees with the intent of this legislation, and we look forward to working with this Committee and the staff securing needed 

resources for veterans that are homeless. 

Thank you, Mr. Chairman. 

[The prepared statement of Ms. Boone appears on p. 62.] 

Mr. STEARNS. Thank you, Ms. Boone. 

Let me just go to sort of the end of your opening statement. The 

draft bill we have under discussion awards grants to contract with 

and work in partnership, partnership with community-based organizations. Would it be fair to say that you support the bill and you 

don't have any fundamental problems with our bill? 

Ms. BOONE. There are some technical issues that we're working 

on and we're going to be submitting to the staff, but in general we 

support the intent of this, yes. 

Mr. STEARNS. So there are some technical things that you would 

like to work with our staff on? 

Ms. BOONE. Right. 

Mr. STEARNS. Dr. Rosenheck, this may be a question for you. 

You've heard Ms. Boone's testimony that veterans would be better 

served if VA limited its direct efforts and channeled more money 

to community organizations to provide services to the homeless. I'd 

be curious what your response would be. 

Dr. ROSENHECK. We have worked for the past 10 years to develop 

the partnership, and we have succeeded in that. One of the problems that has been well-known for the past 30 years is service system fragmentation, that if you have separate funding streams to 

the housing agency, to the public support agency, to nonprofits, to 

VA, totally independent, you get everybody operating as an independent operator. And you get chaos for the clients because they 

have to get one thing from the VA, one thing from the community 

provider. 
22 

What we have constructed over the past 10 years is teamwork. By channeling funds through VA-and a large proportion of our 

budget goes to CBOs-we have developed teamwork. And so the 

fact that we do outreach shoulder to shoulder along with the CBOs 

strengthens the work of both groups. 

So my sense is that what we have developed is a team with complementary roles, but we also have overlapping roles. And the 

teamwork is one of the great accomplishments of this effort. 

Mr. STEARNS. Well, you heard Ms. Boone's testimony that the 

VA's, quote, ']resent way of organizing delivery of services has 

failed to assist at least the 400,000 veterans who are homeless for 

at least part of the year. You know, I think that's a pretty clear 

statement on her part. 

Dr. ROSENHECK. Yes. I think there are two issues. Of course, 

funding limitations mean that we can't treat all of these veterans. 

The ones we have treated we have demonstrated scientifically are 

getting effective treatment. 

That there is need for additional resources, that there are underserved veterans, severely disabled, there is no question. But I 

would strongly reject the conception of the community-based organizations operating in opposition or in alternative to the VA and 

emphasize the achievement that we have enjoyed in the partnership with the national coalition, which has been vastly strengthened in the last 5 years so that we are working together on these 

problems, enhancing each other's effectiveness and efficiency. 

Mr. STEARNS. Dr. Errera? 

Dr. ERRERA. Yes. I would like to elaborate on that. I was surprised by Ms. Boone's comment because we have worked well together. 

I want to emphasize that most of these veterans have chronic illnesses: medical, psychiatric, substance abuse. Those that don't, 

many of them have serious behavior problems, anger management. 

And these need to be addressed by professional people. There are many facets of the work that can be done and are best 

done by community-based organizations. Mr. Piaro described the 

kind of collaboration that they have. And Ms. Boone knows of the 

collaboration that takes place. 

So I would strongly disagree that we haven't been able to do it. 

I think we do do it together. And this is what VA does best, is work 

with chronic illnesses. 

Mr. STEARNS. Ms. Boone, do you reject partnership arrangements with the VA? . 

Ms. BOONE. No. Some of our membership has had very successful 

relationships with the VA in some of their homeless programs. The 

problem is that the VA is perceived in the community as being everything to all veterans. And our veterans get turned away from 

community-based services on a daily basis because the myth is that 

the VA takes care of veterans. And they can't take care of all of 

the veterans. They don't have those resources. 

And the VA only has 172 hospitals and I don't know how many 

clinics now. So they can't be ~verywhere, but they certainly have 

the resources and the charge to help veterans. 

So we would like to see them working in expanding the services. 

And that certainly does take more resources in some cases. But 
23 

what we're real concerned about is that veterans are not being 

served because people perceive that the VA takes care of them. 

When Dr. Rosenheck talked about they served 30,000 veterans 

last year, well, that doesn't quite cut it when there are 275,000. So 

we would like to see some stepped-up effort to really end this 

problem. 

Mr. STEARNS. You know, in your testimony you mentioned many 

community-based organizations have a strong record of performance. Do you have any documentation that you could provide us 

with results? 

Ms. BOONE. I guess what I would ask is when the VA compares 

the cost analysis for services rendered, if they've done any comparisons in the communities. We have not done any major studies. We 

don't have the resources to do those kinds of studies. So we have 

not done that. 

On an isolated basis, our members do do some of that data collection, but we have not com~iled it in a reportable form. 

Mr. STEARNS. Mr. Piaro. 

Mr. PlARo. Yes? 

Mr. STEARNS. Do you wish to comment? 

Mr. PIARo. Yes. I understand some of Ms. Boone's concerns, but 

I believe a lot of this basically when she's making some statement 

that the general public does perceive the VA to be all to all veterans, which it is not. 

But, again, too, I don't think laying that back on the U.S. Department of Veterans Affairs is a true statement. That is a job of 

the community-based organization to access those services that the 

VA can't do for that veteran. To lay it all on them I think is impractical. 

In our times, we can't expect one agency to foot the bill on everything. You know, it's a collaborative partnership between the communities, State, Federal, and that. 

And in my experience in the programs that I have run, it has 

been very successful. Yes, there have been problems, but there are 

always going to be problems. But the main thing is as long as we 

can have an open-door policy, which we have had with the U.S. Department of Veterans Affairs, with HUD and all of these other 

agencies, it seems to work out. It seems to work out very well. 

Mr. STEARNS. So in your opinion, the present situation, status 

quo is acceptable in terms of how we fund homeless veterans? 

Mr. PlARo. Yes except for lack of enough. 

Mr. STEARNS. Ms. Boone, how do you feel? You think we should 

change the process of funding homeless veterans the way we do it? 

Ms. BOONE. Right. I think that what the organization believes is 

that the VA should do more contracting when it makes sense to do 

that when it can be done. If they can do it in a more cost-effective 

method, then they should do it. But if a community-based organization can do it in a more cost-effective method and reach more veterans, then they ought to do it. 

Mr. STEARNS. Well, that's all the questions I have unless, Dr. 

Rosenheck, you wanted to follow up with anything. 

Dr. ROSENHECK. No. Just to reiterate what we've said, that I 

think the implication is we would all agree-and I am comfortable 

speaking for my panelists-that to reach the full extent of the pop-
24 

ulation, we need more funds for the VA as well as one would need 

more funds for the CBOs. My belief is that the current mix has had 

a very positive effect on both groups of organizations. 

Mr. STEARNS. Well, I thank you. 

The staff of the ranking member, anyone or two questions you 

would like to ask before we close? Dr. Cooksey, we'll be glad to 

hear any questions you may have, too. 

Ms. EDGERTON. On a different track, Dr. Rosenheck, if you would 

answer one question I have about the effects of decentralization? 

How have your programs' efforts to track spending for the chronically mentally ill been affected by decentralization of both the 

funding and the management of the VA health care system? And 

if they have been affected, do you have any thoughts about how 

you can assure the accountability of mental health programs in 

this new decentralized era? 

Dr. ROSENHECK. The current shift in the VA to a community-oriented system of care, rather than a hospital system of care, is long 

overdue. As with all transitions, there are dangers. The huge 

progress we are making is in shifting resources from inpatient 

units to more efficient outpatient programs that if their intensity 

is maintained, we have shown scientifically that community-based 

programs can maintain a high level of outcomes and a high level 

of efficiency for severely disabled patients. 

But there is a risk in any time of change. And the risk is greatest 

for those who are most vulnerable for those patients who can least 

speak for themselves and who often are least able to have their 

needs heard. 

We believe that the decentralization holds great promise, but 

what it has meant is that, instead of the funds being fenced, instead of the funds having to go for these programs, there is latitude 

to spend them on other programs for other patients. 

Now, it is also reasonable, because situations may vary from locality to locality, that there should be decision-making at the local 

levels, but the only way to assure that the vulnerable do not fall 

through the cracks in this modified system is to hold the localities 

accountable. 

There are two ways of doing that, two pieces of doing that. One 

is to continue to collect comprehensive accountability data, which 

we are doing. But two is to have clear policy from Washington that 

the localities are responsible for preserving services for the most 

vulnerable and for preserving high-cost services because in many 

cases the homeless and the chronically mentally ill need a greater 

intensity of services, even if it's not hospital services. 

So far we have seen substantial commitment from headquarters 

to support these programs. And so far the data are showing that 

the programs are largely staying intact. 

Some of the issues that Ms. Boone raised, in fact, I think are not 

problems. She did describe the fact that we are having shorter 

length of stay in our P1'SD programs and that we are having less 

alcohol inpatient programs, but the P1'SD changes came after careful scientific studies that showed that reducing those lengths of 

stays, shifting those resources to outpatient would not adversely 

impact the veterans. 
25 

These studies need to be ongoing. We need to look to see if veterans are going away from the VA because of these changes. We 

don't see any evidence of that. So I would say that the moves are 

constructive, but they need to be carefully monitored. And the values need to be firmly promulgated that these vulnerable populations are special to the VA. And their needs must be addressed. 

Ms. EDGERTON. I just have a follow-up question for you. Because 

you did mention beds, I want to make sure that I understand this. 

You say 31 percent of those that are receiving inpatient mental 

health programs are homeless. How can they receive effective 

treatment if they don't have a supportive living environment while 

they're receiving oU!J>atient or community-based services? 

Dr. ROSENHECK. Well, in fact, they can get some help there because we go to those shelters. Our health care professionals go to 

those shelters and will bring the veterans personally to the VA. 

At the same time, the way we can provide alternative services 

is by case management, residential treatment, our contracts with 

our CBO partners, by doing the kinds of programs that we have 

been running. 

Ms. EDGERTON. Thank you, Mr. Chairman. That concludes my 

questions. 

Mr. STEARNS. Well, thank you. 

Dr. Cooksey has indicated thatDr. COOKSEY. Just 30 seconds. I'm old enough that as I was finishing medical school we were going through that transition when 

the thorazine and thorazine-like drugs were just coming out and 

they were opening up all of the mental institutions and turning 

people out on the streets. Now Prozac is the medication. I feel that 

there are a lot people out there who need more supervision than 

just giving them a pill and turning them loose. 

My overriding concern is the homeless veterans. And there is no 

question that a lot of the homeless are veterans. And my other concern is that too often the different agencies work to protect their 

own fiefdom and don't overlap and help each other more so to the 

ultimate benefit of the veterans. 

We've got to go vote. So thank you. , Mr. STEARNS. I thank my colleague and will indicate that anyone 

on the panel who wishes to submit questions who is not here is 

welcome to do so. We thank all of the witnesses for coming today. 

We know how valuable their time is, their candor and dedication 

to the VA. And, of course, all of the organizations are doing just 

very important work. 

The subcommittee is adjourned. 

[Whereupon, at 10:52 a.m., the subcommittee was adjourned.] 

APPENDIX 

LUIS GUTIERREZ 

SUBCOMMITTEE ON HEALTH OF THE 

COMMITTEE ON VETERANS AFFAIRS 

HEARING ON RE-AUTHORIZING 

EXPIRING LEGISLATION AND VARIOUS ISSUES 

JULY 10, 1997 

Mr. Chainnan, thank you for holding this important hearing today. We 

have a variety of critical issues to deal with today. I want to make a few 

brief comments on each of the topics our witnesses will address and then let 

the experts speak for themselves. 

Between 1990 and 1991 , VA says Medicaid rebates caused an unanticipated 

$79 million phannaceutical price increase to VA. Based on reviewing the 

testimony of the GAO and analysis by VA it looks as if this may happen 

again if state and local providers are allowed to make their purchases off of 

the federal supply schedule VA negotiates for federal providers. Some of us 

just discovered yesterday that legislation allowing these providers to 

purchase off the supply schedule is being considered in this Chamber. I am 

sure that I echo the sentiments of most of the members present today when I 

say that if I thought this allowance would benefit these providers and not 

hurt V A, I would be supportive. However, V A knows from past experience 

that V A does not have enough clout to call the shots with the drug 

manufacturers, even by adding other purchasers to their market share. 

(27) 
28 

Manufacturers will simply raise their prices for all of us. I am deeply 

concerned that VA is going to have to absorb costs it did not expect just 

when the Department's budget is at its leanest. I am ready to act to stop this 

measure if necessary. 

We are also discussing reauthorization of homeless programs. I believe 

that these homeless provisions are vital to VA's comprehensive approach in 

treating a highly vulnerable population and I will be happy to support this 

initiative. Yet more remains to be done. VA needs to ensure that more 

homeless veterans have access to high-quality programs that meet their 

many needs. We know that this is a serious issue in this nation. We know 

that homelessness is not an easy or an inexpensive problem to handle. Yet I 

believe that you cannot place a dollar value on restoring a veterans' life and 

making that veteran a healthy and productive citizen again. We need to 

think seriously on this Subcommittee about how best to ensure optimal 

access to high quality care for homeless veterans. 

We are discussing extending permanent authority to VA providing noninstitutional alternatives to nursing home care. I believe that this measure 

will allow VA to make provision of appropriate and cost-effective health 

care services possible to a variety of veterans with long-term care needs. 

V A should be at the forefront of finding solutions to treating older veterans 

and veterans with chronic health problems in the least restrictive 

environment. Allowing such treatment will lead to more cost-effective and 

satisfying care for veterans. 
29 

I am also pleased that we are hearing testimony about a new grant program 

to establish treatment programs for Persian Gulfveterans. These veterans 

have been suffering too long. We hear more and more evidence that 

indicates that the symptoms veterans are experiencing as a result oftheir 

service in the Persian Gulf are not just in their heads. While we cannot 

provide them all of the answers they want and deserve today, I truly hope 

that we can find a way to ensure that veterans will benefit from more 

innovative and responsive care for their symptoms. 

Again, thank you for holding this hearing today, Mr. Chairman. I am 

looking forward to working with you to pass this legislation. 

44-89597 - 2 
30 

OPENING STATEMENT OF LANE EVANS 

SUBCOMMITTEE ON IJEALTH OF 

THE COMMITTEE ON VETERANS AFFAIRS 

HEARING ON RE-AUTHORIZING 

EXPIRING LEGISLATION AND VARIOUS ISSUES 

JULY 10, 1997 

Good morning, Mr. Chairman. I want to thank you for holding this hearing 

today. You have asked the witnesses to respond to a variety of proposals 

and issues today. Many of the initiatives they will discuss-including 

homelessness-are extremely important in my view and merit more 

attention from this Subcommittee and our full Committee. 

I am extremely concerned with veterans' homelessness in this country. On 

any given night in America a third of those living on the streets are 

veterans-many of them are my peers from the Vietnam Era. I ftnd this 

hard to live with-both as a veteran and as an American citizen-and I 

believe we must do more to respond to this problem. 

Let me say from the start that I appreciate VA's approach to the complicated 

problem of homelessness. The range of programs V A offers homeless 

veterans comprise a comprehensive network that meet veterans' needs for 
31 

health care, substance abuse treabnent, vocational rehabilitation, work and 

shelter. But access remains a problemwhole cities are unserved or underserved by VA's homeless programs. So 

while I appreciate the fact that we are here today to hear from V A and 

homeless veterans' advocates on the need to extend authorization for some 

of V A's important homeless programs, I cannot help but add that I believe 

we must do more to make these programs available to more homeless 

veterans. 

We must also ensure that programs for the homeless are protected while VA 

undergoes the transition from centralized to decentralized management and 

funding. In the last session of the last Congress, this Committee supported 

legislation that required V A to maintain its specialized treabnent capacity 

for some vulnerable populations-the seriously chronically mentally ill 

many of whom are homeless were one of the populations we specifically 

wanted to shelter with this law. 

We need to be sure that the measures V A uses are reliable and valid 

indicators that the programs which mentally ill veterans use are available to 

provide high-quality and timely services to those vulnerable populations. 

As V A shifts resources from inpatient to outpatient settings and we see 

inpatient programs that homeless veterans have relied upon-like substance 

abuse and post-traumatic stress disorder-being dismantled across the 
32 

system. In light of these changes, we must ensure that no fewer veterans are 

treated with at least equal effectiveness in outpatient or community based 

settings as those treated today. 

We have several other important issues to discuss today. I am interested in 

learning about reactions to a provision Committee staff are developing to 

create a grant program for VA's Persian Gulf veterans' treatment programs. 

I am hopeful using this grant approach for funding will allow V A to develop 

some real centers of excellence and innovation for treatment of veterans' 

symptoms related to their Gulf War deployment. Seven years is too long to 

wait to meet the health care needs of these men and women. 

Additionally, the option of granting permanent authorization to VA to 

provide non-institutional long-term care programs will be examined today. 

The private sector is way out front of V A on this issue and V A must 

continue to learn from high-quality comprehensive long-term care private 

sector programs that can document their good results. Almost any veteran 

would tell you that they want to live at home as long as possible-good 

non-institutional programs can make this a reality and also save money. If 

Congress can provide permanent authority, I hope V A will make the most of 

it to provide higher quality more cost-effective programs like home care, 

home aides and adult day health care. 
33 

Finally, I am very concerned that VA will have yet another unanticipated 

cost increase, just at a time they it can afford it least. V A pays a billion 

dollars a year for prescription drugs. Most experts agree that V A has done 

an excellent job getting the best deal possible for these drugs. V A should 

be commended for its negotiating skills. Several years ago, V A realized a 

substantial increase in its pharmaceutical prices due to unanticipated 

consequences of changes in Medicaid pharmaceutical pricing policies. Our 

testimony from the pharmaceutical manufacturers' representative states that 

they would not hesitate to raise their prices again (thus increasing prices VA 

pays) if state and local purchasers are allowed to benefit from the prices VA 

negotiates on behalf of federal purchasers. Based on the history of this 

issue I am anxious to hear the comments of our witnesses about the possible 

outcomes of extending access to federal supply schedules to state and local 

providers. 

Thank you, Mr. Chairman. This concludes my statement. 
GAO 

For Release on Dehvery 

Expected at 9 30 a m 

Thursday, July 10, 1997 

GAOtr-HEHS-97-171 

34 

Uruted States General Accounting Office 

Testimony 

Before the Subcommittee on Health, Committee on 

Veterans' Affairs, House of Representatives 

FEDERAL DRUG PRICES 

Effects of Opening the 

Pharmaceutical Schedule 

Are Uncertain 

Statement of Bernice Stemhardt, Director 

Health Services Quality and Public Health Issues 

Health, Education, and Human Services Division 
35 

Mr. Chainnan and Members of the SubcommJttee: 

We are pleased to be here today to discuss our recent report on the potential 

implications for the Department of Veterans Affairs (y A) and other government 

purchasers of opening the federal supply schedule (FSS) for pharmaceuticals to state and 

local governments. 1 During fiscal year 1996, the federal government purchased almost 

$1.3 billion worth of pharmaceuticals from this catalog of drug prices. As you know, 

schedule prices are often substantially lower than retail prices and are available primarily 

to federal purchasers. VA used this schedule to purchase about $922 million in 

pharmaceuticals-about 71 percent of the government's total purchases from the schedule. 

In 1994, the Congress authorized the General Services Adm1n1stration (GSA) to 

adm1n1ster a cooperative purchasing program that would allow state, local, and Indian 

tribal governments, as well as the Commonwealth of Puerto Rico, to purchase 

pharmaceuticals and other goods and services from federal supply schedules. 2 VA, to 

which GSA has delegated adm1n1stration of the pharmaceutical schedule, expressed 

concern that prices on the schedule could Increase if it was opened to a larger group of 

purchasers. As a result, GSA proposed that the pharmaceutical schedule be excluded 

from the cooperative purchasing program because GSA did not plan to open any schedule 

to nonfederal entities If higher schedule prices would result. 

Because of concerns about the potential effects of opening more than 140 federal 

supply schedules, the Congress directed GSA to delay opening any schedule pending 

completion of our assessment of the potential impact. 3 GSA is currently developing its 

ftnal implementation plan for opening the schedules. 

Today I would like to discuss the factors that could affect schedule price 

negotiations between VA and drug manufacturers If the pharmaceutical schedule was 

opened, as well as the opening's potential effects on the schedule prices that would be 

available to federal, state, and local government purchasers. 

To assess the potential Impact of opening the schedule, we contacted VA, other 

federal agencies, and the Congressional Budget Offtce (COO). We also contacted the 

Publlc Hospital Pharmacy Coalltion,4 the Health Industry Group Purchaslng AssocIation 

(HIGPA),& the National AssocIation of Chain Drug Stores, the Pharmaceutical Research 

and Manufacturers of America (PhRMA), and several drug manufacturers.s In addition, 

we analyzed schedule prices and reviewed assessments made by VA, HIGPA, and the 

Coalition concerning how opening the schedule could affect schedule and other drug 

prices. 

1 Drug Prices: Effects of Opening Federal Supply Schedule for rhannaceuticals Are 

Uncertam (GAOIHEHS-97-60, June 11, 1997). 

asee the Federal Acquisition Streamlining Act of 1994, P.L. I1J3..365, sec. 1665 (1994). 

asee the National Defense Authorization Act for Fiscal Year 1996, P.L. 104-106, sec. 4309 

(1996) and accompanying conference report, H.R. Conf. Rep. No. 1()4..45(), at 970 (1996). 

The impllcations of opening other schedules are discussed in COOPerative Purchasing: 

Effects Are Likely to Vary Among Governments and BusinesseS (GAO/GGD-97-33, Feb. 10, 

1997). 

~e Coalition represents 70 publlc hospitals that are owned or controlled by state and 

local governments and serve a disproportionate share of Medicaid and indigent patients. 

6HIGPA is a national trade association that represents 84 organizations and vendors that 

purchase pharmaceuticals and other medical products. 

~e manufacturers we contacted were Ell Lilly and Company; Johnson & Johnson; Merck 

& Co., Inc.; Pfizer Inc.; and SmithIOine Beecham Corporation. 

GAOIT-HEHS-97-171 
36 

In sununary, the effects of opening the pharmaceutical schedule on schedule prices 

ultimately depend on the outcome of negotiations between VA and drug manufacturers. 

Because of many uncertainties related to these negotiations, it is not possible to predict 

how the schedule's prices would change or what the ultimate impact on VA and other 

government purchasers would be. 

Although many factors would influence the negotiations between VA and drug 

manufacturers, two primary ones are VA's negotiating ability and manufacturers' pricing 

strategies. Both of these factors would be influenced by the size of the market 

represented by combined federal, state, and local purchasers that would have access to 

schedule prices. Moreover, the size of this market could affect the size of any resulting 

price changes. The larger the market, the greater the economic incentive would be for a 

manufacturer to raise schedule prices to limit the impact of giving low prices to more 

purchasers. 

At present, federal purchases from the schedule represent about 1.6 percent of the 

total dollar value of domestic pharmaceutical sales. Estimates of the size of a combined 

federal, state, and local market, however, vary widely because of uncertainty about which 

state and local entities would be eligible for schedule prices. If eligibility is not narrowed, 

VA, PhRMA, drug manufacturers, and the Public Hospital Pharmacy Coalition agree that 

the size of the combined market could be significantly larger than the current federal 

market. Although the Coalition estimates that limiting eligibility as it suggests could keep 

state and local purchases from the schedule at between 0.5 and 4.4 percent of domestic 

pharmaceutical sales, this would result in a combined market about 33 to 300 percent 

larger than the federal market. 

Federal efforts to lower Medicaid drug prices suggest how opening the schedule 

could put upward pressure on schedule prices. In 1990, the Congress required drug 

manufacturers to give state Medicaid programs rebates for outpatient drugs based on the 

lowest prices they charged other purchasers. Because of the size of the Medicaid market, 

however, many drug manufacturers sought to minimize the impact of the rebates on their 

business by raising outpatient drug prices to some private sector purchasers. 

If the pharmaceutical schedule was opened to state and local governments and 

drug manufacturers succeeded in raising their schedule prices in response, the impact on 

different government purchasers would vary. VA, along with the Department of Defense 

(DOD), the Public Health Service, and the Coast Guard, would be somewhat protected 

from price increases because the Veterans Health Care Act of 1992' sets maximum prices 

for these agencies for over one-quarter of the drugs on the schedule. Other federal 

purchasers would not have that protection. State and local government purchasers, 

meanwhile, would benefit to the extent that schedule prices were lower than the prices 

they or their representatives could negotiate with drug manufacturers. 

BACKGROUND 

The rss for pharmaceuticals currently contains almost 23,000 products available to 

federal agencies and institutions and several other purchasers. The purpose of the 

pharmaceutical schedule, like other supply schedules, is to provide eligible entities an 

efficient and economical option for purchasing. These entities can purchase 

pharmaceuticals, however, through other methods. For example, although VA depends on 

the FSS for most of its drug purchases, VA has awarded several national contracts on a 

competitive basis for specific drugs it considered to be therapeutically interchangeable. 

Under the Veterans Health Care Act of 1992, drug manufacturers must make their 

brand-name drugs available through the FSS in order to receive reimbursement for drugs 

'See P.L. 102-586, sec. 603. 

2 GAO/I'-HEHS-97-171 
37 

covered by Medicaid.8 The act also requires drug manufacturers to sell drugs covered by 

the act to four agencies-VA, DOD, the Public Health Service, and the Coast Guard-at no 

more than 76 percent of the nonfederal average ma..,ufacturer's price,9 a level referred to 

as the "federal ceiling price" (FCP). A drug's FSS price may be higher or lower than its 

FCP. If it is higher, the protected purchasers pay no more than the FCP. 

GSA published in the Federal Register on April 7, 1995, its initial proposed plan for 

opening the federal supply schedules to state and local governments. The plan proposed 

excluding from cooperative purchasing the schedule for drugs and pharmaceutical 

products and one medical equlpment and supplies schedulelo because GSA concluded that 

opening them would have the unintended effect of increasing costs to federal users of the 

schedules. The plan also proposed that participation in the cooperative purchasing 

program be optional for sellers and purchasers. 

IMPACT OF OPENING THE FSS 

DEPENDS LARGELY ON PRICE NEGOTIATIONS 

Price negotiations between VA and drug manufacturers will ultimately determine 

the extent to which opening the pharmaceutical FSS affects the schedule drug prices 

available to federal, state, and local governments. Opening the schedule could change the 

dynamics of negotiating FSS prices for both VA and drug manufacturers. Up to now, VA 

has been able to obtain significant discounts from drug manufacturers by seeking the 

most-favored customer price. This price represents the same discount off a drug's list 

price that the manufacturer offers its most-favored nonfederal customer under 

comparable terms and conditions, such as length of contract periods and ordering and 

delivery practices. Many FSS prices are more than 50 percent below nonfederal average 

manufacturer prices. 11 

Representatives of several drug manufacturers explained that their companies have 

been willing to negotiate low FSS prices because they consider the FSS to be a special, 

limited category of pricing. Representatives of two manufacturers specifically noted that 

their companies agreed to such prices to help ensure that their drugs were widely used in 

VA hospitals, where many of the nation's physicians receive part of their training. Some 

drug manufacturers have indicated an unwillingness, however, to continue to offer such 

low prices if the FSS is opened to a larger group of purchasers and federal purchasers are 

combined with other types of government purchasers that the manufacturers have 

considered to be part of a separate market. 

Although VA would be negotiating on behalf of a larger market if the schedule was 

opened, the increased market share might not in and of itself improve VA's leverage to 

negotiate lower prices. Drug manufacturers have historically offered different prices for 

the same product to different purchasers largely on the basis of the purchaser's ability to 

"see P.L. 102-585, sec. 603. The act does not cover generic drugs. 

~e nonfederal average manufacturer price is the weighted average price of each single 

form and dosage unit of a drug that is paid by wholesalers in the United States to a 

manufacturer, taking into account any cash discounts or similar price reductions. Prices 

paid by the federal government are excluded from this calculation. 

lOY A contended that some items on this schedule, which includes in vitro diagnostic 

substances, reagents, test kits, and sets, could also increase in price if it was opened. The 

implications of opening this schedule are covered in GAO/GGD-97-33, Feb. 10, 1997. 

liThe cost of drugs covered by the Veterans Health Care Act that had FSS prices below 

federal ceiling prices as of Sept. 30, 1996, was, on average, 52 percent below the 

nonfederal average manufacturer price. See GAOIHEHS-97-60, June 11, 1997. 

3 GAO/T-HEHS-97-171 
38 

influence drug utilization (sometimes referred to as the ability to move market share)Y 

For this reason, volume of sales, while integral to price negotiations between purchasers 

and drug manufacturers, is not the only important consideration. A common technique 

used by large-volume purchasers to influence market share is to establish a formulary. A 

formulary is a list of drugs that a health plan prefers its physicians to prescribe for 

patients. Drugs are included on a formulary not only for their medical value but also for 

their favorable prices. Both inclusion of a drug on a formulary and the drug's cost can 

affect how much it is prescribed and purchased and, therefore, have an impact on its 

market share. Because formularies have the potential to significantly affect the sales of 

drugs, large purchasers that use them have greater leverage in negotiating discounts or 

rebates with manufacturers who want their drugs listed as preferred drugs. However, 

because the FSS is a catalog of prices, not a formulary, VA lacks that kind of leverage. 

If drug manufacturers are unwilling to extend low FSS prices to state and local 

purchasers, VA could experience a "showdown" with manufacturers over price increases, 

which it has not experienced before. Drug manufacturers could respond in several ways. 

First, they could simply refuse to offer their products to state and local purchasers at FSS 

prices, an option that is permitted WIder GSA's current proposal. Representatives of 

several manufacturers told us, however, that they do not consider this option realistic 

because some competing manufacturers would be likely to offer FSS prices to state and 

local purchasers, and no manufacturer would want to concede the potential business. 

Second, drug manufacturers could try to increase FSS prices by raising prices to mostfavored customers to change the base on which prices are negotiated with VA Several 

manufacturers indicated that this option would depend on the size of the market 

represented by all government purchasers. Third, drug manufacturers could attempt to 

negotiate higher FSS prices without linking them to most-favored customer prices. This 

strategy could result in lengthy, difficult negotiations, which VA has not experienced 

before with manufacturers. 

Size of Market Eligible for 

FSS Prices Would Be Key Factor 

The size of the FSS market if the schedule was opened would be a key factor in 

determining what would happen to drug prices. The larger the market, the greater the 

incentive would be for manufacturers to raise FSS prices to limit the impact on their 

business of giving low prices to more purchasers. GSA's proposed implementation plan 

for opening the schedules included participation by a state and any department, agency, 

or political subdivision of a state, including local governments. Representatives of VA, 

PhRMA, drug manufacturers, mGPA, and the Public Hospital Pharmacy Coalition agree 

that unless this definition of an eligible entity is narrowed, the FSS market could expand 

significantly from its current size of about 1.6 percent of domestic pharmaceutical sales. 13 

The Coalition has suggested that GSA's definition be narrowed to limit access to 

FSS prices to state and local government entities that purchase drugs for their own use 

and dispense drugs in their own facilities. The Coalition estimated that defining eligibility 

this way would result in a state and local FSS market of about 4.4 percent of total dollars 

in domestic pharmaceutical sales. a But the market might actually be considerably 

12gee CBO Papers: How the Medicaid Rebate on Prescription Drugs Affects Pricing in the 

Pharmaceutical Industrv (Washington, D.C.: CBO, Jan. 1996). 

13 According to IMS America, a private vendor of pharmaceutical information, in 1996 the 

U.S. pharmaceutical market totaled about $86.4 billion in sales, including sales to federal, 

state, and local government entities. FSS drug sales of about $1.3 billion for fiscal year 

1996 represent about 1.6 percent of U.S. pharmaceutical sales. 

aSee PRIME Institute, College of Pharmacy, University of Minnesota, Section 1666 of the 

Federal Acquisition Streamlining Act: ImPact of Cooperative Purchasing on the 

Phannaceutical Market, prepared for the Public Hospital Pharmacy Coalition (Washington, 

4 GAO/I'-HEHS-97-171 
39 

smaller, according to the Coalition, because some state and local purchasers are subject 

to procurement laws or regulations that would restrict their participation in cooperative 

purchasing. Also, eligible state and local purchasers would not buy all their drugs from 

the FSS because it is likely that not all FSS prices would be lower than other prices 

available to them. If these two assumptions were considered, the Coalition estimated that 

state and local FSS purchases would fall from about 4.4 percent to 0.5 percent of the total 

drug market. Therefore, the Coalition's estimates mean that the total FSS market would 

expand by about 33 to 300 percent if state and local governments are given access to FSS 

prices. 

As for the impact of procurement laws or regulations on state and local 

participation, 27 of 50 respondentsl6 reported in a September 1996 survey we conducted 

that current state competitive-bidding and other laws would limit their use of federal 

supply schedules. IS But most state and local government purchasing officials we 

contacted indicated that they want the option of purchasing items from the schedules. 

How many states and localities would change purchasing laws and regulations so that 

they could participate in the cooperative purchasing program is uncertain. It is also 

uncertain how many and to what extent eligible state and local entities would choose to 

buy drugs through the FSS. 

Although the size of the combined federal, state, and local market that could have 

access to FSS prices is unclear, past federal efforts to lower drug prices for a significant 

market caused many manufacturers to raise prices. Before the Medicaid rebate program 

was enacted in 1990, state Medicaid programs, which represent about 11 percent of the 

domestic pharmaceutical market,17 paid close to retail prices for outpatient drugs. Other 

purchasers, such as hospitals and health maintenance organizations, paid considerably 

less. Under the program, the Congress required drug manufacturers to give state 

Medicaid programs rebates for outpatient drugs on the basis of the lowest prices they 

charged other purchasers. 

After the rebate program's enactment, the prices many large private purchasers 

paid for outpatient drugs increased substantially. IS In particular, prices paid by health 

maintenance organizations rose, on average, more than twice as fast as the year before 

the program. On the basis of its analysis of these price changes for outpatient drugs, 

CBO concluded that, because of the size of the market represented by Medicaid, 

'pharmaceutical manufacturers are much less willing to give large private purchasers 

steep discounts off the wholesale price when they also have to give Medicaid access to 

the same low price .• 19 

D.C.: Jan. 15, 1997). 

I~espondents represented 48 states and 2 territories. 

ISSee GAO/GGD-97-33, Feb. 10, 1997. 

17According to IMS America, in 1995 total sales for the U.S. pharmaceutical market were 

about $77.1 billion. According to the Health Care Financing Administration, Medicaid 

drug expenditures for fiscal year 1995 totaled about $8.4 billion, including rebates. 

ISSee Medicaid' Changes in Drug Prices Paid by HMOs and Hospitals Since Enactment of 

Rebate ProvIsions (GAOIHRD-93-43, Jan. 15, 1993) and Medicaid' Changes in Best Price 

for Outpatient Drugs Purchased by HMOs and HoSPitals (GAOIHEHS-94-194FS, Aug, 5, 

1994), 

19See CBO Papers. 

5 GAOIT-HEHS-97-171 
40 

FSS PRICE CHANGES WOULD AFFECT 

GOVERNMENT PURCHASERS DIFFERENTI..Y 

Although it is uncertain how FSS prices would change if the pharmaceutical FSS IS 

opened, the factors involved in negotiations between VA and drug manufacturers have the 

potential to produce, in general, an upward pressure on FSS prices. 

For VA and Other Federal Purchasers, Impact 

of Anv FSS Price Increases Would Vary 

If FSS prices rise after the schedule is opened, all federal purchasers could pay 

higher FSS prices for many drugs covered and not covered by the Veterans Health Care 

Act. About 73 percent of the roughly 22,800 drugs on the FSS are not covered by the 

act.2O However, these drugs represent a smaller portion of federal expenditures because 

they are primarily generic equivalents of brand-name drugs. A VA official estimated that 

about three-quarters of VA's total drug expenditures are for covered drugs. For these 

drugs, VA and the three other protected federal agencies would not have to pay FSS 

prices that are higher than the FCPs. But as figure 1 shows, they may have to pay more 

for the 8 percent of all FSS drugs that currently have FSS prices below their ceiling 

prices if prices rise to or above the FCPs. The FSS prices for these drugs are, on average, 

about 28 percent below the FCP. 

Figure I FSS Price RelatIve to the FCP for Schedule Drugs as of Septt'mbt'r 30, 1996 

r---- FSS Price Above Fep 

~'5001~ % 

FSS Price Same as Fep 

'----- 8.0% FSS Pnce Below Fep 

FSS Price Not Subject to Fep 

o Not Covered by the Veterans Health Care Act 

o CoverOO by the Veterans Heatlh Care Act 

Note: Percentages are based on the number of FSS products, rather than on FSS 

expenditures. 

Source: VA data 

In February 1996, VA presented GSA its analysis of the potential effects of opening 

the pharmaceutical schedule on FSS prices and VA drug costs, taking into consideration 

WAs of Sept. 30, 1996, the FSS included 22,828 products-6,243 were covered drugs and 

16,685 were not covered. 

6 GAOtr-HEHS-97-171 
41 

the protection the Veterans Health Care Act provides VA against drug price increases. On 

the basis of discussions with representatives of numerous drug manufacturers, VA made 

two key assumptions in its analysis about the potential effects of opening the 

pharmaceutical FSS: (1) drug manufacturers would eliminate FSS pricing for all drugs not 

covered by the Veterans Health Care Act, forcing federal purchasers to buy these generic 

drugs at higher wholesale prices, and (2) FSS prices for all drugs covered by the act 

would rise to their FCPs. 

VA applied those two assumptions to drug purchases it made during the first 6 

months of 1994.21 According to VA, it spent about $37.8 million on 4,877 generic drugs 

not covered by the act. If it had purchased the same drugs at wholesale rather than FSS 

prices, VA estimated that it would have paid over $79.7 million, or about 111 percent 

more. In the same period, VA spent about $118.3 million on 911 brand·name drugs that 

were covered by the act and that had FSS prices below their FCPs. Had the 

manufacturers of those drugs ralsed the FSS prices to their FCPs, VA estimated that it 

would have paid over $152.9 million, or roughly 29 percent more. Thus, VA calculated 

that, on an annualized basis, the impact of giving state and local govenunents access to 

the FSS would have been a $153.1 million increase in its yearly drug expenditures. 

Those federal purchasers that, unlike VA, have no protection from the ceiling 

prices established by the Veterans Health Care Act would pay full FSS prices on all drugs 

bought from the schedule. As of November 1996, only 25 of 162 drug manufacturers had 

FSS prices that were above the FCP. But, manufacturers may offer purchasers not 

protected by the act prices above the FCP. Representatives of several drug 

manufacturers told us that their companies would consider this option attractive if the 

phannaceutical schedule was opened because it would allow them to offer prices above 

the FCP to state and local purchasers. Federal purchasers not protected by the celling 

prices would pay the full amount of such price increases. 

The potential impact of FSS price increases on different government purchasers 

when purchasing from the pharmaceutical schedule is summarized in table I. 

21According to VA, calculations were based on actual contract purchase prices from VA's 

prime vendor network from Jan. 1 through June 30, 1994. 

7 GAO/f·HEHS-97·171 
42 

Table I: Potential Effects of FSS Prtce Increases on FSS Prtces Paid by Government 

Purchasers 

FSS price paid 

Purchaser Before FSS opened After FSS opened Implications 

VA, DOD, Public Lower of FSS or FCP Lower of FSS or FCP FSS prtce for 8% of 

Health Service, for covered drugs; for covered drugs; drugs could mcrease 

and Coast Guard FSS for drugs not FSS for drugs not up to FCP; FSS prtce 

covered covered could increase for 

many drugs not 

covered. 

Other federal FSS FSS FSS prtces could 

government increase for many 

entities drugs covered and not 

covered. 

State and local Not applicable- FSS FSS prtces, even if 

government negotiated prtces they increase, could be 

entities lower than prtor 

negotiated prtces; if 

they are not, 

purchasers could try 

to negotiate lower 

prtces. 

Note: For the purpose of this table, federal purchasers are considered to be dependent on 

purchasing many of their drugs from the FSS rather than from alternative sources. 

State and Local Purchasers 

Could Choose Between 

FSS and Oilier Drug Pnces 

Openmg the pharmaceutical schedule would give state and local purchasers the 

choice of buying drugs from the FSS or from other sources. The Public Hospital 

Pharmacy Coalition contends that state and local purchasers would benefit from having 

access to the schedule and manufacturers would have little incentive to raise FSS or 

other drug prtces because 

a manufacturer's participation in the cooperative purchasing program is voluntary, 

thus allowing a company to opt out of the program if it anticipates any adverse 

economic consequences; 

if a manufacturer concludes that it must participate in the program for competitive 

reasons, the same competitive forces will keep prtces from rtsing; 

the potential size of the state and local market will be small, given the Coalition's 

proposal for determining eligibility to access FSS drug prtces; and 

market size is but one of many factors drug manufacturers consider in developing 

drug prtcing strategies. 

Assuming negligible adverse effects on FSS prtces if the schedule is opened, the 

Coalition anticipates considerable financial benefits for many state and local purchasers. 

For example, a Coalition analysis of the differences between FSS prtces and the prtces 

nine public hospitals paid for the 100 drugs each hospital spends the most on showed that 

8 GAOII' -HEHS-97 -171 
43 

FSS prices, on average, were lower than the hospitals' purchase prices for about 83 

percent of the drugs. 22 FSS prices were, on average, about 17 percent lower than the 

prices the hospitals paid. 

If the phannaceutical schedule is opened and FSS prices rise, the extent to which 

state and local government purchasers could benefit is unclear. The drug prices paid by 

the hospitals in the Coalition's analysis show that many FSS prices could rise and still be 

lower than what some state and local purchasers currently pay. If FSS prices remained 

higher than what state and local purchasers were accustomed to paying, they could try to 

negotiate better prices for themselves. However, the incentive for a drug manufacturer to 

negotiate a price below the FSS price would be limited because the negotiated price could 

become the most-favored customer price and, thus, potentially affect the manufacturer's 

FSS price negotiations with VA In any case, VA and other federal purchasers would still 

face an increase in FSS prices. 

Mr. Chairman, this concludes my prepared statement. I would be pleased to 

respond to any questions you or Members of the Subcommittee may have. 

(108338) 

~e analysis was based on FSS and hospital purchase prices as of Oct. 1, 1996. 

9 GAOrr-HEHS-97-I7I 
44 

STATEMENT OF THOMAS L. GARTHWAITE, M.D. 

DEPUTY UNDER SECRETARY FOR HEALTH 

DEPARTMENT OF VETERANS AFFAIRS 

BEFORE THE 

SUBCOMMITTEE ON HEALTH 

OF THE 

COMMITTEE ON VETERANS' AFFAIRS 

HOUSE OF REPRESENTATIVES 

JULy 10, 1997 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here to discuss legislat~on on the 

subcommittee's agenda. At the subcomm~ttee's request, Mr. 

John Ogden, Chief of Pharmacy Benefits and the Strategic 

Health Group will d~scuss issues associated with making the 

Federal Supply Schedule (FSS) available for use by State and 

local governments, and Dr. Robert Rosenheck, Director of VA 

Northeast Programs Evaluation Center, will discuss the 

effectiveness of VA's homeless programs. 

The draft bill addresses three different matters. F~rst, it 

contains provis~ons that would clarify, consolidate and 

codify various VA programs to assist homeless and 

chronically mentally ~ll veterans. Second, the b~ll would 

make permanent VA's authority to prov~de non~nstitut~onal 

alternat~ves to nurs~ng home care. Finally, ~t conta~ns 

provisions pertaining to the treatment of Persian Gulf War 

veterans. 

I. HOMELESS PROGRAMS 

The draft bill would include several different prov~sions 

pertaining to VA's healthcare programs for eligible homeless 
45 

veterans. First, it would consolidate and codify in a new 

subchapter of chapter 17 of title 38, United States Code, 

authority for several VA homeless activities . It would 

prov~de clear authority for VA to furnish care and services 

to veterans with ser~ous mental illness, many of whom are 

also homeless. This provision would replace a patchwork of 

currently existing programs, several of wh~ch are authorized 

in Public Laws, not in title 38 , United States Code. 

The new authority would replace ex~st~ng law authorizing 

VA's contract program for treating veterans with drug and 

alcohol abuse disabilit~es in halfway houses and communitybased facilit~es. That program would remain entirely 

unchanged. It would also codify authority for VA's program 

for Homeless Chron~cally Mentally III Veterans (HCMI ) . 

Current public law authority for that program would be 

allowed to exp~re at the end of this calendar year. 

With respect to VA ' s Compensated Work Therapy/ Transitional 

Residence Program (CWT/TR) , ~t would codify authority for 

the program in a new section of title 38, which would 

include most of the provisions currently ~ncluded in a 

Public Law provision that now authorizes the program. Of 

note, it would make the program permanent, lift a cap on the 

number of fac~lities VA may operate, and eliminate several 

unnecessary and unworkable provisions in the Public Law . It 

would also ~mpose new requirements on residents that they 

submit to drug testing and require discharge from the 
46 

facility for use of illegal substances. Finally, it would 

retain the requirement that VA use General Post Funds to 

acquire new properties, but would add a new cap on VA 

expenditures for facilities at $500,000 per year. 

The draft bill would add another new section including 

provisions that mirror most of the provisions included in 

the Public Law that authorizes VA's CHALENG Program. It 

also clarifies VA's author~ty to work jo~ntly with State and 

local governments, other Federal agenc~es, and 

nongovernmental organizations to assist homeless veterans. 

It would add new requirements that VA thoroughly evaluate 

the effectiveness of all of the homeless programs 

consolidated in the new subchapter. Finally, it would 

consolidate existing reporting requirements into one annual 

report addressing all of the homeless programs. 

We strongly support the proposed clarificat~on, 

consolidation and codification of authority. Substance 

abuse is a s~gnificant problem among VA patients, many of 

whom are also homeless. Approximately seventy percent (70%) 

of homeless veterans currently treated by the VA suffer from 

substance abuse problems, while 50 percent (50%) suffer from 

other ser~ous mental health problems. Some suffer from 

both. Commun~ty-based residential care has long been known 

to be an effective component in the continuum of care for 

homeless veterans with substance abuse and psychiatric 

disorders. It would be appropriate to codify these 

authorities which specifically target the same subpopulation 
47 

of veterans and rely on the same community-based resources 

to provide the needed long-term medical treatment and 

rehabil~tat~on. 

For those same reasons, it is appropr~ate to codify VA's 

authority to provide transitional residential care to 

participants of VA's compensated work therapy (CWT) program. 

The CWT program also serves veterans with physLcal, 

psychiatric and substance abuse disorders, many of whom are 

homeless. In fact, at some locations, the CWT program has 

been integrated into a residential rehabilitation model for 

homeless veterans. Hence, the authorities at issue here 

again serve many of the same veterans. 

We also support the consolidation of reporting requirements 

pertaining to programs that serve homeless veterans. 

Currently, VA must provide reports on d~fferent aspects of 

these programs on dLfferent dates. It would be much simpler 

and more thorough to report to Congress in one s~ngle 

report. 

Another provision of the draft bill would extend VA's 

Homeless Providers Grant and Per DLem Payment Program for 

two years, while also requiring VA to formally evaluate the 

effect~veness of programs established us~ng the grants. It 

would also lift caps on the number of grants VA may make to 

homeless provLders for use in funding new service center 

projects and for the purchase of vans. We strongly support 

extending authority for this important program. It has been 
48 

successful in assisting public and non-profit entities 

establish new programs to furn~sh supportive services and 

housing services for homeless veterans. We also have no 

objection to the proposed requirement that VA formally 

evaluate the effectiveness of the programs funded by these 

grants. We would urge the subcommittee to consider adding 

provisions to the draft bill that would allow VA to 

recapture grant funds from recipients ~f they cease to 

continue using facilities established with grant funds for 

the purpose of ass~sting homeless veterans. 

II. NONINSTITUTIONAL ALTERNATIVES 

TO NURSING HOME CARE 

The draft b~ll would also include a provision to permanently 

authorize VA to furn~sh veterans with noninstitutional care 

as an alternative to nurs~ng home care . VA currently uses 

this author~ty to furn~sh many veterans with health-related 

services through contracts with appropriate public and 

private agencies. This enables many veterans to continue 

living in their homes when they would otherwise have to 

receive care in much costlier nursing home settings . We 

support continuation of this authority which provides an 

alternative means for providing veterans with a full 

continuum of care . 

III. TREATMENT OF PERSIAN GULF VETERANS 

The draft bill includes three separate provisions pertaining 

to the care of Persian Gulf War veterans. It would create a 

new program under which VA would fund demonstration projects 

that use novel approaches to treat Persian Gulf War veterans 
49 

with undiagnosed and ill-defined disabilities. An 

additional goal of the program would be to improve the 

veterans' satisfaction with the VA care they receive. More 

specifically, the legislation would require VA to make 

$5 million dollars available from appropriated funds to 

establish the demonstration projects at up to ten 

geographically d~spersed VA medical centers . VA would 

establish the projects no later than July 1 , 1998 . VA may 

use any number of different models, but must use three 

specific treatment models specified in the draft bill . Each 

of these three models must be used at least twice . They 

are: a spec~alized clin~c serving Persian Gulf War 

veterans; a multi-disciplinary treatment approach a~med at 

managing symptoms; and a case-management approach. The 

projects may be undertaken in conjunction with DOD pursuant 

to sharing authority . 

The proposal envisions having VA facilities compete to 

conduct demonstration projects. Before the Secretary could 

select a site for a demonstration project, a peer review 

panel would have to determine that the facility's proposal 

meets the highest competitive standards of scientific mer~t. 

The Secretary would also be required to determ~ne that the 

fac~lity has the ability to attract the partic~pation of 

clinicians of outstanding caliber and innovation to the 

projects, and that it has the abil~ty to effectively 

evaluate the project . Special priority would be given to 

those facilities which have demonstrated a capability to 

compete successfully for extramural funding support for 
research into the effectiveness and cost-effectiveness of 

the care provided under the demonstration projects, for 

example possibly including randomized clinical trials 

involving health outcomes. 

We support this measure, although we do not bel~eve that 

legislation is necessary to establish the proposed clinical 

treatment program. At present, we generally treat Persian 

Gulf War veterans' unexplained ~llnesses symptomatically in 

accordance with accepted medical standards and practice, 

given the limits of scientific and medical knowledge in this 

area. We agree, however, that some non-traditional modes of 

medical treatment may indeed play a valuable role in the 

care and treatment of these veterans. Importantly, the 

proposed legislation would provide Congressional sanction 

for use of medical care funds to provide non-traditional, 

innovative, but scientifically and ethically sound medical 

treatments to expand and improve our clin~cal understanding 

and handling of these patients' complex medical conditions. 

Another provision ~n the draft bill would make a Persian 

Gulf War veteran eligible for care for ~ condition that 

might be associated with the veteran's service in the 

Persian Gulf. Currently, these veterans may receive care 

only for disorders that may have resulted from exposure to a 

toxic substance or environmental hazard. Finally, it would 

clarify VA's obl~gation to verbally inform and counsel 

Persian Gulf War veterans concerning the Persian Gulf 

Registry examination results. 
51 

We support expanding Persian Gulf War veterans' eligibility 

for priority h~althcare because it would allow us to attend 

to all of their medical conditions that may be associated 

with their service in the Gulf. In th~s way, Pers~an Gulf 

veterans would receive a more complete and coordinated 

treatment regimen through a continuum of care. We also 

agree that it is appropriate for VA to verbally counsel 

veterans regard~ng the results of the Persian Gulf Registry 

examinat~ons. 

That concludes my statement. I will be happy to answer your 

questions. 
52 

Statement of 

Robert Rosenheck, M.D. 

Director, VA Northeast Programs Evaluation Center 

before the 

HVAC, Subcommittee on Health 

July 10, 1997 

I am Robert Rosenheck MD, Director of VA's Northeast Program 

Evaluation Center (NEPECj and professor of Psychiatry at the Yale University. 

Since 1987, I have been responsible for evaluating several hundred specialized 

VA programs that provide assistance to veterans who are. homeless and 

mentally ill. 

Using a well-documented count, based on formal clinical assessments, 

these programs have treated over 200,000 homeless veterans, thus far, and 

over 30,000 during the last year, alone. These are unique programs. They are 

reaching out to homeless veterans in places that VA professionals have not 

typically gone. In the last 12 month, we reached out to over 20,000 homeless 

veterans in shelters and soup kitchens, under bridges and in airport terminals 

and bus stations. This outreach work is difficult, however, we have not gone at 

it alone. Shoulder to shoulder with community partners we have struggled to 

overcome the obstacles that exist and to make services available to veterans 

who have great need of them. A special program, the Community 

Homelessness Assessment, Local Education and Networking Group (CHALENG) 

for Veterans Program, was developed to systematically link VA and non-VA 

homeless service providers at every VA facility in the nation. In 1996, over 

3 ,700 representatives from other Federal agencies, state and local governments 

and non-profit organizations worked with VA staff to identify the needs of 

homeless veterans in each community and develop action plans to meet those 

needs. 

The services we provide are diverse. First we offer residential treatment -

- over 6,000 episodes in FY 1996 -- to grant a safe haven where healing and 

rehabilitation can begin. In over 1,000 VA domiciliary beds; In over 120 

homelike residential treatment facilities; and in scores of transitional 

residences we help veterans to regain their health, their confidence and their 
53 

hope. We provide medications to ward off frightening hallucinations and 

morale sapping depression; we provide behavioral weapons for the fight against 

addiction; and we provide therapeutic work opportunities in special programs 

some of which are linked to VA owned transitional residences. These programs 

rebuild a sense of responsibility, pride, and motivation. Just this week one of 

the major national mental health journals published a research study showing 

that over 60% of severe alcoholic patients in VA's Compensated Work 

Therapy /Transitional Residence Program were totally sober during the first 

three months after discharge -- their most vulnerable period. The study 

showed that what helped these veterans to stay sober were those elements of 

the treatment program that required them to take responsibility for themselves 

-- to work, to pay rent, to have their urine tested for substance use, in addition 

to therapy. Finally we provide links back to the community -- to real 

apartments and real jobs. On an average day 600 VA employees are formerly 

homeless veterans who have worked their way back into the labor force -- and 

earned jobs with the VA. We do not stop there. We keep in touch with these, 

now formerly homeless veterans - for months or years -- to keep recovery, 

rehabilitation and restoration on track. 

These are our goals, however, we have to assure that our programs are 

delivering the services required and accomplishing the desired results. 

For the past decade, I have been applying the tools of science to the 

enterprise of helping homeless veterans. It has been my job to track the 

outcomes of VA programs that assist homeless veterans. The Congress wrote 

my job into Public Law 100-6 on February 12, 1987. You said, "Evaluate this 

program and tell us whether it is effective.· Our reports, ten of them, submitted 

over as many years, have documented what we have accomplished, what we 

have learned, and how we have used the data to make the program better 

veteran by veteran, year-by-year. 

This has not been an easy task. Social workers under bridges are not 

always in the best position to fill out data forms. Case managers and 

residential treatment providers find it unusual to have their patients evaluate 

their efforts as professionals. And VA administrators had not been used to 

getting an annual report card showing precisely how they spend the funds they 

were given for these programs, and how their programs performed in 

comparison with others around the country. These report cards include 21 
54 

critical monitors which address four core performance issues. Are the 

resources being deployed as intended? Are the veterans seen by the program 

truly homeless and in medical need? Are they getting the intended services? 

And are they better when they finish the program? Every program in the 

country knows where they stand on those measures. 

Now, ten years later, after lining up the columns and checking the 

figures we can say with confidence. -- the job was done -- we did what we said 

we would do --- services were delivered -- the lives of veterans are better. 

In 1987, there was widespread concern about the re-emergence of 

homelessness in America. How could it be that at a time of economic recovery 

we suddenly had such an expansion of homelessness? And how could it be 

that 30% of the homeless were veterans? You didn't wait for an answer to the 

"why" questions. You said this was wrong and funded a program -- but you did 

not just throw money at it and leave it at that. You gave us only six months of 

funds and said, ·Show us what you can do -- then we'll see.· 

We set out to make good on our assignment - beginning in 43 cities. We 

came back in 6 months and showed you the results -- we had reached out to 

some 4,000 homeless veterans -- and we showed you that 30%- of them had 

served in combat -- in World War II and Korea as well as in Vietnam. 

These homeless veterans served their country and now they have fallen 

on hard times. They have serious mental illnesses - 10% have schizophrenia, 

10% have PTSD, 50% have substance abuse problems. They are poor - their 

average income is less than $200 per month. They are alone - over 90% are 

not married. And they are stigmatized. Over half have been in prison. But 

they want help. Over 90% say they want what we have to offer them. 

In our first reports we showed you that about 50%-60% of the seriously 

mentally iii veterans who completed our programs were well situated with 

housing, jobs and health care when they completed the residential phase of 

treatment. That record has improved over the years. Last year 45% were 

employed or in training and over 70% showed improvement in substance 

abuse. 

In an intensive study, published two years ago, we followed-up 400 

veterans with detailed interviews every three months for a full year after we 

first met them -- and showed that the improvements we saw at first were 
55 

lasting. We saw 25% reductions in psychiatric symptoms, 40% -reductions in 

substance use, and a doubling of employment. 

We also presented detailed cost data an the program. The treatment you 

funded was not inexpensive. But the veterans we served had been using 

extensive VA services even before entering our program, even though those 

services had not gotten them out of homelessness. As a result the incremental 

cost of the program is relatively modest, about $2,200 per veteran per year. 

After the first two years of the program we summarized our scientific 

data and brought in a panel of outside experts to review our work. They said 

we had made a good start, but recommended that we strengthen our links 

with community providers and with other federal agencies. In response, we 

joined with Department of Housing and Urban Development (HUD) to develop 

a supportive housing initiative for veterans - linking experienced VA case 

managers with HUD section 8 vouchers. Our evaluation shows it works. 

What we call the HUD-VA Supported Housing Program (HUD-VASH) has 50% 

better housing outcomes than our standard program. 

With the Social Security Administration (SSA) we developed an outreach 

program for veterans who were ineligible for VA benefits -- but who qualified 

for Supplemental Security Income (SSI). We doubled the application rate to 

SSI for this category. And we have shown that these desperately needed 

monetary benefits do not increase substance abuse - even among veterans 

with serious alcohol and drug problems -- but that they do increase good 

housing outcomes. 

We established a grant and per diem program and have received 350 

proposals during the first 3 rounds of grant applications. We distributed 

more than $17 million to help community providers in 19 VlSN s in 32 states 

and the District of Columbia established supportive housing and supportive 

service centers for homeless veterans. These funds will support 1,700 new 

supported housing beds, 8 service centers and 3 mobile treatment units. In 

addition, we awarded funding for 20 vans during the first 2 years of the grant 

program to assist non-VA organizations conduct outreach and provided 

transportation to homeless veterans. And we expanded our performance 

monitoring system so that our community partners would benefit from it, as 

well. 
56 

VHA is now changing. Authority is decentralized. Specialization is deemphasized. Hospital care is de emphasized and outpatient care is becoming 

the norm in VA, as well it should. Every year we conduct a survey of 

home1essness among inpatients in the VA system. This year, once again, we 

found that 31% of all mental health inpatients in the VA system were 

homeless at admission -- 1,800 veterans every day, although we are now 

treating far fewer veterans on an inpatient basis. These changes, have 

significantly increased the need for specialized community-based programs 

because standard outpatient care is not easy 'to use if you are homeless. 

Hospital care, among the homeless was more than just a place to get intensive 

treatment. It was a place to begin treatment altogether. Assertive 

community-based treatment, in lieu of hospital treatment, is more important 

than ever before. Anything less is inadequate. 

The homeless problem has not gone away. In FY 1996 we saw 4,500 

more homeless veterans than in FY 1995. The need for accountable services, 

for carefully monitored services, and for community-based services for 

homeless veterans is greater than ever. Federal and state funding cutbacks 

have reduced services available from community providers and. bed capacity is 

being cut back in every health care system in the nation. 

Our data suggest that in the absence of systematic community-based 

outreach services homeless veterans who need effective treatment will not get 

it. Without such services they will still come to the VA Emergency Room when 

they are in crisis. And they will still come to the hospital when their conditions 

deteriorate gravely, but they will be admitted only very briefly, because hospital 

slays are declining rapidly -- by over 10% in the last year alone. They will 

come to VA when they are in crisis, and we believe that our community-based 

services will help them get out of homelessness by providing specialized 

residential and clinical supports specific to their unique circumstances. 

The techniques of modern managed care will not do for homeless people 

with severe mental illness. Behavioral health care f1l'Ills have not been dealing 

with homeless mentally ill veterans, or with homeless non-veterans for that 

matter. In most places they left this difficult work to VA and to our community 

partner. The practice of clinic based primary care with its proper emphasis on 

continuity and accessibility will just not work for people who sleep on steam 
57 

grates and who come to the hospital needing more than prescriptions and 

stitches. 

I believe we have demonstrated the effectiveness and the high level of 

accountability that goes with these VA programs. We have demonstrated a 

capacity for flexibility, for growth, and for creativity. And we have 

demonstrated, year after year, the need for these specialized services. I can not 

tell you why, but I can tell you for sure, that the triumphs of Wall Street are 

not changing the situation of homeless veterans on Main street, or Market 

Street, or Broadway. 

We are proud of our accomplishments dunng the past decade and are 

prepared for the challenge of the next decade. I want to thank you, both 

personally, and on behalf of the veterans who have been helped, for your 

commitment to them and for your determination that this job be done -- and 

done well. 
58 

Testimony Presented to 

US House of Representatives 

Committee on Veterans' Affairs 

Sub-Committee on Health 

By 

Robert R. Piaro, Chair 

Veterans Organizations Homeless Council 

July 10, 1997 

Mr. Chairman and members of the sub-committee, my testimony on US 

Department of Veterans Affairs (OVA) programs has been requested by the Honorable 

Cliff Stearns, Chair Subcommittee on Health, US House of Representatives, for the 

hearing to be held on July 10, 1997. This testimony is specific to VA programs that 

address the need of homeless veterans andlor veterans who suffer from chronic mental 

illness. 

In accordance with the rules of the House of Representatives, I state that to the 

best of my knowledge neither I nor any of the organizations, with which I am affiliated 

receive operating or administrative funds from any Federal grant or contract program at 

this time nor have we in the past two fiscal years. 

Likewise, in accordance with the Rules, I have included the following curriculum 

vitae for the purpose of the record. 

I am presently the Chair of the Veterans Organizations Homeless Council 

(VOHC) and at this hearing I represent the following veterans service organizations, 

Vietnam Veterans of America, Inc., AMVETS, The America Legion, The Blinded 

Veterans Association, Jewish War Veterans, Paralyzed Veterans of America and 

Veterans of Foreign Wars. 
59 

VOHC has met over the last two years with the conunon goal of improving the 

situations of homeless veterans throughout the United States. VOHC endorses programs 

and legislation designed to help improve the lives of an estimated more than 250,000 

homeless men and women who served this country in times of peace and war. 

As a member of the council, I am exposed to many reports concerning the plight 

of homeless veterans. Many of these reports deal with the limitation on services either 

from public social services or, for those Veterans who do not have service-connected 

disabilities, the US Department of Veterans Affairs. 

I am also President and Chief Executive Officer of the Veterans Assistance 

Foundation, Inc., (V AF) a non-profit 50I-(c)(3) corporation founded in 1994. The VAF 

currently receives grant funds from the Wisconsin Department of Veterans Affairs 

(WDVA) to operate three full-service homeless veterans' assistance centers in 

Wisconsin. In this capacity, I and VAF staff have direct contact with up to 90 homeless 

veterans on any given day providing shelter, meals, limited counseling and full-time, 

non-clinical case-management services. Since accepting the first contract with WDV A, 

our V AF staff have worked in some capacity with over twenty-five hundred homeless 

~eterans and provided residential services to over five hundred veterans at our three 

Wisconsin Veterans Assistance Centers. 

As a disabled veteran myself, I have received treatment from various V A Medical 

Centers for nearly thirty years. I have seen the VA medical "system" and the level and 

quality of care given to veterans change over the years. I truly wish I could say that all 

the changes I have witnessed have been for the better. Good and bad programs have 

come and gone as have good and bad doctors and other _ .edical staff. We do need time 

to see how the newest change - VISN networks - will work in the overall program. 

Those hit the hardest by the latest changes may be those who were once targeted 

as high-priority cases - the homeless. Included are veterans who cannot establish a 

service-~onnected disability, as well as veterans who suffer from chronic substance abuse 
60 

problems, the lingering effects of PTSD and other mental illness, or a host of other minor 

physical ailments. 

I have been asked to prov;de testimony specifically regarding the V A programs 

Homeless Chronically Mentally III (HCMI), Compensated Work Therapyrrransitional 

Residence (cwrffR), Homeless providers and Per Diem Grant and the VA's contract 

program for halfway houses for veterans with substance abuse problems. 

The Veterans Assistance Foundation in Madison, Wisconsin, has a very close 

association with Community Support Program (CSP), a facility which is operated under 

the HCMI. The V AF and CSP staff have worked very closely since the foundation 

opened in Madison in April 1996. In fact, CSP staffhas provided office space to V AF 

staff since the opening date. Likewise, CSP clinicians have provided support services for 

veteran's eligible under HCMI criteria that have been residents of the VAF. 

Additionally, CSP staff has provided the means for the V AF staff to access computer 

records regarding veterans as non-compensated V A employees. 

The association between CSP and the V AF staff and residents has been truly 

"seamless," a term used in many partnerships between V A and non-VA personal 

providing services to disadvantaged veterans. The HCIM staff in Madison is a 

compassionate group dedicated to helping improve the lives of veterans who place 

themselves in CSP care. This program has had nothing but a positive influence on the 

many veterans it has served, homeless or otherwise, who suffer from chronic mental 

illness. 

The VAF Fort McCoy, Wisconsin actively participates in V AMC Tomah 

CWTffR programs. From the beginning of the V AF's involvement there has been 

nothing but continuing success story on how this program has worked and how it has 

been getting better every day. The work experience that cwrrrA gives these veterans 

only helps to reinforce their work habits, which leads to gainful employment for the 

veteran. 
61 

In summary, there is a continuing need for the CWTrrR program to be funded, in 

order for these veterans to transition into maiI~ stream America with gainful employment. 

I have had no dealings with the VA's Transitional Residence programs, so I am 

unable to address that issue at this tiIne, but we do support this program for funding. 

The Homeless Provider Grant and Per Diem program has been the only true 

homeless veterans' money available to homeless veterans' providers around the country. 

Each year OVA is working on making this grant user friendly, but the biggest worry 

around the country is the funding of this program, each year it has had a declining budget 

(down in 1997 to 3.8 million dollars from 5.5 million dollars in 1996). This money has 

made possible Community Based Organization and the OVA to form partnerships all 

around the country, which has proved that they work. 

In summary, The Homeless Veterans Providers Grant and Per Oiem Program, are 

the only true Homeless Veterans specific money left in America. The funding of this 

program is the lifeline to the homeless veterans in America 

The OVA's Contract Program for Halfway House Care for Veterans with 

Substance abuse problems, has been a very successful program, V AF has seen the 

effectiveness of this program and has had a very good working relationships with VA 

contract halfway houses. 

We believe that the operation of the VA contract halfway house is a very positive 

factor in the lives of many of the homeless veterans in America. 

In summary, the above mentioned programs I have discussed in this testimony 

should receive recommendations for continued and additional funding from the US 

House of Representatives Committee on Veterans Affairs, there are many veterans in 

America that depend on these programs. 

I very much appreciate this opportunity to provide testimony in the areas 

requested by the Honorable Mr. Sterns before the US House of Representatives 

Committee on Veterans Affairs. 

44-89597 - 3 
62 

U. S. HOUSE OF REPRESENT A TIVES 

COMMITTEE ON VETERANS' AFFAIRS 

SUBCOMMITTEE ON HEALTH 

JULY 10, 1997 

TESTIMONY OF 

MS. LINDA BOONE 

EXECUTIVE DIRECTOR 

NATIONAL COALITION/or 

HOMELESS VETERANS 
63 

CURRICULUM VITAE 

Linda Boone, Executive Director, National Coalition/or Homeless 

Veterans took over the management of this national organization in April 

1996. Although she is a native of Oregon, she came to DC after two years 

in Little Rock, Arkansas as executive director of a state wide association of 

nonprofits. 

Linda's efforts for veterans issues started in 1969 as a volunteer in her local 

community. In 1990 she became aware of the growing crisis of homeless 

veterans and began her advocacy for these veterans. In September 1993 

Linda completed a year as National President of the one-million member 

American Legion Auxiliary. 

FEDERAL GRANT OR CONTRACT DISCLOSURE 

The National Coalition for Homeless Veterans has not received in Federal 

funding in FY97 (Oct. I, 1996- Sept. 30, 1997) to date. 

In FY96, NCHV received $4, 999 from the Department of Veterans Affairs 

for a "Stand Down 94 Survey". 

In FY95, NCHV received $228,232 from the Department of Veterans 

Affairs as a sub-grantee for an AmeriCorps project for homeless veterans. 
Chairman Stearns and Committee memben: 

The National Coalition for Homeless Veterans (NCHV) is committed to assisting the men 

and women who have served our Nation well to have decent shelter, adequate nutrition, 

and acute medical care when needed. NCHV is committed to doing all we can to help 

ensure that the organizations, agencies, and groups who assist veterans with these most 

fundamental human needs receive the resources adequate to provide these services to 

perform this task. Our veterans served us faithfully, often heroically. Each of us can do 

no less than to do our part to ensure that these men and women are treated with dignIty 

and respect. 

NCHV believes that there is no generic and separate group of people who are 

"homeless veterans" as a permanent characteristic. Rather, NCHV takes the posltton 

that there are veterans who have problems that have become so acute that a veteran 

becomes homeless for a time. In a great many cases these problems and difficulties are 

dIrectly traceable to that individual's experience in military service or his or her return to 

CIvilian society. 

The specific sequences of events that led to these American veterans being in the state of 

homelessness are as varied as there are veterans who find themselves in thiS condllJon. 

Given our clear and unshakable obligation as Americans to our veterans, we must find 

ways to do a better Job with diminishing resources. 

It is clear that the present way of organizing the delivery of vitally needed services has 

failed to assist at least the 400,000 veterans who are so overwhelmed by their problems 

and difficulties that they find themselves homeless for at least part of the year (an 

estimated 275,000 on any gIven night), not to mention the many thousands more who 

have not yet reached bottom. 

The transmutation of the Veterans Health AdministratIOn of the United States Department 

ofYeterans Affairs (VA) from a traditional hospital facility-based system into a "services 

oriented" system that is organized into the 22 "Veterans Integrated Services Networks" 

(Y/SNs) have produced significant reductions in services needed by many veterans, 

particularly homeless veterans. 

The reductions and cunailment of services are perhaps most drastIC in neuro-psychlatric 

care. Inpattent care for Post Traumatic Stress Disorder (PTSD) has been drastically 

reduced in both durallon and availability. Many mental health and substance abuse 

treatment programs have been eradicated, effectively eliminated, or dramatically 

truncated 

NCHV strongly supports the portion of this bill requiring each medical center to make an 

assessment of needs and services available. We would further request estabhshment of 

specific requirements or expectations for each VISN to partIcipate in homeless veteran 

initiatives. In the February 7, 1996 repon on the FY95 End-of Year Survey of Homeless 

Veterans in VA Inpatient and Domiciliary Care Programs. done by NEPEC, found "23% 

ofall inpatients had been homeless at the time of their admissions". Currently, with the 

exception that each medical facility have a homeless coordinator, participation by 

individual YAMC is voluntary for homeless initiatives. This seems a gross neglect of 

almost one-fourth of the patients within the VHA. Additionally as further noted in the 

NEPEC report, this population is "more likely to need inpatient admission to get their 

treatment started". 

l\raf'Olr.1J Cna/lIlOn {OI Homele\'I "elerans 

T"lflmonl lorJ"/, /0, /V97 
65 

With these significant cuts occurring throughout the nation we urge this committee to 

examine the strategy of "reinvestment" of the "savings" achieved through the reordering 

of the way the health care services are delivered. Specifically we would like to see 

language to ensure that a portion of those resources saved are reinvested to meet unmet 

needs, not simply reassigned to some other type of care. We believe a required percent 

reinvestment should be set forth from the program dollars that have been and will be cut 

in each VISN. 

Many community based organizations (CBOs) have a strong record of performance in the 

delivery of services to veterans in the most vital need, and could do a great deal more 

inpatient care if the resources were available to meet those unmet needs of veterans. 

CBOs are a vital link in any continuum of care chain, particularly in an era when there IS 

such concern toward finding the most cost effective means possible for meeting the vital 

needs of veterans in each community, while preserving the highest standards of qual ity 

care. 

Traditionally, VA has always been reluctant to contract out any delivery of health care 

services, except with Medical Schools. However, It is clear that the old paradigms do not 

apply in this rapidly changing environment. No longer can the V A be all things to all 

veterans, fulfilling every role. The VHA must do what it does best, providing front line 

clinical support, and channel resource~ to the CBOs to do what they can do best. 

Therefore we support the portion of this bill that allows contracting with cornmunitybased organIzations for servIces. 

Additionally, the Management Assistance Committees (MACs) In the VISNs must 

Include representatives from the community based organizations that provide direct 

servIces on a regular dally basis to veterans who are homeless. Given that at least a 

fourth of the patIents in the V A hospitals are veterans who either are homeless or at risk 

of be corning homeless, it would seem to be a prudent step to at least solicit the thoughts 

of the servIce proVIders by appointing them to the MAC in each and every VISN. 

NCHV also supports the continuation of the Homeless Veterans Comprehensive 

Services Program Act of 1992 as proposed in this bill. This program has provided the 

needed resources for programs to get started that might never have had an opportunity 

otherwise. 

NCHV agrees with the intent of this legislation and we look forward to working with this 

commIttee and the staff on securing needed resources for veterans that are homeless. 

Mr. ChaIrman, thank you for this opportunity. 

NatIonal Coa/lllon for Homeless Veterans 

TeSllmom {OJ )II/.I 10 IYV7 2 
66 

STATEMENT 

OF 

JOHN E. OGDEN, M.S., FASHP 

BEFORE THE 

SUBCOMMITTEE ON HEALTH 

COMMITTEE ON VETERANS' AFFAIRS 

HOUSE OF REPRESENTATIVES 

JULY 10,1997 

~r. Chairman and Members of the Subcommittee: 

I am pleased to have this opportunity to discuss with you today the potential 

effed on VA of opening the pharmaceutical Federal Supply Schedule (FSS) to state 

and local entities. 

Currently, VIlA expends $1.5 billion annually on pharmaceuticals. 

Approximately three quarters of our drug expenditures are for pharmaceuticals for 

outpatients. As VIlA reinvents itself to provide health care in a 

primary/ambulatory care base model, the amount of our health care dollar 

expended for pharmaceuticals is acticipated to increase, based on increased 

utilization of pharmaceuticals in the ambulatory care setting. Therefore, any 

additional increases in prices paid for pharmaceuticals caused by the potential 

cumulative effects of opening the Federal Supply Schedules to state and local 

governments could interfere with our ability to care for eligible veterans. 

No one can predict with certainty what would happen to V A 's contract 

pharmaceutical prices if those prices became available to state and local 

governments. The collective concern of V A officials involnd in the management of 

the pharmacy benefit is that opening the fSS for pharmaceuticals to non·federal 

entities could adversely affect the expenditures for pharmaceuticals for not only V A 

and other Federal buyers, but also the groups this action is intended to assist. 
67 

Tbis concern stems from tbe price increases we experienced following 

implementation oftbe Medicaid Rebate drug pricing provisions included in the 

Omnibus Reconciliation Act of 1990 (OBRA'9O). Specifically, the highest increases 

were seen in items that were deleted from the FSS by pharmaceutical 

manufacturers after tbe enactment ofOBRA'9O. Prices for those deleted products 

increased, on average, 80 percent. Prices of itema remaining on the FSS increased 

14 percent. Tbe cost of items in VA depots increased in price by 12.4 percent. 

Subsequently, P.L. 102-585, tbe Veterans Healtb Care Act of 1992, put an end to 

these steep and sudden price increases. Conversations with drug manufacturers 

suggest that many non-c:overed items could be removed from the FSS and prices 

could be increased on other items not currently capped by P.L. 102-585. Tbe latter 

action alone could result in a S75 million annual increase in pharmaceutical 

expenditures for VA. 

The five year impact of Sect. 603, the federal drug pricing provision of P .L. 

102-585, has been dramatic:. Sect. 603's federal ceiling price requirements have 

resulted in a cost-avoidance in pharmaceutical expenditures for V A in excess of 51 

hillinn 5ince its implementation in January 1993. 

Additionally, we believe the following tbree overarching facts support our 

concerns. First, virtually all manufacturers of expensive covered drugs have 

complied with the Section 603 of P.L. 102-585 since its inception. There has been no 

formal resistance or blocking litigation, thus providing a $1 billion benefit cited 

above. 

Second, these same pharmaceutical manufacturers and many generic drug 

producers currently find tbe FSS pbarmaceutical schedule to be an efficient, 

favored marketing vebic:le that encourages pricing wbicb is more favorable tban 

Federal Ceiling Prices (FCP) and even better tban most favored commercial 

customer prices. Currently, 1729 covered drugs are priced below FCP. 

Addition~lIy, about 80% of covered drugs are single-priced by tbeir manufacturers, 
68 

i.e., Feps are given to non-VA. DoD and PHS agencies tbat are not mentioned in tbe 

Public Law. These agencies benefit from tbis pricing strategy. Opening up the FSS 

to state and local entities could result in a two-tiered pricing schedule, with higher 

costs being passed on to non-VA buyers. 

Third, as discussed earlier, we saw that when the Medicaid Rebate provisions 

of OBRA '90 were enacted with no exemption of FSS sales from the "best price" 

calculation, covered drug manufacturers sought to protect their margins wherever 

possible and removed low priced items from their FSS contracts. If similar tactics 

are employed in 1997 in response to opening FSS pharmaceutical contracts, just as 

new FSS contracts are being negotiated for the next fin or more years, V A alone 

could suffer an increase in pharmaceutical costs of as mucb as S250 million per 

year. 

To balance the concerns and uncertainties just described (some ofwbicb 

have been ecboed in a recent GAO report) witb tbe possibility of reducing prices, 

tbe Administration now supports a limited, pilot expansion of access to the 

pbarmaceutical FSS scbedule for a two-year period for HIV and mv related 

tberapies. Tbe Administration proposes tbat VA and lUIS evaluate tbe impact of 

tbe pilot program and make recommendations to tbe Administrator of General 

Services Administration regarding its continued use, or limited expansion to other 

life-threatening conditions. 

Attached for tbe record is tbe Administration proposal. 

Thank you for the opportunity to present testimony on this subject. I will be 

happy to respond to your questions. 
69 

Sec. Cllilpenlive Purcha,in:: 

(a) 'lllt: (l,lIl1win:; provi~lnn5 of law rdatin~ 10 toop<:r.llive purchasin:: aTe repealed: 

(I) Section 155501 Ihe Federal AcquisItion Sircamhnin~ 1\1:1 of 1949 (40 1I S.C. 

481 (b». 

(2) Scelion 4:;09 of tbe Chnller·Cohen Act of 1996 (40 U.S.C. 411 J note). 

(3) Section 1JOO2 ohhe 1997 Supplemental Appropriations Act (or Recovcry from 

NllutaJ Disaster. mil for Overseas Poeacekeepanll Efforts. JncJudinllbose in 80sai" (Pub. 

L. lOS-II. June 12. 1997). 

(b) Section 201 of !he Federal Property and AdminiSlrltive Services Acl of 1949 (40 

U.S.C. 481) is amended by addin~ the followin~ new subsceuon (b) to IUd as follows: 

W(bXl) The Administrator 5hall. &$ far IS pra.elicable. provide Iny of tile services 

!lflEcified in 5uhseclion (a) or this section 10 any other Federal a~ency. mixcd-<lwnership 

corporation (as defined in section 9101 oftille 31.lJnned Slates Code). central nonprofit 

Altencics (del'ignalcd under seclion 47(c) or title ~ I. United States Code). or the District 

or Colwnbia. upun iL~ request. 

"(2)(A) The Admini~rator may provide for the use or Federal supply schedule contrIc:U 

ofche General ServieH Adminittrltioft that f.1I wilnin the Federal Supply Classificatioll 

Codes listed in subparaaraph (8) by any or !he followina tlIliticJ upon request: 

"(i) A Stale. any dcpanmcnt or "CDCY or a S~te. and any polhicallubdivision of 

a State. includint a local IOvemmctlt. 

"(ii) The Commonwealth of PuertO Rico. 

"(iii) the lovwamcnt o( an Indian tribe (as defined in section 4(c) of the lDdian 

Sclf-DetamiDllion and Educ.ation Assistance Act (25 U.S.C. 4SO(e». 

"(U)(i) Subpuqraph (A) sball oaIy apply to Federal supply ICheduIe contncts that faU 

within the (ollowina Fc:dcnaI Supply CUiflClllOCl Codes: 36. Specillindus&ry -

MldHnctyi 511, CommunicatiON, Detection. and Cobcrwnt Radialion Equipmenl 

(excludi", cm"l:ency communiClliOlll equipment primarily used for firefiptin,. rucue 

or law cnIorccmcat pUIpOle); 6S. Medical. Dental. and Veterinary Equipment and 

Supplies (limited to dRIp purchased for the \I'CalmCIIt of life·thrcalqjlll eonciilions IS 

dct.ennincd by the Secrecary orHcalth aDd Human Servjcq and the Secmary ofthc 

Department of Veterans Atrairs but ellcludin; thole dna" used in tbc ICncral practice o( 

medicine); 67. Photo!Vlll'hic Equipment; 70, General Purpose Automatic Data Proceuinl 

&Iuipment (Includinll firmware). Sof\wve. Supplies and SuPi"M Services; 71. Furniture: 

74. Office M.n:hincl. Text Procelsi"" Systems and Visible Record Equipment; 75. Oft"tec 
70 

Supplies and Devices: :IJId 99. ~'hscdlane:ous (IilnHC:1.! only 1(1 sl~ns . "dvertl~in\: display~ 

and Id.:nllficallon pi ales). 

"(il) With respnlln Fedcr~1 Supply Classlflcallon Code G5. pnor 10 Ih;!t dale wlll~h is 

!wo years "fter cn.lClment of fhis ACI. Ihe aUlhonl) specified 10 clause: (I) sh.,1J be further 

limited to druO!s purch:\~d for the Ire.:llmcnl of HIV :Inc:! HIV rc\:lIcd conliltions ~s 

determined by the SecrcI:uy of llealth and Hum~n Services ;u,d lhe Secrel:lT) of the 

Depanment of V ctcr~n~ Affairs nurlnll thIS time. the Secrel;!ry (If Health and Human 

Servic.es and the Scc~tar)' of the Dcp:lrtmenl of Veler:ans Affairs shall usess the effect of 

implementin, subp;l~rarh (A) wilb respc:clto drugs purcllued for the tttalmcnt of HIV 

and HIV related conditions The assessmcnt shill indude an analysis of the effcct on 

prices paid by Federal aCUleies for the~ drugs. The Administrat(lr shall review this 

assessment and consider the rc:~ommendall{lns of lhe SecrelirY of Health and J lurn:an 

Services and the Sccrclary of Vcterans Affairs prior to excrcisin~ lhe: authority 5et forth in 

clause (i) with respect to drugs purtha.~ for lhe IIcauncnt of hfe·thrutcRlnl conditions. 

1Jl the event of connictinc recommendations. determination of whether 10 exercise this 

authority shall be milde by the Dllcclor of the Office (If MM:I~Emenl :IJId Budllet 

"(C) $ubpuaaraph (A) rnay not he construed to aUlhorize an entity referred 10 in that 

,ubpata,raph to order exi~\jn~ sluck or inventory from federally owned ;and Opc:r4ted. or 

federally owned and conlrectnr optralel.!, supply depots. warehouses. or similar faeilitic.\. 

"(D) In any case in which In cnlily lisled in subparagnaph (h) uses I Federal supply 

IIChedulc, the AdmiRisUalor rna)' require the entily 10 reimburse the General Servic.es 

Administration for Iny adminilltralivc cusu of using the sehedule. 

"(lXA) Upon the request uf II qualified nonprofit :Ilene), (or the blind or other severely 

handicapped that ill 10 providc D ~mmodit)' or service 10 the Federal \lOvemmenl UDder 

the Javiu· WaiPlCl' O'Oa)' Act (41 U.S.C. 46 CI seq.), lhe AdminillUltor rnay provicSc lin)' 

.ru. terViccs lJ*ificd in ,ubteetioa (a) 10 such .. ~)' to the eXlent practicable. 

"(B) A DOIIproflt -cent)' J'Keivina ICTVices under \be ;uthoril)' oftvbpancraph (A) shall '* the services directly ill makin, or providin; an approved commodity or approved 

ICI'Yice 10 tbc Feclcl'Dl OovcmmcnL 

"(C) 1Il this parav-aph: 

"(i) The term 'qualified nonprofit alJe~)' for lhe blind or otber severely 

handicapped'means-

"(I) a qualified noDprofitlCeney for the blind.. as defined in section 5(3) of 

the JavilS' WaJl'Cf O'Oay Act (41 U.S C. 41b(l)); and 

"(11) II qualified nonprofit Illeney for othclseyerc:l)' handicapped. u 

defined in secti_ S(4) or.uch Act (41 U.S.C. 21b(4». 
71 

"(il) 1 he lern, ';lppI'Oved comml'Ciiry" and . approved 'lCI"' ict" me~n~ ;! tnml1u"'ity 

and :a scr\llc:e. respectively, Ihal h:ls bun dClermint'CI by lhe ConuUlllcc tor 

rurch:t.~( from Ihe ilhnd nnd (Jlher Severely H:mdic:lrrcd under sccli(\n 2 (,rlhe 

Javils·Wao:ner O'Da~ Ac:1 (41 IJ S t' 47) 10 he slIilablc for pr(>Cllrcmenl hy the 

Fcclc:rlll (j"vemment ,. 
Alan F. Holmer 

""""""" 

The Honorable Cliff Stearns 

Chairman 

Subcommittee on Health 

Committee on Veterans' Affairs 

338 Cannon House Office Building 

Washington, D.C. 20515 

Dear Chairman Stearns: 

72 

July 8,1997 

Thank you for your invitation to testify on behalf of the Pharmaceutical Research 

and Manufacturers of America (PhRMA) at the Subcommittee's July 10 hearing on the 

possible expansion of the Federal Supply Schedule (FSS) to procurements by state 

and local government entities. We regret that we cannot testify; PhRMA is unable to 

address the particular issue the Subcommittee has posed: the likely effects on the 

Department of Veterans Affairs of such expansion of the FSS. Addressing this question 

directly requires information about how individual pharmaceutical manufacturers would 

change their prices for the products they list on the FSS if state and local entities were 

authorized to purchase at these prices as we" as federal government entities. At 

PhRMA, we have no Information or knowledge concerning pricing policies of our 

member companies. Under antitrust law, we are not permitted to discuss prices; in 

compliance with its letter and spirit, we do not have such discussions Accordingly, we 

simply do not know the answer to your question; nor are we able or wllhng to make 

predictions regarding your question. 

We hope that you understand and appreciate our reasons for declining the 

opportunity to testify. We do have a number of policy concerns regarding the potential 

expansion of the pharmaceutical schedule. The enclosed statement, which we ask to 

be included as a part of the formal record for the hearing, describes those concerns. 

Sincerely, 

#~~/It~ Alan F. Holmer 

Enclosure 

PlIormoceuJicol &search ond M01Iufocturers of Americo 1100 ~ SIrNI, NW, _1ngIDn, DC 20005 • Til: ~ • FAX: 202-835-3429 
73 

Stateme11t 

PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA 

TO THE 

SUOCOMMITTEE ON HEALTH 

COMMITTEE ON VETERANS AFFAIRS 

July 10, 1997 

Thank you for the opportunity to express the views of the Pharmaceutical 

Research and Manufacturers of America (PhRMA) on the possible expansion of 

the Federal Supply Schedule (FSS) to procurements by state and local 

government entities. PhRMA opposes expansion of the FSS for pharmaceuticals 

and supports repeal of Section 1555 of the Federal Acquisitions Streamlining Act 

of 1994 (FASA), the section of law that would permit this expansion. 

In 1997 alone, PhRMA member companies will invest a record $19 billion in 

pharmaceutical research and development This investment exceeds 21 percent 

of their pharmaceutical revenues - among the highest percentages of R&D of 

any industry in the United States. With such an extraordinary commitment to 

innovation, these companies can continue to bring new medicines to market to 

prevent, cure and better treat diseases. Last year, pharmaceutical pioneers 

brought 53 new medicines to market for patients suffering from 40 different 

diseases. These new products, the fruits of biomedical innovation, enable 

patients all across the country to lead longer, healthier, happier and more 

productive lives. They also help contain the costs of health care in the United 

States, including federal programs such as Veterans programs, Medicare and 

Medicaid, by reducing patients' needs for hospitals, nursing homes, surgeries 

and other more expensive forms of treatment 

PhRMA believes that expansion of the pharmaceutical schedule of the FSS 

would be an unwarranted extension of already burdensome government price 

controls. These controls are arbitrary and for pharmaceutical companies are 

effectively mandatory and comprehensive, since, under the Veterans Health Care 

Act of 1992, pharmaceutical firms must list all their products on the FSS if they 

wish to have any of their products reimbursed or purchased by major federal 

programs. 

On April 7, 1995, the General Services Administration (GSA) published its 

proposed plan for the implementation of Section 1555 of the FASA. 60 Fed. Reg. 

17,764. The GSA determined that it would not be in the best interest of the 

Pnnnnorl'lJliro/ RfJPOrfn 01/(/ MOllu/tlrlUrl'rf 0/ Amrmn 

l1()O F,fteenth Street, N W , Washington, 0 C 20005 (202) 835-3400 
74 

Federal Government to open the pharmaceutical FSS to state and local entities. 

According to the GSA, the combination of (1) unique statutory provisions on 

phannaceutical pricing and availability under the Veterans Health Care Act of 

1992 (P.L. 102-585) (VHCA), and (2) the proposed cooperative purchasing 

program, "would have the unintended effect of increasing costs to the Federal 

users of the schedule." 60 Fed. Reg. 17,765. 

The General Accounting Office (GAO) recently completed a study of the 

potential effects of making FSS prices for pharmaceuticals available to state and 

local government purchasers (GAO/HEHS-97-60). According to the GAO, the 

Department of Veterans Affairs (OVA) agreed with the GSA's determination that 

extending access would increase costs to Federal purchasers (pp. 2, 6). The 

GAO report indicates that expansion "could produce, in general, an upward 

pressure on FSS prices" (p.13). All federal purchasers could pay higher FSS 

prices for drugs not covered by the VHCA (approximately 73 percent of the 22,800 

drugs in the schedule) (p. 14). VA and other federal agencies covered by the 

VHCA could also pay higher prices on the eight percent of all FSS drugs that 

have FSS prices below the VHCA's ceiling price (p. 15). As a result, VA and other 

protected agencies could experience price increases for almost 81 percent of the 

schedule drugs. Under one scenario, VA estimates that giving state and local 

governments access to the FSS would have increased VA's 1994 drug 

expenditures by $153 million, which would have been a 49% increase (p.16). 

The GAO report also states that the "larger the market, the greater the 

economic incentive .... to raise prices to limit the impact of giving low prices to 

more purchasers" (p. 6). According to the report, even under minimal 

assumptions about the size of the new expanded market, "state and local 

purchases from the schedule at between .5 and 4.4 percent of domestic sales, 

would result in a combined market about 33 to 300 percent larger than the federal 

market" (p. 4). Hence, even under the most conservative assumptions, the 

economic pressures created by expansion of the FSS would be significant. While 

PhRMA can't predict what marketing decisions individual companies might make, 

PhRMA does believe that the GSA and GAO conclusions should be given due 

consideration. 

In addition to the pricing concerns noted by GAO and GSA, PhRMA has 

significant policy concerns about the expansion of the FSS in the larger context 

of government health reimbursement, provision and procurement practices. 

There is a growing number of mandatory government programs and practices 

that represent serious intrusions into the free market that currently supports our 

industry's pursuit of innovative phannaceutical products. These programs 

Include (1) Medicaid rebates, (2) discounts to certain agencies under the VHCA, 

(3) discounts to Public Health Service grantees, (4) required listing on the FSS for 

Medicaid reimbursement eligibility, and (5) State Phannaceutical Assistance 

Programs, many of which also Include rebates. At least 50 million Americans, 

-2-
75 

roughly 20 percent of the population, have access to pharmaceuticals at 

government-mandated below-market prices as a result of one or more of these 

programs. The more broadly these programs are extended, the more the free 

market for innovative pharmaceutical products is eroded, and the more 

biomedical innovation Is discouraged. 

We believe that government health care policies and programs will best 

serve the interests of the American people if they facilitate the delivery of 

publicly-financed healthcare through privah-sector, market-based plans that 

encourage competition, provide choices, and promote integrated health care 

assessment, treatment and budgeting. Policies and programs that satisfy these 

criteria will promote high quality healthcare for patients, contain healthcare 

costs, and promote the optimal use of innovative pharmaceutical products. 

- 3 -
76 

NATIONAL LAW CENTER -------- -------- () '\ II () \ ILL L s s '\ I. "" ,I\. I' () \ I. I{ I , 

Statement of 

Maria Foscarinis, Executive Director 

Laurel Weir, Policy Director 

National Law Center on Homelessness & Poverty 

To the 

Subconunittee on Health 

Conunittee on Veterans Affairs 

u.S. House of Representatives 

July II, 1997 

918 F Street NW Suite 412 • Washington, DC 20004 • phone· 202-638-2535 • fax· 202-628-2737 
77 

My name is Maria Foscarinis. I am the founder and Executive Director of the 

National Law Center on Homelessness & Poverty, a not-for-profit legal advocacy group 

for homeless and poor persons. Laurel Weir is the Law Center's Policy Director. The 

mission of the Law Center is to advocate for solutions that address the underlying causes of 

homelessness. 

On any given night, there are as many as 775,000 persons who are homeless in the 

United States. Over the course of a year, as many as two million persons may be 

homeless. It is estimated that approximately 30% of these persons are homeless veterans. 

That so many persons who have served their country are today living on the streets is a 

national shame. 

I appreciate the Committee's commitment to re-authorizing the Department of 

Veterans' Affairs' (V A) programs for homeless veterans and would like to make a few 

suggestions on how to strengthen the draft bill. 

Recommepdations 

1. Increased Outreach 

The outreach language should be strengthened to ensure that all VISNs conduct 

outreach to homeless veterans. Outreach is important because it connects homeless 

veterans with services available from the VA. But outreach is also important because it can 

connect homeless veterans to non-VA resources as well. For example, many homeless 

veterans are eligible for Supplemental Security Income (SSI) benefits but do not receive it 

because they do not know about it or are unable, due to mental or physical disability, to 

negotiate the application and certification process. 

SSI benefits can help homeless veterans to obtain needed housing by providing 

them with an income. Just as important, persons who qualify for SSI are automatically 

eligible for Medicaid. Both of these programs could provide desperately needed relief to 

mentally and physically disabled homeless veterans. 

Requiring the VA to conduct additional outreach is a cost-effective as well as 

humane use of funds -- by helping homeless veterans access non-VA services, outreach 

leverages more than just V A funds to assist homeless veterans. 

2. Assessment of Needs 

We strongly support the Committee's draft bill requirement in Subsection 1773 that 

the Secretary require the director of each medical center or benefits office to assess the 

needs of homeless veterans in the area served by the center or office. We believe this 

section could be strengthened by the following additions. 

First, in addition to the six areas identified for assessment in subparagraph (b)(3), 

an assessment should also be made as to the eligibility for benefits, such as disability 

benefits, and the need for legal assistance. As evidenced by several Stand Downs, the 

provision of legal assistance can sometimes remove barriers to employment, such as an 

arrest warrant issued because a homeless veteran failed to pay a fine for sleeping in a public 

park. 

Second, the Secreta!)' should require each medical center or benefits office to 

provide the aggregate data on the numbers and needs of homeless veterans in each area to 
78 

local jurisdictions for use in the "Consolidated Plans," which the jurisdictions must submit 

in order to receive housing, homeless and community development funding from the U.S. 

Department of Housing and Urban Development (HUD). These consolidated plans set 

forth the jurisdiction's priorities for use of HUD funds and must include a general 

assessment of housing and homeless needs within each jurisdiction. 

This requirement would raise the visibility of homeless veterans, increase 

community knowledge of their needs, and increase communication between the VA and 

local officials responsible for housing and meeting the needs of homeless persons in those 

jurisdictions. 

Third, in jurisdictions where there is a closing military base, the Secretary should 

require each medical center or benefits office to provide the aggregate data on the numbers 

and needs of homeless veterans in each area to the Local Redevelopment Authority (LRA) 

responsible for developing the re-use plan for the base in that jurisdiction. Under a 1994 

base closure law, LRA's are required to consider the needs of homeless persons in the 

vicinity of the base as the LRA develops its reuse plan. The V A should ensure that the 

needs of homeless veterans are included in that consideration. 

3. Cuts in Care 

As part of its overall restructuring, many V A facilities have been moving from 

providing in-patient mental health care to out-patient mental health care. This is likely to be 

detrimental to homeless veterans. Numerous clinical studies have shown that housing 

stability is a key component to ensuring effective mental health treatment of homeless 

persons. The V A should only be allowed to reduce the number of in-patient beds if it 

ensures that at least an equivalent number of new beds are made available in the community 

for these veterans and that it ensures transportation and coordination of services for 

homeless veterans in such community facilities. 

4. NIMBY 

One of the greatest barriers to the provision of community based services for 

homeless veterans is the growing prevalence of Not-In-My-Back-Yard (NIMBY) activities. 

Opposition mounted by prospective neighbors to the siting of housing and services often 

causes local government entities such as zoning boards to deny or delay granting the 

permits or variances necessary for the facilities to open. In most cases, this opposition is 

based on unfounded fears about homeless persons in general and the impact of the 

existence of a facility rather than any real concerns about the way a particular facility is 

operated. The impact of these irrational prejudices is significant. 

A 1995 Law Center study of 61 programs, located in 36 cities across the country, 

which faced NIMBY opposition, found that 54% were halted altogether, 15% were still in 

jeopardy at the time of publication, 3% had been forced to move to another location, and of 

the rem~ining 30%, most had experienced costly delays. The Law Center also found that 

local land use and zoning regulations were the most common methods used by groups to 

halt projects to assist homeless persons. 

Groups that serve homeless veterans are vulnerable to this NIMBY opposition. For 

example, a group in upstate New York that serves homeless veterans who are recovering 

from substance abuse has been struggling for almost a year now simply to get a zoning 

variance to site their facility. The local zoning board will not grant them the needed 

variance and has specifically noted opposition from some of the neighbors as a reason for 

the board's denial of the variance. This non-profit group had been awarded both V A and 
79 

HUD funds to provide housing and services for homeless veterans, and it is in danger of 

losing those funds if it cannot start its program soon. 

The V A can play an important role in such disputes. The V A should appoint a 

liaison to help local grantees in such instances and the V A should act as an advocate for 

such groups. The VA could also help prevent or mitigate some of these problems by 

conducting proactive outreach to educate local officials about homeless veterans and their 

needs to minimize unfounded NIMBY opposition. 

Additionally, we are concerned that the provisions of Subsection 1772, which sets 

forth the requirements for therapeutic housing, may leave such housing programs 

vulnerable to cases of extreme NIMBY opposition because the bill requires the programs to 

comply with local zoning and provides no alternatives if the locality unfairly denies zoning 

requests. The bill should be modified to provide the Secretary with additional options in 

cases where the Secretary has made a good faith effort to work with local government 

entities but has been rebuffed due to NIMBYism. 

Condusion 

Thank you for your consideration. We stand ready to assist you as you go forward 

with the reauthorization of the VA's homeless assistance programs. 
80 

WRITTEN COMMITTEE QUESTIONS AND THEIR RESPONSES 

CONGRESSMAN EVANS TO BERNICE STEINHARDT, DIRECTOR, HEALTH 

SERVICES QUALITY AND PuBLIC HEALTH ISSUES, U.S. GENERAL 

ACCOUNTING OFFICE 

1. Ms. Steinhardt, for the benefit of those of us who were not around in fiscal year 

1991, will you tell us, from your own perspective, why VA experienced an 

unanticipated $79 million price increase in its pharmaceutical drug costs? 

In 1990, the Congress required drug manufacturers to give state Medicaid programs 

rebates for outpatient drugs on the basis of the lowest prices they charged other 

purchasers, such as hospitals, health maintenance organizations, and VA Before the 

Medicaid rebate program was enacted, state Medicaid programs paid close to retail 

prices for outpatient drugs despite representing a significant share of the domestic 

pharmaceutical market Other purchasers paid considerably less. After the rebate 

program's enactment, however, the prices many large private purchasers paid for 

outpatient drugs increased substantially. Because of the size of the Medicaid market, 

drug manufacturers were much less willing to give large private purchasers discounts 

off wholesale price when they also had to give Medicaid access to the same low price. 

Many FSS prices also increased substantially perhaps because they were low before 

the rebate program's enactment and FSS prices were initially considered with private 

sector prices in calculating rebates. Consequently, in the Veterans Health Care Act of 

1992 the Congress exempted all drugs prices paid by VA and other federal entities 

from further rebate calculations. 

2. For whom does VA negotiate the federal supply schedule for pharmaceutical drugs? 

Would you say their negotiations have been successful to date? If so why? Would 

they be equally successful if VA were to negotiate on behalf of the larger market we 

are addressing? 

In negotiating schedule prices with drug manufacturers for nearly 23,000 

pharmaceutical products, VA represents all entities that are allowed to purchase from 

the FSS. This includes federal agencies and institutions and severat' other purchasers, 

such as the District of Columbia, U.S. territorial governments, and many Indian tribal 

governments. VA has been able to obtain significant price discounts from drug 

manufacturers, often way below retail or average manufacturer prices, by seeking the 

most-favored customer price. These discounts are the same ones that manufacturers 

offer their most-favored nonfederal customers under comparable terms and conditions. 

Manufacturers have been willing to negotiate such low FSS prices because they 

consider the FSS market a special, limited category of pricing. Some manufacturers 

also have agreed to such prices to help ensure that their drugs are widely used in VA 

hospitals, where many physicians receive part of their training. 

Whether VA would be as successful as it has been in obtaining low FSS prices if it 

were to negotiate on behalf of a larger market would depend on many factors that 

would influence the outcome of negotiations between VA and drug manufacturers. 

But the increase in the size of the FSS market from combining government purchasers 

might not in and of itself improve VA's leverage to negotiate lower prices. As we 

discussed in our testimony and report, drug manufacturers have historically offered 

different prices for the same product to different purchasers largely on the basis of 

the purchaser's ability to influence drug utilization, referred to as tlie ability to move 

market share. A common technique used by large-volume purchasers to influence 

utilization is to establish a formulary, which is a list of drugs that a health plan prefers 

its physicians to prescribe for patients. However, because the FSS is a catalog of 

prices, not a formulary, VA lacks that kind of leverage in schedule price negotiations 

with manufacturers. Further, manufacturers have considered the FSS market separate 

from other markets in regards to their. drug pricing strategies. Therefore, expanding 

the FSS market to include state and local government purchasers that manufacturers 

have treated as part of other markets has the potential to change the manufacturers' 

pricing strategies. 
81 

3. Ms. Steinhardt, your written testimony seems to acknowledge that it is quite likely 

that VA will experience a price increase as a result of allowing state and local 

purchasers to buy phannaceuticals from the federal supply schedule. Why was your 

report less definitive in making this finding? 

Both the testimony and report emphasize that the effects of opening the 

pharmaceutical schedule on schedule prices depend on the outcome of negotiations 

between VA and drug manufacturers and that there would be many uncertainties 

related to these negotiations. As a result, it is not possible to predict how schedule 

prices would change or what the ultimate impact on VA and other government 

purchasers would be. However, we also note that the factors involved in these 

negotiations would have the potential to produce, in general, an upward pressure on 

FSS prices. As described in the testimony and report, these factors include potential 

change in the dynamics of negotiating between VA and drug manufacturers, continued 

limitations on VA's leverage to negotiate because the FSS is a catalog of prices rather 

than a formulary, and uncertainty about the increase in size of the FSS market that 

would be represented by sales to federal, state, and local government purchasers. 

4. You note that several manufacturers told you that they have been willing to 

negotiate low FSS prices because they consider it a special limited category of pricing. 

Some acknowledged that they like residents who are training in VA facilities to have 

experience with these drugs. (In your opinion) How likely are the pharmaceutical 

manufacturers to continue discounting their prices if large numbers of providers 

become eligible to make federal supply schedule purchases? 

Because of the uncertainties that would be involved in FSS price negotiations between 

VA and drug manufacturers, it is not possible to predict what pricing s1zategies 

manufacturers would adopt if the pharmaceutical schedule was opened to other 

purchasers. Up to now, VA has been able to obtain low FSS prices without the type 

of hard-nosed negotiating that is commonplace in the private sector between 

purchasers and drug manufacturers. However, some drug manufacturers have 

indicated an unwillingness to continue to do business as usual with VA if the schedule 

is opened to an expanded group of government purchasers. Moreover, these 

manufacturers have indicated that they are unwilling to combine different types of 

purchasers that the manufacturers are accustomed to treating as part of separate 

markets. The larger the size of the FSS market that would result from opening the 

schedule, the greater the incentive would be for manufacturers to raise schedule 

prices to limit the impact on their business of giving low FSS prices to more 

purchasers. 

If FSS prices increased after the schedule was opened, VA, along with the Department 

of Defense, the Public Health Service, and the Coast Guard, would continue to be 

guaranteed a discount for drugs covered by the Veterans Health Care Act of 1992. For 

these agencies, the act sets a ceiling price for brand-name drugs at no more than 76 

percent of the nonfederal average manufacturer price. As we reported, FSS prices for 

many drugs the act covers are well below their ceiling prices. Other federal 

purchasers, however, would not have a guaranteed discount and would have to pay 

full FSS prices on all drugs they would purchase from the schedule. 
82 

5. Your statement mentions that, because VA does not use fonnulanes, they are not 

likely to benefit from the type of purchasing leverage from which other large 

purchasers have benefited in negotiatmg prices. We understand VA is in the process 

of establishing fonnularies, but obviously other providers for whom VA negotiates will 

not be subject to using the same drugs. Will VA still be able to realize the same 

savings if they are negotIatmg for other purchasers who are not subject to using their 

fonnulary? 

While VA medical centers use fonnularies, the FSS is a catalog of prices and not a 

fonnulary. VA has been successful in negotiating significant FSS price diSCOunts on 

behalf of all federal purchasers while at the same time attempting to control its own 

drug costs by using fonnularies and competitive-based contracts for some drugs. 

Therefore, VA's use of cost-control methods in addition to purchasing drugs from the 

FSS has not reduced VA's ability to obtain FSS price discounts for itself and other 

purchasers. 
83 

POST-BEARING QUESTIONS 

CONCERNING TBE JULy 10, 1997 

BEARING ON DRAFT LEGISLATION ON PBARHACEUTICAL 

PRICES, BOMELESS VETERANS' PROGRAMS, AND ISSUES 

RELATED TO PERSIAN GULF WAR ILLNESS 

POR THE DEPARTHENT OF VETERANS AFPAIRS 

PROM TBE HONORABLE CLIPF STEARNS 

CHAIRMAN, SUBCOMMITTEE ON BEALTB 

COMMITTEE ON VETERANS' AFFAIRS 

U.S. BOUSE OF REPRESENTATrvES 

Question 1: Would you expand on your statement that opening 

the FSS could not only hurt VA but fail to achieve any 

benefit for the groups sought to be helped? 

Answer: My intent in making this statement was to 

articulate that drug pricing benefits currently accrued by 

VA and other federal buyers could be adversely affected by 

pharmaceutical manufacturers removing those items that they 

could legally remove from the FSS and raising those prices, 

which are currently below Federal Ceiling Price (FCP), to 

the FCP. The worst case scenario would be a repeal of the 

drug pricing sections of P.L.102-585. In each instance, 

prices for both federal buyers and non-federal authorized 

buyers would increase. In addition, there are a number of 

disproportionate share hospitals and federally funded 

specialty clinics that already have access to P.L. 102-585 

drug pricing, many below FSS pricing. These groups would 

also incur increased prices as the pharmaceutical industry 

moves to minimize the effect of opening the schedules on 

their profit margins. For example, a recent review of 25 

drug products utilized in the treatment of HIV and HIVrelated conditions demonstrated that 14 of the products had 

prices below the FCP. There is little doubt that the 

industry would move to raise these prices to the FCP as 

quickly as possible following the opening of the FSS. Also, 

some federal buyers who are not currently mandated by 

statute to receive Federal Ceiling Prices, such as the 

Bureau of Prisons, would see price increases as the industry 

moved to increase prices as described above. 

Question~: VA did an analysis in 1995 which concluded that 

if FSS drug schedules were opened to state and local 

governments, it would "result in dramatically increased FSS 

prices,' and that VA would experience increased costs of 

more than $153 million. 

(a) On what did VA base its conclusions? 

(b) Have you formally or informally updated your 

analysis? What is our current estimate of increased costs? 

Would you furnish us your analysis for the record? 

Answer: 

(a) We based our 1995 conclusions on the effects of 

opening the FSS to state and local entities, using the 

following assumptions: 

1. All pharmaceutical companies would eliminate FSS 

pricing where they could legally do so. 
2. All FSS pharmaceutical contracts expire on 

12/31/95. 

3. All covered drugs would be sold at the mandated 

FCP. none lower. 

The calculation of the effect of opening the FSS schedules 

on VA drug expenditures was based on actual contract 

purchases as described on the attached analysis . 

(b) We have not formally updated our analysis but. 

as indicated in my testimony. we have informally estimated 

increased annual expenditures of $250 million. Please note 

that this estimate includes the fact that all FSS 

pharmaceutical contracts will expire on 12/31/97 . We are 

currently in the negotiation stage for these contracts for a 

period of 5 or more years. We think opening the FSS at this 

time to state and local governments is the worst possible 

time for such action. If the FSS is open to state and local 

entities. the pharmaceutical industry will move to protect 

their profit margins through adjusting prices upward on the 

next round of FSS contracts. 

2 
85 

ATTTACHMENT TO QUESTION 2(a) 

DEPARTMENT OF VETERANS AFFAIRS 

VETERANS HEALTH ADMINISTRATION 

Potential Impact of the Federal AcqUisition and Streamlining Act (FASA) 

of 1994 (Public Law 103-355) on Pricing to the Department of Veterans Affairs 

Public Law (P.L.) 103-355, Section 1555, granted permission to the General Services 

Administration to make all Federal Supply Schedule (FSS) contracts available to state 

and local governments. The passage of thiS law prompted numerous phone calls and 

viSits from the pharmaceutical industry to the Drug and Pharmaceutical Management 

Section of the Department of Veterans Affairs (VA). The substance of all of the calls 

and VISitS was the same, that IS "If FSS contracts for pharmaceuticals were extended to 

state and local governments, FSS pnclng would most likely be eliminated for drugs not 

covered under P L 102-585, the Veterans Health Act of 1992 Pnces on all drugs 

covered under P.L 102-585 that are currently lower than the Federal Ceiling Pnce 

(FCP) would be raised to the FCP" ThiS message was coming from companies such 

as Smith Kline Beecham, Lederle, Wyeth-Ayerst, Miles, Pfizer, Schein, Rugby, Geneva, 

and many more. The message from both ethical and genenc manufacturers was 

consistent 

Based on these discussions, VA developed and used the following assumptions In ItS 

analysIs of drug expenditures 

All pharmaceutical companies would eliminate FSS pnclng where they could 

legally do so. 

2 All F SS pharmaceutical contracts expire on December 31, 1995 

3 All covered drugs would be sold at the mandated FCP, none lower 

4 If pharmaceuticals not covered under P.L. 102-585 were dropped from FSS, 

VA could purchase these products at wholesale cost. 

The calculation of FASA Impact on Veterans Health Administration (VHA) drug 

expenditures was based on actual contract purchases through the VA pnme vendor 

network from January 1, 1994, through June 30, 1994. Non-contract pharmaceuticals, 

IV solutions, manufacturer direct purchases. and purchases through the VA Depot 

System, which was phaSing down at the beginning of 1994, were not included in the 

calculallon The wholesale drug costs, FCP and FSS contract prices from September 

1994 were used for the calculallon. 
86 

In the targeted timeframe, 4877 unique pharmaceutical products not covered by P L. 

102-585 were purchased for $37,785,006 The same Items would have cost 

$79,739,425 If VA had to purchase them at wholesale cost, a difference of 

$41,954,419 For cover~d drugs under P L. 102-585, 911 unique pharmaceutical 

products were purchased at an FSS price lower than the mandated Fep for a total of 

$118,310,530. If these drugs had to be purchased at the mandated ceiling prices, the 

cost would be $152,916,153 The total increased drug expenditures for VHA would be 

$76,560,042 for SIX months, or an annualized Increase of $153,120,084 

ThiS estimate does not include potential Impact on other Federal agencies such as the 

Department of Defense, Public Health Service, and the Bureau of Prisons. 

111 H 

January 1995 
87 

POST-BEARINO QUESTIONS 

CONCZRNIRG TEK JULy 10, 1997 

BEARIRG ON DRAFT LEGISLATION ON 

PIlA1UIACEtJ'1'ICAL PRICES, BOJIBLUS VE'1'I!1UUIIS' PROGRAMS. 

AND ISSUES ULAnD TO PBRSIAH GtJLP WAR ILLNESS 

QUESTIONS PROM THB BONORABLB LUIS GUTIERREZ 

RANKING DBIIOCRATIC MJ:MBU, SDBCOMMITTZZ ON BI!!ALTB 

COMMI'H'EB ON VETERANS' AI'l"AIRS 

U.S. BOUSB OP RBPRBSBNTATIVZS 

TO JOHN OGDD, CBIU CONSULTANT, PBARMACY 

BENEPITS MAHAGBIIBNT STRA'l'BGIC BI!!ALTBCARB GROUP 

DZPAR'l'IIBN'1' OP VE'l'BRANS AFPAIRS 

QUESTION 1: Mr . Ogden, Ms. Steinhardt has outlined some of the 

pharmaceutical manufacturers' potential responses to allowing 

state and local providers to make purchases off of the federal 

supply schedule. All of them are fairly unpromising for VA to 

negotiate as successfully as they have in the past. Do you agree 

that negotiations for the Federal Supply Schedule will be more 

difficult if new authority is provided state and local providers? 

AHBWZR: Yes, I agree with Ms. Steinhardt's metaphor where she 

compared opening the Federal Supply Schedules (FSS) for 

pharmaceuticals to pushing a balloon in one spot causing 

expansion in another . Specifically, opening Federal Supply 

Schedules for pharmaceuticals to state and local entities would 

not result in their mandated compliance to procure from such 

schedules, i . e. they could pick and choose their procurement 

activity. In addition, if a lack of prompt payment is perceived 

by manufacturers from these entities, then there is little doubt 

our FSS negotiations would be more difficult and not as 

successful as in the past. The end result of these and other 

actions would be a tendency toward increased prices due to lost 

revenue within the pharmaceutical industry. 

QUESTION 2: In your opinion, will VA experience a price increase 

for pharmaceuticals (drugs) if state and local providers are 

allowed to purchase them from the Federal Supply Schedule? will 

you summarize the findings of your February 1995 analysis of this 

potential impact? 

ARBWZR: 

A. Yes. 

B. Our 1995 analysis projected a $153 million increase in VA 

expenditures if FSS pharmaceutical schedules were opened to state 

and local entities. This figure was based on assumed actions by 

the pharmaceutical industry, i.e., non-covered drugs would be 

withdrawn from the FSS with a resultant price incredse and all 

covered drugs with an FSS price below the mandated ceiling price 

would increase to the federal ceiling price. The calculation of 

the effect on VA was based on actual data from contract purchases 

through the VA prime vendor network from January 1, 1994, through 

June 30, 1994. Non-contract pharmaceuticals, IV solutions, 

manufacturer direct purchases and purchases through the VA Depot 

System were not included in the calculation. The $153 million 

estimate did not include the impact on the other federal agencies 

such as the Department of Defense or u.S. Public Health Service. 
88 

QUESTION 3: Will VA be able to sustain a potential $150 million 

increase which on VA analysis says could result due to allowing 

state and local purchasers access to the Federal Supply Schedule? 

What will it do to either improve its negotiating or find savings 

to accommodate a price increase? 

ANSWER: 

A. In the overall context of VA's medical care budget, we, in my 

opinion, could sustain a $150 million increase due to this 

action. Bowev.r, sust.ining this annu.l $150 million or gr •• t.r 

incr •• s. would occur .t the exp.ns. ot the number ot p.tients V1 

tr •• ts. Th. Deputy ODd.r S.cr.t.ry tor B •• lth, Dr. G.rthwait., 

discu ••• d the .tt.ct ot this magnitude of incr.... on our .bility 

to provide c.re tor v.t.ran. in r •• pons. to • que.tion tram the 

Chairman during the Be.ring. Be indic.ted the number ot v.t.rans 

we tr •• t .cross the system would be .dv.r •• ly .tt.ct.d. 

B. To improve our negotiating effectiveness from a business 

perspective, my recommendation to the Secretary of Veterans 

Affairs and the Under Secretary for Health, if this action 

occurred, would be to try to negotiate contracts, separate and 

distinct from the FSS process, for pharmaceuticals utilized in 

the VA healthcare system. Through effective and efficient 

contracting and clinical actions taken in the last seven to ten 

years our ability to find savings in pharmaceutical procurements 

over and above those already accrued would be very difficult. 

Note, however, that this alternative approach would require 

cooperation and agreement from each pharmaceutical company from 

whom we procure, and because it would entail in excess of 22,000 

drugs, it could take years to accomplish this. 

QUESTION t: In your opinion, should state and local purchasers 

be excluded from purchasing pharmaceuticals from the Federal 

Supply Schedule? Would you support legislation to this effect? 

ANSWER: 

A. Yes. 

B. VA's consistent position since the passage of the cooperative 

purchasing legislation in 1994 is exclusion of the FSS pharmaceutical price schedules from the implementation of the Federal 

Acquisition Streamlining Act (FASA) legislation. If that is not 

possible, I personally would support legislation excluding state 

and local purchasers of pharmaceuticals from the Federal Supply 

Schedule. 

QUESTION 5: Do you agree with the findings in the GAO's report 

on federal drug prices? (IF NO: What aspects, in particular, do 

you disagree with?) 

ANSWER: In general, I agree with the findings of the GAO's 

report that 'the effects of opening the Federal Supply Schedule 

for pharmaceuticals are uncertain.' However, I thought 

Ms. Steinhardt's oral comments at the hearing were much more to 

the point in supporting VA's consistent posture on the effects of 

this action. In reviewing GAO's specific recommendations that 

"the effects of opening the federal supply schedule for 

pharmaceuticals on schedule prices ultimately depend on the 

outcomes of negotiations between VA and drug manufacturers," I 

think our past analyses, formal and informal communications with 

GSA on this subject, and testimony during the Hearing more than 

2 
89 

adequately state and represent VA's concerns about the potential 

adverse effects of opening the pharmaceutical PSS to state and 

local entities. Further, the GAO report did not present the 

worst case scenario of possible effort(s) by the pharmaceutical 

industry to seek repeal of the drug pricing sections of P.L. 102-

585. Such action, if achieved, would have a dramatic upward 

price impact on federal buyers. 

3 
90 

POST-BBARXRQ QOZSTXORS 

COHCKRBXRQ TBB JULy 10,1997 

BBARXIIG OR ~T LJlGIBLA'1'XOR OR 

PBAllKACKOTXCAL PR.XCZS, BOIIBLBSS VZ'1'DUS' l'JlOQJtUIS, 

AND ISSOZS ULAnD TO PDSUlir QtILJ' DR. XLLIIUS 

QOZSTXORS FR.OJI '1'0 BOIlOItABLK LOU Qt7'1'XDltZZ 

R.ARKXIIG DEIIOCR1'1'XC IIIJ:JIBER., St7BCOIIIII'l"'l'U: OR IlEALTH 

COMIII't'rZK OJI VZTDloJi/S' AJl'I'AXR.S 

O. S. BOOSB 01' KBPUSD'l'A'1'XVBS 

TO THOMAS GAR'l'IIWlLX'l'B, II. D • 

DBPtJ'l'Y t7Ji/DD SECR.BTAKY I'OR. HEALTH 

DEPAKTIIEII'l' 01' VZTDloJi/S APl'AXR.S 

QOZSTXOJil 1: Dr. Garthwaite, your testimony states that you have 

no objection to formally evaluating the effectiveness of 

organizations who receive grants and per diem rates to work with 

homeless veterans. Have you considered what measures VA will assess in meeting this mandate? 

AR8WBR: We are currently monitoring the organizations' projects 

created as a result of Homeless Providers Grant and Per Diem 

Program grant funds. At this time, 18 projects are completed and 

operating and, although most of the information collected up to 

this point has been baseline data, we are beginning to compile 

this data to determine the effectiveness of the services provided 

to homeless veterans. We are monitoring three aspects of program 

implementation/provision of services: 1) program capacity/cost 

effectiveness; 2) clinician related outcomes; and 3) veteran 

satisfaction. 

Additionally, as organizations complete the facilities 

constructed or renovated with grant funds and apply for 

recognition for per diem payments, inspections of the projects 

are initiated by designated VA medical center personnel. These 

inspections provide VA with information to assess program 

performance and to determine feasibility of program design while 

ensuring maintenance of standards that comply with rules and 

regulations. Once projects are in operation these inspections 

are conducted on a yearly basis. 

Qt7ZSTXOJil~: What is the strategic direction VA is looking at for 

homeless programs? What are the goals you will seek? 

AJi/SWER.: The mission of VA's Homeless Veterans Treatment and 

Assistance Programs is to address the causes and effects of 

homelessness among veterans. This is accomplished by providing 

direct services such as outreach, case management, residential 

treatment, therapeutic work opportunities, and assistance with 

permanent housing for homeless veterans and those veterans at 

risk for homelessness, and by coordinating the provision of care 

with other Federal, state, and local agencies as well as community non-profit organizations and private entities. 

The following are objectives of VA's homeless programs: 

• Continue to facilitate and seek community collaborations; 

·Continue to fdcilitate linkages with other Federal 

agen~ie:;.; 

4 
91 

• Continue community outreach to those under-served 

veterans; 

• Continue to provide ongoing case management to foster 

veterans self-determination and assist in their ability 

to function at their optimal level; 

• Strengthen capacity and effectiveness to provide a 

hospital without walls; 

• Increase programs' ability to provide comprehensive and 

extensive treatment within this format; 

• Export models of service delivery that have shown 

demonstrated effectiveness to areas of the country where 

homeless veteran initiatives have not yet been developed; 

• Develop new initiatives for in-reach to inpatient 

homeless populations; 

• Foster a continuum of homeless care in each VISN through 

a coordinated network approach; and 

• Pending legislation, continue the process to nationally 

assess and meet the needs of the homeless veterans 

population through project CHALENG. 

QOZSTrOH 3: will VA expand both the breadth and depth of its 

non-institutional options for nursing home care if the authority 

for this program is made permanent? What are your goals for this 

program? 

AHSWZR: VA has used the authority for the pilot program, NonInstitutional Alternatives to Nursing Home Care, to provide 

homemaker/home health aide services to patients who meet nursing 

home admission criteria, but reside at home. A 1995 

Congressionally-mandated study of the pilot program found the 

services to be well received by patients, families and VA staff. 

VA has approved the use of funds for other community-based longterm care services on a case-by-case basis. Additional services 

will continue to be added, when these envisioned services offer 

some potential that nursing home placements can be delayed or entirely diverted, and that the envisioned services positively 

affect the quality of care and quality of life of patients. 

These criteria, reduction in nursing home days and improved 

quality of care and life, also reflect VA' goals for these 

services. 

VA expenditures for homemaker/home health aide services increased 

by 25.1 percent in FY 1996, to a total of $22.3 million. VA 

anticipates continued expansion of these services. 

QOZSTrOR C: I am pleased to hear that you are supportive of the 

proposal to compete grants for innovative Persian Gulf treatment 

programs. I am also pleased that Congress may be able to support 

you in offering this care to a broad base of veterans with 

symptoms from their deployment. What are the types of activities 

that you believe VA has been reluctant to explore that this 

legislation would allow? Do you believe the programs this 
92 

legislation allows will lead to increased levels of Persian Gulf 

veterans' satisfaction with healthcare services? 

ANSWER: In response to the need to explore treatment options, VA 

has formed a Planning Group to explore the development of 

treatment outcome trials on the diagnostic categories of chronic 

fatigue syndrome, fibromyalgia, and other symptom-based disorders 

that bear a resemblance to these. The Planning Group will meet 

in early September, 1997 to begin working on the problem. 

Parallel with this, VA is preparing a Program Announcement to be 

issued this summer to VA investigators. The Program Announcement 

invites VA investigators to submit Planning Requests to be 

considered for development into one or more multi-center 

treatment trials using VA's Cooperative Studies Program as the 

platform for the conduct of this research. Because multi-center 

trials are very complex, the development of an operational trial 

will take between nine and eighteen months, provided the final 

product passes VA Cooperative Studies peer review processes. VA 

will provide a progress update within 120 days of this response. 

If more effective treatments can be developed, patient satisfaction is very likely to improve. Veterans want to be well and 

we need to work diligently to improve their sense of health and 

well-being. 

QUESTION 5: A number of advocates for the homeless have 

expressed concern that the new enrollment process for VA 

healthcare could jeopardize access to care for many homeless and 

mentally ill veterans. These veterans generally do not have a 

stable address and cannot be easily notified by mail during open 

enrollment season. Many of these veterans have mental 

impairments that make it difficult for them to understand a 

complex enrollment process or to even understand the need to 

enroll. 

How does the VA plan to accommodate these veterans within the 

context of a new enrollment process for VA hea1thcare? 

Answer: Dr. Kizer has concurred with the recommendation of the 

Eligibility Reform Steering Committee to consider homeless 

veterans who suffer from functional impairment due to substance 

abuse or mental illness as part of one of the disabled veterans 

specialized needs groups. Dr. Kizer has also concurred with the 

following policy recommendations for implementing enrollment 

nationwide: rolling enrollment which will allow for enrollment 

throughout the year; automatic enrollment of veterans who 

received care during the previous 12 months; enrollment of 

veterans when they present for care; and a one year test of 

enrollment on a national basis. For those homeless veterans who 

are not currently using the VA hea1thcare system, the rolling 

enrollment process will allow them to report to any VA facility 

at any time and apply for care, and they will be enrolled if 

eligible. As with any new system, exceptions will have to be 

made for those veterans who were not aware of the enrollment 

process for any reason. VA staff are currently working on 

materials and methods to communicate to veterans and medical 

center staff the changes brought about by the law. VHA believes 

that the Veterans Service Organizations can play a critical role 

at the national and local levels in our education and communication efforts. Although the policy and process decisions are 

still being developed, VHA is committed to adopting a straightforward process and making enrollment as easy and thorough as 

possible for the veterans and VA. 

6 
93 

QOESTZOR 6: Women veterans who are homeless and suffer with 

chronic mental illness present with somewhat different treatment 

issues than their male counterparts. These issues range from assurance of adequate privacy and safety during episodes of 

inpatient care to ensuring access to residential treatment, 

transitional housing, and other supportive interventions designed 

for groups of veterans. 

What steps has VA taken to assure that treatment issues specific 

to women veterans are integrated within the scope of programs and 

services designed for homeless and/or seriously mentally ill 

veterans? 

ANSWER: VA Homeless Treatment and Assistance Programs have been 

actively seeking to address the problems of homelessness among 

women veterans. During FY 1995, 2.3 percent of veterans 

contacted (588) who were seen in the Health Care for Homeless 

Veterans (HCHV) Programs were women. This proportion is within 

the expected range, given the number of women among the veteran 

population, and the number of women among the homeless. However, 

in some locations across the country HCHV programs appear to be 

seeing more homeless women veterans. In 1995, for example 6.6 

percent of homeless veterans treated at VA Medical Center West 

Haven, CT, HCHV program were homeless women veterans. We are beginning to see an increase in the number of homeless women veterans who are being treated in the Domiciliary Care for 

Homeless Veterans (DCHV) Programs. In 1989, 2.1 percent of 

veterans treated in this program were homeless women veterans. 

In 1995, that percentage had increased to 3.7 percent. 

During the last two years, VA program officials have made a concerted effort to increase the awareness of VA clinicians and 

non-profit groups concerning homeless women veterans. Some of 

these efforts have included: 

• Dedicated tents and activities for women veterans at 

'Stand Downs' for homeless veterans. 

• Collaborations with VA Women Centers and Homeless 

Programs. 

• VA Homeless Programs' collaborations with local non-profit 

community providers. 

• VA partnerships with local agencies to support community 

and non-profit organizations' initiatives for homeless women veterans (e.g., Vietnam Veterans of San Diego has 

separate housing and treatment for women veterans) . Additionally, although still a new program, initial baseline data 

collected from VA's Homeless Providers Grant and Per Diem Program 

shows 4.8 percent of the population utilizing the program were 

women veterans. During the past three rounds of grant awards, 

many proposals submitted for funding targeted women veterans as their specific service population. We predict most projects, once completed, will have at least partial capacity to serve 

women veterans. Moreover, program legislation allows 25 percent 

of project beds to be occupied by non-veterans, encouraging 

providers to accommodate the spouses and/or children of homeless 

veterans. 

VA realizes the uniqueness of this special population and will 

continue working with other agencies to assure that the needs of women veterans are addressed. 

7 
94 

POS~-BZARrHG QOZSTIORS 

CONCERRlRa THE JULy 10, 1997 

BEARIRG OR DRAF~ LKGISLATIOR OR 

PBAJUlACEtJTlCAL PRICES, BOIIELEBS W'l'BRAJIS' PROORAJIS, 

AND ISSUES R.ELA~ED TO PZltSUJI GULF DR ILLRESS 

QUESTIONS FROM TBB BONORABLE LOIS GUTIERREZ 

RAllJtING DEKOClUo.TIC 1IDIB1Ul, SOBCOJIMITTEE ON BEALTH 

COIDIIT'.rEE OR VE'l'J:R.AlIIS' AFFAIllB 

O.S. BOOSE OF REPRESENTATIVES 

TO ROBIUlT ROSUIIEClt, II.D. 

DIRECTOR, ROR'l'IIEAST PROORAII, EVALUATJOR CEHTD 

DEPAR.'l'IIDI'1' OF VJ:Tl:R.ARS AFFAIRS 

QOEBTIOR 11 Dr. Rosenheck, there is a prOV1S10n in the 

legislation you were asked to address which would require drugtesting and expulsion of homeless veterans using the Compensated 

Work Therapy/Transitional Residencies Program. Your statement 

indicates that you may believe that submitting to urinanalysis 

gives homeless veterans a sense of responsibility? While it would 

be nice to think that we could get a 100% cure for these veterans, 

it is my understanding that a realistic goal of VA's substance 

abuse programs is to lessen addiction and the negative behaviors 

that drug use may elicit. First of all is this provision 

enforceable? Is this provision somewhat punitive? 

AHSNERI OUr studies, as you note, indicate the urine testing is 

associated with clinical improvement. On the basis of this 

finding we agree with a clinical recommendation that residential 

programs for veterans with substance abuse disorders should 

routinely conduct urine tests. The Department supports the 

provision providing for expulsion of participants found to be 

using illegal drugs during ~ treatment. 

QOEBTIOR:h Dr. Rosenheck, I first want to cOll"lDeIld you on the 

diverse range of services VA offers homeless veterans. Do you 

believe that there are some programs that are more effective than 

others? Should we offer more of this type of program at the 

expense of others? 

ARSWER.: We have compared contract residential treatment programs 

and VA domiciliary programs and found them to be equally effective 

in treating mental illnesses. We have also compared residential 

treatment with pure case management and found residential 

treatment to be more effective, but quite a bit more expensive. 

We have also compared standard case management with the joint HUDVA supported housing program and found the latter to have superior 

housing outcomes, although it also requires considerable 

investment in both VA clinical resources and HUD Section 8 

vouchers. The conclusion from these studies is that no program 

has both more effective and less costly than the others. We, 

therefore, have chosen to maintain a balanced portfolio of 

programs of varying intensities, emphasizing the less expensive 

programs so as to treat larger numbers of homeless mentally ill 

veterans. 

QUEST lOR 31 How have your efforts to track spending for the 

chronically mentally ill been helped or hampered by the 

decentralization of funding and management in the VA system? Are 

you still able to do your job as effectively? 

8 
95 

ANSWER: There have been some changes in VA data systems as the 

management of VA clinical programs has been decentralized to the 

VISNs. However our ability to monitor spending for special 

emphasis programs has been maintained because Dr . Kizer has made 

it emphatically clear that performance monitoring at the nationaJ 

level, including monitoring of efficiency and resource consumption, is a major priority. 

QUESTION 4: Dr . Rosenheck, your statistics for the veterans who 

complete homelessness treatment programs are impressive. How many 

veterans start receiving care in VA's homeless programs and do not 

complete it? Do you have any idea what happens to them? 

ANSWER: About half of veterans who begin residential treatment or 

domiciliary care successfully complete the program. Those who do 

not successfully complete the program, however, generally do 

continue to receive services from VA. An outcome study of 

graduates of VA homeless programs showed that those who did not 

complete the program had poorer outcomes than those who did, but 

that about 40 percent had obtained housing and were in treatment 6 

months after being discharged from the program. 

QUESTION S: You mention that homeless veterans using VA 

healthcare are intensive healthcare users; what are their most 

prevalent health problems? 

ANSWER: Considering all health problems, the most prevalent 

primary diagnoses (i . e., the pri ncipal reason for admission) among 

homeless inpatients are alcohol abuse (29 percent); drug abuse (16 

percent); schizophrenia (15 percent); other psychotic disorders 

(10.0 percent); PTSD (5.8 percent) ; cardiac disease (1 . 6 percent); 

cancer (1.6 percent); respiratory disease (1.4 percent); and 

cerebrovascular disease (1 percent). Of course many of these 

veterans have multiple illnesses. About half of those with 

serious mental illness also have significant chronic medical 

illnesses. 

QUESTION 6: Some of the contract providers have submitted 

testimony that indicates that they think VA ought to be using them 

to provide most of the care VA offers to homeless veterans. In 

your opinion, are the majority of the providers who receive grant 

per diem payments qualified to respond to the chronic healthcare 

problems, such as schizophrenia, post-traumatic stress disorder, 

substance abuse, as well as medical problems manifested by these 

veterans? 

ANSWER: Among the homeless, schizophrenia, PTSD, substance abuse 

and medical illnesses all require careful medical assessment and 

treatment, best provided ~ medically qualified professionals. It 

is also clear that homeless veterans have many other, non-medical 

needs, some of which can be well addressed ~ community-based 

organizations. For this reason we view the partnership that has 

developed between VA and community-based organizations across the 

country during the past decade as, ~ far, the most effective and 

efficient approach to helping homeless veterans with serious 

illnesses. It would be counterproductive to return to the 

contentious, either-or, relationship that we have worked 

diligently to put behind us. 

QUESTION 7: Dr. Rosenheck, your testimony states that 31\ of all 

VA's mental health inpatients are homeless. I find that 

9 
96 

staggering. VA is now eliminating many of its inpatient beds -

substance abuse, post-traumatic stress disorder and psychiatric care are some of the types of beds being extensively targeted . First, is there evidence that those resources are being retrenched 

into community and outpatient programs for the same purposes? 

Next, can veterans get effective care for these serious problems 

without a stable or supportive living environment? 

ANSWER: From FY 1995 to FY 1996 inpatient mental health 

expenditures declined by about $79 million, while outpatient care 

increased by about $60 million. While there was thus an important 

shift of funds from inpatient care to outpatient care, only 

limited funds were channeled to the type of specialized programs 

that serve homeless mentally ill veterans . A special initiative, 

however, the Community Homeless Health Care Triage Program, has 

recently been initiated to stimulate development and coordination 

of programs, based on established VA models, in each VISN. As to 

your second question, it is true that homeless veterans often need 

temporary shelter and residential support. However, this care 

does not need to take place in hospital beds. Various forms of 

supportive housing have been demonstrated to be effective, as have 

intensive case management approaches. The central issue is to 

develop specialized alternatives that are adequately funded to 

meet the residential care needs of homeless veterans. 
97 

July 10, 1997 HEARING 

SUBCOMMITTEE ON HEALTH OF THE 

COMMITTEE ON VETERANS AFFAIRS 

Reply to questions from The Honorable Luis Gutierrez 

Ranking Democratic Member 

From Linda Boone, Executive Director 

National Coalition for Homeless Veterans 

1. Do your member organizations have difficulty in securing funding for the 

provision of services homeless veterans need? 

Yes, our member organizations do experience inordinate difficulty in accessing resources 

from the Job Training Partnership Act (JTPA), other funding sources from the United 

States Department of Labor, as well as extreme difficulty in securing funding from 

sources emanating from the Department of Housing & Urban Development, Department 

of Health & Human Services, or other Federal resources. 

The local entities that control funds deSIgned to assist homeless persons often seem take 

an attitude that "Veterans are a Federal responsibility". The concomItant elements of thIS 

attitude are often to indicate that if the Congress had intended these programs to assist 

veterans, then veterans would have been explicitly written mto each part of each program. 

Our hard experience indicates that unless the Congress explicitly "writes in" veterans in 

every provision ofprograrns such as JTPA, then veterans are all too often expressly "read 

out' of the program at the state and local level. The typical scenario is that It is suggested 

that our member organIzations seek fundmg and/or assistance from the VA. However, 

contract funds from V A are all too limIted. 

Given the problems of veteran service providers in securing funds from other sources, 

and particularly in light of the shifts of delivery from inpatient care to outpatient care on 

as massive a scale as is now occumng, $28 Million per year is just not adequate in the 

face of the need for tranSItional housing and other supportIve servIces, to mclude basic 

needs. 

The National Coalition/or Homeless Veterans (NCHV) and our member 

organIzations are eager to "partner" with the V A to best meet the needs of homeless 

veterans. The problem is all too often that our member organizations do not have 

anywhere near sufficient resources to be able to "partner" with the VA. In light of the 

exponentially growing need for transitional and other supportIve housing bemg created 

by the shift of V A from mpatient to outpatient care, the status quo is just not adequate. 

That is the realIty that we were trying to inteIject into the heanng. 

NCHV is grateful for the strides that V A has made in regard to contracting for ongoing 

delIvery of services from true community based organizations (something virtually not 

done just a dozen years ago), but assisting 30,000 veterans a year with contract programs 

is only reaching less than 10% of the VA's own estimate of the number of veterans 

homeless at some point during the course of a year. 

We would suggest that we can and must do better. VA can and must contract out more 

resources, and WIth the help of the Congress the other funding sources that should be 

providing a proportionate share of resources to veteran specific programs can be made to 

do a better job. 
98 

2. Wbat bas been tbe experience of your member organizations in securing funds 

from the Stewart B. McKinney Act funds devoted to the bomeless? 

Only 3% of the HUD funds allocated pursuant to the McKinney Act are directed into 

veteran specific programs, even though the accepted estimate of the percentage of 

veterans among homeless adults is at least 30%. 

Of HHS funds allocated for homeless programs the Project to Assist Transition from 

Homelessness (PATH) and Access to Community Care and Effective Services and 

Supports (ACCESS) only a small percent of veterans have received services. 

FEMA has traditionally only spent about 1 % of their McKinney funding towards veterans 

assistance. 

For these reasons, the National Coalition/or Homeless Veterans (NCHV) strongly 

favors enactment of HR 1754, introduced by the Honorable Jack Metcalf. NCHV urges 

all of the Members of the Committee on Veterans' Affairs 10 join Mr. Melcalfas cosponsors of thiS attempt to ensure that veterans are not literally "left out in the cold" when 

it comes to securing Federal resources to meet their special needs. 

3. What would you recommend V A do to better support tbe development of the 

organizational capacity to deliver more and better quality services to veterans who 

are homeless? 

NCHV favors extending the authority for the V A to contract for Drug and Alcohol 

Treatment until December 31 , 2000. We would suggest that it may be time to make this 

program permanent when it comes up for renewal again. 

NCHV would also suggest that the Committee take action to encourage the V A to extend 

the utilization of this authority more widely, and to focus on the "whole person" in 

treatment programs, in a manner that promotes re-establishment of pride and 

responsibility in veterans. In almost all cases this will involve assisting a veterans to 

obtain and sustain meaningful employment at a decent living wage. 

Extension of the authority, adequate resource shifts, and VA willingness to contract 

where appropriate is all the more urgent in light of the diminishment of substance abuse 

and neuro-psychiatric programs in particular. 

NCHV favors extending the authority for Noninstitutional Alternatives to Nursing Home 

Care for another three years. NCHV would further suggest that "clustering" of services 

and alternatives in small or relatively small facilities is what seems to work in the 

experience of most of our member organizations. While most of the media and official 

attention in regard to homelessness of veterans has focused on Vietnam veterans and 

those younger veterans who served since 1975, there is a significant problem for older 

veterans. Oftentimes these veterans are a "hidden problem", much as malnutrition and 

poverty among the elderly is "hidden" in the sense that it is not as readily visible on our 

streets as are the problems of younger veterans. 

NCHV favors extension for Housing Assistance/or Homeless Veterans for at least three 

more years, as proposed. This program has proven to be a valuable tool in assisting 

veterans to take the step back toward independence and autonomy. 

NCHV favors extension of the authority for the Demonstration Program o/Compensated 

Work Therapy for another three years. Many of our member organizations have utilized 

thiS program to great benefit for the veterans participants. 
99 

We would suggest, however, more emphasis be encouraged toward directing early 

transition into more meaningful work, assisting veterans to acquire truly marketable skills 

that can lead to a decent wage. The overall goal must be focused toward a veteran 

achieving full independence again. In many cases it may be fruitful to encourage more 

partnerships with both private for-profit as well as not-for-profit entities in order to 

successfully deSign and implement such programs that are sustainable. Perhaps the V A 

should concentrate on managing the course of therapy and treatment for the individual, 

and secure the services of outSide expertise to better deal with the business aspects of the 

operation. 

NCHV strongly favors extending Public Law 102-590; 38 U.S.C. 7721 until December 

31, 1999. The improvement of both the quality services delivered by VA to homeless 

veterans and the number of veterans reached as a result of this act are to be commended. 

The effort to bring a greater degree on equity into the new resource allocation model 

adopted by V A is commendable, and NCHV supports this measure. Our concern In 

particularly centered on states In the Northeast and "Rust Belt" states. While it is true 

that the shifts in the veterans populatIOn reflects the move toward the "Sun Belt" of the 

general population, a more careful look at those who remain behind IS in order here. 

Those with the most resources are more typically those who are moving south. 

Those veterans who remam In Illinois, New York, and other areas of the north central and 

northeast sections of our country tend to be older, poorer, and more prone to illness in 

comparison to their more affiuent comrades who had the resources to migrate to a warmer 

climate. The chronic and acute conditions that beset thiS remlUning veterans' populatIOn 

In these northern states make treating them more expensive. No one said to any of those 

now aging veterans when they were a young Inductee or enlistee in Illinois or New York, 

"Sorry. You carmot pledge your life in defense of the United States Constitution or fight 

in this war because you come from a "high cost state". Yet many of these veterans will 

receive less care or perhaps even no medical care If they still reside in these northern 

states if the new allocation model is not modified. 

Of particular concern to the National Coalition for Homeless Veterans is the 

approaching deadline for "registration." Homeless veterans are qUite often peripatetic by 

definitIOn. Many veterans who are now homeless and who have never or rarely used a 

VA medical facility could well be homeless and In vital need of such services by this 

time next year. However, if they have not "registered" then they may well be denied 

care. 

It is useful to reiterate that "homeless veterans" are not a discrete group of veterans. 

Rather, homeless veterans are veterans whose problems, which are often service related, 

become so acute that they find themselves homeless for a period of time. As noted, while 

V A estimates there are 275,000 homeless on any give night, double that number of 

veterans will be homeless at some point during the year. Virtually no person foresees and 

plans for the disaster of becoming homeless. 

NCHV urges the Committee to take steps to "Hold Harmless" veterans who are not 

registered, and allow them to receive medical services for which they otherwise be 

entitled. However it is done, NCHV believes that this is a concern that will be a crisis by 

the Autumn and Winter months if not addressed soon. 

An additional concern of NCHV is that change is occurring a geometncally accelerating 

pace within the Veterans Health Administration, and that not all elements of the veterans' 

community is even being kept informed much less consulted. We ask your assistance to 

ensure that all of the twenty two Veterans Integrated Service Networks (VISNs) include 
100 

homeless veterans services providers and other veterans' community based organizations 

10 the membership of the "Management Advisory Committees" (MACS) and any other 

stakeholders body or gathering at the VISN or V A Medical Center level. 

NCHV also respectfully requests the Committee take all due oversight steps necessary to 

ensure that the MACS and other means of consultation with stakeholders is truly 

substantive and a means for real "two way" communication in each VISN, and not merely 

for purposes of representing to V A Central office that a stakeholders meeting was held. 

As noted or implied in numerous allusions, a principal problem for homeless veterans is 

finding a safe place to live whlie undergoing therapy and struggling to sustain meaningful 

employment. There is just not now enough (nor is there likely to be) enough grant funds 

to build such housing. Therefore, NCHV would suggest leveraging private funds and 

partnering with the private sector in order to create more successful therapeutic housing 

capacity. We would also suggest the Committee consider adding a provision that would 

allow up to $100 MIllion in guaranteed loans to construct Veterans Transitional Housing. 

While such a guarantee program may have to entail a new program at the Department of 

Housing and Urban Development to implement such a change in Title 38, such capacity 

must be created by means of some mechanism that leverages private funding, in our view. 

We would suggest that simple but strict guidelines be included to ensure the successful 

operation of such housing, as well as the financial viability of entities receivmg benefit of 

one of a limited number of such guarantees. 

Lastly, NCHV recommends that the VA be even more strongly encouraged to contract 

out a greater proportion of their resources to true commumty based organIzations with a 

proven track record of meeting the special needs of veterans. 

4. Your testimony says that funding for inpatient mental services should be driven 

into responding to "unmet need" rather than reassigned to other types of care. 

What programs would best respond to unmet needs. 

The Veterans Health Administration is dramatically curtailing inpatient mental health 

services in VA Medical Centers all across the Nation. The assurances given to NCHV 

and to our member organizations has been that the resources thus diverted from delivery 

of treatment on an inpatient basis for substance abuse, post traumatic stress disorder and 

other war related neuro-psychiatric wound, and for general mental health services WIll be 

redirected toward outpatient delivery of the same types of services, but in a more 

effective and efficient modality of treatment. Anecdotal reports would suggest that most 

of the funds saved from diminishing inpatient mental health services are NOT being 

reprogrammed into outpatient delivery ofthe same types of services. NCHV has asked 

thIS question directly of Dr. Kizer, and not received a direct reply. 

Reducing the mental health servIces without creatmg the community network to 

effectively treat these veterans is all too reminiscent of the dumping" of patients onto the 

street from public mental hospItals using the "Madison Model" as justificatory theory. 

While NCHV is not charging V A with "dumping" we are very concerned that the 

reductions in "inpatient capacity" IS seemingly not being matched by an investment of 

those same resources "saved" in developing outpatient services at the same facility, or in 

carefully developing and nurturing the organizational capacity of true community based 

organizations to assist the veterans not now being treated on an mpatient basis. 
101 

Assurances that outpatient treatment for substance abuse or PTSD is statistically more 

effective rings very hollow in the ears of a veteran who is homeless and has no safe 

(much less supportive) place to hve while receiving outpatient treatment. It reminds 

Vietnam veterans all too much of MACV assuring the soldiers in the field that we were 

winning the war. 

There is no one program that would address these needs, but rather a more concerted 

effort to ensure that each Veterans Integrated Service Network (VISN) and each VA 

Medical Center was maintaining at least the same proportion of funds directed into 

mental health services as in previous Fiscal Years. 

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