VA has provided nursing home care to veterans for over 40 years. The Veterans Millennium Health Care and Benefits Act (Millennium Act) made important changes in VA’s nursing home program. This act required that through December 31, 2003, VA provide nursing home care to veterans with a service-connected disability rating of 70 percent or greater, veterans requiring nursing home care because of a condition related to their service, and veterans who were receiving care in a VA nursing home on November 30, 1999. Subsequent law extended these provisions through December 31, 2008. VA also has established a policy to provide nursing home care to veterans with a 60 percent service-connected disability rating who also were classified as unemployable or permanently and totally disabled. For all other veterans, VA provides care in VA-operated nursing homes and contract community nursing homes on a discretionary basis, depending on available resources, with certain patients having higher priority, including veterans who require postacute care after a hospital stay. VA pays a portion of the cost to treat veterans who seek care in state veterans’ nursing homes. The state veterans’ nursing homes receive VA funds as part of their participation in VA’s program. As of fiscal year 2005, 116 state veterans’ nursing homes in 44 states and Puerto Rico received payment from VA to provide care. In fiscal year 2005, VA paid $59.36 per day per veteran to these state veterans’ nursing homes and awarded grants to states for renovations to existing facilities or construction of new state veterans’ homes. States are responsible for obtaining financing sources to pay for their portion of veterans’ daily cost of care and for their portion related to renovations to existing facilities or construction of new state veterans’ homes. Most veterans, however, do not receive their nursing home care from the VA program but instead receive it from other providers. Care from others includes both long-stay nursing home care to assist with daily activities, such as eating and bathing, and short-stay care requiring skilled nursing home care following hospitalization. For veterans who do not receive their nursing home care from the VA program, care is financed by programs such as Medicaid, Medicare, private health or long-term care insurance, or “self-financing” by the patients. States administer Medicaid programs that include coverage for long-stay nursing home care. State Medicaid programs are the primary funders of nursing homes, and self-financing is the next most common source. Medicare primarily covers acute care health costs and therefore limits its nursing home coverage to short stays. Private health insurance pays for a smaller portion of nursing home expenditures than the other three main sources. VA’s reported overall nursing home care expenditures increased from $2.3 billion to almost $3.2 billion from fiscal year 2003 through fiscal year 2005. (See table 1.) Expenditures increased in each nursing home setting. From fiscal year 2003 through fiscal year 2005, expenditures increased by $743 million in VA-operated nursing homes, $80 million in community nursing homes, and $30 million in state veterans’ nursing homes. VA officials attributed the expenditure increase from fiscal year 2003 to fiscal year 2005, in part, to a change in the cost accounting system used to develop expenditure totals for each nursing home setting. Based on VA’s reported nursing home care expenditures, VA-operated nursing homes continued to account for about three-quarters of VA’s overall nursing home care expenditures in fiscal year 2005, as they did in fiscal year 2003. (See fig. 1.) In fiscal year 2005, 77 percent of nursing home care expenditures were accounted for by VA-operated nursing homes, compared to 73 percent in 2003. From fiscal year 2003 to fiscal year 2005, the percentage of overall expenditures for state veterans’ nursing homes and community nursing homes declined. The percentage of overall expenditures for state veterans’ nursing homes declined during this period because expenditures in VA-operated nursing homes increased more rapidly than expenditures for state veterans’ nursing homes. Growth in the percentage of overall nursing home expenditures accounted for by VA- operated nursing homes, as well as the decline in community nursing homes during this 3-year period, was similar to the pattern we observed from fiscal year 1998 through fiscal year 2003. In contrast, the percentage of overall nursing home expenditures accounted for by state veterans’ nursing homes increased in the prior period, but decreased from fiscal year 2003 through fiscal year 2005. VA’s overall patient workload in all three nursing home settings, as measured by average daily census, increased to an average of 34,375 patients per day by fiscal year 2005, 3.5 percent above the fiscal year 2003 workload. (See table 2.) However, the small increase in overall workload masked different workload trends in VA’s three settings. Strong growth in state veterans’ patient workload offset a small increase in community patient workload and a decline in VA-operated patient workload. From fiscal year 2003 through fiscal year 2005, average daily patient workload in the nursing homes VA operated declined by 215, whereas workload in community nursing homes increased by 221 and workload in state veterans’ nursing homes increased by 1,155. The continued strong growth in workload in state veterans’ nursing homes largely contributed to growth in overall patient workload during this 3-year period and was consistent with the trends that we observed from fiscal year 1998 through fiscal year 2003. The percentage of workload provided in state veterans’ nursing homes continued to account for about half of VA’s overall patient workload, increasing from 50 percent in fiscal year 2003 to 52 percent in fiscal year 2005. In contrast, the percentage of patient workload provided in VA- operated nursing homes declined. The percentage provided in community nursing homes stayed the same. (See fig. 2.) In fiscal year 2005, state veterans’ nursing homes accounted for over half of VA’s overall workload, and they accounted for 12 percent of overall expenditures for patient care. The relatively low proportion of expenditures can be explained in large part by VA’s per-diem rate for care in state veterans’ nursing homes, which on average accounts for about one-third of the cost for care in this setting. Continued growth in the percentage of overall patient workload accounted for by state veterans’ nursing homes during this 3-year period was similar to the pattern we observed from fiscal year 1998 through fiscal year 2003. VA faces two key challenges in planning for the provision of nursing home care. The first challenge is estimating who will seek care from VA and what their nursing home care needs will be. To do this, VA will need to estimate the number of veterans that will be eligible for nursing home care based on the Millennium Act and VA policy or that will be able to receive such care on a discretionary basis, based on available resources. Moreover, VA will need to estimate the extent to which these veterans will be seeking care for short-stay postacute needs or long-stay chronic needs. To meet this challenge, VA needs to establish a baseline for current nursing home needs being met by obtaining more complete information on the eligibility of veterans currently receiving services and on whether they are using short-stay or long-stay nursing home care. Although VA collects data on eligibility and length of stay for its VA-operated nursing homes, it lacks comparable data on eligibility and length of stay for state veterans’ nursing homes and on length of stay for community nursing homes. We recommended in November 2004 that VA work to close this gap. VA agreed to do so, but has not fully implemented our recommendations. VA has begun to collect and report eligibility data on veterans receiving care in VA community nursing homes. Data on eligibility and length of stay for state veterans’ nursing homes and community nursing homes are especially critical because these two settings account for almost two- thirds of VA’s overall nursing home workload. Without these data, VA does not know how the three settings in combination are being used to serve veterans of different eligibility, and what proportion of short-stay and long- stay needs are being met in all three settings. As a result, VA does not have a baseline from which to estimate future demand for nursing home care in each setting as the overall veteran population and its needs change over time. A second key challenge VA faces is determining whether it will maintain or increase the proportion of nursing home care demand it meets in each of the three nursing home settings or whether veterans will need to rely more on other non-VA nursing home care providers that are funded by other programs, such as Medicaid and Medicare. To meet this challenge, VA needs to make policy determinations concerning which veterans it will provide nursing home care to in the future and the mix of short-stay and long-stay services it will offer. For example, to what extent will VA continue to provide nursing home care to veterans in addition to those that it is required to serve under the Millennium Act? To what extent will VA provide short-stay nursing home care, and to what extent will it provide long-stay nursing home care? VA told us that such policy decisions have not been made. These policy decisions are needed to establish criteria to be used to identify which veterans VA will serve and what nursing home services it will offer as a matter of policy, in addition to those required by law. Then VA can begin to generate the information it needs for planning. This may include, for example, how many nursing homes are needed in each setting and where they should be located. VA is working on these challenges and has developed a draft long-term care strategic plan. Completing the long-term care strategic plan could help VA determine how to maximize the use of resources for meeting nursing home needs of veterans across the country in each of the three nursing home settings. VA has not given a timeline for completion of the long-term care strategic plan. In May 2004, the Secretary of Veterans Affairs acknowledged that a strategic plan would be necessary to help achieve VA’s goals, including ensuring that veterans have access to an appropriate range of services. Mr. Chairman, this concludes my prepared remarks. I will be pleased to answer any questions you or other Members of the Committee may have.