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105th Congress                                           Report 105-186
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     Part I
_______________________________________________________________________


 
       VETERANS MEDICARE REIMBURSEMENT DEMONSTRATION ACT OF 1997

_______________________________________________________________________


                 July 16, 1997.--Ordered to be printed

                                _______
                                

   Mr. Stump, from the Committee on Veterans' Affairs, submitted the 
                               following

                              R E P O R T

                  [To accompany H.R. 1362, as amended]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Veterans' Affairs, to whom was referred the 
bill (H.R. 1362) to establish a demonstration project to 
provide for Medicare reimbursement for health care services 
provided to certain Medicare-eligible veterans in selected 
facilities of the Department of Veterans Affairs, having 
considered the same, reports favorably thereon with an 
amendment in the nature of a substitute and recommends that the 
bill as amended do pass.

  The amendment in the nature of a substitute reads as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Veterans Medicare Reimbursement 
Demonstration Act of 1997''.

SEC. 2. ESTABLISHMENT OF MEDICARE REIMBURSEMENT DEMONSTRATION PROJECT.

  (a) Authority.--
          (1) In general.--The Secretary of Veterans Affairs and the 
        Secretary of Health and Human Services shall jointly carry out 
        a demonstration project under which the Secretary of Health and 
        Human Services provides the Department of Veterans Affairs with 
        reimbursement, determined in accordance with section 4, from 
        the medicare program for health care services provided to 
        targeted medicare-eligible veterans in or through medical 
        centers of the Department of Veterans Affairs selected under 
        subsection (b).
          (2) Duration.--The Secretaries shall conduct the 
        demonstration project during the three-year period beginning on 
        January 1, 1998. The Secretaries may extend such project for an 
        additional period of up to two years.
          (3) Authority to waive certain medicare requirements.--The 
        Secretary of Health and Human Services may, to the extent 
        necessary to carry out the demonstration project, waive any 
        requirement of part B of title XI of the Social Security Act, 
        title XVIII of that Act, or a related provision of law.
  (b) Selection of Participating Medical Centers.--
          (1) In general.--The Secretary, in consultation with the 
        Secretary of Health and Human Services, shall establish a plan 
        for the selection of up to 12 medical centers under the 
        jurisdiction of the Secretary and located in geographically 
        dispersed locations to participate in the project.
          (2) General criteria.--The selection plan shall favor 
        selection of those medical centers that are suited to serve 
        targeted medicare-eligible individuals because--
                  (A) there is a high potential demand by targeted 
                medicare-eligible veterans for their services;
                  (B) they have sufficient capability in billing and 
                accounting to participate;
                  (C) they have favorable indicators of quality of 
                care, including patient satisfaction;
                  (D) they deliver a range of services required by 
                targeted medicare-eligible veterans; and
                  (E) they meet other relevant factors identified in 
                the plan.
          (3) Medical center near closed base.--There shall be at least 
        one medical center selected that is in the same catchment area 
        as a military medical facility which was closed pursuant to 
        either of the following laws:
                  (A) The Defense Base Closure and Realignment Act of 
                1990 (part A of title XXIX of Public Law 101-510; 10 
                U.S.C. 2687 note).
                  (B) Title II of the Defense Authorization Amendments 
                and Base Closure and Realignment Act (Public Law 100-
                526; 10 U.S.C. 2687 note).
  (c) Voluntary Participation.--Participation of targeted medicare-
eligible veterans in the demonstration project shall be voluntary, 
subject to the capacity of participating medical centers and the 
funding limitations specified in section 4, and shall be subject to 
such terms and conditions as the Secretary may establish. In the case 
of a demonstration project at a medical center described in subsection 
(b)(3), targeted medicare-eligible veterans who are military retirees 
shall be given preference in participating in the project.
  (d) Cost Sharing.--The Secretary shall establish cost-sharing 
requirements for veterans participating in the demonstration project. 
Those requirements shall be the same as the requirements that apply to 
targeted medicare-eligible patients at nongovernmental facilities.
  (e) Crediting of Payments.--A payment received by the Secretary under 
the demonstration project shall be credited to the applicable 
Department of Veterans Affairs medical appropriation and (within that 
appropriation) to funds that have been allotted to the medical center 
that furnished the services for which the payment is made. Any such 
payment received during a fiscal year for services provided during a 
prior fiscal year may be obligated by the Secretary during the fiscal 
year during which the payment is received.

SEC. 3. USE OF MANAGED HEALTH CARE PLAN.

  (a) Managed Health Care Plans.--(1) In carrying out the demonstration 
project, the Secretary may establish and operate managed health care 
plans.
  (2) Any such plan shall be operated by or through a Department of 
Veterans Affairs medical center or group of medical centers and may 
include the provision of health care services through other facilities 
under the jurisdiction of the Secretary as well as public and private 
entities under arrangements made between the Department and the other 
public or private entity concerned. Any such managed health care plan 
shall be established and operated in conformance with standards 
prescribed by the Secretaries.
  (3) The Secretary shall prescribe the minimum health care benefits to 
be provided under such a plan to veterans enrolled in the plan. Those 
benefits shall include at least all health care services covered under 
the medicare program.
  (4) The establishment of a managed health care plan under this 
section shall be counted as the selection of a medical center for 
purposes of applying the numerical limitation under section 2(b)(1).
  (b) Medical Center Requirements.--The Secretary may establish a 
managed health care plan using one or more medical centers and other 
facilities only after the Secretary submits to Congress a report 
setting forth a plan for the use of such centers and facilities. The 
plan may not be implemented until the Secretary has received from the 
Inspector General of the Department of Veterans Affairs, and has 
forwarded to Congress, certification of each of the following:
          (1) The cost accounting system of the Veterans Health 
        Administration (known as the Decision Support System) is 
        operational and is providing reliable cost information on care 
        delivered on an inpatient and outpatient basis at such centers 
        and facilities.
          (2) The centers and facilities have operated in conformity 
        with the eligibility reform amendments made by title I of the 
        Veterans Health Care Act of 1996 (Public Law 104-262) for not 
        less than three months.
          (3) The centers and facilities have developed a credible plan 
        (on the basis of market surveys, data from the Decision Support 
        System, actuarial analysis, and other appropriate methods and 
        taking into account the level of payment under section 4 and 
        the costs of providing covered services at the centers and 
        facilities) to minimize, to the extent feasible, the risk that 
        appropriated funds allocated to the centers and facilities will 
        be required to meet the centers' and facilities' obligation to 
        targeted medicare-eligible veterans under the demonstration 
        project.
          (4) The centers and facilities collectively have available 
        capacity to provide the contracted benefits package to a 
        sufficient number of targeted medicare-eligible veterans.
          (5) The entity administering the health plan has sufficient 
        systems and safeguards in place to minimize any risk that 
        instituting the managed care model will result in reducing the 
        quality of care delivered to enrollees in the demonstration 
        project or to other veterans receiving care under subsection 
        (a)(1) or (a)(2) of section 1710 of title 38, United States 
        Code.
  (c) Reserves.--The Secretary shall maintain such reserves as may be 
necessary to ensure against the risk that appropriated funds, allocated 
to medical centers and facilities participating in the demonstration 
project through a managed health care plan under this section, will be 
required to meet the obligations of those medical centers and 
facilities to targeted medicare-eligible veterans.

SEC. 4. DETERMINATION OF REIMBURSEMENT AMOUNTS.

  (a) Payments Based on 95 Percent of Regular Medicare Payment Rates.--
          (1) In general.--Subject to the succeeding provisions of this 
        section, the Secretary of Health and Human Services shall 
        reimburse the Secretary of Veterans Affairs for services 
        provided under the demonstration project at the following 
        rates:
                  (A) Non-capitation.--Except as provided in 
                subparagraph (B) and subject to paragraphs (2)(A) and 
                (4), at a rate equal to 95 percent of the amounts that 
                otherwise would be payable under the medicare program 
                on a non-capitated basis for such services if the 
                medical center were not a Federal medical center, were 
                participating in the program, and imposed charges for 
                such services.
                  (B) Capitation.--Subject to paragraphs (2)(B) and 
                (4), in the case of services provided to an enrollee 
                under a managed health care plan established under 
                section 3, at a rate equal to 95 percent of the payment 
                rate otherwise applicable under a risk-sharing contract 
                under section 1876 of the Social Security Act (42 
                U.S.C. 1395mm) with respect to such an enrollee.
        In cases in which a payment amount may not otherwise be readily 
        computed, the Secretaries shall establish rules for computing 
        equivalent or comparable payment amounts.
          (2) Exclusion of certain amounts.--
                  (A) Noncapitation.--In computing the amount of 
                payment under paragraph (1)(A), the following shall be 
                excluded:
                          (i) Disproportionate share hospital 
                        adjustment.--Any amount attributable to an 
                        adjustment under subsection (d)(5)(F) of 
                        section 1886 of the Social Security Act (42 
                        U.S.C. 1395ww).
                          (ii) Direct graduate medical education 
                        payments.--Any amount attributable to a payment 
                        under subsection (h) of such section.
                          (iii) Percentage of indirect medical 
                        education adjustment.--40 percent of any amount 
                        attributable to the adjustment under subsection 
                        (d)(5)(B) of such section.
                          (iv) Percentage of capital payments.--67 
                        percent of any amounts attributable to payments 
                        for capital-related costs under subsection (g) 
                        of such section.
                  (B) Capitation.--In computing the amount of payment 
                under paragraph (1)(B), the payment rate shall be 
                computed as though the amounts excluded under 
                subparagraph (A) had been excluded in the determination 
                of the adjusted average per capita cost under section 
                1876(a)(4) of the Social Security Act (42 U.S.C. 
                1395mm(a)(4)) .
          (3) Periodic payments from medicare trust funds.--Payments 
        under this section shall be made--
                  (A) on a periodic basis consistent with the 
                periodicity of payments under the medicare program; and
                  (B) in appropriate part, as determined by the 
                Secretary of Health and Human Services, from the 
                Federal Hospital Insurance Trust Fund and the Federal 
                Supplementary Medical Insurance Trust Fund.
          (4) Annual limit on medicare payments.--The amount paid to 
        the Department of Veterans Affairs under this section for any 
        year for the demonstration project may not exceed $50,000,000, 
        of which not more than $10,000,000 may be for the conduct of 
        the project through managed health care plans under section 3..
  (b) Reduction in Payment for VA Failure to Maintain Effort.--
          (1) In general.--In order to avoid shifting onto the medicare 
        program costs previously assumed by the Department of Veterans 
        Affairs for the provision of medicare-covered services to 
        targeted medicare-eligible veterans, the payment amount under 
        this section for the project for a fiscal year shall be reduced 
        by the amount (if any) by which--
                  (A) the amount of the VA effort level for targeted 
                veterans (as defined in paragraph (2)) for the fiscal 
                year ending in such year, is less than
                  (B) the amount of the VA effort level for targeted 
                veterans for fiscal year 1997.
          (2) VA effort level for targeted veterans defined.--For 
        purposes of paragraph (1), the term ``VA effort level for 
        targeted veterans'' means, for a fiscal year, the amount, as 
        estimated by the Secretaries, that would have been expended 
        under the medicare program for VA-provided medicare-covered 
        services for targeted veterans (as defined in paragraph (3)) 
        for that fiscal year if benefits were available under the 
        medicare program for those services. Such amount does not 
        include expenditures attributable to services for which 
        reimbursement is made under the demonstration project.
          (3) VA-provided medicare-covered services for targeted 
        veterans.--For purposes of paragraph (2), the term ``VA-
        provided medicare-covered services for targeted veterans'' 
        means, for a fiscal year, items and services--
                  (A) that are provided during the fiscal year by the 
                Department of Veterans Affairs to targeted medicare-
                eligible veterans;
                  (B) that constitute hospital care and medical 
                services under chapter 17 of title 38, United States 
                Code; and
                  (C) for which benefits would be available under the 
                medicare program if they were provided other than by a 
                Federal provider of services that does not charge for 
                those services.
  (c) Assuring No Increase in Cost to Medicare Program.--
          (1) Monitoring effect of demonstration program on costs to 
        medicare program.--
                  (A) In general.--The Secretaries, in consultation 
                with the Comptroller General, shall closely monitor the 
                expenditures made under the medicare program for 
                targeted medicare-eligible veterans during the period 
                of the demonstration project compared to the 
                expenditures that would have been made for such 
                veterans during that period if the demonstration 
                project had not been conducted.
                  (B) Annual report by the comptroller general.--Not 
                later than December 31 of each year during which the 
                demonstration project is conducted, the Comptroller 
                General shall submit to the Secretaries and the 
                appropriate committees of Congress a report on the 
                extent, if any, to which the costs of the Secretary of 
                Health and Human Services under the medicare program 
                increased during the preceding fiscal year as a result 
                of the demonstration project.
          (2) Required response in case of increase in costs.--
                  (A) In general.--If the Secretaries find, based on 
                paragraph (1), that the expenditures under the medicare 
                program increased (or are expected to increase) during 
                a fiscal year because of the demonstration project, the 
                Secretaries shall take such steps as may be needed--
                          (i) to recoup for the medicare program the 
                        amount of such increase in expenditures; and
                          (ii) to prevent any such increase in the 
                        future.
                  (B) Steps.--Such steps--
                          (i) under subparagraph (A)(i) shall include 
                        payment of the amount of such increased 
                        expenditures by the Secretary from the current 
                        medical care appropriation of the Department of 
                        Veterans Affairs to the trust funds under the 
                        medicare trust program; and
                          (ii) under subparagraph (A)(ii) shall include 
                        suspending or terminating the demonstration 
                        project (in whole or in part) or substitution 
                        of a lower percentage for 95 percent under 
                        subsection (a)(1).

SEC. 5. PRIOR NOTICE TO CONGRESS.

  The Secretary may not carry out the demonstration project at a 
medical center (either on a fee basis under section 2 or under a 
managed health care plan under section 3) until 30 days after the date 
on which the Secretary submits to Congress a report on the Secretary's 
plans for the selection of medical centers and on the rationale for the 
medical centers selected.

SEC. 6. EVALUATION AND REPORTS.

  (a) Ongoing Evaluation and Annual Reports by Independent Entity.--
          (1) Ongoing evaluation.--The Secretaries shall arrange for an 
        independent entity with expertise in the evaluation of health 
        services to conduct an ongoing evaluation of the demonstration 
        project.
          (2) Annual reports.--The entity shall submit a report on the 
        project jointly to the Secretaries and to the appropriate 
        committees of the Congress not later than March 1 following 
        each year during which the project is conducted.
          (3) Assessment.--Each such report shall include the results 
        of the ongoing evaluation under paragraph (1), including an 
        assessment of each of the following:
                  (A) The cost to the Department of Veterans Affairs of 
                providing care to veterans under the project.
                  (B) Compliance of participating medical centers with 
                applicable measures of quality of care, compared to 
                such compliance for other medicare-participating 
                medical centers.
                  (C) A comparison of the costs of medical centers' 
                participation in the program with the reimbursements 
                provided for services of such medical centers.
                  (D) Any savings or costs to the medicare program from 
                the project.
                  (E) Any change in access to care or quality of care 
                for targeted medicare-eligible veterans participating 
                in the project.
                  (F) Any effect of the project on the access to care 
                and quality of care for targeted medicare-eligible 
                veterans not participating in the project and other 
                veterans not participating in the project.
                  (G) The provision of services under managed health 
                care plans under section 3, including the circumstances 
                (if any) under which the Secretary uses reserves 
                described in section 3(d) and the Secretary's response 
                to such circumstances (including the termination of 
                managed health care plans requiring the use of such 
                reserves).
  (b) Report on Extension and Expansion of Demonstration Project.--Not 
later than six months after the date of the submission of the 
penultimate report under subsection (a), the Secretaries shall submit 
to the Congress a report containing their recommendation as to--
          (1) whether to extend the demonstration project (in addition 
        to the extension authorized under section 2(a)(2)) or make the 
        project permanent;
          (2) whether to expand the project to cover additional sites 
        and areas and to increase the maximum amount of reimbursement 
        (or the maximum amount of reimbursement permitted for managed 
        health care plans under section 3) under the project in any 
        year; and
          (3) whether the terms and conditions of the project should be 
        continued (or modified) if the project is extended or expanded.

SEC. 7. DEFINITIONS.

  For the purpose of this Act:
          (1) Demonstration project; project.--The terms 
        ``demonstration project'' and ``project'' mean the 
        demonstration project carried out under section 2(a).
          (2) Medicare program.--The term ``medicare program'' means 
        the programs of health benefits provided under title XVIII of 
        the Social Security Act (42 U.S.C. 1395 et seq.).
          (3) Military retiree.--The term ``military retiree'' means a 
        member or former member of the Armed Forces who is entitled to 
        retired pay.
          (4) Secretary; secretaries.--Unless otherwise provided, the 
        term ``Secretary'' means the Secretary of Veterans Affairs and 
        the term ``Secretaries'' means the Secretary of Veterans 
        Affairs and the Secretary of Health and Human Services acting 
        jointly.
          (5) Targeted medicare-eligible veteran.--The term ``targeted 
        medicare-eligible veteran'' means an individual who--
                  (A) is a veteran (as defined in section 101(2) of 
                title 38, United States Code) and is described in 
                section 1710(a)(3) of title 38, United States Code; and
                  (B) is entitled to hospital insurance benefits under 
                part A of the medicare program and is enrolled in the 
                supplementary medical insurance program under part B of 
                the medicare program.

                              Introduction

    On September 12, 1996, the Honorable Bob Stump, Chairman of 
the House Veterans' Affairs Committee, was joined by the 
Honorable G.V. (Sonny) Montgomery, the Honorable Floyd Spence, 
the Honorable Lane Evans, the Honorable Terry Everett, the 
Honorable Chet Edwards, the Honorable Steve Buyer, the 
Honorable Frank Tejeda, and the Honorable Joel Hefley in the 
introduction of H.R. 4068, legislation to establish a 
demonstration project to provide that the Department of 
Veterans Affairs may receive Medicare reimbursement for health 
care services provided to certain Medicare-eligible veterans.
    On September 18, 1996, the Committee on Veterans' Affairs 
ordered H.R 4068 reported amended to the full House by a vote 
of 17-0. The Ways and Means Committee, which had primary 
jurisdiction, heard testimony on the bill. No further action 
was taken on the bill in the 104th Congress.
    On April 17, 1997, the Honorable Bob Stump, Chairman of the 
House Veterans' Affairs Committee, was joined by the Honorable 
Lane Evans, the Honorable Cliff Stearns, the Honorable Luis 
Gutierrez, the Honorable Chris Smith, the Honorable Joe 
Kennedy, the Honorable Terry Everett, the Honorable Bob Filner, 
the Honorable Jack Quinn, the Honorable Jim Clyburn, the 
Honorable Dan Schaefer, the Honorable Corrine Brown, the 
Honorable Jerry Moran, the Honorable Peter Doyle, the Honorable 
John Cooksey, the Honorable Frank Mascara, the Honorable Asa 
Hutchinson, the Honorable Collin Peterson, the Honorable Helen 
Chenoweth, the Honorable Julia Carson, the Honorable Ray 
LaHood, the Honorable Silvestre Reyes, the Honorable J.D. 
Hayworth, the Honorable Vic Snyder and the Honorable Bill 
Barrett in the introduction of H.R. 1362, legislation to 
establish a demonstration project to provide for Medicare 
reimbursement for health care services provided to certain 
Medicare-eligible veterans in selected facilities of the 
Department of Veterans Affairs.
    The Subcommittee on Health met on May 8, 1997 to hear 
expert testimony on three pieces of legislation, including H.R. 
1362, the Veterans' Medicare Reimbursement Demonstration Act of 
1997. Testifying on H.R. 1362 at the hearing were Mr. Paul Van 
de Water, Assistant Director for Budget Analysis at the 
Congressional Budget Office; Dr. Kenneth Kizer, Under Secretary 
for Health at the Department of Veterans Affairs; Ms. Kathleen 
Buto, Associate Administrator for Policy at the Health Care 
Financing Administration; Mr. John Vitikacs, Assistant Director 
of the National Veterans Affairs and Rehabilitation Commission 
of the American Legion; Mr. Dennis Cullinan, Deputy Director 
for National Legislative Service of the Veterans of Foreign 
Wars; Colonel Charles Partridge, Legislative Counsel for the 
National Military and Veterans Alliance; Mr. Chuck Burns, 
National Service Director of AMVETS; Ms. Kelly Willard West, 
Director of Government Relations of the Vietnam Veterans of 
America; Mr. John Bollinger, Deputy Executive Director of the 
Paralyzed Veterans of America; and Mr. Larry Rhea, Deputy 
Director of Legislative Affairs of the Non Commissioned 
Officers Association.
    On May 15, 1997, the Subcommittee on Health met and ordered 
H.R. 1362 reported favorably to the full Committee by unanimous 
voice vote with an amendment in the nature of a substitute.
    On May 21, 1997, the full Committee met and ordered H.R. 
1362, as amended, reported favorably to the House by unanimous 
voice vote.

                      Summary of the Reported Bill

    H.R. 1362, as amended, would:

    1. LCreate a three-year demonstration project in up to 12 
geographically dispersed VA medical centers allowing the VA to 
be reimbursed by Medicare for the care of certain category C 
Medicare-eligible veterans.

    2. LProvide that Medicare payments be capped at $50 million 
annually; of that amount, a managed care component would be 
limited to $10 million, and care furnished under the 
traditional fee-for-service model could not exceed $40 million.

    3. LSpecify that VA may implement a managed care component 
only after submitting a plan on proposed demonstration sites to 
include certifications from its Inspector General that the 
participating facilities have: (1) a reliable cost-accounting 
system in place; (2) implemented eligibility reform; (3) 
developed a plan on the basis of market surveying, actuarial 
analysis, and other business techniques; to minimize the risk 
that appropriated funds will be needed to subsidize the 
demonstration; (4) the capacity to provide the contracted 
benefits package; and (5) sufficient systems and safeguards in 
place to ensure provision of high-quality care.

    4. LSpecify criteria for selecting demonstration sites, and 
require that at least one site would be near a military medical 
facility which had closed under the base realignment and 
closure process, with military retirees having preference for 
participation at that site or sites.

    5. LRequire VA to maintain its current level of services to 
Medicare-eligible veterans and effectively limit payments to 
the additional episodes above that baseline level.

    6. LProvide that the Secretaries of the Departments of 
Health and Human Services and Veterans Affairs monitor 
expenditure levels during the project in relation to 
expenditures that would have been made but for the project, and 
provide for annual audits by the Comptroller General to ensure 
that Medicare is not incurring additional costs.

    7. LProvide for adjusting payment rates, or shrinking or 
terminating the program, at any point if Medicare costs rise 
under the demonstration.

    8. LAuthorize reimbursement at 95 percent of otherwise 
applicable rates.

    9. LEstablish a rigorous evaluation of the program by 
independent entities.

                       Background and Discussion

                          The Medicare Program

    Created in 1965, the Medicare program, title XVIII of the 
Social Security Act, is a statutory entitlement for health 
insurance coverage for the aged and certain disabled persons. 
Those 65 years of age or older and eligible for Social Security 
or railroad retirement cash benefits are automatically entitled 
to hospital insurance under Medicare Part A, which is financed 
by payroll taxes. Part A provides coverage for inpatient 
hospitalization, up to 100 days of post-hospital skilled 
nursing home care, home health services, and hospice care. 
Physician and outpatient services are provided under Medicare 
Part B, which is financed through a combination of payments by 
beneficiaries who elect to enroll and general revenues.
    Some 88 percent of the 38 million Medicare beneficiaries 
obtain services under a fee-for-service system through 
providers of their choice, with Medicare making payment for 
each service rendered. Payments for inpatient hospital services 
are made in accordance with a prospective payment system with 
rates based on the patient's diagnosis. Payments for 
physicians' services are based on a fee schedule.
    Under Medicare's risk contract program, Medicare pays 
participating health maintenance organizations a predetermined 
monthly ``capitation'' payment for each Medicare enrollee, 
regardless of the amount of care provided. The payments equal 
95 percent of the estimated adjusted average per capita cost 
(AAPCC) of providing Medicare services to a given beneficiary 
under the fee-for-service-system. The HMO must provide any 
needed services offered under its contract, regardless whether 
it can do so within the capitation payment. Managed care plans 
participating in the Medicare program are required to offer 
beneficiaries either benefits in addition to those available to 
beneficiaries who opt for fee-for-service care or lower cost-
sharing requirements.

                      VA and the Medicare Program

    Provisions of Medicare law (codified at section 1395f(c ) 
of title 42, United States Code) specify that no Medicare 
payments may be made to a Federal provider of services, except 
a provider which the Secretary determines is providing services 
to the public generally as a community institution or agency, 
and no payment may be made to any provider for services which 
the provider is obligated by law to render at public expense. A 
narrow exception to that policy, in section 8153(d) of title 
38, United States Code, requires that VA be reimbursed by 
Medicare (notwithstanding any condition, limitation, or other 
provision in title XVIII) when it provides services to 
Medicare-covered individuals who are not eligible for care 
under chapter 17 of title 38 and who are afforded VA care or 
services under a ``sharing'' agreement. Under existing law, 
therefore, although many of its patients are Medicare-eligible, 
VA may not seek payment from the Medicare program when it 
provides care to a Medicare-covered veteran.

          Eligible veterans who cannot gain access to VA care

    VA's obligation to provide care to eligible veterans is 
effective ``only to the extent and in the amount provided in 
advance in appropriations Acts for such purposes.'' 38 USC 
section 1710(a)(4). Eligibility reforms enacted in 1996 
established priorities for categories of eligible veterans to 
govern their relative standing for registration or enrollment 
for VA care. VA may enroll only such numbers of veterans as it 
can reasonably expect to be able to treat within available 
funds. Service-connected veterans rated 10 percent or more 
disabled have highest priority for enrollment. This statutory 
priority system assigns its lowest priority to veterans who 
have no other special eligibility status and whose incomes 
exceed a statutory ``means test'' (that is, income above 
$21,610 in the case of an individual with no dependents).
    While eligible for VA care subject to co-payment 
requirements, so-called ``category C'' veterans have generally 
been denied access to VA care because the system lacks 
resources to treat them. Authorizing VA to collect and retain 
Medicare reimbursement for Medicare-covered services provided 
higher-income dual-eligible veterans would allow VA to provide 
care to more of these veterans.
    The VA medical care appropriation has generally been 
sufficient only to enable VA to serve veterans in high-priority 
classifications (notably, the service-connected disabled, those 
with limited financial means, and such special cohorts as 
former prisoners of war and Persian Gulf veterans). 
Nevertheless, some individual VA facilities have had capacity 
to provide some level of services to higher-income veterans.

                        Current Level of Effort

    VA has estimated that in Fiscal Year 1996 it would treat 
some 34,200 Medicare-eligible ``category C'' veterans who were 
at least 65 years old and another 5,300 whose Medicare 
eligibility is based on disability. While VA information 
systems do not provide a basis to ascertain with precision the 
extent to which it has subsidized Medicare in treating dual 
eligible veterans, VA does have substantial data. In a 1995 
analysis, the Veterans Health Administration identified VA 
facilities which in 1994 were treating the greatest number of 
individual dual-eligible category C veterans. Northport, NY; 
Hines, IL; and Amarillo, TX VA Medical Centers saw the greatest 
number of individual patients, while Hines, West Los Angeles, 
and Northport treated more veterans on an inpatient basis than 
other VA facilities. Of the 25 sites serving the greatest 
number of these dual-eligible, category C veterans, almost one-
third (8) were in the Northeast. A VA draft report on this 
analysis indicates that most of these inpatients were seen for 
mental disturbances or illness (the most frequent diagnosis 
related groups include organic disturbances and mental 
retardation, degenerative nervous system disorders, and 
psychoses). The most common surgical procedures these veterans 
received were cystoscopy, cataract surgery, and transurethral 
prostatectomy. Outpatient services most frequently provided 
these veterans included nursing care, general internal 
medicine, and laboratory services.
    The General Accounting Office, in a 1994 report, 
``Veterans' Health Care: Use of VA Services by Medicare-
Eligible Veterans (GAO/HEHS)'' reviewed FY 1990 data to 
determine the types of care Medicare-eligible veterans sought 
at VA. GAO examined inpatient and outpatient services, 
including prescription drugs (for which Medicare does not 
provide coverage). While it considered income, the report did 
not attempt to differentiate between Category A and C veterans. 
The study found that Medicare-eligible veterans tended to use 
VA for services or products for which Medicare provided little 
or no reimbursement such as prescription drugs. Dual users 
obtained almost as many drugs from VA as veterans who only used 
VA for care. The report also found that VA users used slightly 
fewer audiology services (which Medicare does not reimburse) 
than dual users, but slightly more optometry and dental 
services (also benefits Medicare does not cover). The report 
also notes that VA is an important source of inpatient 
psychiatric care and nursing home care (services for which 
Medicare provides limited reimbursement under certain 
circumstances).

                    Health Care Reform Within the VA

    The VA health care system is a vertically integrated 
delivery system, and this ability to provide veterans with a 
full continuum of health care services makes VA a unique 
provider. While VA had long seemed a relatively static hospital 
based system, VA health care is undergoing major changes in 
delivery systems, organization, and management philosophy. 
These changes, which have accelerated in the last two years, 
have included a shift in much of VA care from inpatient to 
outpatient settings. With accompanying decentralization of 
decisionmaking, downsizing of VA's workforce and its middle-
management layer, and consolidation of numbers of its medical 
centers, VA is becoming a more cost-effective provider. At the 
same time, VA is seeking to improve its service-delivery and 
the level of its beneficiaries' satisfaction with VA care. VA 
is also increasing its number of community-based outpatient 
clinics to make care more accessible and reduce the cost of 
care-delivery. It is also attempting to improve case management 
and continuity of care by assigning each veteran to a primary 
care provider.
    In its May 1997 report to Congress, entitled ``Journey of 
Change'', on its national strategic plan, VA states that, as of 
October 1996, 97 percent of its facilities had developed 
primary care teams, and that 53 percent of its patients had 
enrolled in primary care as of September 30, 1996. All of its 
networks had implemented utilization management programs to 
increase the efficiency and appropriateness with which services 
are provided and resources used. VA describes its shift to 
managed care as a major strategy to transform its delivery 
system, and reports that accordingly, it is developing and 
implemented clinical guidelines for treating specific health 
problems. Guidelines for treating stroke, amputation, ischemic 
heart disease, major depression disorder, and major depression 
with post traumatic stress disorder were implemented in fiscal 
year 1996. VA plans to disseminate another 12 clinical practice 
guidelines this year.
    While VA's shift to outpatient care, primary care, and 
increasingly more convenient access appear to be markedly 
improving its ``customer service'', relatively few higher 
income veterans are likely to benefit from these changes. 
Although VA seeks to increase the numbers of veterans it 
treats, it is unlikely, given current law and a constrained 
budget, that the VA health care system can expand significantly 
the numbers of these veterans it serves. To the contrary, one 
might anticipate that the numbers served would, in fact, 
decline. The new access criteria established in the Veterans' 
Health Care Eligibility Reform Act of 1996 (Public Law 104-
262), for example, may alter facilities' abilities to deliver 
care to some of these prior users. That law assigns higher 
income veterans the lowest priority for enrollment. VA medical-
care budgets which do not keep pace with inflation will, in 
general, reduce VA's capability to serve veterans whose 
eligibility for care is based on the availability of resources. 
Moreover, VA is also changing the way individual facilities 
have been funded. Funds are now distributed to networks based 
on the type and number of individuals served; network directors 
are free to distribute funds to the facilities in their 
catchment area. Facilities which had provided care to higher-
income veterans in the past, may be struggling for resources 
today under the new resource allocation methodology.

                        Rationale for H.R. 1362

    Many of these considerations have for some time led this 
Committee--as well as Medicare-eligible higher-income 
veterans--to urge that they be offered greater choice under the 
Medicare program. The VA health care system, which is otherwise 
largely closed to them as veterans because of funding 
constraints, should not also be closed to them as Medicare 
beneficiaries, particularly not if such access would be 
beneficial both to VA and the Medicare program.
    This Committee proposed legislation in the 104th Congress 
to mount a demonstration project that would permit certain 
veterans to use Medicare benefits in the VA and also require 
that VA accept a discounted reimbursement rate. It has been 
this Committee's view that the Medicare program, VA, and these 
veterans can all benefit from establishing VA as a choice for 
category C, Medicare-covered veterans. Given fiscal pressures 
on the Medicare trust funds, it has been proposed that this 
concept be implemented on a limited basis through a 
demonstration program so that its underlying assumptions can be 
tested. H.R. 1362, as amended, would provide for such a test.
    Allowing VA to collect and retain Medicare funds would 
allow VA to provide care to a greater number of veterans. To 
the extent that VA can serve Medicare beneficiaries without 
needing to expand its staffing or other overhead costs, 
Medicare reimbursement will bring down VA's cost of care per 
patient. (VA has articulated a strategic goal of cutting costs 
per individual patient by 30 percent; increasing veterans' 
access to health care by 20 percent; and relying on non-
appropriated funds for 10 percent of funding.)

                           The Reported Bill

    H. R. 1362, as amended, would for the first time allow 
certain Medicare-eligible veterans to elect VA as their 
Medicare-provider. This legislation would authorize the 
Department to establish a three-year test program to 
demonstrate that VA can help reduce Medicare costs and at the 
same time improve access to care for certain veterans. The 
veteran-beneficiaries of this legislation are unique in being 
eligible for VA care but, because of VA funding levels and 
because of personal income exceeding VA's ``means test'', 
generally have been denied care by a system designed to serve 
them. The bill is designed to achieve Medicare savings through 
provisions which call for reimbursement levels to VA at 95 
percent of otherwise applicable reimbursement rates.
    The demonstration program would have two components--a 
traditional fee-for-service model (subject to the limitation 
that annual Medicare payments may not exceed $40 million) and a 
managed care plan (subject to a $10 million cap). Under the 
reported bill, these tests would be mounted in up to 12 
geographically dispersed VA medical centers. The VA Secretary 
is to develop a site selection plan in consultation with the 
Secretary of Health and Human Services. In selecting medical 
centers to participate in the demonstration project, the 
Secretary is to select at least one medical center within the 
catchment area of a military medical facility which has been 
closed; VA is to give military retirees preference to 
participate in the demonstration at that site or sites.
    The Committee is concerned that facilities selected to 
participate in the demonstration be suited to serve the 
targeted beneficiaries, based on such factors as high potential 
demand, capability and capacity to provide a range of required 
services, a sophisticated cost-accounting and billing 
capability, and favorable indicators of quality of care, 
including high levels of patient satisfaction. Accordingly, the 
reported bill requires that, before implementing a 
demonstration project at a proposed site, the Department report 
to Congress regarding the medical center or centers which have 
been selected for participation and the rationale for site or 
sites selected.
    The reported bill would impose specific additional 
reporting requirements applicable to carrying out managed care 
demonstration projects. The Committee has established these 
additional requirements in light of its finding that many 
elements associated with successful provision of care under a 
risk contract are not yet in place at any VA medical centers. 
Yet the harm which may result from VA's lack of experience with 
managing a risk-contract, as well as its lack of cost-
accounting capability and of sufficient actuarial and other 
data, ultimately fall not on either VA as a provider or on VA 
administrators, but on other veterans. The Committee is 
concerned that those now depending on VA could fall through its 
``safety net'' if appropriations were diverted to subsidize the 
cost of care to new Medicare beneficiaries.
    The Committee has made every effort to ensure that the 
reported bill would impose no additional cost on the Medicare 
trust funds. Among those provisions, the measure takes specific 
account of the fact that VA has provided Medicare-covered 
services to some number of dual eligible veterans who would be 
among the targeted beneficiaries of the bill. That level of 
services may be said to represent a VA subsidy to the Medicare 
trust funds. Insofar as that ``level of effort'' has been 
supported by the VA's medical care appropriation, the bill 
seeks to avoid a situation where medicare-covered services VA 
would otherwise have provided (but for this legislation) 
declines because of the legislation. That is, the reported bill 
seeks to avoid any shifting of costs from the VA medical care 
appropriation to Medicare. The reported bill, accordingly, 
requires VA to maintain an ``effort level for targeted 
veterans'' reflecting the level provided in fiscal year 1997.
    The level of effort for these targeted veterans represents 
an amount (which must be estimated) which the Health Care 
Financing Administration (HCFA) would have paid for VA-provided 
medicare-covered services to targeted veterans for a fiscal 
year. To avoid shifting costs onto Medicare, the reported bill 
provides that VA would be reimbursed in any fiscal year only 
for covered services exceeding the level of effort for fiscal 
year 1997.
    In addition to accounting for maintenance of prior level of 
effort, the reported bill includes other elements to help 
ensure that the medicare trust funds are held harmless under 
the demonstration. The reported bill would task the 
Secretaries, in consultation with the Comptroller General, to 
closely monitor expenditures made under the demonstration 
project and compare them with expenditures which would have 
been made if the demonstration had not been conducted. In 
addition, the measure calls on the Comptroller General to 
report to the Secretaries and the Congress on the extent to 
which the demonstration has resulted in increasing Medicare 
costs. The reported bill affords specific remedies to address 
such cost-shifting, including recoupment of the increase in 
expenditures and suspension or termination of the demonstration 
project.
    Under the reported bill, once VA had met its required 
``level of effort'' it would receive discounted reimbursement 
from HCFA. The rates would be discounted in two ways. First, 
HCFA would eliminate all or part of the reimbursement it makes 
to other providers for disproportionate share hospitals, 
indirect and direct medical education, and capital investments. 
Second, HCFA's intermediaries would reimburse VA at 95 percent 
of the rate it would provide to non-federal providers.
    The Congressional Budget Office (CBO) analysis of the 
reported bill, printed herein, projects that ``Medicare's cost 
would probably increase, but CBO cannot estimate the amount.'' 
CBO explains that data limitations make it difficult to 
determine accurately VA's ``current level of effort'' to 
targeted veterans. In postulating that it would not be possible 
to determine if VA was actually maintaining its level of effort 
even if that level could be estimated accurately, however, 
CBO's ``analysis'' veers off a rational course. CBO states 
that:

        The nature of the demonstration would encourage VA to 
        serve targeted veterans at facilities where Medicare 
        would provide reimbursement. As a result, spending on 
        medical care for targeted veterans would rise at VA 
        facilities participating in the demonstration, and VA's 
        spending on medical care for targeted veterans at 
        nonparticipating facilities would fall. VA could appear 
        to meet or exceed its maintenance-of-effort requirement 
        while actually falling short of the target.

    This analysis offers no foundation for the assumptions made 
in the above-quoted paragraph. In essence, CBO assumes that VA 
health care administrators, in the face of a law that requires 
a maintenance of effort throughout its health care system, will 
ignore that requirement with resultant shifting of costs to 
Medicare. CBO, thus, appears to assume not only that VA's most 
powerful incentive is to shift costs, but that it also has the 
will to defy a requirement of law and that it has the means to 
do so and evade detection. The VA's own internal budget 
documents for Fiscal Year 1998 make it apparent that the 
Department's objective is quite the opposite. VA's goal for the 
demonstration is to achieve success so as to demonstrate the 
benefit of expanding this model into a nationwide program. 
Accordingly, it is inconceivable that VA would seek to pursue a 
short-term advantage at a handful of facilities at the expense 
of its national strategy. Moreover, it is inconceivable that a 
drop in numbers of ``targeted veterans'' at ``nonparticipating 
facilities'' could escape detection, whether by the General 
Accounting Office or Inspectors General of the VA or Department 
of Health and Human Services.
    In essence, H.R. 1362, as amended, seeks to establish a 
modest demonstration to test the view that VA can provide 
certain dual eligible veterans a choice not now available to 
them as veterans or Medicare beneficiaries and reduce costs to 
Medicare. The qualified CBO view that Medicare costs would 
``probably'' increase under the bill is equally untested, and 
flawed in this Committee's view. In favorably reporting 
H.R.1362, as amended, the VA Committee advances legislation 
which should be tested.

                      Section-by-Section Analysis

    Section 1 would name the Act the ``Veterans Medicare 
Reimbursement Demonstration Act of 1998''.
    Section 2(a)(1) would authorize the Secretaries of Veterans 
Affairs and Health and Human Services to jointly carry out a 
VA-Medicare subvention demonstration project.
    Section 2(a)(2) would specify that the demonstration 
project would begin on January 1, 1998 and last three years.
    Section 2(a)(3) would, to the extent necessary to carry out 
the demonstration project, authorize the Secretary of Health 
and Human Services to waive otherwise applicable Medicare 
requirements.
    Section 2(b)(1) would require the Secretary, in 
consultation with the Secretary of Health and Human Services to 
establish a plan for selection of up to 12 sites.
    Section 2(b)(2) would specify that participating medical 
centers must be suited to serve targeted veterans and specify 
criteria to be used by the Secretaries in making these site 
selections.
    Section 2(b)(3) would specify that at least one medical 
center selected would be in close proximity to a military 
medical facility which closed during the Base Closure and 
Realignment (BRAC) process.
    Section 2(c) would provide that veterans' participation in 
the demonstration project is to be voluntary; subject to 
participating facilities' capacities and available resources; 
and is to be subject to terms and conditions that the Secretary 
may set.
    Section 2(d) would require the establishment of the same 
cost-sharing policy applicable to participating veterans as 
would apply under the Medicare program at nongovernmental 
facilities.
    Section 2(e) would establish a policy for crediting 
Medicare payments to ensure that such funds would be retained 
and made available to the facility which provided services.
    Section 3(a) would authorize the Secretary to establish and 
operate managed care plans within the demonstration; any one of 
the managed care plans would constitute one of the 12 pilots 
which may be undertaken under the demonstration, and may be 
carried out through one or more VA medical centers and may 
involve the provision of services by or through other public or 
private entities.
    Section 3(b) would require that the Inspector General 
review any proposed managed care site, and certify that 
specified criteria are met, before the Secretary may implement 
a managed care plan.
    Section 3(c) would require the Secretary to maintain 
reserves from monies held for contingency purposes in VA's 
headquarters office to ensure that appropriated funds allocated 
to participating VA facilities to meet obligations to veterans 
who are not participating in the demonstration project are not 
used to meet the obligations of the demonstration project.
    Section 4(a) would establish a Medicare reimbursement 
formula to involve a rate of 95 percent of the amount that 
would otherwise be payable to a non-Federal provider, and 
specify those elements to be excluded in whole or in part from 
the payment. The section would also cap the annual payment made 
to the VA at $50 million, of which not more than $10 million 
can be used for projects employing managed care plans.
    Section 4(b) would provide that to avoid shifting any costs 
previously assumed by the VA for category C, Medicare-eligible 
veterans to the Medicare program, payment to VA would only be 
made for ``VA-provided medicare-covered services for targeted 
veterans'' for services which exceed the ``VA effort level for 
targeted veterans'' for fiscal year 1997. The subsection would 
also define the quoted terms.
    Section 4(b)(2) would define the term ``VA effort level for 
targeted veterans.''
    Section 4(b)(3) would define the term ``VA-provided 
medicare-covered services for targeted veterans.''
    Section 4(c)(1)(A) would direct VA and HHS, in consultation 
with the Comptroller General, to closely monitor the program to 
ensure that no increases in the cost of the Medicare program 
will be incurred.
    Section 4(c)(1)(B) would require that the Comptroller 
General submit a report on the extent to which the cost of the 
Medicare program had changed due to enactment of this 
legislation.
    Section 4(c)(2)(A) would direct VA and HHS to take 
appropriate action if it is determined that Medicare costs have 
risen due to enactment of this legislation.
    Section 4(c)(2)(B) would specify what steps should be taken 
should such cost increases be found.
    Section 5 would require that the Secretary notify Congress 
of the location of any proposed demonstration sites and 
rationale for the site-selection, and defer carrying out such 
demonstration at the proposed site or sites for 30 days.
    Section 6(a)(1) would require VA and HHS to arrange for an 
independent agency to conduct an ongoing evaluation of the 
demonstration project.
    Section 6(a)(2) would require that entity to submit an 
annual report to Congress on its findings.
    Section 6(a)(3) would specify what criteria the entity 
should use in assessing the demonstration project.
    Section 6(b) would direct VA and HHS to submit 
recommendations to Congress--after studying the independent 
entity's assessment--on whether to extend or expand the 
demonstration project.
    Section 7 would define various terms used in the 
legislation.

                           Oversight Findings

    No oversight findings have been submitted to the Committee 
by the Committee on Government Reform and Oversight.

                  Statement of Administration's Views

    In May 8, 1997 testimony before the Subcommittee on Health, 
Dr. Kenneth Kizer, VA's Under Secretary for Health, offered the 
Department's support for the enactment of H.R. 1362 ``with some 
changes.'' The testimony strongly urged that the legislation be 
revised to authorize VA to test not only a fee-for-service 
model but a capitation model as well. The bill, as amended, 
incorporates changes to reflect that recommendation as well as 
a number of specific revisions suggested by VA in its 
testimony.
    The Department has since expressed formal support for 
section 5047 of H.R. 2015, legislation passed by the Senate 
which is very similar to H.R. 1362, as amended.

               Congressional Budget Office Cost Estimate

    The following letter was received from the Congressional 
Budget Office concerning the cost of the reported bill:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, May 28, 1997.
Hon. Bob Stump,
Chairman, Committee on Veterans' Affairs,
House of Representatives, Washington, DC.

    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1362, the Veterans 
Medicare Reimbursement Demonstration Act of 1997.
    If you wish further details on this estimate, we will be 
pleased to provide them.
    The CBO staff contacts are Shawn Bishop, who can be reached 
at 226-2840, and Tom Bradley, who can be reached at 226-9010.

            Sincerely,
                                           June E. O'Neill,
                                                           Director

    Enclosure

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

 H. R. 1362--Veterans Medicare Reimbursement Demonstration Act of 1997

As ordered reported by the House Committee on Veterans'Affairs 
on May 21, 1997

    Summary. H.R. 1362 would establish a demonstration project 
for Medicare reimbursement to the Department of Veterans 
Affairs (VA) for care that VA provides to certain veterans 
eligible for Medicare, a program sometimes called Medicare 
subvention. Although the bill would probably raise Medicare's 
costs, CBO cannot estimate the amount of the increase. Any 
increase in Medicare's outlays would represent an additional 
source of funds for VA; thus, the needed authorization of 
appropriations for veterans' medical care would decline by the 
same amount. Because it would affect direct spending, H.R. 1362 
would be subject to pay-as-you-go procedures under section 252 
of the Balanced Budget and Emergency Deficit Control Act of 
1985. H.R. 1362 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act of 1995 
and would not have a significant impact on the budgets of 
state, local, or tribal governments.
    Estimated Cost to the Federal Government. H.R 1362 would 
establish a demonstration project in which Medicare would 
reimburse VA for the care that VA provides to certain veterans 
who are also eligible for Medicare. The demonstration project 
would have the following characteristics:

         LThe project would be conducted during the 
        1998-2000 period at up to 12 VA medical centers in 
        diverse locations where there would be a high demand 
        for the program.

         LMedicare would reimburse VA at 95 percent of 
        the rate paid to private providers for Medicare-covered 
        services furnished to certain veterans. Those veterans 
        would have to be eligible for Medicare, participate in 
        Medicare Part B, and have no service-connected 
        disability. Such veterans currently receive care from 
        VA if resources are available and if the veteran pays a 
        share of the costs. Participants in the demonstration 
        would be subject to Medicare's cost-sharing 
        requirements.

         LAlthough Medicare would reimburse VA 
        primarily on a fee-for-service basis, VA could 
        establish and operate managed health care plans as part 
        of the demonstration.

         LVA would be responsible for maintaining a 
        basic level of effort to be eligible for reimbursement 
        by Medicare. The required level of effort would be 
        based on an estimate of the amount of Medicare-covered 
        services provided by VA to targeted veterans in 1997 
        (VA's effort level would not include services 
        reimbursed by Medicare.)

         LVA and the Department of Health and Human 
        Services (HHS), in consultaton with the General 
        Accounting Office, would monitor Medicare's 
        expenditures in an attempt to ensure that it spent no 
        more than it would have spent without the 
        demonstration.

         LMedicare's payments under the demonstration 
        would be limited to $50 million a year, of which not 
        more than $10 million could be for managed care plans 
        operated by VA.

    One of the legislative goals is that the demonstration 
project not increase either VA's or Medicare's costs. In 
theory, VA would continue to pay for the care that it would 
provide under current law to beneficiaries eligible for 
Medicare, and Medicare would continue to pay for people 
currently receiving care in the private sector. Medicare's 
costs would experience no net change because lower payments to 
private-sector providers would offset payments to VA. VA's net 
costs would remain the same because the receipts from Medicare 
would be matched by higher outlays for the care it would 
provide to extra patients. In practice, however, Medicare's 
cost would probably increase, but CBO cannot estimate the 
amount.
    Assuring budget neutrality for Medicare would be diffcult 
to achieve for two reasons. First, available data do not allow 
an accurate determination of the portion of VA's current 
workload that is attributable to providing Medicare-covered 
services to targeted veterans. Second, VA could shift future 
costs to Medicare while nominally meeting its maintenance-of-
effort requirements.
    Medicare's costs would rise if VA's basic level of effort 
is underestimated, and that level cannot be measured very well. 
Establishing a base level for 1997 requires knowing the number 
of targeted veterans who seek care from VA, the extent of that 
care, and the costs of providing it. This information is not 
available for individual VA facilities or in the aggregate and 
must be estimated based on accounting and survey data.
    Even if VA's current level of effort could be estimated 
accurately, it would not be possible to determine if VA was 
actually maintaining that level of effort in future years. The 
nature of the demonstration would encourage VA to serve 
targeted veterans at facilities where Medicare would provide 
reimbursement. As a result, spending on medical care for 
targeted veterans would rise at VA facilities participating in 
the demonstration, and VA's spending on medical care for 
targeted veterans at nonparticipating facilities would fall. VA 
could appear to meet or exceed its maintenance-of-effort 
requirement while actually falling short of the target.
    Under these circumstances, differences in the access to 
information and funding make it likely that some of VA's 
spending would be shifted to Medicare. Because annual 
discretionary appropriations limit VA's health care funding, 
the department would have to reduce the size of its program if 
it overestimated its required level of effort or underestimated 
its actual effort in the future. Medicare's costs, however, are 
paid from a permanent, indefinite appropriation that would not 
readily reveal a loss stemming from a demonstration program 
such as this one. It would not be easy for the General 
Accounting Offfice or any other auditing agency to determine 
the financial outcome of the demonstration. It, too, would have 
to rely on estimates and assumptions about events and behavior 
that would have been different under current law.
    Pay-as-you-go considerations. Enactment of the bill would 
probably increase direct spending in fiscal year 1998, but CBO 
cannot estimate the amount of the increase.
    Intergovernmental and private-sector impact. H.R. 1362 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act of 1995 and would 
not have a significant impact on the budgets of state, local, 
or tribal governments.
    Estimate prepared by:
        Veterans Costs: Shawn Bishop
        Medicare Costs: Tom Bradley
        Impact on State, Local, and Tribal Governments: Marc 
        Nicole
        Impact on the Private Sector: Neil Singer
    Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis

                     Inflationary Impact Statement

    The enactment of the reported bill would have no 
inflationary impact.

                  Applicability to Legislative Branch

    The reported bill would not be applicable to the 
legislative branch under the Congressional Accountability Act, 
Public Law 104-1, because it would apply only to certain 
Department of Veterans Affairs and Health and Human Services 
programs and facilities.

                     Statement of Federal Mandates

    The reported bill would not establish a federal mandate 
under the Unfunded Mandates Reform Act, Public Law 104-4.

                 Statement of Constitutional Authority

    Pursuant to Article I, section 8 of the U.S. Constitution, 
the reported bill would be authorized by Congress' power ``(T)o 
provide for the common Defence and general Welfare of the 
Untied States.''