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The chart on page 18 shows the discrepancy between actual and deflated (1980 dollars) budget authority for fiscal years 1980 to 1989 and requested versus deflated dollars as projected for fiscal years 1990 and 1991. In deflated dollars, the increase proposed for 1991 is $200 million, a real 3 percent increase. This, the first increase in the budget for medical care requested in many years, marks a significant change in the approach to the budget for veterans health care. If this policy were to be continued for the next several years, it would enable the Department to restore the system.

It is also important to note that the proposed increase appears larger than it really is because of reductions in the fiscal year 1990 level ($236 million, largely due to sequestration) and underfunding inherent in the fiscal year 1990 level. (For example, the Department stated that an additional $151 million would be required for the fiscal year 1990 budget in order to meet the congressionally mandated personnel target of 194,720 FTEE with a balanced medical program.) Further, as pointed out in The Price of Peace the lack of "adequate early supplemental funds for fiscal year 1989" adversely affected workload and thus calculations of current services budgets.

These reduced workloads have been concentrated in outpatient and extended-care services. A decline in the availability of inpatient services has affected Category B and C veterans. It is on the basis of these cutbacks that the Committee recommends modest increases in outpatient care, nursing home care, and replacement equipment.

As will be described later, shrinking budgets have forced the DVA to limit the availability of outpatient services to many veterans. The Committee, therefore, recommends adding $69 million to the Department's fiscal year 1991 budget to restore the number of veterans treated in DVA outpatient settings to fiscal year 1988 levels.

In 1989, community nursing home contract funds were made available for other uses, thereby reducing utilization of this program. These funds are again earmarked for fiscal year 1990 but at a significantly reduced level. Like other programs that have been cannibalized in the last few years, this program has not received funds to restore it to fiscal year 1988 levels. As stated previously, community nursing home care is an important facet of the DVA's three-pronged approach to providing long-term care. Facing a rapidly aging veteran population, the DVA should not have to raid such a vital account in order to meet current operating costs. The Committee, therefore, recommends adding $96 million to the Department's budget to restore the number of patients treated in this program to the fiscal year 1988 level.

The proposed budget includes a recommended decrease for replacement medical equipment, to a level of $113 million. As noted in the fiscal year 1990 Report to the Budget Committee, the juggling of planned purchase levels obscures the capital investment situation in the DVA. Over the past several years, funds intended for equipment and other capital needs were shifted to meet recurring expenses such as salaries. The resultant backlog has threatened quality of care and has proved to be a negative disincentive to recruitment and retention of medical care staff. The DVA has doc

umented at least a $408 million backlog in replacement equipment with an additional backlog from fiscal year 1990 of $280 million.

Therefore, the Committee recommends an addition to the replacement equipment account of $50 million, understanding that this is only a small step toward reduction of the existing equipment backlog.

In summary, the Committee welcomes this budget, but recommends instead a budget for existing legislation of $12.473 billion in budget authority and 195,733 FTEE, increases of $246 million and 1,095 FTEE over the proposed budget. In addition, the Committee recomends: $580 million for major construction, an increase of $50 million over the proposed budget; $238.5 million for medical and prosthetics research, an increase of $40 million over the proposed budget; and $58 million for grants for the construction of State extended care facilities, an increase of $16 million over the requested budget. The following sections of this report detail the specific recommendations of the Committee in response to the President's proposed Department of Veterans Affairs medical care budget for fiscal year 1990.

Nurse Pay Reform.-The Committee has focused considerable attention on the recruitment and retention problems of nurses. The Committee has held numerous hearings over the last three years and proposed legislation for three consecutive years. Rather than simply adding more dollars to the special salary rates of nurses, the Committee has approved a legislative reform pay package, introduced by the Honorable Joseph Kennedy, which addresses pay levels as well as recruitment and retention incentives. The measure, H.R. 1199, passed the House on June 27, 1989. The Committee is confident that agreement will be reached with the Senate on this legislation.

The Secretary of Health and Human Services Commission on Nursing published its final report in December of 1988. Among the specific recommendations directed towards the DVA, the following excerpt significantly relates to the focus of legislation which was reported by the Committee and which is currently under negotiation with the Senate: "Due to the increasing competitiveness of the nurse marketplace, nursing and administrative officials within the Federal health care systems (centrally and locally) should be allocated more resources and more flexibility to act within the annual budget cycle. Such resources and authority to respond to particular staffing problems are necessary to maintain access and quality care to federal beneficiaries."

The Committee recognizes that the difficulties which the Department has been experiencing in the recruitment and retention of registered nurses are part of the national nursing shortage. This shortage is having a profoundly negative effect on the ability of the Department to provide comprehensive health care services. Shortages of these professionals have led to the closing of beds, lengthening appointments for outpatient visits and a deterioration in the over-all quality and timeliness of the services provided. The effects are at crisis proportions and the Committee notes with approval the Administration proposal to include funds for nurse pay reform. The absence of details on the Administration's proposal, however, prevents Committee comment. The Committee intends to resolve

differences between existing House and Senate versions of DVA nurse pay legislation at a fiscal year 1991 estimated cost of $31.4 million.

Physician and Dentist Pay.-The proposed budget includes a proposal and funds of $38.6 million to increase special pay for physicians and dentists. The absence of details on the Administration's proposed pay package prevents Committee comment. The Committee will consider legislation to modify the authority to compensate physicians and dentists. Testimony from a variety of DVA and nonDVA experts at Committee hearings has unequivocally documented the need for such action.

The Department of Veterans Affairs has not implemented a substantial increase to the pay of physicians and dentists since 1980. The changes to the special pay structure and pay rates instituted in 1980 remain in place despite major changes that have occurred in the health care industry since that time. (Klemm Report, p. 2.) In addition, the DVA has difficulty with pay compression and the consequent problem of filling senior administrative positions. Long and middle-term tenure is not rewarded. Most turnovers occur within four years of a physician's joining the DVA, so that among physicians under age 35 with two to four years of DVA experience, the turnover rate was 22 percent in 1987. The Committee will make specific legislative recommendations to address the recruitment and retention problems of these professionals.

The Quadrennial Report to the President on the Adequacy of Special Pay for Physicians and Dentists in the Department of Veterans Affairs made recommendations that, if fully implemented, would cost approximately $76 million. In light of this finding, the Committee recommends an additional $30 million to the budget request of $38.6 million in order to adequately fund the pay authority for DVA physicians and dentists for a total of $68.6 million.

Allied Health Professionals.-The Committee notes and concurs with the proposed fiscal year 1991 addition of $1 million to fund Saturday premium pay for nursing assistants, an action long advocated by the Committee. The Committee realizes, however that the problems associated with recruitment and retention of other DVA allied health professionals are also reaching epidemic proportions. For instance, according to the 1988 Survey of Health Occupational Staff, vacancy rates in certain allied health professions are as follows: physical therapists, 24.7 percent; occupational therapists, 19.8 percent; and pharmacists, 8.1 percent.

Restore Outpatient Care Services.-Midway through fiscal year 1989, the DVA exhausted its ability to stretch its shrinking budget to meet its then-current medical care needs. Due to lack of funding, the Department was forced to stop inpatient and outpatient treatment of almost all Category B and C veterans. The DVA did receive a $345 million medical care supplemental in July of 1989. This money allowed the Department some breathing room and enabled it to restore treatment to some of these veterans.

However, faced with another inadequate budget in fiscal year 1990 the Department finds itself once again unable to care for those veterans that it has historically treated in the past. Even though the Secretary has stated publicly that Category B and C veterans will not be denied care in fiscal year 1990 and that there