The situation I was describing was an individual veteran who appears to need medical care right now and we would deliver that care and then work out the administrative details later.

Senator CRANSTON. The bill does not seem to provide for that sort of procedure. What part of the bill, if any, are you referring to?

Dr. GRONVALL. I guess I do not know that I am referring to any specific provision that is described in the legislation. What I am describing is perhaps discussions that has occurred within the Veterans' Administration and between the VA and OMB as to how we would actually administer the bill and operate our medical centers in terms of patient care.

We have taken a categorical position that in the case of a medical emergency or someone who needs care we would deliver that care and then work out the income information subsequently.

Senator CRANSTON. Mr. Ivers, in view of the definition of this emergency care in the bill, wouldn't you agree that you would probably have to get a revision to cover the sort of procedure that Dr. Gronvall was outlining?

Mr. IVERS. That may very well be, Senator. Although I believe that what Dr. Gronvall is discussing here may be standard medical practice which would not require a specific definition. But that is something that we would work out in regulation, I think, rather than in the legislation itself.

Senator CRANSTON. Well, I think we will have to consider carefully whether the bill will authorize the appropriate procedures that you are outlining and that Dr. Gronvall and Ms. Quandt have testified.

If a veteran applicant for care has not yet met the spend-down requirement, will he be treated or admitted and then pay the rest of the spend down as appropriate to the VA?

MS. QUANDT. No.

Dr. GRONVALL. The intent of this bill would be that if the veteran has not yet met the provision and the veteran's medical condition allows referral, the veteran would be referred to a community facility to continue or receive medical care there and pay for it until the veteran spent down to the eligible level.

Senator CRANSTON. So he would not be treated in the VA under those circumstances?

Dr. GRONVALL. Correct.

Senator CRANSTON. On the matter of pension validation I note that Herb Mars from the compensation and pension service is here. Can he enlighten us on what is done to validate pension eligibility? Mr. MARS. We have always had a verification program through annual income questionnaires. And this year we have established a new procedure where we will be sending out a one-page document broken down by the various categories of pensioners, obtaining all of the income information. We ask them what their medical expenses are, because under the improved pension program we can offset medical expenses over 5 percent of the total income support level.

We have verification programs through computer matching systems with Social Security, black lung, railroad retirement, and other Federal programs that we do on a regular basis, running our

tapes against their tapes to verify the amount of these recorded in

comes.

Senator CRANSTON. Mr. Alvarez, is that the way you would intend to proceed, roughly?

Mr. ALVAREZ. Well, Midge can answer that.

MS. QUANDT. Yes.

Senator CRANSTON. I thank you.

Jay, I have completed that line of questioning. While I have other questions, I will yield to you, because I am going onto other questions.

Senator ROCKEFELLER. I yield back to the Senator.

Chairman MURKOWSKI [presiding]. I would indicate that we have about 20 minutes. So I think the time is yielded.

Senator ROCKEFELLER. I have no questions.

Chairman MURKOWSKI. Further questions?

Senator MITCHELL. I do have additional questions, Mr. Chairman. Chairman MURKOWSKI. All right. We have further witnesses, as you know, so I would appreciate trying to expedite the questioning process. I recognize that those are the realities we have to live under.

Senator MITCHELL. I am sorry. I misunderstood you. I thought you said you have 20 more minutes for these witnesses. You mean for the whole hearing?

Chairman MURKOWSKI. No, I did not set a time limit. We are limiting our questions to 10 minutes per member. The question of the appropriateness of a second round is where we are at presently. I would appreciate it, since we have other witnesses to accommodate, if we could submit questions to the panel for response in writing whenever possible.

Senator MITCHELL. I will be very happy to abide by the chairman's request.

Chairman MURKOWSKI. If you have some specific questions, at this time, because we have not gone into the questions covering third-party reimbursement for this panel.

Senator MITCHELL. That is what I was going to ask them.

Chairman MURKOWSKI. OK. I felt quite sure that we would want to get into that.

On the question of the constitutionality of third-party reimbursement, I understand that the VA and the Justice Department have given opinions that the third-party reimbursement proposal does meet constitutional requirements. Is that correct, Mr. Ivers?

Mr. IVERS. That is correct, yes.

Chairman MURKOWSKI. So you do not see a difficulty there?
Mr. IVERS. No.

Chairman MURKOWSKI. I am told that estimated VA recoveries under the third-party reimbursement proposal would include $65 million in fiscal year 1986 and $285 million in fiscal year 1990. That is GAO data. Is that the position of the VA?

Dr. GRONVALL. Correct.

MS. QUANDT. Mr. Chairman, that estimate is based upon our own estimate of the number of veterans who come to us who then indicate that they have health insurance. And our formula is to how much of our care would be covered and what we would recoup on the dollar.

Chairman MURKOWSKI. It is my understanding that you do not have specifics on the VA administrative costs? Is that correct or incorrect?

Mr. ALVAREZ. No, we have a set of specifics.

Chairman MURKOWSKI. Good. We would like to hear your specifics. What are the costs?

Ms. QUANDT. Our costs, administrative costs for fiscal year 1986 would be $2.2 million or 111 FTEE. Extending up to fiscal year 1990, $3.64 million and 160.5 FTEE. That is based on the assumption we will be billing for inpatient only and phasing in outpatients.

Chairman MURKOWSKI. So when we look at VA recoveries and VA costs, the difference is the net, is that correct?

MS. QUANDT. That is correct.

Chairman MURKOWSKI. So there is a savings of some $62 million in fiscal year 1986, and as to 1990, why, take your chances. But it is substantial you feel?

Mr. ALVAREZ. Yes, sir.

Chairman MURKOWSKI. Like in excess of $250 million?

MS. QUANDT. We believe our estimate is an extremely conservative estimate.

Chairman MURKOWSKI. Thank you. What is the cost to the insurer? None, I assume.

Ms. QUANDT. We will not-there will be none.

Chairman MURKOWSKI. What is the impact? Does it allow the Federal Government to recover the reasonable value of medical services provided to insured veterans with no service-connected disabilities?

MS. QUANDT. In our opinion it would.

Chairman MURKOWSKI. The proposal, basically, is going to place the Government in the same position by reimbursement as the private health-care providers then? Is that not correct?

Ms. QUANDT. That is correct.

Chairman MURKOWSKI. Have you had discussions recently with various health-care organizations on this question?

MS. QUANDT. Not specifically on this question. We had a meeting with the-

Chairman MURKOWSKI. Well, I am talking about third-party reimbursements.

MS. QUANDT. That is what I am referring to, too--
Chairman MURKOWSKI. OK, good.

Ms. QUANDT [continuing]. Mr. Chairman. Approximately 6 to 8 months ago we had a conversation with representatives of the health insurance industry on whether or not there was third-party payments anticipated, on what some of our practices were as far as our length of stay, on our PRO reviews. We have had none specifically with what we would call third-party payers in the last 4 months.

Chairman MURKOWSKI. It is my understanding that Blue Cross and others in testimony before the committee have objected to third-party reimbursements on the grounds that it violates the most basic principle of insurance contracts and it violates the protection of the fifth amendment relating to just compensation for private property taken for public use.

Yet, you have indicated that it is your understanding that the VA and Justice Department opinions address the issue of constitutionality. In the case of a veteran who is employed by a firm that offers health and accident insurance, where money is withheld from his earnings and a premium contribution is made by the employer which is tax deductible, yet the insurance benefits are not drawn on by the veteran simply because the veteran goes to the VA hospital. Under the current procedure, isn't that kind of a benefit that the insurance companies enjoy in the sense of a windfall? Mr. IVERS. That is precisely one of the issues that third-party reimbursement addresses, Senator, that in effect veterans who are in that situation to some small degree subsidize the insurance carri

ers.

Chairman MURKOWSKI. Because the veteran, I assume, has no choice in his employment. He works for Acme Construction and they withhold and the employer gets the deductibility and the veteran gets no benefit.

Mr. IVERS. He may or may not have a choice. However, the fact that he carries the medical coverage and then does not take advantage of those benefits because he is a veteran and goes to a VA facility, the premiums are paid nonetheless.

Chairman MURKOWSKI. Do you have any position from the standpoint of recognizing what validity the insurance underwriters have in these cases where they seem to be enjoying a windfall and they are objecting to the right to have a veteran utilize his coverage in a VA medical facility?

Mr. IVERS. Both the VA and the Justice Department have considered that fairly thoroughly and carefully, and we are unable to find any support at all, legally.

Chairman MURKOWSKI. I think my time is up.

Senator Cranston.

Senator CRANSTON. I would like to get your reaction to an alternative to your proposal to make veterans age 65 and older subject to a means test. Let us assume that the Congress enacted legislation establishing a statutory priority for inpatient and outpatient care listing all categories of veterans eligible for VA care with veterans who are unable to defray the cost of the needed care given priority over veterans age 65 and older who do not meet that test. Wouldn't that address your concerns about the fairness of the current system without taking away anybody's eligibility?

Mr. ALVAREZ. Mr. Chairman, I think that is a very comprehensive proposed alternative there. And I do not think we fully grasp everything involved in that. Could we perhaps give you a little

Senator CRANSTON. Well, would you think that over and submit a response in writing to that?

Mr. ALVAREZ. I would be pleased to do that, sir.

[Subsequently, the Veterans' Administration submitted the following information:]

Rearranging priorities would not address the focused issue of equity. The equitable issue is one involving the same treatment of non-service-connected veterans based upon financial status and medical need. The rearrangement of priorities based in part upon that same discriminator, age, does not address our concern over disparate treatment of veterans hinging on the age variable.

Senator CRANSTON. I would like to ask how you would deal with veterans who have incurred medical costs less than their "expected medical expense contribution" and who are faced with expenses for inpatient examinations, possible surgery and followup care that are expected to be substantial but cannot at the time of examination be estimated with any accuracy, possibly until surgery is begun. An example would be a case in which the veteran might have cancer, but whether he or she does or does not or how widespread it is won't be known until surgery is performed. In such cases, assuming the veteran has one dependent, has income of $22,000, and has incurred medical costs equal to 25 percent of the expected contribution, and the best estimate possible is that the care needed will cost anywhere from an amount somewhat less than the expected contribution to as much as $100,000 more than the expected contribution, I have the following questions under that set of circumstances:

Would the VA deny the care? Or would it provide the care? And if it does provide the care, would it bill the veteran for the costs of care up to the point at which the veteran would have made the full expected contribution?

MS. QUANDT. Senator Cranston, you are now at this point tying together the means test and third party together? Or only the means test?

Senator CRANSTON. No; just trying to get at the means test.

MS. QUANDT. If this were a patient who came to us and was examined and it was determined that the patient did not have what might be called catastrophic illness, that patient who had not spent down to his medical contribution would routinely be referred to the private sector until the patient did spend down.

If the patient were determined or viewed in the eyes of a physician or anyone else to have what is considered a catastrophic illness, and let's say cancer is largely, the agency, through the proposed regulation, would have the right in certain cases to waive that spend down and accept the patient for care. If the patient has health insurance it would be proposed to collect that balance, the difference, from the health insurance company.

Senator CRANSTON. Mr. Ivers, I would like to ask you, where in your proposed legislation is there an exception for catastrophic illness?

Mr. IVERS. I do not believe there is a specific exception for catastrophic illness stated in the legislation.

Senator CRANSTON. Don't we have to cover that then?

Ms. QUANDT. That would be covered in the regs.

Mr. ALVAREZ. That would be covered in the regs, Doctor.

Ms. QUANDT. Senator Cranston, that would be covered in the regulation that will be published for public comment.

Senator CRANSTON. I presume you would not have objection to it being specified in the legislation?

Mr. IVERS. No.

Senator CRANSTON. The draft legislation provides that waivers of expected contributions would be permitted in exceptional and unusual circumstances and to avoid substantial hardship. The draft measure would also provide that a waiver shall not be granted categorically either for categories of illness, expenses, income, procedures, types of care, or veterans. This prohibition against categori