Veterans Medical Care Appropriations and Funding Process

CRS Report for Congress
Veterans’ Medical Care Appropriations
and Funding Process
Updated December 27, 2004
Sidath Viranga Panangala
Analyst in Social Legislation
Domestic Social Policy Division

Congressional Research Service ˜ The Library of Congress

Veterans’ Medical Care Appropriations
and Funding Process
Summary
The Department of Veterans Affairs (VA) provides benefits to veterans who
meet certain eligibility rules. Benefits to veterans range from disability compensation
and pensions to hospital and medical care. VA provides these benefits to veterans
through three major operating units: the Veterans Health Administration (VHA), the
Veterans Benefits Administration (VBA) and the National Cemetery Administration
(NCA). VHA is primarily a direct service provider of primary care, specialized care,
and related medical and social support services to veterans through an integrated
health care system. Veterans are enrolled in priority groups that determine payments
for service and nonservice-connected medical conditions. In FY2004, Congress
appropriated $28.4 billion for VHA to be spent through an account structure
composed of four new accounts: medical services, medical administration, medical
facilities, and medical and prosthetic research.
For FY2005, the Administration submitted its budget request to Congress using
a new account structure that consolidated several accounts into two “business lines”:
medical care, and medical and prosthetic research. The Administration requested
$29.1 billion for VHA for FY2005.
On September 9, 2004, the House Committee on Appropriations reported the
FY2005 appropriations bill for the Departments of Veterans Affairs and Housing and
Urban Development, and Independent Agencies for FY2005 (H.R. 5041) (H.Rept.
108-674). The Committee rejected the alternative appropriations structure
recommended by the Administration and recommended $30.3 billion for VA
medical programs for FY2005. This is an increase of $1.2 billion over the
President’s request and $1.9 billion over FY2004. On September 21, 2004, the
Senate Committee on Appropriations reported its version of the FY2005 VA-HUD
appropriations bill, S. 2825 (S.Rept. 108-353). Under S. 2825, as reported, VHA
would have received $30.4 billion in FY2005. This is a $2 billion increase from
FY2004, and $1.2 billion more than the President’s request. On November 20, 2004,
both the House and Senate adopted the conference agreement to accompany the
Consolidated Appropriations Act, 2005 (H.R. 4818, P.L. 108-447). The bill was
signed into law on December 8, 2004. Under P.L.108-447, VHA would receive
$30.3 billion in FY2005 — an increase of $1.2 billion over the FY2005 appropriation
request, and $1.9 billion over FY2004.
In its budget submission to Congress, the Administration also proposed several
legislative and regulatory changes to increase certain copayments and other cost-
sharing charges for lower-priority veterans and to reduce copays for certain veterans.
The House and Senate Committees on Appropriations, and the final conference
agreement did not accept any of the Administration’s cost-sharing proposals for
VHA. This report will not be updated.

Contents
Recent Developments..............................................1
Veterans Health Administration (VHA)................................2
VA Health Care Enrollment .....................................3
Funding for VHA .............................................7
FY2004 VHA Budget Highlights.....................................7
FY2005 VHA Budget.............................................10
Changes in the VA Medical Care Account Structure.................10
Capital Asset Realignment for Enhanced Services (CARES)
Program-Related Construction...............................12
Changes in the Cost-Sharing Structure ...........................14
Increase Veterans’ Share of Pharmacy Copayments..............15
Increase Veterans’ Share of Copayments for Outpatient Primary
Care ...............................................15
Assess an Annual User Fee of $250...........................16
Pharmacy Copayment Relief for Some Veterans.................16
Ending Copayments for Former Prisoners of War (POWs).........16
Emergency Care for Insured Veterans.........................16
Copayment Exemption for Hospice Care......................17
Continue to Suspend Enrollment ................................17
Appendix 1. Priority Groups and Their Eligibility Criteria................19
Appendix 2. Medical Care Business Line and the Medical Research
Business Line Accounts in the Administration’s FY2005 VHA Budget...20
Medical Care Business Line....................................20
Medical Care............................................20
Medical Care Collections Fund (MCCF).......................20
National Program Administration (Formerly Medical Administration
and Miscellaneous Operating Expenses, MAMOE)..........21
Construction Major.......................................22
Construction Minor.......................................22
Grants for Construction of Extended-Care Facilities..............22
VA/ DOD Health Care Sharing Incentive Fund.................22
Medical Research Business Line ................................22
Medical and Prosthetic Research.............................22
Medical Care Research Support..............................23
List of Tables
Table 1. Veterans’ Payments for Health Care Services....................6
Table 2. VHA Appropriations FY2003-FY2004.........................9
Table 3. VHA FY2004 Appropriation, FY2005 Budget Request, and
Amounts Recommended.......................................12

Veterans’ Medical Care Appropriations
and Funding Process
Recent Developments
On September 9, 2004, the House Committee on Appropriations reported a bill
making appropriations for the Departments of Veterans Affairs and Housing and
Urban Development, and Independent Agencies for FY2005 (VA-HUD
appropriations bill) (H.R. 5041).¹ Under H.R. 5041, the Veterans Health
Administration (VHA) would receive $30.3 billion in FY2005. This is a $1.9 billion
increase from FY2004 and $1.2 billion more than the President’s request. It includes
$19.5 billion for medical services, $4.7 billion for medical administration, $3.7
billion for medical facilities, $385 million for the medical and prosthetic research,
and $2 billion in medical care collections. Furthermore, the Committee
recommended approximately $370 million from the Construction Major account,
and nearly $162 million from the Construction Minor account for Capital Asset
Realignment for Enhanced Services (CARES) activities. The Committee rejected the
Administration’s proposal to fund VHA through an alternative appropriations
structure, in which the VHA budget would have been consolidated into two business
lines: medical care, and medical and prosthetic research. It also disregarded the
Administration’s proposal to increase copayments and fees for lowest-priority
veterans.
The Senate Committee on Appropriations reported its version of the VA-HUD
appropriations bill for FY2005 (S. 2825) on September 21, 2004.² Under S. 2825
VHA would receive $30.4 billion in FY2005. This is a $2 billion increase from
FY2004, and $1.2 billion more than the President’s request. It includes $19.5 billion³
for medical services, $4.7 billion for medical administration, $3.7 billion for medical
facilities, $405 million for the medical and prosthetic research, and $2 billion in
medical care collections. The Committee also recommended $370 million from the
Construction Major account, and $182 million from the Construction Minor account
for CARES activities. The Committee also rejected the Administration’s proposal

¹ U.S. Congress, House Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,
report to accompany H.R. 5041, 108^th Cong., 2^nd sess., H.Rept. 108-674.
² U.S. Congress, Senate Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,^th^nd
report to accompany S. 2825, 108 Cong., 2 sess., S.Rept. 108-353.
³ This amount includes $1.2 billion designated as an emergency requirement. By being
designated as an emergency requirement, the funding is not subject to enforcement
procedures under the congressional budget process.

to fund VHA through an alternate account structure and did not include any
copayment changes that were proposed in the budget.
On November 20, 2004, both the House and Senate adopted the conference
agreement to accompany the Consolidated Appropriations Act, 2005 (H.R. 4818,
P.L. 108-447).⁴ Under P.L.108-447 VHA would receive $30.3 billion in FY2005 an
increase of $1.2 billion over the FY2005 appropriation request, and $1.9 billion over
FY2004. None of the funds would be contingent upon an emergency declaration as
proposed by the Senate Appropriations Committee (S. 2825). P.L.108-447 provides
$19.5 billion to finance medical services. Furthermore, it appropriates $4.7 billion
for medical administration, $3.7 billion for medical facilities, and $405 million for
medical and prosthetic research. Funding for VHA includes $2 billion in medical
care collections (MCCF). The conference agreement also includes $370 million from
the Construction Major account, and $182 million from the Construction Minor
account for CARES related activities. It should be noted that these amounts are not
included in the total VHA budget since Construction Major and Construction Minor
accounts are funded through separate construction accounts. The conferrees of the
Consolidated Appropriations Act, 2005 rejected the Administration’s proposal to
fund VHA through an alternative account structure, and did not include any
copayment changes that were proposed in the President’s budget request.
This report will first provide a brief summary of the FY2004 budget for VHA
care along with a general discussion of the budget process in order to provide a
context for this summary. Second, the report will provide information on the
President’s FY2005 budget request for VHA.⁵ Third, it will discuss the
Administration’s major legislative and regulatory proposals for VA medical care for
FY2005. This report has been updated to show the amounts recommended by the
House and Senate, and enacted by Congress and signed into law by the President.
Veterans Health Administration (VHA)
The Department of Veterans Affairs (VA) provides benefits to veterans who
meet certain eligibility rules. Benefits to veterans range from disability compensation
and pensions, education, training and rehabilitation services, hospital and medical
care, and other benefits such as home loan guarantees and death benefits (including
burial expenses). VA provides these benefits to veterans through three major
operating units: the Veterans Health Administration (VHA), the Veterans Benefits
Administration (VBA) and the National Cemetery Administration (NCA). VA’s
budget includes both mandatory and discretionary spending accounts. Mandatory
funding supports disability compensation, pension benefits, vocational rehabilitation,
and life insurance, among other benefits and services. Discretionary funding

⁴ U.S. Congress, Conference Committees, Consolidated Appropriations Act, 2005,
conference report to accompany H.R. 4818, 108^th Cong., 2^nd sess., H. Rept 108-792. The
Consolidated Appropriations Act, 2005 was signed into law on December 8, 2004.
⁵ The terms “Administration’s budget,” “President’s budget,” “Administration’s budget
request” and “President’s budget request” refer to the same document. These terms are used
interchangeably throughout this report.

supports a broad array of benefits and services, including medical care. In FY2004,
discretionary budget authority accounted for approximately 47% of the total VA
budget authority, with most of this discretionary funding going toward supporting
VA medical care.
VHA operates the largest direct health care delivery system in the nation.⁶ In
FY2003, VHA operated 160 hospitals, 134 nursing homes, 42 residential
rehabilitation treatment centers, and 847 ambulatory care and community-based
outpatient clinics. VHA also pays for care provided to veterans by independent
providers and practitioners on a fee basis under certain circumstances. In addition,
VHA provides grants for construction of state-owned nursing homes and domiciliary
facilities, and collaborates with the Department of Defense (DOD) in sharing health
care resources and services.
During FY2003, VHA provided medical services to an estimated 4.5 million
unique veteran patients, a caseload that is expected to reach approximately 4.7
million in FY2004 and approximately 4.9 million by the end of FY2005.⁷ The total
number of outpatient visits reached 49.7 million during FY2003, and is projected to
increase to 53.1 million in FY2004 to 56.4 million in FY2005. In FY2003, VHA
spent approximately 50% of its medical care obligations on outpatient care.
In addition, VHA manages the largest medical education and health professions
training program in the United States. Veterans’ health care facilities are affiliated
with 107 medical schools, 55 dental schools and more than 1,200 other schools
across the country. Each year, about 81,000 health professionals are trained in VA
medical centers.
VA Health Care Enrollment
To understand VA’s medical care appropriations and the Administration’s major
policy proposals discussed later in this report, it is important to understand VA’s
enrollment process and its enrollment priority groups. The Veterans’ Health Care
Eligibility Reform Act of 1996 (P.L.104-262) required the establishment of a national
enrollment system to manage the delivery of inpatient and outpatient medical care.
The new eligibility standard was instituted by Congress to “ensure that medical
judgment rather than legal criteria will determine when care will be provided and the
level at which care will be furnished.”⁸

⁶ Established in 1946 as the Department of Medicine and Surgery, succeeded in 1989 by the
Veterans Health Services and Research Administration, renamed the Veterans Health
Administration (VHA) in 1991.
⁷ This number and projections exclude Readjustment Counseling, State Home, Civilian
Health and Medical Program of VA (CHAMPVA), Spina Bifida, the Foreign Medical
Program, and non-veterans. Data provided by VA.
⁸ H.Rept. 104-690.

For most veterans, entry into the veterans’ health care system begins with
application for enrollment.⁹ A veteran may apply for enrollment at any time during
the year. Eligibility for VA health care is primarily based on “veteran status”
resulting from military service. “Veteran status” is established by active-duty status
in the military, naval, or air service and a honorable discharge or release from active
military service.
After “veteran status” has been established ,VA next places applicants into one
of two categories. The first is composed of the following veterans:
^!veterans in need of care for a service-connected disability¹⁰;
^!veterans who have a compensable service-connected condition;
^!veterans whose discharge or release from active military, naval, or
air service was for a compensable disability that was incurred or
aggravated in the line of duty;
^!veterans who are former POWs;
^!veterans awarded the Purple Heart;
^!veterans who have been determined by VA to be catastrophically
disabled;
^!veterans of World War I;
^!veterans seeking care for disorders associated with exposure to
hazardous agents (such as Agent Orange in Vietnam) while on active
duty; and
^!veterans who have annual income and net worth below a VA-
established means-test threshold.
In general, the above-mentioned veterans are regarded as “high priority”
veterans, and they are enrolled automatically in one of the first six priority groups.
(A detailed list of priority enrollment groups is provided in Appendix 1.) VA also
looks at applicants’ income and net worth to determine their specific priority category
and whether they have to pay copayments for nonservice-connected care. In addition,
veterans are asked to provide VA with information of any health insurance coverage
they have — including coverage through employment or through a spouse. These
payers will be the primary payer for nonservice-connected conditions only.
The second group is composed of veterans who do not fall into one of the first
six categories above. These veterans are primarily those with nonservice-connected

⁹ Veterans do not need to apply for enrollment in VA’s health care system if they fall into
one of the following categories: veterans with a service-connected disability rated 50% or
more (percentage ratings represent the average impairment in earning capacity resulting
from diseases and injuries encountered as a result of or incident to military service; those
with a rating of 50% or more are placed in Priority Group 1); less than one year has passed
since the veteran was discharged from military service for a disability that the military
determined was incurred or aggravated in the line of duty, but the VA has not yet rated; or
the veteran is seeking care from VA for only a service-connected disability (even if the
rating is only 10%).
¹⁰ The term “service-connected” means, with respect to disability, that such disability was
incurred or aggravated in the line of duty in the active military, naval, or air service.

conditions and with incomes and net worth above the VA-established means test
threshold. In general, these veterans are enrolled in Priority Group 7 or 8, and must
agree to pay copayments for the care they receive for nonservice-connected
conditions. (Table 1 provides information on what categories of veterans pay for
which services.)

Table 1. Veterans’ Payments for Health Care Services
^C^o^p^aym^en^ts
^Insura^{nce B}^illing^Inpa^tⁱ^ent^O^ut^pa^tⁱ^ent^M^edica^t^ioⁿ^a
^P^r^io^r^ity^Gr^o^u^p¹^N^o^N^o^N^o^Y^{es, b}^u^{t o}ⁿ^ly^if^car^e
^w^a^{s fo}^r^no^nse^r^vi^c^e^-
^coⁿⁿ^ected^coⁿ^d^itioⁿ
^P^r^io^r^ity^Gr^o^u^p^s^b^c^No^No^{Yes, b}^u^{t o}ⁿ^ly^f^o^r^{Yes, b}^u^{t o}ⁿ^ly^if^car^e
^{2, 3,}⁴^v^e^ter^aⁿ^s^w^ith^less^w^a^{s fo}^r^no^nse^r^vi^c^e^-
^th^an⁵⁰^%^ser^v^ice^coⁿⁿ^ected^coⁿ^d^itioⁿ
^coⁿⁿ^ected^dⁱ^sab^ility
^an^d^m^e^dⁱ^catioⁿ^is
^fo^r^no^nse^r^vi^c^e^-
^coⁿⁿ^ected^coⁿ^d^itioⁿ
^P^r^io^r^ity^Gr^o^u^p⁵^N^o^N^o^Y^es^{Yes, b}^u^{t o}ⁿ^ly^if^car^e
^w^a^{s fo}^r^no^nse^r^vi^c^e^-
^coⁿⁿ^ected^coⁿ^d^itioⁿ
^P^r^io^r^ity^Gr^o^u^p⁶^No^No^Yes^Y^{es, b}^u^{t o}ⁿ^ly^if^care
^{(WWI, an}^{d 0%}^w^a^{s fo}^r^no^nse^r^vi^c^e^-
^s^e^rv^ice-^coⁿⁿ^ected^coⁿ^d^itioⁿ
^conⁿ^ected
^com^p^en^s^a^ble)
^P^r^io^r^ity^Gr^o^u^p⁶^No^d^No^d^No^d^{Yes, b}^u^{t o}ⁿ^ly^if^car^e
^(Veteran^s^w^a^{s fo}^r^no^nse^r^vi^c^e^-
^receivⁱⁿ^g^care^coⁿⁿ^ected^coⁿ^d^itioⁿ
^f^o^{r ex}^pos^u^r^{e or}^d
^ex^perien^ce)
^P^r^io^r^ity^Gr^o^u^p⁷^e^Yes^Y^es^Yes^Y^es^{, bu}^{t on}^ly^if^care
^w^a^{s fo}^r^no^nse^r^vi^c^e^-
^coⁿⁿ^ected^coⁿ^d^itioⁿ
^P^r^io^r^ity^Gr^o^u^p⁸^f^Yes^Y^es^Yes^Y^es^{, bu}^{t on}^ly^if^care
^w^a^{s fo}^r^no^nse^r^vi^c^e^-
^coⁿⁿ^ected^coⁿ^d^itioⁿ
^Source:^Presid^en^t’^{s Ta}^{sk Fo}^{rce to}^I^m^p^r^o^{ve Hea}^lth^Ca^{re Delivery fo}^{r Ou}^{r Na}^tioⁿ^’^{s Vetera}ⁿ^s
^Note:^A^{ll v}^e^teran^s^receivⁱⁿ^g^p^r^escrip^tioⁿ^s^f^o^{r n}^oⁿ^s^ervⁱ^ce-^coⁿⁿ^ected^coⁿ^d^itioⁿ^s^w^h^o^m^e^{et th}^{e lo}^w^-
ⁱⁿ^com^e^{criteria (es}^t^ablis^h^e^{d by}^th^e^m^ean^s^tes^t^),^an^d^v^e^teran^s^w^h^{o are f}^o^rm^{er P}^O^W^s^{are ex}^em^{pt f}^r^om
^m^e^di^catⁱ^oⁿ^copay^m^en^t^s^.
^a^.^Aⁿ^a^nnua^l^m^e^dⁱ^c^a^tⁱ^o^{n c}^o^p^a^y^m^eⁿ^t^c^a^p^ha^{s b}^e^eⁿ^e^s^t^a^b^lⁱ^s^he^d^fo^r^ve^t^e^r^a^ns^eⁿ^r^o^l^l^e^dⁱⁿ^P^rⁱ^o^rⁱ^t^y^G^r^o^u^p^s
²^-⁶^.^M^e^dⁱ^c^a^tio^{n w}^{ill c}^o^ntinue^to^b^e^dⁱ^sp^eⁿ^se^d^a^f^te^r^c^o^p^a^y^m^eⁿ^t^c^a^pⁱ^s^m^e^t.^Aⁿ^a^nnua^l
^copay^m^en^t^{cap h}^a^sⁿ^o^t^been^es^t^a^blⁱ^s^h^e^{d f}^o^{r Pri}^o^ri^t^y^G^r^ou^ps^{7 or 8 v}^e^t^e^ran^s^.
^b^.^V^e^t^e^ran^sⁱⁿ^{receipt of}^{a P}^u^{rple Heart are in}^P^r^iority^Grou^{p 3. T}^h^is^ch^an^g^e^occu^rre^d^wⁱ^t^h^t^h^e
^en^actm^eⁿ^t^of^th^{e Veteran}^s^Millenⁿⁱ^u^m^Health^C^a^{re an}^{d B}^eⁿ^e^f^its^A^c^{t (P}^.L^{. 106-}¹¹^{7) on}
^N^o^v^e^m^b^{er 30, 1999.}
^{c. P}^r^iority^Grou^{p 7 v}^e^teran^s^w^h^{o are determ}ⁱⁿ^ed^{to be catas}^troph^ically^dis^a^bled^an^d^w^h^{o are placed}
ⁱⁿ^P^r^io^r^ity^Gr^o^u^p⁴^f^o^r^tr^eatm^eⁿ^t^ar^{e still su}^b^j^{ect to}^th^{e co}^p^a^y^m^en^{t r}^e^q^u^ir^em^en^{ts as}^a^P^rⁱ^o^r^ity
^G^r^ou^{p 7 v}^e^t^e^ran^.
^d^.^P^r^io^r^ity^Gr^o^u^p⁶^{— h}^ealthⁱⁿ^su^r^aⁿ^{ce an}^d^{all ap}^p^licab^{le co}^p^a^y^m^en^{ts w}^{ill b}^e^b^illed^w^h^en^car^{e is f}^o^r
^coⁿ^d^itioⁿ^sⁿ^o^{t r}^e^lated^to^th^e^v^e^ter^aⁿ^’^s^ex^p^e^rⁱ^en^ce^o^r^ex^p^o^s^u^r^{e. Veter}^aⁿ^sⁱⁿ^th^{is p}^r^io^r^ity^g^r^o^u^p
^cou^l^{d be s}^u^bj^{ect to f}^u^{ll m}^e^{dical care copay}^m^en^ts^{or redu}^{ced in}^patien^t^copay^m^en^ts^uⁿ^d^{er m}^ean^s^-

^{test criteria f}^o^rⁿ^oⁿ^s^ervⁱ^ce-^coⁿⁿ^ected^coⁿ^d^itioⁿ^s^{. Co}^m^b^{at v}^e^teran^s^receivⁱⁿ^g^{care f}^o^{r a p}^o^t^en^tial
^ser^v^ice-^r^e^lated^coⁿ^d^itioⁿ^w^ithⁱⁿ^tw^o^y^ear^s^o^f^dⁱ^sch^a^r^g^e^f^r^o^m^th^{e m}^ilitar^y^ar^{e in}^P^r^io^r^ity^Gr^o^u^p
^6.
^{e. P}^r^io^r^ity^Gr^o^u^p⁷^v^e^ter^aⁿ^s^—^F^o^rⁱⁿ^p^a^tⁱ^en^{t co}^p^a^y^m^en^{ts o}ⁿ^ly^{, v}^e^ter^aⁿ^sⁱⁿ^th^{is p}^r^io^r^ity^g^r^o^u^p^ar^e
^r^e^sp^oⁿ^sib^l^{e f}^o^r²⁰^%^o^f^th^{e in}^p^a^tien^t^co^p^a^y^m^en^{t (}ⁱⁿ^tr^ad^itioⁿ^a^{l in}^s^u^r^aⁿ^{ce th}^{is is k}ⁿ^o^wⁿ^{as a}
^dedu^ctⁱ^b^l^e^{) an}^{d 20%}^of^t^h^{e i}ⁿ^patⁱ^eⁿ^t^{per di}^em^copay^m^en^t^.^T^h^e^m^e^an^s^-^t^e^s^t^{ed copay}^m^en^t
^r^e^d^u^ctioⁿ^d^o^e^{s n}^o^t^ap^p^l^y^to^o^u^tp^atien^t^an^d^m^e^dⁱ^catioⁿ^co^p^a^y^m^en^{ts an}^d^v^e^ter^aⁿ^s^w^{ill b}^e^assessed
^th^{e f}^u^{ll applicable copay}^m^en^{t ch}^ar^g^e^s^f^o^{r n}^oⁿ^s^ervⁱ^ce-^conⁿ^{ected care.}
^f^.^P^r^io^r^ity^Gr^o^u^p⁸^v^e^ter^aⁿ^s^{— Fo}^rⁱⁿ^p^a^tien^t^co^p^a^y^m^en^{ts o}ⁿ^ly^{, v}^e^ter^aⁿ^sⁱⁿ^th^{is p}^rⁱ^o^rⁱ^t^y^g^r^o^u^p^ar^e
^r^e^sp^oⁿ^sib^l^{e f}^o^r^th^{e f}^u^{ll in}^p^a^tien^t^co^p^a^y^m^eⁿ^t⁽ⁱⁿ^tr^ad^itioⁿ^a^{l in}^su^r^aⁿ^{ce th}^{is is k}ⁿ^o^wⁿ^{as a}
^d^e^d^u^ctib^le)^an^d^th^{e in}^p^a^tien^t^p^e^r^-^dⁱ^em^co^p^a^y^m^en^{t. Veter}^aⁿ^sⁱⁿ^th^{is p}^r^io^rⁱ^t^y^g^r^o^u^p^a^r^{e also}
^res^pon^sⁱ^ble^f^o^r^th^e^f^u^{ll ou}^tpatien^t^an^{d m}^e^dication^copay^m^en^ts^f^o^rⁿ^oⁿ^s^ervⁱ^ce-^conⁿ^ected^care.
^T^h^{ere is}ⁿ^o^m^ean^s^-^tes^t^{ed copay}^m^en^{t redu}^ction^.
Funding for VHA
VHA is funded through multiple appropriations accounts that are supplemented
by other sources of revenue. Although the appropriations account structure has been
subject to change from year to year, traditionally the appropriation accounts used to
support VHA include medical care, medical and prosthetic research, and medical
administration. In addition, Congress also appropriates funds for construction of
medical facilities through a larger appropriations account for construction applicable
to all VA facilities. Furthermore, the Committees on Appropriations include medical
care cost-recovery collections when considering the amount of resources needed to
provide funding for VHA. VHA is authorized to bill some veterans and most health
care insurers for nonservice-connected care provided to veterans enrolled in the VA
health care system, to help defray the cost of delivering medical services to veterans.
The Balanced Budget Act of 1997 (P.L.105-33) gave VHA the authority to retain
these funds in the Medical Care Collections Fund (MCCF). Instead of returning
these funds to the Treasury, VA can use this for medical services for veterans without
fiscal year limitations.
FY2004 VHA Budget Highlights
In general, the federal budget process begins with the submission of the
President’s budget request to Congress. Following this submission, the Budget
Committees of the House and Senate develop the annual budget resolution which
sets forth aggregate spending and revenue levels, by functional levels of spending,
for the upcoming fiscal year and at least the following four fiscal years.¹¹ The budget
resolution is not binding and does not allocate funds among specific programs or
accounts, but the major program assumptions underlying the functional amounts are¹²
often discussed in the accompanying report. The House and Senate Appropriations
Committees subdivide their allocations among their respective 13 subcommittees,
each of which is responsible for one of the regular appropriations acts. Authorizing
committees for certain programs may also consider legislation that will affect
spending under their programs. A committee has the discretion to decide on the
legislative changes to be recommended. It is not bound by the program changes

¹¹ Specifically, budget function 700 includes funding for VA benefits and services.
¹² For more information on the formulation of the budget resolution, see CRS Report 98-512
GOV, Formulation and Content of the Budget Resolution, by Bill Heniff, Jr.

recommended or assumed by the Budget Committees in the reports accompanying
the budget resolution.¹³ Enumerated below are major highlights of the congressional
budget process, beginning with the President’s request to enact spending levels for
VA medical care for FY2004.
The Administration requested approximately $27.5 billion for VHA for
FY2004; this included approximately $1.8 billion in medical care collections (see
Table 2). The House Veterans Affairs, Housing and Urban Development, and
Independent Agencies FY2004 appropriations bill (FY2004 VA-HUD appropriations
bill) recommended a new account structure for VHA.¹⁴ The FY2004 VA-HUD
appropriations bill proposed establishing four new accounts: medical services,
medical administration,¹⁵ medical facilities,¹⁶ and medical and prosthetic research.
The FY2004 VA-HUD appropriations bill included approximately $16.4 billion for
medical services, which included nearly $1.5 billion from the Medical Care
Collections Fund (MCCF) (the bill language did not provide the $1.5 billion as a
separate line item, and it is not shown under the MCCF line on Table 2). In addition,
the FY2004 VA-HUD appropriations bill included approximately $4.9 billion for
medical administration, $4 billion for medical facilities, and $408 million for medical
and prosthetic research. In total, the House FY2004 VA-HUD appropriations bill
provided VHA approximately $25.7 billion.
The Senate’s appropriations bill (S. 1584) did not propose modifying the
FY2003 account structure¹⁷ and the Senate approved approximately $25.7 billion for
medical care. In addition, S. 1584 provided approximately $413 million for medical
and prosthetic research, and provided approximately $80 million for medical
administration and miscellaneous operating expenses. In total, the Senate bill
provided VHA approximately $28.6 billion for FY2004, including approximately
$1.6 billion from MCCF.

¹³ The VA, HUD, and Independent Agencies appropriations bill is one of 13 regular
appropriations bills that Congress passes each year. For details on funding for other VA
programs, see CRS Report RL31804, Appropriations for FY2004: VA, HUD and
Independent Agencies, by E. Richard Bourdon and Paul Graney.
¹⁴ H.R. 2861
¹⁵ The medical administration account provides for expenses related to the headquarters
offices of the Veterans Health Administration as well as the costs of Veterans Integrated
Service Network (VISN) offices and facility directors, expenses associated with information
technology hardware and software, legal services, billing and coding activities, procurement,
and related activities, among other expenses.
¹⁶ The medical facilities account provides funds for the operation, maintenance, and security
of VA medical facilities and also includes amounts for the cost associated with utilities,
laundry and food services, garbage disposal, facility repair among other things, but does not
include funds for construction of facilities. Spending for these purposes is included in the
medical care account in both the Administration’s and Senate’s proposals.
¹⁷ In FY2003 VHA was funded through the following four accounts: medical care; medical
and prosthetic research; medical administration and miscellaneous operating expenses; and
MCCF.

The Consolidated Appropriation Act, 2004 (P.L. 108-199)¹⁸ provided funding
for VHA based on the account structure proposed in H.R. 2861. The new accounts
that are funded are medical services, medical administration, medical facilities, and
medical prosthetic research. According to the Conference Committee, this account
structure will provide for “better oversight and a more accurate accounting of funds.”
P.L. 108-199 provided approximately $17.9 billion for medical services, $5 billion
for medical administration, $4 billion for medical facilities, and $408 million for
medical and prosthetic research. In total, P.L.108-199 provided $28.6 billion for the
Veterans Health Administration, including a separate amount for MCCF.
The following table shows appropriations to VA medical care programs for
FY2003, and for FY2004, the Administration’s request (based on the Conference
Committee’s account structure), the amounts recommended by the House and the
Senate, and the amounts ultimately approved by Congress and signed into law by the
President.
Table 2. VHA Appropriations FY2003-FY2004
($ in thousands)
^FY²⁰⁰³^FY²⁰⁰⁴^FY²⁰⁰⁴^FY²⁰⁰⁴^FY²⁰⁰⁴
^Program^enacted^request^Hou^s^e^Sena^t^e^Conference
^Medi^cal^s^e^rvⁱ^ces^—^—^16,443,220^—^17,867,220
^Medical
^admⁱⁿⁱ^s^t^ratⁱ^oⁿ^—^—^4,854,000^—^5,000,000
^{Medical f}^acilities^—^{— 4,000,000}^—^4,000,000
^{Medical an}^d
^pros^t^h^etⁱ^c^res^earch^397,400^408,000^408,000^413,000^408,000
^Medi^cal^care^23,889,304^25,218,000^—^25,688,080^a^—
^d^e^lay^e^d^o^b^lig^atioⁿ^s^b^—^—^—^1,100,000^—
^r^e^sc^issioⁿ^c^—^—^—^-^270,000^-^270,000
^Medical
^a^d^mⁱⁿⁱ^st^r^a^tⁱ^o^{n a}ⁿ^d
^mⁱ^scellan^e^o^u^s
^operatⁱⁿ^g^ex^pen^s^es
^(ol^d⁾^74,230^79,140^—^79,146^—
^{Medical care cos}^t^d
^co^llectioⁿ⁽^M^CCF)^1,386,000^1,800,000^—^1,564,000^1,564,000
^To^t^a^l:^V^H^A
⁽^a^ppro^p^ria^t^io^{ns f}^o^r
^p^r^ogram^s^an^d
^ad^mⁱⁿⁱ^s^t^rati^on^{) $25,746,934}^$27,^505,220^$25,705,220^$28,574,226^$28,569,220
^S^o^u^rce:^H^.^R^e^{pt. 108-}^401.
^Note:^T^o^ta^ls^m^a^y^not^a^dd^due^{to r}^ounding^{. FY}^{2004 a}^m^ounts^{do not inc}^l^ude^e^f^f^e^c^t^s^of^the^0.59%^a^c^r^os^s^-^the^-
^boa^r^d^r^e^s^c^is^sⁱ^{on in m}^o^s^t^dis^c^r^e^tiona^r^y^a^c^c^ounts^,^a^s^c^a^lle^{d f}^o^r^{in P}^.^L^.^108-^199.
^a^.^T^h^is^a^m^{ount inc}^l^ude^s^{$1.3 billion in e}^m^e^r^g^e^nc^y^f^unding^f^o^{r m}^e^dic^a^l^c^a^r^e^.

¹⁸ H.R. 2673

^{b. T}^h^e^S^eⁿ^a^t^e^Com^m^itte^e^{on A}^ppropria^{tions inc}^l^ude^{d bill}^la^ng^ua^g^e^de^la^yⁱ^ng^a^v^a^ila^bility^of^{$1.1 billion f}^o^r
^m^e^dic^a^l^c^a^r^e^{to prov}^ide^f^l^e^x^ibility^{to V}^A^{to im}^ple^m^eⁿ^{t sig}ⁿ^if^ic^aⁿ^{t prog}^ra^m^c^h^aⁿ^g^e^s.
^c.^T^h^e^Se^na^te^Com^m^itte^e^{on A}^ppropria^tions^inc^l^ude^{d b}^{ill la}^ng^ua^g^e^tha^t^c^aⁿ^c^e^l^e^d^budg^e^t^a^u^thorit^y^o^f^$270
^m^{illion, re}^pre^s^eⁿ^ting^{prior y}^e^a^r^{s re}^c^o^v^e^rie^s^f^o^{r m}^e^dic^a^l^c^a^r^e^.
^{d. Me}^dic^a^l^C^a^r^e^C^o^lle^c^tions^{Fund (}^M^C^C^F⁾^r^ecei^p^t^{s are rest}^o^r^ed^t^o^t^h^{e V}^H^A^{as an}ⁱⁿ^d^e^fⁱⁿⁱ^t^e^budg^e^t^a^u^thor^ity
^e^qua^{l to the}^re^v^e^nue^c^o^lle^c^t^e^d^{, e}^s^tim^a^t^e^d^{to be}^{$1.386 billion in FY}^{2003. T}^h^e^a^m^{ount initia}^lly^proje^c^t^e^d
^f^o^r^FY2004^w^a^s^{$1.8 billion; the}^c^onf^e^r^e^e^s^{on the}^V^A^{-HUD portion of}^th^e^Consolida^t^e^d^A^ppropria^tions
^A^c^{t (P}^.L^{. 108-199) us}^e^d^a^la^te^{r e}^s^tim^a^t^e^of^{$1.564 billion.}
FY2005 VHA Budget
Changes in the VA Medical Care Account Structure
The Administration proposed a new account structure for VHA for FY2005,
consolidating several accounts under a medical care business line, and two accounts
under a medical research business line. A brief description of the accounts
consolidated into the two business lines is provided in Appendix 2.
On July 22, 2004, the House Committee on Appropriations approved by voice
vote the FY2005 VA-HUD appropriations bill (H.R. 5041). This bill was reported
out of committee on September 9, 2004 (H.Rept.108-674). As reported, H.R. 5041
recommended $30.3 billion for VA medical programs for FY2005. This is an
increase of $1.2 billion over the President’s request and $1.9 billion over FY2004.
The Committee did not adopt the Administration’s alternative appropriations
structure and provided funding using the FY2004 account structure. According to
the committee report, this was because the Administration’s proposed account
structure “does not address the needs of Congress in its role of reviewing and
allocating federal budgetary resources.”¹⁹ Furthermore, the Committee asserts that
the FY2004 account structure provides better oversight and a more accurate
accounting of funds.
The Senate Committee on Appropriations reported its version of the FY2005
VA-HUD appropriations bill (S. 2825) (S.Rept. 108-353) on September 21, 2004.
The Committee also did not adopt the Administration’s account structure and
provided funding using the FY2004 account structure. In its report, the Committee
advised the Administration “to be sensitive to the administrative burden on VA staff
in implementing major account changes, and to take this concern into mind when
exploring future account changes.”²⁰
As reported, S. 2825 recommended $30.4 billion for VA medical programs for
FY2005. This is an increase of $1.2 billion over the President’s request and $2
billion over FY2004. Of the total amount appropriated for medical programs, the

¹⁹ U.S. Congress, House Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,^th^nd
report to accompany H.R. 5041, 108 Cong., 2 sess., H.Rept. 108-674.
²⁰ U.S. Congress, Senate Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,^th^nd
report to accompany S. 2825, 108 Cong., 2 sess., S.Rept. 108-353.

Committee designated $1.2 billion as an emergency requirement. ²¹ According to the
committee report, this was due to “unanticipated and urgent need of veterans seeking
medical treatment and services.”²²
On November 20, 2004, both the House and Senate adopted the conference
agreement to accompany the Consolidated Appropriations Act, 2005 (H.R. 4818,
P.L. 108-447).²³ The bill was signed into law by the President on December 8, 2004.
Under P.L.108-447, VHA would receive $30.3 billion in FY2005 — an increase of
$1.2 billion over the FY2005 appropriation request and $1.9 billion over FY2004.
None of the funds would be contingent upon an emergency declaration as proposed
by the Senate Appropriations Committee (S. 2825). The conferees rejected the
Administration’s proposal to fund VHA through an alternative account structure.
According to the conference report, the conferees continue to believe the current
account structure started in FY2004, composed of four accounts — medical services,
medical administration, medical facilities, and medical and prosthetic research —
“will provide better oversight and achieve a more accurate accounting of funds.”²⁴
Table 3 presents the President’s FY2005 budget request as well as the amounts
recommended by the House Committee on Appropriations, the Senate Committee on
Appropriations, and the committee of conference for FY2005. Note that the medical
care total in the President’s budget request includes spending for medical services,
medical administration, and construction of facilities.

²¹ By beging designated as an emergency requirement, this funding is not subject to
enforcement procedures under the congressional budget process.
²² U.S. Congress, Senate Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,^th^nd
report to accompany S. 2825, 108 Cong., 2 sess., S.Rept. 108-353.
²³ U.S. Congress, Conference Committee, Consolidated Appropriations Act, 2005,
conference report to accompany H.R. 4818, 108^th Cong., 2^nd sess., H. Rept 108-792.
²⁴ U.S. Congress, Conference Committee, Consolidated Appropriations Act, 2005,
conference report to accompany H.R. 4818, 108^th Cong., 2^nd sess., H. Rept 108-792.

Table 3. VHA FY2004 Appropriation, FY2005 Budget Request,
and Amounts Recommended
($ in thousands)
^FY²⁰⁰⁵^FY²⁰⁰⁵
^Hou^s^e^Sena^t^e
^FY²⁰⁰⁴^FY²⁰⁰⁵^Appro^p^.^Appro^p^.^FY²⁰⁰⁵
^Program^ap^p^r^op^ri^ati^oⁿ^request^C^o^mmi^t^t^e^e^C^o^mmi^t^t^e^e^Conference
^Medi^cal^s^e^rvⁱ^ces^$17,762,054^—^$19,498,600^$19,498,600^a^$19,472,777
^Medical
^admⁱⁿⁱ^s^t^ratⁱ^oⁿ⁴^,970,500^—^4,705,000^4,705,000^4,705,000
^{Medical f}^acilities³^,976,400^—^3,745,000^3,745,000^3,745,000
^{Medical an}^d
^pros^t^h^etⁱ^c^res^earch^405,593^$384,770^384,770^405,593^405,593
^Medi^cal^care^—^26,748,600^—^—^—
^res^cⁱ^s^sⁱ^on^-^270,000^—^—^—^—
^{Medical care cos}^t
^col^l^ectⁱ^oⁿ^(MC^C^F⁾^1,554,772^2,^002,000^2,002,000^2,002,000^2,002,000
^To^t^a^l:^V^H^A
⁽^a^ppro^p^ria^t^io^ns
^{for p}^r^ogram^s^an^d
^ad^mⁱⁿⁱ^s^t^rati^on^{) $28,399,319}^$29,^135,370^$30,335,370^$30,356,193^$30,330,370
^S^o^u^rce^{: H}^.^R^e^{pt. 108-}^{674; S.R}^e^pt.108-^{353; H}^.^R^e^{pt. 108-}⁷⁹²
^a^.^T^h^is^a^m^{ount inc}^l^ude^s^{$1.2 billion de}^sⁱ^gⁿ^a^t^e^d^a^s^aⁿ^e^m^e^r^g^e^nc^y^re^quire^m^e^nt.
^Note:^A^ppr^opr^ia^tion^a^m^ounts^f^o^r^FY^{2004 a}^d^jus^t^e^d^to^a^c^c^{ount f}^o^r^the^0.59%^a^c^r^os^s^-^the^boa^r^d^r^e^duc^{tion in m}^o^s^t
^dis^c^r^e^tiona^r^y^a^c^c^ounts^,^a^s^c^a^lle^{d f}^o^r^{in P}^.^L^.^108-^{199. I}ⁿ^c^l^ude^s^r^e^s^c^is^sⁱ^oⁿ^o^f^{$270 m}^{illion in unoblig}^a^t^e^d
^ba^la^nc^e^s^r^e^m^a^ining^f^r^om^pr^ior^y^e^a^r^r^e^c^o^v^e^rⁱ^e^s^a^{nd r}^e^a^ppr^opr^ia^te^{d to Me}^dic^a^l^C^a^r^e^{in FY}^2004.^FY^{2005 budg}^e^t
^e^s^tim^a^t^e^s^a^r^e^{not a}^d^jus^t^e^d^{to a}^c^c^{ount f}^o^r^the^0.8%^a^c^r^os^s^-^the^-^boa^r^d^r^e^s^c^is^sⁱ^onⁱⁿ^m^o^s^t^dis^c^r^e^tiona^r^y^a^c^c^ounts
^a^s^c^a^lle^{d f}^o^r^{in P}^.^L^.^108-^447.
Capital Asset Realignment for Enhanced Services (CARES)
Program-Related Construction
Much of VA’s physical infrastructure was built decades ago when the agency’s
focus was providing inpatient care. VA has been shifting from a hospital-based
system providing inpatient care to one that emphasizes outpatient care in outpatient
hospital settings and community-based clinics. Today, more than 80% of the services
that VA provides to veterans are on a outpatient basis. VA’s CARES initiative is an
attempt to create a strategic framework to upgrade the health care-delivery capital
infrastructure and ensure that scarce resources are placed in the types of facilities and
locations that would best serve the needs of the veteran population. In August 2003,
VA released the Draft National CARES Plan. Following the release of the draft plan,
the VA Secretary appointed a 16-member independent commission to evaluate the
draft plan. The CARES Commission submitted its recommendations to the Secretary
in February 2004. After reviewing the recommendations, the Secretary announced
the final details of the CARES plan in May 2004. The plan proposes new hospitals
in Orlando, FL, and Las Vegas, NV, 156 new community-based outpatient clinics,
four new spinal cord injury centers, two rehabilitation centers for the blind, and
expanded mental health outpatient services nationwide. In some cases, the plan also

calls for transferring care from antiquated facilities to more modern or better- situated
VA facilities or contracting for care in local communities. By opening health care
access to more veterans, VA expects to increase the percentage of enrolled veterans
from 28% of the veteran population today, to 30% in 2012 and 33% in 2022.
The Secretary’s final decision on the CARES Commissions Report deferred
action on nine facilities, pending completion of feasibility and/or cost-benefit
studies.²⁵ Further study was directed to facilitate more specific conclusions about the
regional health care requirements associated with each facility.
VA has developed a seven-year funding model to estimate the additional capital
required to implement the CARES program. The model was based on the
preliminary data from the Veterans Integrated Services Network (VISN) 12 CARES
study. To assess capital requirements at a macro level, CARES used projections of
beds and outpatient primary care, mental health, and speciality care. VA plans to
revise the funding model as additional CARES data are available. It should be noted
that any CARES-related major construction project would still need to receive a
specific appropriation from Congress.
In the Administration’s budget request for FY2005, a portion of the funds from
the Construction Major and Construction Minor accounts that are part of the medical
care account in Table 3 (see Appendix 2) would be used to begin implementing
recommendations stemming from studies associated with the Capital Asset
Realignment for Enhanced Services (CARES) program.
The House Committee on Appropriations recommended approximately $371
million from the Construction Major account, and nearly $162 million from the
Construction Minor account for CARES program activities. In its report, the House
Appropriations Committee expressed concern about “ the limited consultation by VA
with local communities during some aspects of the CARES programs.” In addition,
the Committee “directs VA to defer final action on any facility undergoing a
feasibility study, as directed by the Secretary’s final decision on the CARES
Commission Report, until affected stakeholders have been given adequate
opportunity to consult with the feasibility study task forces and VA on the future of²⁶
these facilities.”
The Senate Committee on Appropriations recommended approximately $371
million from the Construction Major account, and $182 million from the
Construction Minor account for CARES program activities. In its report, the
Committee strongly urges VA to establish an independent body to advise and
monitor the progress of CARES in order to ensure that the implementation of the

²⁵ The nine facilities are located in the following areas: Boston, MA; New York City; Big
Spring, TX; Montgomery, AL; Louisville, KY; Muskogee/Tulsa, OK; Poplar Bluff, MO;
Waco, TX; Walla Walla, WA.
²⁶ U.S. Congress, House Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005^th^nd
report to accompany H.R. 5041, 108 Cong., 2 sess., H.Rept. 108-674.

CARES program is “objective and not vulnerable to subjective changes.”²⁷ The
Committee also urged VA to develop a plan for disposing of its vast inventory of
vacant and unneeded infrastructure.
The Consolidated Appropriations Act, 2005 (P.L.108-447) provides $370
million from the Construction Major account, and $182 million from the
Construction Minor account for CARES-related activities. The accompanying
conference report agrees with language in the Senate report (S.Rept. 108-353) urging
the Secretary of Veterans Affairs to establish an independent CARES advisory body.
Note that the Construction Major and Construction Minor accounts are funded
through separate construction accounts, and not through the VA health care budget.
These accounts do not appear on Table 3.
Changes in the Cost-Sharing Structure
In its FY2005 budget request, the Administration proposed several regulatory
and legislative changes to VA’s cost-sharing structure. According to the VA, these
changes would have allowed the agency to refocus the VA health care system to
better serve the highest-priority core veterans. These veterans are those with service-
connected conditions, those with lower incomes and those with special health care
needs. Among the most significant legislative and regulatory proposals in the budget
are:
^!Increasing veterans’ share of pharmaceutical copayments from $7
to $15 (for each 30-day prescription) for all enrolled veterans in
Priority Groups 7 and 8;
^!Increasing veterans’ share of copayments for outpatient primary care
from $15 to $20 (for each medical appointment) for all enrolled
veterans in Priority Groups 7 and 8;
^!Establishing an annual user fee of $250 for all enrolled veterans in
Priority Groups 7 and 8;
^!Ending pharmacy copayments for veterans in Priority Groups 2
through 5 with incomes between $9,894 and $16,509; this would
allow approximately 394,000 veterans to receive outpatient²⁸
medications without having to make a copayment;
^!Ending long-term care copayments for former prisoners of war;
^!Authorizing the department to pay for emergency room care or
urgent care for enrolled veterans in non-VA medical facilities;
^!Ending hospice copayments.
A brief description of each of the above proposals follows.

²⁷ U.S. Congress, Senate Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,^th^nd
report to accompany S. 2825, 108 Cong., 2 sess., S.Rept. 108-353.
²⁸ Testimony of VA Secretary Anthony Principi in U.S. Congress, House Committee on the
Budget, Hearing on FY2005 Budget for the Department of Veterans Affairs, prepared^th^nd
statement, 108 Congress 2 sess., Feb. 12, 2004.

Increase Veterans’ Share of Pharmacy Copayments. The
Administration proposed to increase the pharmacy copayments from $7 to $15 for all
enrolled Priority Group 7 and Priority Group 8 veterans whenever they obtain
medication from VA on an outpatient basis for the treatment of a nonservice-
connected disability. At present, veterans in Priority Groups 2-8 pay $7 for a 30-day
supply of medication, including over-the-counter medications.²⁹
The Veterans Millennium Health Care and Benefits Act of 1999 (P. L. 106-117)
authorized VA to increase the medication copayment amount and to establish annual
caps on the medication copayment amount.³⁰ An annual cap was established to
eliminate financial hardship for veterans enrolled in Priority Groups 2-6. When
veterans reach the annual cap, they will continue to receive medications without
making a copayment. For calendar year 2004, the cap is $840. There is currently no
cap for veterans in Priority Groups 7 and 8. According to the VA’s actuarial
projections, the increase in prescription drug copayments would have resulted in a
reduction of $83 million in prescription drug costs and generated an additional $135
million in copayment revenue, allowing Congress to reduce the VA appropriation by
$218 million.
Increase Veterans’ Share of Copayments for Outpatient Primary
Care. The President’s budget proposed increasing the primary care copayment
amount from $15 to $20 for a basic outpatient visit. This would have applied to all
enrolled Priority Group 7 and 8 veterans.
The current copayment rates of $15 for a primary care visit and $50 for
nonservice-connected specialty care visit went into effect on December 6, 2001.³¹
The new regulation implemented a three-tier copayment system for outpatient care.
Services such as preventive screening and immunizations are free. Primary care
visits, which include diagnosis and management of acute and chronic conditions, and
the large majority of personal health care needs, cost $15. Specialty care, such as
ambulatory surgery, MRIs, audiology, optometry, and care by specialists, which can
be provided only through a referral from a primary care provider, costs $50.
According to VA’s actuarial projections, the increase in the primary care copayment
would have resulted in a reduction of $8 million in health care costs and would have
generated an additional $7 million in copayment revenue, allowing Congress to
reduce the VA appropriation by $15 million. Furthermore, VA asserted that the
increase in the primary care copayment from $15 to $20 would have had a minimal
impact on utilization of VA health care.

²⁹ Veterans receiving a pension from VA for a nonservice-connected disability, veterans
with incomes below $9,894 (if single), and $12,959 ( if married), veterans receiving care for
conditions such as Agent Orange, combat veterans within two years of discharge, and
veterans who are former POWs are exempt from paying copayments.
³⁰ This law allowed VA to increase the copayment amount for each 30-day or less supply
of medication provided on an outpatient basis (other than medication administered during
treatment) for treatment of a nonservice-connected condition.
³¹ Department of Veterans Affairs, “Copayments for Inpatient Hospital Care and Outpatient
Medical Care,” 66 Federal Register 235, Dec. 6, 2001.

The Veterans Millennium Health Care and Benefits Act of 1999 (P.L. 106-117),
gave VA the authority to change copayment amounts. Therefore VA does not need
congressional approval to increase the primary care copayment amount from $15 to
$20 for an outpatient visit.
Assess an Annual User Fee of $250. The Administration proposed to
assess an annual user fee of $250 for all enrolled Priority Group 7 and 8 veterans.
According to the VA Secretary, the user fee would have been assessed only when a
veteran sought care. VA believes that veterans with higher incomes rely less on VA
for health care and have other health care options; therefore, it believes the fee will
not have an impact on many veterans.
In its FY2004 budget submission, the Administration requested authority from
Congress to levy an annual “enrollment fee” on nonservice-connected Priority Group
7 and all Priority Group 8 veterans. However, Congress did not approve imposing
such a fee. In its FY2005 budget submission, the Administration has once again
proposed charging all Priority Group 7 and 8 veterans an “annual enrollment” fee.
However, in subsequent testimony before Congress, Secretary Principi described this
as an annual “user fee” that will be collected only when a veteran seeks medical
services.
According to the actuarial projections done by VA, the $250 initial user fee was
expected to reduce the number of Priority Group 7 and 8 patients in FY2005 by
approximately 211,000. The initial user fee would have resulted in a reduction of
$141 million in health care costs and would have generated an additional $268
million in copayment revenue, allowing Congress to reduce the VA appropriation by
$409 million.
Pharmacy Copayment Relief for Some Veterans. The Administration
proposed to eliminate the pharmacy copayment burden for nonservice-connected
conditions of Priority Group 2-Priority Group 5 veterans by raising the income
threshold from $9,894 (if single) to $16,509 (if single). VA maintained that by using
this rate it will be able to further focus its resources on its core constituency — that
is, low-income veterans with service-related conditions.
Ending Copayments for Former Prisoners of War (POWs). The
Veterans Health Care, Capital Asset, and Business Improvement Act of 2003 (P.L.
108-170) required VA to exempt former POWs from medication copayments for
treatment of both service-connected and nonservice-connected conditions. With the
passage of this legislation, former POWs do not have to pay copayments for hospital
and medical services (including copayments for medications). This applies to
treatment of both service-connected and nonservice-connected conditions. However,
former POWs do have to pay copayments for long-term care services. The
Administration asked Congress to exempt former POWs from copayment
obligations for long-term care services as well. This would have effectively ended
any remaining copayments obligations among former POWs for VA health care.
Emergency Care for Insured Veterans. Under current law, VA is
authorized to reimburse all veterans for emergency treatment furnished in non-VA
facilities for nonservice-connected conditions if they meet the following criteria: (1)

they have enrolled in VA’s health care system; (2) they have received care from VA
within the 24-month-period preceding the provision of such emergency treatment;
and (3) they are financially liable to the provider for the emergency treatment.
Veterans who have health insurance coverage for emergency care, or are entitled to
other federal benefits care (i.e., under Medicare or Medicaid), or have other
contractual or legal recourse are not eligible for reimbursement.³² However, VA does
not reimburse out-of-pocket expenses associated with such care.³³
In its FY2005 budget request, the Administration proposed that VA would pay
insured veterans’ out-of-pocket expenses for emergency care services if emergency
care is obtained outside the VA health care system. VA would have been a
secondary payer to private insurance or Medicare for emergency care services. VA
would have paid for the out-of-pocket expenses, less the amount of the copayment
the veteran would have been required to pay if the veteran had received care from
VA.
Copayment Exemption for Hospice Care. Under current law, veterans
receiving hospice care for a terminal illness may be subject to copayment obligations
depending upon the type of VA facility in which they receive care. Hospice care
received in a nursing home is exempt from extended-care copayments. Those
veterans who seek hospice care at a hospital (not in a nursing home) are subject to
an inpatient copayment. If veterans receive hospice care at home, they are subject to
outpatient copayments for their hospice care. The Administration proposed that
hospice care provided in all settings should be exempt from all inpatient and
outpatient copayments.
The FY2005 VA-HUD appropriations bills reported by the House and Senate
Committees on Appropriations and the final conference agreement to accompany the
Consolidated Appropriations Act, 2005, did not include any of the copayment
changes that had been proposed in the President’s budget request.
Continue to Suspend Enrollment
On January 17, 2003, the Secretary of Veterans Affairs announced that VA
would temporarily suspend enrolling Priority Group 8 veterans. This was included
as a policy proposal in the Administration’s FY2004 budget request. The FY2005
budget request continued this policy of suspending enrollment of new Priority Group

8 veterans.

According to this policy proposal, those who enrolled in the VA health care
system before January 17, 2003 would not be affected by this suspension. VA
justified suspending enrollment of Priority Group 8 veterans by asserting that even
with budgetary increases, the agency will be unable to provide all enrolled veterans
with timely access to health care services because of the tremendous growth in the
number of veterans seeking VA health care.

³² Veterans Millennium Health Care and Benefits Act (P.L. 106-117).
³³ VA fully reimburses veterans for emergency treatment obtained in non-VA medical
facilities for service-connected disabilities (38 U.S.C. § 1728)

In January 2003, VA estimated that there were almost 236,000 enrolled veterans
who have been unable to schedule an appointment within less than six months of the
desired date.³⁴ At present, VA is reporting that this number has been reduced to
approximately 36,000.³⁵ VA contends that resources should be focused on VA’s core
population — those veterans with service-connected disabilities, with lower incomes,
and special needs such as the blind and those with spinal cord injuries. Although the
Administration included this proposal in the budget request, VA does not need
congressional approval to implement it. The Veterans’ Health Care Eligibility
Reform Act of 1996 (P.L. 104-262) gives the Secretary the authority to suspend
enrollment when there are insufficient resources to provide quality health care.
Suspending enrollment of Priority Group 8 veterans affected approximately
164,000 veterans for FY2003. If this suspension continues, it would affect an
estimated 360,000 veterans by the end of FY2004, and 522,000 veterans by the end
of FY2005. According to VA, it will continue to enroll veterans in Priority Groups
1 through 7, adding approximately 380,000 veterans during FY2003 into these
categories.
A veteran who is not enrolled will still be eligible for hospital and outpatient
care for certain conditions, including the following: (1) conditions related to military
sexual trauma, (2) head or neck cancer related to nose or throat radium treatment
while in the military, (3) readjustment counseling services, (4) treatment related to
service-connected conditions. Moreover, recently discharged veterans who have
served in combat theaters such as Afghanistan and Iraq can receive health care for
conditions potentially related to their services for up to two years.

³⁴ Department of Veterans Affairs, “ Enrollment — Provision of Hospital and Outpatient
Care to Veterans Subpriorities of Priority Categories 7 and 8 and Annual Enrollment Level
Decision,” 68 Federal Register 2670, Jan. 17, 2003.
³⁵ U.S. Congress, Committee on Veterans Affairs, Report to the Committee on the Budget
on the Budget Proposed for Fiscal Year 2005, Committee Print, 108^th Cong., 2^nd sess., Mar.

4, 2004, p. 1.

Appendix 1. Priority Groups and
Their Eligibility Criteria
^P^rⁱ^o^rⁱ^t^y^Gr^{oup 1}
^V^e^te^ra^{ns w}^{ith se}^rv^ic^e^-^c^onne^c^t^e^d^disa^bilitie^{s ra}^te^{d 50%}^{or m}^o^re^disa^bling
^P^rⁱ^o^rⁱ^t^y^Gr^{oup 2}
^V^e^te^ra^{ns w}^{ith se}^rv^ic^e^-^c^onne^c^t^e^d^disa^bilitie^{s ra}^te^{d 30%}^{or 40%}^disa^bling
^P^rⁱ^o^rⁱ^t^y^Gr^{oup 3}
^V^e^t^e^ran^s^w^h^o^{are f}^o^rm^{er P}^O^W^s
^V^e^t^e^ran^s^aw^ard^e^d^t^h^{e P}^u^rp^l^e^Heart
^V^e^te^ra^{ns w}^hose^disc^ha^rg^e^w^a^{s f}^o^{r a}^disa^bility^tha^t^w^a^{s inc}^u^rre^{d or a}^g^g^r^a^v^a^t^e^d^{in the}^line^of^duty
^V^e^te^ra^{ns w}^{ith se}^rv^ic^e^-^c^onne^c^t^e^d^disa^bilitie^{s ra}^te^{d 10%}^{or 20%}^disa^bling
^V^e^te^ra^ns^a^w^a^r^de^{d s}^p^e^cⁱ^a^l^e^lig^ibility^c^l^a^s^sⁱ^fⁱ^c^a^{tion unde}^{r 38 U}^.^{S. C. § 1151, “}^b^eⁿ^e^f^its^f^o^{r indiv}ⁱ^dua^ls
^disa^ble^d^by^tre^a^t^m^e^{nt or v}^o^c^a^tiona^{l re}^ha^bilita^tion
^P^rⁱ^o^rⁱ^t^y^Gr^{oup 4}
^V^e^t^e^ran^s^w^h^o^{are recei}^viⁿ^g^ai^d^an^d^at^t^eⁿ^d^aⁿ^{ce o}^r^hous^e^{bound be}^ne^f^its
^Ve^te^r^a^ns^w^{ho ha}^v^e^be^eⁿ^de^te^r^m^ine^d^by^VA^{to be}^c^a^t^a^s^tr^ophic^a^lly^dis^a^ble^d
^P^rⁱ^o^rⁱ^t^y^Gr^{oup 5}
^N^ons^e^r^vⁱ^c^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^a^{nd nonc}^om^pe^ns^a^b^le^s^e^r^v^ic^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^r^a^te^{d 0%}^dis^a^ble^d^w^hos^e
^a^nnua^{l inc}^o^m^e^a^{nd ne}^{t w}^o^r^t^{h a}^r^e^be^low^the^e^s^ta^blis^he^{d VA}^Me^aⁿ^s^T^e^s^t^thr^e^s^holds
^V^e^t^e^ran^s^recei^viⁿ^g^V^A^p^eⁿ^sⁱ^oⁿ^b^eⁿ^e^fⁱ^t^s
^V^e^te^ra^{ns e}^lig^ible^f^o^{r Me}^dic^aⁱ^{d be}^ne^f^its
^P^rⁱ^o^rⁱ^t^y^Gr^{oup 6}
^Co^m^p^en^sab^l^{e 0}^%^servi^ce-coⁿⁿ^ect^ed^vet^e^ran^s
^W^o^rld^W^a^{r I v}^e^teran^s
^Mexⁱ^can^Bo^rd^{er W}^a^{r v}^e^teran^s
^V^e^t^e^ran^s^so^l^e^l^y^seekiⁿ^{g care f}^o^{r d}ⁱ^so^rd^{ers asso}^ci^at^ed^wⁱ^t^h
^{— e}^x^posure^{to he}^rbic^ide^s^w^h^ile^se^rv^ing^{in V}ⁱ^e^t^na^m^;^or
^—^ionizⁱ^ng^r^a^dia^{tion dur}^ing^a^t^m^o^s^phe^rⁱ^c^te^s^ting^or^dur^ing^the^oc^c^upa^{tion of}^Hⁱ^r^o^s^h^im^a^a^{nd N}^a^g^a^s^a^k^{i; or}
^{— f}^o^{r d}ⁱ^so^rd^{ers asso}^ci^at^ed^wⁱ^t^h^servi^{ce i}ⁿ^t^h^{e G}^u^l^f^W^a^r;^o^r
^{— f}^o^{r a}ⁿ^y^illne^{ss a}^ssocⁱ^a^t^e^d^w^ith^se^rv^ic^e^{in c}^o^m^b^a^t^{in a}^w^a^{r a}^f^te^{r the}^G^u^lf^W^a^{r or during}^a^pe^{riod of}
^hos^tility^a^f^te^{r N}^o^v^e^m^b^e^r^{11, 1998.}
^P^rⁱ^o^rⁱ^t^y^Gr^{oup 7}
^Ve^te^r^a^ns^w^{ho a}^g^r^e^e^{to pa}^y^s^p^e^cⁱ^fⁱ^e^d^c^opa^y^m^eⁿ^ts^w^{ith inc}^o^m^e^a^nd/or^ne^{t w}^o^r^t^h^abov^e^t^h^{e V}^A^M^ean^{s T}^e^st
^thr^e^s^{hold a}^{nd inc}^o^m^e^be^low^th^{e HUD geo}^g^rap^hⁱ^{c in}^d^e^x
^Subpr^ior^ity^a^:^N^onc^om^pe^ns^a^b^le^0%^s^e^r^v^ic^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^w^{ho w}^e^r^e^eⁿ^r^o^lle^{d in the}^VA^H^e^a^{lth C}^a^r^e
^S^y^st^em^oⁿ^{a sp}^eci^fⁱ^ed^d^a^t^e^an^d^w^h^o^h^a^{ve rem}^aⁱⁿ^ed^en^ro^l^l^e^d^siⁿ^{ce t}^h^at^d^a^t^e
^Subpr^ior^ity^c^:^N^ons^e^r^vⁱ^c^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^w^{ho w}^e^r^e^eⁿ^r^o^lle^{d in the}^VA^H^e^a^{lth C}^a^r^e^Sy^s^t^e^m^{on a}
^sp^eci^fⁱ^ed^d^a^t^e^an^d^w^h^o^h^a^{ve rem}^aⁱⁿ^ed^en^ro^l^l^e^d^siⁿ^{ce t}^h^at^d^a^t^e^.
^Subpr^ior^ity^e^:^N^onc^om^pe^ns^a^b^le^0%^s^e^r^v^ic^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^{not inc}^l^ude^{d in Subpr}^ior^ity^a^a^bov^e
^Subpr^ior^ity^g^:^N^ons^e^r^vⁱ^c^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^{not inc}^l^ude^{d in Subpr}^ior^ity^c^a^bov^e
^P^rⁱ^o^rⁱ^t^y^Gr^{oup 8}
^Ve^te^r^a^ns^w^{ho a}^g^r^e^e^{to pa}^y^s^p^e^cⁱ^fⁱ^e^d^c^opa^y^m^eⁿ^ts^w^{ith inc}^o^m^e^a^nd/or^ne^{t w}^o^r^t^h^abov^e^t^h^{e V}^A^M^ean^{s T}^e^st
^th^resh^o^l^d^an^d^th^{e HUD geo}^g^rap^hⁱ^{c in}^d^e^x
^Subpr^ior^ity^a^:^N^onc^om^pe^ns^a^b^le^0%^s^e^r^v^ic^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^eⁿ^r^o^lle^{d a}^s^of^J^a^nua^r^y^{16, 2003 a}^{nd w}^h^o
^h^a^{ve rem}^aⁱⁿ^ed^en^ro^l^l^e^d^siⁿ^{ce t}^h^at^d^a^t^e
^Subpr^ior^ity^c^:^N^ons^e^r^vⁱ^c^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^eⁿ^r^o^lle^{d a}^s^of^J^a^nua^r^y^{16, 2003 a}^{nd w}^{ho ha}^v^e^r^e^m^a^ine^d
^en^ro^l^l^e^d^siⁿ^{ce t}^h^at^d^a^t^e
^Subpr^ior^ity^e^:^N^onc^om^pe^ns^a^b^le^0%^s^e^r^v^ic^e^-^c^onne^c^t^e^d^v^e^te^r^a^ns^a^pplyⁱ^ng^f^o^r^eⁿ^r^o^llm^eⁿ^{t a}^f^te^r^J^a^nua^r^y^16,
²⁰⁰³
^S^o^u^rce^{: D}^e^pa^r^t^m^e^{nt of}^Ve^te^r^a^ns^A^f^f^a^ir^s
^Note:^Se^rv^ic^e^-^c^onne^c^t^e^d^disa^bility^m^e^aⁿ^{s w}^{ith re}^spe^c^t^{to disa}^bility^{, tha}^t^suc^h^disa^bility^wa^sⁱⁿ^c^u^rre^d^or
^a^g^g^r^a^v^a^t^e^d^{in the}^line^of^duty^{in the}^a^c^tiv^e^m^ilita^ry^{, na}^v^a^{l or a}ⁱ^{r se}^rv^ic^e

Appendix 2. Medical Care Business Line and the
Medical Research Business Line Accounts in the
Administration’s FY2005 VHA Budget
Medical Care Business Line
Medical Care. The medical care appropriation would provide for medical care
and treatment of eligible veterans, and certain dependents and survivors of veterans.
In addition, this appropriation would also provide for training of medical residents
and interns and other professional paramedical and administrative personnel in the
health care field.
Medical Care Collections Fund (MCCF). VA deposits copayments
collected from veterans obligated to make such payments for either medical services
or inpatient pharmacy benefits for outpatient medication,³⁶ and third- party insurance
payments from service-connected veterans for nonservice-connected conditions into
the MCCF.³⁷ However, copayments, third-party insurance payments, and fees for
services other than medical services or inpatient pharmacy benefits were deposited
in several medical collections accounts.
In FY2004, the Administration’s budget proposed consolidating several medical
collections accounts into the MCCF. The conferees of the Consolidated
Appropriations Act [H.Rept. 108-401]³⁸ recommended that collections which would
otherwise be deposited in the entities formerly known as the Health Services
Improvement Fund, the Veterans Extended Care Revolving Fund, the Special
Therapeutic and Rehabilitation Activities Fund, the Medical Facilities Revolving
Fund, and the Parking Revolving Fund be deposited in the MCCF. The funds
deposited in the MCCF would be available for medical services for veterans. These
collected funds do not have to be spent in any particular fiscal year and are available
until expended. The following describes former collection accounts now
consolidated under the MCCF, and current programs.
Pharmacy Copayments (formerly collected in the Health Services
Improvement Fund — HSIF). In FY2002, Congress created a new fund (the
Health Services Improvement Fund) to collect increases in pharmacy copayments
(from $2 to $7 for a 30-day supply of outpatient medication) that went into effect on
February 4, 2002. The Consolidated Appropriations Resolution, 2003 (P.L. 108-7)

³⁶ P.L. 105-33, the Balanced Budget Act of 1997, extended the authority to recover
copayments for outpatient medication until Sept. 30, 2002. P.L. 108-7, the Consolidated
Appropriation Resolution 2003, granted permanent authority to recover copayments for
outpatient medication.
³⁷ P.L. 107-135, the Department of Veterans Affairs Health Care Programs Enhancement
Act of 2001, extended the authority to recover third-party insurance payments from service-
connected veterans for nonservice-connected conditions through Oct. 1, 2007.
³⁸ Enacted as the Consolidated Appropriations Act, 2004 (P.L. 108-199).

granted VA the authority to consolidate the HSIF with the MCCF and granted
permanent authority to recover copayments for outpatient medications.
Long-Term Care Copayments (formerly Veterans Extended Care
Revolving Fund).³⁹ This fund received per diems and copayments from certain
veteran patients receiving extended care services from VA providers or outside
contractors. According to the Administration’s budget documents, extended care
services are defined as geriatric evaluation, nursing home care, domiciliary services,
respite care, adult day health care, and other noninstitutional alternatives to nursing⁴⁰
home care.
Compensated Work Therapy Program (formerly the Special Therapeutic
and Rehabilitation Activities Fund).⁴¹ The Compensated Work Therapy (CWT)
program is a comprehensive rehabilitation program that prepares veterans for
competitive employment and independent living. The major goals of the program
are: (1) to use remunerative work to maximize a veteran’s level of functioning; (2)
to prepare veterans for successful reentry into the community as productive citizens,
and; (3) to provide a structured daily activity to those veterans with severe and
chronic disabling physical and/or mental conditions. As part of their work therapy,
veterans produce items for sale or undertake subcontracts to provide certain products
and/or services (such as providing temporary staffing to a private firm). Funds
collected from the sale of these products and/or services were used to fund the
program.
Compensation and Pension Living Expenses Program (formerly the
Medical Facilities Revolving Fund).⁴² Under this program, veterans who do not
have either a spouse or child would have their monthly pension reduced to $90 after
the third month he or she is admitted for nursing home care. The difference
between the veteran’s pension and the $90 was used for the operation of the VA
medical facility.
Parking Program (formerly the Parking Revolving Fund). The program
provided funds for construction and acquisition of parking garages at VA medical
facilities. VA collects fees for use of these parking facilities.
National Program Administration (Formerly Medical Administration
and Miscellaneous Operating Expenses, MAMOE). The National Program
Administration provides support to VA’s comprehensive and integrated health care
system by headquarters staff. Specific activities include the development and
implementation of policies, plans, and broad program activities; assistance for the

³⁹ Authority to collect long-term care copayments was established by the Millennium Health
Care and Benefits Act (P.L. 106-117).
⁴⁰ Department of Veterans Affairs, FY2005 Budget Submissions, Medical Programs, (vol.

2 of 4), pp. 2A-32.

⁴¹ The program was created by the Veterans’ Omnibus Health Care Act of 1976 (P.L. 94-

581).

⁴² The program was established by the Veterans’ Benefits Act of 1992 (P.L. 102-568).

networks in attaining their objectives and necessary follow-up action to ensure
complete accomplishment of goals including the capital facilities management and
development functions.
Construction Major. Funds from this account would be for construction,
altering, extending and improving any of the facilities used by VA. Any project that
costs more than $7 million falls under this category.
Construction Minor. Funds from this account would be used for
construction, altering, extending and improving any of the facilities used by VA. Any
project that costs $500,000 or more, and less than $7 million falls under this
category.
Grants for Construction of Extended-Care Facilities. Under this
program grants are provided to states to acquire or construct state owned and/or
funded nursing home and domiciliary facilities, and to remodel, modify, or alter
existing buildings for furnishing domiciliary or nursing home care for veterans in
state nursing homes. The Veterans Health Care Act of 1992 (P.L. 102-585) granted
permanent authority for this program. The Millennium Health Care and Benefits Act
(P.L. 106-117) reformed the construction grant program by giving higher priority to
critically needed renovations, such as projects involving fire- and life-safety
improvements in existing state homes. Prior to the enactment of this law, such
projects were given lower priority than grants for constructing new state nursing
homes.
VA/ DOD Health Care Sharing Incentive Fund. The National Defense
Authorization Act for FY2003 (P.L. 107-314) directed the Secretaries of Defense
and Veterans Affairs to enter into agreements and contracts for the mutually
beneficial coordination, use, or exchange of use of health care resources with the goal
of improving access to, and the quality and cost-effectiveness of, the health care
provided to beneficiaries. Under this act, VA and the Department of Defense must
establish a joint incentive fund, with each Department contributing a minimum of
$15 million to the fund. At present, the two Departments are in the process of
establishing the fund and developing criteria for its use. The program is set to expire
in 2007.⁴³
Medical Research Business Line
Medical and Prosthetic Research. In addition to providing medical care,
VA conducts medical, rehabilitative, and health services research. The medical and
prosthetic research program is an intramural program. Funds from this appropriation
are allocated to support VA employees conducting research projects. In addition to
funds from this appropriation, reimbursements from DOD, grants from the National
Institutes of Health, and private sources support VA researchers. Medical research
supports both basic and advanced clinical studies.

⁴³ For further information see U.S. General Accounting Office, VA Incentives Program for
Sharing Health Resources, GAO-04-495R DOD, Feb. 2004.

The prosthetic research program is involved in the development of prosthetic,
orthopedic, and sensory aides to improve the lives of disabled veterans. The health
services research program focuses on improving the outcome effectiveness and cost
efficiency of health care delivery for veterans.
Medical Care Research Support. Prior to the proposed new account
structure, funds appropriated under the medical care account were used for the
indirect cost of VA research. These indirect costs include costs of heating, lighting,
and other utilities associated with laboratory space, administrative costs associated
with human resources needed for research, and supply services attributed to research.