Order Code RL32548
CRS Report for Congress
Received through the CRS Web
Veterans’ Medical Care Appropriations and
Funding Process
Updated September 30, 2004
Sidath Viranga Panangala
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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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 non-service connected medical conditions.
In FY2004, the Administration requested $27.5 billion for VHA. Congress
appropriated $28.4 billion for VHA to be spent through an account structure
comprised 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). Under this bill 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 receive $30.4 billion in FY2005. This is a $2 billion increase from FY2004,
and $1.2 billion more than the President’s request.
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 did not accept any of the
Administration’s cost-sharing proposals for VHA. This report will be updated as
legislative and budgetary activity occurs.

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Contents
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Veterans Health Administration (VHA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
VA Health Care Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Funding for VHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FY2004 VHA Budget Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
FY2005 VHA Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Changes in the VA Medical Care Account Structure . . . . . . . . . . . . . . . . . . 9
Capital Asset Realignment for Enhanced Services (CARES)
Program Related Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Changes in the Cost-Sharing Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Increase the Veterans’ Share of Pharmacy Copayments . . . . . . . . . . . 13
Increase the Veteran’s Share of Copayments for Outpatient
Primary Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Assess an Annual User Fee of $250 . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Pharmacy Copayment Relief for Some Veterans . . . . . . . . . . . . . . . . . 14
Ending Copayments for Former Prisoners of War (POWs) . . . . . . . . . 14
Emergency Care for Insured Veterans . . . . . . . . . . . . . . . . . . . . . . . . . 15
Copayment Exemption for Hospice Care . . . . . . . . . . . . . . . . . . . . . . 15
Continue to Suspend Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Appendix 1. Priority Groups and Their Eligibility Criteria . . . . . . . . . . . . . . . . 17
Appendix 2. Medical Care Business Line and the Medical Research Business
Line Accounts in the Administration’s FY2005 VHA Budget . . . . . . . . . 18
Medical Care Business Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Medical Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Medical Care Collections Fund (MCCF) . . . . . . . . . . . . . . . . . . . . . . . 18
National Program Administration (Formerly Medical Administration
and Miscellaneous Operating Expenses, MAMOE) . . . . . . . . . . 19
Construction Major . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Construction Minor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Grants for Construction of Extended Care Facilities . . . . . . . . . . . . . . 20
VA/ DOD Health Care Sharing Incentive Fund . . . . . . . . . . . . . . . . . 20
Medical Research Business Line
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Medical and Prosthetic Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Medical Care Research Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Tables
Table 1. Veterans Payments for Health Care Services . . . . . . . . . . . . . . . . . . . . . 5
Table 2. VHA Appropriations FY2003-FY2004 . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 3. VHA, FY2004 Appropriation, FY2005 Budget Request and
Amounts Recommended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

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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 billion
for medical services,3 $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, 108th Cong., 2nd 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,
report to accompany S. 2825, 108th Cong., 2nd sess., S.Rept. 108-353.
3 This amount includes $1.2 billion designated as an emergency requirement. By designating
funding as an emergency requirement it is not subject to enforcement procedures under the
Congressional budget process.

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to fund VHA through an alternate account structure and did not include any
copayment changes that were proposed in the budget.
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 budget request for FY2005 for VHA.4 Third, it will discuss the
Administration’s major legislative and regulatory proposals for VA medical care for
FY2005. As milestones are reached during the congressional budget process, this
report will be updated to show the amounts recommended by the House and Senate,
and ultimately 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, veterans education, training and rehabilitation services, hospital and
medical care, and other veterans benefits such as home loan guarantees and death
benefits that cover 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 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 towards
supporting VA medical care.
VHA operates the largest direct health care delivery system in the nation.5 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
4 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.
5 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.

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CRS-3
million in FY2004 and approximately 4.9 million by the end of FY2005.6 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
judgement rather than legal criteria will determine when care will be provided and
the level at which care will be furnished.”7
For most veterans entry into the veterans’ health care system begins with
application for enrollment.8 A veteran may apply for enrollment at any time during
the year. Eligibility for VA health care is primarily based on “veteran’s status”
resulting from military service. “Veteran’s 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 “veterans’ status” has been established ,VA next places applicants into one
of two categories. The first group is composed of the following veterans:
6 This number and projections exclude Readjustment Counseling, State Home, Civilian
Health and Medical Program of VA (CHAMPVA), Spina Bifida, Foreign Medical Program
and non-veterans. Data provided by VA.
7 H.Rept.104-690.
8 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%).

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! veterans in need of care for a service-connected disability9;
! 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 an applicant’s income and net worth to determine their specific priority
category and if 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
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.)

9 The term ‘’service-connected’‘ means, with respect to disability, that such disability was
incurred or aggravated, in line of duty in the active military, naval, or air service.

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Table 1. Veterans Payments for Health Care Services
Copayments
Inpatient
Outpatient
Medicationa
Insurance Billing
Priority Group 1
No
No
No
Yes, but only if care
was for nonservice-
connected condition
Priority Groups
No
No
Yes, but only for
Yes, but only if care
2, 3,b 4c
veterans with less
was for nonservice-
than 50% service
connected condition
connected disability
and medication is
for nonservice-
connected condition
Priority Group 5
No
No
Yes
Yes, but only if care
was for nonservice-
connected condition
Priority Group 6
No
No
Yes
Yes, but only if care
(WWI, and 0%
was for nonservice-
service-
connected condition
connected
compensable)
Priority Group 6
Nod
Nod
Nod
Yes, but only if care
(Veterans
was for nonservice-
receiving care
connected condition
for exposure or
experience)d
Priority Group 7e Yes
Yes
Yes
Yes, but only if care
was for nonservice-
connected condition
Priority Group 8f
Yes
Yes
Yes
Yes, but only if care
was for nonservice-
connected condition
Source: President’s Task Force to Improve Health Care Delivery for Our Nation’s Veterans
Note: All veterans receiving prescriptions for nonservice-connected conditions who meet the low
income criteria (established by the means-test), and veterans who are former POW’s are exempt from
medication copayments.
a. An annual medication copayment cap has been established for veterans enrolled in priority groups
2-6. Medication will continue to be dispensed after copayment cap is met. An annual
copayment cap has not been established for veterans enrolled in priority groups 7 or 8.
b. Veterans in receipt of a Purple Heart are in Priority Group 3. This change occurred with the
enactment of the Veterans Millennium Health Care and Benefits Act [P.L. 106-117] on
November 30, 1999.
c. Priority Group 7 veterans who are determined to be catastrophically disabled and who are placed
in Priority Group 4 for treatment are still subject to the copayment requirements as a Priority
Group 7 veteran.
d. Priority Group 6 — health insurance and all applicable copayments will be billed when care is for
conditions not related to the veteran’s experience or exposure. Veterans in this priority group
could be subject to full medical care copayments or reduced inpatient copayments under means-

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CRS-6
test criteria for nonservice-connected conditions. Combat veterans receiving care for a potential
service-related condition within two years of discharge from the military are in Priority Group
6.
e. Priority Group 7 veterans — For inpatient copayments only, veterans enrolled in this priority group
are responsible for 20% of the inpatient copayment (in traditional insurance this is known as a
deductible) and 20% of the inpatient per diem copayment. The means-tested copayment
reduction does not apply to outpatient and medication copayments and veterans will be assessed
the full applicable copayment charges for nonservice-connected care.
f. Priority Group 8 veterans — For inpatient copayments only, veterans enrolled in this priority group
are responsible for the full inpatient copayment (in traditional insurance this is known as a
deductible) and the inpatient per diem copayment. Veterans in this priority group are also
responsible for the full outpatient and medication copayments for nonservice-connected care.
There is no means-tested copayment reduction.
Funding for VHA
VHA is funded through multiple appropriations accounts which 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 for 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.10 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 are
often discussed in the accompanying report.11 The House and Senate Appropriations
Committees, subdivide their allocations among their respective 13 subcommittees,
which are each 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
10 Specifically, budget function 700 includes funding for VA benefits and services.
11 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.

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CRS-7
legislative changes to be recommended. It is not bound by the program changes
recommended or assumed by the Budget Committees in the reports accompanying
the budget resolution.12 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 FY2004
appropriations bill (FY2004 VA-HUD appropriations bill) recommended a new
account structure for VHA.13 The FY2004 VA-HUD appropriations bill proposed
establishing four new accounts: medical services, medical administration, medical
facilities,14 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 in its appropriations bill, S. 1584, did not propose modifying the
FY2003 account structure15 and 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.
The Consolidated Appropriation Act, 2004 (P.L. 108-199)16 provided funding
for VHA based on the account structure as proposed by H.R. 2861. The new
accounts that are funded are: medical services, medical administration, medical
12 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.
13 H.R. 2861
14 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.
15 In FY2003 VHA was funded through the following four accounts: medical care; medical
and prosthetic research; medical administration and miscellaneous operating expenses; and
MCCF.
16 H.R. 2673

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CRS-8
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 $28.6 billion for the Veterans Health Administration, including a separate
amount for MCCF.
The following table shows appropriations to VA medical care programs for
FY2003, and for FY2004, the Administration’s request (based on the Conference
Committee’s account structure), the amounts recommended by the House, the Senate,
and the amounts ultimately enacted by Congress and signed by the President.
Table 2. VHA Appropriations FY2003-FY2004
($ in thousands)
FY2003
FY2004
FY2004
FY2004
FY2004
Program
enacted
request
House
Senate
Conference
Medical services
—
—
16,443,220
—
17,867,220
Medical
administration
—
—
4,854,000
—
5,000,000
Medical facilities
—
— 4,000,000

— 4,000,000
Medical and
prosthetic research
397,400
408,000
408,000
413,000
408,000
Medical care
23,889,304
25,218,000
—
25,688,080a
—
delayed obligationsb
—
—
—
1,100,000
—
rescissionc
—
—
—
-270,000
-270,000
Medical
administration and
miscellaneous
operating expenses
(old)
74,230
79,140
—
79,146
—
Medical care cost
collection (MCCF)d
1,386,000
1,800,000
—
1,564,000
1,564,000
Total: VHA
(appropriations for
programs and
administration) $25,746,934 $27,505,220 $25,705,220 $28,574,226 $28,569,220
Source: H.Rept. 108-401.
Note: Totals may not add due to rounding. FY2004 amounts do not include effects of the .59% across-the-board
reduction in most discretionary accounts, as called for in P.L. 108-199.
a. This amount includes $1.3 billion in emergency funding for medical care.
b. The Senate Committee on Appropriations included bill language delaying availability of $1.1 billion for
medical care to provide flexibility to VA to implement significant program changes.
c. The Senate Committee on Appropriations included bill language that canceled budget authority of $270
million, representing prior years recoveries for medical care.
d. Medical Care Collections Fund (MCCF) receipts are restored to the VHA as an indefinite budget authority
equal to the revenue collected, estimated to be $1.386 billion in FY2003. The amount initially projected
for FY2004 was $1.8 billion; the conferees on the VA-HUD portion of the Consolidated Appropriation
Act (P.L. 108-199) used a later estimate of $1.564 billion.

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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). 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.”17
Furthermore, the Committee asserts that the FY2004 account structure provides
better oversight and a more accurate accounting of funds.
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 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.”18
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
Committee designated $1.2 billion as an emergency requirement. 19 According to the
committee report, this was due to “unanticipated and urgent need of veterans seeking
medical treatment and services.”20
17 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, 108th Cong., 2nd sess., H.Rept. 108-674.
18 U.S. Congress, Senate Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,
report to accompany S. 2825, 108th Cong., 2nd sess., S.Rept. 108-353.
19 By designating funding as an emergency requirement it is not subject to enforcement
procedures under the Congressional budget process.
20 U.S. Congress, Senate Committee on Appropriations, Department of Veterans Affairs and
(continued...)

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Table 3 presents the President’s FY2005 budget request as well as the amounts
recommended by the House Committee on Appropriations and the Senate Committee
on Appropriations 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.
Table 3. VHA, FY2004 Appropriation, FY2005 Budget Request
and Amounts Recommended
($ in thousands)
FY2005
FY2005
House
Senate
FY2004
FY2005
Approp.
Approp.
FY2005
Program
appropriation
request
Committee
Committee
Conf.
Medical services
$17,762,054
— $19,498,600 $19,498,600a
Medical
administration
4,970,500
—
4,705,000
4,705,000
Medical facilities
3,976,400
—
3,745,000
3,745,000
Medical and
prosthetic research
405,593
$384,770
384,770
405,593
Medical care
—
26,748,600
—
—
rescission
-270,000
—
—
—
Medical care cost
collection (MCCF)
1,554,772
2,002,000
2,002,000
2,002,000
Total: VHA
(appropriations
for programs and
administration) $28,399,319 $29,135,370 $30,335,370 $30,356,193
Source: H.Rept. 108-674; S.Rept.108-353
a. This amount includes $1.2 billion designated as an emergency requirement.
Note: Appropriation amounts for FY2004 adjusted to account for the .59% across-the board reduction in most
discretionary accounts, as called for in P.L.108-199. Includes rescinded $270 million of unobligated balances
remaining from prior year recoveries and reappropriated to Medical Care in FY2004. FY2005 budget estimates
are subject to refinement.
Capital Asset Realignment for Enhanced Services (CARES)
Program Related Construction
Much of VA’s physical facilities was built decades ago when its 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
20 (...continued)
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,
report to accompany S.2825, 108th Cong., 2nd sess., S.Rept. 108-353.

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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 blind rehabilitation centers, 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 located 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
analysis studies.21 Further study was directed to enable 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 has expressed concern “by 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
21 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.

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opportunity to consult with the feasibility study task forces and VA on the future of
these facilities”.22
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 establish an independent body to advise and monitor
the progress of CARES in order to ensure that the implementation of the CARES
program is “objective and not vulnerable to subjective changes.” 23

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 it 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 the 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 outpatient
medications without having to make a copayment;24
! 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.
22 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, 108th Cong., 2nd sess., H.Rept. 108-674.
23 U.S. Congress, Senate Committee on Appropriations, Department of Veterans Affairs and
Housing and Urban Development, and Independent Agencies Appropriations Bill, 2005,
report to accompany S. 2825, 108th Cong., 2nd sess., S.Rept. 108-353.
24 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
statement, 108th Congress 2nd sess., Feb. 12, 2004.

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A brief description of each of the above proposals follows:
Increase the 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.25
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.26 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 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 the Veteran’s 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 Priority Group 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, 2001.27
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 includes diagnosis and management of acute and chronic conditions, and
the large majority of personal health care needs costs $15. Specialty care such as
ambulatory surgery, MRI’s, audiology, optometry and care by specialists, and which
can only be provided 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 generate 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
25 Veterans receiving a pension for a nonservice-connected disability from VA, veterans
with incomes below $9,894 (if single), and $12,959 ( if married), veterans receiving care for
conditions such as Agent Orange, Military Sexual Trauma and combat veterans within two
years of discharge, and veterans who are former POW’s are exempt from paying
copayments.
26 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.
27 Department of Veterans Affairs, “Copayments for Inpatient Hospital Care and Outpatient
Medical Care,” 66 Federal Register 235, Dec. 6, 2001.

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primary care copayment from $15 to $20 would have had a minimal impact on
utilization of VA health care.
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, a user fee would have been assessed only when a
veteran sought care. VA believes that veterans with higher income 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 7 and
all Priority 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 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 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 Groups 2-5 veterans by raising the income threshold from
$9,894 (if single) to $16,509 (if single). VA believed 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 for 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, they do have to pay copayments for long-term care services. The
Administration requested Congress to exempt former POWs from copayment
obligations for long-term care services as well. This would have effectively ended
any remaining copayments obligations on the part of former POWs for VA health
care.

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Emergency Care for Insured Veterans. Under current law VA is
authorized to reimburse all veterans for emergency treatment furnished in non-VA
facilities for non-service connected conditions, if they meet the following criteria:
1) have enrolled in VA’s health care system; 2) have received care from VA within
the 24-month period preceding the furnishing of such emergency treatment; and 3)
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 such as under Medicare, Medicaid or have other contractual or legal recourse are
not eligible for reimbursement.28 However, VA does not reimburse out-of-pocket
expenses associated with such care.29
In its FY2005 budget request, the Administration proposed that VA would pay
for 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 the
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 bed) are subject
to an inpatient copayment. If a veteran receives 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 did not include any of the copayment changes that
had been proposed in the budget.
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 stopping enrollment of new Priority Group
8 veterans.
According to this policy proposal those who enrolled before January 17, 2003,
in VA’s health care system would not be affected by this suspension. VA justifies
suspending enrollment of Priority Group 8 veterans by asserting that even with
budgetary increases, it will be unable to provide all enrolled veterans with timely
28 Veterans Millennium Health Care and Benefits Act (P.L. 106-117).
29 VA fully reimburses veterans for emergency treatment obtained in non-VA medical
facilities for service-connected disabilities (38 U.S.C. § 1728)

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access to health care services because of the tremendous growth in the number of
veterans seeking VA health care.
In January 2003, VA estimated that there were almost 236,000 enrolled veterans
who have been unable to schedule an appointment or have an appointment scheduled
more than six months of the desired date.30 At present, VA is reporting that this
number has been reduced to approximately 36,000.31 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 has included this proposal in the
budget request, VA does not need congressional approval for implementing this
proposal. The Veteran’s Health Care Eligibility Reform Act of 1996 (P.L. 104-262)
gives the Secretary the responsibility 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.
30 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.
31 U.S. Congress, Committee on Veterans Affairs, Report to the Committee on the Budget
on the Budget Proposed for Fiscal Year 2005, Committee Print, 108th Cong., 2nd sess., Mar.
4, 2004, p. 1.

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Appendix 1. Priority Groups and
Their Eligibility Criteria
Priority Group 1
Veterans with service-connected disabilities rated 50% or more disabling
Priority Group 2
Veterans with service-connected disabilities rated 30% or 40% disabling
Priority Group 3
Veterans who are former POWs
Veterans awarded the Purple Heart
Veterans whose discharge was for a disability that was incurred or aggravated in the line of duty
Veterans with service-connected disabilities rated 10% or 20% disabling
Veterans awarded special eligibility classification under Title 38, U.S. C., Section 1151, “benefits for
individuals disabled by treatment or vocational rehabilitation
Priority Group 4
Veterans who are receiving aid and attendance or housebound benefits
Veterans who have been determined by VA to be catastrophically disabled
Priority Group 5
Nonservice-connected veterans and noncompensable service-connected veterans rated 0% disabled whose
annual income and net worth are below the established VA Means Test thresholds
Veterans receiving VA pension benefits
Veterans eligible for Medicaid benefits
Priority Group 6
Compensable 0% service-connected veterans
World War I veterans
Mexican Border War veterans
Veterans solely seeking care for disorders associated with
— exposure to herbicides while serving in Vietnam; or
— ionizing radiation during atmospheric testing or during the occupation of Hiroshima and Nagasaki; or
— for disorders associated with service in the Gulf War; or
— for any illness associated with service in combat in a war after the Gulf War or during a period of
hostility after November 11, 1998.
Priority Group 7
Veterans who agree to pay specified copayments with income and/or net worth above the VA Means Test
threshold and income below the HUD geographic index
Subpriority a: Noncompensable 0% service-connected veterans who were enrolled in the VA Health Care
System on a specified date and who have remained enrolled since that date
Subpriority c: Nonservice-connected veterans who were enrolled in the VA Health Care System on a
specified date and who have remained enrolled since that date.
Subpriority e: Noncompensable 0% service-connected veterans not included in Subpriority a above
Subpriority g: Nonservice-connected veterans not included in Subpriority c above
Priority Group 8
Veterans who agree to pay specified copayments with income and/or net worth above the VA Means Test
threshold and the HUD geographic index
Subpriority a: Noncompensable 0% service-connected veterans enrolled as of January 16, 2003 and who
have remained enrolled since that date
Subpriority c: Nonservice-connected veterans enrolled as of January 16, 2003 and who have remained
enrolled since that date
Subpriority e: Noncompensable 0% service-connected veterans applying for enrollment after January 16,
2003
Source: Department of Veterans Affairs
Note: Service-connected disability 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

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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 provides 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,32 and third- party insurance
payments from service-connected veterans for nonservice-connected conditions into
the MCCF.33 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 requested consolidating several medical
collections accounts into the MCCF. The conferees of the Consolidated
Appropriations Act [H.Rept. 108-401]34 recommended that collections that would
otherwise be deposited in the Health Services Improvement Fund (former name),
Veterans Extended Care Revolving Fund (former name), Special Therapeutic and
Rehabilitation Activities Fund (former name), Medical Facilities Revolving Fund
(former name), and the Parking Revolving Fund (former name) should be deposited
in MCCF. The funds deposited in 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 MCCF, and current programs.
Pharmacy Copayments (formerly collected in the Health Services
Improvement Fund — HSIF). In FY2002, Congress created a new fund (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) granted VA
32 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.
33 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.
34 Later became the Consolidated Appropriations Act, 2004 (P.L. 108-199).

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the authority to consolidate the HSIF with MCCF and granted permanent authority
to recover copayments for outpatient medications.
Long-Term Care Copayments (formerly Veterans Extended Care
Revolving Fund).35 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 nursing
home care.36
Compensated Work Therapy Program (formerly the Special Therapeutic
and Rehabilitation Activities Fund).37 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 re-entry 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 by 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).38 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 a veteran 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
networks in attaining their objectives and necessary follow-up action to ensure
35 Authority to collect long-term care copayments was established by the Millennium Health
Care and Benefits Act (P.L. 106-117).
36 Department of Veterans Affairs, FY2005 Budget Submissions, Medical Programs, (vol.
2 of 4), pp. 2A-32.
37 The program was created by the Veterans Omnibus Health Care Act of 1976 (P.L. 94-
581).
38 The program was established by the Veterans Benefits Act of 1992 (P.L. 102-568).

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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 Programs Improvement 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 for 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 quality and cost-effectiveness of, the health care provided
to beneficiaries. Under this act, VA and the Department of Defense (DOD) 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 the criteria for its use. The program is set to
expire in 2007.39
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.
39 For further information see U.S. Government Accountability Office, VA Incentives
Program for Sharing Health Resources, GAO-04-495R DOD, Feb. 2004.

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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 the veterans population.
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.

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