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"Fact and Fiction: Getting to the Bottom of the VA Budget Shortfall"

House Veterans Affairs Committee Hearing

December 5, 2024 (recording here)

HEARING INFORMATION

Witness & Written Testimony (linked) (Panel One):

• The Honorable Shereef Elnahal, M.D.: Under Secretary for Health, U.S. Department of Veterans Affairs

• The Honorable Joshua Jacobs: Under Secretary for Benefits, U.S. Department of Veterans Affairs

• Mrs. Edward Murray: Principal Deputy Assistant Secretary for Management and Deputy Chief Financial Officer, Office of Management, U.S. Department of Veterans Affairs

• Ms. Laura Duke: Chief Financial Officer, Veterans Health Administration, U.S. Department of Veterans Affairs

• Ms. Lasheeco Graham: Chief Financial Officer, Veterans Benefits Administration, U.S. Department of Veterans Affairs

Keywords mentioned:

• Transparency, accountability, infrastructure, financial management, PACT Act, waste, spending trends

IN THEIR WORDS

OPENING STATEMENTS FROM THE COMMITTEE

• Chairman Mike Bost expressed frustration with the VA's inability to provide accurate financial figures, outlining inconsistencies in spending and budget requests. He criticized the VA for requesting billions of additional taxpayer dollars without adequate explanations and claimed that basic budget figures have been inaccurate. The Chairman recalled specific instances, such as the $2.88 billion appropriation in September for disability benefits that went unused, questioning the credibility of the VA's claims of budget shortfalls. He pledged to investigate the decision-making process behind these discrepancies and called for transparent and responsible management of the $370 billion VA budget.

• Ranking Member Mark Takano criticized recent rhetoric suggesting that veterans live off taxpayer funds due to laziness, calling it a misrepresentation of their sacrifices. He underscored the human cost of military service, from burn pits to exposure to dangerous chemicals, and he emphasized the nation's obligation to care for veterans. Ranking Member Takano recounted the history of the GI Bill and efforts to honor veterans post-service, advocating for continued investment in veteran programs. He rejected proposals to privatize VA healthcare or means-test disability benefits, arguing they undermine the country's commitment to its veterans.

SUMMARY OF KEY POINTS

• Under Secretary Joshua Jacobs defended the VA's financial decisions, citing unprecedented demand for benefits driven by the PACT Act. He explained that the VA requested additional funding as a precaution to ensure the timely delivery of benefits to nearly 7 million veterans and survivors. Mr. Jacobs shared a success story illustrating the life-changing impact of VA benefits and the PACT Act on the widow of a veteran. He also noted improvements in claims processing and promised to incorporate lessons learned to improve budget transparency and accuracy in the future.

• Under Secretary Shereef Elnahal mentioned the record-breaking levels of care delivery following the PACT Act, noting increased veteran enrollment, reduced wait times, and high trust ratings in VA healthcare. He explained that while the VA managed to stay within its FY 24 budget, escalating costs for drugs and medical equipment require additional funding. Dr. Elnahal stated that some cost-saving measures, such as delaying equipment upgrades, are unsustainable. He urged Congress to provide sufficient funding to maintain the VA's historic levels of care delivery and ensure a smooth transition to the next administration.

• Chairman Bost questioned Mr. Jacobs about the exact amount of money available in the VA’s accounts on September 19 and why it took so long to notify Congress of the surplus. Mr. Jacobs explained that the VA made a conservative estimate based on a worst-case scenario and did not have real-time financial data due to the time required to reconcile accounts. He admitted that the surplus was only confirmed weeks later and that the VA worked collectively to notify Congress once the reconciliation was complete.

• The Chairman asked why the VA revised its shortfall to $6.6 billion after spending less in September than projected. Dr. Elnahal explained that the delay in closing the books made it difficult to know the exact spending in real time. He noted that the VA is implementing a new financial tracking system to improve accuracy and speed.

• Ranking Member Takano sought clarity on the percentage of supplemental funding relative to the VA’s overall budget and what would happen if the $6.6 billion shortfall was not addressed before the holidays. Dr. Elnahal confirmed that the supplemental funding represented about 4% of the overall budget. He said that without the funding, the VA would struggle to hire staff and maintain care capacity, which is critical given the rising demand for veteran services. He also highlighted ongoing infrastructure failures, which disrupt veteran care.

• Rep. Matt Rosendale pressed the witnesses for a clear figure of the compensation and pension (C&P) funding available on September 19. Ms. Lasheeco Graham admitted she did not have the exact figure. Mr. Jacobs explained that as of August, the VA had been slightly under its plan for the C&P account but could not ensure against a potential shortfall at the time. Rep. Rosendale criticized the VA for lacking basic accounting transparency and questioned the justification for the September supplemental request, especially given the large carryover.

• Rep. Chris Pappas asked about communication with local VA facilities during the funding shortfall and its impact on operations. Dr. Elnahal described monthly budget reviews and commended local VA teams for saving $2.5 billion while maintaining high levels of care. However, he acknowledged that without additional funding, facilities like Manchester would struggle to hire staff and meet growing demand.

• Rep. Pappas sought clarity on projections for community care spending. Dr. Elnahal noted that community care demand growth has slowed slightly due to increased VA care options but still requires year-over-year funding growth of just under 15%. He advocated for additional funding to sustain this growth.

• Rep. Morgan Luttrell asked about the outdated VA financial systems and the lack of accurate projections for budgeting, expressing frustration over vague responses and deflections of responsibility. Ms. Laura Duke confirmed that the current systems were not designed to handle the complexity of modern appropriations and that the VA is transitioning to a new system. Dr. Elnahal added that while the Fiscal Responsibility Act created tighter constraints, the VA must improve its real-time tracking and budget formulation.

• Rep. Sheila Cherfilus-McCormick asked whether the VA plans to revise the FY 25 budget request given the smaller carryover compared to previous years. Mr. Jacobs explained that the VA is actively reevaluating the FY 25 funding needs and discussed the structural challenge of operating under mandatory accounts that lack flexibility.

• Rep. Cherfilus-McCormick then asked if the $6.6 billion request was the minimum needed and whether additional funds would be required for capital investments. Dr. Elnahal confirmed that the $6.6 billion is essential to maintain current operations and that no portion of the request includes funds for major or minor infrastructure improvements.

• Rep. Eli Crane pointed out high carryover rates in previous years and questioned whether the VBA holds too much funding without effective use. Mr. Jacobs acknowledged that past carryover levels were higher due to steady budget growth. He stated that recent spikes in demand, driven by the PACT Act and outreach efforts, have disrupted projections. Rep. Crane challenged the VA to improve the accuracy of budget estimates.

• Rep. Nikki Budzinski asked about the rising costs of prescription drugs, particularly GLP-1 weight loss drugs, and their long-term financial and health impacts. Dr. Elnahal stated that GLP-1 drugs, while expensive, offer significant health benefits for veterans with diabetes and obesity, potentially reducing long-term complications like amputations.

• Rep. Budzinski then inquired about the cost-effectiveness of home-based care versus institutional care. Dr. Elnahal claimed that home-based care delivers better outcomes and cost savings but noted that divestment from such programs due to budget shortfalls risks worse outcomes for veterans.

• Rep. Derrick Van Orden criticized the VA’s management of IT systems and questioned the viability of the new financial system under development. Ms. Duke explained that the new system is contracted, not developed in-house, and is in the phased implementation stage. Rep. Van Orden condemned the VA for overspending on IT projects, citing examples like the electronic health records system and the electronic GI Bill platform, which have exceeded their initial budgets by billions.

• Rep. Julia Brownley expressed concerns about the budget miscalculation’s impact on veteran trust and local VA facilities. Dr. Elnahal acknowledged the errors and stressed the importance of timely funding to avoid compromising care quality.

• Rep. Brownley asked about internal control failures during the budgeting process. Mr. Jacobs pointed to structural challenges, underestimated growth in disability claims, and insufficient real-time data as key issues and pledged to improve forecasting methods.

• Rep. Keith Self criticized the VA for repeated financial mismanagement and described the $2.88 billion request for benefits and subsequent $12 billion healthcare request as indicative of deeper systemic issues. He accused the VA of being opaque and ineffective, particularly in spending unspent funds to address budget shortfalls. He went on to say that veterans continue to face delays and inadequate care, despite the VA’s claims of record-breaking achievements, and called for better transparency and accountability from VA leadership.

• Rep. Mike Levin asked how the VA adjusts its budget projections to reflect changing trends and whether methodologies evolve with time. Mr. Jacobs explained that budget projections rely on claims data, economic assumptions, and legislative changes. He admitted to errors in estimating employee productivity and the growth in disability ratings. Ms. Graham confirmed that budget assumptions are reviewed quarterly and refined during major milestones like the President’s budget and mid-session reviews. Rep. Levin warned that unless the VA improves its methodology, issues like the recent budget shortfall would continue to arise.

• Rep. Tim Kennedy focused on the outdated infrastructure at the Buffalo VA Medical Center and its eligibility for a new facility. Dr. Elnahal agreed that the Buffalo VA is in dire need of modernization but noted that several other facilities were prioritized ahead of it. He mentioned exploring leasing projects with the University of Buffalo to bridge care gaps.

• Rep. Frank Mrvan asked about discrepancies in forecasting and measures to prevent future overestimations. Ms. Duke responded that discretionary decisions by medical centers, such as delaying equipment purchases, contributed to carryovers, and efforts are underway to improve hiring and budget tracking.

• Rep. Mrvan then asked about the correlation between new financial systems and the electronic medical records project. Ms. Duke explained that integration with logistics and supply chains is a key consideration and that safeguards are being implemented to prevent disruptions in care during the transition.

• Rep. Greg Murphy sought clarification regarding an increased reliance on VA care and unexpected growth in utilization following the PACT Act. Dr. Elnahal explained that reliance increased significantly, with 45% of enrolled veterans now using VA services, up from previous years. Each 1% increase adds approximately $2.6 billion to costs.

• Rep. Murphy voiced frustration with delays in payments to community care providers. Dr. Elnahal acknowledged the issue and confirmed that $36 billion had been spent on community care last year.

• Rep. Murphy criticized delays and inefficiencies in rolling out new financial and medical record systems, suggesting external forensic audits as a solution to systemic failures. He also mentioned that these audits would likely improve trust between veterans and the VA.

• Rep. Morgan McGarvey asked about ongoing issues, such as homeless veterans, delayed access to specialty services, and veterans living in poverty. Dr. Elnahal and Mr. Jacobs confirmed the existence of these problems and the need for more resources to address them. Rep. McGarvey underlined that while budget mismanagement deserves attention, the larger issue is failing to uphold promises to veterans, which undermines trust and reflects poorly on the VA system.

• Rep. Greg Landsman asked about progress in suicide prevention and the impact of potential funding cuts. Dr. Elnahal stated that timely care remains critical. According to him, increased staffing, targeted programming, and outreach efforts have contributed to improved outcomes but require sustained funding. Rep. Landsman acknowledged the importance of ensuring VA funds are spent effectively, advocating for a focus on proven programs and eliminating inefficiencies.

• Chairman Bost addressed allegations of inappropriate behavior at a VA facility in Tennessee, asking why implicated employees had not been disciplined. Dr. Elnahal confirmed ongoing investigations and the resignation of implicated individuals but noted due process must be followed for those still employed.

• Ranking Member Takano asked whether the upcoming change in leadership at the Office of Management and Budget (OMB) could lead to edits in the VA's submissions during the pass-back process that might reduce funding requests. Dr. Elnahal noted that the FY 25 funding request, including the $6.6 billion supplemental, was finalized in collaboration with the current administration. Any potential changes would likely affect the FY 26 and FY 27 budget processes, rather than the immediate supplemental request.

• Rep. Rosendale disapproved of spending on expensive weight loss medications and asked how the VA plans to address rising costs. Dr. Elnahal and Ms. Duke explained that the VA prioritizes veterans with diabetes and other high-risk conditions for these drugs. Lifestyle improvement programs, like MOVE!, remain the preferred method for addressing obesity. Rep. Rosendale urged the VA to prioritize long-term solutions, such as promoting healthier lifestyles, over reliance on costly medications.

• Chairman Bost called for transparency and simplification of the VA budget process to restore confidence among taxpayers, Congress, and veterans. He criticized "budget gimmicks" and urged clear, accurate financial reporting to avoid future errors. He then thanked the Staff Director of the Technology Modernization Subcommittee Bill Malison for his many years of service.

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