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"Assessing the Veterans Health Administration Fiscal Year 2025 Potential Shortfall"

House Appropriations Committee

Military Construction, Veterans Affairs, and Related Agencies Subcommittee Hearing

November 20, 2024 (recording here)

HEARING INFORMATION

Witnesses:

• Dr. Shereef Elnahal: Under Secretary for Health, Department of Veterans Affairs

• Mr. Josh Jacobs: Under Secretary for Benefits, Department of Veterans Affairs

Keywords mentioned:

• Budget forecasting, budget formulation, cost estimates, funding shortfall, supplemental funding, unobligated funds, carryover, workforce hiring, veteran enrollment, PACT Act, internal controls, community care, financial accountability

IN THEIR WORDS

OPENING STATEMENTS FROM THE SUBCOMMITTEE & FULL COMMITTEE

• Subcommittee Chairman John Carter began by acknowledging issues stemming from the VA's inability to accurately forecast budget needs, citing a significant shortfall of $12 billion for the Veterans Health Administration (VHA) in fiscal year 2025. He expressed frustration that a $3 billion supplemental appropriation for fiscal year 2024 went unused while the VA carried over $5.1 billion into the new fiscal year. The Chairman urged the VA to provide accurate forecasting to ensure veterans receive the benefits they deserve.

• Subcommittee Ranking Member Debbie Wasserman Schultz praised the VA's efforts following the passage of the PACT Act, which expanded healthcare and benefits for veterans exposed to toxic substances. She noted the administration's success in increasing VA enrollment by 37%, processing 27% more disability claims, and achieving record levels of trust among veterans. However, she expressed concerns over the VA's incorrect cost projections and the urgency that led Congress to allocate supplemental funding unnecessarily. She stressed the importance of accurate estimates moving forward and reiterated her commitment to supporting veterans and their families.

• Full Committee Ranking Member Rose DeLauro criticized delays in the appropriations process and called for a focus on completing the fiscal year’s appropriations bills. She commended the Biden administration for its successful outreach and the increased enrollment of veterans in VA healthcare. However, she voiced frustration over the VA’s expedited funding request that was ultimately unnecessary. Ranking Member DeLauro underscored the importance of ensuring veterans receive promised care and pledged bipartisan support for their needs.

SUMMARY OF KEY POINTS

• Under Secretary Shereef Elnahal detailed the VHA’s record achievements, including a 37% increase in veteran enrollment since the PACT Act and record numbers of healthcare appointments and benefits delivered. He mentioned the high quality and safety ratings of VA hospitals and improvements in patient satisfaction. Despite these successes, he warned that cost challenges and unsustainable strategies, such as delaying equipment purchases, threaten the VA’s ability to meet future needs. He assured the Subcommittee that the VA is revising its fiscal year 2025 funding estimates to reflect updated financial positions and pledged to share accurate figures soon.

• Under Secretary Josh Jacobs described the transformative impact of the PACT Act, which enabled the VA to deliver over $8 billion in benefits through 1.3 million claims. He explained the urgency behind the VA’s supplemental funding request, emphasizing the risk of delayed payments to 7 million veterans and survivors if the funds were not secured. Although the funds were not immediately used, he justified the request as a precautionary measure. Moving forward, Mr. Jacobs promised the Subcommittee improved budget projections, incorporating lessons learned to avoid similar situations in the future.

• Chairman Carter shared his concerns about the VA’s communication with Congress, particularly regarding the accuracy of budget projections. He questioned the process and methodology used to estimate funding needs, specifically the $12 billion shortfall initially projected. He pointed out the coincidence of receiving this estimate right after the presidential election and asked for more transparency moving forward. Dr. Elnahal acknowledged the importance of transparency and explained that the original $12 billion estimate was based on mid-year data and actuarial models, but it turned out to be an overestimate. He highlighted specific factors, such as lower-than-expected costs per employee and operational adjustments like delayed equipment purchases, which reduced the overall need. Dr. Elnahal committed to recalculating funding requirements using updated data and pledged to provide a more accurate estimate soon.

• Ranking Member Wasserman Schultz raised concerns about the potential impact of proposed cuts under President-elect Trump’s administration, including defunding unauthorized programs like veterans’ health care. She asked for clarification on the implications of eliminating $119 billion in VA medical care funding. Dr. Elnahal stated that such cuts would be highly concerning and underscored the importance of maintaining current funding levels to meet growing demand. He noted that the VA’s workforce must expand to continue providing timely, high-quality care, particularly in light of increasing enrollment and demand for services under the PACT Act. He also mentioned systemic cost increases in pharmaceuticals, prosthetics, and other essential services as critical funding challenges.

• Rep. David Valadao asked about the VA’s mechanisms for improving budget projections and measuring long-term outcomes in areas like mental health, homelessness reduction, and caregiver support. Dr. Elnahal explained that the VA uses monthly budget reviews and tracks key metrics such as full-time employee levels, community care utilization, pharmaceutical costs, and productivity. He stated that improving mental health outcomes and reducing suicide rates are top priorities. He also discussed the hiring of thousands of mental health clinicians and reductions in average wait times as indicators of progress.

• Rep. Valadao voiced concerns about inaccurate projections, citing whistleblower claims of estimates being referred to as "scientific wild-ass guesses." He reiterated the need for responsible budgeting to honor taxpayer and veteran trust. Dr. Elnahal conceded that the July estimates were inaccurate and pledged to work methodically to improve future projections. He reassured the Subcommittee that the VA would continue providing monthly fund reports and remain transparent about budgeting processes. He also credited operational leaders for managing costs effectively while maintaining service quality.

• Rep. Valadao also asked about the impact of community care on the budget, particularly in relation to the projected shortfall. Dr. Elnahal explained that each community care referral adds variable costs to the VA’s budget. He stated that while community care remains essential, the VA has been focusing on increasing internal care options, which veterans prefer. He noted that this approach has helped slow the growth of community care costs without limiting access.

• Rep. Sanford Bishop praised the VA’s improvements in veterans' care and said that the administration has performed better than in past decades. He asked what tools Congress could provide to help the VA improve budget accuracy and ensure sustainable growth in staffing, pharmaceuticals, and equipment acquisition. Dr. Elnahal acknowledged the importance of congressional support and elaborated on the VA’s proactive approach to expanding healthcare eligibility under the PACT Act, which has significantly reduced suicide risks among veterans. He informed Congress that an external review is being commissioned to assess and improve budget formulation.

• Rep. John Rutherford commended the VA for its outreach efforts regarding the PACT Act and noted the importance of early preventative care. He inquired whether the VA had projections on cost savings from addressing veterans' health needs earlier. Dr. Elnahal stated that while cost savings projections are still uncertain, the primary motivation is to improve veterans' health outcomes and prevent illnesses rather than waiting for conditions to worsen. He mentioned that expanded healthcare eligibility under the PACT Act allows millions of veterans to access care earlier, which aligns with the VA's preventative care focus. Mr. Jacobs added that compensation and pension obligations have grown significantly due to the PACT Act, requiring the VA to adjust its budget formulation processes. He pledged to incorporate lessons learned from this period into future planning.

• Rep. Henry Cuellar raised concerns about the large discrepancies in the VA's budget projections, asking what measures were being implemented to improve budget forecasting and strengthen internal financial controls. He referenced specific standards such as the GAO’s Green Book, the Federal Managers Financial Integrity Act, and OMB Circular A-123. Dr. Elnahal explained that the VA is conducting an external review to evaluate and improve its budget formulation process. He confirmed that the VA adheres to the internal control standards mentioned, including annual evaluations and audits. While systemic cost factors like pharmaceuticals and prosthetics remain dynamic challenges, he assured the Subcommittee that the VA is implementing lessons learned from prior budget cycles to enhance financial accountability.

• Rep. Stephanie Bice criticized political comments made during the hearing and sought clarification on the VA’s reliance on unobligated funds and why these risks were not highlighted to Congress earlier. Dr. Elnahal explained that advanced appropriations historically allow for unobligated funds to be carried over to minimize the risk of running out of money. He noted that while the VA has requested additional funding due to PACT Act-related growth, the revised figure for FY 2025 would be lower than the $12 billion initially projected.

• Rep. Bice asked about the VA’s hiring efforts for mental health personnel. Dr. Elnahal confirmed that hiring had slowed due to budget constraints, but the VA aims to increase staffing to 405,000 employees to meet growing demand.

• Rep. Scott Franklin expressed frustration about the perceived budget mismanagement and its impact on veterans’ confidence in receiving benefits. He questioned whether the VA’s approach to requesting supplemental funds represented prudent management. Mr. Jacobs explained that the VA elevated its funding request to avoid any risk of delaying benefits to millions of veterans. He acknowledged that while the situation was far from ideal, the VA prioritized maintaining timely benefits and applied lessons learned to improve budget formulation in the future.

• Rep. Franklin then asked why the VA delayed equipment purchases when funds were available. Dr. Elnahal clarified that different budget categories restricted how supplemental funds could be used and acknowledged systemic cost increases in healthcare as a continuing challenge.

• Chairman Carter took a moment to underscore that keeping Congress informed is critical to maintaining bipartisan support for veterans' needs. He expressed concerns over the political optics of the initial $12 billion shortfall being announced shortly after the presidential election. He warned against introducing politics into veterans’ care and pledged to hold the VA accountable if transparency falters.

• Ranking Member Wasserman Schultz asked about the VA's progress in addressing women's health issues, including intimate partner violence, military sexual trauma, maternity and newborn health services, and harassment at VA facilities. She also inquired how the VHA shortfall might affect funding for these priorities. Dr. Elnahal discussed the VA's efforts in women’s health, noting record enrollment of over 50,000 women veterans in fiscal year 2024. He discussed initiatives such as hiring more gender-specific providers, improving access to mammograms, and extending maternity care coordination from eight weeks to a year postpartum. He reassured the Subcommittee that women’s health funding has been preserved despite budget challenges.

• The Ranking Member expressed concern about the potential for workforce cuts under the incoming administration, mentioning that many VA employees are veterans themselves. Dr. Elnahal clarified that about a third of VA employees are veterans and that the VA requires more, not fewer, employees to meet increasing demand. He stressed that broad workforce cuts would jeopardize critical programs such as veteran homelessness reduction and caregiver support, both of which rely heavily on the VA's staff.

• Rep. Rutherford raised a specific concern about staffing shortages at the VA clinic in St. Augustine, Florida, which caused phone calls to be redirected to another facility. He asked how the VA plans to address such local issues and whether the hiring process could be expedited through staffing agencies or other mechanisms. Dr. Elnahal confirmed that additional staff would be assigned to the St. Augustine clinic by January to address the call center issue. He acknowledged that similar challenges exist across the country and tied them to the broader need for supplemental funding. If approved, additional resources would help hire more frontline employees, including call center and medical support staff.

• Rep. Rutherford then asked about the VA's 2% error in estimating salaries and benefits, which translated to a $1 billion discrepancy. Dr. Elnahal explained that the VA initially overestimated the average cost per full-time employee at $158,000 but later revised it to $155,000. While the 2% variance seems small, it resulted in a significant absolute difference due to the large VA workforce of over 400,000 employees.

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