Top Veterans Affairs officials told Congress Wednesday that a partial shutdown of the Veterans Health Administration is imminent unless Congress acts within the next week to reallocate funding within the department’s 2015 budget. Some hospitals would need to close entirely and the fiscal emergency would impact virtually all of VA’s medical centers in one way or another.

The department is imploring lawmakers to swiftly reprogram $2.5 billion from a new $10 billion fund designed to provide veterans with private-sector medical care and into the accounts that pay for VA’s hospital operations.

Congress would need to enact new legislation before members begin their annual August recess next Thursday, because VA expects to have fully exhausted the accounts which fund the payroll for VHA employees and other day-to-day functions sometime in the next month.

“When we run out of money, we’ll move funds around between facilities as best we can, but it will affect essentially every facility in the country,” said Dr. James Tuchschmidt, the acting principal deputy undersecretary for the Veterans Health Administration during a House Veterans Affairs Committee hearing.

VA says some veterans who are seeking private sector care also would be told they must wait until the new fiscal year begins in October before they can be seen by an outside clinician.

Rep. Jeff Miller (R-Fla.), the chairman of the Veterans Affairs Committee, vowed that Congress would find a way to avert any potential interruption in VA health care, but also lambasted VA’s “mismanagement” of its health budget along with its failure to fully warn Congress about the funding problem until one week ago.

“This is unprecedented,” he said. “It’s the true budget-gate, if you will, of our time.”

VA knew about budget problems in June

Indeed, Wednesday’s testimony revealed that VA financial managers knew as early as mid-June that the 2015 health appropriation was drastically mismatched with VHA’s actual spending trajectory.

That’s when one of the department’s many accounts which fund private-sector health care services first ran dry, and officials quietly decided to continue paying outside doctors by internally reallocating $290 million from VA’s hospital budget.

And while the department had previously requested more flexibility to move money between its accounts, it made no mention of an impending shutdown of the VA health care apparatus until last week, when Deputy Secretary Sloan Gibson raised the specter of temporary closures in a letter to Congress.

“VA has left Congress with very little time to react to a crisis created by VA’s own management decisions,” Miller said. “We will not penalize veterans for VA’s management and transparency failures, but the days when VA can come to Congress and ask us to just cut them a check are gone. Asking for flexibility without supporting information is not enough. We’ve already passed legislation to take VA out of managing major construction programs. Perhaps we need to bring in an outside entity to manage the department’s finances. I hope not.”

Robert McDonald, the secretary of Veterans Affairs, said the current funding crisis is entirely the result of a mismatch between supply and demand for veterans’ health care services, a disparity that had been papered-over by years of manipulated waiting lists for treatment in VA’s own facilities.

In the time since those problems were fully exposed in last year’s waiting list scandal, VA has moved much more aggressively to let patients be seen in its existing Community Care programs which reimburse private providers to care for VA patients. McDonald said.

“We think we’re in a good place in the sense that more veterans are getting more care,” he said. “We had seven million more appointments this year than last year. Average wait times are now down to three days. We still have some problems in some areas of the country, but we’re making progress in the right direction. Our veterans deserve it.”

Congress thinks so too, which is why lawmakers appropriated $10 billion last year to cover the short-term costs associated with Veterans Access, Choice, and Accountability Act, which lets some veterans opt for private sector care when VA facilities can’t accommodate them.

Too many line items in the budget

VA officials insist they are fully supportive of that program, but say that it does not fully resolve their 2015 budget problems.

That’s partially because the Choice funding is segregated in the VA budget in such a way that it cannot be spent on the Community Care programs the department already had up and running and where most of the costs for outside medical care wound up being allocated as the department scrambled to schedule new appointments during 2015.

VA has at least six other longstanding programs which let it contract with private-sector providers, collectively financed by 70 different line items in the department’s budget. And transferring patients from the older programs to the new Choice program has turned out to be more difficult than originally anticipated, McDonald said, adding that it was impossible to forecast the demand for any of those programs when VA first proposed its 2015 budget.

“The fundamental problem is that VA is working to a budget, and Congress has promised Veterans a defined package of benefits and services,” he said. “Budgets are static, but our requirements are fluid. Changes in veterans’ needs and preferences for care far outpace the federal budget cycle. Last year, we added an average of 51,000 veterans to our rolls each month. This year, it’s been 131,000, which is a 147 percent increase. We welcome them all, but we need to remember the fact that a one percentage point growth in their reliance on VA for their care increases our costs by $1.4 billion.”

From McDonald’s perspective, the short-term fix is simple: he said VA should be allowed to use $2.5 billion of the Choice funding to backfill its other 2015 budgets for private sector care, rationalizing that the programs are all intended for the same purpose anyway, letting veterans see doctors when no VA provider is immediately available.

Rep. Miller confident Congress will act soon

He also said Congress should let VA consolidate its seven outside care programs into one so that it can spend its healthcare dollars more flexibly.

But ultimately, he said Congress needs to confront the fact that unlike with programs such as Medicare and Medicaid which are categorized as mandatory spending, VA is required to provide benefits and still live within a predefined and discretionary part of the budget.

“We’ve reached a decision point. Congress can either shape a different benefit profile for veterans or give VA the flexibility and money for legislated entitlements. My worst nightmare is a veteran going without care because I have the money in the wrong pocket,” he said. “It’s like having one checking account for gasoline in your household and one checking account for groceries: the price of gasoline falls in half, and you can’t move money from the gasoline account to the food or grocery account. The inflexibility we’re talking about today is even more puzzling. I can’t move money from a care in the community account to another care in the community account. Altogether, we have over 70 line items of budget that are inflexible, yet the veteran has choice. Freed up, they would help us give veterans the VA that you envision and that they deserve.”

If the budget gap is to be closed, both houses of Congress will need to act extremely quickly in the closing days of a pre-recess calendar in which lawmakers are grappling with several other issues, including spending measures to forestall a complete government shutdown.

Miller said he is confident that lawmakers will do so, but that any bill allowing VA extra funding flexibility will also come with “necessary reforms” to end what he called “continuing mismanagement” within the department.

“We are at a crisis situation again,” he said. “But scaring veterans that their hospitals are going to close, that we’re not going to be able to pay salaries, I think is just that: trying to scare them. We are the ones that will have to make the decision whether or not this money gets allocated, and I don’t think there’s a single person on this committee that advocates anything less than trying to solve this problem. What we’re asking is when these issues arise internally, tell us. The sooner you can inform us, the better off everybody is.”

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