Mr. YOUNG. That is good news. I would like to ask a couple of questions about that case. It may relate to the other 9,000 people that find themselves in the same category. That has to do with a major question of what is custodial care and what is skilled care. I understand that your department determined that Andy Cox, who served in the military honorably for 22 years, only needed custodial care. In other words, put him in a warehouse someplace and forget about him until he dies. We think he has shown considerable improvement since his injury.

He was bedridden, unable to communicate or do anything. Today Andy Cox is able to be in Washington, D.C. and has been in this room off and on all day long. So he has improved, and there is hope that he will continue improving.

One of your nurses visited Mr. Cox and was astonished that it had been determined that he was only worth custodial care, because in her opinion skilled care would be appropriate. Have you seen a report from this nurse?

Dr. MENDEZ. I have not seen the report from the nurse. I am aware of the case. Would you like me to comment?

Mr. YOUNG. Please.

Dr. MENDEZ. The Cox case represents to me, on the question of custodial care, truly a great problem. The problem is not purely CHAMPUS, it is also Medicare. It is a problem with chronic health care of all people. Although they may not get better or their medical requirements are low, these people nevertheless have a requirement to maintain a quality of life, and, that speaks to health from a different perspective.

Definitionally, you ask what I understand custodial care to be. It is basically when a person is mentally or physically disabled and the disability is expected to be prolonged. Besides being prolonged, it is expected to continue. It is when that individual requires a monitored or a protected or a controlled environment, requires assistance for the essentials of daily living, bathing, and so on; and is not under active medical or surgical or psychiatric treatment that will reduce his or her disability. When the determination, therefore, is that there is no further reduction of disability with medical therapy, then that individual is considered an individual under custodial care. That is a definition. The definition sounds almost bureaucratic, but that is my understanding of the definition.

The question, you see, as we look at the law and my attempt at trying to implement it is the question of custodial care. That question also comes up with Medicare. There is Veterans Administration support that offers nursing home care but, in general, commercial health plans have not followed the thrust of the VA in terms of custodial care.

I too believe that is a problem. The answer is yes in terms of resolution. I believe that the CHAMPUS definition to that effect is probably no different than other definitions of custodial care.

Mr. YOUNG. If your department determines that a patient is a custodial care patient, does that mean you have written him off? Dr. MENDEZ. No. CHAMPUS continues to cover all necessary and appropriate medical prescriptions. They will pay occasional skilled nursing services-occasional means a visit per day of one hour. It also pays for some physician visits for appropriate monitoring of

the patient's condition, but it is restricted to medical care as it sits

now.

Mr. YOUNG. In the case of Andy Cox, there is no question that he benefits from therapy, but I understand that under custodial care he is not eligible for therapy, but that under skilled care he would be eligible for therapy. Do you see that as a problem in the way the rules are written?

Dr. MENDEZ. Under custodial care, he would be eligible for therapy.

Mr. YOUNG. We understand that is not the case.

Dr. MENDEZ. I would be happy to recheck it also, Mr. Young.

Mr. YOUNG. We can't proceed if the regulations are different. We would like to have a clarification because it is our understanding and the Coxs' understanding that under custodial care he is not eligible for therapy.

[The information follows:]

With the custodial care exclusion in law, when a patient has been defined as custodial, services such as physical, occupational and speech therapies are no longer covered under the CHAMPUS basic program. The only services covered under this program for custodial patients are prescription drugs, medical supplies and equipment, one hour per day of skilled nursing services, and monthly physician visits. The basic program is cited because a broader range of therapies and non-medical services, such as institutionalization are available for custodial patients under the Program for the Handicapped. This special program is limited by law to the dependents of active duty members and the maximum government payment is generally $1,000 a month.

A patient is defined as a custodial care patient when the patient is disabled mentally or physically and the disability is expected to be prolonged; when the patient requires a protected, monitored or controlled environment in an institution or at home; when the patient needs help with the activities of daily living, such as bathing, eating and dressing; and, when the patient is not receiving active and specific treatment to reduce the disability to the extent necessary to permit the patient to function outside the protected, monitored or controlled environment.

Custodial patients are those who require long-term maintenance, assistance and support. Given the advance in trauma care, many of these patients require elaborate, expensive and high intensity life-support and similar services. Obviously, the long-term care patient bears a considerable degree of the cost of care.

The question of long-term care benefits is not unique to CHAMPUS or the Department of Defense. Exclusion of custodial care is virtually universal in health insurance, including Medicare and Federal Employees Health Benefits Plans. Specific long-term care health insurance policies have only recently begun to be marketed but they are expensive, with annual premiums of up to $5,000. Medicaid covers some custodial care, but only for those whose income and assets are low enough to meet Medicaid eligibility requirements, which vary by state. We have found through our CHAMPUS case management demonstration that, even if CHAMPUS cannot provide significant financial relief directly to custodial patients, we are sometimes able to identify public or private, community-based sources of services or funding that can assist patients to a considerable degree. We are planning to expand case management services nationwide.

Mr. YOUNG. The language we put in our bill last year we thought pretty much solved the problem for some 9,000 people who fit into Andy Cox's category. The authorizing committee's was a little different. They used the phrase "benefits less benefits". Can you explain what that means?

Dr. MENDEZ. I can't. My understanding was that one of the things that led to the tardiness-at least that is my word-of implementation was, indeed, the differences between the two Acts. One spoke to October 1, the other spoke to a time subsequent to that.

It also had to do with specifically what the relationship was between the Medicare payment and the payment by CHAMPUS. I think that is within the clarification, and I can add that to the material that is coming to you.

[The information follows:]

There were several differences between the Appropriations and Authorization Acts making CHAMPUS secondary payer to Medicare for those beneficiaries under the age of 65 who qualified for Medicare by reason of disability.

The Appropriations Act specified that CHAMPUS secondary payer coverage would not be available prior to October 1, 1991; that only retirees and their dependents were covered; and, that the secondary payer method would be that commonly used. The Authorization Act had an effective date of December 5, 1991; included in the eligibles the survivors of deceased active duty and deceased retired members, as well as otherwise qualified former spouses; and, specified a unique secondary payer method for CHAMPUS.

The differences were resolved by the Department's Office of General Counsel in a way that retained the October 1, 1991 effective date for retirees and their dependents, made the December 5, 1991, date effective for survivors and qualifying former spouses; and, made the new secondary payer process applicable back to October 1, 1991, to avoid implementing two different secondary payer methods in about a twomonth period.

Briefly, the new secondary payer method guarantees that the new group of CHAMPUS eligibles will never have liabilities for covered services that are greater than what their cost shares would have been under CHAMPUS coverage alone. The major difference in the new method is that the usual secondary payer process under CHAMPUS often results in the beneficiary's benefit costs being paid in full. The only predictable time this could happen under the new method is if the beneficiary cost share amounts reach the catastrophic cap level of $10,000 in a year.

The new method approximates one called "benefits less benefits" by health insurers who, in specific contracts when the patient has dual coverage, pay no more than the higher of the two coverages.

Following the Authorization Act requirement, CHAMPUS claims processors will determine the beneficiaries' benefit out-of-pocket costs under Medicare as the primary payer. They then will calculate what the beneficiaries' out-of-pocket costs for the benefits would have been had CHAMPUS been the only payer. If the beneficiaries' liabilities under Medicare are greater than they would have been under CHAMPUS, the CHAMPUS payment will be the difference between the two. If the liabilities under CHAMPUS would have been the same as or less than those under Medicare, no additional payment will occur.

This method applies only to services that are benefits under both Medicare and CHAMPUS. If it is a benefit only under CHAMPUS, primarily prescription drugs, CHAMPUS payment will be the same as if no other coverage existed.

Dr. MENDEZ. I understand the two intrinsic differences were that one portion of the provision covered retirees and retirees' dependents and the other covered that same group of people, but it also covered dependents of deceased, both of active and retired. Those matters took time for the legal people to resolve.

Mr. YOUNG. Thank you very much. Knowing you as well as I do, I know you will do all you can to help us as we look for ways to help Andy and Terry Cox and other Americans with problems similar to theirs.

Dr. MENDEZ. Thank you. I appreciate your good words about the registry and my colleague, Dr. Hagen, appreciates them, also. Mr. YOUNG. We appreciate your help.

Mr. MURTHA. Let me ask that you look into this legal action. Here is a woman who has gone bankrupt, who is living with her mother, who has a heart condition, and the Defense Department is suing her in order to recover a couple hundred thousand dollars that it paid to her health care providers. That doesn't make any sense to me.

I don't know what the status is as far as the courts go, but I would hope that somebody besides a comptroller, besides a bureaucratic administrative person that never gets out of the Pentagon or wherever your office is, would look at this thing and see if we can resolve it. I can hardly contain myself when I think of the poor judgments of someone following a procedure like this.

Congressman Joe McDade, Mr. Young, and I even thought about introducing a private bill to take care of this woman. That shouldn't be necessary. So I would hope you would look into why this woman is being sued to recover money that she supposedly was asked to pay and was caused by some person that made a mistake up here. We forgave $79 million to the people who served in Operation Desert Storm because the Defense Department made a mistake in individual cases and overpaid them. We said forgive the debt up to a certain amount of money. We felt that was the right thing to do.

It seems to me someone in your department can make a decision like this based on the facts of the case. It is going to cost more money to sue they can't possibly recover any money.

Dr. MENDEZ. Why don't I have this doctor look into it and have this doctor report to you specifically? I will look into it myself, and see what the whole significance of it is, including if there is an opportunity for relief. I will be happy to do that.

Mr. YOUNG. Mr. Chairman, would you yield-on the question of forgiving debt, this Government of ours has been so generous over the years. We have forgiven hundreds of millions-billions of dollars in foreign loans due to the United States. We just forgave them and wrote them off. This was cash that we put out and never got back from foreign interests.

Mr. MURTHA. Mr. Dicks.

CHAMPUS REFORM INITIATIVE

Mr. DICKS. Thank you, Mr. Chairman. Dr. Mendez, it is good to see you and good to see all the Surgeons General, particularly General Ledford, who joined us in Takoma for the opening of Madigan Army Medical Center. It was a great day. The Chairman notes that General Ledford is retiring in June after serving four years as the Army Surgeon General and after almost 34 years on active duty. As you said, you were glad you finally got to open a hospital. You opened the right one, by the way. We want to compliment you for your distinguished service to the country. We know that you will continue to be available when we need help and we appreciate all your good service.

Dr. Mendez, this Committee has received praise about the CHAMPUS Reform Initiative demonstration project in beneficiaries and their representative associations, the RAND study, the GAO study and our own investigative staff study. With this in mind you have issued a RFP, which significantly alters the most effective health care design you have in the Department of Defense.

Now, this Committee is having a hard time understanding why that was necessary, and if it was necessary. We would like you to

give us verbal side-by-side snapshots of the CRI flaws or weaknesses, and the proposed RFP changes which address those weaknesses. First, we would like you to deal with the following issues: dramatically increased cost share when beneficiaries enroll. This program apparently was very effective, RAND says costs have been kept down to about a two percent increase per year when everything else is increasing from 12 to 16 percent a year. Why do we want to have this dramatic increased cost share, which is going to cause a furor in the community? Why are we deciding to do this? Dr. MENDEZ. Begging your indulgence, let me answer your question first with a bit of perspective because I think you are seeking the logic.

Mr. DICKS. That is a good idea.

Dr. MENDEZ. I cannot look at the CRI or any demonstration project, for that matter, in pure isolation. All demonstration projects are part of a total concert of health care and it includes two basic delivery systems, the direct care system and CHAMPUS. So we have, first of all, two health care delivery systems that interdigitate in terms of the care of the patient.

Whenever I look at the parts of those two systems that come together into the military health services system I must keep in mind certain realities. I will share those with you first and then answer your question.

We have budgetary realities in which at the present time from a growth that was normally about 8 percent a year between 1985 and 1991, I have a projection of an average of about 4 percent in the 1992-1997 time frame for the total system.

CHAMPUS is about 26 percent of the total program, Mr. Dicks. CRI, is a part of that 26 percent. The study that was commissioned with RAND that you mentioned has not been finalized as yet.

I have data from RAND that is now a few years old, I think it goes to 1989-and I have data that is newer, not from RAND, in order to be able to look at the matter of cost. There is another thing that is very important to our people and that is consistency, consistency and equity of the total benefit throughout the country. It has been of importance to this committee-this committee has made that statement-and of importance to the department.

So we did consider it as a principle at each step of the design the application of coordinated care. A significant number of initiatives have also taken place since 1987, which was the beginning of the present CRI model.

Why do I bring that up? Because there are changes occurring in tandem that have an effect on the total system. I must consider those other effects when I see what is happening in any of the demonstration projects. The current figures that I have, not from RAND, from our own office, as to the expenditure for CHAMPUS tell me that the third and fourth year are different than the years that preceded them.

Is that an unusual phenomenon in managed care? No. You implement things for which you get a savings, and then the programs come to a steady state of operation. So I have to keep that in mind while looking at the future as we implement other forms of health care delivery in the system.