	Introduction and Overview of the VA Health Care System

The Department of Veterans Affairs (VA), through the Veterans Health Administration (VHA), operates the nation's largest integrated direct health care delivery system. In general, VHA provides a majority of medical services to enrolled veterans within its health care system. However, in some instances, such as when a clinical service cannot be provided by a VA medical center, and the patient cannot be transferred to another VA medical facility; or when VA cannot recruit a needed clinician; or when a veteran is unable to access VA health care facilities due to geographic inaccessibility; or in emergencies when delays could lead to life threatening situations; VA is authorized to send the veteran outside of its health care system to seek care. In 2006, Congress directed VHA to implement a contracting pilot program, which was later named Project Healthcare Effectiveness through Resource Optimization (Project HERO ) to better manage the fee basis care program (discussed later in this report). In addition, those who believe that all needed care should be provided by VA providers in VA-owned facilities are concerned that private sector options for providing care to veterans will lead to a dilution of quality of care in the VA health care system, and could fail to leverage key strengths of the VHA network, such as its system of electronic medical records. First, expenditures for contract and fee basis care services are increasing. Second, specific concerns have been raised about the fee basis care program. Specifically, VA's Office of Inspector General (OIG) has reported that VHA has made a significant number of improper payments for fee basis care, and in some instances has not properly justified and authorized care. At least two policy questions about Project HERO may be of interest to Congress:
1. Has Project HERO enhanced the existing fee basis care program? 2. Are there findings from Project HERO that could be applied to standardize the fee basis care program throughout the VA health care system? Second, it discusses the current fee basis care process, as well as the implementation of Project HERO. The report concludes with a discussion of observations on the implementation of Project HERO based on VHA and Humana Veterans Healthcare Services Inc. (HVHS) perspectives. Although the provision of dental care through Delta Dental Federal Services is part of Project HERO, this report does not discuss this aspect of the program. The conference report ( H.Rept. 109-305 ) to accompany the Military Quality of Life and Veterans Affairs Appropriations Act, 2006 ( P.L. 109-114 ), directed the VA to implement a cost-effective purchased care management program and to develop at least three objectives-oriented demonstrations (pilot programs) to encourage collaboration with industry and academia. Medical, surgical, mental health, diagnostic, and dialysis services became available through a network of providers recruited by HVHS. Since Project HERO is a pilot to enhance fee basis care, this part of the report will first provide an overview of the current fee basis care process in the VHA. Once the veteran receives care from a non-VA provider, the provider sends a claim to the fee basis care program office at the VAMC that authorized the care. Furthermore, under Project HERO, VA does not have the responsibility for paying for care provided outside the system directly to non-VA providers. Are There Lessons to Be Learned from the Pilot Program?
In general, the Department of Veterans Affairs (VA), through the Veterans Health Administration (VHA), provides a majority of medical services to veterans within its health care system. However, in some instances, such as when a clinical service cannot be provided by a VA medical center, when a veteran is unable to access VA health care facilities due to geographic inaccessibility, or in emergencies when delays could lead to life threatening situations, VHA is authorized by law to send the veteran outside of VA's health care system to seek care. In 2006, the conference report to accompany the Military Quality of Life and Veterans Affairs Appropriations Act of 2006 (P.L. 109-114, H.Rept. 109-305) directed the VA to implement a cost-effective purchased care management program and to develop at least three pilot programs to encourage collaboration with industry and academia. In response to this requirement, VHA established a demonstration program to enhance the existing fee basis care program that was named Project HERO (Healthcare Effectiveness through Resource Optimization).
In October 2007, VA awarded a contract to Humana Veterans Healthcare Services (HVHS) for medical/surgical, mental health, diagnostic and dialysis services, and the contract became operational in January 2008. Under Project HERO, HVHS maintains a prescreened network of health care providers who meet VA quality standards.
In general, when a patient requires a specific service, and the local VA medical center does not have the specific medical expertise or the technologies to meet that necessity, the local VA medical center authorizes the specific service to be provided under Project HERO. Once the veteran receives care, HVHS is contractually required to return the patient's medical record to the local VA medical center, and HVHS sends the claims data to VA for reimbursement.
VHA's contract and fee basis care expenditures are of interest to Congress for at least two reasons. First, expenditures for contract and fee basis care services are increasing, and second, concerns have been raised about the fee basis care program. Specifically, VA's Office of Inspector General (OIG) has reported that VHA has made a significant number of improper payments for fee basis care as well as in some instances has not properly justified and authorized fee basis care. Given these concerns, and the establishment of the Project HERO demonstration as a means to better manage non-VA provided care, at least two broad policy questions may be of interest to Congress: (1) Has Project HERO enhanced the existing fee basis care program? and (2) Are there lessons to be learned from the Project HERO demonstration that could be applied to standardize the fee basis care program throughout the VA health care system?
This report first provides a brief overview of the VA health care system, followed by a overview of Project HERO. Second, it discuses the current fee basis care process, as well as the implementation of Project HERO. The report concludes with a discussion of observations on the implementation of Project HERO based on VHA and HVHS perspectives. It should be noted that although dental care services are a component of Project HERO, and are provided through Dental Federal Services (Delta Dental), this report does not discuss dental care services provided under Project HERO. This report will be updated if events warrant.