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What do you believe the level of funding for VA research programs should be in fiscal year 1974? By what percentage do you estimate that research funding must increase in fiscal year 1974 just to maintain existing program levels?

Answer. Price escalation in research is higher than in most other fields of endeavor, in part because of an approximately 15 percent per year increase in the cost of scientific equipment. In addition, salaries will increase by 5.5 percent. Therefore, in order to prevent a reduction of support to research, there should be a 10 percent increase in the 1973 budget, from $76.8 million, to $84.5 million, in 1974. Moreover, there will be a number of new hospitals and new affiliations started, each of which will require additional support at an average of $400,000. These 19 new affiliations will require an additional $7.6 million in 1974. Finally, the VA research program has been underfunded now for several years and quite appropriately could be increased overall by 10 percent more than what I have indicated above.

Thus, a maintenance research budget for the fiscal year 1974 would be $91.2 million, but a more realistic budget would be 10 percent greater than this, or $101.3 million.

Senator CRANSTON. Thank you very, very much. You have been very helpful.

[The prepared statement of Dr. Rich follows:]

STATEMENT OF DR. CLAYTON RICH, DEAN OF THE SCHOOL OF MEDICINE,

STANFORD UNIVERSITY, STANFORD, CALIF. Mr. Chairman and Members of the Subcommittee:

I am very glad of this opportunity to appear before the subcommittee during its consideration of the President's fiscal 74 budget for the medical program of the Veterans Administration.

It might be useful for me to describe my background as it relates to the remarks I will make in the next few minutes. First, I am Vice-President for Medical Affairs and Dean of the School of Medicine of Stanford University. Our school maintains and is dependent upon a very close and effective affiliation with the Palo Alto Veterans Administration Hospital. Second, during the decade from 1961 to 1971, I served as a full time staff physician of the Veterans Administration Hospital in Seattle, Washington. During much of that time I was Associate Chief of Staff for Research and for the last two years, I was Chief of Staff of the hospital. Accordingly, I address the subcommittee as one who has had a long association with the VA, both as an employee and now as the Dean of an affiliated Medical School.

I will start with some remarks of a general nature about the Veterans Administration budget and then turn to the area of my specific professional competence, and examine the relationship between the physician-staffs of VA hospitals and the quality of the medical programs conducted in these hospitals. Both the staffing and the quality of the medical programs are strongly influenced by the budget now under review.

The medical programs of the Veterans Administration have earned the respect and admiration of both lay and professional publics throughout the entire interval since World War II. Despite sporadic criticisms that are inevitable in an enterprise of this size and complexity, VA hospitals and clinics have consistently delivered a high quality medical service to eligible beneficiaries. Every effort has been made to see that this service is accessible and acceptable. In recent years considerable progress has been achieved toward a broader, more comprehensive VA medical service, and all of these gains have been contained within a cost structure that has kept expenditures well below that of comparable programs in the private sector.

The VA Dept. of Medicine & Surgery has reduced its bed capacity and inpatient census annually for more than five years in response to dollar shortages or limitations invoked by the Office of Management and Budget. A relatively small part of these cuts can be ascribed to the increasing use of ambulatory care or other changes in the delivery process. In the same interval there have been increasing demands for inpatient care, as indicated by a continuous increase in the number of applications received at VA hospitals. In evidence of efficient use of resources, VA hospitals have been able to treat more patients in fewer beds each year since 1968.

In view of these and other evidences of productivity it is disappointing to note and VA medical programs are threatened by reduced levels of funding, impoundment of appropriated funds, externally imposed personnel ceilings, grade control of its employees, limitations on inpatient census and similar restrictive measures. In the face of demonstrable needs for medical care in our veteran population and its further emphasis by the influx of many thousands from the Vietnam war, it is difficult to understand this strategy of containment. Such actions appear grossly inconsistent with this nation's traditional commitment to the welfare of its veterans and the many statements of concern that have emanated from the Administration.

I comment next on the effects underbudgeting will have on the quality of the professional staffs of Va hospitals. I will restrict my remarks to the effects on the affiliated hospitals because I have personal knowledge and experience of these hospitals and because they are a very large component of the medical operation of the Veterans Administration. In fact, this group represents 87 of the 168 hospitals of the VA, Of the 786,000 admissions to VA hospi. tals last year, 576,000 were to affiliated hospitals. They are critical to the Administration and to the Veterans it serves, both for qualitative and quantitative reasons.

The quality of care in this group of hospitals now generally is at the top level of quality of care delivered anywhere in the nation. This quality is expressed, not only in the high level of diagnostic and therapeutic skills available for patients in the hospitals, but by the personalized care and service the patients receive.

In addition, an enormous amount of education of health-personnel is carried out in VA hospitals; of medical students, residents, nurses and others. Almost all medical students and most residents educated in this country now receive a significant part of their training in VA hospitals. Many medical schools, ourselves included, are absolutely dependent upon our joint programs with the VA if we are to maintain the quality of the education process.

A third major contribution to the health of the nation is made as a consequence of the VA's research program. This program concentrates upon improving methods of diagnosis and treatment and also contributes substantially to fundamental knowledge of health and disease.

The present and continued success of the VA in these activities of patient care, education and research are absolutely dependent upon the quality of the physicians who serve on the staffs of the Va hospitals. This dependence is because the basic decisions about the direction that diagnostic and therapeutic efforts will take necessarily are made by physicians. Without exceedingly able physicians, the quality of these decisions will be low. Without effective scientists. the direction of research will be inadequate. Under such conditions, it doesn't make much difference whether the nursing staff and technical back-up are good or mediocre; if the wrong disease is being treated or the wrong question is being investigated, good technical support cannot be of much use.

Because of this crucial relationship between quality of the physician staff and quality of a hospital operation, it is fair to say that the key to the success the VA has had in upgrading its medical program since World War II has been its ability to attract and retain exceedingly able physicians. The continued excellence of the VA medical program will be dependent upon the agency's continued ability to attract outstanding physicians.

The basis of this success was the decision at the end of World War II to enter into a partnership with Medical Schools. The result has been that VA hospitals have shared with the Medical Schools, to an increasing degree, a class of exceedingly able, highly motivated and industrious physicians that would not otherwise have been available. It is important for the future of the VA to understand why this occurred and what will be necessary if the VA is going to continue to be attractive to this group of outstanding physicians.

At the risk of oversimplification, let me say that the majority of physicians who are highly qualified have certain characteristics in common; these are independence, a high level of self-respect, strong motivation, and a capacity for hard work. In fact, these are the characteristics that are necessary for success in gaining technical mastery, keeping current with the rapidly developing field of medicine and for effectiveness in discharging professional responsibilities that often involve difficult judgments under conditions of uncertainty.

Again risking oversimplification, I will subdivide this group of the most able physicians into two classes. The first and largest class can be characterized as individual entrepeneurs, whose self respect is satisfied by the quality of the care they deliver and by the financial reward they receive for it. These physicians are unlikely to work for the VA, both because their earning capacity as successful practitioners is much greater than the VA could pay, and because they would not tolerate the regulation and restraint that are part of any large organization. The other class are the academicians, who are oriented towards quality and intellectual achievement in patient care, education and research, who therefore must work in institutions where these activities can be carried out, and whose need for self respect is satisfied more by the quality of their professional and academic accomplishments and by identification with institutions they respect than by financial reimbursement.

It is this second group, who are exceedingly effective and who are oriented towards institutions which can provide the environment that they need for clinical and academic effectiveness, that the VA can share with the medical schools. However, it can expect to recruit and retain such physicians only so long as it continues to provide services that characterize its hospitals as first rate institutions. If the level of nursing support falls below what is needed for adequate care of patients, or if there were to be a significant reduction of research and educational commitments, the VA hospitals would no longer be perceived as first class institutions and could not possibly retain or recruit staffs of the present high quality.

I describe below the five policies which appear to me to have been instituted at the end of World War II and which I believe to have been particularly important in the success the VA has had in recruiting and retaining physician staffs of the highest caliber. I will comment on several of these that are threatened by budgetary restraints, and then close by two examples, for which I will draw on my knowledge of the programs of the Palo Alto VA Hospital. These five policies are:

1. The affiliations with medical schools in which staff physicians can work in academic programs and receive regular faculty appointments.

2. The staffing pattern of the VA hospitals, particularly the number of nurses, has been improved. This is exceedingly important in patient care. Without it, the quality of medical services could not be maintained at a level that is appropriate for the patients or that would allow the VA hospitals to be characterized as first class medical institutions.

3. The development of medical student and residency programs in VA hospitals. This has made it possible for the patient care services to be delivered in an educational setting. It both improves the quality of care and provides for an important component of the work of academic physicians.

4. The provision of facilities and operational support for research. This has an obvious and absolutely essential role in maintaining an effective academic environment. Parenthetically, I should comment that it has not always been recognized that the need is not only to have the funds available but to have the funds expended in support of work of high quality. It is just as important in the long run that the VA continue to have an effective system of peer review of quality of research as it is to provide the funds in the first place. Otherwise, a tendency toward identification of the VA with second-rate research could be just as damaging to the effort to recruit first rate physicians as would be an identification of the system with second class patient care.

5. The VA has modified administrative practices in several ways that are very signficant. Here the record is impressive, when one considers the obstacles that have been dealt with, and a cause for alarm, when one considers how close the system has come to serious consequences over what I would characterize as administrative trivia. As an example of the problem, I will describe the requirement that VA staff physicians provide a record of the time they spend at VA hospitals on duty on behalf of the VA. I believe that the implementation of this regulation is or could be a serious threat to the morale of the most highly qualified VA physicians and to the capacity of the VA to recruit such men and women. The best physician I have ever worked with, chief of one of the strongest services in the VA for the past 15 years, has said that he will quit instantly if he is forced to make a record of how he spends his time. I have no doubt that he, and a number other dedicated and principled physicians would do just that, and that moral among numerous others would suffer very seriously.

This example illustrates the kind of problem the VA has to deal with; both complex and ridiculous, trivial and critical. It is one in which both sides are

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right and both completely insensitive to the other's point of view. It is perfectly reasonable for the government to insist that it receives the services it has paid for and that there be a record of this fact. On the other hand, physicians in general, and academic physicians in particular, feel insulted by a regulation that causes them to have to make a day to day record of time, punch a time clock. This stems both from a strong tradition among physicians of independent, self-motivated service and the knowledge that, except in a very few instances of abuse, the VA gets far more than 40 hours a week from its physicians.

Bureaucratic restraints of this sort, which are inevitable in any very large organization, can be very damaging to the professional operation of VA hospitals because they are contrary to the self image of physicians and because they stand in stark contrast to the environment of a medical school and university, where such restraints are at a minimum. The Department of Medicine and Surgery was created at the end of World War II, in part to reduce their impact on VA physicians. It would be a poor choice now to compromise the success of the last 25 years by insensitivity to the factors which motivate this individualistic professional group.

As a result of the policies I have just commented upon, the VA has steadily increased its reputation during the past 25 years and now is recognized as a system which maintains high quality institutions. Therefore, it now can recruit top-flight professional staffs, not only in the affiliated hospitals, but to an increasing degree, in the non-affiliated hospitals as well.

I believe that the VA has a great chance at the present time for impressive advances in quality and staffing. This chance occurs because of the financial and cultural crisis of medical schools and because, at the same time, there are a substantial number of well trained young academic physicians with a high level of commitment to clinical excellence who now would see a VA career as definitely attractive. If, at this time of acute uncertainty in the academic world, the VA could show its continuing participation in a partnership with the medical schools, an increased confidence in the VA, improved morale and the acquisition of some able junior staff physicians, all would be promoted.

In view of this opportunity, it is intensely disappointing to see that events now are likely to move the VA in the opposite direction. Instead of improving the pattern of staffing in VA hospitals, the medical care budget is cut. Instead of maintaining research or being able to support a modest advance, the budget shows an absolute decrease, for the first time in VA history. These two changes are alarming in their own right but are much more omnious when one considers that the VA has established seven new affiliations in the past two years. Such new affiliations can be implemented only as a result of upgrading patient care and research in the newly affiliated hospitals, a process that will require financial support. Therefore, funds inevitably will have to be removed by reducing the support of current affiliated programs.

I will close with two examples drawn from my knowledge of the medical school-VA hospital relationship at Palo Alto which illustrate at the local level how critical relatively small amounts of support can be in providing for long range excellence in the professional programs of a hospital. Our affiliation traditionally has been very close and is mutually beneficial. Our objective is to have the quality of the staff at the VA hospital and the Stanford University hospital the same, and we are beginning to achieve this. At the present time, we and the VA are recruiting for two key members of the VA staff; the Chiefs of the Pathology and Neurology Services, and have outstanding candidates at the top rank nationally for these two posts. However, in order to bring them to the hospital, it is absolutely essential to remodel space that is available for conversion to research laboratories, at a cost of about $250,000. One part of this project has been submitted to the Central Office of the Veterans Administration and the other part soon will be. As a result of the very impressive support of the Central Administration, the first part may be funded. As a result of the inadequate and restricted budget, we are fearful that the second part may not. These projects are typical of what is funded as minor construction in the VA, and illustrate the serious negative impact which reduction of such funds can have on VA hospital operations. Without such support, the hospital cannot recruit either of these two outstanding service chiefs. The result will be that the chairmen of the corresponding departments in the Medical School will cease to be seriously interested and we and the hospital will have to settle for more mediocre candidates. If this happens, it will

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doom these two services to the results of inadequate leadership for the next decade or two.

The other example concerns the Psychiatry Service at the Palo Alto Veterans Administration Hospital. Unlike the rest of the hospital, which is totally affiliated, only 50 of the 300 psychiatry beds have been integrated with the University service. There would be very strong advantages to the hospital to extend the affiliation to the entire service. The Stanford Department of Psychiatry now is eager to do this; however, the costs are not negligible. In order to have this done in an effective way, the number of nurses, residents, physicians and psychologists all would have to be increased, at a cost of between 42 and 44 million dollars a year.

The administration of the Palo Alto VA Hospital is enthusiastic about this affiliation, has wanted to see this happen for years, and will forward a proposal to VA Central Office in the next week or so. I am confident that the VA Central Administration will be anxious to achieve the improvement in patient care that would result from implementation of this plan. However, the current VA budget, with reduced funds available for patient care activities, may make it very difficult or even impossible to achieve this.

Although these examples are drawn from the experience of one hospital, they illustrate the general point that the VA can improve its programs only if it is able to maintain or modestly advance its lerel of financial support. If the VA budget continues to be reduced and impounded, not only will the present opportunities be lost, but gains of the past 25 years could conceivably be compromised. The group of very able young physicians who represent the future of the system will not make or continue career commitments to an institution which periodically falters in its support so that resources fall below what is required for a high quality of patient care.

Let me close by expressing my appreciation of this opportunity to comment on the VA budget and my hope that the subcommittee will be able to maintain the patient care and research budgets at levels that allow the organization to discharge its responsibilities in an appropriate way.

Senator CRANSTON. The next witness is Dr. Edmund D. Pellegrino, president-elect for the Association of Academic Health Centers, vice president for health sciences, director of the health sciences center, and professor of medicine at the University of New York at Stony Brook, NY.

We are delighted to have you with us and appreciate your patience.

STATEMENT OF DR. EDMUND D. PELLEGRINO, PRESIDENT ELECT

FOR THE ASSOCIATION OF ACADEMIC HEALTH CENTERS, VICE PRESIDENT FOR HEALTH SCIENCES, DIRECTOR OF THE HEALTH SCIENCES CENTER, PROFESSOR OF MEDICINE, UNIVERSITY OF NEW YORK AT STONY BROOK, N.Y. Dr. PELLEGRINO. Thank you very much, Mr. Chairman. May I thank you for the opportunity to make these statements in deference to your time and the time of those who will follow me.

I will not read from my text, but rather will choose a few key points to emphasize. In so doing, coming as I do, at the end of the line of the medical educators before you there may be some redundancy in this, and I apologize in advance.

Senator CRANSTON. I appreciate very much your approach to it and I think you are an excellent sum-up witness.

Dr. PELLEGRINO. Thank you. I will try to fulfill that role. I would like to say first, that I would like to comment on the impact of some of the cuts, your major point of this morning, on at least one institution, the VA hospital at Northport, because we represent here one

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