at we have developed so the people can get care in the community locally has a good mention but i will oppose to trying to privatize the va which is serving our veterans so very well. i want to get to another issue and senator blumenthal touched on it today. i wrote a letter to secretary mcdonald about an issue that has concerned me for a while and that is the high cost of the drug sovaldi, which is a very -- a miracle drug, so to speak, which is now treating the veterans of our country who have very high rates of hepatitis c. mr. chairman, to me, it is an outrage that you have a company whose profits have soared in the last few years. their revenues have doubled, i believe, in the last year. they've come up with the drug. they are charging the general public $1,000 a pill for that drug. they are charges, i believe -- i don't know if this is a great secret but i will tell it anyhow, something like $540, is that right? no comment. all right. but that's because the va negotiates drug prices. but you're running out of money. now, we have several hundred thousand veterans suffering with hepatitis c which can be a fatal

disease and you don't have money to treat them and, frankly, i think it's time to talk to the manufacturer of this drug and ask them if they are being very generous in providing these drugs, hepatitis c drugs, for free. very generous. for whatever reasons they are doing that. but maybe at a time when their profits are soaring, maybe they might want to respect the veterans of this country who might die or become much sicker because they don't have access to this wonderful product. and as senator blumenthal mentioned, if they are not prepared to come to the table -- you think you've done well by getting the prices down by half, i'm not impressed. paying 540 bucks per pill for people who defended our country. you sit down with them and say you're prepared to use 28 usc 1498 to break the patterns on these drugs unless they are prepared to come down significantly lower than they are right now. it's not a question of taking money. i know you've requested to take

money out of the choice program. maybe that's a good idea. but it's a better idea to have them treat the veterans of this country with respect and charge the va a reasonable price rather than ripping off the va as they currently are. with that, i would yield. >> turn that clock on and start talking, if you would. we have senator rounds followed by manchin and tester. mr. rounds? >> thank you, mr. senator. i appreciate your work and the ranking member's work on the hospital in aurora. i agree it shouldn't come out of the program as the alternative. mr. gibson, i was looking back at the notes i've taken here and you gave some very encouraging notes with regard to some of the stats about some of the areas of the country with regard to additional care being provided. and that's encouraging. i'm just curious, do you believe the stats are consistent across the country?

are you finding evidence of that across -- >> actually, that's -- i always worry when people quote averages to me and what you find is wide disparity across the country in terms of the length of wait times and, therefore, in terms of the specific areas where we're making the most intensive investments. so what i would tell you is, where we have been making investments, you see improvement in access measured by appointments and relative value units. but what we are not seeing pretty consistently is a material improvement in wait times. and so you look behind that and

you realize that what is happening is, as we improve access to care, either more veterans are coming or veterans that are already there are making additional utilization of va care. >> i'm just curious. it almost sounds like we have a -- i think senator sanders suggested this in a way. i think we have to have the discussion about how we deliver care long term for our veterans. and i guess i come back to it. i'd love to be able to allow the veterans to make that decision themselves as to how we deliver the care to them. and i think the choice act allows that to begin. and, you know, and i understand right now we've got a significant investment. if we've got over 150 health care communities right now, what do you see as the answer here? one of the comments was made that we're looking at providing the choice opportunity there if we can't -- or if the care can't be met by the va itself. and it sounds to me like what we're saying is that the va should be making the decision about whether or not they are delivering the care and or whether or not the veterans should be making that decision. and it sounds to me like maybe

we ought to take the other approach here and say, if we gave that choice to the veterans, i would suspect that a number of them who have a very great care being delivered to them by va facilities, might very well want to continue that on. but there's others that i suspect would say, look, i'm not near a facility and i don't expect you to build a new hospital near me. you've looked at asking for the ability to have flexibility to make that choice. what would happen if we took as an alternative -- and once again, we're talking about dollars and cents now being the deciding factor in this case, what would happen if we allowed

the veterans to decide for themselves whether they wanted to utilize the choice program more fully and skip all of the stuff that you've talked about in terms of the 40-mile rule and whether or not they've already had care and now they've got to go back in after 60 days and so forth, still the va making the decision. why not -- and share with me your thoughts. i'm sure this is not a new thought. share with me your reasoning and logic and why you are where you are at in terms of not allowing the veterans to make that choice themselves. >> we've spent a great deal of time talking about it and options that we've briefed the staff on. one of the things to first keep

in mind, 81% of all of the veterans that we provide care for have either medicare, medicaid, tri-care or some form of private health insurance. oftentimes what you've seen today, you mentioned the fact earlier that veterans, if given the option for choice, some would elect to stay in and, in fact, that's precisely what happens today. roughly half, 40 to 50%, somewhere in that neighborhood, depending on whose survey you're listening to. and i would tell you, my perspective, part of those are deciding to stay because they want to stay. they are getting great care, enjoy the camaraderie with other veterans, they have continuity of care because they have been receiving care for a long final. others come there because they have an economic incentive to come there. because if they go out to medicare, they have a 20% co-pay for a procedure. so you look at that colonoscopy or the knee replacement and the veteran can get it with medicare but he's going to wind up with a $7500 bill to foot. and so i think part of the answer comes -- and it's one of the options that we've talked about here -- is that we step back and we look at some of the economic distortion that exists today and find ways to eliminate that. so, for example, what if medicare, medicaid, tri-care and

others become the primary care where ever that leads us that's where we're ready to go. >> thank all of you fgor being here today. >> some of you been there longer than others. some of you have had careers at it and some of you come from the private sector.

but let me just say, i need to get this on record. i have a situation at the va medical center. i don't know if it's been brought to your attention or not, if it's gotten that far up the ladder. switching anti psychotic drugs. the providers said this is what the va, this is what our veterans need. and they made an executive decision that it was too cost prohibitive. cut the medicine. didn't get the right application. i was told there was a new policy in place dispensing the drugs. i haven't been able to obtain a copy of that. i'm also told there's a follow-on investigation into the matter. i haven't heard much about that. the same clinic has been closed

three times. and i'm having a horrendous time, because we have a very rural state, trying to get our veterans the care they need. if you can get me answer back as quickly as you can. >> one, we'll get you the regulation. two, i believe the follow-on investigation referred to here is often times, well, routinely, when the office of special counsel has a finding that substantiates whistle blower allegation, then if it's medical care it's turned over to the office of the medical inspector. we do. it they come and determine exactly what happened. where the accountability was. and those often times will come to me. >> i would appreciate very much that. really what it comes down to. this leads up to everything that we've talked about here. and i think senator sanders says privatization. i just care about the veterans. an awful lot of them coming back.

with that being said, do you believe the private sector? private sector? okay. all righty. well, those who have more private would understand. do you believe we can get better care to our veterans? to private -- through the private sector? and i mean that in the case of quality care, the time, and also the cost. and i'm not saying we're going to cut the va down. but i don't think we're going to build anything else. we have to maintain what we have to get better care for more people. >> no, i don't believe that's the case. if you look at the typical veteran we provide care for, they're older, sicker and poor. we have a highly fragmented

health care system in america. that's precisely the person that i don't think fairs best when turned loose in that praguement -- fragmented system. if you talk to a large number of veterans, are there instances where they had to wait too long for care? are there instances where we made a mistake? yes, there absolutely are. >> use alaska as an example. we use alaska for the choice. that's how we come up with choice. we use alaska and how they were given better quality of care and quicker. quicker wait times than anywhere else. they don't have a va hospital. >> you know that market very well. >> if i might, i know alaska a fair bit. and about a decade of public service experience. i would offer the following, i think it takes both. >> okay. >> and i think the real question at the end of the day is which things fundamentally are done best by the va? and which things ought to be supplemented by the private sector? there isn't enough demand to

justify a build. or where it makes sense to spread the supply because of the amount of resourcing needed to deliver services. i think that's always been true. that's true in the d.o.d. system. that's why you see tri-care constructed the way it is. and alaska has a joint use facility in anchorage. when you get outside of anchorage, most of the footprint tends to be either public in the d.o.d., public through the indian health service or private. and it's those two pieces working together that are ultimately going to deliver what needs to be done. >> my time has run out. but the thing on drugs, the drug dispensing to our veterans are almost criminal, what we're doing to them. the cost of the drugs we're

giving them without proper guidance. and you look to it as drug addiction. we got to do something there. in my state of west virginia. it's horrific. it's just absolutely off the charts. so we're putting a drug -- precipitation drug abuse caucus together. democrats and republicans working together. we're going to need your help. >> we would love to participate. we agree with you. we recognize it as a national problem. it's a problem inside va. >> it's a problem in general society. thank you, senator manchin. senator tillis. >> thank you, mr. chair. thank you all for being here. just a couple of things, and one is based on a comment here earlier about in the senate thinking we should completely privatize the va i honestly have

not a single serious discussion with any member that saw that. if they did, if anyone here did, all they need to do is spend some time in the v.a.s to understand the unique nature of what the va has to offer. there's no other more welcoming place for a veteran than the va not that there aren't opportunities for private care. there clearly are already. the nonv.a. care is a very significant part of what you all do every day before choice was ever implemented. choice is just another safety. so i realize in the committee meetings, sometimes the words carry more weight than perhaps they should. i don't think anybody should leave the committee meeting thinking smib has a serious goal or or objective to privatize the entire va i want to go back to a point that smart blumenthal mentioned.

you have to figure out a way to get it billed out. can you give me an idea of the thought process. if you were going to shift that over to the buildout of the aurora facility. what would that cause in terms of delay or ramping down of what we would be doing with choice over the period of time that that money would not be available? >> what we basically did is pulled in -- we have a capital planning process that actually builds a prioritized list that's years long based upon the pace of funding that we normally expect to get. and so when we looked at the $5 billion in choice funds, we basically reached into that skip list and pulled a segment out to put into that priority bucket. you know, what happens now is the sub substantial portion of this, if we were permitted to do this, in all likelihood would wind up in the 2017 budget. because they then fall back --

would fall back into that prioritized cue. >> that's why i was asking the question. you could infer from some of the discussion that there's a $700 million hit and care not being provided, versus taking a look at how the money was spent over time to build the ramp out of the choice program. that's why i was asking. it sounds like a leveling of assumptions. >> that's exactly right. the commitment has been we would work these back into the funding stream as quickly as we could. there are hundreds -- >> i think that's critically -- in order for the the letter you consider us, to have any prayer of consideration, you need to map out how we would have assurances that it doesn't materially affect it. because of the way you planned

to spend the money anyway. >> thank you for raising the issue. >> otherwise i would tend to go back to the well articulated position of the ranking member. the other question i had, or the thing that is very important is we need to get a five year, ten year, 20-year picture of what choice non-v.a. care means i mean to get parameters set about it. that's important at looking at the plan and figuring out how to do it. the answer is going to be different depending on where you are. senator sullivan will say his state has a per capita veteran in the nation. i have a veteran population that exceeds the population of several states. the capital planning requirements will be necessarily

different than non va care, but we have to come up with plans based on what appears to be the interest of the senate to continue down the multiprong path so you are taking pressure off requirements in some areas and maybe redoubling them in other areas. that's a very important thing that this committee needs to see, but we need to be very specific about what we wont in the form of non va care and choice care to get this right. >> if i can make two quick observations. you're absolutely spot on. first of all we have to force ourselves to make certain decisions about what care can be most efficiently delivered in the community. so we've talked before my example the chairman remembers optometry. why would we send a veteran 100 miles to get his eyes checked

and get some glasses? we can do that anywhere. we wouldn't we routinely be referring that out to the community unless a veteran really wants to come to va. we are learning right now, again working to manage towards requirements rather than just a budget number, every time we improve access to care with a new facility, with additional staff, demand changes. part of what we're trying to understand are what are the dynamics. for example, you look in phoenix where we know we're under penetrated in the veteran market. we improve access to care and we get a disproportionate response back. we've got to understand that market penetration phenomenon because it will affect our capital planning. i have already talked with the folks in phoenix about getting beyond -- looking over the horizon as it relates to demand for care among veterans in phoenix. we can't keep incrementally doing this because we're just going to stay behind. we have to get ahead of that demand. points are excellent. >> thank you. thank, mr. chair. >> thank you, mr. tellis.

>> thank you. there's a shortage of medical personnel in the va, and i note in your testimony, secretary sloan, that you're going to be creating some 1500 new residency positions, and this is a matter i have discussed with our va person in hawaii because if you can create residency positions in the state, more likely that those folks will be able to practice in the state. so how will these residency spots be allocated, by region, by capacity? are there any planning to increase for hawaii medical students? >> i don't have the list with me today specifically of where the slots are going. >> have you already determined where the residency -- >> not all 1,500. so that is a multiyear plan to deploy the 1,500, and the first round of those started this

fiscal year. we actually went out -- i quite frankly did not think our office of academic affiliations would be able to do it, but they went out and sought applications. there are very specific criteria in the law about them going to under resourced communities and specialties. they went out and specifically caught those. we have awarded several hundred for this first round this year. not as many as we had thought maybe, but a lot more than i anticipated that they would be able to award, and i can get you specifically where those -- >> because hawaii has a lot of rural areas on the islands that are underserved by the va. thank you. you can send me the information or the committee. as we look at the requests of secretary gibson to pay for the denver facility and we're looking -- i think that is really difficult for us to accept that you want to take money from the choice program to do that. so i'd like to ask you this, when a veteran goes to the va to

get care for a nonservice connected matter, and this veteran has private insurance, do you have the authority to get reimbursed from the private insurance company for the care that the va provides? >> so if the patient goes out into the community in our normal purchase care program and has insurance, we will bill that insurance company and collect to offset the cost of the care we provided. under choice we're actually the secondary payer. so under the choice program, the way the law was written, if the patient has commercial insurance, the commercial insurance is the primary payer and then we will make the provider whole up to the medicare rate. >> all right. so under the choice program, that's good because va becomes a secondary payer. my understanding is that in the first instance where the veteran goes to the va and gets the treatment, then often there is no reimbursement from his or her private insurance company. you're telling me otherwise. >> we will bill the private

insurance company if the patient has insurance. >> yes. and do they reimburse you? >> we get paid from them. a lot of the patients actually have -- that have insurance have medigap insurance. and without a medicare eob often times those insurance companies will not pay for the care because it's not medicare -- the insurance is specifically medicare gap coverage, and so we will not often times get paid by those insurers. >> so you're reassuring me that the vagos after every dime from the private insurance carriers that you can get your hands on. >> i can assure you we go after every dime we can collect. about $3 billion a year. >> that's reassuring. there are some questions about the outreach and the choice card program. there's still confusion out there and whether you have found all of the veterans who would qualify for the choice card, so

my question goes to -- what are the outreach efforts that you've engaged in? do you think that you are succeeding in explaining the choice program and also to va employees and community health care providers who need to get training on how to explain the program. >> so we originally mailed -- we know who the people are who are eligible to get a choice card, and we mail a letter to every one of those people back when the program started in november. >> i have talked to veterans, and they found that letter to be rather confusing. >> yeah. we're about to mail a second letter to all of them. hopefully it's a lot simpler to understand. we have actually tested that with veterans before we put it in the envelope. >> good idea. >> and we've made a lot of phone calls and outreach to people. there is no question that i think we can do more to reach veterans through our website,

through mobile technology, through mailings and other forms of communication, and we need to do a better job of educating them. >> good. >> we do need to do a much better job. one of the things we've got to remind ourselves of is there's no parallel to this out there. it's not like an insurance card where you just walk into your doctor's office and present your insurance card. there's no frame of reference for people to understand how it works. you know, do i have a benefit or do i not have a benefit? and that's one of the reasons it's hard for us to explain and why we have to keep trying. >> if we get feedback from my

veterans, for example, that could help you all do a better job, i'd be happy to pass that on. >> we'd love it. >> thank you. >> thank you, senator. senator bozeman followed by senator tester. >> thank you, mr. chairman. really very briefly i'd like to ask a question of efficiency. i understand that the third-party administrators have raised the issue of how much clinical documentation is being sent to them by the va. apparently va is sending the clinical documentation of every veteran who was approved do you to having a wait time in excess of 30 days, which presumably is overwhelming the tpas. you now have a pilot program in 8 and 17 to only send the clinical information of veterans

who choose to participate in the choice program. we're leaving this now to take you to the house hearing. members of the veterans affairs sub committee on health will be hearing from a variety of health organizations. at that time we hope we have learned from our pilots and aid

in 17 how to do this smarter and better. only providing medical record documentation for those patients who choose to go outside the system. >> that sounds excellent. >> the pilot's a very good idea. sitting at the table in the initial design when we were getting ready to launch, we had two days to make a decision. the question was how do you make sure all the right information is in the right place to serve people on the front end. the back end consequences are obvious and making the change makes a lot of sense. we're looking forward to supporting it. >> we're getting the consults in less than 24 hours on the

veterans we need. it's very effective. >> i know it's a rocky road as you're working through these things. it's encouraging that you're working through. thank you. >> the patience of the year award goes to senator tester. >> you have a very good committee here. thank you for your work. i don't know where to start. they are short in nurses docs mental health just like you guys are. the bookkeeping nightmare that may come with this, let me give you an example. say i was a vet and i live 50 miles. my nearest hospital is 12 miles

away. the bookkeeping here is just amazing. i know we're all trying to do the right thing. even when you do the right thing people are mad because they think it's the wrong thing. you talked about the 40 mile thing not offering service and talked about how it doesn't make sense if a guy will have a set of glasses why ship them across the country. if i was a veteran probably would have signed up just for this benefit. if you're talking about what it

costs it's also a savings. in the analysis and we worked through several options from what 40 miles from the care you need might look like. in the short run our structure is cost fixed. there are variable costs. >> the mileage is not a fixed cost. if you have to put them up in a room that's not a fixed cost.

>> there's the true cost savings and the cost avoided because you haven't made them travel. >> really. come on. if you're doing the actual cost analysis you have to include that in the savings. that savings have to be included. >> clearly it does have to be included.

>> i'm assuming your organization and your testimony just nod your head if that's correct. >> correct. >> you're for harmonization of those programs. i don't want to be the micro manager here. if you need language to harmonize the programs, i think it's reasonable. >> we need to do that. i think part of that picture is how do we manage the 40 mile issue. i think we need to think through this. it's wrapped up in that. >> let's deal with that. i think it's confusing right now. there's a little manipulation going on.

>> if i might one of the issues i was attempting to address is the fact that we built a network out now in our area that's got o 100,000 providers. the requirements are more extensive than those under choice if you're a participating provider. those things need to be blended together so we don't have disincentive to participate in one program versus another. >> fair enough. >> the reimbursement rate needs to be the same. >> i think the conversation needs to be held was this committee with the house committee has to do with the requirement that we manage

toward. we should be talking about a requirement where veterans that are hep c positive we manage that number to functional zero by the end of 2018. that's what i think the requirement should be. what we need to do is step back from that and lay out plan that says this is what would be required in order to manage that requirement. >> i agree. >> we're not back and forth about it. the first time we deny a veteran access to the treatment who is hep c positive because he doesn't have advanced liver disease, everybody think we're denying him of care. we need to reach a deal on the requirement.

>> the question i have is this place changes every two years. to have three years in a residency, you have to have the money for that residency. talk to me about how this works. you got a forward funding. you don't have forward funding for three years. >> that's it. >> what do you do if congress does something irresponsible. that's been known to happen a time or two. >> i think this is one of our concerns. these residents all have tails. when we start a new residency slot, all of those slots have to be funded for the duration of that. >> that's not the case today. >> okay.

>> we don't own the residency slots. we pay trainees, offset their salary. the additional slots started this. >> this fiscal year. >> the academic year we're start this coming july. >> in this budget we're dealing with this. if your budget comes in a little short this may be a program that comes by me? >> i doubt it because we've made commitments at this point. >> appreciate it. thank you. >> thank to the members and our witnesses. it's been a productive meeting. we'll we'll take a two minute break while we go to panel two.

>> we appreciate the working relationship. thank you. >> the only way to do it. it was a good first panel. i apologize to our second panel that it took so long. i'm sure you enjoyed it too. thank you very much. welcome back. we have deputy director.

roscoe, good to have you. mr. bill rausch. carlos fuentes. we welcome all of you for being here today. >> on behalf of our national commander, michael hamm and the 2.3 million members of the american legion we thank you for this opportunity to testify.

it's reached an unacceptable level nationwide has veterans struggle to receive access to timely health care within the va health care system. it was clear that swift changes were needed to ensure veterans could access health care in a timely manner. the american he john vbc charges to work first hand with veterans experiencing difficulties in obtaining health care or having difficulties in receiving their benefits.

according to the v.a. latest daily choice metrics dated november 31st 2015 there were approximately 51000 authorizations issued for non-v.a. care since implementation of the choice program with about 49,000 scheduled. the american he john is optimistic that the recent rule change by eliminating the straight line rule and using the actual driving distance will allow more veterans access to health care under the choice program. everyone will see increases in utilization and access to

non-v.a. health care. we now call upon the house to take up hr-572 the veterans access to community care act and ensure swift passage. let's get these bills to the president's desk and making sure we're taking care of our rural veterans. there's no medical facility that's further than 40 miles than anywhere anyone lives on

the island. the american legion is concerned that as a result of inadequate training there could be staff who fail to receive proper training as a result of bad communications and providing incorrect information to veterans. cently the american legion learned the v.a. contract required these third party administrators to report daily choice metrics. however, this requirement is now expired and the tpa's are fo longer required to report these daily metrics. the last report v.a. provided was dated march 31st 2015. the american legion is concerned since the tpas are no longer required to provide these metrics v.a. could easily lose track of the numbers. the american legion calls on congress to required v.a. to continue reporting these daily metrics throughout the duration of the contract or explain how they will continue to track this

information. they should streamline to incorporate all of non-v.a. programs into a single model. congress should look into streamlining the non-v.a. care statutory authorities. once congress gets a better sense of how to choice program will play out over the next couple of years, v.a.'s non-v.a. care should be consolidated and rationalized in learning lessons learned from the v.a. choice program. thank you and again ranking member blumenthal i appreciate the opportunity to represent the american legion views and look forward to answer any questions

you have. >> thank you. >> i appreciate the opportunity to testify at today's hearing. thank you for your leerdship in ensuring that veterans get the quality health care they sderve. the rules pertaining to choice do not represent real choice. veterans should not have to ask for permission to select their health care provider. v.a. implementation of the choice program has been a

failure. veterans health care costs at high risk for taxpayers. the number of medical appointments that take longer than 90 days to complete has nearly doubled. 77% said they want more choices that didn't involve higher out of pocket costs. we choose our health care insurance provider and primary care physician. health care organizations provide quality and convenient care because they know if they don't they will lose their patients to someone else. in order to fix the system competition must be injected into the system. v.a. recognizes when they said evaluate options for potential authorization for how, when and where they wish to be served. veterans do not have that control and will not under the current v.a. health system.

v.a. needs to have a 2015 health care system. we believe the veterans inspect act is a road map and solution to do just that. it was developed by the fixing veterans health care task force. we developed ten veteran core principles that serve as the guidesing foundation. these key principles included the veteran must come first, not the v.a. patients can choose o where to get their health care. v.a. should be improved and preserved. v.a. needs accountability. we leave out three major categories of reform and nine policy recommendations. first restructure the inspect

independent, government chartered operation. second, give veterans the option to seek private health care coverage with the v.a. funds. third, refocus veterans health care for those with service injuries. the key policy recommendations include separate the pay or provider functions into separate institutions. establish the veterans accountable care organization as a non-profit government operation fully separate from v.a. preserve the v.a. health benefits for enrollees. select any private health care insurance plan legally available in their state financed through premium support payments. medical eligibility veterans can pray the

prey the costs. we retain the services of hsi to connect to fiscal analysis. it's a properly designed version of these property health care we must keep in mind what general omar bradley said. we are dealing with veterans not procedures. with their problems not ours. this is why we urge you to use the veterans independence road map to develop and be the future of veterans health care. veterans must be sure they will be able to get the access choice and quality health care they deserve. mail yur is-- failure is not an option. we are committed to overcoming all obstacles to stand in the way of achieving this mission and the court to work and the chairman or ranking member and members of this committee to achieve this shared mission. thank you. >> thank you mr. selnick. let me just interject at this point. i have read and i'm sure richard has, too the fixing of veterans

health care report that the organization did, which is an outstanding report. i think it's going to be ultimate choice, if i'm not misen mistaken. wouldn't that be a good name? >> that would be a good name. >> in a representation of the changes are far more broadband some on the panel might look for us to do in terms of preserving what va does but i want to commend you on that and let you know we are watching what you have recommended and we are taking a look at it. richard and i have one underlying principle. we are going to make veterans choice work and is not an option that it might work and if it doesn't, we'll think of something else. how are works will take the best ideas and input and you are report is one that will help. this is going to be a process and evolution as we go through but one thing is for sure we are not just hoping it's going to be over one day. we are going to make it happen one way or another. >> thank you.

>> chairman isakson ranking member blumenthal members the committee on behalf of the va and the 1.2 million members all of them are wounded injured or made ill from their wartime service thank you for the opportunity to testify on temporary choice program. while it is too early to reach a conclusion about this program we are beginning to see lessons. as of last week almost 54,000 choice authorizations have been made and 43,000 appointments have been scheduled. by comparison about 6 million appointments are completed monthly inside va, and another 1.3 million appointments are completed outside va using non-va care programs other than choice. a number of reasons like to contribute to lower than expected utilization of the choice program. since last spring, va has used every available resource to increase its capacity to provide timely care that may have shifted some of the demand away from choice.

va was slow in rolling out choice cards and in educating its staff. we also hear troubling reports of a significant lag time between when the va clinician determines the veteran is eligible for choice and a third-party administrator can see this authorization in their system. finally some veterans refer to go to va. the bottom line is we do not have adequate information today and need to take steps to gather sufficient data before making any permanent changes. we must study private sector wait times and access standards coordination of care, patient satisfaction and health outcomes for those who use the choice program. chairman recently dav, vfw the legion road to congressional leaders to extend the mandate of the commission on care to allow at least 12 months for its interim report and at least additional six months for the final report. we called on congress to refrain

from taking any permanent systemic changes until after the commission submitted its recommendations and then allowed sufficient opportunity for stakeholders and congress to engage in a debate worthy of the men and women who serve. for more than 150 years going back to president lincoln's sol um-- solemn vow to care for him who shall have war and the battle. the va health care system has been an embodiment of our national promise yet today some are proposing to make it just another choice among health care providers while others are calling for the va to be downsized or eliminated. but for millions of veterans wounded, injured or ill from their service there is only one choice. for receiving a specialized care they need and that is a healthy and robust va. although the va provides comprehensive medical care to more than 6 million veterans the1w va's primary mission is to meet the unique, specialized health

care needs of the nation's 3.8 million service connected disabled veterans. if va was downsized or eliminated it would, the private health care system would be unable to provide timely access to the specialized care they required. even if all disabled veterans were dispersed into private care, they would only be 1. 5% of the total adult population. does anyone truly believe that a market-based civilian health care system would provide the focus and resources necessary for the small minority and the way va does. mr. chairman while far too soon to settle on how to reform the va health care system and i want grate non-va care, we can at least outline a framework for rebuilding, restructuring, realigning and reforming the va health care system. first rebuild and sustain the

va's capacity by recruiting, hiring and retaining sufficient clinical staff and by funding a long-term strategy to repair and maintain va facilities. second restructure the many non-va care programs into a single integrated extended care network which incorporates the best features of fee-based pc3 and other purchase care programs and provide this program with a separate and guaranteed funding source. third, realign and expand va health care to meet the future needs of veterans, including women veterans. including urgent care nationwide with extended operating hours. fourth, reform va management by redesigning its performance and accountability report in restructuring its budget process by implementing a system which stands for planning programming budget and execution. mr. chairman, this framework is not intended to be a final or

detailed plan, nor could it be part of one at this point but it offers a new pathway to a future that truly fulfills lincoln's promise and that concludes my testimony. i'd be happy to answer the questions. >> thank you very much mr. rausch. chairman ranking member, thank you for the opportunity to share our views with you at today's hearing. va was one of the leading veterans organizations involved in the negotiations on the veterans access to choice is and accountability act. it is a highly complex law that the department is working hard to effectively employment to ensure veterans are not left waiting for unacceptable lengths of time to receive health care services. my remarks will focus on the experiences of utilizing the va trace program. members have reported to us by way of survey research.

i will provide recommendations to congress and the secretary to consider in order to get this program operating at the height of its potential. these recommendations include legislative clarification of the eligibility criteria for access in the choice program, strengthening trading guidelines for va schedules charged with explaining criteria to veterans and continued active engagement with veterans organizations to broadly identified the comprehensive strategy and plan for delivering non-va care in the community moving forward. in examining the current criteria for determining which veterans are eligible to use the choice program those who must wait longer than 30 days for an appointment and those who live more than 40 miles from a va facility more clarity is required. to veterans accessing or are

unsure of their elegyigibility. eligible for choice and va has been inconsistent in communicating whether veteran can access in individual cases. based on her most recent survey data over one third of our members have reported they don't know how to access the choice program. this is compounded by reports by in some cases be a schedules are not explaining eligibility for choice. the secretary and lucia must continue to engage scheduling personnel of ongoing evolving trading standards so an i'm veterans call the va they receive consistent and clear understanding of their eligibility for the choice program. the va has improved in this area but with so many veterans confused about eligibility training criteria must be strengthened and maintained. congress should aid in the department's em policemenimplementation efforts by clarifying at the 40-mile cryiteria be related specifically to the va facility in which the needed medical care will be provided. this frustrating example that continues to surface is specialized care to va facility outside the 40 miles but through strict interpretation of their current -- is ineligible because

of facilities may be geographically and they veterans address. one of our members illustrated this recently by saying quote because there is a cboc in my area, i have denied. the clinic doesn't provide the treatment need for my primary service connected disability. the nearest medical center in my network is 153 miles away and end quote. congress must provide needed clarity and work with va and it sounds like you are to eliminate the cases just described. there have been encouraging development to encourage the developments relating to implementation of the choice program specifically va's actions to step up and fix the effectiveness of the 40-mile rule calculations related to the driving distance. that revelatory correction was much needed and as a result there are hundreds of thousands of new veterans eligible for the choice program. we applaud secretary of mcdonald and deputy secretary sloan gibson for their leadership in listening to their customers to make that change happen. the statistics on choice

utilization among among veteran populations as of this month's state there have been 59,000 authorizations and nearly 47,000 appointments. this data verifies veterans are using the program and va has been making progress to implement a complex and important program. we are committed to remaining actively engaged with the veterans making use of the choice program so we can keep current on the veteran experience. we are mindful that thousands of appointments being conducted there will be thousands of unique experiences and we want to engage those levels of satisfaction with our members for this program. the satisfaction utilizing choice, the cost of care purchased outside of va facilities in understanding issues coming up will allow us to better realize that veterans book focused strategy and plan for non-va care in the future. appreciate the hard work of this congress the va and the veteran

community and recognize its stay focused on improving veteran health care delivery in the short and long-term. robust discussion on the scope and cost of maintaining health care networks is contemplated which is why the last recommendation is simple and something we touched on before. we must continue to work together to keep communication active between all relevant stakeholders. mr. chairman, we sincerely appreciate your committee's hard work in this area and we want you to know we stand ready to assist this congress and their secretary to achieve the best results for the choice program. now and future and we look forward to taking your questions. >> thank you very much. mr. violante. is that close enough? >> yes. thank you, mr. chairman. the artillery thank you for opportunity prisoner views on the choice program. before they can i want to say the vfw opposes the va's change the way veterans choose to use the veterans choice program. the veterans must have the opportunity to explore their

private sector options before rejecting the va appointments. this changes the bureaucratic convenience that will negatively effect veteran experiences. they play a part in identifying new issues the veteran program faces and offering reasonable solutions. yesterday, we published the second report in evaluating this program which made 13 recommendations on how to ensure it accomplishes its intended goal of expanding access to health care for america's veterans. our initial report identified a gap between a the number of veterans who are eligible for the program and those who were given the opportunity to participate. our second report has found that the va has made progress in addressing this gap. 35% of second survey participants who believe they are eligible were given the opportunity to participate. that's a 16% increase for her -- our initial survey.

for 30-day years participation hinges on va schedulers informing them of their eligibility. the lack of systemwide training for front-line staff has resulted in veterans receiving dated or misleading information va continues to improve its processes and training to ensure that all veterans who are eligible for the program are given the opportunity to participate. our second report found a decrease in satisfaction among veterans who receive non-va care. this is a direct result of veterans not being able to find viable options in the private sector. the 40-mile standard used to establish geographic-based eligibility for the veterans choice program was based on eligibility for tri-care prime. however there is a distinct difference between the veterans population and the military population. 36% of veterans enrolled in va health care live in rural areas.

thus measuring the distance service members travel to military treatment facilities and using that same standard to measure distance traveled by veterans to va medical facilities does not properly account for the diversity of its population. our second report found a commute time standard based on population density would more appropriately reflect the travel burden veterans face in accessing va health care. regardless congress and va must commission a study to determine the most appropriate geographic based standard for health care furnished by the va. as the future of va health care system are evaluating it is important to recognize that the quality of care veterans receive from the va significantly better than what is available in the private sector. moreover, many of va's capabilities cannot be duplicated or properly supplemented by private sector

health care, especially for combat related mental health blast injuries or service related toxic exposures, to name a few. with this in mind the must continue to serve as the initial touch point and guarantor of care for all enrolled veterans. although enrollment in the va health care system is not mandatory and despite more than 75% of veterans having other forms of health care coverage more than 6.5 million of them choose to rely on their earned va benefits and are by and large satisfied with the care they receive. moving forward the lessons learned in the veterans choice program should be incorporated into a single systemwide non-va care program with veteran centric and clinically driven standards which afford veterans the opportunity to receive private sector health care if va is unable to meet the standards. more importantly, non-va care must supplement the care that veterans receive from va medical facilities, not replace it.

ideally va would have the capacity to provide access to direct care for all the veterans it serves. we know however that va medical facilities continue to operate at 115% capacity and may never be able to build enough capacity to provide direct care to all the veterans it serves. va must continue to expand capacity based on staffing models for each health care specialty and patient density threshold however the va cannot rely on building new facilities alone. when thresholds are exceeded they must use agreements with other health care systems and affiliated hospitals when possible and purchase care when it must. mr. chairman, this concludes my testimony. i am prepared to answer any questions you may have. mr. fuentes, at the beginning of

your testimony, you said va must immediately address and i couldn't find it in the prohibited testimony. what was your first two or three sentences? >> my first statement was the change that was announced on how veterans elect to use the choice program. right now they are scheduled an appointment at va. if it is beyond 30 days, they keep the appointment and they call triwest or healthnet and explore what their options are in the private sector. that means they are making an informed decision when they decide to essentially reject the va appointment. if you change that to having the veteran make the election before exploring their private sector options, it is not an informed decision. and actually leads to veterans, if they go to the private sector having to go in the back of the line and restart their va

scheduling process all over again. >> i want to make sure i understand this. i'm a veteran that lives more than 40 miles from the clinic and i'm eligible for veterans choice. you are saying i should make a private appointment through the midwest, what's the name? triwest. and make the va appointment and i can choose which one i want and not automatically go to the private provider? >> for 40 miles i believe they should continue to contact triwest. however, 30-dayers. so if va can't find me an appointment within 30 days -- right now, the va schedules the appointment. let's say it's 60 days from now. but in talking to triwest for example for dermatology the average appointment is 60 to 90 days so now i am choosing for waiting 60 days in va to waiting 90 days in private sector. i should know that the wait time

in the private sector is 90 days before making that choice. sloan, can you answer this question? if i'm a veteran in over 40 miles from the clinic i can automatically call triwest to make an appointment, right? >> over 40 miles yes sir you can. the example he's citing is where it's 30 days wait time. the proposed process would -- we were talking before -- senator boozman mentioned about all of the administrative material for clinical information is being sent over. what we are trying to do is to streamline that part of the process. in this case the veterans are not pleased with the appoint. that process happens within a couple of days. and they should be able to come back to va to say i wasn't able to get a timely appointment for the tpa refers the authorization back. but it is a consequence of making a change rather than booking the appointment with va and referring to veteran over to

the third-party administrator. >> mr. chairman just to be clear, there are two distinct processes for -- one for 30 dayers and one for 40 milers. i think one of the issues that the proposed changes is looking to address is no shows and cancellations. so when the veteran elects to -- when the veteran accepts an appointment in the private sector tryiwest or healthnet, until the local facility this veteran has chosen choice, cancel that appointment. however currently have va schedule or if va staff member has to go and manually cancel the appointments. this will prevent that however this will come at the cost of the veterans experience. >> that is what i was getting at because i was hearing their potential problem. two appointments and one not kept. letting them know which is

happening first. >> there are better ways to address that issue. i feel an automated process could work. just a more seamless way of triwest and healthnet notifying va that the veteran has accepted a private sector appointment. >> i want to open a hornet's nest but i'm going to go ahead and do it anyway. i had to pay $30 penalty for not keeping an appointment in atlanta for health care i was getting. we can't put everything on the shoulder of triwest or the va. if somebody doesn't do their job, by letting va or tricare know which appointment they're going to keep, there should be a penalty to the person for not keeping the appointment. that way the communication is complete. i know there will be some that don't like that idea but it gets everybody's attention. if we are going to be more

efficient i think everyone has to be part of the efficiency including the veteran getting the benefits. i just wanted to put that in there. not to start a hornet's nest but thank you for raising the question. very helpful. senator blumenthal. >> thanks mr. chairman. you know we have been talking a little bit about how to pay for the denver crossover. >> we just figured it out. >> the chairman has told me that we just figured it out. so this has been a more productive afternoon then you could have ever hoped. >> i apologize. >> i want to thank all of you for your thinking through these issues in such a constructive and positive way. i was taught as a trial lawyer never ask a question if you don't know what the answer is going to be but i want to ask an

open-ended question. given that the choice program and the choice and accountability act creates this fund of $15 billion, my view is that the potential rate on this money and the effort to use it as a kind of slush fund to pay for cost overruns in aurora and orlando and new orleans and las vegas where in fact in total there have been $2.5 billion in cost overrun, is a real threat to veterans health care. we can debate how much private care should be provided and how much it should be through va facilities but there is no question in my mind at least at

va facilities are an essential part of the health care mix of opportunities that we provide to our veteran. therefore to say we are going to defer projects and delay construction on those facilities all around the country to pay for cost overruns and those medical facilities under new construction is a very dangerous threat. so let me make that statement and throw it open to you for comment. >> we have gone on record to state his position that he opposes taking money from the choice program and using that funding to support other means, i've heard a lot of interesting conversations today about

exploring of options, thinking outside the box. so i think members of congress, the va need to do just that. they need to put their hats on and to think about what is best. how can we come to a resolution that would serve veterans best without taking money from a program that's early in its stage and utilizing the funding for other means or purposes. if that's an option that should be the last option after you have explored all of the other options. >> let me just chime in. i would agree with him in what you are saying in that we don't want that money raided. i worked at the va from 2001 to 2009, vha for two years and every time there was a management failure $200 million

it pro i.t. program, and they scrapped, it was just, give me more money. give me more money. having been at the va i used to do an audit on the books. maybe the money is not off the table anymore off to the sidelines. i would love to see an audit to see what is really there and what is not. >> veterans should not suffer because va is unable to get its house in order. va must atone for its gross mismanagement. they should find cost savings in this program and other programs in any way can. ultimately congress does have an obligation to ensure va has the resources it needs to complete this program. and additionally further delay and uncertainty will only lead to higher cost overruns. >> there is no easy answer and i believe the facilities are necessary and must be completed.

where that money comes from is another question that i think it was said it's about veterans and veterans need to be cared for. congress needs to find the money somewhere to continue these. it should never happen again. i think the va should get out of the business of building hospitals. >> we would agree with regard to the construction and more broadly and in all cost overruns of va provide a high-risk of not providing the highest quality care for veterans. that's the bottom line. construction or anything else. i va supports the secretary's budget request. we also support his request for greater flexibility. in the previous hearing in theory without greater flexibility it would allow him to move more money back into choice so we support his request for that. more broadly we believe choices are an opportunity to better understand how veterans and where veterans want to receive

health care that they deserve. that frankly ties into what everyone is talking about which is a strategic plan for coordinated care in the community. mr. chairman, that was a phrase you used in the previous hearing and we've started to use that. ultimately we believe whether choice stays in its current form or fashion, we think it's an opportunity to better understand the customer, our members so the va can move forward with a strategic plan to provide the best services possible. thank you. >> i appreciate all of your answers which confirm my views and the chairman and i have stated those views and the chairman has stated, and i have as well, that we have alternatives, different options, that we think absolutely have to be explored. and we look forward to working with you on those options and also on this concept of accountability, which all of you have mentioned. you have heard me talk about it earlier which includes looking

backward, holding people accountable who in fact are responsible for this nightmarish debacle and also looking forward and i might mention mr. violante in your written testimony, you discuss the va's need to redesign its performance and accountability report. you make reference to the department of homeland security's similar regiment, known as planning, programming budgeting and execution ppbe as a possible model. i am sure there are other models as well but to your point mr. rausch, i have said that the va should be out of the business of construction. the corps of engineers or some other agency should take over this function. no disrespect to the va.

it is not within their job description to manage these mammoth multi-million dollar in fact, billion-dollar projects, on which the future of va health care depends. and when you and i go to build a house, we don't ordinarily -- we are not our own contractors. maybe some of you are but we try to get a little professional help to do it. that may be an inexact analogy. but for all the government agencies, not just the va, there should be some professional center of management that maximizes resources, reduces costs, makes it energy effecthfficient efficient, decides what materials and designs should be

encorp incorporated. so i think we have a lot to discuss going forward. i welcome your participation in i thank chairman for this hearing. thank you all. >> thank you senator blumenthal and let me echo everything that was told on the 40-mile world in terms of distance driven versus growth line, that it was going to expand the number of people eligible for va choice. it would cost more money. now that we have talked about the care you need and that definition which we are working on one of the estimates is that it will cost more money than we planned. we understand that to go from point a which was the disaster in phoenix that lead to other problems to where we want to go it's going to take time and it's going to take money and it's going to take coordination. which is where the coordination word comes from. there are savings in coordination want to accept a few principles.

principle one is that it views the private sector well and veterans like it and some alternative to make the system markets not a substitute. in certain cases it's an alternative venue or saving the va money and getting the private sector investment in getting better health care to the veteran. i'm willing to look at this in a macro sense. we just did a budget in the congress. 10-year budget. va has problems it's probably going to take ten years to financially solve, but you have to begin that at some point in time. hopefully as we work through this problem in denver and get resolution on who builds what and when they built it, we can also look at them macrosense of how we find savings to pay for the changes we need to make it eventually will have a delivery system that's less costly but it will take us a while to get there. but that said i want to thank you all for being here and thank you for your service to american and appreciate the time you have given us today.

this week on c-span3, american history tv in prime time. on april 21st 1865, six days after president lincoln's death his funeral train departed washington, d.c., on a 1 rksz,654 journey to lincoln's hometown, springfield, illinois. his funeral took place at oak ridge cemetery the day after it arrived. looking back on the journey, honoring the 150th anniversary of abraham lincoln's assassination at 8:00 p.m. eastern. on c-span scientists explore the science denialism. it includes the religious and corporate roots of the beliefs and looking at climate change

space exploration and vaccinations. here's a preview. >> it all starts with evolution. the big lie of science. and the catholic church and most mainstream protestant denominations say, wasn't god clever? easy out right? come on. what happens, unfortunately, is that about the same time that this accommodation is happening there is the rise of organized labor in the united states. which is a form of collectivism. and it is determined by a handful of protestant ministers to be a satanic distraction from the individual -- the rugged individualism that allows you to have a direct relationship with god. and so they become concerned with what are the fundamentals of christianity. and they actually write a series of books and pamphlets called

the fundamentals. they're known as fundamentalists. that's where the term comes from. one of the fundamentals is that science is a lie. because if you believe the science of evolution, you are rejecting god. >> you can watch that entire event, part of the annual world affairs conference, at the university of colorado in boulder, tonight starting at 9:00 eastern. up next a discussion on the impact of technology. on the u.s. economy and the work force. the forum brings former administration officials economic scholars, technology experts and business leaders. speakers include larry somers, defense advanced research project director. also, mit business research scientist andrew mcafee.

robert rubin delivers opening remarks. okay. i think we'll get under way. good morning. i'm bob rubin. and on behalf of my colleagues tat hamilton project i welcome you to today's discussion, where the future of work in the machine age. before i lay out the issues we'll be discussing, let me say a few words about the hamilton project. we started about nine years ago. we are not an institution, but rather, we're a small partnership of policy experts, former government officials, academics and business leaders organized as an advisory

council. and our architecture is totally open. when we have policy proposals, they are commissioned from leading experts around the country and then they are peer reviewed rather than coming from internal staff. our purpose is to support policy development and to support serious as a purpose of discussion policy, debate and dialogue. we believe that is particularly important at this time when, unfortunately, the public policy debate in the united states has become so affected by politics, by ideology and by opinion that is not grounded in facts or an objective analysis. the hamilton project works in partnership with the brookings institution. brookings contributes enormously to our intellectual vitality. since launching the hamilton project, our view has been that the objectives of economic policy should be growth, broad-based participation.

in that growth, an economic security. we believe that these objectives can be mutually reinforcing. not an -- as arguments. for example, widespread income gains promote growth by increasing demand, by increasing the ability of workers to access education, nutrition, housing and so many inputs and factors that contribute to productivity and by increasing support, political support, public and political support for growth enhancing policies. we support market-based economics and equally we support a strong role for government to perform the functions of markets by their very nature will not perform. that takes us to today's subject, the future work in the age of the machine. technological development and globalization are keys to increasing productivity and growth. but they put pressure on job creation and on wages.

over the past few decades, as as technological development as increased at a rapid rate and as global development has increased, wages have been slower and in many cases stagnant and inequality has increased substantially. the exception was the second half of the 1990s when tight labor markets increased in comes at all levels. today we're going to talk about how to think about that tension between the growth-enhancing effects of technology and globalization. on the one hand, in the effects of technology and globalization on wages and on job creation for lower and middle income workers. this forum is a continuation of a long line of programs that we've had at the hamilton project focusing on middle

income and lower income workers. growth is necessary but not sufficient for the purpose of aiding and enhancing the economic position of middle income and lower income workers. growth creates tighter markets, labor markets, as happened in the mid to late '90s and it increases the pie. but we do need a broader perspective. for example, policies that focus on education and policies that focus on job creation and on productivity through infrastructure investment, basic research and so much else, both promote growth and directly improve the position of the american worker. with this frame in mind, i'll pose a number of questions that today's discussions may address. is technological development likely to continue moving forward at a rapid rate and with great economic significance? or as some argue, will its pace and its significance decrease? relatedly it's a biomechanicism

of the technology, has it declined? if you don't have dynamism, then the rate will not be applied. the rate of business in the united states has decreased significantly in very recent times. is that relevant to the question of dynamism in our society? and if it is relevant, is that a cyclical phenomenon or has something more fundamental changed? productivity has clearly fallen to lower levels in the last few years. again, is that a cyclical phenomenon or is something for fundamental happening? if labor and technology does move at a rapid pace and if dynamism continues such that technology is deployed, will new industries and new jobs develop that will replace those that have been lost, and will those new jobs be well paid?

in other words, what will the net effect of all this be on job creation and on wages for middle income and lower income workers? to go further, are there trends in the work force that aren't yet adequately understood that may relate to these questions? for example, would the nature of jobs themselves change? with fewer employees of companies and more independent contractors. with the increase in the number of functions performed by independent contractors being a function of the enabling power of technology. for example, what's the future of clerical help when you can get clerical help on an on-line basis on demand? and that takes us to policy. policies that could help address the pressures from technology and globalization, if those pressures continue, aside from

improving the ability of workers through the many facets of education and training to succeed in this new world are going to need an enormous amount of creative focus. for example, we may need an increase in the income tax credit, not only for those who receive it at the present time but perhaps much further up the income scale. measures that facilitate collective bargaining can result in a broader participation in the benefits of productivity and growth. and there are enormous number of other possibilities and potentials we should consider in the policy arena. moving further, i think there may be a more fundamental question that's going to have to be answered at some future time, and that may be a distant future time. but if we have ever rapid

technological development and it is labor displacing, at some point in the future -- as i say, that may be some distant point in the future -- should that lead to some basic change in our lifestyles with less work, more lecture and a richer, more more robust use of that leisure? and if the forces of economic globalization continue to a great, rising inequality even if that rising inequality is accompanied by growth, in addition to everything that needs to be done to enhance growth and tight labor markets and to improve the position of middle and lower income workers, should there be increased redistribution to accomplish the broad objectives of our society? and if there is to be increased redistribution, how does that get done without impeding growth? the united states has tremendous strengths, and i think we are

well positioned to succeed over time, but we need an effective government. one that can deal with the usually consequential policy issues we face, immigration, k-12 education, energy and so much else. in that context, technological development and globalization raise the thorny issues i just mentioned and i'm sure many others that will come up in the course of these discussions. we will begin our program with framing remarks from eric binelson, professor of management of science and director, mit school of management and andrew mcafee, principal research scientist at the center for business at mit.

they will be introduced by the founder and chairman of evercore. our first round table is entitled "the future of jobs. " participants are eric yosfelson, who i just introduced, andrew mcafee and larry somers, former secretary of the treasury and university professor at harvard. elizabeth carney will be the moderator. professor at the university of maryland. the second panel is the future of business innovation. in addition to andy mcafee, whom i've already introduced, the participants will be john hotelwanger, distinguished university professor university of maryland, and art d.probiker, director of the defense advanced

research agency known to all of us as darpa. the moderator will be laura tyson, professor of business economics at the berkeley high school of business and the member of the hamilton project. let me close by extending particular thanks to melissa carney, who i already mentioned, our director, kristin mcintosh, our managing director, and brad hershbine, the visiting fellow at the hamilton project. providing the construct of this session and putting together truly a remarkable program. let me thank the members of the staff of the hamilton project whose thoughtful and hard work is central to everything we do at our project. with that, let me turn the podium over to roger altman. roger. >> good morning, everyone. i'll be real brief.

i think that the upcoming framing remarks and the two panels we're about to have are going to fit anyone's destrix description of provocative. i, too, want to thank melissa and kristen and the entire hamilton staff for organizing an event as rich as this and as substantive as this. as bob said, we're going to starlet start with framing remarks from eric and andy, both professors at mit and the sloane school of management there. eric runs the mit initiative on the digital economy and andy is a principal research scientist at mit and the sun school in his field of research is the impact of digital technologies on business, the economy and on society.

so we really could not have better framers, including because they've written a profound book, many in this room, i'm sure, have read it. the second machine age. i took away three points from that book. mrk profound book. one, we're at an inflection point on the pace of digital technological advance, that it is accelerating, and that it will produce unexpected and transformative effects. two, that these effects will be, on the whole, positive, more choice, more freedom, more wealth.

and, three, getting to our focus today, that these effects also will produce considerable economic disruption. in particular, the premiums which labor markets have increasingly been placing on education and skills will rise. rise sharply. and by implication, the wage pressures and lack of employment opportunity for those workers who don't possess those skills will worsen. bob reviewed a series of questions we want to debate today that stem from the book. i'm really just going to add one to his very good list. the past 20 years have already seen labor markets place a big premium on education. most people in this room are

familiar with the ubiquitous charts that retail the returns to education. so this trend has been under way for some time. and it's an absolutely central element in the outlook for american society. and that it's been under way for some time, even apart from this prospective acceleration of digital technology and its impacts, is why larry and claudia, for example dekriebscribe the challenge as a race between technology and education. and the obvious question is, is it imaginable that we will raise education levels in this country in proportion to these rising skills premiums and in proportion to the acceleration and the pace of digital technology and software and its impacts that eric and andy are now going to discuss.

over to you. >> roger, good morning. great to be here. america has never been richer. private wealth is over $80 trillion. private income, whether you measure it per person, is at record levels. american workers have never been more productive than right now. the reason for this bounty is because of recent advances in technology. there's also a paradox. as bob mentioned median income has stagnated, lower than it was 15, 20 years ago. andy and i -- let's see if we can get the chart up here. andy and i call this the great decoupling.

there it is. the share of the work force that's employed has also fallen. if you look back for much of the 20th century there was a rising tide that lifted all boats, an implicit social contract people would participate in that. recently, that's become somewhat unravelled. again, a number of reasons for that. the great recession didn't help. as you can see, this decoupling really started before the financial crash of a few years ago. there have been changes in tax policy and globalization, there's some measurement issues, we're not counting some of the free goods, like wikipedia or free apps that give us driving directions. that's not really enough to close this gap. a lot of it has to do with changes in the nature of technology. if you look at the broader sweep, much of the wealth

creation has -- can be traced to some amazing improvements in technology going back to say 200 years ago when a powerful general purpose technology, the watt steam engine helped ignite the industrial revolution and successive general purpose technologies replaced a lot of muscle work with machines and by and large, broadly, these machines were complementary to human labor. wages grew and more people were working. but we're now in, i think, the early stages of what andy and i call a second machine age, where machines are also beginning to supplant minds as well as muscles, and do a lot of the control functions that used to be integral and only done by humans. in fact, about 10 years ago, many of us thought that there were a number of categories that humans were uniquely good at and humans were not -- the machines were not very good at substituting for in areas like

dexterity, language, unstructured problem solving. in recent years, there have been big improvements in machine intelligence in all these areas, catching some of us off guard even. there have been improvements in robotics, robots like baxter here are working in more and more factory, doing all sorts of manipulation. improvements in mobility. baxter, according to rod breaks, -- brooks works for about $4 an hour and a bunch of simple tasks like this, people all over the world, in massachusetts and throughout the world are doing tasks like this. machines have made huge advances in language which used to be a uniquely human capability. these dies, if you see somebody talking on their phone, there's a good chance they're actually talking to a machine, not to another human, and expecting the machine to understand. of course, they're not real good yet. we're in the middle, i think, of a ten-year period where we went

from machines not being able to understand what we're saying to machines being able to understand what we tell them and answer our questions and carry out instructions. by any measure that's a remarkable milestone. machines are translating between languages. skype will let you speak in english and it'll speak in some version of german or french or chinese to other people. they're writing simple stories. a report about apple's earnings, the most valuable company in the world. the text isn't interesting. it's the byline, written by narrative science, a machine. they write thousands and thousands of these stories about sports, earnings reports lots of other topics. my favorite example of unstructured problem solving what happened with jeopardy, where you have all sorts of questions and variety of different topics of human knowledge whether sports or geography or science or current

events. and the father of watson brought a chart i want to share with you, these dots are the human jeopardy champions. most are pretty good getting a large percent of the answer ss correct. when watson came on, he couldn't answer the questions all that well. but watson had something the humans, didn't, and that was the ability to learn at a ferocious rate. they fed the information from wikipedia and every few months a new version of watson performed better and better. then they went on national tv and played ken jennings, the champion of jeopardy. watson won, as you may know, not just $75,000, but now watson is being used in all sorts of other applications. there's a call center in south africa that answers questions when people call in and watson

is powering that question/answering system. there are legal versions of watson, runs in the cloud now. a banking version my students actually work -- a team of students of mine work with ibm to create a version of watson that has read the dodd-frank rules and helps -- yeah. [ laughter ]. >> explains them to companies and apparently there's billions of dollars at stake there. versions of watson in a medical diagnosis, describe your symptoms close to english and does a good job diagnosing however obscure it may be. if watson is not today's best medical diagnostitian, i expect it will be in five years. and in the cloud and you may very well be going to your first or second opinion to versions of watson or other related machines. this is great news in many way because it is creating all this wealth i mentioned. it was a puzzle to me when we were looking at stats of

stagnant and median income and didn't understand how that could be. we were reminded. there's no economic law that says technology automatically, even if it grows the pie, that everybody is going to benefit evenly. some people could be left buggy whip manufacturers when cars came in or there could be potentially a majority of people left behind who do routine information processing work or basic manual skills. there's nothing in economic theory says that can't happen and we recently have had various flavors of bias technical change. there are three sets. skill-based technical change and my colleagues at m.i.t. made a very nice one that illustrates the fanning out of skill biased technical change leveling out towards the end. capital and labor getting different shares. the share going to workers has

been falling in the united states and other countries quite precipitously, which may be some evidence machines aren't just complementary as they once were to human labor. superstars are getting a bigger and bigger share. there are a number of reasons. one of the reasons is the nature of technology. digital technologies are quite different. you can take a process and codify it. once you codify it, you can digitize it. once you digitize it, you can make a copy or 10 copies or 100 million copies. each of those copies have three very interesting characteristics. they can be made at almost zero cost, they're perfect replicas of the original and they can be transmitted anywhere on the planet, more-or-less instantaneously. free, perfect and instant are three adjectives we didn't use to describe most goods and services historically, but they're standard for digital

goods and they lead to some weird and sometimes wonderful economics. they can lead to a lot of bounty but they can also lead to winner take most markets. if you codify tax preparation you don't need hundreds of thousands of human tax preparers each serving a local market. a few good tax programs, maybe one or a few can cover a big chunk of the market. of course, as marc-andrias said this isn't just in a few obscure corners of the economy. software is eating the world. it's coming to retailing, to finance, manufacturing, to media, more and more parts of the industry. so these economics are coming to more and more parts of the economy. ultimately, this can have profound effects, as roger is saying not just on the bounty but distribution of income. really, it's how we use this technology, not the technology per se, that does this, how it interacts with our organizations, skills, institutions.

at the end of the day, the most important thing to remember is technology is and always has been merely a tool. we have more powerful tools than we ever have had before and they have the potential to create enormous wealth with much less need for work. some people see that as a bug. i think we should see it as a feature. it should be good news. i think, shame on us, if we aren't using these amazing tools to create more shared prosperity. so, at the end of the day, ultimately, what's going to determine how we distribute this bounty is our choice, our choices in tax policy, in education, in health and welfare. ultimately, technology doesn't determine the distribution, it's our own choices. thanks. let me turn it over to andy, who has a few additional comments on that.

>> thanks, erik. >> before we get to the panels, i would just like to say two things, building on what my colleague and co-author erik just talked about. first thank you to our host this morning. fantastic for brookings and the hamilton project to convene this conversation and bring such a room of fantastic participants together for this. i'm deeply grateful. in particular, i'm extremely appreciative of the focus that the hamilton project has. to my eye, a lot of the debate about the trends in the economy, not that it's pointless or misplaced. it's missing the really important story. we're arguing about the 1% and the 1% of the 1%. that's a valid conversation. a much more important one is what's happening at the 50th percentile of the american workforce, what's happening at the 25th percentile of income and earnings? these are the people as we look around who are really facing job and wage challenges. hamilton's focus on those populations in our workforce

seems to me exactly the right focus to take. the second thing i'd like to do is congratulate our host, particularly bob and roger, for bringing a particularly diverse crowd this morning. erik and i have a fantastic partnership and have a bit of a problem now that we're finishing each other's sentences and we see technology under every rock. this morning, you will hear from people who don't quite look at the world that way and have done the best work in many areas and will bring a variety of viewpoints and perspectives and stories about what's actually going on in the economy that will be extremely valuable for all of us to listen to. i know i will learn a lot. our colleagues agree we're living in deeply interesting and somewhat weird times. we better figure out exactly what's driving these changes so we can figure out what levers to pull on. as i said, erik and i think technology is one of the big probably underappreciated levers. the second point i'd like to make before we turn it over to

the panels, if that story is anywhere near accurate, hold onto your hats, everybody, we honestly, we ain't seen nothing yet when it comes to technological progress. we heard this idea of an inflection point and erik talked about how surprised we have been by examples of technological project. even after writing our book, the two of us get surprised because it appears to us objects in the future are closer than they appear. i want to tell you three quick stories to make that point. these are things we learned not since publishing the book in january of 201 in our conversations so far in 2015, erik and i had a chance to talk to an entrepreneur whose name would probably be familiar to you, whose pretty well-known for making really cool fast cars. and we were talking to him about the amount of automation in his vehicles. we said, when will you have the capability for a fully autonomous car.

he essentially said yesterday. we said, i'm sorry. he said, i believe our cars are about as good as the average human driver in fully automatic mode. >> i said, why haven't you turned on that mode and made that available to us? are you worried about regulators or liability? he said that's not the main factor. when the time comes we will deal with insurance issues and liability and regulation issues. the main reason we haven't enabled that fully automatic mode yet on our vehicles, we want to wait until we are confident our technologies are ten times better than the average human driver, not just at parity with them. we asked, of course, when does this happen? he said, look, i have stopped trying to make that prediction because i kept noticing the date kept going like this, kept marching forward in time. so the driverless car, erik and i have ridden in one version of it. i think more robust versions are coming more quickly than even he and i anticipated.

the second example i want to give is of a task we've been trying to get computers to be good at almost as long as we've had computers honestly 40 or 50 years of progress on this with unbelievably poor results. how many of us have heard of the asian board game, "go"? is this familiar to people here? if you're a strategy geek, "go" is the highest form of strategy for a geek. geek is a form of praise. it's a simple game. 19 x 19 square. when i surround your stones, i take your stones off the board. we go back and forth. a sentence to say lifetime to master kinds of games. people spend decades playing the game and trying to understand it well. the computer geeks saw this, great, strategy game, let's try to program computers to be good at it. they have made unbelievably little progress at that for two main reasons.

one is the game is just too complex for brute force simulation methods to work. you can't come close to simulating all the possible "go" games before the sun burns itself out so the brute force we have is not useful in that context. geeks say, okay, why don't we teach the computer the right strategies and program in the strategies and refine them over time and beat the best human players that way. the main problem there is when you go ask the best human players how they knew what move to make, they go, i don't know. i've done this for 30 years, i understand the pattern. some part of my brain gets it. that move just felt right. they cannot articulate the strategies that they're using to play the game at a high level. so our brute force methods won't work. understanding strategies doesn't work. it feels like a little bit of a dead-end.

just this past year, a team of geeks said let's try a different approach and configure a system and show it a bunch of examples of games played at a very, very high level. we have a library of "go" games played at a high level. let's show the computer a bunch of examples of those games, that's it. we won't try to elicit the strategies or point out the strategies to the patterns most salient here. we will show it a bunch. they showed it high level games in midstream and they said, hey, what's the smart next move here? they're at the point right now where that system is able to come up with the exact same move as the human expert more than 50% of the time after six months or less work on this problem. i made a bet on twitter platform for all deep thoughts, i made a bet the world's best "go" player will no longer be a human being.