I suspect the VA has access to VA health records. The main point of this letter is to say that they believe the person receiving it isn’t competent to manage their finances and needs someone else to spend the money on their behalf. And a judgment of mentally incompetent by the VA still allows an appeal to the courts.
I go in to the VA once a year for a physical. And they wonder why I skip the “mental health” evaluation portion. Pretty soon, just doing that will probably generate an automatic letter and an “appointment” to see if I am “competent” enough to manage my own affairs.
Except for the ones that blew up in Oklahoma that time. (When Clinton was POTUS)