A Deeper Look at the VHA


Via MR I saw this post at Brad DeLong's place reprinting the content from a Krugman piece at the NYT (RR, but included for completeness).

The crux of the point, in case you don't feel like backtracking through all of that, is that Krugman is suggesting that the Veteran's Health Administration is a model of efficient, effective health care, provided by the government to boot.

Last year customer satisfaction with the veterans' health system, as measured by an annual survey conducted by the National Quality Research Center, exceeded that for private health care for the sixth year in a row. This high level of quality (which is also verified by objective measures of performance) was achieved without big budget increases. In fact, the veterans' system has managed to avoid much of the huge cost surge that has plagued the rest of U.S. medicine.

To what can we attribute this, you might ask? Why, to the very fact that it's entirely centralized and run by the government!

The secret of its success is the fact that it's a universal, integrated system. Because it covers all veterans, the system doesn't need to employ legions of administrative staff to check patients' coverage and demand payment from their insurance companies. Because it's integrated, providing all forms of medical care, it has been able to take the lead in electronic record-keeping and other innovations that reduce costs, ensure effective treatment and help prevent medical errors. Moreover, the V.H.A., as Phillip Longman put it in The Washington Monthly, "has nearly a lifetime relationship with its patients." As a result, it "actually has an incentive to invest in prevention and more effective disease management. When it does so, it isn't just saving money for somebody else. It's maximizing its own resources. ... In short, it can do what the rest of the health care sector can't seem to, which is to pursue quality systematically without threatening its own financial viability.

Well, I can't claim to have any experience with theh VHA system. But I'm always a little leary about these "just-so" stories, especially when it involves government bureaucracy. So I just have a couple of points to make about the VA.

First, the potential usage pool is highly restricted. Because they treat only veterans, they don't have to deal at nearly the same level as other hospitals with the surges in demand, the heavy use of emergency rooms as just-in-time care for things that could have been treated sooner and far more cheaply. The drastically smaller size in population isn't a trivial factor; some things don't scale up as well as we'd like, especially under pressure from things like HMOs to prevent expensive unused capacity.

In addition, many of the vets treated by the VA are often covered by other forms of health care. Here are some statistics on coverage by alternative health care regimes for vets. Vets with alternate forms of coverage are clearly opting to alter between them when they see a better deal or better treatment. Non-vets don't have this option. With a unversal payer system, no one would have this option.

On those achievements "without big budget increases": we should account for the fact that the number of vets in the US is both aging decreasing. So as the population treated is going down, the cost of treating them is going up. (Link to 2005 CBO Report: "The Potential Cost of Meeting Demand for Veteran's Health Care.)

More from the CBO report (it's a long excerpt, but eliding too much would be misleading):

VA has had difficulties coping with the large influx of new users seeking pharmaceuticals and outpatient care. Although VA has substantial excess inpatient bed capacity in many facilities, the influx of new enrollees seeking pharmaceuticals and outpatient care has exacerbated waiting times for all veterans wanting to see a VA provider. By the end of 2002, about 300,000 enrolled veterans were on waiting lists for VA medical appointments.

Waiting times have been a long-standing problem for the department. In 1993, the General Accounting Office (GAO, now known as the Government Accountability Office) found that veterans frequently waited eight to nine weeks to obtain appointments at some specialty clinics.(8) In 1996, lawmakers enacted legislation requiring VA to serve veterans in a timely manner.(9) In response, the department initiated a number of actions to address waiting times and waiting lists, including better tracking, better scheduling, and use of a primary care model--that is, coordinated health care delivery through interdisciplinary teams.

Accompanying the rise in the number of veterans seeking care at VA facilities were substantial increases in the annual budget for VHA. Although VA medical budgets were relatively flat in real terms in the mid-1990s, they grew by an inflation-adjusted 4 percent to 10 percent each year from 2000 to 2004. Those budget increases were appropriated by the Congress to fund the rapidly increasing demand for VA health care that followed the change in eligibility rules after 1996.(10)

In part because of the long waiting lists and influx of new patients that VHA could not accommodate in a timely manner, in January 2003 then-Secretary of Veterans Affairs Anthony Principi decided to cut off enrollment of new P8 veterans--those without service-connected disabilities who have income above $25,842 per year (for a single veteran) and above a geographically adjusted means test. Veterans in that priority group who had already enrolled in the system were "grandfathered," however, and could continue to seek care from VA. According to the department, "Until the waiting time for medical appointments can be reduced to an acceptable standard, it would not be in the best interest of those most in need of care for VA to enroll additional priority group 8 veterans."(11)

So, there is some contradiction to Krugman's assertion that this success (of which there does appear to be some) without "big" budget increases. Of course, one Budget Office's "substantial" may not be another man's "big."

More importantly, however, a good deal of the success seems to have come at the cost of restricting access to care. The system was not working well with its current demand, so it was pared down to keep future demand limited. The flexibility to respond to changing demands required shifting care away from specific people. If a single-payer system becomes inefficient and ineffective much like how the commenters on DeLong's site all agree the VHA was a few years ago, would it be able to deny care to subsets of the population while it takes time to retool? Maybe a series of "rolling blackouts'" while the health care network tried to figure out how to expand capacity in time with soaring demand?

I don't dispute that there have been significant, benficial changes at the VHA. What strikes me as less clear, however, is that it has been an unmitigated success of policy. The only cost in restructuring the system hasn't been a "small" budgetary increase for the same or better level of care. And the increasing demand that has put strains on this system before isn't going to be exacerbated much (if at all) by returning vets from Iraq since, as the CBO points out, inpatient care is actually underutilized right now. It's the aging current vet population -- the population whose ailments are among the most expensive to treat in large part because they persist for quite a while -- that is going to test whether or not "one of the best-kept secrets in the American policy debate" is a stunning success or not.


One of the things Krugman says isn't even true: There's one "advantage" the VA has that other government health care systems don't have -- they get to pick their patients, and can limit the number of patients based on their budget. Contrary to popular belief, not every military veteran is in the VA system -- the VA sets eligibility requirements in order to make sure that the number of patients they have is limited to what thay can fit within their budget. In fact, only a minority of former military personnel are in the VA system.

Krugman says, the VA is "highly successful in containing costs, yet provides excellent care." True, but the do it by containing their patient load. Krugman also says something that is flat-out false: "Because it covers all veterans, the system doesn't need to employ legions of administrative staff to check patients' coverage ..."

On the contrary, it does not cover all veterans, and it does have "legions [pun intended?] of administrative staff to check patients' coverage." They have an entire web site devoted just to eligibility which states, in part "All Veterans are Potentially Eligible" (emphasis mine). There is an eight-level system of "priority" detailed here. It has categories like, "Veterans with service-connected disabilities rated 30% or 40% disabling" (priority 2) and "Veterans who agree to pay specified copay with income and/or net worth above VA Income Threshold and income below the Geographic Means Test Threshold" (priority 7 -- which has FOUR "subpriorities," only two of which are currently in use.

Does Paul Krugman really believe they can determine eligibility under such complete rules with fewer administrative staff than it takes1 another health system just to look at someone's ID card and take down their policy number?

However, it is true that they have a state-of-the-art electronic medical record system, and they actually do use it to save money. For example, if they get a deal on some drug (say, Nexium), they can switch nearly everyone on therapeutic equivalents (say, Protonix) within 90 days. All they do is send a message to every doctor who prescribed Protonix, given them a list of patients to whom they've prescribed it, and ask for approval to switch them to Nexium. It's not mandatory, since everyone knows that two "therapeutic equivalents" are not really equivalent for ALL patients -- but they say that about 95% of the patients switch.

It's also true that by having a lifetime relationship with clients they can save money through preventative care. In the private sector, the "churn" of people in and out of health insurance companies makes it so that if an insurance company spends on preventative care, by the time the patient is around long enough to avoid a disease as a result, they are quite likely to be insured with another company. So you have a muted version of the classic "tragedy of the commons" -- you pay for preventative care, and some other company benefits from lower costs.

Think about it: If it weren't for the "churn," health insurance companies wouldn't just cover preventative care -- they'd require it. And they'd probably even require (say) blood tests to make sure you're taking your preventive drugs (like blood pressure medicine). (Assuming preventative care is actually cost-effective, of

As an ex Army sergeant, the only way I'll get into a VA hospital is as a visitor.

Though it shall remain nameless, my place of work employs a great number of ex-military. A highly unscientific, highly limited, highly problematic straw poll of some of them indicates much the same thing as above: eligibility is not as clear cut as Krugman's "covers all veterans." Unfortunately, I am not terribly surprised to see such lacksadaisical analysis from his later papers (though, I have to say for balance, his early work is still some of the most intruiging, compelling stuff I'd ever read on international trade, etc.). It was more of a surprise to see it reprinted uncritically at another site.(By the way, is that really ok? I know nothing about fair-use laws, and so tend to only excerpt portions of things I link to, no matter the length. If it's just reprinting the document so people don't have to pay for it, is that still fair use?)

The more I read and re-read about the article, the more it seems like a "Other than that, Mrs. Lincoln..." sort of story. Well, sure the VA doesn't cover everyone, has huge admin staffs, did require a significant bump in budget, and had to further limit the people it serves just to maintain control, but otherwise it's a perfect model for an efficient, government-run universal health care!

VA costs cutting? Everything I've read so far on this site is true, and I can add this: I have glaucoma in both eyes and get a 5 milliliter bottle of eye drops that's supposed to last a month, and I'm charged a months co-pay. The prescription is one drop in each eye, three times a day, which would be 180 drops. The manufacturer tells me the reason I run out after about 23 to 26 days is because each 5 milliliter bottle contains between 138 and 155 drops. After one year, I figure I've been shorted about 60 days (2 months) of medication - but I paid for it anyway. I'd rather have the drops than a refund, and can't get either one. This is just one example. On behalf of myself and others that I know with the same problem, I thank you, VA!!


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