"We're on the cutting edge." Those are the words that Dr. Kenneth Kizer keeps repeating, passionately. What's surprising is the "we": Kizer is the Veterans' Affairs undersecretary for health, in charge of the infamous VA hospital system. For decades, that system was inefficient: bureaucratically fixated on building infrastructure regardless of the need and bound by law to require expensive inpatient care for what the private sector performed as outpatient procedures. A constantly retold anecdote has veterans with broken legs being required to stay overnight in a hospital to get their crutches.
New laws and new leadership have changed all that. Now Kizer is leading a reform drive that has decentralized decision making; cut costs; and worked in new, flexible partnerships with the private sector to plow savings back into a growing network of cost-efficient outpatient clinics--of which House Veterans' Affairs Committee chairman Bob Stump, R-Ariz., boasts proprietarily, "We've opened up over a hundred of 'em without asking for extra funds."
The new VA has impressed Capitol Hill and the veterans' lobby alike. It also worries them. Executive director Thomas Miller of the Blinded Veterans Association (BVA) sums up the attitude: "This is the right way to go--but, wait a minute." Some veterans fear that Kizer's cutting edge is cutting too close to the bone. Service organizations such as the BVA say they are already noticing what Miller (a blind ex-marine himself) calls "isolated" cases of degraded care. Kizer, Miller adds, is "really not our problem. ... It's local network directors who are under pressure to deliver more with less. [There are] too many decisions that are being driven really by budget."
The budget constrains everything the new VA can do: Under last year's balanced budget agreement, VA appropriations are straight-lined. VA health care money--budgeted as discretionary spending, not an entitlement--is fixed at $17 billion a year through 2002. By law, veterans who are impoverished, or severely disabled from their time in uniform, or both, have the first claim on that money. Many higher-income veterans must be turned away: VA has the empty hospital beds to treat them, but not the funds.
So VA opened its new clinics without asking Congress for more money, because the money would never have come. Kizer enthuses over the benefits of a "menu" of health care options tailored to each patient's needs. "You use hospitals and clinics and home care and hospice and all these other things. ... It's not either you don't provide [care], or you provide an acute-care hospital bed" at great expense.
Just as it closed one door, by capping appropriations, last year's law opened another: For the first time in its history, VA is allowed to keep reimbursements from third-party insurers for the care of patients. The veterans' lobby has been advocating this for years. But as Larry Ray, deputy director of legislation at the Non-Commissioned Officers Association, laments, "We didn't want these monies to be used to offset or freeze appropriations."
Kizer is counting on this cash. The new VA's slogan, "30-20-10," encapsulates his plan to cut per-patient costs 30 per cent, increase the patient base 20 per cent and rely on third-party reimbursements for 10 per cent of the VA budget by 2002. Few Hill staff members or veterans' advocates think he'll make it. "VA has grossly inflated the amount of money they're going to collect. ... They've never hit their targets before," says Chuck Burns, national service director of American Veterans (AMVETS). Burns estimates that VA still spends "a minimum of 20 cents to collect a dollar," and General Accounting Office (GAO) figures back him up. VA's own figures show that after a sharp rise from $23.9 million in fiscal 1987 to a peak of $580.7 million in fiscal 1995, third-party reimbursements have fallen, to an estimated $519.8 million in fiscal 1997.
The new regime gives VA a tremendous incentive to collect reimbursements, because it can now keep them. But so far, Stump admits, "I'm a little bit disappointed" with the results, which put VA $17 million short for the first quarter of fiscal 98. "We're going to ride herd on them on that." Kizer says: "The concerns are legitimate. We're a couple of percentage points down." But he promises VA will catch up by the third quarter.
By contrast, the Congressional Budget Office estimates that VA's collections in fiscal year 1999 will fall more than $100 million short of the department's projections. And an October 1997 GAO report warns that things can only get harder. The two types of insurers VA has the most trouble billing are health maintenance organizations--which are constantly expanding--and second payers to Medicare, which covers more and more VA patients as the veterans population ages (the average veteran is now 57). Richard Fuller, the associate legislative director of the Paralyzed Veterans of America (PVA), says Kizer's hope to increase collections "is a mirage. . . . The insurance companies aren't fond of giving up their money."
Kizer's counter: Private insurers may be intransigent, but cooperation with other government health systems can help fill VA's hospitals and its coffers. VA's obvious partner is the Defense Department, whose $15 billion-a-year health system covers not only active-duty troops, but also more than two million military retirees, all of them, in theory, VA-eligible (though most are too healthy and well-off to win priority status).
Step One was to allow military beneficiaries to be treated by VA at the Pentagon's expense. Says Kizer, "Sixty [VA] medical centers have signed up to be providers under [TRICARE]," the military's new managed care plan for dependents and retirees. This is no handout to VA, acting assistant Defense secretary for health Gary Christopherson insists: Because the private-sector health contractors that administer TRICARE are under no obligation to send patients to VA facilities, "they have to show they can perform well on both cost and quality."
Kizer and Christopherson meet monthly, accompanied by their chief aides. Besides treating each other's patients, VA and Defense are developing fully compatible patient databases, common best-practice guidelines and coordinated technology acquisition. Adds Christopherson, "We still are identifying new areas." Veterans and members of Congress alike applaud this cooperation. Sen. Max Cleland, D-Ga., a disabled Vietnam veteran and former VA chief himself, is holding hearings and town hall meetings, and has brought together a task force of VA and Defense officials, along with the private sector and the veterans' service organizations. "There [are] a multitude of dots that need to be connected here," says Cleland, who plans to "recommend to the Congress a single comprehensive reform package" within two years. His chief longterm goal: To "see how the DoD can better coordinate and cooperate with the VA."
But both Kizer and Christopherson warn that such cooperation has its limits. "[Total] integration wouldn't make sense," says Christopherson. "Our mission, very different from the VA's, is to prepare to go to war. ... Their primary mission is rehabilitation."
Even the patients are different. "Ours tend to be younger, healthier," many of them young military families, says Christopherson. "Even our retirees are probably on average going to be a healthier population than the VA population."
The government partner that Kizer most desires is not the obvious Defense Department, but the Medicare program, which covers ever-more veterans as the population ages. A plan called Medicare Subvention would allow VA to bring in more elderly veterans to fill its empty beds, then bill their care to the Health Care Financing Administration--at a discounted rate that Kizer says should save HCFA money compared with private-sector care.
VA and HCFA worked out a Medicare Subvention agreement last year, but the legislation, pushed by VA Committee chairman Stump and ranking member Lane Evans, D-Ill., bogged down in the House Ways and Means Committee. This year, however, Stump has brought Ways and Means Health Subcommittee chairman William M. Thomas, R-Calif., on board. The two announced a joint Subvention plan in January, and legislation is due for full committee markup soon.
Whereas previous proposals concentrated on bringing more higher-income veterans into existing VA facilities, this bill would also extend VA's network of clinics and private-sector partners to regions previously beyond the system's reach--bringing in more of the low-income veterans who by law have first call on care.
Going in two directions at once, this plan embodies the new VA's dilemma. To survive under a fixed appropriation, VA must cut costs and raise revenues. That means moving to cheaper outpatient-based care and bringing in as many healthy, higher-income veterans--from Defense's plan, Medicare and elsewhere--as possible. But, Evans points out, "the first mission of the VA is to take care of the disabled and poor veterans."
The PVA's Fuller argues, "The reason that the VA health care system exists is to treat the specialized needs of disabled veterans." Take "the spinal cord-injury program, the prosthetics service ... ," says the BVA's Miller. "VA is the premier provider of these services, anywhere," and "there's no question they're expensive programs." Fuller warns: "If bottom-dollar medicine becomes the driving force within the VA, and local managers see an opportunity to [cut] all their expensive outliers, ... the system loses its heart and soul."
Kizer counters that "in the last two years, we've treated 19 per cent more homeless people than before, and about 8 per cent more psychiatric patients. ... Those numbers testify that we've not lost sight of our core."
The veterans' groups hope Kizer's right--but they'll be watching. Kizer has a delicate balance to strike between the new needs of reform and the old needs of his core constituency. VA will have to walk a razor's edge.
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