Authorities and Mechanisms for Purchased Care at the Department of Veterans Affairs

One of the core responsibilities of the U.S. Department of Veterans Affairs (VA) involves providing health care services to eligible Veterans. Although VA has traditionally carried out its health care role primarily by operating a national network of hospitals and other facilities, the agency also administers a purchased care function through which it pays for health care services from outside providers. VA's purchased care function has evolved primarily to address situations in which VA's direct-care resources are unable to offer needed services to Veterans. Moreover, the function is bounded by the fiscal context of a discretionary VA health benefit funded by a limited annual budget appropriation.^[1] Although purchased care has accounted for only a small fraction of VA's health care budget over the past decade, that fraction is growing. In the wake of the recent crisis in access to care through VA facilities, stakeholders and policy-makers are revisiting the role and performance of VA purchased care. Specifically, they are considering whether modifications to VA's purchased care approach might be desirable, given broader goals of expanding access to care, enhancing trusted partnerships, and improving VA operations to deliver seamless and integrated support for the health of Veterans.

The Veterans Choice Act and the assessment mandate for this report were passed into law in the summer of 2014. Broadly, the act represented a congressional response to an acute access crisis in Phoenix, Arizona, and other parts of the country. In some important respects, the Veterans Choice Act spotlighted purchased care both as a device for ensuring Veterans' access to services and as a focal point for policy-makers' attention moving forward.

The assessment mandate for this report was established specifically by Section 201(a)(1)(C) of the Veterans Choice Act. That mandate called for a study to address “[t]he authorities and mechanisms under which the Secretary may furnish hospital care, medical services, and other health care at non-Department facilities, including whether the Secretary should have the authority to furnish such care and services at such facilities through the completion of episodes of care.”

Purpose and Methods

The purpose of this report is to respond to the assessment questions posed by Section 201(a)(1)(C) of the Veterans Choice Act. In particular, we describe the legal authorities and operating mechanisms by which VA carries out its purchased care activity, related challenges and opportunities for VA, and insights regarding the question of whether the Secretary should have more, less, or different authority for purchased care than he or she currently has. In addition, given the explicit language of the assessment mandate, we also evaluated VA's authority to purchase episodes of care and the relevance of “episodes” in VA's approach to the outsourcing of health care services.

Our research methods included a review and analysis of statutory, regulatory, and legislative history materials, as well as VA policy materials and related commentaries and guidance documents; a review of relevant secondary literature, commentary, and prior studies pertaining to VA's purchased care activity; consultation and interviews with expert stakeholders within VA and in relevant outside organizations and agencies; a forward-looking analysis of potential changes to VA authority; a survey of VA health care facilities; and the solicitation and analysis of local-level VA policy documents.

Findings

VA Has a Complex Set of Authorities to Purchase Care, Reflecting Tension Among Implicit Aims

Prior to the passage of the Veterans Choice Act in 2014, the Secretary of VA held long-standing authority to purchase care, scattered across many statutory and regulatory provisions. Although the basic grant of authorities to the Secretary is expansive in some respects, it is not unlimited. It involves significant controls on when, how, and for whom medical care may be purchased. These controls implicitly reflect several competing aims beyond simply making outside care available, including restricting costs and maintaining a balance between VA's provider and payer functions. In sum, not only are VA's authorities for furnishing purchased care complex and scattered, but they also embody more than one aim, and those aims operate in tension with each other.

In a related vein, the answer to whether the Secretary should have more or different authorities for purchased care is that it depends. More explicitly, it depends on what policy-makers most want to accomplish through purchased care in the future. Different objectives for purchased care reform could easily lead to different conclusions about the need for revision to existing authorities.

The Episode of Care Defines the “Unit” of VA Authorization and May Help Shape Purchased Care in Practice

In Section 201(a)(1)(c) of the Veterans Choice Act, Congress posed the question of whether the Secretary should have the authority to furnish care at non-VA facilities through the completion of “episodes of care.” The authorities for purchasing care tie into episodes primarily through program requirements for authorization (for example, as specified under the Veterans Choice Act). However, in principle, an episode conceptually bounds a clinical problem for which a Veteran might require outside services, so it might therefore make sense to outsource care as a coherent “unit.” Future refinements in defining episodes of care, and an authority framework that allows the Secretary to adopt such refinements, may be critical to supporting VA's adoption of bundled payment and value-based purchasing mechanisms in the future.

The Purchased Care Landscape Is in the Midst of Transformation

As of this writing (in summer 2015), numerous changes to VA's authorities and mechanisms for purchasing care were being proposed, planned, and implemented. These developments included new administrative pilots for administering the Choice and Patient-Centered Community Care (PC3) initiatives, modifications to the eligibility criteria under Choice, revisions to VA's procurement authority for purchased care, the extension of the Choice program and reallocation of funding, and the consolidation of existing purchased care mechanisms and initiatives under a unified programmatic umbrella. With these facets of purchased care authorities and practice in flux, the full landscape of VA purchased care is not just complicated, but dynamically so. Moreover, while the proposed policy changes seek to address many different problems and issues, their sheer multiplicity suggests the drawbacks of a piecemeal approach and the lack of guiding orientation and strategy for VA's purchased care enterprise as a whole.

Recommendations for Purchased Care

Overall Strategy

Define a Strategy for Purchased Care. Policy-makers and VA should articulate a clear strategy and set of goals for how purchased care should be used and how it fits into VA's broader health care mission. The strategy should also establish benchmarks for success in VA's adoption of purchased care reforms. Specifically, the strategy should provide a foundation and structure for purchased care authorities and procedures, as well as flexibility to support surge needs and Veteran-centered care.

Address Cost Control More Explicitly and Systematically. Existing purchased care authorities have established a set of indirect cost controls through eligibility requirements and other stipulations that limit the use of the discretionary health benefits. VA and policy-makers should address cost control in purchased care explicitly and directly through a more rigorous performance evaluation of existing purchased care contracts, better and more systematic data collection on purchased care costs, and stronger cost-control mechanisms, such as copays, deductibles, and utilization review.

Collect Better Data to Accurately Estimate the Demand for and Use of Purchased Care. In addition to strengthening its data collection on purchased care costs, VA should also strengthen its data collection on other aspects of purchased care processes and outcomes. At present, VA lacks systematic data on these various facets of purchased care, particularly at the local facility level. A stronger base of data and analysis could help VA to improve its monitoring of purchased care processes and improve outcomes for Veterans.

Management Structure and Processes

Develop a Stronger Management Structure for Purchased Care and Allocate Responsibility and Authority to the Most Appropriate Levels. VA purchased care activities require improved program management, with responsibilities assigned to organizations at the appropriate level of VA's administrative hierarchy. For example, referrals should be managed locally, while large contracts (such as those under Choice and PC3) should be managed centrally. VA leadership should issue clear policy and procedural requirements while facilitating appropriate flexibility in the field at the local level.

Evaluate the Third-Party Contractors Administering PC3 and Choice. As the PC3 and Choice programs are fully implemented and continue to grow, VA should establish an ongoing process for evaluating third-party administrator (TPA) performance. VA should also assess the adequacy of the provider networks, the efficiency of claims and other processes, and Veteran experiences with the programs.

Develop Clear and Consistent Guidance and Training on VA's Authority to Purchase Care. Existing VA guidance pertaining to purchased care is scattered, sometimes outdated, and inconsistent in setting clear standards, leaving local facilities to develop their own policies and procedures. VA should create a consolidated manual on purchased care, together with associated training and external messaging that explains VA's authority to purchase care and that clarifies eligibility standards and processes to both inside and outside audiences.

Ensure That Purchased Care Contracts Include Requirements for Data Sharing, Quality Monitoring, and Care Coordination. VA has limited visibility into the quality of services that it purchases, and related standards and processes for coordinating care between VA and outside providers are inconsistent. To provide better oversight and ensure the high quality of purchased care services, both new and existing purchased care contracts with outside providers and TPAs should include appropriate requirements for data sharing, quality-of-care reporting, and care coordination.

Consider Adopting Innovative (but Tested) Ways to Purchase Care. TRICARE and Medicare offer useful lessons in how to purchase care efficiently. VA should consider incorporating some of these strategies, including outsourcing administrative functions and offering performance incentives to contractors.

Authorities and Mechanisms

Eliminate Inconsistencies in Current Authorities and Provide Flexibility for VA to Implement a Purchased Care Strategy. Policy-makers and VA should address and resolve specific points of tension and ambiguity in existing purchased care authorities, such as inconsistent standards for defining an episode of care, the subjective nature of some elements of 38 U.S.C. 1703 (the core statutory authority for VA purchased care), differences in definitions of geographic inaccessibility and wait time, and the conflict between the language and intent of what constitutes a “medical facility” for applying the 40-mile rule under Choice. Congress and VA should also consider the more ambitious step of simplifying purchased care authorities and mechanisms generally, such as by seeking to consolidate and harmonize them. At least in principle, such a step could help reduce the complexity and ambiguity now associated with purchased care authorities and mechanisms.

Revise How Episodes of Care Are Defined to Better Accommodate Veterans' Needs. Under the Veterans Choice Act, VA is obligated to allow Veterans who use the Choice program to seek outside services through the completion of an episode of care, “but for a period not in excess of 60 days.” The legal requirement for a fixed-term reauthorization of an episode runs contrary to evolving clinical practices and standards in the broader health care community. A revision of this authority could help improve the monitoring and coordination of episodes of care while reducing the administrative burden on VA staff and Veterans.

Adopt a Consistent Strategy for Reimbursement Rates Across Purchased Care Initiatives. Building VA purchased care networks in certain regions of the country may be difficult because some providers may not accept reimbursement rates at or below the rates set by Medicare. Current authorities generally set upper bounds on provider reimbursement rates but do not establish a floor. To address these types of reimbursement problems, we recommend that VA and policy-makers adopt a coherent strategy for setting reimbursement rates across VA purchased care initiatives, balancing cost and access considerations. In setting reimbursement rates, VA mechanisms and contracts for purchasing care should reflect the reality of local competitive market conditions.

Note

[1] The fiscal context for VA purchased care changed somewhat with the implementation of the Veterans Choice Act, particularly given the $10 billion appropriation for the Choice program that was made under the act.

The research described in this article was sponsored by the U.S. Department of Veterans Affairs and conducted by RAND Health, a division of the RAND Corporation.