This report shares an overview of the budget of the U.S. Department of Veterans Affairs (VA) and focuses particularly on health care spending and the Veterans Health Administration (VHA), including makeup of the veteran population, available health coverage, patterns of use, and potential areas of improvement.

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Health Care Spending and Efficiency in the U.S. Department of Veterans Affairs

by David I. Auerbach, William B. Weeks, Ian Brantley

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Research Questions

  1. How does the U.S. Department of Veterans Affairs (VA) spend its funds, both now and in the past, particularly on health care?
  2. What does the veteran population look like, and who uses Veterans Health Administration (VHA) health care?
  3. How many veterans have other forms of health coverage available? To what extent do veterans rely on VHA health care for their health care use?
  4. Do these and other analyses provide any evidence of convenience-based, strategic, inefficient, duplicative, or excessive use of care among veterans?

In its 2013 budget request, the Obama administration sought $140 billion for the U.S. Department of Veterans Affairs (VA), 54 percent of which would provide mandatory benefits, such as direct compensation and pensions, and 40 percent of which is discretionary spending, earmarked for medical benefits under the Veterans Health Administration (VHA). Unlike Medicare, which provides financing for care when its beneficiaries use providers throughout the U.S. health care system, the VHA is a government-run, parallel system that is primarily intended for care provision of veterans. The VHA hires its own doctors and has its own hospital network infrastructure. Although the VHA provides quality services to veterans, it does not preclude veterans from utilizing other forms of care outside of the VHA network — in fact, the majority of veterans' care is received external to the VHA because of location and other system limitations. Veterans typically use other private and public health insurance coverage (for example, Medicare, Medicaid) for external care, and many use both systems in a given year (dual use). Overlapping system use creates the potential for duplicative, uncoordinated, and inefficient use. The authors find some suggestive evidence of such inefficient use, particularly in the area of inpatient care. Coordination management and quality of care received by veterans across both VHA and private sector systems can be optimized (for example, in the area of mental illness, which benefits from an integrated approach across multiple providers and sectors), capitalizing on the best that each system has to offer, without increasing costs.

Key Findings

Data Suggest That There Could Be Room for Coordination and Improvement in Rationalization of Care Across the Veterans Health Administration (VHA) and the Rest of the U.S. Health Care System

  • The authors find evidence of use of the VHA or non-VHA systems for reasons of convenience. 45–64-year-old veterans using only VHA hospitals for inpatient care lived closer to VHA hospitals (by a distance of about one-third) than veterans using only non-VHA hospitals. Also, veterans with sources of coverage other than the VHA were more likely to use non-VHA facilities.
  • Studies of hospitalization rates suggest that there may be inefficiency in care provided in VHA hospitals. Lengths of stays in VHA hospitals were 63-percent longer for younger veterans and 27-percent longer for older veterans (> age 65), though veterans admitted to VHA hospitals were younger and had fewer comorbidities on average.
  • Many VHA hospitals have low volumes of many high-risk procedures, which could explain higher mortality rates and could also result in high unit costs if economies of scale are present.
  • A recently published study found substantial duplication of services provided to veterans who obtain care from both the VHA and the private sector via the Medicare Advantage program. The VHA provided services potentially valued at over $13 billion for care between 2004 and 2009 for VHA users who were concurrently enrolled in Medicare Advantage plans — that is, plans that had already been paid by Medicare to provide essentially that same care to these enrollees.

Recommendations

  • Reduce dual use (use of both Veterans Health Administration [VHA] and non-VHA care).
  • Coordinate care between both systems to reduce financial risk.
  • Outsource certain types of care, such as surgical and other outpatient services.
  • Integrate electronic information to reduce duplicative care.
  • Consider a pilot program in which to test these recommendations.

This research was conducted in RAND Health, a division of the RAND Corporation.

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