Benefits

Veterans’ benefits originally took the form of pensions (administered by the Bureau of Pensions of the Interior Department) and domiciliary care in facilities established by the states. Other types of benefits were added over time, such as disability compensation, insurance, and vocational rehabilitation, when the United States entered World War I, and education benefits under the Serviceman’s Readjustment Act (“the GI bill”), after World War II.

The traditional focus for VA health benefits has been those with service-connected injuries or illnesses and those with low income. Based on the extent of service-connected disability (that is, disability resulting from illness or injury incurred or aggravated during military service) and income status, veterans could qualify as eligible for specific categories of coverage, such as inpatient, outpatient, and rehabilitation services. This piecemeal approach was remodeled in the Veterans’ Health Care Eligibility Reform Act of 1996, which essentially charged the department with establishing a comprehensive, uniform health benefits package for all enrolled veterans. The act eliminated the distinction between inpatient and outpatient eligibility, mandated an annual enrollment system, and established seven priority classes for enrollment and care delivery. Priority 1 is veterans with service-connected disabilities rated 50 percent or more disabling. (For a full listing, see Appendix A). In 2002, Congress split Priority 7 in two (creating the new 7 and 8), distinguishing between higher- and lower-income levels in veterans without service-connected conditions. (See Figure 2 for the percentage of veterans in each priority group.)

FIGURE 2

Currently Enrolled Veterans as of September 30, 2002, by Percentage in Priority Groups 1–7. * Congress has since divided Priority 7 into Priorities 7 and 8 on the basis of income. Note: The total number of current veteran enrollees as of September (more...)

The Veterans Millennium Health Care and Benefits Act of 2001, another congressional expansion of benefits, focused on long-term care. It required the VA to provide or pay for nursing home care for all veterans who are rated 70 percent or more disabled and those needing nursing home care because of a service-connected condition. Echoing a trend seen in other public programs following the Olmstead case,¹ the act also requires the VA to provide alternatives, such as adult day health care and home care, to institutional care for elderly and disabled veterans.

It was not legislation but economics that generated a narrowing of benefits in 2003. VA Secretary Anthony J. Principi announced early that year that the department was suspending enrollment for new Priority 8 veterans. In congressional testimony, he cited the tremendous growth in the number of veterans seeking VA care, noting that in Priority Groups 7 and 8 alone, the number of patients treated was about 11 times greater than in 1996.² Principi explained that his action was necessary in order to maintain the focus on “core” veterans: those with service-connected disabilities, the indigent, and those with special health care needs.

The VHA is widely known for its specialized programs for blindness, spinal cord injury, traumatic brain injury, serious mental illness, and post-traumatic stress disorder. In recent years, given veterans’ high incidence of chronic diseases, the agency has established programs to measure quality of care and patient outcomes for high-prevalence and high-risk chronic diseases.

Facilities and Staff

The VA health system grew from 54 hospitals in 1930 to the current complement of 158 hospitals. There are also now more than 800 outpatient clinics, 133 nursing homes, 42 residential rehabilitation treatment programs, and 206 readjustment counseling sessions spread across all 50 states, the District of Columbia, Puerto Rico, and the U.S. territories.³

More than 200,000 employees serve in the VA health system. In addition to employed physicians, nurses, and other health professionals, the medical ranks are augmented by some 20,000 medical students and 30,000 residents who rotate through VA facilities annually.⁴ One hundred seven of the country’s 126 medical schools maintain formal affiliation with a VA facility, making the VA an integral partner in training physicians.

Some 20,000 medical students and 30,000 residents rotate through VA facilities annually.

VHA facilities and field operations are organized as 21 Veterans Integrated Service Networks (VISNs), described as “integrated networks of health care facilities that provide coordinated services to veterans to facilitate continuity through all phases of health care.”⁵ VISNs are all charged with making available a uniform package of benefits but are given the flexibility to determine where and how care will be delivered. The goal of the late-1990s reorganization that established the VISNs was to redefine the VHA from an inpatient model of care characterized by a limited number of specialized facilities and a provider focus to a patient-centered primary-care–based model with a much-expanded number of access sites.⁶

An increased emphasis on outpatient care is consistent with the growth of hospital outpatient servicesin the private sector. However, advocates for some veteran subpopulations wonder whether they are being short-changed in the process. The U.S. General Accounting Office (GAO) found that, since FY 1998, the VA has decreased the number of long-stay patients and increased the number of short-stay patients it treats in the nursing homes it owns and that it now pays for more veterans to receive care in state-run veterans’ nursing homes.⁷ Though the allocation of more resources to noninstitutional care, such as home health services, may delay the need for nursing home care, the department is likely to be challenged sooner or later to provide such care to a growing segment of its beneficiaries. Treatment programs for what the VA terms “substance use disorder patients” is another area of concern. While the number of such patients has increased 53 percent since FY 1998, the number receiving specialized treatment decreased 35 percent over the same period.⁸

Beneficiaries and Demand for Services

With the attrition of the World War II generation, the total number of veterans in the population is decreasing. However, as noted, the number of veteran patients actually seeking and receiving care from the VA has increased, and this growth is expected to continue. Based on the VA’s projection model, without any limitation on enrollment, the number of veterans served is forecast to peak at about 8.9 million enrollees in 2012.⁹

The largest cohort of today’s veterans are from the Vietnam era, followed by those from World War II (Figure 3). The median age as of September 2003 was 58 years. The number of the oldest old, over 85 years, has more than quadrupled since 1990. VA analysts cite data showing that, on average, their beneficiaries are sicker than other Americans of the same age. As one VA official recently said with rueful humor, “We are the definition of adverse selection.”¹⁰

Figure 2

Veteran Population by Period of Service, as of September 30, 2002 (in millions). * Includes service in Iraq. Source: Office of Policy, Planning, and Preparedness, Veterans Administration, “VetPop 2001 Adjusted to Census 2000,” December (more...)

Beyond the simple growth in lower-priority enrollees, demand is spurred by a number of factors. One obvious draw is that the VA offers an outpatient pharmaceutical benefit, which Medicare does not (at least until relevant provisions of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 take effect in 2006—though even then the VA benefit may be more attractive). The VA’s efforts to multiply access sites and make more care available on an outpatient basis have proven attractive to veterans. The VA’s concentration on quality improvement in recent years has garnered the department favorable publicity, possibly making some veterans more likely to seek care there. Patient satisfaction scores in recent years have compared favorably with those measured in other government programs and in the private sector.¹¹

Safety and Quality

In 1997, a series of reports about adverse events and preventable deaths in VA hospitals in several newspapers (including the St. Petersburg Times and the New York Times) raised perennial questions about the quality of care provided by the VA. Sen. Jay Rockefeller (D-WV), then ranking minority member of the Senate Committee on Veterans’ Affairs, reproved the department for lacking the programs and systems to “adequately monitor, track, and analyze the quality of care provided.”¹²

As the 2000 Institute of Medicine report To Err is Human showed, a dearth of systemic quality analysis was by no means confined to the VA. In fact, even by the time of Rockefeller’s remarks, the VHA was working to implement the quality-focused culture change first proposed by then Under Secretary for Health Kenneth Kizer, MD, in 1995. Before To Err is Human was published, the VHA had established the National Patient Safety Registry, a database designed to collect information on adverse events and their root causes; set up an agency-wide patient safety improvement awards program; and founded the VHA National Center for Patient Safety (NCPS) to lead and integrate patient safety efforts, incorporating human factors engineering and safety system approaches.¹³

In the years since, the VHA has been widely recognized as a safety and quality leader. Leadership by Example, a 2002 Institute of Medicine report focused on government roles in quality improvement, praised the VA’s use of performance measures to improve quality in clinical disciplines and its integrated health information system. Also in 2002, NCPS received the John E. Eisenberg Award in Patient Safety from the National Forum for Healthcare Quality and Reporting and the Joint Commission on the Accreditation of Healthcare Organizations. VA networks participate in quality improvement projects at the local level; for example, in Pittsburgh, the VA system has collaborated with the Pittsburgh Regional Healthcare Initiative and the Centers for Disease Control and Prevention in an effort to reduce certain infections in surgical cases. The Cincinnati system administers a grant from the Agency for Healthcare Research and Quality to reduce the incidence of nosocomial (that is, hospital-acquired) infection in area hospitals.

A study by Ashish K. Jha, MD, and colleagues looked at patient quality-of-care indicators in the VHA before and after the mid-1990s reengineering, finding significant improvement in 12 of the 13 measures for which multiyear data were available. They also found that, on overlapping quality indicators, the VHA outperformed the Medicare fee-for-service system on 11 of 11 measures during the period 1997 to 1999 and on 12 of 13 in FY 2000.¹⁴ The authors acknowledge structural differences between the programs (for example, the VHA’s centralized decision-making capabilities and salaried physician workforce) but conclude that the VHA’s quality-improvement initiatives are largely responsible for its superior results.

Information Technology

Advances and investment in information technology (IT) support the VA’s quality initiative and its vision of transition from visit-centered to patient-centered primary care. The Computerized Patient Record System (CPRS), accessible by all clinicians, offers images, reminders, and communications tools in addition to patient medical data. The CPRS provides for consolidation (in a “care management dashboard”) of information on a panel of patients, such as those with diabetes. The recently launched My HealtheVet offers veterans health information, tools for measuring their own health status, and one-stop shopping for VA benefits. In future phases, it will give veterans access to key components of their own medical records and allow them to order prescriptions, make appointments, and maintain a personal health log.

Investment in information technology supports the VA’s quality initiative and its transition to patient-centered primary care.

The Performance Measurement System was designed to monitor and improve clinical performance and outcomes. Population data are assembled to track clinicians’ adherence to evidence-based guidelines; results are fed back to individual clinicians and their management groups and are used to develop performance improvement plans.¹⁵

The VA pioneered the use of electronic bar codes in dispensing drugs, piloting its Barcode Medication Administration System in 1993 and rolling it out nationally in 2000.

Veterans Equitable Resource Allocation

Until 1997, the VA’s allocation to facilities of appropriated dollars was generally based on the facilities’ historical expenditures. The aging of the veteran population and geographic migration to the South and Southwest created a level of demand in some areas that the VHA was hard-pressed to meet. The old strategy of undertaking new construction was no longer feasible when some regions were oversupplied and all were moving to an outpatient emphasis.¹⁶ In FY 1997, the VA adopted a new approach, the Veterans Equitable Resource Allocation (VERA) system, designed to distribute resources among the VISNs primarily according to workload.

Since its implementation, VERA has shifted substantial resources among regions. Both GAO and RAND, asked to assess its effectiveness, endorsed its conceptual design. As GAO testified in 2002, “By receiving funding based on workload, the VA’s health care networks have an incentive to focus on aligning facilities and programs to attract patients rather than focusing on maintaining existing operations and infrastructure regardless of the number of patients served.”¹⁷ GAO and RAND analysts also suggested improvements, such as refining the three-element case mix used in VERA calculations to more precisely reflect the range of case complexity, which the VA addressed by expanding to ten case mix categories.

Capital Assets Realignment for Enhanced Services

Capital Assets Realignment for Enhanced Services, a national study known as CARES, was undertaken in October 2000 in response to a GAO recommendation that the VA develop a market-based plan for restructuring its delivery of health care in order to reduce funds spent on underutilized or outdated buildings. As GAO has noted in testimony, this infrastructure is no longer effectively aligned with a delivery model emphasizing outpatient care.¹⁸

CARES was intended to improve veterans’ access to care and to assess how well the geographic deployment of VA resources matches the existing and projected needs of the veteran population. Following a pilot test in VISN 12 (Chicago), each network conducted extensive research and developed a market plan for its territory, laying out the relative merits of meeting future demand via contracting for care with non-VA providers; renovating available space; constructing new space; engaging in space sharing, joint ventures, or enhanced use of facilities; or acquiring new sites of care.

CARES was intended to improve veterans’ access to care and to assess how well deployment of VA resources matches existing and projected needs.

Driving distance and waiting time are the types of indicators that CARES has homed in on. For example, one standard established for inpatient hospital care was that at least 65 percent of the veterans in a VISN should be within specified access parameters: 60 minutes in urban counties, 90 minutes in rural counties, and 120 minutes in highly rural counties. (Not all VISNs could meet this standard across their territories.)¹⁹

The VISN plans served as input to a draft National CARES Plan developed under the supervision of the under secretary for health. The secretary appointed an independent CARES Commission to review it and to hold hearings around the country at which stakeholders could air their views. Veterans also were invited to submit written comments. The commission had the power to choose to accept, modify, or reject the recommendations made in the draft. These included closing seven hospitals and building two new ones (in Las Vegas, Nevada, and Orlando, Florida), as well as expanding various specialty and outpatient programs. The commission’s recommendations, released in February 2004, were to close only three hospitals (in Pittsburgh, Cleveland, and Gulfport, Mississippi), modify or realign services in several other locations, and build in Orlando and possibly Las Vegas. The final decision rests with the secretary.

CARES can be said to parallel VERA in its attempt to move resources to match workload. Money, of course, is more mobile than bricks and mortar. And VA facilities are not just sites of care administration; they are employers, partners with medical schools in training and residency programs, signs of attention focused on a place that may be losing population but still has pride. In this way, CARES recalls the Base Realignment and Closure Commission’s process in the mid 1990s: there is a lot invested in the status quo.

VA facilities are not just sites of care administration; they are employers, partners with medical schools, signs of commitment.

For example, American Association of Medical Colleges president Jordan M. Cohen, MD, invoking the long association of the VA and the country’s medical schools, testified to “underlying skepticism among the medical school deans about whether the education and research missions of the VA are being given adequate attention in the [CARES] process.”²⁰ Labor unions have been reluctant to support plans that involve consolidation or relocation of services. Although veterans’ services organizations (VSOs) have generally been supportive of the CARES process, they have also called for stepped-up communication by the VA to allay some veterans’ fears that CARES could lead to “wholesale privatization and dismantlement of the VA health-care system.”²¹

Increase Third-Party Payments

Many veterans are eligible for non-VA medical care, often through Medicare or the Department of Defense (DoD)—or both—as well as private insurance. When the VA treats such veterans for conditions that are not a result of injuries or illnesses incurred or aggravated during military service, it is allowed to bill some other health insurers. (Medicare, Medicaid, and HMOs that do not designate the VA as a participating provider are not among them.)

Although the VA has been authorized to collect third-party payments since 1986, it was not until the Balanced Budget Act of 1997 that it was permitted to use funds so collected to supplement (rather than offset) its medical care appropriations. Before that, it had little incentive to direct resources to aggressive collection.

In 2002, the VA collected $687 million in such third-party payments, a 32 percent increase over the previous year. GAO attributes the increase to the VA’s reducing billing backlogs and submitting more bills, as well as improving its documentation and collections processes.²² However, GAO notes, staffing, training, and cooperation shortfalls still exist. In part because of these, the VA lacks a solid estimate of uncollected dollars (such as billable care missed in the coding process) and therefore cannot reliably predict the supplemental funds it will have to work with.

Collaborate with Other Agencies

Department of Defense — The PTF was established in 2001 with a primary mission of identifying ways to improve services to those dually eligible for benefits from the VA as veterans and from DoD as military retirees through better coordination of the activities of the two departments.²³

Military retirees have at least 20 years’ service and qualify for a pension upon retirement; they, along with those of shorter military tenure, are automatically classified as veterans upon separation from service.

The PTF organized its findings around several central principles:

• Committed leadership is essential to achieve collaboration between the VA and DoD to improve health care delivery to veterans. Though this seems self-evident, the record has been patchy. Sharing authority for the two departments was first legislated in 1982, and Congress has steadily encouraged the practice.²⁴ In the early stages, sharing initiatives were scattered and focused at the local level, as either joint ventures or agreements to share specified resources. In May 1996, the departments established a joint Executive Council to work on sharing at the VISN and DoD Health Services Region level. Again, recommendations were spottily attended to. The “renewed sense of purpose and momentum” the PTF found in 2001 and 2002 may be at least partly explained as a response to the task force’s own creation. A new Executive Council was constituted in 2002, under the joint leadership of the deputy secretary of veterans affairs and the under secretary of defense (personnel and readiness).

Committed leadership is essential to achieve collaboration between the VA and DoD to improve health care delivery to veterans.

The PTF endorsed a joint strategic and budgeting process that builds in accountability for achieving targeted sharing. Its further recommendation that the departments jointly develop metrics to measure health care outcomes does not look beyond the VA and DoD to consider the outcomes development work taking place elsewhere in the government and in the private sector.

• To provide timely, high-quality care, it is important to have seamless transition of information across the full life cycle of health care for each veteran, especially at the point when he or she moves from military service to veteran or retiree status. While in the military, service members and their families are covered under DoD’s TRICARE program, which permits them to receive care in DoD facilities or from approved contractors, which may include VA facilities. Upon completion of service, members may choose to apply for VA benefits and learn to negotiate a system they may not have previously encountered. However, especially where no service-connected condition is involved, the member may not choose to participate in all available separation-from-service processes, and his or her first attempt to access VA services may occur years later.

One issue to resolve is the oft-criticized need for a retiring service member to have duplicative physical examinations. VA Deputy Undersecretary for Health Policy Coordination Frances Murphy, MD, has testified that the VA is “actively working with DoD to develop separation physical examinations that thoroughly document a veteran’s health status at the time of separation from military service and that also meet the requirements of the physical examination needed by the VA in connection with a veteran’s claim for compensation benefits.”²⁵

The PTF report observes that a process of seamless transition would include timely and straightforward access to information needed to determine eligibility for benefits and meet the health care requirements of veterans.²⁶ An important element in such access would be an interoperable electronic health record (EHR). Both departments have EHR systems, but they were designed separately and cannot readily share data. The VA and DoD are making strides toward compatibility, but there is still a long way to go. As of July 2003, a Federal Health Information Exchange (FHIE) is in operation. This is a one-way transfer of data on separated service members²⁷ from DoD’s Military Health System Composite Health Care System to a VA repository, whence it can be accessed via the VA’s CPRS. Data are available to clinicians at all VA medical centers about six weeks from the individual’s separation from service.²⁸ A longer-term initiative, to be called HealthePeople (Federal) is premised on the departments’ development of a common health information infrastructure and architecture. GAO regards its promised debut at the end of 2005 as a matter of some doubt.

The VA and DoD are making strides toward medical record compatibility, but there is still a long way to go.

One significant barrier to a mutual EHR system is the privacy provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which prohibit disclosure of personally identifiable health information to certain third parties without specific consent. An exception was written in to permit the one-way FHIE data transfer. However, DoD is not permitted to share postretirement data, and the VA is not permitted to share data with DoD at all. An FY 2002 request for a special exemption to permit collaboration for ongoing care was denied by the U.S. Department of Health and Human Services (DHHS). The PTF has called on the administration to declare the two departments to be a single health care system for HIPAA purposes.²⁹

In addition to enhanced safety and timeliness and greater convenience for both providers and veterans, it is expected that an interoperable EHR system would further a research agenda. For example, better capture, tracking and reporting of occupational health data will lead to better understanding of service-related disorders and their manifestations over time.

• VA and DoD collaboration can improve quality, access, and efficiency of health care delivery by pooling resources, eliminating administrative barriers, and implementing change. GAO reported in 2003 that the VA and DoD had made progress in working together to gain efficiency through the exchange of clinical and support services, joint facility construction, and joint purchasing ventures. However, GAO’s last detailed review, in 1998, found that sharing activity was concentrated in a few locations and that, overall, direct sharing of services to beneficiaries constituted a fractional percentage of the departments’ combined health care budget ($60 million out of approximately $40 billion).³⁰ PTF Chair Gail Wilensky noted in testimony that joint ventures were still regarded in the light of pilot programs and that the regular planning and personnel assignment programs of the two departments generally disregarded the needs of joint venture sites.³¹

Barriers to sharing are significant. The PTF report noted many differences between the two departments in personnel management, training programs, facilities, infrastructure, IT, and acquisition programs that “do not appear to be driven by their differing missions.”³² Geographic boundaries of VISNs and military treatment facility regions are differently defined, and policies are not necessarily consistent from one to the next. Management philosophies diverged when TRICARE began contracting with managed care companies to provide direct care to beneficiaries. As is so often the case in health care, a lack of incentives has retarded change. Although collaboration is now built into performance contracts for VISN directors, VISN leaders still have no means to provide incentives at the local level.³³ The PTF called upon senior management to provide “significantly enhanced authority, accountability, and incentives to health care managers at the local and regional level.”³⁴

Barriers to sharing are significant, and a lack of incentives has retarded change.

Medicare — For many years, VSOs and other advocates have seen Medicare subvention as a potential source of funding beyond appropriations. The dictionary definition of subvention is “providing of assistance or support, especially in the form of financial aid.” In this context, subvention would mean that the VA could bill Medicare for the services it provides to Medicare beneficiaries.

The Balanced Budget Act of 1997 authorized a three-year demonstration of Medicare subvention with DoD, which was closely watched as a model that the VA might learn from. The DoD subvention program took the form of a managed care plan, TRICARE Senior Prime, which allowed Medicare-eligible military retirees and their dependents to receive Medicare-reimbursed care in military facilities at six sites. At the end of the demonstration, GAO found that “although DoD satisfied enrollees and gave them good access to care, in doing so it incurred high costs…largely due to enrollees’ heavy use of services.”³⁵

Attempts to authorize a similar demonstration for the VA were under way as the DoD demonstration was operating. In 1998, H.R. 3828 was reported by the House Committee on Ways and Means; the following year, the Senate Committee on Finance followed suit with S. 1928. The Centers for Medicare and Medicaid Services went so far as to enter into a memorandum of understanding with the VA in 1999 “in preparation for enactment of legislation that would…authorize implementation.”³⁶ But the forces necessary to make the desired demonstration a reality never aligned.

DHHS and the VA took action to address the VA-Medicare nexus, however, with the creation in 2003 of “VA+Choice” (later renamed VA Advantage to comport with the MMA). At the same time that Principi announced the suspension of Priority Group 8 enrollment, he and Health and Human Services Secretary Tommy Thompson announced an alternative for affected veterans. Under an agreement between the two departments, the VA would operate as a Medicare Advantage provider, allowing Medicare-eligible Priority Group 8 veterans for whom new enrollments were suspended access to VA care that Medicare would pay for. The program is expected to begin accepting enrollees in selected sites in September 2004.

DHHS and the VA took action to address the VA-Medicare nexus with the creation of VA Advantage.

Veterans who become eligible for the drug benefit under MMA in 2006 may well choose to remain with the VA drug benefit they already have. The department has been able to leverage the volume of its drug purchasing to obtain favorable pricing from manufacturing, a strategy MMA delegates to private entities rather than to DHHS. Out-of-pocket cost to beneficiaries is minimal under VA coverage as well; for example, the president’s 2005 budget proposes an increase in the per-prescription copay, but only from $7 to $15.