VHA Is Not the Way

Many on the right argue that market forces will fix America’s health-care sector. The Left wants government to play a larger role in medical care. Obvious success stories on either side of that divide have been rare, but that is why the transformation of the Veterans Health Administration (VHA) makes such an interesting case.

Fifteen years ago, the VHA consisted mainly of run-down, poorly managed hospitals. Doctors were inexperienced, layers of bureaucracy crippled the system, and patient satisfaction was low. After a major overhaul in the mid-1990s, much of that changed. The VHA as a whole was restructured to focus on outpatient care, rather than costly hospital stays. Nearly empty hospitals were shuttered, and smaller clinics were opened to focus on the chronic-care needs of aging veterans.

The reengineering seems to have worked. As Philip Longman detailed in the January 2005 Washington Monthly, the VHA now minimizes medical errors, coordinates care, and maintains patient records with some of the most sophisticated technology available. Doctors and nurses no longer waste time chasing down patient charts and test results; computerized records help them deliver the right care to the right patient at the right time.

A New England Journal of Medicine study found that the VHA beat Medicare on 11 measures of quality. An Annals of Internal Medicine study concluded that the VHA provided better care for diabetes patients than private managed-care systems. And veterans seem to like it too. Understandably, prominent columnist Paul Krugman now points to the VHA as a model for reforming the entire health-care sector, arguing that federal management has improved quality and has been “highly successful in containing costs.”

Its recent makeover notwithstanding, persistent problems at the VHA suggest it might make a poor model for reform. First, the Government Accountability Office (GAO) reported this month that spending on the VHA “has increased substantially in recent years,” and that the agency “does not have a reliable basis” for claims that it has saved or will save taxpayer dollars through management efficiencies. Second, as the GAO report suggests, programs like the VHA allow politicians to play politics with people’s health. When politicians choke off resources, as they sometimes do, the VHA copes by freezing enrollment, increasing waiting times, and rationing access to the latest prescription drugs. A recent study by Prof. Frank Lichtenberg of Columbia University estimated that “increased use of older drugs” has reduced the average lifespan of veterans under VHA care by two months. Finally, the fact that VHA’s successes haven’t been replicated in the private sector is actually evidence of how badly government has mismanaged the private sector.

Those successes could easily be replicated by private insurers and hospitals. The problem is that few have the financial incentive to do so, because federal tax law makes employers — rather than individual patients — the real customers. Knowing that most patients skip from plan to plan as they go from job to job, insurers have little incentive to provide certain services — such as preventive care or electronic medical records — that provide long-term benefits to patients.

Were Congress to remove barriers that prevent consumers from obtaining portable coverage that stays with them over the long term, private insurers would take more of a long-term interest in their customers’ health. Were Congress to allow consumers to control all their health-care dollars, private insurers would have to compete more aggressively on the basis of quality and convenience.

No one had to mandate electronic financial records or online banking: Banks offered those services to cultivate long-term relationships with customers intent on obtaining value for their money.

With the incentives properly aligned, insurers might offer long-term health insurance. Knowing that their customers will be around for 10 or more years, insurers would be more likely to offer electronic medical records, preventive care, disease management, and other services for which the VHA is hailed.

That the VHA outperforms the private sector in some areas makes it tempting to conclude that government could manage health care more efficiently. But to reach that conclusion, one would have to ignore how badly government has mismanaged the private sector.

So before we turn the whole enchilada over to 536 politicians, perhaps we should first try letting workers control the health-care dollars that employers now control. It may even hasten the day that we get to check our medical records online.

Michael F. Cannon is director of health policy studies at the Cato Institute.