STATEMENT OF
THOMAS L. GARTHWAITE, M.D.
DEPUTY UNDER SECRETARY FOR HEALTH
DEPARTMENT OF VETERANS AFFAIRS
ON THE ALLOCATION OF HEALTH CARE
RESOURCES TO OPERATING ELEMENTS
AND ON
THE QUALITY OF VA CARE
BEFORE THE
SUBCOMMITTEE ON HUMAN RESOURCES
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
U.S. HOUSE OF REPRESENTATIVES

September 25, 1998

Mr. Chairman, I am pleased to have the opportunity to review with the Committee the Department’s efforts to restructure its health delivery systems; the Veterans Equitable Resource Allocation (VERA) system; and improvements in the quality of VA health care. Dr. Fitzgerald will address those issues specific to VISN 1.

I should preface my remarks by emphasizing that American health care everywhere is remaking itself. Unfortunately, there is not yet in the United States of America, nor in any other country of the world, a health care system that fully satisfies all the demands for access, quality, user service and cost. Every day we are reminded of this by stories in the media and professional journals about medical treatment errors or problems with managed care. I believe it is useful to keep this perspective in mind when we talk about ways of improving veterans health care, and especially in so far as the patients who fill VA clinics and hospitals are more medically complicated and socially needy than the U.S. population overall.

I should further note in the way of background, or perspective, that the veterans’ healthcare system is unique in this country and in the world. It is not only the largest fully integrated healthcare system in the U.S., but it is also among the most complex healthcare systems in the world because of its multiple missions – missions which are at the same time complementary, competing and conflictive. [See Attachment]

VHA Reengineering

To address multiple public criticisms and to capitalize on and enhance VA’s many strengths, we have been engaged in a systematic effort to fundamentally re-invent VA healthcare. This three year effort, which has a primary aim to improve both quality and efficiency, or value, has involved reengineering VHA’s operational structure, diversifying its funding base, streamlining processes, implementing "best practices," improving information management, reforming eligibility rules, expanding contracting authority, and changing the culture of VA healthcare, among other things.

At this time, many critical actions have been completed or are well underway. In fact, I believe that no other healthcare system in the U.S. can match the extent of change that has occurred in the veterans healthcare system since our efforts to restructure the system were launched in late 1995.

To exemplify this, let me cite a number of facts and figures that attest to the nature of the changes and improvements that have occurred:

Quality of Care

A central tenet of our reinvention effort has been to improve the consistency and predictability of the quality of care that is provided. To that end, the Veterans Health Administration has been assembling a system of data collectively referred to as a "performance measurement system." This system becomes more elaborate year by year and today permits us to know in many ways how well we are improving the quality of care. Current data show that the quality of VA healthcare has measurably improved in the last three years. In fact, using standard quality of care measures employed in the private sector, VA performance is superior across the board.

For example, VHA’s Preventive and Chronic Disease Care Indexes are analogous to the HEDIS instrument used in the private sector (minus measures related to pediatric and obstetrical care), although the indexes evaluate VA’s performance for several important indicators not routinely tracked by private providers. Illustrative of this latter point, VA is setting the national benchmark for all healthcare systems by mandating and monitoring the use of standardized instruments to screen for alcohol abuse and to assess the functional status of substance abusers.

The Prevention Index consists of 9 quality outcome indicators that measure how well VA follows national prevention and early detection recommendations for diseases having major social consequences such as cancer, smoking and alcohol abuse. Compliance with these recommendations nearly doubled in FY 1997 (from 34% to 67%). On average, VA outperforms the private sector on all indicators where comparable data exist, ranging from being 5% to 69% better on individual quality indicators. In addition, VA surpassed the U.S. Public Health Service Healthy People 2000 goals for 5 of the indicators. These positive trends have continued in FY 1998.

The Chronic Disease Care Index consists of 14 quality outcome indicators that measure how well VA follows national guidelines for high volume diagnoses such as ischemic heart disease and diabetes. Percentages reflect the number of patients who actually receive a required medical intervention. The Chronic Disease Care Index in the aggregate rose 73% in FY 1997. Again, where comparable data exist, VA consistently outperformed the private sector, ranging from being 21% to 124% better on individual quality indicators. Examples of VA versus private sector performance include the rate of aspirin therapy for patients with heart disease (92% vs 76%) and the percentage of diabetics whose blood sugar control is monitored annually by a blood test (85% vs 38%). As with the Prevention Index, continuing VA improvement has been demonstrated in FY 1998.

As part of our re-inventing effort, we have also been tracking the 1-year survival rates for 9 high-volume medical conditions. These conditions affect some of our most vulnerable patients. Survival rates for the time period Fiscal Years 1992-1997 for several of these important conditions have increased (i.e., congestive heart failure – a 9% increase to 83.5%, chronic obstructive pulmonary disease – a 4% increase to 88%, pneumonia – a 7% increase to 89%, and chronic renal failure – an over 9% increase to 81.4%), while rates for the other conditions have remained stable (i.e., diabetes mellitus – 95%, angina pectoris – 97%, major depressive disorder – 99%, bipolar disorder – 99%, and schizophrenia – 98%).

In this regard, I might also note that a "VA Clinical Programs of Excellence" program has been established. This program recognizes the best practices in American healthcare, as demonstrated by clinical outcomes, processes, resource utilization and service satisfaction; 36 VA clinical programs across the country were designated as Programs of Excellence in October 1997.

In yet another area, morbidity and mortality rates of high volume surgical procedures in the VA have consistently declined in recent years. Mortality rates for colectomy, abdominal aortic aneurysm repair, carotid endarterectomy, cholecystectomy and hip replacement are the lowest, or equal to the lowest, in the country according to a 10 year review of published studies of surgical outcomes done by Dr. Shukri Khuri, Chief of Surgery at West Roxbury, VAMC and Professor of Surgery at the Harvard University School of Medicine.

In the three years since VA’s National Surgical Mortality and Morbidity Program was implemented, the overall 30-day mortality and morbidity rates in VA surgical programs fell by 10% and 28%, respectively. (During this time there was no change in the patient risk profile.) Several articles about these improvements were published in peer-reviewed medical journals last fall, and an editorial by the Chairman of Surgery at Duke University endorsed VA’s approach as one that will improve the quality of surgical care throughout the nation.

VA is also leading the country in defining and measuring care at the end of life. We are using a newly developed instrument known as the Palliative Care Index. This index consists of various quality of care indicators that reflect the adequacy of end of life planning for patients with terminal conditions. It was for remarkable improvement in this area that VHA received the first of its kind commendation from the organization, Americans for Better Care of the Dying, in December 1997.

Finally, I should note that our Northeast Program Evaluation Center, which is located in West Haven, Connecticut, has just completed a comparison of the quality of VA’s mental health services with data from the Medstat Group’s Marketscan^® Data Base, which provides information on the behavioral health performance of over 200 private insurance companies. This comparison was possible because of the Mental Health Program Performance Monitoring System that VA implemented in 1995. In brief, while VA has longer lengths of stay than observed for private sector mental healthcare providers (most likely because of the more severe psychiatric illness and social disadvantage of VA patients), VA’s performance is comparable to or superior to the private sector on most of the measures of coverage, service delivery, efficiency and service satisfaction. Continuity of care was notably superior in VA.

Data such as these are encouraging and indicate to us that the change processes designed to improve quality of care in VHA are heading in the right direction. A recent article in the New England Journal of Medicine detailed the analysis of administration of beta-blocker therapy in Medicare patients with ischemic heart disease (also called heart attacks or angina). Their data shows that mortality is 40% lower for those who received beta-blockers, but only 34% of Medicare patients actually received the drug.

Not accidentally, VA’s Chronic Disease Care Index that I mentioned earlier also tracks the use of beta-blockers as a therapy for ischemic heart disease. Data show that VA patients received beta-blocker therapy 71% of the time in 1995—over twice the Medicare rate—and by the first half of 1998, VA’s rate had climbed to 87%--over two and one-half times the 1995 Medicare rate. When one compares a group of 4000 VA and Medicare patients with ischemic heart disease using the 1995 data, 3365 VA patients and 3245 Medicare patients survived more than two years—a difference of 120 people! By 1998, the number of VA patients surviving for more than two years with ischemic heart disease will have climbed to 3417—an additional 52 people. Said another way, if this group of 4000 veterans had received Medicare financed care in the private sector in 1998, 172 of them would have had their lives shortened.

The higher rate of beta-blocker therapy and improved outcomes happened because of the concerted effort underway in VHA to measure and improve quality. We now know how often our clinicians prescribe beta-blocker therapy because we measure this activity along with scores of others. We believe the rate continues to go up because performance levels are prescribed and Veterans Integrated Service Network (VISN) directors are held accountable for achieving those levels. For example, the fully successful level for the Chronic Disease Care Index in Fiscal Year 1999 is 90%, and the rate of administration of beta-blocker therapy contributes to that score along with many other measures. In short, VA’s patients with ischemic heart disease live longer because VA measures the performance of its clinicians and holds people accountable for achieving performance standards.

Veterans Equitable Resource Allocation (VERA)

VA implemented the Veterans Equitable Resource Allocation (VERA) system in April 1997 to more equitably allocate VA healthcare resources among different regions of the country. Prior to that time, resource distribution was based primarily on historical costs and not on an assessment of needs across the entire country. As a result, we had many facilities that were over funded and many others that were underfunded for the workload that they were performing. We also had significant regional variations in veterans’ access to our services. Numerous reviews, including those of the General Accounting Office, documented these problems. As a result, VA’s FY 1997 Appropriation Act (Public Law 104-204) required VHA to develop and submit to Congress a plan to allocate funds in an equitable manner.

VERA rectifies problems perpetuated by previous funding systems by providing networks with two national workload prices for two types of patients – those with routine (Basic Care) needs and those with complex/chronic healthcare needs (Complex Care). In FY 1998, networks receive $2,604 for each Basic Care patient and $36,960 for each Complex Care patient. This ensures that VA’s patients with special care needs are funded appropriately. For example, VISN 1 receives more Complex Care funds than 15 other VISNs because they have the seventh highest number of these patients.

VERA is based on validated patient workload and includes adjustments for variances in labor costs, research, education, equipment and facilities maintenance needs. Network budgets are also adjusted to account for those veterans who receive care in more than one network.

The results of VERA for the FY 1997 and FY 1998 allocations to networks were as follows:

• For FY 1998 (the first full year of VERA), 13 networks received increases over funding levels for FY 1997. Nine networks received less funding. Network reductions were limited to 5%. Comparing FY 1998 funding with FY 1996 (the baseline year for VERA), fifteen networks have received overall increases while seven networks have received decreases. Six of the networks have increased ten percent or more with the greatest increase at 12.3 percent.

• Since July 1997, all collections from third party reimbursements, co-payments, per diems and certain torts are retained by the collecting network. During early FY 1998, a system-wide target of $688 million in these Medical Care Collection Fund (MCCF) receipts was projected to be transferred to the Medical Care Appropriation and would remain available until expended. When estimated MCCF collection transfers and other reimbursements, such as Tricare and sharing, are added to VERA totals, the smallest percentage change from FY 1997 in funds available is estimated to be +0.10% in VISN 3 (Bronx, NY), with VISN 1 (Boston, MA) at +1.21%, while VISN 16 (Jackson, MS) is expected to experience the greatest percentage change in total funding with +10.38%.

• With the 5% cap on VERA losses in place, it is expected all funding inequities will be corrected by FY 2000, and VERA will have shifted $500 million across VHA’s healthcare system over four years. (Most will be corrected by FY 1999.)

VERA is not simply moving all networks to an average cost per patient. Variances from the national average will exist because VERA allocates funds in a manner that adjusts for differences in patient mix, labor costs, and research and education support costs. Thus, even the networks that have less funding in FY 1998 compared to FY 1997 may still be provided a higher than average price per patient than networks that receive more funding. For example, VISN 3, which would receive 12.2 percent less funding under full VERA, has an average price of $5, 659, which is 26.7 percent above the system average of $4,465. Conversely, VISN 18 (Phoenix, AZ), which would receive 11.4 percent more funding under full VERA, has an average price of $3,886 per patient, which is 13 percent below the system average. VISN 1, which would receive 5.42 percent less funding under full VERA, has an average price of $4,886 per patient, which is 9.4% above the system average.

The results of the preliminary FY 1999 network allocations based on the President’s FY 1999 Medical Care Budget Request is as follows:

• Thirteen networks would receive VERA increases over funding levels for FY 1997. Nine networks would receive less funding. Network reductions are again limited to 5%.

• The largest positive VERA shift is VISN 8 (Bay Pines, FL) with an increase of 2.25%, which equates to a gain of $24.1 million. The largest negative shift is VISN 3 with a decrease of 4.97 percent, which equates to a loss of $48.4 million. VISN 1 has a decrease of 4.80 percent, which equates to a reduction of $38.8 million.

• System-wide, $625 million in MCCF transfers and $147 million in other reimbursements are estimated to be available in FY 1999. When estimated FY 1999 MCCF collection transfers and other reimbursements are added to VERA totals and compared to FY 1998 initial funding levels, the largest positive resource shift is VISN 8 with an increase of 2.12% or a gain of $24 million. VISN 3 has the largest negative resource shift with a decrease of 4.82% or a loss of $49 million. VISN 1 has a reduction of 4.35% or a loss of $38 million.

These preliminary allocations were distributed by VHA Headquarters to the 22 networks on July 27, 1998. The allocations will be updated after the Congress passes the FY 1999 Medical Care Appropriation. If Congress approves either the House or Senate Action (or a level in between) on the FY 1999 Appropriation, VISN 1 would receive additional funding.

Additionally, as was done in FY 1997 and FY 1998, we are maintaining a $100 million national funding reserve in VA headquarters to assist networks in the unlikely event that the current level of patient care is threatened. The reserves will be used, if needed, to maintain the quality and level of services. Should the quality and level of service not be threatened, the reserve will be distributed to the networks during the fiscal year in proportion to the overall VERA budget.

While VERA is an effective methodology for allocating resources at the network level, it is recognized that VERA may not be as useful to the networks at the facility level. This is due to significant differences at the facility level that, in the aggregate, are not a factor when allocating at the network level. Among the factors that significantly affect facility-level healthcare environments are: size, mission, and location of facilities; levels of affiliations with academic institutions; efficiency of operations; proportions of "shared patients;" and patient complexity and case mix. As a result, in FY 1998, the Under Secretary for Health issued a directive establishing principles to guide the allocation of resources at all levels in VHA that move the organization toward accomplishing its system-wide goals and objectives. VISNs used the following guiding principles in providing allocations below the network level for FY 1998 and will again be guided by these principles for the FY 1999 allocations. Network allocation systems must:

1. Be readily understandable and result in predictable allocations.
2. Support high quality health care delivery in the most appropriate setting.
3. Support integrated patient-centered operations.
4. Provide incentives to ensure continued delivery of appropriate special care
5. Support the goal of improving access to care.
6. Provide adequate support for the VA’s research and education missions.
7. Be consistent with eligibility requirements and priorities.
8. Be consistent with the network’s strategic plans and initiatives.
9. Promote managerial flexibility, (e.g. minimize "earmarking" funds) and innovation.
10. Encourage increases in alternative revenue collections.

External reviews of VERA have reflected positively on our progress to date:

• In the Spring of 1997 Senator "Kit" Bond, Chairman of the VA – HUD Senate Appropriations Subcommittee said: "…VA has overhauled its allocation methodology, vastly improving fairness and appropriateness with which resources are allocated to facilities …the new system is a tremendous step forward.

• In late 1997 the GAO reported that VERA is making resource allocation more equitable than previous allocation systems.

• In March 1998 Price Waterhouse LLP issued a report on its evaluation of VERA. The report concluded that VERA was a well designed system, is ahead of other global budgeting systems, and met VHA’s goals of simplicity, equity and fairness. It also found that the conceptual and methodological underpinnings of VERA were sound.

We are continually reviewing VERA to assure that our healthcare resources are allocated in a manner that moves the VA system toward our goal of having equity of access to our services in all regions of the country, and in a manner that achieves the greatest return for the investment to taxpayer dollars.

Mr. Chairman, this concludes my statement. I and my colleagues will be pleased to respond to your questions.

Missions of VA Healthcare

Today, the veterans healthcare system fulfills five principle roles, four of which are statutory, and the fifth of which underscores the inherently governmental and public benefit nature of the system.

The specific missions of VA healthcare are:

(1) First, to provide medical care to veterans, although for many years these services have been limited to veterans having service-connected disabilities and/or who are poor. These veterans constitute about 37 percent of the U.S. veteran population (about 9.4 million of 25.1 million veterans).

(2) Second, to conduct health professional education and training. Today, the Veterans Health Administration (VHA) is the largest single provider of health professional training in the world. In addition to providing training to half of the nation’s medical students and one-third of postgraduate physicians each year, VHA also provides training for over 54,000 pharmacists, podiatrists, optometrists, nurses and more than 40 other types of healthcare professionals every year. While veterans clearly benefit from this relationship with academic medicine, the public at large gains even more.

(3) Third, to conduct research that benefits veterans. Without question, VA is one of the largest and most productive research institutions in the nation. Many landmark discoveries have been made by VA scientists and medical investigators or have their roots in work done by the VA. Hardly a week goes by that VA research is not published in the nation's top medical journals. While VA research certainly benefits veterans, it also greatly benefits everyone else.

(4) Fourth, to provide contingency support to the Department of Defense (DoD) and the Public Health Service (PHS) during times of disaster or national emergency. With the downsizing of the DoD and its ever present readiness needs and with the elimination of the PHS and Indian Health Service hospitals, the simple fact is that VA is the federal government’s principle asset for providing medical assistance for large-scale natural or technological disasters. Once more, the public at large is a principle beneficiary.

(5) Finally, VHA’s unofficial, but important fifth mission is to provide medical services and other support for homeless veterans. Today, VHA is the single largest direct care provider for homeless persons in the country, and we are a critically important – although often unrecognized – element in the nation’s public safety net.

These various missions of the VHA have evolved over several decades as a result of myriad public policy and programmatic decisions. And it is no accident that so much of what VA does today is inherently governmental and/or provides a public benefit that goes well beyond providing just for the medical care needs of veterans.

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