A year ago, Kenneth Kizer, M.D., marked his debut as Department of Veterans Affairs undersecretary for health by convening an internal task force to reshape how the VA delivers healthcare.
Conquering the bureaucratic inertia that has hampered reform, a year later the VA has reconfigured its huge healthcare system of 172 hospitals and 530 other healthcare facilities, with more than 200,000 employees, into 22 "veterans integrated service networks," or VISNs.
The VISN framework, which officially took effect Oct. 1 with the start of the 1996 federal fiscal year, seeks to streamline the VA healthcare system. It gives network directors-not hospital administrators -planning and budget authority and allows them more flexibility in how they use their resources to serve the population of veterans within the network boundaries. It also wipes out a layer of healthcare management in four regional offices.
All VISN directors were expected to be in place by early December.
The VA has estimated that VISNs could reduce administrative costs in the $16.2 billion veterans healthcare system by $9.4 million a year-to $26.7 million from $36.1 million-while expanding community-based primary care within the system.
Although he acknowledges that the VA healthcare system's current framework will continue to evolve, Kizer said he surprised many of the VA's critics by rolling out the VISN system so quickly.
"Some people were taking bets that this would never happen," Kizer said in a recent interview.
Just the beginning.
But aligning VA hospitals into integrated networks is only the first of many changes the department is making as it tries to follow private-sector trends, bring the system up to date and grapple with budget constraints.
The VA's moves include an increasing emphasis on outpatient and primary care, use of the system's market power to save money, and greater reliance on the private sector or other providers to serve veterans.
"There's a huge metamorphosis of this organization occurring," Kizer said. "The pace has begun to pick up dramatically."
"It is a system that needs to change with the times," said a Republican aide to the Senate Veterans Affairs Committee. "It's a different era."
But if Kizer's ambitious plans have inspired skepticism in some, they inspire fear in physicians, veterans groups and others. VA physicians worry that they stand to lose as the department's healthcare system follows the private sector's move to community-based integrated networks.
Samuel Spagnolo, M.D., president of the Washington-based National Association of VA Physicians and Dentists, said the VISN framework has the potential to throw doctors out of work, inappropriately in some cases, because VISN directors will have unchecked power to determine where to devote resources.
"Suppose (directors) decide they're going to consolidate pathology services at one hospital in the VISN," Spagnolo said. "Where are all of the pathologists going to go?"
Along with the transition to VISNs, the VA is trying to shift to greater use of outpatient and primary care and away from inpatient and specialized care, paralleling private-sector trends. The moves have drawn criticisms from the outside.
Groups representing disabled veterans worry that if primary care is the VA's chief focus and if VISN directors are given broad authority to determine how to use network resources, they will do away with specialized healthcare programs such as those serving paralyzed or disabled veterans.
Most of the 542,000 veterans who were treated as VA inpatients and the 2.4 million treated in outpatient clinics in fiscal 1995 sought care under specialized programs, although the VA didn't have statistics available on how many used the specialized programs.
Such programs will be "the first to come under budget scrutiny" during a financial squeeze, said Richard Fuller, health policy program development director for Paralyzed Veterans of America, a veterans service organization based in Washington.
And although Kizer insists that those programs are the "heart and soul" of the VA healthcare system, his remarks don't assuage veterans' concerns.
"What Kizer says, as far as his commitment to these (programs), he believes," said David Gorman, executive director of the Washington headquarters of Disabled American Veterans. "(But) I think you've got an age-old bias against these programs. They're costly; they're labor-intensive. The people who are driving all of this (change) are people from the old school with that mentality."
The Senate VA Committee aide agreed the veterans groups make a good case that the specialized programs are in danger and said committee members probably would oppose eliminating them.
But the VA healthcare system is facing other challenges as it attempts to reshape itself in the image of the private sector. For instance, Kizer said the department needs to ready itself for future budgets that don't keep pace with inflation.
President Clinton's budget for the VA healthcare system called for a 4.9% increase in fiscal 1996, to nearly $17 billion, although pending congressional appropriations bills have sought an increase of as little as 1.8%, to less than $16.5 billion.
The bleak budget outlook necessitates breaking with past practices-some mandated by law-that force the VA to provide care in outdated and inefficient ways that increase the system's costs, Kizer said.
"If inflation is going to continue to rise, we're either going to have to wring a lot of efficiencies out of the system, or we're going to have to cut services," Kizer said.
Perhaps the most glaring inefficiency is the VA's eligibility system. Rigid rules entitle more veterans to inpatient care than outpatient care.
As a result, some veterans who need care but who don't qualify for outpatient care end up in hospital beds, a practice that drives up costs.
To address that inefficiency, the VA and congressional leaders have proposed changing the eligibility framework.
If the VA is successful in achieving a 20% cut in its inpatient days-which reached 8.3 million for medical and surgical patients in 1994-it could save several hundred million dollars over two years, Kizer said. Overall, eligibility reform could reduce costs by $300 million a year while providing better care.
Most recently, a House-passed version of balanced-budget legislation included a provision that makes it easier for some qualified veterans to receive outpatient care.
The provision authorizes the VA to provide all needed outpatient care, including home care and preventive care, to most veterans with disabilities related to their time in the service, as long as the department doesn't exceed its budget. The entitlement would be expanded to include such groups as former prisoners of war, poor veterans and World War I veterans.
The provision also authorizes the VA to manage care through an enrollment or registration system and to contract with private providers for needed care.
Today, all those veterans are entitled to hospital care for any condition, but only those with the most severe disabilities are entitled to outpatient care for any condition. Others are entitled only to care for a service-related disability, or to prevent, prepare or recover from a hospital stay.
Shift to primary care.
And, as a further sign that the VA is going to emphasize outpatient care in the future, the VA is enrolling veterans in primary-care plans that will assign patients to a physician or physician-led team responsible for providing comprehensive care.
The department wants to enroll 25% of patients in primary-care plans by the end of 1995 and all of them by the end of 1996, Kizer said.
Spagnolo said he also worries that the shift to outpatient and primary care could endanger the system's ability to attract talented doctors. In the past, he said, the VA has been able to draw physicians because it also has strong research and teaching missions.
"If you're going to spend 40 hours a week just dealing with patients, where's the time to do the research? Where's the time to do the teaching?" Spagnolo said. "If the VA loses that, why should you stay in VA and do managed care if you can go out to the private sector and do managed care?"
Kizer is setting his sights on outside providers and vendors as well as on expenditures within the VA healthcare system.
For instance, Kizer said he believes the VA uses its power as a huge purchaser to obtain discounts on prescription drugs, but he'd like to see the department use its purchasing power to get the best prices on other supplies.
In fiscal 1995, the VA spent a little more than $1 billion on prescription drugs and medicine and $470 million on supplies.
In addition, the VA is discussing with private-sector providers the possibility of forming joint ventures for purchasing supplies. Kizer said he believes the VA can save hundreds of millions of dollars by adopting new purchasing practices.
In an initial sign of its new purchasing strategies, the VA is trying to consolidate numerous community nursing home contracts into larger, regional deals.
On any given day, the VA pays for community nursing home beds for about 9,000 veterans through 3,100 contracts. But the department now is seeking bids from nursing home chains that own facilities in five states. And in seven states with a shortage of nursing home beds, the VA wants to contract with chains that own facilities in two different local markets.
Providers' bids are due by the end of December, and the VA could select its contractors by mid-February, said Daniel Schoeps, chief of the community-care program in the VA's office of geriatric and extended care.
The hope is that by consolidating contracts, the VA can reduce administrative expenses in its community nursing home program, which cost $345 million in fiscal 1995, Schoeps said. In the future, however, the consolidated contracts could yield more savings because the VA, as a major payer, could negotiate lower rates.
The department will sign up to $34 million worth of consolidated regional contracts in the first year, Schoeps said.
Meanwhile, Sen. Alan Simpson (R-Wyo.), chairman of the Senate VA Committee, has introduced legislation that loosens prohibitions against the VA purchasing healthcare services, including hospital care, from private-sector providers, insurers or health plans.
Today, the VA can only share or purchase "specialized medical resources" from outside providers, and then only from healthcare facilities, research centers and medical schools.
"My bill would expand the VA's authority to share, purchase and swap resources, as is necessary to meet the challenges of 21st century medicine," Simpson said in introducing the bill.