Continuing its movement toward more private-sector practices, the Department of Veterans Affairs healthcare system plans to put all 22 of its integrated networks under fully capitated budgets as soon as 1998.
The VA is creating a transitional budget tool this year called a "blended rate" that will shift about $150 million among institutions in its $16.6 billion system. The blended rate aims to reflect each facility's past budgets but also factor in how that facility compares to similar ones in the system, other facilities in its network and the national average.
The blended rate has meant that some high-cost institutions in the VA's system of more than 700 healthcare facilities have seen their budgets shrink, while some lower-cost providers have seen their budgets increase.
Kenneth Kizer, M.D., the VA's undersecretary for health, said the blended rates went into effect just two months ago because of uncertainty over the fate of the federal budget, although facility directors were notified of the change last September.
By as early as the beginning of the federal government's 1998 fiscal year in October 1997, the VA hopes it will have been able to adopt the necessary information and cost-accounting systems to enable it to begin distributing budgets to networks and facilities on a per-person basis.
But the VA will face difficulties in determining its "population" for capitation purposes and must find a way to adapt capitation to its older, sicker patients.
Kizer said the move to capitation is necessary to help the VA match the pace of the private sector by ensuring that veterans are treated in the most appropriate setting.
"As we look at how much we spend to take care of the same conditions at different places in the country, it varies by 100%," Kizer said. "That's more than is acceptable and reflects the bias toward inpatient care that has existed in the past."
The move to capitation comes on the heels of the VA's reorganization of its 172 hospitals and other healthcare facilities into 22 "veterans integrated service networks," or VISNs.
The aim is to streamline administration of the system, end duplication of services and allow network directors more flexibility in allocating resources to serve the population of veterans within network boundaries.
But the VA's journey of a thousand miles to capitation must start with single steps. The VA, which provides much of its care at no charge, hasn't always collected the data that's necessary to calculate capitated payments.
"Right now, VA has a very rough time figuring out what it costs to deliver a unit of service," said Richard Fuller, health policy program development director for Paralyzed Veterans of America.
But it's begun installing a new information system in 68 medical centers. Ten already have the system in place, and the rest will receive it in the next 18 months to two years, Kizer said.
In addition, the VA will need to implement "very aggressive" case management, particularly for such difficult cases as mental illness with substance abuse, Kizer said.
It also will need to increase its reliance on ambulatory surgery and lessen its dependence on caring for veterans in inpatient beds.
VA officials, as well as many veterans groups and members of Congress, have been seeking changes in eligibility criteria that currently entitle many service-disabled veterans to hospital care but not to outpatient care. Those eligibility rules often drive VA doctors to admit veterans to hospital beds.
But one of the thorniest issues with which the VA will grapple is how to calculate the capitated payments for its healthcare facilities.
Unlike private-sector managed-care organizations that have a set number of enrollees, the VA doesn't know for sure how many patients its facilities will see each year.
Although there are about 26 million veterans, only 9.5 million are eligible for care because of service-related disabilities or low incomes. Of those, the VA each year cares for about 2.9 million, known as "unique" patients. What cost data the VA now collects is based on unique patients, not eligible veterans.
A further complication is the number of patients who seek VA care only once every three or four years or come to the VA for only part of their care, such as those seeking care only for a specific service-related disability.
The VA has taken steps to better track its unique patients by working to enroll all of them in primary-care plans by the end of 1996.
And because many of the VA's unique patients are disabled, they tend to need medical assistance more often and require such specialized care as the VA's spinal-cord-injury rehabilitation program, which is expensive.
For capitation to succeed, Fuller said, the VA needs to factor the older, sicker veteran population and the specialized programs into its payment formulas.
Kizer agreed. "The reality is that most private-sector managed-care plans try to avoid people who are sick," he said. "We have the population that everybody else is trying to avoid."
But if the VA can surmount those challenges, Kizer said its experience could be used as a model.
"If we can successfully capitate our population, that should be of considerable experiential value for others," Kizer said. "There's no textbook to look to."