Paul Krugman on the Veterans' Administration

Paul writes:

Health Care Confidential - New York Times: I know about a health care system that has been highly successful in containing costs, yet provides excellent care. And the story of this system's success provides a helpful corrective to anti-government ideology. For the government doesn't just pay the bills in this system -- it runs the hospitals and clinics... our very own Veterans Health Administration, whose success story is one of the best-kept secrets in the American policy debate.... Last year customer satisfaction with the veterans' health system, as measured by an annual survey conducted by the National Quality Research Center, exceeded that for private health care for the sixth year in a row. This high level of quality (which is also verified by objective measures of performance) was achieved without big budget increases. In fact, the veterans' system has managed to avoid much of the huge cost surge that has plagued the rest of U.S. medicine.

The secret of its success is the fact that it's a universal, integrated system. Because it covers all veterans, the system doesn't need to employ legions of administrative staff to check patients' coverage and demand payment from their insurance companies. Because it's integrated, providing all forms of medical care, it has been able to take the lead in electronic record-keeping and other innovations that reduce costs, ensure effective treatment and help prevent medical errors. Moreover, the V.H.A., as Phillip Longman put it in The Washington Monthly, "has nearly a lifetime relationship with its patients." As a result, it "actually has an incentive to invest in prevention and more effective disease management. When it does so, it isn't just saving money for somebody else. It's maximizing its own resources. ... In short, it can do what the rest of the health care sector can't seem to, which is to pursue quality systematically without threatening its own financial viability."

Oh, and one more thing: the veterans health system bargains hard with medical suppliers, and pays far less for drugs than most private insurers.

I don't want to idealize the veterans' system. In fact, there's reason to be concerned about its future: will it be given the resources it needs to cope with the flood of wounded and traumatized veterans from Iraq? But the transformation of the V.H.A. is clearly the most encouraging health policy story of the past decade. So why haven't you heard about it?

The answer, I believe, is that pundits and policy makers don't talk about the veterans' system because they can't handle the cognitive dissonance. (One prominent commentator started yelling at me when I tried to describe the system's successes in a private conversation.) For the lesson of the V.H.A.'s success story-- that a government agency can deliver better care at lower cost than the private sector -- runs completely counter to the pro-privatization, anti-government conventional wisdom that dominates today's Washington.

The dissonance between the dominant ideology and the realities of health care is one reason the Medicare drug legislation looks as if someone went down a checklist of things the veterans' system does right, and in each case did the opposite...

Comments

[save_the_rustbelt]

Krugman has the same weakness of many academics, he sits and reads research reports and things he is tuned into reality.

(Before you howl I have read healthcare research for about 30 years, have about 20 years working in the system, and have also at times sat in a college office and pontificated.)

We can learn something from VA Rx and purchasing, but the VA is a highly political and highly bureaucratic system that is NOT a model for the remainder of the country.

Why does Krugman have credibility on this issue. Because he is an economist? Because he is a columnist? Let's see his vitae.

[john david stutt]

rustbelt,
do you dispute the results of the survey? It is not about Krugman's credibility.

[Donald Clarke]

Rustbelt,

Read Longman's article, then decide. BTW how much recent (last 5-8 years) experience do you have with the VA? There are reasons why the VA wins quality awards.

http://www.washingtonmonthly.com/features/2005/0501.longman.html

Donald Clarke

[anne]

http://www.nytimes.com/2003/09/04/business/04MEDI.html?ex=1378008000&en=c37240b2abd9467e&ei=5007&partner=USERLAND

September 4, 2003

Some Successful Models Ignored as Congress Works on Drug Bill
By ROBERT PEAR and WALT BOGDANICH

By most measures, the Department of Veterans Affairs has solved the puzzle of making prescription drugs affordable for at least one big group of Americans without wrecking the federal budget.

Wielding its power as one of the largest purchasers of medications in the United States, the V.A. has made it possible for millions of veterans to pay just $7 for up to a 30-day prescription. Thousands are signing up for the program every month.

Yet for all its apparent success, lawmakers have disregarded the V.A. model — and others like it that use the government's immense power to negotiate lower prices — as they try to give older Americans relief from rising drug costs while reshaping how the elderly get medical services.

Instead, a Congress deeply divided by ideology has given birth to legislation that would add prescription drug coverage to Medicare, but that many experts say would fall short of meeting the needs of the elderly. The benefits, costing $400 billion over 10 years, are complex and limited, and the legislation relies in part on cost control mechanisms that are untested or unproven.

In fact, Congress would exempt the drug industry from the kind of cost controls that are in place for virtually every other major provider of Medicare services.

"The legislation pending in Congress does more to deform than to reform Medicare," said Dr. Paul M. Ellwood, a noted health policy analyst who was an early proponent of managed care. "Instead of creating a system of readily understandable choices based on cost and quality, Congress is writing legislation that will increase the complexity of Medicare....

[anne]

http://www.nytimes.com/2003/12/05/business/05UTAH.html?ex=1385960400&en=64c131c4e18d6c52&ei=5007&partner=USERLAND

December 5, 2003

Hospitals Say They're Penalized by Medicare for Improving Care
By REED ABELSON

SALT LAKE CITY — By better educating doctors about the most effective pneumonia treatments, Intermountain Health Care, a network of 21 hospitals in Utah and Idaho, says it saves at least 70 lives a year. By giving the right drugs at discharge time to more people with congestive heart failure, Intermountain saves another 300 lives annually and prevents almost 600 additional hospital stays.

But under Medicare, none of these good deeds go unpunished.

Intermountain says its initiatives have cost it millions of dollars in lost hospital admissions and lower Medicare reimbursements. In the mid-90's, for example, it made an average profit of 9 percent treating pneumonia patients; now, delivering better care, it loses an average of several hundred dollars on each case.

"The health care system is perverse," said a frustrated Dr. Brent C. James, who leads Intermountain's efforts to improve quality. "The payments are perverse. It pays us to harm patients, and it punishes us when we don't."

Intermountain's doctors and executives are in a swelling vanguard of critics who say that Medicare's payment system is fundamentally flawed.

Medicare, the nation's largest purchaser of health care, pays hospitals and doctors a fixed sum to treat a specific diagnosis or perform a given procedure, regardless of the quality of care they provide. Those who work to improve care are not paid extra, and poor care is frequently rewarded, because it creates the need for more procedures and services.

The Medicare legislation that President Bush is expected to sign on Monday calls for studies and a few pilot programs on quality improvement, but experts say that it does little to reverse financial disincentives to improving care....

[David Lloyd-Jones]

Once more. Maybe if I repeat it enough it will get through.

The US doesn't have a medical care crisis, and Canada doesn't have socialised medical care.

Th US is being ripped off by its insurance companies, and Canada has avoided this by socialising medical insurance.

There is simply no need for medical insurance. Where's the need for the insurance function, when 100% of everybody needs medical care? Nor for personal payment of medical expenses: how do soldiers pay for their medical care?

How do they pay for medical care on an aircraft carrier? When I lived in Japan my first daughter was born at the foreigners' hospital in Yokohama, and attended by the Chief Surgeon of the Big E, then home based at Yokosuka. Why don't they simply open up the VA hospitals to everybody, for starters?

The military model of payment is a good one. Medical care should be paid for the same way on Spaceship Earth.

[bncthor]

Rustbelt tells us that Krugman..."sits and reads research reports and things (sic) he is tuned into reality."

Thinking is hard. And, it is very hard to clearly write what one thinks. I believe Krugman does it about as well as it can be done.

[anne]

http://www.nytimes.com/2006/01/11/nyregion/nyregionspecial5/11diabetes.html?ex=1294635600&en=fded9fcd1209c016&ei=5090&partner=rssuserland&emc=rss

January 11, 2006

In the Treatment of Diabetes, Success Often Does Not Pay
By IAN URBINA

With much optimism, Beth Israel Medical Center in Manhattan opened its new diabetes center in March 1999. Miss America, Nicole Johnson Baker, herself a diabetic, showed up for promotional pictures, wearing her insulin pump.

In one photo, she posed with a man dressed as a giant foot - a comical if dark reminder of the roughly 2,000 largely avoidable diabetes-related amputations in New York City each year. Doctors, alarmed by the cost and rapid growth of the disease, were getting serious.

At four hospitals across the city, they set up centers that featured a new model of treatment. They would be boot camps for diabetics, who struggle daily to reduce the sugar levels in their blood. The centers would teach them to check those levels, count calories and exercise with discipline, while undergoing prolonged monitoring by teams of specialists.

But seven years later, even as the number of New Yorkers with Type 2 diabetes has nearly doubled, three of the four centers, including Beth Israel's, have closed.

They did not shut down because they had failed their patients. They closed because they had failed to make money. They were victims of the byzantine world of American health care, in which the real profit is made not by controlling chronic diseases like diabetes but by treating their many complications.

Insurers, for example, will often refuse to pay $150 for a diabetic to see a podiatrist, who can help prevent foot ailments associated with the disease. Nearly all of them, though, cover amputations, which typically cost more than $30,000.

Patients have trouble securing a reimbursement for a $75 visit to the nutritionist who counsels them on controlling their diabetes. Insurers do not balk, however, at paying $315 for a single session of dialysis, which treats one of the disease's serious complications.

Not surprising, as the epidemic of Type 2 diabetes has grown, more than 100 dialysis centers have opened in the city.

"It's almost as though the system encourages people to get sick and then people get paid to treat them," said Dr. Matthew E. Fink, a former president of Beth Israel.

Ten months after the hospital's center was founded, it had hemorrhaged more than $1.1 million. And the hospital gave its director, Dr. Gerald Bernstein, three and a half months to direct its patients elsewhere....

[anne]

http://select.nytimes.com/2006/01/16/opinion/16krugman.html

January 16, 2006

First, Do More Harm
By PAUL KRUGMAN

Diabetes is a horrifying disease. It's also an important factor in soaring medical costs. The likely future impact of the disease on those costs terrifies health economists. And the problem of dealing with diabetes is a clear illustration of the real issues in health care.

Here's what we should be doing: since the rise in diabetes is closely linked to the rise in obesity, we should be getting Americans to lose weight and exercise more. We should also support disease management: people with diabetes have a much better quality of life and place much less burden on society if they can be induced to monitor their blood sugar carefully and control their diet.

But it turns out that the U.S. system of paying for health care doesn't let medical professionals do the right thing. There's hardly any money for prevention, partly because of the influence of food-industry lobbyists. And even disease management gets severely shortchanged. As the Times series pointed out, insurance companies "will often refuse to pay $150 for a diabetic to see a podiatrist, who can help prevent foot ailments associated with the disease. Nearly all of them, though, cover amputations, which typically cost more than $30,000."

As a result, diabetes management isn't a paying proposition. Centers that train diabetics to manage the disease have been medical successes but financial failures.

The point is that we can't deal with the diabetes epidemic in part because insurance companies don't pay for preventive medicine or disease management, focusing only on acute illness and extreme remedies. Which brings us to the Bush administration's notion of health care reform.

The administration's principles for reform were laid out in the 2004 Economic Report of the President. The first and most important of these principles is "to encourage contracts" - that is, insurance policies - "that focus on large expenditures that are truly the result of unforeseen circumstances," as opposed to small or predictable costs....

[liberal]

Donald Clarke wrote, "Read Longman's article, then decide. BTW how much recent (last 5-8 years) experience do you have with the VA? There are reasons why the VA wins quality awards."

Indeed. That article is a must read for anyone interested in health care economics.

The most important point coming out of that article is that the *provision* of health care (i.e., medicine itself), not just health insurance, is bound to be marked by by extreme market failure, because the price signals are completely screwed up. And because incentives in health care are hard to get right, it's doubtful a private market in health care (meaning, one relying on price signals) could ever deliver health care efficiently.

Click on my name below for a USENET discussion about this.

[liberal]

David Lloyd-Jones wrote, "Canada doesn't have socialised medical care."

This is an important point.

Though I disagree that medicine shouldn't be socialized, given the amount of market failure there.

[anne]

http://www.nytimes.com/2003/10/26/business/26HOSP.html?ex=1382500800&en=aa299f02744830f3&ei=5007&partner=USERLAND

October 26, 2003

Generous Medicare Payments Spur Specialty Hospital Boom
By REED ABELSON

INDIANAPOLIS — The hospitals here — hospitals across the United States, for that matter — covet patients like Robert E. Wilson. Mr. Wilson, 79, has had two open-heart operations, five angioplasties, three cardiac catheterizations and an implanted defibrillator. Just last month, he checked into the Heart Center of Indiana to get his first stent, a tiny bit of wire scaffolding that helps keep arteries open.

Mr. Wilson's primary health insurance is Medicare, and Medicare pays generously for cardiac care — so generously that hospitals and doctors scramble after the business.

The Heart Center, a 60-bed hospital that cost $60 million and boasts not just the most sophisticated new imaging technology but an executive chef and what it calls "room service," opened last December. Indeed, all four major hospital groups in Indianapolis are investing in new heart hospitals, collectively spending $215 million on multistory buildings with catheterization labs and bedside computers.

Cranes have been raised over construction sites in places like Milwaukee, Phoenix and Houston, too, with money flowing into new hospitals specializing not just in cardiac care, but in other well-reimbursed specialties like orthopedics and surgery. In a report this month, the General Accounting Office, the investigative arm of Congress, counted at least 26 specialty hospitals under construction across the country.

Medicare — which pays for some $100 billion of inpatient hospital care annually, and sets the pattern for many private insurers, as well — is not the sole driver of this investment. But health executives say that Medicare's payment system for hospitals, with its emphasis on procedures and its weak ties to the actual costs of providing care, exerts a strong influence on which medical needs in a community are met.

Amid the building boom here in Indianapolis, some hospitals are laying off employees or scaling back programs, like psychiatric care, that are less generously reimbursed. Preventive care and case management, health experts add, get short shrift.

"The incentives are terribly misaligned," said Samuel R. Nussbaum, a doctor and former hospital executive who is now the chief medical officer of Anthem, a large health insurer here....

[derek]

The experience of the VA is similar to that of our (UK's) National Health Service. While it is far from the best model for government health care (many countries seem to do better than us with different models), at the top of its game it beats the pants off the American private system. One result is that, while we do not prohibit private health care (I understand Canada does), the private sector is respectable but remains small, simply because the majority of our population choose to be treated by the NHS rather than by private HMOs.

Finally, where it does creak and groan, it does so for much the same reason the VA does: hostile budget-starvation by successive conservative administrations dedicated to the proposition that government can't work, and in a position to "prove" it to the electorate.

[Roger Albin]

As a physician who works in the VA system, data such as that quoted by Krugman both overestimates and underestimates the success of the VA system. First, all of what Krugman says is true. There are a couple of caveats. One of the secrets of the VA system's success is that the VA does not have to competitive prices for physician salaries. Many VA medical centers are affiliated with university medical centers and staffed by university faculty. Since academic physicians are generally willing to accept reimbursement at levels less than in private practice, a large number of VA medical centers get first rate physicians at discounted prices. The advantage for academic physicians is that VA salary support, unlike grant support, is stable. The VA also supports quite a bit of research, which an added incentive for academic physicians. This phenomenon underlines the good sense of the founders of the present VA system, who built in this academic linkage.
Now, how does Krugman's column actually underestimate the VA? Well, a generation ago, Krugman wouldn't have been writing about how well the VA functions. It wasn't a mess but it wasn't very efficient either. In the last 2 decades the VA has undergone a remarkable institutional renovation. Anyone who thinks that large bureaucratic institutions, particularly governmental ones, are incapable of major reform needs to wake up and look at the VA. The reorganization and improvement of the VA system is an impressive achievement and one accomplished by civil servants and some political appointees, not by the cherished market.
Its also worth remembering that the VA makes substantial contributions beyond providing good (and pretty efficient) care for a lot of people. By virtue of its many university affiliations, the VA system is important for training a lot of physicians. VA supported researchers have produced a lot of important basic and clinical research.

[Ari]

Roger Albin

Fine comment. Can you add to our understanding of how the Veterans Administration restructure its hospitals?

Excellent thread!

[Tad Brennan]

I don't dispute the VA's successes. I don't dispute the fact that it stands as a huge counter-example to the standard right-wing line that the private sector is always better.

But do you realize what you are doing by drawing attention to these facts? You, Ezra Klein, and Matt Yglesias?

You are asking Rove to take a *wrecking ball* to the VA. And he'll do it, too.

There is no way that he and his ilk can tolerate the continued existence of this level of competence and accountability in government.

Look for the gutting of the VA to begin, probably by the same method that Brownie gutted FEMA and Goss is gutting the CIA: drive out all of the experts and experienced managers, and replace them with Republican hacks.

Pretty soon, your example of how socialized medicine can work, will be another example of how government can do nothing right. That's what Bush and Rove do to everything they touch.

For the sake of the vets and their health-care, Brad--keep this whole thing a secret a little longer.

[liberal]

derek wrote, "One result is that, while we do not prohibit private health care (I understand Canada does)..."

IIRC Canada _does_ have private _health care_. (Doctors are not government employees, etc.) What it doesn't have is private _health care insurance_.

[liberal]

dearime wrote, "My advice to Americans: whatever you do, don't copy the NHS; knowing that it can do well 'at the top of its game' is really rather useless."

Perhaps, but in terms of bang for buck, where "bang" is measured by things like longevity and "buck" is measured by "% GDP spent on health care," the British system seems far superior to the US system.

[liberal]

Ari wrote, "Can you add to our understanding of how the Veterans Administration restructure its hospitals?"

See e.g.
http://www.washingtonmonthly.com/features/2005/0501.longman.html

[Randolph Fritz]

As I keep saying--perhaps it is worth another repetition--the US "health" "care" "system" has no financial incentives to keep people healthy, and enormous financial incentives to keep people chronically ill. Why is it so hard to act on this simple truth?

[Jason Briggeman]

Randolph, it was hard for Communist countries to act on the simple truth that their "economic system" had no financial incentives for people to work, and enormous incentives not to work.

In health care, we are seeing a typical playing-out of the classic scenario of government intervention: the government intervenes to address a market outcome it deems undesirable; later, unforeseen adverse consequences from this intervention arise; more intervention is undertaken to address these new consequences; more unforeseen adverse consequences arise in response to this intervention; etc.

We are currently several iterations down the pike from the initial interventions, which were primarily the subsidization/promotion of HMOs and the introduction of Medicare. That's why the problem is so intractable at this point. The difficult way out is to reverse all the interventions, including the cessation of government support of the health insurance industry. The easy step is but one more on the greased path to national health care.

[Robert Book]

I'm a health economist who's looked at the VA and other military health systems as part of my job(s).

Krugman says something that is flat-out false: "Because it covers all veterans, the system doesn't need to employ legions of administrative staff to check patients' coverage ..."

On the contrary, it does not cover all veterans, and it does have "legions [pun intended?] of administrative staff to check patients' coverage." They have an entire web site ( http://www.va.gov/healtheligibility/home/hecmain.asp )devoted just to eligibility which states, in part "All Veterans are Potentially Eligible" (emphasis mine). There is an eight-level system of "priority" detailed at http://www.va.gov/healtheligibility/eligibility/epg_all.asp . It has categories like, "Veterans with service-connected disabilities rated 30% or 40% disabling" (priority 2) and "Veterans who agree to pay specified copay with income and/or net worth above VA Income Threshold and income below the Geographic Means Test Threshold" (priority 7 -- which has FOUR "subpriorities," only two of which are currently in use.

Does Paul Krugman really believe they can determine eligibility under such complete rules with fewer administrative staff than it takes another health system just to look at someone's ID card and take down their policy number?

Contrary to popular belief, not every military veteran is in the VA system -- the VA sets eligibility requirements in order to make sure that the number of patients they have is limited to what thay can fit within their budget. In fact, only a minority of former military personnel are in the VA system. In fact, the one "advantage" the VA has that other government health care systems don't have is they get to pick their patients, and can limit the number of patients based on their budget.

Krugman says, the VA is "highly successful in containing costs, yet provides excellent care." True, but the do it by containing their patient load.

[anne]

http://www.nytimes.com/2006/02/03/opinion/l03krugman.html

Veterans' Health Care: What Works, What Doesn't

To the Editor:

As a disabled veteran, I applaud "Health Care Confidential," by Paul Krugman. The problem with Veterans Health Administration care is not quality of treatment but lack of access.

Because of the administration's underfinancing of the system, waiting lines have grown and services have been curtailed. In 2005 alone, 260,000 veterans have been denied care because of administration policies. Prosthetic research has been cut as the wounded of Iraq return with missing limbs.

Mr. Krugman is correct in his analysis as to why this is being done. The administration is trying to "starve the beast" of a system that is modern, efficient and nonprofit in order to protect the interests of its campaign contributors. Is it any wonder that more than 50 veterans are running in 2006 as Democrats against Republican incumbents and for open seats in the House?

Richard L. Klass
Arlington, Va., Jan. 27, 2006
The writer is a retired Air Force colonel.

[geoff manne]

Whatever the narow current success or failure of the VA system, it is imperative in evaluating its prospects as a model for a much larger, more complex and more contentios national health care system to consider its history, its context and its limitations. The VA has not always been a model health care provider, and in part that is because it has been and always will be politicized. All you Bush haters must realize that giving over a system like this to the government, sometimes George Bushes will be in charge of it. (I suppose you could argue that if matters as important as health care were systematically undertaken by the government, people would vote more carefully and we wouldn't have George Bushes in charge. Of course that flies in the face of everything we know about public choice theory, but you might make the claim). Even a stopped clock is right twice a day, and even a massive, politicized government bureacracy may seem to get it right once in a while. I don't see anyone here, including especially Krugman, dealing seriously with the VA's checkered past and the endemic problem of highly-politicized health care decisions. Krugman alludes to and then brushes aside both the VA's past and the prospects that the government won't run it well in the future. Well, these aren't mere trifles. These are systemic problems. There may be attractive attributes of the VA system, but we really should take seriously the unattractive features, as well, before reflexively adopting the model.