Privatization Warning by Suzanne Gordon and Steve Early The American Prospect When the Department of Defense (DOD) or U.S. intelligence agencies face a crisis, they often assemble a task force to conduct a review and recommend solutions. In response to cost overruns on care for nine million patients of the Veterans Health Administration (VHA), the Department of Veterans Affairs (VA) recently convened such a high-level “Red Team.” The panel of six health care leaders includes former VHA undersecretaries for health, ex-DOD officials with military health experience, and prominent health care system executives. The group conferred with VA leaders in Washington, collected relevant budget data, and pored over reams of peer-reviewed studies. It
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Privatization Warning
by Suzanne Gordon and Steve Early
The American Prospect
When the Department of Defense (DOD) or U.S. intelligence agencies face a crisis, they often assemble a task force to conduct a review and recommend solutions. In response to cost overruns on care for nine million patients of the Veterans Health Administration (VHA), the Department of Veterans Affairs (VA) recently convened such a high-level “Red Team.”
The panel of six health care leaders includes former VHA undersecretaries for health, ex-DOD officials with military health experience, and prominent health care system executives. The group conferred with VA leaders in Washington, collected relevant budget data, and pored over reams of peer-reviewed studies. It then issued a 24-page executive roundtable report entitled “The Urgent Need to Address VHA Community Care Spending and Access Strategies” (emphasis added). Although the report was released to top VA leaders in late March, it has not yet been publicly released. The Prospect’s repeated requests for the report itself or information about it were ignored.
Rarely has a group of inside-the-Beltway experts gotten to the point so quickly or sounded the alarm so clearly. In the report, obtained by the Prospect before its public release, the group unanimously concluded:
“The increasing number of Veterans referred to community providers . . . threaten to materially erode the VA’s direct care system.” Without a course correction, they said, mass closures of VA clinics or certain services could ensue, “eliminating choice for the millions of Veterans who prefer to use the VHA direct care system for all or part of their healthcare needs.”
This call for immediate action is noteworthy because of the stature of the team’s members. Red Team chair Kenneth W. Kizer is a Navy veteran and nationally known leader in health care quality and hospital management, who led the transformation of the modern VHA under Bill Clinton. (Kizer declined the Prospect’s request for comment on the report until it was publicly released.)
Dr. Jonathan Perlin served in the same role under George W. Bush, before joining HCA Healthcare as a top administrator, and now leads the Joint Commission, which certifies and accredits private- and public-sector hospitals.
Other members include Debra Friesen, a former senior executive at Kaiser Permanente; Dana Safran, CEO and president of the National Quality Forum; Kavita Patel from the Brookings Institution; Karen Guice, a former DOD official in charge of health affairs; and retired Maj. Gen. Elder Granger, who helped manage TRICARE, a private insurance program for active-duty personnel and their families who don’t use the military health care system.
The authors don’t question the need for sending some veterans to private doctors or hospitals, “when needed services are not readily available in the VA’s direct care system.” But their report pinpoints all the obvious flaws, weaknesses, waste, and inefficiencies built into large-scale outsourcing, which began under Obama, exploded under Trump, and now continues on Biden’s inattentive watch.
Higher Costs, Less Quality
The cost of reimbursing the 1.7 million private-sector providers enrolled in the five-year-old Veterans Community Care Program (VCCP), which facilitates patient outsourcing, has “dramatically increased, rising from $14.8 billion in FY 2018 to $28.5 billion in FY 2023,” the report states. Referrals outside the VHA are rising by 15 to 20 percent per year and now involve more than 40 percent of all patients, who are getting at least some care in the private sector.
One major source of out-of-control costs is privatized emergency room services, which now represent 30 percent of VCCP spending. When a patient or family member clicks on the website of any VA Medical Center in the country and searches for “emergency care,” they are directed to non-VHA hospital emergency rooms, despite studies like one in The British Medical Journal (BMJ) and another published by the National Bureau of Economic Research (NBER), which found that veterans treated in private ERs were twice as likely to die in the first 28 days after admission than if they had been admitted to the VHA.
The escalation of ER costs often occurs, the Red Team explains, because once a private-sector emergency department stabilizes a VA patient, the veteran is not sent back to the VA for the rest of their hospital stay or for follow-up care (lab work, imaging tests, consultations with specialists, physical therapy, or other services), as is typical in other health care systems. As the ER studies found, private-sector ER care is 21 percent more expensive than VHA care. So each of these follow-up services generates more revenue for VCCP providers, while not being subject to normal insurance company utilization review.
VCCP oncology similarly consumes more VA dollars, in large part because financial incentives encourage private oncologists to perform more unnecessary, invasive procedures and charge more for chemotherapy drugs. For example, a 2022 JAMA study of markups of chemotherapy drugs in private-sector hospitals found that, depending on the drug, median markups ranged from 118.4 to 633 percent.
The following year, another JAMA study reported that veterans who have low-risk prostate cancer are far more likely to receive invasive surgery or radiation treatment than the standard of care, which is “watchful waiting.”
Community care dollars also go to private-sector orthopedic surgeons, who unlike their VA counterparts depend on fee-for-service revenue and are thus far more likely to recommend “major surgical procedures, like hip, knee, and shoulder replacements.”
All of this outsourced care may drain VA Medical Center budgets. The Red Team heard “anecdotal reports of some VA Medical Centers incurring community care spending deficits in the hundreds of millions of dollars . . . consuming more than half of their clinical care budgets.”
Cost Overruns
Current VA budget pressures confirm the authors’ alarming findings. In fiscal year 2025, the agency plans to cut 10,000 positions through attrition rather than reallocate resources so more outsourced patients can be “repatriated” back into the system. The Biden administration’s 2025 budget proposes a 12 percent boost in spending on the VCCP, but only a 5 percent increase in direct-care funding.
Another internal document leaked to the Prospect reveals that VA spending on third-party administration of the VCCP is experiencing cost overruns, like any big Pentagon weapons project with an initial price tag but much higher “unanticipated” costs. TriWest Healthcare Alliance and Optum (a subsidiary of UnitedHealthcare) are the two private insurers acting as the VCCP’s third-party administrators (TPAs)—assembling and managing the VCCP provider network and handling the mountain of bills it generates. They are currently seeking an increase of $103 billion over the last years of a five-year contract. This amount is over and above the $86 billion originally projected for their services. VA officials have already caved to Optum’s demand for an additional $4 billion for just seven months of projected administrative work related to outside referrals in just one part of the country.
As one worried veterans service organization (VSO) staffer told the Prospect, “VA says it wants to bring veterans back into the system, but these numbers suggest the opposite.” Another observer commented that VA’s assurance that the $189 billion to TPAs represents a ceiling and that some of these billions may not be spent is “utterly disingenuous,” given the history of the program utilizing every penny and then asking for more.
No Training or Accountability
As the authors document, the VCCP has failed to deliver on its central promise to give veterans “the soonest and best care,” by providing them with more choice of providers without compromising the integrity of the VA’s direct-care system.
While studies consistently confirm that the VHA provides “accessible and high-quality care in its direct care system,” no one can actually assess the timeliness or quality of VCCP providers because, according to the Red Team, they “are not required to make access (e.g. wait times) and quality of care data publicly available,” not even to the VHA.
The authors also question how VCCP providers could possibly deliver the “best care to veterans” given their limited experience with specific veteran health care problems like PTSD, military sexual trauma, cancers, and other conditions related to toxic exposures. VHA providers are required to undergo extensive training to better understand and treat veteran-specific mental and physical problems. Neither VA leaders nor Congress have required the same training of VCCP providers.
Private-sector providers could deliver high-quality veteran-centric services, the Red Team advises, if they voluntarily utilized the VHA training materials made available to them free of charge. The report notes that “only a small proportion of community providers have completed this training.” Sadly, key members of Congress like Jon Tester (D-MT), chairman of the Senate Committee on Veterans’ Affairs, have balked at making this a mandatory requirement for participation in the VCCP network, on the grounds that it would discourage providers from signing up. Tester would do well to read the Red Team’s reminder that “soonest care does not necessarily equate to the best care.”
Red Team Recommendations
The Red Team members lay out a series of very concrete steps that VA leaders can take to address problems identified in the report. Many can be implemented without remedial action by Congress.
High on the list is that Veterans Affairs Secretary Denis McDonough revise the “drive time and wait time” standards that his pro-privatization predecessor Robert Wilkie implemented, and which are now bankrupting the VA.
As the Prospect has suggested for several years, the authors state that the VA could immediately save over $1 billion by making telehealth services count as access to care. Secretary McDonough himself said this should happen two years ago.
The report urges McDonough to go further, by conducting a more thorough revision of the Wilkie access standards. Right now, a veteran who has to drive a long distance for a medical appointment could show up at a private-sector facility across the street from a VHA hospital or clinic that could provide the patient with the same service.
To better manage overuse and misuse of private-sector services, the report recommends that the VA should replace its use of what are called standardized episodes of care (SEOCs). Currently, VCCP providers can deliver services that a veteran might not need, or that the VHA could provide following an initial VCCP visit. The VCCP can bill for a veteran’s initial visit to an orthopedist for back pain, and for X-rays or MRIs, and for physical therapy services, and for 20 sessions of massage therapy. No utilization review is applied, and the veteran is not sent back to the VHA, where these services may be available in a more timely fashion, at higher quality, and for a lower cost. This practice, the authors argue, should be jettisoned, and a more effective utilization management system developed.
Similarly, when it comes to controlling ER costs, the Red Team says the VA should make it easier for veterans to access VA ER care through telehealth, and “repatriate” patients back to the VHA for follow-up care once they have been stabilized. VA should also make sure veterans aren’t directed to VCCP ERs as their main option on VA websites.
Another critical recommendation is that VA initiate an “attraction campaign” so that veterans, VA staff, policymakers, and the public understand what reams of data confirm: The VA delivers stellar care to some of the nation’s most complex patients, more quickly and at lower cost than private-sector providers. Marketing the system’s remarkable successes, the Red Team insists, should be “a top organizational priority.”
Providing veterans with information about the value and benefits of VHA versus VCCP services is not just a marketing gimmick. Ensuring that patients have sufficient information about getting care inside or outside of the VA is, the authors explain, an “implicit obligation.” In fact, as the National Institutes of Health website explains, helping patients make informed choices is “both an ethical and legal obligation of medical practitioners in the US.”
VA leaders could start by changing the message about community care on the department’s website. In spite of the conclusions of a raft of studies documenting the precise opposite, the VA currently informs veterans that community care providers ensure that “eligible Veterans and their beneficiaries get the timely, high-quality health care they need.”
The report ends by praising VA leaders for very recent efforts to more effectively manage community care costs and make direct-care services more accessible. The main conclusion, however, is that these measures are not enough. Without more far-reaching, systematic, and rapid action, VA facilities will be forced to close, and their teaching, research, and emergency preparedness missions may be compromised.
DOD’s Example?
One good model for this course correction comes, ironically, from the DOD, which has recently acknowledged the shortcomings of its own troubled effort to steer more military families and retirees into private-sector care. As Military.com reported January 24, the Defense Health Agency (DHA) is now trying to “re-attract” 200,000 patients transferred to a private-sector network run by TRICARE back to military hospitals and clinics.
That move several years ago—designed to reduce DHA spending on direct care—quickly led to in-house staffing cuts. Meanwhile, outsourced patients have experienced increasing difficulty finding alternative providers in overwhelmed civilian health care markets. Like the VHA, the system they left behind was more cost-effective, and had better outcomes and fewer racial disparities.
It’s not often that the DOD provides a model for the VA. But in this case, the Biden administration would be smart to recognize the Pentagon’s discovery that contracting out has left its own health care delivery system “chronically understaffed” and less able to “deliver timely care to beneficiaries or ensure sufficient workload to maintain and sustain critical skills.”
A policy change like this would be welcomed by longtime advocates for veterans like Michael Blecker, director of Swords to Plowshares in San Francisco and a prophetic voice on the VA Commission on Care in 2016. That Obama-era panel was packed with privatization fans like Darin Selnick, who dissented from the final report because it didn’t go far enough in his favored direction. The group recommended what the VHA is saddled with today—a bifurcated system in which, according to Care Commission projections, 40 to 60 percent of veterans would be sent to private-sector providers. In his letter of dissent, Blecker accurately predicted that this “would threaten the survival of our nation’s veteran-centered health care system as a choice for the millions of veterans who rely on it.”
Today, Blecker hopes the Red Team report will encourage veterans service organizations, unions, and legislators to apply pressure on the Biden administration to rein in outsourcing. Blecker predicts . . .
“If the VHA collapses, we will see an increase in veteran homelessness, veteran suicides, veteran unemployment, and a host of other serious consequences. Plus, the nation will have lost its only model of comprehensive health care. We in the veteran community cannot allow this to happen.”