VA Testimony of Thomas L. Garthwaite, MD before Congress on July 1, 1999

STATEMENT
OF
THOMAS L. GARTHWAITE, M.D.
ACTING UNDER SECRETARY FOR HEALTH
DEPARTMENT OF VETERANS AFFAIRS
REGARDING VA MEDICARE SUBVENTION
BEFORE
THE
COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES

Mr. Chairman and members of the Committee, thank you for the opportunity to testify on behalf of a Medicare Subvention pilot for the Department of Veterans Affairs. VA has sought authorization for Medicare reimbursement for a number of years because we believe this would be beneficial to both the veterans who would like to use their Medicare benefits through the VA healthcare plan and, importantly, to Medicare and the Medicare Trust Funds.

Medicare Subvention is an issue of equity for those Medicare-eligible veterans who can use their Medicare benefits at Medicare-certified health care providers in the community, except at VA healthcare facilities. In VA’s view, this represents significant potential savings since VA has agreed to provide Medicare-covered services at a discount, and we welcome the opportunity to test if the savings can be realized.

VA and the Department of Health and Human Services successfully designed a Memorandum of Agreement (MOA) that establishes the foundation for a VA Medicare Subvention pilot and will serve as the framework of an implementation plan as we move forward in this effort. This agreement addresses concerns that have been expressed in the past about the financial risk of increased cost to the Medicare Trust Funds and VA’s capability to successfully meet Medicare requirements and operate as a Medicare provider. When I discuss the MOA in more detail, I will cover the safeguards that have been included to protect the Trust Funds.

First, however, I would like to address concerns about VA’s ability to be a Medicare provider, by describing the fundamental transformation that the VA healthcare system has undergone in the last four years. I know that some of you are already aware of this transformation. However, for those who may not be as familiar with the VA healthcare system, I hope this gives you a new perspective on VA.

In 1994, VA was a hospital centered healthcare system that had not kept pace with the changes in healthcare that were occurring in all of American healthcare. VA recognized that it had become an outdated, unresponsive, and inefficient healthcare system that could better serve its patients. To address these issues, the veterans healthcare system initiated a systemic and systematic effort to fundamentally re-invent itself. In the process, the Veterans Health Administration (VHA) has become the largest fully integrated healthcare system in the nation, delivering a full continuum of services. The effort has involved reengineering VHA’s operational structure, streamlining its processes, implementing "best practices", improving information management, reforming eligibility rules, expanding contracting authority, and changing the culture of VA healthcare. I can tell you today, without reservation, that no other healthcare system in the U.S. can match either the extent or rapidity of change that has occurred in the veterans healthcare system since our reinvention effort was launched in late 1995.

To illustrate the nature of VHA’s transformation, let me cite a number of facts and figures that attest to the nature of the improvement that has occurred:

VA’s now approximately 1,100 sites of care delivery have been organized into 22 Veterans Integrated Service Networks (VISNs) and these networks are now the system’s basic operating unit.

Beginning with about 10 percent of VA patients enrolled in primary care in 1994, universal primary care has been implemented, as well as universal telephone triage of "call centers." In a recent survey, almost 90 percent of patients could identify their primary caregiver.

Since September 1994, 54 percent (28,195) of all acute care hospital beds have been closed.

Compared to FY 1994, annual inpatient admissions in FY 1998 decreased 32 percent (288,398 fewer admissions), while ambulatory care visits increased by 35 percent (10.3 million increase for a total of 35.8 million outpatient visits in FY 1998).

From October 1994 through September 1998, bed days of care per 1,000 patients decreased 62 percent - from 3,530 to 1,333.

Cumulative levels of staffing have decreased 12 percent (25,073) since 1994, even though we provided hands-on care to 520,000 (22 percent) more patients in 1998 than in 1994.

Ambulatory surgeries have increased from 35 percent of all surgeries performed in FY 1995 to about 75 percent of all surgeries now. Associated with this has been increased surgical productivity and reduced mortality.

A new capitation-based resource allocation methodology (the "Veterans Equitable Resource Allocation" system) has been implemented and validated. This has brought much needed financial discipline to the system.

Customer service standards have been implemented, customer satisfaction surveys are being routinely performed, and management is being held accountable for improving service satisfaction. Statistically significant improvements have been documented. In FY 1998, 65 percent of all patients, including psychiatric patients, reported the quality of their care as very good or excellent.

A pharmacy benefits management program implemented in FY 1995, which includes a national formulary, has produced an estimated $347 million in annual savings simply on the purchase of pharmaceuticals.

Other elements of a Commercial Practices Initiative are yielding tens of millions of dollars of savings in the acquisition of medical and surgical supplies, prosthetics, equipment and maintenance, renal dialysis, and support services. (Indeed, a number of GAO reports have documented VA’s marked savings in this regard compared to Medicare.)

Over 270 new community-based outpatient clinics (CBOCs) have been sited, or are in the process of being sited, from savings achieved in other areas. Many of these are by contract with private providers.

Major initiatives have been launched to increase care management, end of life care, pain management, use of clinical guidelines, and home care.

A multi-dimensional, process-and outcome-focused quality of care accountability framework has been implemented to ensure the consistency and predictability of high quality healthcare being delivered everywhere in the VA system, and VHA has been designated as a national laboratory for healthcare quality management by the National Partnership for Reinventing Government.

Universal pre-admission screening and admission and discharge planning have been implemented, along with many other "infrastructure" and processes changes, such as a universal semi-smart identification and access card.

Significant improvements in the quality of care have been demonstrated, and in a number of areas, VA’s performance is significantly better than that of the private sector.

I am proud of these accomplishments and anticipate that VA will continue to make significant gains as its transformation matures. I believe these changes demonstrate that the infrastructure and processes are in place to enable VA to successfully meet all Medicare requirements. Training and education will be required at our pilot sites so that our healthcare providers and administrators become fully knowledgeable about specific Medicare requirements. However, the success that VA healthcare managers have demonstrated in meeting the challenges of the past four years shows that they are up to the Medicare challenge. Implementation of the demonstration will require us to address a number of important administrative issues. HCFA’s knowledge and experience in this area will be helpful in addressing the issues and setting an implementation timeline.

VA already offers the full range of services that must be offered under any Medicare program. The services are available either directly at VA facilities or through contractual arrangements. VA’s contracting authority permits us to provide any services that are required and not readily accessible. VA has experience in billing third-party insurance companies. Through internal reviews we have become aware of some shortcomings in our documentation and coding, and we have taken aggressive steps to address these concerns. Necessary changes will be implemented by September 1999, when we also implement a "reasonable charge" billing structure similar to private sector providers. We are able to generate the Medicare required UB92’s and HCFA 1500’s, and implementation of our Decision Support System in all our facilities gives us an enhanced capability to track costs.

On the clinical side, we have universal primary care, and we practice coordinated care across the entire continuum of healthcare services. I believe that in the coordination of care, we must manage care, not costs. It is becoming increasingly clear that the greatest failure of managed care has been that it has focused on managing cost, without actually improving care. Too often, managed care companies have addressed only the symptoms of the ills that afflict private healthcare; they have not addressed the basic pathology of fragmented, provider-focused and user-unfriendly services, and redundant and excess capacity. So far, managed care has not done enough to make care more coordinated, more convenient and more coherent (i.e., to manage care so that is actually improves outcomes). If we focus on managing care to produce higher quality, then costs will decrease, for I believe that higher quality care actually costs less.

The importance of coordinating a patient’s entire care is one reason that I advocate a Medicare+Choice model for the VA Medicare Subvention pilot. Through this model we can be sure that we have a well-managed, well-coordinated approach to our veterans’ healthcare needs. VA’s current use of coordinated care puts us in an excellent position to successfully operate a Medicare+Choice plan. In addition, VA’s high proportion of elderly mirrors the population that would enroll in a VA Medicare+Choice plan.

The Medicare Subvention pilot which VA and HCFA are proposing would be for dual-eligible veterans who are classified as Priority 7 — that is, those veterans with higher incomes who have no service-connected disability or a service-connected disability that does not entitle the veteran to compensation. If VA is unable to treat all eligible veterans because of resource constraints, Priority 7 veterans would be the first to be cut off from care. Although we have been able to offer healthcare services to this group of veterans in FY99, this is subject to an annual determination. The authorization for these veterans to bring their Medicare benefits to VA would assure them access on a continuing basis and improve equity of access during the duration of the demonstration. In many cases, Medicare subvention would allow VA to treat veterans who otherwise would be getting either fragmented care or no healthcare at all.

Historically, the Priority 7 veterans have made up a relatively small proportion of those who use the veterans healthcare system – about 3 or 4 percent. Although the numbers have increased in recent years and continue to increase under our current enrollment process, the proportion of users is still slightly below 10 percent. Costs associated with the care of this group of veterans have been less than that of the higher priority groups since they tend to use fewer and less costly services. Nevertheless, both VA and HCFA realize that appropriated dollars have been spent to provide care for this population. For this reason, the Memorandum of Agreement contains a provision to establish a Level of Effort (LOE) which represents what VA has spent in the past to deliver Medicare-covered services to these veterans. Payment from the Medicare Trust Funds will be made only after the LOE is reached. Although it is difficult to make precise LOE calculations, the estimates will be based on the cost data that are available. Because of the relatively small numbers of Priority 7 users, VA does not anticipate that the LOE will represent a substantial amount at any one pilot site.

Our MOA includes only a Medicare+Choice pilot. This is the direction that the VA healthcare plan has been heading over the past three years and one which offers the best opportunity to provide comprehensive, coordinated care for our enrollees. This is also the mode of healthcare delivery which Medicare beneficiaries have increasingly chosen. The adoption of this approach does not preclude establishing a pilot in a rural area. I believe a rural site should be given consideration as it could provide some valuable insights for both VA and HCFA. Adding a fee-for-service demonstration would limit VA’s ability to coordinate all care that veterans receive. A fee-for-service demonstration entails additional data requirements. Implementing both a fee-for-service and coordinated care demonstration would introduce greater administrative complexities and resource requirements.

Several things should be said about the various concerns that have been raised in regard to risk to the Medicare Trust Funds as a result of the pilot. First, this is a limited pilot. The MOA is proposing that the demonstration be limited to eight sites or two Veterans Integrated Service Networks (VISNs). In addition, the cap on the reimbursement from the Trust Funds is $50 million annually. This does not mean that the risk to the Trust Funds is $50 million, as this represents compensation for services that VA is providing and that Medicare would have to reimburse any other Medicare provider to provide healthcare services to these same veterans.

Moreover, there are provisions in the MOA that provide additional protections to the Trust Funds. In addition to the "cap" on Medicare payments, there is the level of effort calculation, an annual reconciliation with the LOE, an end of year reconciliation to assure accurate payments and data calculations, and a mechanism to make adjustments or even end the pilot if ongoing analyses and evaluations identify unacceptable costs to either VA or to the Trust Funds. Beyond these safeguards, the payment, which VA has agreed to accept, represents a discount to the Trust Funds compared to private sector rates. The rate is based on 95 percent of Medicare normal payments to the private sector, along with exclusion of DME, IME, DSH, and two-thirds of capital. Compared to the annual national Medicare Trust Funds expenditures, I believe the VA Medicare Subvention proposal does not represent a threat to the Trust Funds, but offers an opportunity to realize savings. I am confident that both VA and Medicare will gain from this pilot experience. Our MOA includes requirements for several studies by the GAO and independent evaluators to measure the actual impact to the Trust Funds.

In conclusion, I want to assure the Committee of the importance that the Secretary and I place on this Medicare Subvention initiative. VA will devote its energy and resources to ensuring that the pilot is a success – for both VA and Medicare - and that every veteran who comes to VA will receive quality healthcare. I am confident that both VA and HCFA have the desire, resourcefulness and expertise to work together as partners to achieve the objectives that are embodied in the Memorandum of Agreement and in the VA Medicare Subvention pilot.