STATEMENT
OF
THE HONORABLE KENNETH W. KIZER, M.D., M.P.H.
UNDER SECRETARY FOR HEALTH
DEPARTMENT OF VETERANS AFFAIRS
ON THE FUTURE OF THE VETERANS HEALTH CARE SYSTEM
BEFORE
THE
COMMITTEE ON VETERANS AFFAIRS
U.S. SENATE

June 8, 1999

Mr. Chairman and members of the Committee, I appreciate this opportunity to discuss with you the transformation of the veterans health care system that has occurred over the last four years, and I am pleased to review some of the significant improvements in the quality of VA care that have been accomplished. (I would note for the record, that I have provided substantial additional materials about the system’s transformation to the Committee staff, as detailed in Attachment 1.) I will also take this occasion to briefly note some of my thoughts about the future of VA health care and some of the pressing issues it must address in the next couple years.

I should preface my remarks by emphasizing that American health care everywhere is remaking itself. Unfortunately, there is not yet in the United States of America, nor in any other country of the world, a health care system that fully satisfies all the demands for access, quality, user service and cost. Every day we are reminded of this by stories in the media and professional journals about medical treatment errors or problems with managed care. I believe it is useful to keep this perspective in mind when we talk about ways of improving veterans health care, and especially in so far as the patients who fill VA clinics and hospitals are more medically complicated and socially needy than the U.S. population overall.

I should further note in the way of background, or perspective, that the veterans health care system is unique in this country and in the world. It is not only the largest fully integrated health care system in the U.S., but it is also the most complex health care system in the world because of its multiple missions – missions which are at the same time complementary, competing and conflictive. (See Attachment 2.)

Need for Change

As you know, powerful societal, demographic and industry-wide forces of change are rapidly transforming American health care. The veterans health care system is buffeted by those same forces.

Most prominent among these forces of change are the market-based restructuring of health care in general, and the rise of managed care in particular; the explosive growth of scientific and biomedical knowledge, and concomitant technological advances that are dramatically expanding the ability to treat illness and injury; unprecedented developments in information and data management; and the changing demographics and aging of America. In addition, the veterans health care system is affected by the public’s changing views about the role and size of government in general, and the federal government in particular.

The rapidly changing nature of American health care and dissatisfaction with VA health care prompted a number of reviews of the veterans health care system in the early 1990s. These reports described serious operational and managerial problems. These reports described a collage of independent, competing medical centers that provided hospital-focused, specialist-based, uncoordinated and episodic treatment of illness – not a system of health care. These reports described substantial and unexplainable inter-facility and inter-provider variability in the provision of care, and care that was too difficult to access. These reports described an inefficient and inwardly focused bureaucracy with a centralized and hierarchical management structure that suppressed innovation and which allocated resources in a manner that perpetuated unnecessary in-patient care and other inefficiencies. In September 1994, Senator Daniel Akaka characterized the 173 VA medical centers as "…autonomous fiefdoms" in which the "…preservation of the bureaucracy is stressed at the expense of innovation and improving services for veterans."

When I was asked to assume my present position in 1994, VA health care faced the very real prospect of becoming an outdated system of health care delivery that would not satisfy its users’ expectations of receiving high quality and timely care nor satisfy taxpayers’ expectations of receiving good value for the dollars spent. The nation also faced difficult economic problems at that time, and the reforms of VA health care that were needed had to be accomplished within the larger framework of the nation’s economic problems.

Four years ago, many concerns were being voiced from both within and outside VA about the viability and future role of VA health care. There were those who advocated turning VA functions over to the private sector because the veterans health care system had not been as responsive as it should have been to changes in health care and society. For some people, regrettably, the VA even came to symbolize government at its worst.

Notwithstanding the many good things done by VHA over the years, in the early part of this decade, a number of different entities independently concluded that VA health care needed radical change if it were to have a future. Indeed, at my Senate confirmation hearing on September 13, 1994, Senator Rockefeller, Chairman of the Senate Veterans Affairs Committee (SVAC), emphasized the need "for dramatic change," and both the Chairman and the Ranking Minority Member of the SVAC stressed the need "to delegate authority" to field management.

The following quote from Senator Murkowski typifies the direction and charge I was given from the members of the SVAC four years ago:

Senator Murkowski also noted that if I were successful then:

VHA Reengineering

Non-health care industries facing challenges similar to what health care has faced in the 1990s have found that those organizations which provide high quality products and services for an affordable cost (i.e., those which provide the best value) are the ones most likely to survive and thrive in a changing environment. I believe the same is true in health care, and thus, providing excellent health care value has been the central tenet of my efforts to transform the veterans health care system.

In so far as value can be functionally defined as quality divided by cost, VHA’s reengineering has, in effect, pursued two interrelated transformations – first, an operational transformation to improve the effectiveness and efficiency of day to day operations, and second, a quality transformation. While both efforts are viewed as being essential for the system to thrive in the 21^st century, the experience of other large organizations that have undertaken quality transformations has shown that such efforts typically require sustained effort over a period of 7 to 10 years, or longer. Given the political, financial and industry-wide climate of the latter half of the 1990s, I believe that the system needed to quickly demonstrate better value if it were going to sustain its base of support long enough to accomplish its complete transformation. (The shut-down of the federal government in late 1995 and early 1996 symbolized the climate and sense of urgency with which VHA’s change process was launched.) As a result of this sense of urgency, much of VHA’s initial reengineering has highlighted operational issues, including implementing performance indicators that would facilitate valid comparison between VA and non-federal health care providers.

Although dramatic change in VA health care was widely recognized as necessary, how to accomplish such change was less well understood or agreed upon. There were no comparable models for how to accomplish the type of change needed. Therefore, much about VHA’s reengineering has charted new territory. Today, we can say without hesitation that no established health care system of VHA’s size and complexity has ever changed so much so quickly as VHA has done. Likewise, no federal agency having the complexity of missions and the political sensitivity of veterans health care has ever changed as quickly as VHA has done.

I should add that change of the magnitude that has been accomplished naturally creates tension and anxiety – both within the VA health care system and among our many stakeholders.

Before commenting on some of the specific changes that have occurred, I believe it may be worth putting VHA’s reengineering in some temporal context.

Overall, VHA’s reengineering has progressed in three phases, although these phases have understandably occurred at differing rates in different parts of the system.

Phase 1 of VHA’s reengineering began in late 1994 and continued through the end of 1995. This phase consisted of analyzing the future; defining the problems of the "old VA"; describing a vision of the "new VA;" developing a plan for transforming the system; gaining consensus on that plan, which included six months to secure Congressional approval; creating new programs and hiring new staff, as well as eliminating programs that were no longer needed; and otherwise laying the groundwork for changes actualized in the next phase.

Phase 2 began in early 1996 and has continued through 1998. This phase has been characterized by operationalizing the new veterans integrated service network (VISN) management structure with its more decentralized decision-making processes; implementing and validating a new capitated resource allocation system, with its attendant funding shifts among VISNs and its inherent incentives to improve operational efficiency and access; substantially changing the manner in which services are provided (e.g., implementation of universal primary care, the shift from in-patient to out-patient care, establishment of community based out-patient clinics, inauguration of regional and multi-institutional service lines); implementation of a pharmacy benefits management program, including a national formulary; restructuring VHA’s education and research programs; reducing personnel when necessary; implementation of landmark eligibility reform legislation with it myriad consequent effects, including establishment of a formal enrollment system; merging and integrating numerous facilities; markedly expanding and modernizing information management capabilities, including systemwide implementation of a new cost accounting and clinical management system; and initiating fundamental and far-reaching changes in personnel practices, program functions and performance assessment.

At the end of 1998, VHA entered Phase 3 of its reengineering effort, during which the many new ways of doing business are becoming fully operationalized and refined according to early experience with them. Likewise, an emerging new organizational culture that was birthed in Phase 2 is expected to grow and mature in Phase 3.

Given the inertia intrinsic to a bureaucracy as large as VHA and the many sources of internal and external resistance to change a substantial degree of centralized direction has been necessary to launch VHA’s operational transformation and to establish the foundation for a new organizational culture to grow upon. Not surprisingly, as I have already noted, the amount of rapid change that has occurred, with its requisite central direction, has produced turmoil, anxiety and uncertainty among staff and our stakeholders.

During Phase 3, there will continue to be change, but the nature of the change is expected to be somewhat less intense as the organization assimilates the many new ways of doing business that were initiated in Phase 2 and as the new organizational culture matures. It should be a period characterized more by "bottom up" refinement and adjustment than by the "top down" radical changes initiated in Phase 2. Indeed while the operational transformation has been the defining characteristic of Phase 2, I expect that the quality transformation will be the defining characteristic of Phase 3.

VHA’s Operational Transformation

While I will not discuss all of the changes and accomplishments that have occurred during the past four years, because you have carefully reviewed and approved many of them, including providing the enabling legislation in some cases, I would like to note a number of changes that illustrate the dramatic nature of VHA’s transformation so far.

In brief, during the past four years, VHA’s transformation has included reengineering VHA’s operational structure, diversifying its funding base, streamlining processes and eliminating paperwork, implementing new performance and quality management systems, implementing "best practices," improving information management, reforming eligibility rules, expanding contracting authority, and changing the culture of VA health care.

The following facts and figures exemplify the changes that have occurred in VHA over the past four years:

VHA’s Quality Transformation

A central tenet of VHA’s reengineering effort has been to improve the consistency and predictability of the quality of care that is provided. Again, while progress has not been uniform and problems remain, the quality of VA health care has measurably improved in the last three years. In fact, on standard quality of care measures employed in the private sector, VA’s performance is now superior across the board.

For example, VHA’s Prevention and Chronic Disease Care Indexes are analogous to the HEDIS instrument used in the private sector (minus measures related to pediatric and obstetrical care), although these indexes evaluate VA’s performance for several important indicators not routinely tracked by private providers. Illustrative of this latter point, VA is setting the national benchmark for all health care systems by mandating and monitoring the use of standardized instruments to screen for alcohol abuse and to assess the functional status of substance abusers.

VHA’s Prevention Index (Attachment 3) consists of 9 quality outcome indicators that measure how well VA follows national prevention and early detection recommendations for diseases having major social consequences such as cancer, smoking and alcohol abuse. Compliance with these recommendations nearly doubled in FY 1997 (from 34 percent to 67 percent), compared to baseline data obtained in late FY 1995 and FY 1996. On average, VA outperforms the private sector on all indicators where comparable data exist, ranging from being 5 percent to 69 percent better on individual quality indicators. In addition, VA surpassed the U.S. Public Health Service Healthy People 2000 goals for 5 of the indicators. Results for the first three quarters of FY 1998 show significant further improvement.

VHA’s Chronic Disease Care Index (Attachment 4) consists of 14 quality outcome indicators that measure how well VA follows national guidelines for high volume diagnoses such as ischemic heart disease and diabetes. Percentages reflect the number of patients who actually receive a required medical intervention. The Chronic Disease Care Index in the aggregate rose 73 percent in FY 1997, compared to baseline data obtained in late FY 1995 and FY 1996. Again, where comparable data exist, VA consistently outperformed the private sector, ranging from being 21 percent to 124 percent better on individual quality indicators. Examples of VA versus private sector performance include the rate of aspirin therapy for patients with heart disease (92 percent vs 76 percent) and the percentage of diabetics whose blood sugar control is monitored annually by a blood test (85 percent vs 38 percent). As with the Prevention Index, results for the first three quarters of FY 1998 show continued improvement.

To exemplify what these quality of care indicators mean, let me take the case of beta blocker administration in patients with ischemic heart disease. Beta blockers are a class of drugs whose use has been shown to improve long term survival in patients who have suffered a myocardial infarction ("heart attack").

Recently published research on the effect of long-term administration of beta-blocker therapy makes it possible to quantify and compare the beneficial effect on veterans of receiving care for ischemic heart disease from VA. Investigators found that the death rate for Medicare patients having ischemic heart disease was 40 percent lower for those who received beta-blocker therapy (Gottlieb SS, McCarter RJ, Vogel RA. "Effect of Beta-Blockade on Mortality Among High-Risk and Low-Risk Patients after Myocardial Infarction," The New England Journal of Medicine, Volume 339, pages 489-497; August 20, 1998). Ischemic heart disease and myocardial infarction are common conditions among veterans, and VA patients received beta-blocker therapy 71 percent of the time in 1995 – over twice the rate found for Medicare patients (34 percent) – and by the first half of 1998, VA’s rate had climbed to 87 percent – over two and one-half times the 1995 Medicare rate. If one compares a group of 100,000 VA patients with an equal number of Medicare patients with ischemic heart disease using the published 1995 data, 84,125 VA patients and 81,125 Medicare patients would have been expected to survive more than two years – a difference of 3,000 people! By 1998, the number of VA patients with ischemic heart disease who would be expected to survive for more than two years would have climbed to 85,425 – an additional 1,300 people. Said another way, if this group of 100,000 veterans had received Medicare financed care outside the VA in 1998, 4,300 of them would have had their lives shortened.

As part of our reengineering effort we have also been tracking the one-year survival rates for nine high-volume medical conditions, both as a measure of quality of care and as a way to assess the impact of the systemic changes on especially fragile cohorts of patients, since these conditions affect some of our most vulnerable patients. FY 1992 data are used as the baseline. Survival rates for several of these important conditions have increased (i.e., congestive heart failure – a 9 percent increase to 83.5 percent, chronic obstructive pulmonary disease – a 4 percent increase to 88.0 percent, pneumonia – a 7 percent increase to 89.2 percent, and chronic renal failure – an over 9 percent increase to 81.4 percent), while rates for the other conditions have remained stable (i.e., diabetes mellitus – 95 percent, angina pectoris – 97 percent, major depressive disorder – 99 percent, bipolar disorder – 99 percent, and schizophrenia – 98 percent). (See Attachment 5.)

In this regard, I might also note that a "VA Clinical Programs of Excellence" program has been established. This program recognizes the best practices in American health care, as demonstrated by clinical outcomes, processes, resource utilization and service satisfaction; 36 VA clinical programs across the country were designated as Programs of Excellence in October 1997. Another set of programs are expected to be so designated next month.

In yet another area, morbidity and mortality rates of high volume surgical procedures in the VA have consistently declined in recent years. Mortality rates for colectomy, abdominal aortic aneurysm repair, carotid endarterectomy, cholecystectomy and hip replacement are the lowest, or equal to the lowest, in the country according to a 10 year review of published studies of surgical outcomes done by Dr. Shukri Khuri, Professor of Surgery at the Harvard University School of Medicine.

Similarly, since 1994, the overall 30-day mortality and morbidity rates in VA surgical programs decreased 9 percent and 30 percent, respectively. (During this time there was no change in the patient risk profile.) Several articles about these improvements were published in peer-reviewed medical journals last fall, and an editorial by the Chairman of Surgery at Duke University endorsed VA’s approach as one that will improve the quality of surgical care throughout the nation.

VA is also leading the country in defining and measuring care at the end of life. We are using a newly developed instrument known as the Palliative Care Index (Attachment 6). This index consists of various quality of care indicators that reflect the adequacy of end of life planning for patients with terminal conditions. It was for remarkable improvement in this area that VHA received the first of its kind commendation from Americans for Better Care of the Dying in December 1997.

In yet a different area, VHA can also demonstrate significant improvement in the management of homeless persons over the past three years. Two key outcomes for homeless veterans are acquisition of a secure living arrangement and finding employment. The most recent data show that 18 percent more homeless veterans whose care was managed by VHA obtained a secure living arrangement after discharge in FY 1997 compared to FY 1994 (an increase from 44.9 percent to 53.0 percent). Likewise, from FY 1994 to FY 1997, there was a 19 percent increase (45.0 percent to 53.4 percent) in the number of veterans who obtained employment after discharge from a VA domiciliary or residential treatment program.

Finally, I should note that our Northeast Program Evaluation Center at the VAMC New Haven has recently completed a comparison of the quality of VA’s mental health services with data from the Medstat Group’s Marketscan^® Data Base, which provides information on the behavioral health performance of over 200 private insurance companies. This comparison was possible because of the Mental Health Program Performance Monitoring System that we implemented in 1995. In brief, while VA has longer lengths of stay than observed for private sector mental health care providers (most likely because of the more severe psychiatric illness and social disadvantage of VA patients), VA’s performance is comparable to or superior to the private sector on most of the measures of coverage, service delivery, efficiency and service satisfaction. Continuity of care was notably superior in VA.

Service Satisfaction

I want to also emphasize that VA’s concern for the veteran consumer is reflected in the emphasis placed on monitoring patient reported outcomes – i.e., the patient’s perspective on VA quality of care. Once more, VA has either improved during the last three years or remained stable on seven patient-reported quality indicators that were established as VA national standards for customer service. No such effort to track and improve VA customer service existed prior to 1994.

Continuing Change

With the above as a very brief summation of some of the ground that has been covered in VHA’s "Journey of Change," let me share with you some thoughts about the future.

Just as we have been influenced by multiple forces of change during the past four years, VA will continue to be subject to these same forces of change in the future, as will be private sector health care. However, there are a number of reasons to believe their effect or influence may be even more pronounced in the future than in the past decade.

As we look to the future, we also need to be particularly mindful of the projected changes in the veteran population.

Assuming no new large scale military engagements, the veteran population is expected to decline from 25.1 million in 1998 to 23.1 million in 2003 and to about 20 million in 2010. However, while the absolute number of veterans is projected to decline in the future, the characteristics of the veteran population served by VA will actually result in higher demand for health care services. In particular, this is because the veteran population is aging, becoming more female and is increasingly mobile.

Compared to private sector patients, VA’s patients are older, more likely to be disabled and unable to work, less well educated, poorer, and less likely to have health insurance or families. These characteristics will result in disproportionately greater need for services among VA’s service population than the general public in the future.

Future Directions of VA Health Care

As I look to the future, I believe the veterans health care system will continue to evolve along the lines that we have been pursuing over the past three years. I also believe that, as a result of the changes made over the past four years, the system will be well positioned to expand its services should policy decisions so dictate. Of course, underlying such policy decisions will be the central issue for health care everywhere today – i.e., the need to provide health care value.

The essential mandate for health care providers today continues to be to demonstrate good value. As we have discussed at other hearings, VA has operationalized, or defined, health care value as being the composite of achieving easy access, high technical quality, good service satisfaction and optimal patient functionality at a reasonable cost.

With this requirement for demonstrating value in mind, I see the VA health care system evolving in three general directions.

First, I see VA getting better at what it now does – i.e., getting better at taking care of service-connected and poor veterans in a system that not only provides current state-of-the-art medical care, but one that also trains tomorrow’s health care providers and one that researches and pioneers tomorrow’s health care solutions. Finding better ways of caring for VA's population of chronically ill, older and poorer veterans will ultimately result in better care for all Americans.

In pursuing this direction, I believe that VA must adhere to five key principles.

One, VA must continually focus on its core business of providing for the special care needs of veterans. This means treating spinal cord injured veterans, providing prostheses and blind rehabilitation, treating PTSD and environment exposure problems, and otherwise providing services for veterans that may not be readily found in the private sector. Likewise, VA must continue to recognize that its business is health care, and not hospital care or any other specific type of health care. Hospitals, clinics, hospices and other venues are merely the tactics by which we provide health care, whether VA owns the facilities or whether they are made available through some other arrangement.

As the VA changes, and as we take on new responsibilities or employ new methods of satisfying longstanding responsibilities, we must never lose site of the fact that the fundamental reason the system exists is to take care of the special care needs of veterans.

Two, we must concentrate on managing care, not costs. We must especially concentrate on managing the care of complex chronic conditions. This is an immense challenge for medicine everywhere and a special opportunity for VA health care.

As we look at the resurgence of rising health care 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 health care; they have not addressed the basic pathology of fragmented care, 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 it actually improves outcomes. If we truly focus on managing care to produce higher quality, then costs will decrease, for I believe that higher quality care costs less.

Three, ensuring the provision of consistently and predictably high quality care is critical. Reducing unexplained or inappropriate variation in service utilization across the system will not only result in higher quality outcomes but also greater cost effectiveness.

Four, better information and data management are essential to our future. In this regard, VA is no different than other health care systems in so far as future success is directly dependent on the ability to manage information – and information that is patient-centered instead of facility-based.

Five, everyone in health care has got to get comfortable with continuous rapid change. There is no crystal ball that can tell us what the state of U.S. health care will be three years from now, but it is clear that the rate and pace of change in health care is accelerating. In particular, the scientific and technological underpinnings of medical care are changing at an unprecedented rate. Consequently, the future of health care everywhere will be tumultuous, and one of the biggest challenges of the future will be having organizational management and financial structures that can adapt as rapidly as medical science evolves.

A second general direction I see VA care moving in is in taking care of an increasing number of the military-related family, whether it be more higher income veterans, more active duty military personnel, and/or more military dependents and retirees. In contrast to the past, however, I see this occurring primarily because VA will be seen as providing better health care value than other health care providers. These new users of the system will have options and will, I believe, increasingly choose VA to be their provider because of VA’s superior service and superior quality. This expansion will occur as the natural sequel to actions that have already been taken and/or policy

decisions that have already been made, such as VA’s rapidly expanding relationship with DoD and TRICARE and the decision to enroll all seven priority levels in FY 1999. Of course, a particular advantage of doing this is that it will generate revenue that will augment our Congressional appropriation and allow VA to take care of more service-connected and poor veterans.

Finally, a third general direction I see VA health care going is having an expanding role in providing for the public’s good by using VA’s existing infrastructure and unique array of resources to address more general public needs. This can, and I believe will, take many forms, whether it be better preparing local public service agencies for terrorist actions involving weapons of mass destruction or in providing services to other publicly funded health care beneficiaries.

In contrast to some who might see this direction as a threat to the veterans health care system, I see it as helping to ensure the future of VA health care.

In the past, the veterans health care system was too insular, too introspective and too isolated. In today’s rapidly changing world isolationism is a prescription for doom. VA’s future viability will be enhanced by forging relationships with others – relationships that will help a population that has had less exposure to, and that has less understanding of, veterans and military issues; and relationships that will increase understanding of the value and benefits of maintaining a publicly funded direct care system that has as its primary mission providing care for the men and women who have served this country in the military.

Conclusion

In closing, I would underscore what I said to the Committee during my confirmation hearing on September 13, 1994. Specifically, I said:

I believe much progress has been made toward this end over the past four years, and I feel much more confident about the future of the veterans health care system today than I did when I assumed office four years ago.