A Test Case
In Managed Care: VA System

As Other Plans Cut Benefits,
Veterans Health Administration
Gains Patients, Funding

By DAVID ROGERS
Staff Reporter of THE WALL STREET JOURNAL
October 24, 2005; Page A4

WASHINGTON -- Bill Clinton's revenge on conservatives could be a veterans health-care system that keeps growing in ways Republicans can't resist.

A decade ago, Republicans humiliated the Democratic president by defeating his plan for national health reform. But even as he lost, Mr. Clinton established a foothold for his ideas in the Veterans Health Administration. He brought in managers who decentralized the old structure, and invested in quality improvements and primary-care clinics like models developed in Britain.

[Clinton]

Today, the Republican lawmakers who rejected "Clinton Care" are investing billions of dollars more every year in the veterans health-care system, which has become a huge experiment in government-run managed care. Annual spending on VHA, which is part of the Department of Veterans Affairs, has grown by 58% after inflation. The number of veteran patients treated has almost doubled to 4.66 million annually in 2004.

Shortcomings remain, as documented by a recent government report on VA's handling of disability claims. But the department is also at the forefront of instituting new information technologies for medical records and negotiating lower prices from drug makers.

Congress, prodded by the veterans lobby, has sustained the transformation through annual appropriations and legislation opening the system to more veterans. The result is a new political reality: While companies such as General Motors Corp. cut retiree health benefits, and lawmakers struggle to contain Medicaid and Medicare costs, the government-run VA system increasingly is part of the safety net for the nation's aging population.

"What's wrong with expecting the government to do a good job?" asks Kenneth Kizer, Mr. Clinton's undersecretary for VA health care from 1994 to 1999. "In some ways, the VA has become the victim of its own success. More and more people want to use it."

[Growing Legacy]

That's the rub for President Bush, who has had a fitful relationship with the VA since taking over from Mr. Clinton. In wartime, the department is too much a patriotic symbol for the White House to impose deep budget cuts. But VA spending squeezes other priorities, and the administration has repeatedly proposed fee increases and tighter eligibility rules to try to reduce the patient load.

When speaking to the Veterans of Foreign Wars in late August, Mr. Bush boasted that in his first four years as president he had increased VA spending by twice as much as Mr. Clinton had in eight years. What he didn't mention was that the White House had to rush to fill an almost $3 billion VA funding shortfall that emerged over the summer.

Part of the gap came from undercounting the number of military personnel returning from Iraq and Afghanistan. The bigger, more-telling budget error dealt with nursing-home care of veterans who served long before Mr. Bush's presidency.

The White House boasted in February that it could save $496 million in 2006 by enforcing tighter eligibility standards to reduce VA's long-term care costs after Oct. 1. That represented a 13% reduction from projected costs for 2006; though thousands of patients would no longer qualify for care, administration witnesses told Congress that any veteran with a bed would be protected.

At a time when nursing-home costs are eating a hole in Medicaid budgets, it seemed too easy to be true -- and it was. The savings assumed a turnover rate among beds in VA nursing homes that proved wildly inaccurate. State veterans' homes in Mr. Bush's Texas said the tighter eligibility rules would be ruinous, because they could force facilities below a financially feasible occupancy level. Eventually, the administration asked Congress for an extra $826 million -- almost twice the predicted savings -- to meet the shortfall in 2005 and 2006.

Republican budget analysts in Congress, and some VA officials, say the assumptions behind the administration's long-term care budget savings were so faulty that they appeared to have been tailored to meet a predetermined spending target.

White House officials deny this. "Assertions that any errors were deliberate are flat wrong," says budget office spokesman Scott Milburn.

In the case of federal VA nursing homes, the VA assumed an annual turnover rate in beds of 60% to 80%; actually, VA officials say, it's closer to 30%. For state-run veterans' homes, the budget said Washington would reduce per diem payments to cover an average of just 7,217 patients -- less than half the 18,500 number for this year. Yet legislation hasn't been submitted to make this change, and VA continues to give out grants to build state homes that will depend on per diem payments.

After years of work on such VA funding battles, Rep. James Walsh (R., N.Y.), a senior member of the House Appropriations Committee, doesn't credit any particular president for what works in the VA system. Even in Mr. Clinton's case, for example, Republicans, who proposed cuts in his early VA budgets, said he shortchanged the VA later and added close to $1.7 billion to his request in 1999.

Nor does Mr. Walsh regard the VA's transformation as a notable innovation. "It's merely fixing a bad system," he says. But he acknowledges that the growth in the number of patients and lessons learned from bulk buying and new technologies are having an effect. Surveys indicate nearly a quarter of VA's enrollees have no public or private health insurance. As Vietnam-era veterans age, more turn to the VA as a backup for shortfalls in their own coverage.

Democrats like Rep. Pete Stark of California argue the VA's sophisticated electronic-records system could become a standard for the nation. In some respects, the White House's preference for publicly supported community health centers -- an alternative to expanding entitlement programs like Medicaid -- reflects the VA's influence as a model.

"I've always believed we owe the men and women who have served our country access to the highest quality health care," says Mr. Clinton.

Rep. Dennis Rehberg (R., Mont.), for example, remains opposed to a government-run health-care system. But he tells of constituents traveling hundreds of miles to take advantage of the VA hospital in his state.

"We're pretty proud of our hospital," Mr. Rehberg says. "And the price is right."

Write to David Rogers at david.rogers@wsj.com