Is a national health service really such a bad idea? The VA Example

November 7, 2011

Many Americans have an almost visceral reaction against what is sometimes called “socialized medicine.” Socialized medicine is often discussed in the context of the British Health Service – where the government is both the payer and the employer of those delivering care. But the irony is, we have a superb example of a very similar approach here in America: the U.S. Department of Veterans Affairs.

With roots back to the 1600s, the modern Veterans Administration (VA) was formed in the 1930s to provide a range of services to returning veterans. In 1930 there were 54 VA hospitals; today there are 171 medical centers, more than 350 outpatient, community, and outreach clinics, and 126 nursing home care units. In 2006, the Veteran’s Health Administration employed more than 200,000 full-time equivalent employees and provided services to more than five million veterans and another 400,000 individuals throughout the country.

Recent analyses show the VA outperforming both Medicare and the private sector on overall quality and cost. Adjusting for the changing mix of patients, the Congressional Budget Office estimated the growth of VA budget authority per enrollee (in real terms) to be just 1.7 percent from 1999 to 2005 (0.3 percent per year), while Medicare’s real rate of growth was 29.4 percent in cost per capita (4.4 percent per year) and private health insurance premiums increased from a low of 5.3 percent (1999) to a high of 13.9 percent (2003). While private sector data were not adjusted for changes in benefit design, few would doubt that real cost growth in the private sector was higher than the VA’s for the same period.

Of course, the VA has certain inherent advantages over other health systems. For example, federal law enables the VA to purchase pharmaceuticals at lower prices than virtually any other payer, and because the VA is a single system with a defined set of benefits, it is less administratively complex than the highly pluralistic private sector.

In the 1990s, VA leadership began a concerted effort to improve quality. They adopted key tenets proposed by the Institute of Medicine and disseminated them throughout their facilities and programs. By the mid-2000s, the VA began to be recognized as a leader in health care quality and safety. A study in the New England Journal of Medicine showed VA patients receiving quality of care better than the Medicare fee-for-service system. And, a study reported in the Annals of Internal Medicine noted that 67 percent of VA patients received the care specified by key quality indicators, compared with 51 percent of the patients in the national sample.

While there are many potentially confounding variables when analyzing the VA’s performance compared to the private sector or Medicare (e.g., different benefit designs; different patient populations; different geographic distribution), there is little doubt that it supports the view that a fully federally funded and run entity can provide high-quality care at a lower cost than the private sector. In looking at the reasons behind this performance, the Congressional Budget Office concluded that the “VA’s structure as a vertically integrated system that operates on an appropriation may have helped the system to focus on providing the best quality of care possible for a given amount of funds.” This finding is consistent with what has been found with health care internationally: strong, centralized systems have generally outperformed the United States with both lower per capita health spending and better population health performance.

While some in the U.S. believe that a centralized, federally-run system could not work in this country, the VA is a clear, real life demonstration that that belief is simply not true.