VA Better than Private Care on Mortality & Costs

March 5, 2022

Summary: An excellent study using a sophisticated research design (geeks: instrumental variable) finds that Veteran’s Affairs care lowers mortality by nearly half and costs by one-fifth after an emergency visit. Government care beats private care, reminding us of the advantages of a committed and well-run health care system.

Is There a VA Advantage? Evidence from Dually Eligible Veterans
Working Paper 29765
National Bureau of Economic Research
February 2022
By David C. Chan Jr et al.

Abstract

We study public vs. private provision of health care for veterans aged 65 and older who may receive care provided by the US Department of Veterans Affairs (VA) and in private hospitals financed by Medicare. Utilizing the ambulance design of Doyle et al. (2015), we find that the VA reduces 28-day mortality by 46% (4.5 percentage points) and that these survival gains are persistent. The VA also reduces 28-day spending by 21% and delivers strikingly different reported services relative to private hospitals. We find suggestive evidence of complementarities between continuity of care, health IT, and integrated care.

From the Conclusion

The structure of health care delivery to US veterans provides a distinctive research opportunity, allowing us to study fundamentally different systems of health care that coexist for a large patient population. Specifically, millions of older veterans (those at least age 65) are dually eligible for care in a public system operated by the Veterans Health Administration or in private-sector hospitals financed by Medicare. Our work has current policy relevance, as the Department of Veterans Affairs is now considering whether to bolster its existing public delivery system or to replace it, either partially or entirely, with a system of financing private care.

We find a significant VA advantage. The VA outperforms the non-VA alternative in a wide variety of locations and for all types of patients that we consider. Importantly, the VA also reduces total spending by 21% relative to non-VA providers, which points to higher productivity in the VA than in the private sector. We demonstrate striking differences in the procedures reportedly performed at the VA vs. those reportedly performed by non-VA providers. These differences relate to the underlying arrangements in which public vs. private providers are funded in the US (and other developed countries). For example, veterans with prior VA care (and those who are more likely to use the VA) have larger survival gains from VA assignment.

Our results contribute more broadly to two streams of literature on the efficiency of production. First, we contribute to the descriptive analysis that compares the performance of the US health care system to systems in other developed countries (Blank, Burau, and Kuhlmann 2017). By almost all accounts, comparisons of US health outcomes and health care spending are unfavorable with those of other developed countries (Garber and Skinner 2008; Rice et al. 2013). Our analysis points to a potentially significant source of inefficiency in the US context: its version of private provision of health care. This arrangement rewards costly but not necessarily efficient care. Although several developed countries that outperform the US also feature private provision of care, the US system arguably has the most complex configuration of financing and delivery, with high levels of uninsurance, administrative costs, and fragmentation (Cebul et al. 2008). These well-known information and coordination gaps may be fatal, at least for veterans in emergencies.

Second, we provide empirical support in the context of health care for the general idea of production complementarities among three innovations in production: workplace reorganization, products and services, and information technology (IT). Hospitals without a broad network of clinics and a clear mandate for a population’s health may find it difficult to reorganize and redefine their services to optimize patient health. Complementarities in health care production may pose barriers for replicating the VA advantage in the fragmented private landscape of US health care.

Comment by: Don McCanne

With the high costs and gross inefficiencies in how we pay for health care that have left so many without care and with financial hardship, we have been working for decades on reforming the system. Rather than converting health care to a predominantly government owned and operated system, we have left the delivery system owned largely by private non-profit and for-profit entities, while professing to support public financing of care. Yet we are in the process of turning over the administration of Medicare and Medicaid to private entities, with well documented adverse consequences. Private equity firms have moved into health care en masse with the expected dire consequences for health care justice.

Contrast that with the government health care program that lies before our very eyes: the US Department of Veterans Affairs (VA). The government-owned and operated system (i.e., designed and operated coherently) saves lives and reduces costs! Lest one be tempted to challenge the qualifications of the authors, one of them, David Card, was a co-recipient of the 2021 Nobel Prize in Economic Sciences.

We have the money to provide high quality, comprehensive care to everyone. We obviously do not have the correct policies in play. It is time that we take a step back and see where we have gone wrong, and then correct our policies. We are long past due for providing health care justice for all.

Editor’s note: Although Medicare-paid services fared worse in this comparison, let’s not blame the funding. Public financing won’t yield top results if private insurers meddle and providers are profit-driven. We need a commitment to access and quality from coverage through care. – JGK