Deep Dive on Veterans Healthcare: DOGE

Article #11: Purple Wayz Navigating to the Center

Where are we? We’ve addressed the DOGE effort in the last few articles, and today we’ll take a ‘micro’ approach and look at a single agency–the Veterans Health Administration (VHA). But first, let’s zoom out to remind us where this DOGE discussion fits into the larger picture.

• The US’ annual deficits of 6-7% of GDP are unsustainable.

• The US needs to cut its deficit by $1 Trillion plus annually to get to a deficit level that would be more sustainable at around 2.5-3% of GDP.

• There are 3 major categories for improving the deficit: Discretionary Expenses (where DOGE lives), Mandatory Expenses (Social Security, Medicare etc.), and Tax Revenue. In PW’s ‘Grand Bargain’ (see Article 8), we suggest that the US needs to find $200 Billion savings in Discretionary Expenses.

So PW approves of DOGE’s goals. But on the other hand, PW wishes this would be done in a comprehensive, bipartisan ‘Grand Bargain’. Not gonna happen under Trump II, so trying to improve Government Efficiency is better than leaving things alone. PW also wishes the leader of DOGE had higher integrity, and that DOGE was wielding a Scalpel rather than a Sledgehammer. Elon & Co exaggerate. And it is clear from their tweets and statements that they have a cultural motive to many of their cuts.

A Micro view

So today we zoom into the VHA. This is the part of the overall Veterans Administration (VA) that takes care of the medical needs of our Veterans. It’s about $151 Billion, or 42%, of the VA’s expenses. The other 58% is Veterans’ Pension Benefits. My goal here is two fold: to shine some light on a large agency that needs restructuring, and also to give us all a better understanding of the underlying cost cutting processes that DOGE and agencies are employing.

A quick overview of the VHA

The VHA was formally established in 1930 by Herbert Hoover. Ronald Reagan elevated it to a cabinet level agency in 1988. The VHA is one of the US’ largest integrated health care systems, consisting of 172 medical centers and 1,138 sites of care. VA medical centers provide a wide range of offerings, including hospital-based services such as surgery and critical care. Together these health care facilities—with more than 53,000 healthcare practitioners—provide care to more than 9 million Veterans each year.

VHA hospitals and clinics are funded through lump-sum budgets. The VHA does not bill Medicare or Medicaid and collects only 0.3% of its revenues from patients. In the VHA, incentives based on financial metrics are minimal.

In 2022, the Biden Administration passed the PACT Act, which expanded eligibility to veterans exposed to toxic substances like Agent Orange. It passed 84-14 in the Senate, exhibiting VHA’s bipartisan support. The VHA expanded its size to deal with the expected increase in benefits usage, which partly explains the cost increases that ran well above inflation.

Why did I pick VHA?

The VHA is very large. Its expense growth has been dramatically outpacing overall federal expenditures. And it seems to be increasingly inefficient. In this chart below, you can see that the VHA has more than doubled its costs in 10 years in order to serve nearly the same population of Veterans.

The VHA is politically sensitive. Providing more benefits to Veterans, or preventing cuts, are political winners. Also, Veterans have historically leaned Republican. 61% supported Trump in the 2024 election. You’d think the Trump Administration and DOGE would tread lightly within a key part of its support base.

Finally, VHA has a history of mixed performance. The VA’s IT systems are antiquated. Its financials are not in control. There’s a history of waiting too long for care. Its new facilities are notoriously late and waaaaay over budget. The VHA doesn’t publish productivity statistics–implying they are likely less efficient than other healthcare operators. That said, the majority of the facilities (not nearly all of them) get high patient satisfaction grades and deliver quality outcomes.

What’s going right?

In general the VHA is delivering on its mission: ‘To honor America's Veterans by providing exceptional healthcare that improves their health and well being.’

• Patient Experience is positive. VHA hospitals performed higher on CAHPS (Consumer Assessment of Healthcare Providers and Systems) quality surveys than non-VA hospitals in 2023. 79% received 4 or 5 starts, compared to 40% of non-VA hospitals.

• Quality is good. In 2023, Over 58% of VHA hospitals achieved 4 or 5 star CMS Quality Star Ratings, compared to 40% for non-VA hospitals.

• Care is tailored to veterans, who often are dealing with complex conditions. Much higher incidence of mental health issues like PTSD and treatments like amputation.

• Coordinated care. Since the vast majority of 100% of a veteran’s care is taken care of by the VHA, they can provide a more holistic view of the patient.

• Administrative cost advantage. Because the VHA doesn’t have to deal with a matrix of payors that exist in the overall healthcare system, they don’t have as many employees in financial administration. This is declining, however, as Veterans continue to use an increasing amount of non-VA health resources.

What’s going ‘less right’?

The VHA Inspector General and Financial Audits point out a number of weaknesses, mainly in systems, financial controls, and management oversight. Some of these are listed below. Also, VHA does not publish performance benchmarks other than patient satisfaction versus other hospitals and healthcare providers. While the absence of this data doesn’t prove there’s a problem, the worry is that efficiency is an extremely low priority. Here are some clues.

• Read pages 15-38 of the 2023 VA Audit. Lots of ‘material weaknesses’ and ‘significant deficiencies’ that have been around for years. This is stunning reading. If this were a public company, it would have been delisted a while ago. See Appendix below for some things you’ll never read in S&P 500 company audits. Why aren’t we holding our largest agencies to a similar high standard?

• IT systems are old, costly to maintain, and failing. From page 21 of the Audit: “Many of VA’s legacy systems have been obsolete for several years…” If the systems don’t work well, neither does the organization.

• The only performance comparison I found (after A LOT of searching) is a 2014 report by the CBO which concluded that it’s too hard to compare VHA to other healthcare providers. There’s an interesting factoid in there though: VHA primary care physicians have panels of 1,200 patients compared to 2,000 or so for the private sector. There can be a lot of noise in this, but that seems material.

• Use of Non-VA care has doubled since 2019. This tends to be higher priced at local health facilities. The increased use of non-VA care shows Veterans are voting with their feet.

• Use of outside contractors has increased dramatically. In the chart above, you can see that expenses have grown 155% while employees have grown 45% in 10 years. The difference is outside contractors.

VHA Leadership and DOGE Assessment and Recommendations:

Importantly, DOGE has acted in a consultative capacity alongside VHA leadership. Most of the important messages about VHA have been released by Secretary Doug Collins, who runs VHA. Is he acting as a DOGE puppet? Hard to tell, but at least this has much better optics than other DOGE efforts. Along with VHA leadership, DOGE has concluded that the organization is overstaffed, particularly when comparing current levels to those before the PACT Act expansion of ‘22. The VHA leadership and DOGE believe that reducing staff can lead to greater efficiency, and have talked about 80,000 cuts, or approximately 18% of the workforce. VHA leadership and DOGE have also identified hundreds of contracts for cancellation, particularly related to consulting services that they believe are wasteful. They continually cite things like PowerPoint presentations and keeping meeting minutes. DOGE believes that VHA’s use of IT could be dramatically improved, including taking in-house a number of functions that have been previously farmed out to consultants. And they think the VHA and some departments in the Center for Medicare Services (CMS) could be redundant, allowing for the elimination of some duplicative services.

Probably the most controversial aspect of this restructuring exercise is that it occurs simultaneously with the continued PACT Act ramp up. While one can argue over whether this expansion was appropriate or poorly timed–the fact is that this Act passed on a Bipartisan basis–84 yays in the Senate! VHA has no choice but to implement the PACT Act to the best of its ability.

PW’s Take. VHA needs an overhaul. If the PACT Act hadn’t been passed 2 years ago and was still in ramp up, DOGE would likely be in the ballpark with their estimate of 18% headcount reductions. But given the PACT Act, PW concludes a lower reduction given the potential increase in patients. A critical variable that is impossible to determine from where I sit: what will the utilization patterns of this new group of patients be? It’s also too hard to view their contract cancellations for appropriateness. They’re too granular. But I’m sure there is plenty of low hanging fruit here given the vast increases over the past 10 years.

In short, PW supports the effort here. I am particularly pleased that the Secretary of the VA is taking the lead, with DOGE more in the background as a resource. We haven’t heard the last of this–recommendations will continue to come in over the next few months. And that’s fine too. With such a large and complex entity, it takes time to figure out exactly what to do.

What I would have expected to hear from VHA and DOGE, but didn’t–and maybe will in the coming months:

• Establish Key Performance Indicators including provider productivity in addition to the good quality and safety measures they already have. Maybe VHA has them and just doesn't publish them?

• Consider closing facilities with the worst performance records. When 58% are getting good grades for quality, that means 42% aren’t. I’m sure some of these are in rural areas where good healthcare alternatives don’t exist. VHA has no choice but to continue to run these and likely needs to install stronger local leaders. But many low performing facilities will undoubtedly be in suburban or urban areas with plenty of healthcare alternatives. Those should be on the ‘Up or Out’ list.

• Change out the old systems NOW!! Bite the bullet. Use modern cloud-based SaaS solutions from outside vendors who know how to write and maintain code. This will be costly and painful. And necessary because these facilities will need to be running much more efficiently for years and years.

So in general, PW is less critical of the DOGE efforts here than in other departments like Education, where it’s been more ‘cultural’ and more ‘READY FIRE AIM’.

Lemme know what you think about this by commenting in the App.

NEXT UP: TAXES!!! Everyone’s favorite!

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APPENDIX: SOME EXCERPTS FROM 2023 VA Audit

• ‘In FY 2023, VA continues to have control weaknesses throughout the organization with respect to internal controls over financial reporting. These weaknesses are primarily attributed to a decentralized and fragmented organizational structure for financial management and reporting; the lack of an effective, comprehensive, and integrated financial management system and a challenging IT environment; and the undue reliance placed on manual processes to identify or correct errors with financial information. Further, active involvement from VA’s senior leadership is required to continue moving into a more collaborative strategic structure to effectively mitigate the control weaknesses identified in this report’.

• “VA lacks a strong governance process to ensure all financial reporting risks are addressed, including the lack of formalized written policies, processes, and procedures related to control activities for model governance. Also, VA has a complex, disjointed, and legacy financial system architecture that cannot fully support financial management needs without significant manual intervention.”

• “Many of VA’s legacy systems have been obsolete for several years. For example, VA’s core financial accounting system, FMS, is coded in Common Business Oriented Language (COBOL) - a programming language developed in the late 1950s and VA’s system employed at the medical centers - Veterans Health Information Systems and Technology Architecture (VistA) - was built in the late 1970s.”

• “Veterans Health Information Systems and Technology Architecture (VistA). VistA is VHA’s decentralized system utilized for patient billing and collection transactions. Each medical center has its own instance of VistA that must be separately maintained and updated. VistA contains detailed subsidiary records that support the FMS general ledger control accounts.”