Many studies have documented US health care’s high administrative costs, with several studies pointing to complex billing processes as drivers of those costs. Several analyses have compared US administrative costs or staffing with those in other nations,but none have examined Veterans Health Administration (VHA) facilities.
A new study published in the journal JAMA Network Open, by researchers at Hunter College of the City University of New York, Harvard Medical School, the Veterans Health Administration, and the University of Washington, points fingers at profit-driven private facilities and insurers, where a whopping 30% of staff are stuck in the tangled web of paperwork, while the VHA shines with a lean 22.5% administrative staff.
That means nearly 900,000 fewer paper pushers would be needed if private hospitals, clinics, and insurers took a page from the VHA’s playbook. And most of the bloat comes because profit-seeking insurers try to avoid paying for care by imposing complex rules and documentation requirements.
The VHA’s leaner administrative staffing likely reflects the agency’s simpler financing scheme. High administrative costs in the private sector have been attributed to the complexity of collecting revenues. Health care institutions bill for individual patients and services and interact with insurers that have varying fee schedules, deductibles, prior-approval requirements, formularies, and referral networks.
Even capitation payment schemes generally entail risk-adjustment calculations requiring detailed tracking of each patient’s service use, diagnoses, and costs. In this context, investments in administration may make financial sense, for example, increasing revenue by documenting more diagnoses.
Financial success is key to private sector institution growth and even survival, and executive compensation is often linked to financial metrics. This could incentivize efforts to improve efficiency but could also encourage revenue-enhancing administrative activities that add little clinical value (eg, marketing and upcoding).
In contrast, VHA hospitals and clinics are funded mostly through lump-sum budgets. The VHA does not bill Medicare or Medicaid and collects only 2.7% of its revenues from private insurers and 0.3% from patients,minimizing the need to attribute costs and charges to individual patients. In the VHA, all facilities are in network, 1 formulary applies to all patients, and few services require prior authorization. While managers must adhere to budgetary constraints and provide a volume of clinical services commensurate with their budgets, incentives based on financial metrics are minimal for hospital leaders and their institutions.
“Our profit-oriented system rewards providers for devoting more resources to gaming the payment system,” said lead author Dr. Steffie Woolhandler.
“In the VHA, caring for our patients – not money – is at the center of our mission,” said Dr. Andrew Wilper, chief of staff at the Boise, Idaho, VHA and associate professor of medicine at the University of Washington. “We strive to care for those who have served in our nation’s military and for their families, caregivers, and survivors.”
A 2014 Congressional Budget Office review found suggestive but not conclusive evidence that VHA care was cheaper than private sector care. A 2022 quasi-experimental study of patients with myocardial infarction who had both Medicare and VHA coverage found 21% lower costs and lower mortality in the VHA. This finding was consonant with an analysis that found fewer complications among patients who underwent knee replacement in the VHA. A 2023 comprehensive review concluded that VHA care was generally of equal or better quality compared with the private sector.