Cost Savings from an Integrated Health Care System

That fragmentation of the health care system lies at the root of much of the waste and fraud in our health care system.   Each player tries to pump up profits and often waste through excessive billing of third parties. Each party avoids taking responsibility by shifting the increased costs onto government or other third party providers. Short-term profiteering means long term investments in preventive care or technology gets shortchanged.

A recent Business Week profile (read the whole article at the link) of the Veterans Administration health system emphasized that an integrated health care system like the VA can accomplish savings that the rest of the balkanized for-profit health insurance system cannot.  

After reforms in the 1990s, the 154 hospitals and 875 clinics run by the VA now rank as best-in-class on health quality, on measures ranging from quality of chronic care to percentage of members receiving flu shots to having a prescription accuracy rate of 99.997% (compared to a 3% to 8% inaccuracy rate more generally).  According to research by the University of Michigan, the VA now outranks private-sector hospitals in patient satisfaction.

And the VA delivers this quality at a cost of $5000 per patient versus a national average of $6,300.

How does it achieve these savings and quality?  According to Business Week:

  • Not having to rely on piecemeal insurance payments means the VA can finance large-scale improvements such as the electronic medical-records system, up and running in all of its facilities since 2000-- compared to just 20% of civilian hospitals with computerized their patient records. When hospitals were evacuated from New Orleans during Hurricane Katrina, the VA's patients were the only ones whose medical records could be accessed immediately anywhere in the country.
  • Because the VA treats patients throughout their lives, it can invest in prevention and primary care, knowing it will reap the benefits of lower long-term costs. Because the government pays the bills, the VA doesn't have to waste time or money on claims-related paperwork.
  • Unlike Medicare, the VA is allowed to negotiate prices with drug companies and other suppliers, and it uses that power aggressively. The consumer group Families USA estimates that Medicare Part D enrollees, on average, pay 46% more than the VA for the same drugs.
  • And because its doctors are salaried employees, the VA can implement systemwide changes without having to persuade outside doctors to go along (and without doctors having a financial incentive to undermine reforms by self-referrals or other profiteering).
  • The VA uses the data gathered in its computers to pinpoint problem areas, such as medication errors. The network also allows it to track how closely the medical staff is following evidence-based treatment and monitor deficiencies.

States can and will continue to pursue piece-meal reforms, but as they seek to achieve more universal coverage, as we discussed in a recent Dispatch, they can take lessons from the VA and begin ending the fragmentation of health care systems in favor or encouraging more integrated and publicly-accountable health care systems.

States may not achieve the level of integration of a completely publicly-run system like the Veterans Administration, but by simplifying and integrating health plan options across employers and the public sector, states can create more of the accountability and cost savings that in turn can help finance those broader health coverage goals.

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