Reinventing Government-Provided Health Care:  The 'New VA'
30 April 1999

Kenneth Kizer, MD, MPH
Under Secretary for Health
Veteran Health Administration

Biosketch     Summary

Dr. Kenneth W. Kizer was confirmed by the U.S. Senate as VA's Under Secretary for Health on September 28, 1994. In this capacity, Dr. Kizer functions as the chief executive officer of the Veterans Health Administration. He oversees the nation's largest integrated healthcare system, with a medical care budget of over $17 billion, approximately 200,000 staff and 172 hospitals, 376 ambulatory care clinics, 131 nursing homes, 33 domiciliaries, 205 readjustment counseling centers and various other facilities. In addition to its medical care mission, the veterans healthcare system is the nation's largest provider of graduate medical education and one of the nation's largest research organizations. Since assuming his position, Dr. Kizer has become the chief architect of re-engineering the veterans healthcare system.

Dr. Kizer's professional experience prior to joining VA includes positions in the private sector, philanthropy, academia and state government. Among the corporate and philanthropic boards he has served on are Health Systems International, Inc., one of the nation's largest managed care companies, and The California Wellness Foundation. He has held senior academic positions at the University of California, Davis, and continues as an Adjunct Professor of Public Policy at the University of Southern California. Among his state government positions, Dr. Kizer was Director of California's Department of Health Services for over six years, during which he set a record of both achievement and longevity. He has served on the boards of a number of other foundations, companies and professional societies, and been a consultant to several foreign countries.

Dr. Kizer is an honors graduate of Stanford University and the University of California, Los Angeles. He is board certified in five medical specialties, and has authored over 300 articles, book chapters and other reports in the medical literature. He is a Fellow of the American College of Emergency Physicians, the American College of Occupational and Environmental Medicine,
the American Academy of Clinical Toxicology, the American College of Preventive Medicine, the Royal Society of Health, and the Royal Society of Medicine. He is also a Fellow of the international Explorer's Club and a nationally recognized expert on aquatic sports and wilderness medicine.

In 1995, the Veterans Health Administration initiated the most far-reaching transformation of the veterans healthcare system to occur since the system was formally established in 1946.  This transformation was predicated on a number of fundamental principles, including the notions that the patient should be the center of the healthcare universe and that the most critical need for all healthcare organizations today is to demonstratively provide excellent healthcare value.  This session will review the structural, operational and philosophical transformation of the veterans healthcare system, focusing especially on how it has become a more customer driven and value-based healthcare organization.


Wrapping up the LDI seminar series on government-sponsored health care, Dr. Kenneth Kizer described the fundamental changes that have occurred in veteran's health care since 1995.

Dr. Kizer began with an overview of the Veteran's Health Administration, which oversees the nation's largest integrated healthcare system. The VHA has an essential role in providing medical care to veterans, training health professionals, and providing emergency management services (a.k.a. "disaster" health care). Because 35% of the homeless are veterans, it is also the largest
provider of health care to the homeless in the country.

As Dr. Kizer's tenure began in 1994, the VA, like other health care entities, faced the need to increase quality while cutting costs. "The VA had not kept up with the rest of the country," Dr. Kizer said, in terms of innovative delivery systems and quality improvement initiatives. "Care was hospital-focused, specialist-based, and episodic." The VA was widely viewed as too rigid,
too political and too difficult to access.

The changes in the VA were guided by principles that stressed the patient as the center of the health care universe. "We decided that the business of veteran's health care is health care, not hospital care," Dr. Kizer noted. Responding to trends in the past 50 years, the VA recognized that health care had become primarily an outpatient activity.

First, the VA implemented a new operational structure organized around 22 Veterans Integrated Service Networks (VISNs), replacing the previous system of free-standing hospitals and clinics operating largely independently throughout the country. In addition, the VA instituted a capitation-based method of allocating resources to each VISN, replacing the cost-based methods
of the past. "We decided that it was fair to pay the each VISN for the number of patients they take care of," Dr. Kizer explained. To compensate VISNs for highly complex and costly patients, the capitated annual rate has two levels: basic care ($2,604), which covers 96% of patients and accounts for 62% of funds, and complex care ($36,460), which covers 4% of patients and accounts for 38% of funds. This year, the VA instituted a third category for patients seen just once--$66 for a single visit.

In addition, the VA decentralized decision making. "Like politics, all health care is local," Dr. Kizer explained. To increase accountability for these decisions, the VA implemented performance contracts-the only government entity to do so.

Dr. Kizer listed the impressive accomplishments of this transformation. From 1994 to 1998, the VA closed 54% of acute care beds, decreased bed-days by 62% and staffing by 11%. At the same time, it increased the number of patients treated by 18%, increased ambulatory visits by 35%, and instituted universal primary care. "By 1998, most patients could name the person
responsible for their primary care," Dr. Kizer said. And most incredibly, 72% of all forms were eliminated. Other improvements included development of new programs for pharmacy benefits management, disease management, customer service standards, and a commercial practices approach to procuring supplies.

Most importantly, the VA developed a framework by which to measure quality. This framework includes morbidity rates, mortality rates, longevity (e.g. one-year survival rates), functionality scores, and performance indicators. Throughout the VA, function is measured by routine administration of a version of the SF-12 to patients. Performance indicators include a
prevention index (e.g. vaccination rates, cancer screening) and chronic disease care indices (e.g. hypertension control). "Our scores compare well with HEDIS measures," Dr. Kizer noted. From 1994-1998, morbidity rates declined 30%, and mortality rates decreased 9%.

Although the VA has received modest increases in appropriations in the past five years, the amounts have not fully covered the mandatory salary increases for the VA's 185,000 employees. Thus, these changes have been made without additional government funding.

Looking toward the future, Dr. Kizer noted that the demand for VA health care is higher than ever, with Vietnam-era veterans now reaching an age where they are requiring larger amounts of care. World War II veterans have increasing acute care and long term care needs. In the VA, the numbers of the oldest-old will increase 700%. "For the VA, the demographic imperative is now, but the rest of the country will be there in 15 to 20 years," Dr. Kizer stated.

Dr. Kizer identified two immediate issues that could prove costly for the VA: one, expensive new treatments for Hepatitis C, which disproportionately affects the VA patient population; and second, the proposed Patients Bill of Rights, legislation that would mandate payment for out-of-network emergency care.

In response to a question from the audience, Dr. Kizer said that lessons learned from the VA experience could be transportable to other health systems. "Fundamentally, the VA and other systems are facing the same issues. They're more similar than they are different." Specifically, he thought that other systems could learn from the VA's implementation of performance contracts to
improve accountability, and from measurement of quality through prevention and chronic disease care indices.