With a federal mandate to improve the Veterans Affairs healthcare system, a new center in the Department of Veterans  Affairs will test new models for providing and paying for medical services.  More than 9 million U.S. veterans receive their healthcare through the VA.   

In a perspective in the April 25 New England Journal of Medicine, experts with experience in healthcare payment and delivery policy generally, as well as in the VA specifically, examine the charge of the VA Center for Innovation for Care and Payment. They also suggest measures that could accelerate progress.

Read the NEJM Perspective, "The VA MISSION Act -- Creating a Center for Innovation within the VA."

The senior author of the perspective is Dr. Joshua M. Liao, associate medical director of contracting and value-based care at UW Medicine.  He is also an assistant professor in the Division of General  Internal Medicine in the University of Washington School of Medicine and a senior fellow at the Leonard Davis Institute of Health Economics at the University of Pennsylvania.  There he built deep expertise  in the design and implementation of value-based payment reforms.

The lead author of the NEJM perspective is Dr. Ashok Reddy, also a UW assistant professor of medicine and a core investigator at the Center of Innovation for Veteran-Centered and Value-Driven Care at the VA Puget Sound Health Care System. He is a practicing primary-care provider with expertise in health service research and evaluation of primary-care delivery reforms.  They collaborated with Dr. Stephan Fihn, UW professor of medicine and of health services.  Fihn is a primary-care physician and a researcher who has conducted national studies on VA health-care delivery.

Signed into law on June 6, 2018, as part of the VA Maintaining Internal Systems and Strengthening Integrated Outside Networks (MISSION) Act, the national VA Center for Innovation for Care and Payment will receive $50 million per year in funding to achieve its mission.

The NEJM perspective draws important similarities and critical distinctions between this center and the Center for Medicare and Medicaid Innovation, which was created as part of the Affordable Care Act. That center has been allocated $10 billion over 9 years to improve the value of care by containing costs and increasing the quality of care for more than 110 million Medicare and Medicaid patients.

Liao said that promising initiatives piloted at either of such innovation centers could have wider influence on the nation’s healthcare, going beyond government-payers and influencing policy from other health-care insurers and organizations.

“Successful models tested in centers for innovation – those that result in savings without reducing quality or that improve quality without raising costs – could be expanded to reach patients throughout the country,” Liao said.

Even unsuccessful, small pilots, he said, can provide information useful in figuring out what to do better.

Liao and his co-authors pointed out characteristic differences between Medicare/Medicaid and the VA. The VA Center for Innovation for Care and Payment will need to consider these in designing new payment and care delivery models

A key consideration, they explain, is that the programs have fundamentally different incentives for health-care providers.  The VA uses tiered capitation based on a global budget that does not depend on the amount of care provided. Instead, the budget is assigned and adjusted to specific geographic regions to account for differences in the complexity of cases in the patient population or treatment facilities.

In contrast, the traditional Medicare program operates on a fee-for-service basis in which payments to physicians and healthcare organizations reflect the volume of services provided. 

The potential unintended consequences of each payment approach differ. A tiered capitation approach could put patients at risk for having their providers skimp on needed medical services, including appropriate care such as screenings, preventive tests, procedures, treatments and counseling.  On the other hand, fee-for-service structures could create financial incentives for providers to provide too much care, for example by ordering unnecessary tests or scheduling appointments too frequently.

“The VA needs to design payment models with provisions that protect against underutilization of care while Medicare attempts to counteract overprovision of care in its fee-for-service program,” Liao said.  He gave an example of Medicare accountable care organizations, which attempt to motivate providers to keep down costs without sacrificing quality of care. In the NEJM perspective, Liao and his co-authors referred to evidence that veterans eligible for Medicare, but who decide to obtain their care through the VA hospitals or clinics, receive fewer services than those who go to community providers.

Another point of comparison between the innovation centers is that, while Medicare has used the Accountable Care Organization model and global accountability for outcomes to counteract overutilization, the VA could benefit from testing payment models whose scope is based on episodes of care. However, they caution that these should be formulated in conjunction with primary-care efforts, such as the medical home model that coordinates the patient’s overall care.

VA patient populations and Medicare fee-for-service patient populations also tend to have different sets of most common medical conditions. For example, veteran populations are at risk of the same conditions common in the greater population, such as heart disease and cancer, but they also have a greater need for mental health services.

“Demand for mental healthcare has overwhelmed the VA’s capacity,” the authors said.  The VA innovation center, they noted, could support pilots that expand veteran’s access to and reduce wait-time for mental health services. The authors also mention that the VA will need to update its aging electronic medical record system as it implements and monitors the effectiveness of payment and service reforms.

The authors acknowledge that redesigning VA health-care payment and medical services delivery systems, including changing regulations, budgets and the clinical environment will not be fast or easy.  They nonetheless believe that testing pilots that counterbalance existing incentives, testing episode-based payments, and addressing medical needs specific to the veteran population could help the VA Center improve the health of current and future veterans.