VA’s Private Health Plan Faces Huge Cost Overruns

In 2014, Congress passed the Veterans Access, Choice, and Accountability Act, which set up a temporary program that outsourced veterans’ care from the Veterans Health Administration (VHA) to private sector providers. In 2018, President Donald Trump signed the VA MISSION Act, which made this outsourcing program permanent and greatly expanded it. Indeed, the legislation set up a parallel private sector network—the Veterans Community Care Program or VCCP—which pays private sector providers to treat more than a third of the nine million veterans enrolled in the VHA.

The Veterans Community Care Program promised to give veterans speedier access to high-quality care if they couldn’t get a timely appointment at the VHA or had to drive too long to get to one. Instead, as many studies have documented, VCCP care is of lower quality than that provided by the VHA. It also takes longer, on average, to get an appointment with a VCCP provider than it does with one at the VHA, and perhaps most importantly, the cost of this private sector program is soaring. Between 2014 and 2024, expenses for veterans’ care in the community quadrupled from $8 billion to $31 billion, accounting for a third of the budget for veterans’ medical services.

One reason for surging costs is that too many VCCP providers are unnecessarily utilizing high-cost tests and procedures and fraudulently billing for care that was never delivered.

These skyrocketing expenses have caught the attention of key Senate Committee on Veterans’ Affairs members. In a June 2023 hearing, Bill Cassidy, a Louisiana Republican and physician, observed that over-treatment may be a contributing cause. Three months later, Jon Tester, the panel’s chair and a Montana Democrat, picked up on Cassidy’s astute connection between private sector treatment practices and the increased billions in community care expenses. Tester asked, “How do we control that?”

VCCP overtreatment and the use of expensive testing have also been identified in recent scientific and government studies. One recent study scrutinized the care of veterans with prostate cancer. This is the most common cancer among veterans, particularly those who served in the Vietnam War, where they were exposed to the carcinogenic herbicide Agent Orange, used as a defoliant in Southeast Asia. The study, published in the medical journal JAMA, tracked 10,000 veterans with newly diagnosed prostate cancer whose biopsies revealed “clinically insignificant” low-risk disease. Since men designated as low risk are more likely to die of old age or some other condition than prostate cancer, the JAMA authors explained that the professionally recommended standard of care is what is called “watchful waiting.” Watchful waiting is the accepted standard because recommending aggressive testing and procedures does little good and can cause serious harm to patients whose tumors aren’t progressing. Complications of prostate surgery and radiation include impotence, incontinence, hair loss, bowel problems, and even death.

Despite these well-known problems, the JAMA study found that VCCP providers were twice as likely to provide veterans whose prostate cancer was deemed low risk with expensive, unwarranted, and potentially risky surgery or radiation.

Reviewing the use of imaging services in the VCCP for various other medical conditions, a 2021 Congressional Budget Office (CBO) analysis reported findings that mirrored those in the JAMA study. When veterans were referred for imaging services, VCCP contractors used magnetic resonance imaging instead of less costly tests like computed tomography scans and X-rays. The CBO explained, “Some of those practice differences might stem from the cost control and incentive structures of VHA physicians and private sector providers. VHA does not control the amount or type of services veterans receive once they have been referred to outside providers for a particular episode of care.”

Furnishing veterans with more expensive services might theoretically be justified if it produced better outcomes. Three economists connected to the Bureau of Economic Research tested this hypothesis in a meticulously designed study of dually eligible veterans experiencing a medical emergency. An ambulance transported them to either a VA or private sector emergency department. The results of their respective care revealed that overtreatment was associated with poorer outcomes. Veterans who went to a non-VA facility received more services attached to higher reimbursement rates, for example, a cardiogram or inpatient admission. But rather than improving their lives, veterans brought to private sector EDs had a 46 percent greater chance of dying in the following month than if they’d gone to a VA facility.

Excessive use of expensive and/or unnecessary procedures isn’t the only way that VCCP providers endanger veterans and the financial viability of the VA’s healthcare system. Another is overcharging for services. One form of this is called “upcoding,” i.e., assigning an inaccurate billing code to a medical procedure to increase reimbursement. For example, a provider bills for a “Level 4” complex evaluation and management procedure even though the documented medical notes reveal only Level 3 elements were furnished.

The VA’s Office of Inspector General (OIG) found that, in FY 2020, “at least 37,900 providers of about 218,000 community care providers billed level 4 and level 5 evaluation and management services significantly more often than all other providers in their specialty—a potential flag for upcoding.” A separate 2021 OIG audit found that 76 percent of acupuncture and 55 percent of chiropractic claim treatments were not supported by medical documentation. The ambulance study cited above also found that non-VA hospitals were five times more likely to report high complexity (and more highly reimbursed) evaluation and management services than VA facilities.

Another form of overbilling prevalent in the VCCP is to charge twice for the same service. For example, a surgeon who stops by for a post-surgery visit cannot bill separately for that service because it’s already included in the global surgery package charge paid for by the VA. But the OIG identified more than 45,600 community private sector providers in FY 2020 who were paid about $38 million for evaluation and management services while the global surgery package was in effect, charges that they declared were “more apt to be improper.”

The pattern of overtreatment and fraudulent billing in the VCCP is hardly unexpected. VHA providers, all on salary, work in a mission-driven system that focuses on enhancing patient outcomes. VCCP providers are paid fees for individual services and work in a system emphasizing profit maximization. This is why an article in the International Journal of Health Policy Management concluded, “There appears to be a general consensus that fee-for-service (FFS) payment is an evil practice leading to overprovision, inefficiency and uncontrollable health expenditures.” Fee-for-service, the mechanism used to pay contractors in the Veterans Community Care Program, contains a built-in incentive to overcharge or fraudulently bill for services because it is guaranteed to generate more revenue.

The authors of the JAMA prostate cancer study noted, for example, that of all the nation’s healthcare institutions, the VHA has been the only one to routinely adhere to best practices in treating low-risk prostate cancer precisely because of the lack of volume-based financial incentives for VHA clinicians.

The solution to this problem is clear. Congress must insist that the improper use of medical testing, procedures, and billing in the Veterans Community Care Program is rigorously monitored and penalized.

During the June hearing, Senator Cassidy asked Hillary Peabody, VHA Deputy Assistant Under Secretary for Health for Integrated Veteran Care, whether VCCP providers who overtreat should be excluded from the program. Peabody equivocated, responding that schedulers use the directory of VCCP providers to locate private sector care for veterans and designate which providers are deemed “high performing.” But, she added, “What we have not done is mandated that you must schedule to that (designation) or that you have to tell the veteran.” In other words, providers who do not meet industry standards or are known overutilizers remain in the network and receive referrals.

The OIG’s solutions weren’t much better. Upon detecting rampant overbilling, their chief proposal was that community care providers be given more education on how to bill correctly—barely a slap on the wrist.

The VA and its OIG must get serious about these issues. Providers who overutilize unnecessary high-cost treatments should be identified and dropped from the program. Providers who fraudulently bill the government—something illegal and subject to severe sanctions in the Medicare program—should not only be ejected from the Veterans Community Care Program but also subject to fines or criminal prosecution.

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