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The Effect Of Reforms On Spending For Veterans’ Substance Abuse Treatment, 1993–1999

In the past decade several initiatives have transformed the VA.¹ These policies were inspired by changing views about the role and size of government and by growing use of managed care. This paper considers the effect of these changes on specialized VA programs for substance abuse treatment.

Kenneth Kizer, former under-secretary for health, initiated the organizational and financial changes in 1995. He directed the VA to follow the lead of managed care organizations by shifting care from the hospital to outpatient settings.² By September 1996 the VA had closed 2,409 inpatient beds and increased outpatient treatment by 2.44 million visits (9.2 percent). Kizer also reduced the headquarters staff by 25 percent and delegated administrative control to the director of twenty-two regional authorities, called Veterans Integrated Service Networks (VISNs). Each VISN was assigned five to ten medical centers and their associated satellite outpatient clinics.

The shift to outpatient treatment was facilitated by eligibility reforms in 1996.³ Historically, income-eligible veterans qualified only for inpatient VA services or for care needed to prevent a hospital stay. Congress changed this law, making these veterans eligible for outpatient services as well.

In 1997 the VA adopted an ambitious five-year reform plan. The VA sought to expand the number of veterans served by 20 percent and to decrease the average per patient expenditure by 30 percent.⁴ To achieve these goals, the VA used the managed care concept of membership-based global capitation.

This concept was new for the VA. Despite earlier attempts at reform, the budgets of VA medical centers were historically based on the prior year’s allocations, with annual increases. ⁵ Under the new approach, the Veterans Equitable Research Allocation (VERA) system established budgets based on the number of veterans served by the regional VISN network. A three-level case-mix measure was used to set capitation payments. This new allocation method dramatically shifted funding from the northeastern United States to the South and Southwest. It also gave regional VISN networks strong incentives to serve more patients and to reduce the cost per patient treated.

To judge the performance of VISN administrators, the VA adopted a series of measures, including measures of quality of care, provision of preventive services, and patient satisfaction. The number of inpatient days per thousand enrollees was also used as a performance indicator. VISN administrators received salary bonuses for meeting the performance guidelines and were sanctioned for failing to meet them.

These reforms have had a large impact on the VA. Some of the impact on specialized substance abuse services has been reported previously, but the effect on total spending for substance abuse treatment, the number of persons receiving this treatment, and the cost per patient treated have not been considered.⁶

The objective of this study is to examine spending for substance abuse treatment services before and after the VA reforms. We integrated information on costs, the number of veterans treated for substance abuse, and the volume of services to determine the average cost per VA user. This paper addresses the following questions: How did funding for specialized substance abuse treatment in the VA change? How did this affect the size of the population treated? What was the change in the quantity of services used and in the average cost of providing each service?

Data And Methods

 
Information on VA inpatient and residential care was drawn from the VA Patient Treatment File (PTF). The PTF consists of a discharge file, which reports all inpatient stays that end during a given year, and a census file, with data on patients who remain in the hospital at the end of the year. We used days and number of stays as our measure of volume. We counted lengths-of-stay (in days) provided in each federal fiscal year from 1993 to 1999. We also counted the number of stays that ended in each fiscal year.

We assigned days to either hospital or residential care based on the "bedsection" reported in the PTF. Bedsection is a VA-specific term that is most analogous to a hospital ward. It roughly corresponds to the location where care is delivered. We defined inpatient treatment as specialized substance abuse stays in an acute care hospital program or a detoxification and stabilization unit. We defined residential care as treatment in specialized domiciliary and residential rehabilitation centers. Residential care is distinguished from inpatient care by less intensive staffing and longer lengths-of-stay.

We retrieved outpatient utilization data from the Outpatient Care File (OPC). The VA characterizes outpatient encounters by a "stop code," a three-digit code that corresponds to the location where care was provided. The OPC was organized so that a single record represents all outpatient care received by a single patient on a given day. As many as fifteen different clinic "stops" may be assigned to a record. We used a "stop" as our measure of volume of outpatient services.

Data on expenditures were obtained from the VA Cost Distribution Report (CDR). The CDR is a cost-allocation report created from the VA general ledger. It reports expenditures in the departments of each medical center. Expenditures in the general ledger are distributed according to administrators’ estimates of staffing allocations. These allocations are sometimes out of date or even inaccurate, but the CDR always reconciles to the VA general ledger; it is the only comprehensive source of historical data on patient care services funded by the VA medical care appropriation.⁷

The CDR does not fully distribute overhead (indirect cost) to specific patient care departments. We assumed that overhead should be distributed among departments in proportion to the direct cost that they incur. We estimated the annual average cost for substance abuse treatment by matching the costs recorded in the CDR to the utilization reported in the PTF and OPC for each fiscal year, keeping track of cost and utilization in three provider categories: inpatient, residential, and outpatient.

Finally, to estimate the average cost of substance abuse treatment per veteran served, we identified the total number of patients who received any VA care and the number who received any specialized substance abuse treatment during each fiscal year. We also counted the number of persons who received any treatment in each of the three specialized settings. Those who received care in two or more medical centers within a year were counted only once in each total. Expenditures reported in this paper were adjusted to 1999 dollars to account for inflation using the 1993–1999 Consumer Price Index (CPI) for all urban consumers.⁸

Study Results

Top Data And Methods Study Results Discussion NOTES

 
Cost of specialized substance abuse treatment. Spending for VA substance abuse treatment declined precipitously from 1993 to 1999 (Exhibit 1).While total spending for VA health services rose 10 percent between 1993 and 1999, the amount spent on substance abuse treatment declined by 41 percent. Measured as a percentage of VA health spending, spending for specialized substance abuse care declined sharply.

Unique patients treated and volume of services. The number of patients who received specialized substance abuse treatment varied little from 1993 to 1999 (Exhibit 2). However, these veterans accounted for a dwindling proportion of all VA patients, since the total number of persons receiving health care in the VA increased markedly, from 2.7 million in 1993 to 3.4 million in 1999.

We used days as our measure of inpatient and residential utilization and clinic "stops" as our measure of outpatient utilization. Exhibit 3 shows that the total volume of specialized inpatient substance abuse care declined more than 90 percent between 1993 and 1999. In contrast, the total volume of residential care increased more than 56 percent and the number of outpatient care stops increased more than 52 percent.

View larger version (14K): [in this window] [in a new window] EXHIBIT 4 Change In Average Cost Of Substance Abuse Treatment, In 1999 Dollars, Per User Of Any VA Health Service, 1993–1999

Specialized substance abuse treatment largely moved to the outpatient setting. Of those patients treated for substance abuse, 96 percent received outpatient care in 1999, up from 84 percent in 1993 (Exhibit 3). Also, the average number of outpatient visits per patient increased from 17.7 in 1993 to 24.4 in 1999. However, average cost per outpatient visit decreased slightly. The VA may have been able to reduce costs by spreading fixed costs over a greater number of visits. In addition, a greater share of the visits were lower-cost group sessions.

Discussion

Top Data And Methods Study Results Discussion NOTES

 
Much of the documented decrease in substance abuse treatment spending by the VA took place after policy reforms were initiated in 1995. The VA budget for specialized substance abuse treatment dropped 23 percent between 1997 and 1999, while funding for all other services increased by an average of 9 percent.⁹ This reduction is consistent with trends outside the VA. During the 1990s national spending on treatment of substance abuse and mental health disorders declined greatly, despite increased funding of other types of care.¹⁰

The decrease in VA funding was largely due to changes in inpatient substance abuse treatment. Again, this mirrors changes out-side the VA, where managed care had a greater impact on use of inpatient substance abuse and mental health services than on short-term hospitalizations for other specialized treatment. While some VA medical centers greatly reduced inpatient substance abuse treatment, others eliminated inpatient care, except for short-term detoxification in extreme situations. Some facilities closed inpatient units without first developing outpatient or residential alternatives.¹¹

Accompanying the sharp reduction in inpatient services was a shift to residential and outpatient treatment. The VA adopted a form of less-intensive residential care programs. These programs were less expensive than inpatient programs, in part, because they used less-expensive staff.¹² The VA also expanded treatment in the outpatient setting, but the expense of these initiatives represented only a small fraction of the cost saved from the reduction in inpatient services.

Impact of eligibility reforms. Eligibility reforms and reductions in the average cost of specialized substance abuse treatment per user might be expected to result in more veterans receiving treatment. This did not occur. The number of unique patients receiving specialized care for substance abuse failed to keep pace with the growth in the number of veterans treated by the VA. From 1993 to 1999 the number of VA patients increased by 26 percent, even though the deaths of World War II–era veterans has reduced the total number of U.S. veterans. This was caused by changes in eligibility criteria, by expanded access to ambulatory care, and by incentives established in the VERA budget allocation system to serve more veterans.

There was no similar growth in the percentage of VA patients who received specialized substance abuse treatment services. Rather, it declined from 5.1 percent to 4.1 percent.

Changes in demand for treatment. The reduction in VA substance abuse treatment might reflect possible changes in veterans’ demand for treatment. Substance use disorders appear to be more common in veterans than in the general population. Veterans are predominantly (95.2 percent) male and are more likely to have never married, characteristics that are associated with higher risk of substance abuse.

Prevalence of substance abuse. The surviving veteran population is getting younger. Since substance abuse is more common among people born after World War II, this trend suggests that its prevalence among veterans may be rising.¹³ At the same time, the proportion of female veterans has increased; since women have lower rates of substance abuse, this trend suggests a reduction in the prevalence of substance abuse among veterans. These subtle demographic trends are unlikely to account for the dramatic changes in services that we observed.

Severity of illness. Changes in the severity of illness among veterans who receive treatment represent an indirect means of estimating changes in demand for treatment. There is evidence that patients entering specialized VA substance abuse programs are sicker than before. Between 1990 and 1997 the proportion of patients in these programs with a comorbid psychiatric diagnosis increased from 29 percent to 40 percent.¹⁴ Marital status is an important predictor of outcome; single patients are less likely to be successfully treated. The portion of VA substance abuse patients who were single increased from almost 53 percent to 70 percent. Increasing acuity is not consistent with a view of decreased demand for services, however. Instead, it suggests that reduced funding has limited treatment to only the most seriously ill and that patients with less severe disorders cannot get access to VA services.

Research needs. Further research is needed to learn if reduction in VA funding for specialized treatment has shifted costs to other VA programs. Given the epidemiological relationship between mental health and substance abuse, reduction in specialty substance abuse services may have resulted in increased demand for VA psychiatric care. Research is also needed to assess the impact on non-VA programs. A substantial proportion of VA mental health patients use non-VA services.¹⁵ Reduced access to VA treatment is likely to have affected non-VA providers. It is also possible that some patients are simply forgoing treatment.

Further research is also needed on how reduced VA support for substance abuse treatment has affected patient outcomes. Of special concern is the effect on severely impaired and socially isolated patients.

In the interim the VA needs to change its budget-allocation formula. There is evidence from evaluations of Medicaid managed care that inadequate risk adjustment reduces access and quality of care for severely disabled patients.¹⁶ The relatively crude risk adjustment employed in the VERA allocation system does not reflect the extra resources needed to treat veterans with substance abuse problems. Instead, it sets up incentives to seek out and enroll healthy veterans. Therefore, it is likely that the VA will have to improve its measure of case-mix adjustment to account for diseases prevalent among veterans, such as substance use disorders.

Editor's Notes

 
Shuo Chen is a research associate at the Health Economics Resource Center and the Center for Health Care Evaluation, Veterans Affairs (VA) Palo Alto Health Care System. Todd Wagner is a health economist at the Health Economics Resource Center, Palo Alto VA Health Care System, and the Center for Health Policy, Stanford University. Paul Barnett is director and a health economist at the resource center and the Department of Health Research and Policy at Stanford University.

The authors gratefully acknowledge the support of the VA Health Services Research and Development Service and the helpful comments of Keith Humphreys, Rudolf H. Moos, John W. Finney, and John D. Piette. They also thank Sally S. Hui for her help in editing the manuscript. The views expressed in this paper are those of the authors and do not necessarily represent the views of the Department of Veterans Affairs.

NOTES

Top Data And Methods Study Results Discussion NOTES

 

1. J.K. Iglehart, "Reform of the Veterans Affairs Health Care System," New England Journal of Medicine 335, no. 18 (1996): 1407–1411.[Free Full Text]
2. K.W. Kizer, Vision for Change: Plan to Restructure the Veterans Health Administration (Washington: Department of Veterans Affairs, 1995).
3. Veterans’ Health Care Eligibility Reform Act of 1996, P.L. 104-262, 104th Cong., 2d sess., 98 U.S. Code, sec. 101, 9 October 1996.
4. Veterans Health Administration, Journey of Change (Washington: Department of Veterans Affairs, 1997).
5. U.S. General Accounting Office, Veterans’ Health Care: Facilities’ Resource Allocations Could Be More Equitable, Pub. no. GAO/HEHS-96-48 (Washington: GAO, 1996).
6. K. Humphreys, "Treatment of VA Inpatients with Diagnoses of Substance Abuse," Psychiatric Services 48, no. 2 (1997): 171.[Free Full Text]
7. R.W.J. Swindle, M.C. Beattie, and P.G. Barnett, "The Quality of Cost Data: A Caution from the VA Experience," Medical Care 34, no. 3 (1996): MS83–MS90.[Medline]
8. Bureau of Labor Statistics, Consumer Price Index —All Urban Consumers, 25 April 2000, <stats.bls.gov/cpihome.htm> (24 April 2001).
9. P.G. Barnett, S. Chen, and T.H. Wagner, "Determining the Cost of VA Care with Average Cost Method for the 1993–1997 Fiscal Years" (Unpublished report, Department of Veterans Affairs Health Economics Resource Center and Center for Health Care Evaluation, Palo Alto, California, 2000).
10. T.L. Mark et al., "Spending on Mental Health and Substance Abuse Treatment, 1987–1997," Health Affairs (July/Aug 2000): 108–120.
11. VA Committee Minority Staff, "Report on Minority Staff Review of VA Programs for Veterans with Special Needs" (Unpublished report, U.S. Department of Veterans Affairs, Washington, D.C., 1999).
12. T.H. Wagner and S. Chen, "Cost Savings from Adopting Psychosocial Residential Rehabilitation Treatment Programs as an Alternative to Traditional Psychiatric and Substance Abuse Inpatient Care in the VA" (Upublished paper, Department of Veterans Affairs Health Economics Resource Center, Palo Alto, California, 2000).
13. B.F. Grant, "Prevalence and Correlates of Drug Use and DSM-IV Drug Dependence in the United States: Results of the National Longitudinal Alcohol Epidemiologic Survey," Journal of Substance Abuse 8, no. 2 (1996): 195–210.[Medline]
14. K. Humphreys et al., "Alcohol and Drug Abuse: The Transformation of the Veterans Affairs Substance Abuse Treatment System," Psychiatric Services 50, no. 11 (1999): 1399–1401.[Free Full Text]
15. H.A. Rani and R.A. Rosenheck, "Cross-System Service Use among Psychiatric Patients: Data from the Department of Veterans Affairs," Journal of Behavioral Health Services and Research 27, no. 1 (2000): 98–106.
16. C.F. Chang et al., "Tennessee’s Failed Managed Care Program for Mental Health and Substance Abuse Services," Journal of the American Medical Association 279, no. 11 (1998): 864–869.[Abstract/Free Full Text]

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