Methods for estimating and comparing VA outpatient drug benefits with the private sector

Estimating private sector values for VA health care: an overview

OBJECTIVES

To provide an overview of methods used to establish what taxpayer costs would be if all Veterans Health Administration (VA) patient care were paid for by the federal government but provided in the private sector.

METHODS

Study assumptions included (1) that there would be a hypothetical policy change to pay for VA care through a Medicare-based fee-for-service program, (2) that the VA coverage benefit would not change, (3) that practice styles would remain the same, and (4) that there would be no impact on market values. To achieve the objective, project staff adapted Medicare payment schedules and guidelines, where available, with oversight of an advisory committee with VA and non-VA expertise in costs and data. For six sites, detailed payments were estimated using VA utilization databases and software and Medicare rate schedules available in the private sector. Overhead, interest on capital, and malpractice costs were added to VA-reported operating costs. Patient severity was examined, and patient-level costs were explored.

FINDINGS

Detailed methods for pricing seven types of health services are presented. Three methods articles focus on process issues.

DISCUSSION

Because VA care is not directly comparable with private sector health care as a result in part of differences in benefits covered and the scope of services provided, estimating costs for this care based on a private sector model requires careful consideration of market valuation approaches. The articles in this supplement describe the methods used to estimate market values for VA care so that other researchers can use them in future studies.

Using the cost distribution report in estimating private sector payments: what adjustments should researchers make?

OBJECTIVES

To reapportion Veterans Health Administration (VA) annual expenditures into benefit categories for comparison with estimated payments by private sector providers.

METHODS

Total expenditures for six VA medical centers for federal fiscal year 1999 were reapportioned by benefit category using the cost distribution report (CDR). Health benefit categories were based on those of health care insurers. Cost reapportionment was based on CDR data and reviews of source accounting and payroll documents.

RESULTS

Actual expenditures for many benefits can be accurately identified and reapportioned using CDR data, but other expenditures were not identifiable in the CDR and required inspection of source documents. Inpatient expenditures amounting to $75,110,094 US dollars and outpatient expenditures amounting to $73,594,284 US dollars were reapportioned into other benefit categories, primarily professional fees. Expenditures for some VA benefits could not be identified because of differences in accounting and clinical practice between the VA and the community.

DISCUSSION

Revisions to bring the CDR more in line with private sector payment categories would improve effectiveness for internal VA analyses and external expenditure comparisons. CDR revisions would require changes in recording some clinical workload (eg, rehabilitation and extended care) and classifying residential and domiciliary programs separate from inpatient care. Benefits that were not assigned expenditures for comparison with payments represent a potential liability if the VA were to purchase health care services in the marketplace. Variation among hospitals on expenditures not clearly identified in the CDR was significant and raises questions about the effectiveness of capitated budget methodologies using either the CDR or the decision support system.