DRI-291 for week of 6-8-14: The (Latest) V.A. Scandal: So What Else is New?

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The (Latest) V.A. Scandal: So What Else is New?

The news media has covered the recent medical-care scandal involving the Veterans’ Administration with its usual breathless urgency. Veterans of political economy find this ironic, since no feature of the political landscape is more ritualistic than the administrative scandal. Its elements are by now as stylized as those of the Japanese kabuki dance.

It begins with the uncovering of shocking facts – perhaps by journalistic investigation, perhaps by revelation from an internal source such as a whistleblower, perhaps by random circumstance. The facts are greeted first by denials, starting at the administrative level and proceeding upward – typically to the cabinet level, sometimes ending in assurance by the President of the United States that reports are greatly exaggerated.

Observers generally realize that it is the administrators and politicians who are exaggerating, not the journalists and whistleblowers, since few scandals emerge full-blown without any previous hint of their existence. Eventually, the fundamental truth of the allegations cannot be denied any longer, and the administrators and cabinet secretary in charge of the erring agency must fess up. This is the confessional stage of the scandal. It is characterized by admission of grievous fault, abject apology and plea for forgiveness, or at least understanding. The confession flagrantly contradicts previous insistence that the whole thing was an overblown attempt by political opponents to smear the present administration.

The last phase is the Presidential phase. The President is shocked, shocked to discover that error and scandal have invaded the administration of government on his watch. His attitude toward his administrative subordinates in the executive department is that of the admonishing schoolmaster: fair but firm, reluctant to punish but determined to root out all evil, to banish forever this unaccountable blot on the escutcheon of his tenure. The administrators must go, of course, even though they are able, noble, kind, determined, brave, clean and reverent. There will be an investigation, and when all the details are known, we will proceed to wipe this disgraceful episode from our memories and move on, to greater and more glorious triumphs…

The ellipsis reflects the fact that the entire purpose of the ritual is to pass through the period of scandal with the least possible political damage inflicted on the administration. The collective attitude of that of a child caught in a misdeed. The child is fully conscious of guilt; every word and action is oriented toward escaping punishment and returning to the status quo ante. Neither truth nor justice has any bearing on the child’s behavior. Likewise, they have no effect on the administration’s actions, either.

The recent V.A. scandal contains the classic elements. Not only is it predictable, it was predicted in this space in our previous discussions of the economics of medical care and Obamacare. Now the other shoe has dropped. The utter familiarity of the ritual means that the political aspects can be subordinated to our real object. It is the economic features that claim our interest.

The Details of the Scandal

The V.A. scandal concerns the provision of medical care for discharged members of the armed forces by the Veterans’ Health Administration in Department of Veterans Affairs. This is only one of the functions performed by the Veterans’ Administration, the others being administration of veterans’ benefits and supervision of burials and memorials for veterans. The cost of medical care to veterans depends on the ability to pay – it is either free or accompanied by a co-pay. When a vet is discharged from the service, he must enroll in the V.A. system in one of three ways: by calling a toll-free number, going online or visiting one of the hundreds of V.A. clinics across the country. In order to complete the enrollment process, the vet must possess his DD214 discharge form. At enrollment, the vet is given a means test to determine qualification for a co-pay.

Once enrollment is complete and the vet is accepted within the system, new patients must be seen by a physician within 14 days. Existing patients (who have already been treated and, thus, have already seen a physician for evaluation) must see a doctor within 14-30 days. The failure to meet the stipulated deadlines for these initial appointments is the gravamen of the current scandal.

The head of the V.A.’s health affairs office, Robert Petzer, testified that he knew as early as 2010 that V.A. health clinics were “using inappropriate scheduling procedures” to defer these initial appointments. The deferrals were done because of need; the clinics were simply unable to meet the demand for initial appointments. The excess demand for appointments grew over time and the situation worsened until it reached the epidemic proportions now forming the basis for periodic new revelations. Scandals within the armed forces (and the government at large) are investigated by inspectors general (known as “IGs”). An interim report on the V.A. scandal by the V.A.’s IG called the practice of inappropriate scheduling “systemic.” It involved the use of false or phony waiting lists that were tailored to give the impression that the V.A. was meeting its initial-appointment goals rather than falling further and further short of them.

The scandal erupted after a doctor at the Phoenix, AZ V.A. clinic complained to the IG about treatment delays. It should be noted that this doctor waited until after his retirement to lodge these complaints. The complaints were made in letters written in December, 2013 but did not rise to the level of a public scandal until May, 2014. It transpired that some 1,700 vets were kept on waiting lists and the average vet waited for 115 days for his initial appointment. Meanwhile, official records were falsified to hide these delays.

On June 9, 2014, the Department of Veterans’ Affairs released preliminary results of an audit of 731 V.A. clinics that showed about 57,000 vets who have currently waited for their initial appointment for an average time span exceeding 90 days. Some 13% of V.A. schedulers say they have been ordered to falsify appointment-request logs to make them compliant with the rules. The IG calls the current 14-day goal for initial appointment “unattainable” due to the logistical obstacles posed by insufficient money and personnel.

The news from Phoenix triggered a chain reaction of similar revelations from V.A. hospitals and clinics across America. In Fort Collins, CO, clerks were specifically taught how to falsify records to paint a misleadingly favorable picture of initial appointments kept. A police detective found that in Miami, cover-ups were “ingrained into the hospitals’ culture” and drugs were routinely dealt out of hospital premises. In Pittsburgh, PA, an outbreak of Legionnaire’s Disease in 2011-12 was revealed to be the product of “human error” rather than the “faulty equipment” that had been blamed in Congressional testimony last year.

The delays in initial appointments are important because they represent a delay in the potential diagnosis and/or treatment of one or more medical conditions. Much has been made of the statement by IG Richard Griffin that “we didn’t conclude…that the delay[s] caused… death. It’s one thing to be on a waiting list; it’s another for that to be the cause of death.” But in the case of 52 patients seen by the Columbia, SC gastroenterology unit of the V.A., it certainly was determined that those patients had “disease associated with” treatment delays. We are urged every day to visit our doctor, not to put off visits or hide conditions in hopes that symptoms will disappear, reminded that cancer and other diseases are curable with early detection. Now, suddenly, delays in seeing the doctor are downplayed as a factor in actual incidence or severity of disease.

The medical facilities were not the only loci of dereliction. The War on Terror launched by the Bush Administration has produced an avalanche of disability claims filed by veterans of the Iraq and Afghanistan campaigns. In order to claim a compensable disability, a veteran must show not only the existence of a disability but also a likelihood exceeding 50% that it is due to military service. He is not allowed to hire a lawyer (unless the lawyer works pro bono) before the disability determination is made, so as to preclude the lust for private profit from luring private-sector contingency lawyers into the Klondike of military disability determination. But this process of disability determination has been stalled by (you guessed it) a massive backlog of claims waiting to be heard. This backlog reached a high of 611,000 in 2013 before the resulting publicity triggered a mini-scandal that forced action by Eric Shinseki, Secretary of the Department of Veterans’ Affairs. It now stands at about 300,000 cases that so far have taken over 125 days to process.

One of the most highly publicized features of the scandal has been the bonuses received by upper-level V.A. administrators, tied to complying with V.A. rules for initial-appointment timeliness. These bonuses provided a clear-cut incentive for the falsification of records by lower-level employees operating under orders by their superiors.

The Economics of the V.A. System of Medical Care

Previous discussion of health care in this space touched on the V.A. system. Why should a separate system of medical care exist for military veterans?  Why should that separate system be administered by the federal government? If this separate system exists because it is superior to the one available to the rest of us, why not make it available to all? If it is not superior, why does it exist at all?

Some people have actually followed this logic to its ultimate conclusion. In 2011, the left-wing economist and political columnist Paul Krugman made the case that the V.A. does indeed constitute a superior system of medical care which should be broadened to the entire country. Part of his case rested on the V.A.’s success in meeting its initial-appointment guidelines. By doing so, he contended, it avoided the need for any rationing of care.

“Rationing” is the operative word applying to government provision of medical services. The whole purpose of designating government as the “single payer” for medical care is to sell the concept as “free medical care for all regardless of ability to pay.” Private producers cannot distribute goods for free but this is a specialty of government. As always, the big problem government faces is bridging the gap between its expansive claims and its inability to deliver what it claims. A free good is one for which there is no opportunity cost of provision, hence no scarcity. Saying that a good is free doesn’t make it free; it merely causes people to try to maximize their efforts to acquire it. Maximizing the demand for something is the worst possible way to deliver it free to everybody because it places the biggest possible burden on the supply apparatus.

The V.A. headlines its medical services to veterans as free, but upon reading the fine print veterans discover that they will be subjected to a means test and requested to pony up a co-pay. Of course, this is not the same thing as a unit price to an economist, but it does involve a sacrifice of alternative consumption. But this is small potatoes compared to the real shock in store for any veteran who thinks that his military status entitles him to health care in perpetuity.

Reading current newspaper accounts of the scandal would leave the impression that discharged vets enroll for medical benefits on a first-come, first-served basis. This is not so. Upon applying for benefits, vets are assigned to one (or more) of 8 “eligible priority groups.” The word “priority” hints at the purpose of these groups; they decide whose applications get processed first and in what order. In other words, medical care for veterans is rationed by the Veterans Health Administration from the instant of application for enrollment.

To erase any doubts about the veracity of this statement, we have the word of the V.A. itself. “Unfortunately, the Veterans Health Administration does not have enough resources to provide care to all veterans who need it. To address this issue, the VA has created eight priority groups for enrollment.” There we have it – the dirty little secret of VA medical benefits. Veterans are lured into the system with the promise of free benefits. Before they are even accepted, they find out that the benefits aren’t free and they may not even get them – or, if they do, the effective price may include a hefty upcharge for waiting time. At worst, that upcharge may be the loss of their life.

Each of the 8 eligible priority groups contains multiple subcategories of prioritization. Any connection to medical need or severity is tenuous at best. Group 1, the highest priority for enrollment, includes vets who are 50% or more disabled due to service-connected disability, then picks up those who are unemployed due to service-connected disability. Of course, it could be true that a 50% disability carries with it an immediate need to see a physician. It could also be utterly untrue; it depends on the specific medical circumstances.

Right away, we see that the criteria governing rationing are political and bureaucratic. Political because a disabled vet is a highly visible and ongoing political liability, much more so than a vet who dies awaiting treatment. In a free-market system, decisions about medical treatment are made by you and your doctor in consultation. You know your economic capabilities and your doctor knows you and your medical needs; together you can compare the value you would receive from each incremental bit of medical treatment with its cost. But in the VA, your medical decisions will ultimately be made by bureaucrats who know little or nothing about medicine. That is why criteria like “50% disabled” are necessary; they provide a pseudo-objective basis upon which medically untutored bureaucrats can affirm or deny treatment.

Group 2 includes 30-40% disabled vets. Group 3 is headlined by former prisoners of war, Purple-Heart holders, holders of the Medal of Honor, vets with lower disability status and those who disability was actually caused by treatment or rehabilitation. Again, politics is evident in this ranking with the inclusion of POWs and medal-winners. Why should medical care be turned into a popularity contest? Then again, once we have excluded the free market from consideration, any other system of allocating benefits would be arbitrary.

The lower-ranking Groups introduce other arbitrary criteria like service in Vietnam and exposure to atomic radiation at Hiroshima, Nagasaki or test sites. Low-income vets receive precedence over high-income vets; willingness to fork over a co-pay buys the vet a higher place in line.

When we combine the economics of the V.A. system with the known facts of the current V.A. scandal, the latter becomes easier to understand but harder to stomach.

The Economics of the Scandal

Note the fundamental difference between scarcity as it exists in a free-market context and in the command-and-control context of a politically motivated bureaucracy. Economists define scarcity as the condition in which we cannot have all that we wish to consume and must choose the things we value most. Nobody is automatically or inherently excluded from consumption; price tells us the value that people place on a good and its cost in alternative (or foregone) output. People choose how much to buy based on their incomes and tastes; they can buy small, medium or large quantities and vary their consumption as their incomes change and prices vary. At the V.A., the government chooses what to give you and how much to give you based on (mostly) arbitrary criteria that ignore price and cost. It frankly admits that some people will be excluded – once more based on arbitrary criteria.

Economic logic tells us that the government system is wildly inefficient. Moreover, its inefficiencies will get worse and worse over time because it encourages customers to demand more medical care than can be supplied.

There is nothing remotely surprising or shocking about the current scandal. And as the Washington Post points out, “President Obama has been talking for years about fixing the system.” According to Press Secretary Jay Carney, “This is not a new issue to the President.” Here is one sure sign that Krugman, et al, have missed the boat analytically; you don’t fix a system that is working brilliantly.

Everybody is acting as if the scandal is the result of something going terribly wrong with the system. But this is merely the system working as we expect a system of rationing to work – by excluding some people from service altogether. The V.A. itself says it is designed to do this and explains how it does it – just how surprised should we be when that is exactly what happens? The scandal is not that something has gone wrong with the system; the scandal is the system.

Economic logic tells us that the system is designed to ration care by excluding vets from medical benefits, thereby reducing the amount of medical care provided. This exclusion by rationing takes several forms. First, the vet may be excluded by not qualifying at all. Second, he may fall in the last (8th) eligible priority group, get tired of waiting to be processed and accepted and simply seek out paid care in the private sector. This relieves the V.A. of the burden of serving him. Third, he may die while waiting to be seen, as vets have done and continue to do. The larger the number of vets who face delays in acceptance and processing, the greater the likelihood that this will happen. And the longer the delays, the greater the likelihood that this will happen. Once more, this relieves the V.A. of the necessity of serving him. Fourth, the longer the delay faced by the vet, the worse (on net balance) will be his condition when he is finally accepted, seen and treated. This will shorten his life span and reduce the total amount of medical care the V.A. will be required to give him. (In this shorter time span, however, it will increase the need for greater spending on him, which will give the V.A. leverage to demand larger budget allocations in Congress. This is politically valuable to bureaucrats and their political sponsors.)

Of course, the V.A. can haul out testimonials from some vets who crow about the outstanding medical treatment they have received. In any bureaucracy – police, fire, public education, even the federal government itself – some individuals will stand out by ignoring the lack of incentives for performance and adhering to their own personal standards. And the fact that the V.A. picks and chooses who it treats, when it treats them – “we will treat no veteran before his time” – and how it treats them will allow the agency to provide good service to some vets. But claims of competitive superiority for the V.A. are a mockery considering that it is able to rig the game through rationing and, we now belatedly realize, rig its own statistics internally.

Claims by Krugman and others that the V.A. is a model for health care in general are false on their face. What little success the V.A. has enjoyed depends on the failures highlighted here. The V.A. cannot exist in its present form without the concurrent existence of a private-sector (or public-sector) alternative where its rejects can be dumped and where consumers can seek out consistently higher-quality treatment at a price. An attempt to impose the V.A. model on the country at large simply produces the kind of socialist, “national health service” health care found in countries such as Great Britain and Canada. These are characterized by long waits for care, lower-quality care, poorer medical technology and almost no new drug development. According to Krugman, we should be clamoring for access to the superior medical care provided by the V.A. Americans should be “health tourists,” traveling to Great Britain, France and Canada for their health care. Instead, though, the flow of health tourists runs the other way – into the U.S.

Democrats insist that the Bush Administration caused the V.A. scandal by overloading the system with applicants through its foreign wars. They cannot have it both ways. How can their system be superior if it falls apart when the demand for its product increases, which is the average business’s idea of paradise? Free-markets use flexibility of prices and quantities to handle variations in demand; they use higher prices to attract more resources into the system to handle the larger demand. It is command-and-control rationing systems, deprived of vital pricing tools, which crumble under the pressure of demand increases.

Public shock over the incentive bonuses paid to V.A. administrators for initial-appointment compliance not actually attained is likewise naïve. After all, critics of free markets and corporations scream bloody murder when CEOs are not paid for performance. The V.A. was simply trying to curry favor with the public by mimicking the private sector’s performance incentives. The problem is, of course, that the V.A. is not the private sector. In a free market, a firm couldn’t get away with faking its performance because you can’t fake the bottom line; failure to perform will reduce profits. But there is no bottom line at the V.A. and no way (short of audit) to detect the kind of fakery that went on at the V.A. for years and years. Sure, veterans complained, but nothing happened because vets did not control the bureaucracy and had no political clout. The only reason the scandal was uncovered was that the doctor who blew the whistle had recently retired and no longer had to fear bureaucratic retaliation for his actions.

Speaking of political clout…

Cui Bono?

Why has a federal agency so inimical to the interests of a beloved constituency persisted – nay, thrived – since its inception in 1930? The great myth of big government is that it serves the interests of its constituents. But as we have seen, this is hardly true.

The real beneficiaries of big government are government employees, bureaucrats and politicians. The V.A. has metastasized into a cabinet-level bureaucracy with over 330,000 employees, including thousands of mid-level bureaucrats. Most of its employees belong to a powerful public-sector union. Employees and bureaucrats vote for the politicians who vote the appropriations that pay their salaries and lucrative benefits.

These people are invisible in the current scandal, except for the passive role they play as order-takers and functionaries. But they are the reason why the system is not “reformed.” There is no reforming this kind of system, only tinkering around the margins. Genuine reform would disband the V.A. altogether since its rationale is utterly misguided.

That will not happen. The falsity of the V.A.’s guiding premise is irrelevant. It is not really intended to serve veterans, so its failure to do so does not really matter to politicians. Its real purpose is to win votes by conferring benefits on employees and bureaucrats and it is fulfilling that purpose just as well, if not better, by failing veterans as it would by serving them.

That is why the stern promises to “fix the problem” are so much hypocritical cant. There will be no fix and no reform – only the next scandal.

Cant Rules in Public Discussions of the V.A.

Why do we watch numbly as the V.A. scandal unfolds – the latest in a never-ending series? By now, we know the ritual by heart. What is that has us hypnotized?

Human beings mix reason with emotion, and we apparently remain enthralled by the cant that surrounds the V.A. “We love and revere our veterans – so much that we cannot entrust their physical well-being to the mundane ministrations of marketplace medicine. Veterans deserve only the very best. So, naturally, we put their welfare in the hands of the federal government, because it handles all our most important jobs and never fails to satisfy us. We will never rest until veterans are well-cared for, because their happiness and security is our first priority.”

In one part of our mind, this rationale reigns supreme. In the other part, we store all that we know about how the V.A. – and the federal government – actually operates. If those two parts ever commingled, they would probably short-circuit our mental processes indefinitely. We have not yet outgrown our fantasy of government as benevolent, omniscient, omnipotent parent.

In reality, the failures of government are all too painfully obvious. It is not that government has anything special against veterans, other than the fact that they keep showing up at the door expecting to be medically treated. No, government double-crosses and fails veterans just as it does the rest of us. When its failures become manifest, it lies about them. And the people who have placed their ideological and occupational bets on government lie, too.

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