VA cuts 40% of hospital beds, boosts use of clinics by 25% Agency's reorganization reflects fundamental shift


PHILADELPHIA -- It's easy to feel lonely on the fourth floor of the Philadelphia Veterans Affairs hospital. The operating rooms appear frozen in their vintage 1952 state. The ceiling paint is peeling. Room after room lies dark, like the cabins of an old battle cruiser.

Stride downstairs to the outpatient clinics and a far different scene is unfolding. The rooms are thick with veterans waiting to see their own primary care doctor -- a managed care feature the agency recently added.

Nurses are busy working the phones. And the VA is on the march, establishing hundreds of satellite clinics to reach veterans where they live.

The VA medical system, long a symbol of spiraling costs, bureaucratic waste and political meddling, is breaking down walls and undergoing striking change.

VA hospitals, which cost taxpayers $17 billion a year, have been cutting staff, closing beds and undergoing the largest reorganization since Congress recognized the VA medical system in 1946.

Large sections of the agency's 173 hospitals nationwide have grown quiet as officials have closed 40 percent of the system's hospital beds in the past three years, mirroring similar changes in private-sector hospitals.

There's so much empty space in the Philadelphia VA that officials are talking to the Navy and the University of Pennsylvania about renting space. VA officials nationwide are looking at converting old hospitals into nursing homes and assisted-living facilities for veterans.

The VA's outpatient clinics, however, are booming. Outpatient visits are up by 6 million since 1994, or nearly 25 percent, to an estimated 32 million visits this year.

The word entrepreneurial hasn't been applied to the VA often in the past, but the adjective is becoming an increasingly apt one, analysts say.

VA hospitals are undertaking customer satisfaction surveys and hiring marketing directors. They are even prospecting for business among other federal agencies -- all to capture new sources of revenue.

VA doctors and nurses also are leaving their home bases more often and making forays into the community. Nationwide, the VA has picked sites for more than 150 community clinics and expects to add 200 satellite offices over the next two years.

"There's no health system in the country that can match the amount of change that has occurred in the VA," said Keneth W. Kizer, the VA's undersecretary for health, who has overseen changes in medical care since 1994.

This historic shift hasn't come without pain. Total VA staffing has dropped 11 percent since 1994, to 184,147, because of attrition, buyouts and this year, the first widespread hospital layoffs in VA history.

The VA is looking for ways to increase its nongovernment financing to 10 percent of revenues within five years. Last year, the VA received the right for the first time to keep the money collected from veterans' private insurance. That money had been going to the U.S. Treasury.

Several lawmakers are supporting a bill that would make the VA a Medicare provider. The system could then receive Medicare money for treating older veterans who might not otherwise qualify for VA services. Civilian hospitals are bound to resist such a move because they would lose patients.

The VA is the country's largest integrated public health care system. Yet care is only part of its mission. It also is the country's largest trainer of new doctors. More than 60 percent of American physicians have done at least some training at a VA center.

The VA also is one of the country's leading financial backers of research. Its doctors receive nearly $1 billion a year in grants.

The administrator charged with turning around this vast enterprise is Kizer, the VA undersecretary for health.

Kizer, a California emergency medicine doctor, has been no stranger to the VA or to adversity.

Orphaned at age 12 when his mother committed suicide, Kizer grew up in a series of foster homes in Oregon, California and Nevada. An honor student, he studied chimp behavior with researcher Jane Goodall in Africa and wrote his undergraduate thesis at Stanford on chimps at the Palo Alto VA center.

Kizer, a managed care physician, trained at two other VA hospitals during medical school at the University of California at Los Angeles. In 1983, at age 32, he became the youngest director of the California Department of Health Serv- ices, where he was instrumental in propelling that state's drive toward managed care for most of the 1980s.

Kizer has imported many managed-care lessons to the VA since his arrival in September 1994. Like an HMO, the VA system is giving most veterans a primary care doctor to coordinate treatment. It's also requiring doctors to increase caseloads.

One of Kizer's early moves was to divide the country into 22 regions, or Veterans Integrated Service Networks. Kizer cut headquarters staff by 25 percent, dropping 200 positions, and gave significant authority to each network director.

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