Veterans Health Administration employs far less administrative staff than private health sector, study finds

The healthcare system’s private sector could learn a thing or two about efficiency from the government’s Veterans Health Administration, which employs about 30% less administrative staff across clinical, insurance and logistical settings, according to a recent study in JAMA Network Open.

According to the analysis of Census Bureau, Bureau of Labor Statistics and VHA personnel records, 22.5% of VHA employees hold administrative roles compared to 29.3% of healthcare workers in the private sector.

The VHA runs 171 medical centers and about 1,100 outpatient sites, providing care for 9 million enrolled veterans, researchers wrote. Applying the administration’s staffing patterns to the private sector (as of 2019) would translate to 900,000 cut administrative staff across the nation—in other words, fewer roles that do not directly deliver patient care but contribute to higher healthcare spending.

The researchers wrote that their findings clashed “with the common perception (even our own) that the VHA is excessively bureaucratized.”

Rather, they said, it appears that the administration’s simplified payment system relieved the government program from hiring on staff to approve claims, calculate risk or deliver other “revenue-enhancing administrative activities that add little clinical value.”

“Our profit-oriented system rewards providers for devoting more resources to gaming the payment system,” said Steffie Woolhandler, M.D., professor of public health and health policy at the CUNY School of Public Health at Hunter College and the study’s lead author, in a release from the school.

Woolhandler and colleagues’ study doesn’t directly speak to the costs and quality of VHA care versus that of the private sector. Prior findings from the past decade cited by the team found “suggestive but not conclusive evidence” that the VHA’s care was cheaper, while a 2023 review listed by the researchers found “VHA care was generally of equal or better quality compared with the private sector.”

Still, the researchers noted that most VHA funding comes in lump-sum budgets. The administration does not bill Medicare or Medicaid and collects 2.7% of revenues from private insurers and 0.3% from patients. All of its facilities are in network, few services require prior authorization and a single formulary applies to all patients.

Each of these is a contrast to the private sector, where individual patients and services require payer-provider interactions with varying requirements or calculations to navigate, they wrote.

Numerous studies and reports have also pegged administrative burdens as a contributor to the U.S. health system’s higher costs compared to other nations.

Here the researchers turned their attention to the 6.8% absolute difference between administrative personnel share between the VHA and private sector, which is smaller than the reported administrative cost differences between the U.S. and other single-payer nations. The researchers said could be a reflection of administrative inefficiencies that the VHA is still beholden to, such as veterans’ care eligibility determinations and the 20% of its budget that’s spent purchasing private sector care for covered veterans.

“The high administrative costs of US healthcare have elicited proposals for simplifying payment via single-payer reform, as well as more modest reforms that would standardize and automate billing,” the researchers wrote.

“Implementing uniform credentialing, eligibility determination, and especially payment rates across all payers, as in some other nations, may achieve some administrative savings. However, more fundamental reforms that eliminate per-patient payments and minimize incentives for financial manipulations are likely needed to realize the bulk of potential savings on bureaucracy, savings that could be redirected to improving coverage and care.”