Resource Allocation Dilemmas in Large Federal Healthcare Systems

Abstract

Achieving equitable allocation of financial resources within health programs is a continuing challenge within large federal healthcare systems. In the latter half of the 1990s, the public sector’s two largest healthcare systems—the Department of Defense’s Military Health System (MHS) and The Veterans Department’s Veterans Health Administration (VHA)—both faced this daunting task. The DoD’s MHS and the VHA both have large but constrained budgets that must meet growing beneficiary needs: the MHS has an annual budget of $16 billion, and the VHA’s annual budget is $18 billion. Not only were these systems confronted with the difficulty of distributing health resources across complex, bureaucratic organizations, they also faced the obstacle of changing years of financial allocation tradition. The old system, based on rewarding workload production, strongly emphasized high utilization of costly inpatient services. This approach clashed with the healthcare industry’s new focus on shifting as much inpatient care as is clinically appropriate to the ambulatory setting to increase healthcare quality and cost-effectiveness and improve consumer access to care.