Veterans' Homes: Privatization Could Mean Lower Costs, Better Service (General Article)

The Grand Rapids Home for Veterans provides advanced nursing care to Michigan veterans, among other services. To its great credit, the home has low rates of avoidable health problems such as pressure ulcers (bed sores), which are common to nursing home patients.

Although the war in Iraq is over, fulfilling government promises made to veterans of this and other wars will take many decades. Both federal and state governments are deeply involved in providing healthcare and other services to active and former members of the military.

Most states operate at least one veterans' home to provide highly specialized medical care to veterans. They also provide residential services — places to live — for those who qualify for state services. The state of Michigan should consider contracting out for management of its two veterans' homes, as other states have done, to save money in this tight budget year, and possibly to improve the quality of services for Michigan veterans.

For admission to most homes, veterans must have served during specific war periods, and must be an official resident of the state in which the home exists. Providing these homes and care is very expensive, especially relative to competing alternatives, such as privately run nursing care facilities.

The Great Lakes State has been in the veterans' nursing care business since 1885, when Gov. Russell Alger signed legislation establishing a home for disabled veterans. The first home, known as the Grand Rapids Home for Veterans, still operates on its original 132-acre parcel today.

Nearly a century after its creation the state opened a second home in 1981 — this time in Marquette in the Upper Peninsula. The Dominic J. Jacobetti Home for Veterans is named for the former state representative and appropriations committee chair.

Only three states do not have state veterans' homes and one of those — Delaware — is looking to get into the business.

States do not operate veterans' homes because they are low-cost means to serve veterans. Michigan's facilities cost $55 million to operate during the 2003 fiscal year, which represents 63 percent of the state's Department of Military and Veterans Affairs budget. More than one-third of the revenue used to fund these facilities is appropriated from the state's General Fund/General Purpose budget (GF/GP). The GF/GP is that portion of the budget over which legislators have the most discretion. Since Michigan is facing a $900 million deficit in 2004, legislators should consider alternative ways to deliver services to veterans. In March, the Mackinac Center for Public Policy made a modest proposal: Outsource management of the homes to a for-profit company.

According to a recent 50-state survey of state veterans' homes conducted by the Mackinac Center, 11 other states allow at least one of their veterans' nursing homes to be managed under contract. The management in these states is provided by private, for-profit companies; nonprofit groups; or hospital or authority "districts," which are entities created by government, but remain one step removed from government's operational oversight.

Based on the survey, seven states contract with private, for-profit businesses. They are:

• Illinois. The Illinois Veterans' Home in Anna is managed under contract by the Tutera Group, of Kansas City, Mo.

• Utah. The state of Utah currently has one veterans' home. It is managed by the for-profit firm, Traditions Health Care, Inc. Utah currently is planning two more veterans' homes. No determination has been made as to whether or not it will be operated under contract.

• South Carolina. The Campbell State Veterans' Nursing Home in Anderson S.C. is managed by Health Management Resources, Inc.

• Maryland. Health Management Resources, Inc. manages the Charlotte Hall Veterans' Home in St. Mary's County, Md.

• Texas. The Lone Star State outsources management of all four of its veterans' homes. There are two more homes being built, one for McAllen and one for El Paso. It has not yet been determined whether or not these will be privately managed. One of the four existing Texas homes is managed by the Wilson County Memorial Hospital District. The other three are run by the private, for-profit firm, "Care Inns of Texas, Ltd." of San Antonio, Texas.

• North Carolina. The state's single veterans home is managed by Priva-Trends, which also manages a home in Georgia. The state is building a second home now, which is due to open in the fall of 2003, but there is no word on whether or not it will be privately managed.

• Georgia. The Georgia War Veterans Home is run by Priva-Trends, a subsidiary of UHS Pruitt, of Toccoa Ga. Priva-Trends has helped lower the cost of providing daily care to veterans by 40 percent to 44 percent, depending on the type of patient care. The U.S. Department of Veterans Affairs has shown that Georgia veterans are now getting better care under the Priva-Trends contract than they did when the home was state managed.

Prior to the Priva-Trends contract the state of Georgia was spending $164 per patient per day for advanced daily (or "nursing") care. As a result of the contract the cost dropped to $92. By contrast, the Grand Rapids Home for Veterans costs Michigan taxpayers their $172 per day per patient for nursing care.

The savings figures are impressive by themselves, but what is more impressive is that Priva-Trends also has been able to improve the quality of care given to patients. According to Priva-Trends, the firm was able to a) reduce the number of bedsores among its patients by 86 percent; b) reduce the number of patients suffering from severe weight loss by 88 percent; c) eliminate all restraints used on patients; and d) increase the number of patients served by 11 percent during the first year of its contract.

In addition, Priva-Trends invested $1 million of its own funds in the facilities under its care on the 17-acre complex. It built a new dental services office complete with laboratory, oral surgery space; and new x-ray equipment. In 2002 every one of the skilled nursing facilities Priva-Trends operates for the state of Georgia was found to be "deficiency free" by the state licensure survey teams that inspect such facilities unannounced.

If Michigan could save 40 percent by competitively contracting management of its veterans' home operations — less than was saved in Georgia — the state would save more than $20 million annually.

Michigan's Legislature should embrace privatization. Done properly, it can save state taxpayers money and improve services for veterans. The state should invite companies to propose what they would charge to Michigan's veterans' homes under very specific guidelines. And even if the state does not accept a proposal, collecting them will at least give officials an idea of whether or not state veterans' homes are charging patients and taxpayers too much for services rendered.

With Michigan facing a $900 million deficit in 2004, asking the Legislature to investigate this idea is not too much to ask.

Michael LaFaive is director of fiscal policy for the Mackinac Center for Public Policy and senior managing editor of Michigan Privatization Report.