The Veterans Choice Act and Technical Efficiency of Veterans Affairs (VA) Hospitals

Abstract

The Veterans Health Administration (VHA), responsible for providing 9 million veterans with quality healthcare, is not insulated from concerns about efficiency. In the aftermath of the Veterans Affairs (VA) hospital scandal in 2014, Congress passed the Veterans Choice Act of 2014, which allows eligible veterans to use non-VA hospitals instead of VA hospitals. After analyzing 118 or 119 VA hospitals each year from 2012 through 2017 in the U.S, this paper evaluates the efficiency scores of VA hospitals and examines how the 2014 Act has influenced their technical efficiency over time. Slack analysis shows that inefficient VA hospitals can improve efficiency by reallocating input resources, and regression analysis demonstrates that the overall technical efficiency of VA hospitals decreased by 0.164 after the implementation of the Act. This means that as more veterans used non-VA hospitals under the 2014 Act, the technical efficiency of VA hospitals decreased considerably. Given that a substantial portion of veterans’ demands for healthcare transferred out to non-VA hospitals, the VHA should evaluate whether the current capacity of VA hospitals is appropriate and try to reduce wasted input resources to improve efficiency.