LLOYD MILLER

Research support was provided by the Puffin Foundation Investigative Fund of The Nation Institute.

The regional office of the Department of Veterans Affairs in Louisville, Kentucky, has a metal detector at the entrance and a sheet of paper taped on the door that says, 100% I.D. Check. No Exceptions. Two floors higher in the same building is Humana Veterans Healthcare Services. The front door is decorated with stenciled glass, and people meet in a conference room with phrases like Increase Utilization written on a dry-erase board. These two offices represent vastly different cultures: one is corporate and clean, smelling of fresh paint; the other is battered and scruffy-looking, funded by taxpayer dollars. Yet despite the difference in style and approach, both offices are working together on Project HERO, an ambitious “public-private partnership” that allows Humana staffers to help “manage the quality and cost of health care” provided through the federal agency.

Project HERO, which stands for Healthcare Effectiveness Through Resource Optimization–“an attempt at a catchy acronym,” says Gary Baker, chief business officer of the VA’s Veterans Health Administration–was launched quietly in 2007. According to its critics, the $915 million program represents a major shift in priorities for the VA, a vast expansion of private-sector involvement that could threaten the agency’s ability to honor veterans with top-notch service. But VA officials say it is not designed to hand veterans’ healthcare over to Humana. Project HERO, they argue, is simply an effort to help the strapped federal agency run more smoothly.

The VA is a mammoth organization, serving 7.9 million men and women across the country. There are 153 VA medical centers, where patients have surgery and are treated for serious illness; 755 community-based outpatient clinics; and 232 counseling centers, which provide assistance to soldiers readjusting to life after wartime. Yet despite the outlay of resources and facilities, there are some services the agency cannot provide, particularly in rural areas. In order to avoid delays, veterans may visit a private healthcare provider in a “fee basis” program that allows them to receive care outside the VA system. The veteran makes an appointment with a private physician or diagnostician, and the VA pays for the visit. The fee-basis system is limited in scope, a small piece of a massive, full-service organization. In 2007, according to Baker, it represented $2.5 billion of the $33 billion in veterans’ healthcare costs.

Under Project HERO, private physicians and specialists are unified in a network put together by Humana employees, complete with a concierge service in which receptionists help veterans make medical appointments. Humana makes sure the physicians and healthcare providers send medical information back to the VA so that patients’ records are stored within the system. Employees also ensure that the medical care is safe and reliable. The descriptions of Project HERO, as well as the geographic territory it encompasses, establish it as a prototype for a realignment of the VA.

The implementation of such a comprehensive, far-reaching effort to fill a relatively small service gap within the agency seems unnecessary, even harmful, to critics of the program. Many veterans are worried that the government is not going to keep its promise to watch out for them. They have a sense of uneasiness about what Project HERO means for the future of the VA, and they are wondering, as one of them tells me, whether government officials are getting ready to pull out of the business of helping veterans.

Despite the seedy look of the Veterans Affairs office in Louisville, the agency provides outstanding medical care. Many veterans suffer from battlefield wounds such as spinal cord injuries, blindness and other kinds of injuries that require months and years of therapy, and the VA consistently meets their needs. In 2006 Harvard’s Kennedy School of Government gave the VA an Innovations in Government award. “Why are veterans hospitals better than other hospitals?” asks Slate‘s Timothy Noah in a foreword to Best Care Anywhere, a book by Phillip Longman. “Because they’re better able to focus on the long term.”

If the VA has an excellent history of medical care for vets, then why not simply fund it at the levels it requires? The reasons are partly ideological, but they are also about private lobbying efforts aimed at easy profits. The Bush-era privatization of government services marked the culmination of a generation-long effort, begun during the Reagan years, to minimize the role of the federal agencies. The Iraq War, which created a tremendous demand for goods and services, consequently created a windfall for private war contractors like Halliburton and Lockheed Martin. Healthcare companies are making money too. IAP Worldwide Services (Al Neffgen, formerly of Halliburton, headed the company) was awarded a five-year, $120 million contract for support services at Walter Reed Army Medical Center in 2006.

The scandal over atrocious conditions at Walter Reed broke in February 2007, prompting a discussion over the government’s responsibility to the men and women who serve in war. “Did an ideological push for privatization put the care of our wounded heroes at risk?” asked Congressman John Tierney at a March 2007 House Committee on Oversight and Government Reform hearing on Walter Reed. He cited a September 2006 memo that garrison commander Peter Garibaldi had written to Maj. Gen. George Weightman, former head of Walter Reed, about the contract work. The memo, said Tierney, shows that “the Army’s decision to privatize was causing an exodus of, and I quote, ‘highly skilled and experienced personnel from Walter Reed’ and that there was a fear that patient care services are at risk.”

Men like Garibaldi argued that privatization seemed to lessen the quality of services that soldiers and marines received at places like Walter Reed. But that was not the only problem with the outsourcing of services. Enlisting the private sector in government work may have cost taxpayers more money–not less. Outsourcing the work at Walter Reed chipped away at the foundations of the military hospital–and it did not seem to make things any cheaper for the government. When it came to contracting, the price (at least for taxpayers) seemed to be beside the point. “Project HERO had a hope that it would save money,” says the VA’s Baker. “But it is not an absolute requirement.” There is faith in the type of governing that incorporates the private sector into the public realm, and one could say the decision to fix the problems at Veterans Affairs by opening the door to the private sector has been a triumph of hope over experience.

As it turns out, the origins of Project HERO come from suggestions made by people who are now among its harshest critics: veterans’ advocates. In 2005 a group of advocates started to complain about the way VA employees were handling the relatively small number of patients who were seeing private providers. The medical care was uneven, said the advocates, and the providers sometimes failed to send the patients’ medical information back to the VA so that the records could be stored in the agency’s database. The system needed to be improved, they told Congress.

VA staffers were beset at the time by a budgetary crisis and were trying to meet the needs of an increasing number of wounded warriors. Yet administration officials and Republican leaders on Capitol Hill were clear about their views: they did not want the VA to have a bigger budget. In January 2005 Chris Smith, a Republican Congressman from New Jersey, was removed from his position as chair of the House Veterans Affairs Committee, apparently because he was trying to get more money for the agency. “He pushed hard and drew a great deal of anger from Republican leadership because he refused to back down,” one of his former staff members, Loretta Charbonneau, who had served as regional director in New Jersey, tells me. “The result is that he lost his seat.”

Republicans at the state and county levels were disappointed. Doug LeValley, who represents the National Association of County Veterans Service Officers and is based in Springfield, Ohio, says he had been impressed with Smith and felt frustrated over the way Smith was treated on Capitol Hill. “Veterans’ issues are not Republican or Democratic. It’s what’s right and what’s wrong,” LeValley tells me. Yet, he says, “politics seems to play a role.”

“Smith was probably one of our strongest veterans’ advocates in Congress,” says Joseph Violante, national legislative director of Disabled American Veterans. (Violante, a Vietnam veteran, worked as a staff attorney for the VA from 1985 to 1990.) “Chairman Smith fought for that additional funding level, and that put him at odds with his leadership,” including House Speaker Dennis Hastert and House majority leader Tom DeLay.

The changes in leadership on the committee, as well as the Bush administration priorities with regard to privatization, had profound implications for the agency. Smith was replaced by Hastert’s friend Steve Buyer, a Republican from Indiana. Buyer was seen as someone who would stand up to, rather than defend, the veterans’ community. “Republicans believe in a smaller government, and it looked like that was where he [Buyer] was trying to go,” Violante explains.

Buyer was soon railing against the agency. At a June 2005 House Veterans Affairs Committee hearing on veterans’ healthcare, for example, he said that VA officials had mishandled their budget predictions. “We have to think and be more like a business,” he told The American Legion Magazine in February 2006. He wanted the VA to “tap into the great minds in the private sector and utilize the best business practices.” But that wasn’t so easy. “I have the bureaucracy in VA fighting my efforts to bring these efficiencies,” he explained. Meanwhile, staffers in Buyer’s office were hearing from healthcare lobbyists, many of whom had clients with a keen interest in the outsourcing of government work.

From 1998 to 2004, Humana spent more than $4 million on lobbying efforts. In 2004 alone, not long before plans for Project HERO got under way, it spent $360,000 on lobbying. In 1998 the company hired Greenberg Traurig, the Washington firm where Jack Abramoff worked, and gave small amounts of money to key members of Congress. (In 2005, for example, Humana Inc. PAC gave Buyer $1,000.) The Greenberg Traurig staff was connected. One lobbyist working on the Humana account was Nancy Taylor, a former senior aide to Senator Orrin Hatch. Another was Michael Bromberg of Capitol Health Group, who was included in a March 2003 article in The Hill about the top twenty lobbyists in Washington; he was described as “the cream of the crop,” one of DC’s “top power brokers.”

Members of the Republican-led Congress jumped on the issue and crafted a proposal to farm out a significant amount of administrative work to the private sector. The announcement of the program was easy to miss: it appeared as a 152-word section in a conference report accompanying the Military Quality of Life and Veterans Affairs Appropriations Act of 2006. In February 2007 Humana established a new unit, Humana Veterans, and hired a former VA deputy assistant secretary, Alonzo Poteet, to head it up. There were seven competitive bids, according to Baker, and Humana Veterans Healthcare Services was awarded the contract in October 2007.

At first there was little opposition to Project HERO from veterans’ groups–who, after all, had inadvertently created the situation by pointing out the flaws in the VA’s fee-based system. But once Buyer and his colleagues started working on the prototype for the program, veterans’ advocates seemed to be shut out of the process. They grew frustrated when they saw that the issues they had raised were being “manipulated to allow large-scale privatization of VA services,” writes Tom Zampieri, director of government relations for the Blinded Veterans Association, in the Summer 2006 issue of The BVA Bulletin. Randy Pleva, national president of Paralyzed Veterans of America, told the Senate Committee on Veterans Affairs in early March 2006, “Contract care is not more cost-effective or cost-efficient than care provided by the VA, and we certainly do not believe that the VA will find the same level of high-quality care in the private sector.”

Another issue of concern to veterans’ advocates: over the past several years, government reports reveal a pattern of mismanagement in procurement and oversight of private-sector contracts through Veterans Affairs. “Their effectiveness is questionable,” Jon Wooditch, a deputy inspector general for the VA, told a House veterans’ affairs subcommittee on oversight and investigations in February 2008. There are numerous examples of contracts gone wrong, including a $248 million contract for Dell computers that was “not necessary or in the best interest of the V.A.,” according to a June 2008 report. An April 2006 report shows that a company based in Mundelein, Illinois, sold faulty sterilizing devices to VA hospitals. These devices, which had not been approved by the FDA, may have led to “catastrophic eye injuries” in eighteen patients.

Despite some disastrous results, VA officials have largely set aside concerns about the flaws within the contracting system and have forged ahead with the program’s expansion. Poteet, the 59-year-old chief executive officer of Humana Veterans, has long been out of the Army, but he still carries himself like a gunship pilot (he served in Vietnam in 1970 and 1972). “Vets’ organizations may believe it’s a slippery slope of doing away with the VA,” he says of Project HERO. But, he assures, putting his hand on his heart, “this is not about taking over the VA healthcare facility.”

One thing is certain, though: the program is big. Thirty percent of all veterans enrolled with the VA are now covered by Project HERO, national program manager Greg Eslinger told WCCO-TV, a Minneapolis station, in February. “There was a good representation of both dense and rural populations, and that was a matter of intent,” explains Baker. “Clearly, it’s a demonstration project, and if it turned out to be successful, the VA would evaluate that and decide whether to expand it.”

Most everybody thinks the Obama administration is on the right track when it comes to veterans’ issues. Obama has proposed an 11 percent increase in the agency’s budget, raising it to $56 billion, an increase that would allow VA officials to hire 17,000 new employees. Nevertheless, a penchant for privatization could continue to affect the VA in the coming months and years.

On April 1 Hawaii Democrat Daniel Akaka, chair of the Senate Veterans’ Affairs Committee, raised his concerns about outsourcing veterans’ care during a nomination hearing for two VA secretaries. Akaka said that VA officials had apparently been using a lengthy and time-consuming process to evaluate candidates for the new staff positions “with the focus of potentially contracting these positions out.”

Obama, too, seems willing to consider outsourcing veterans’ care as a way to save money. He recently floated a plan, apparently recommended by the White House Office of Management and Budget, to bill private health insurers for the care of soldiers and marines who are injured in battle. In a rare display of solidarity, the major veterans’ service organizations–ranging from traditional groups like the Veterans of Foreign Wars to new organizations like Iraq and Afghanistan Veterans of America–banded together to push back. In a meeting with Obama in the White House Roosevelt Room shortly after the program was announced, the BVA’s Zampieri and others pointed out the various flaws in the program (many insurance companies do not cover airline crashes, for example). “He didn’t want to hear if there were moral objections to this,” said Zampieri. “He wanted to know how and why it wouldn’t work.”

Obama quickly abandoned the plan. But the possibility remains that he will heed the advice of budget-conscious advisers who may lose sight of the philosophical reasons the government has promised to care for the people it sends to the front lines–as well as the practical aspects of providing care for veterans.

Zampieri says that downsizing the VA would be a mistake. “If someone comes back and they’ve lost both legs and an arm, you don’t say, ‘Here’s a Blue Cross and Blue Shield card,'” he tells me. “If they’re broke when they come home, you own them for the next eighty years. Maybe it will make people realize there is a cost to war that goes beyond what the Pentagon spends on bullets and bombs.”