Why the government is bad at business

Reflecting on the recent VA scandal, I have been reminded of one thing – the government is bad at business. The majority of legislators who shape policy related to entities such as the VA have no background or education in business when even a basic understanding and focus on business principles could have stopped the VA from failing in the first place.

Last semester I took an operations management class in which we read an article titled “TIRP or TARP?” which claimed that the financial crisis of 2008 could have been averted if the financial industry had abided by the TIRP principles: transparency, incentive compatibility, robustness, and the need for a pinch point. Similarly, I posit that abiding by these principles would have prevented the VA scandal from occurring.

So, what went wrong?

First, the VA lacked transparency. Due to a lack of transparency, corruption occurred, reports were forged, and systems were exploited, resulting in the false appearance of short wait times. This was the result of two main factors. First, there were no exhaustive internal audits or inspections within the VA. The inspector general, after investigating the VA, found that there were “1700 veterans who were waiting for a primary care appointment but were not on the [electronic waiting list],” something that should have previously been discovered internally.  Second, there was no anonymous system in place for employees to report misconduct by their coworkers or superiors, and when misconduct was reported, it was very difficult for the VA to fire or discipline their employees. Both of these issues need to be addressed in order for employees to trust that acting as a whistleblower is both safe and effective.

Second, the incentives of the workers were not compatible with the optimization of the process. By linking bonus pay with workers’ ability to reduce wait time to an unrealistic fourteen days (the average wait time at some facilities was as long as 115 days) the government was incentivizing workers to lie. Pay-based incentives need to be realistic in order to be effective. Further, intrinsic motivation, rather than extrinsic motivation such as pay, is a much better way of aligning the goals of workers with those of the system. Workers who are willing to risk the health and lives of veterans to get pay bonuses should not be working for the VA. The VA must have a way of disciplining and firing employees whose goals do not align with that of the organization.

Thirdly, the VA processing system lacked robustness. A system that deals with something as important as the health and lives of citizens needs to be robust enough to handle large influxes of demand. According to an operations principle called Little’s Law, and according to common sense, wait times for the VA increase when veterans file more claims more rapidly, when the time it takes to process these claims increases, and/or when there are not enough servers in the system to process these claims. Since we cannot control the number of veterans submitting claims to the system, we must address the other two causes: Congress needs to allocate more funds to the VA in order to purchase the number of needed claims processors and/or Congress and the VA need to find a way to reduce claims process times. Doing so will reduce wait times dramatically.

Lastly, there is no one organization or function that effectively acts as a pinch point for the VA. In the privatized, competitive healthcare industry, customers function as the pinch point through their power to choose providers – if wait times at Provider A are too long, patients will go to Provider B and profit will be lost for Provider A. Provider A, a for-profit business, needs to improve their process in order to stay competitive and profitable. In the case of the VA, patients have no other providers to choose from and no way of calling for reform. Knowing this, the government has, in the past, acted as an oversight function for the VA. In fact, the Government Accountability Office or GAO has been pointing to scheduling problems at the VA for years. However, the VA and the government have both failed to respond to these calls for reform, rendering these “pinch points” meaningless.

And, what happens now?

The ultimate consequences of this scandal span far beyond the immediate impact on veterans’ health. I have been against Obamacare since its inception not because I am against affordable healthcare for all citizens, but because I do not believe that our government, at this point in time, can create a well-functioning national healthcare system for 320 million Americans. I predict that the VA scandal, like it has for me, will make other Americans even more wary of a nationalized healthcare system.  Until the government can get better at the business side of healthcare, a quality nationalized healthcare system is unattainable.

Well, what can we do?

Even though government is riddled with bureaucracy and red tape, there are ways to help the government get better at business. Let me spitball some ideas:

  • On issues dealing with business functions, legislators need to consult with and actually listen to unbiased business experts. Scientists brief and prepare recommendations for legislators on issues of science because most legislators are not scientists (although, we know that a lot of legislators like to pretend they know science). Businesspeople with no ties or interests to the industries in question need to be briefing and preparing recommendations for legislators on issues of business because most legislators are not businessmen. Like science, business is a field of study that requires education and experience. Being a skilled politician and lawmaker is different than understanding how to make a business run effectively. Consultation with experts is needed.
  • As of 2012, only 18 percent of federal employees were under the age of 35. The government needs to attract and recruit young employees with business experience and business degrees to work for them. Most business students go off to work in the private sector, where there is more money to be made, rather than working for the government. Loan forgiveness programs currently exist for teachers who work for five years at certain schools that serve low-income families, lawyers who work for ten years in public employment, and nurses who serve in hospitals and clinics in America’s neediest communities, to name a few. To attract business students to government jobs, the government should create a loan forgiveness program similar to those mentioned previously that allows for loan forgiveness for business students who work x many years with the government.
  • There is no question that politics and bureaucracy get in the way of well-running government business entities such as the VA. But there is a question of how to best equip government employees to work within the structure they are given. Many companies send their employees back to school to get EMBAs, and even pay for these degrees. Investing in employees in this way results in new ways of thinking, gives employees with no former business education the tools to succeed, and makes employees more likely to stay with the company. Only 15 percent of federal employees hold an advanced degree, with many of those that fall into this percentage working at the highest levels. The government should be sending select lower and upper-level managers back to school to get EMBAs. By paying for part or all of employees’ educations, the government can secure that business savvy employees will continue to work, and can ensure that new energy and knowledge is injected into government agencies notoriously plagued with complacency.

There are systemic flaws within the government that need to be addressed in order for things to improve. Let’s hope that Congress will choose to diagnose and treat the problem rather than slapping a band aid on the resulting wound. And let’s hope that it doesn’t take 115 days for this issue to get an initial appointment.

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