[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                         [H.A.S.C. No. 113-80] 
                         DEFENSE HEALTH AGENCY

                               __________

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON MILITARY PERSONNEL

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                           FEBRUARY 26, 2014


                                     
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                   SUBCOMMITTEE ON MILITARY PERSONNEL

                  JOE WILSON, South Carolina, Chairman

WALTER B. JONES, North Carolina      SUSAN A. DAVIS, California
JOSEPH J. HECK, Nevada               ROBERT A. BRADY, Pennsylvania
AUSTIN SCOTT, Georgia                MADELEINE Z. BORDALLO, Guam
BRAD R. WENSTRUP, Ohio               DAVID LOEBSACK, Iowa
JACKIE WALORSKI, Indiana             NIKI TSONGAS, Massachusetts
CHRISTOPHER P. GIBSON, New York      CAROL SHEA-PORTER, New Hampshire
KRISTI L. NOEM, South Dakota
               Jeanette James, Professional Staff Member
                 Debra Wada, Professional Staff Member
                           Colin Bosse, Clerk


                            C O N T E N T S

                              ----------                              

                     CHRONOLOGICAL LIST OF HEARINGS
                                  2014

                                                                   Page

Hearing:

Wednesday, February 26, 2014, Defense Health Agency..............     1

Appendix:

Wednesday, February 26, 2014.....................................    19
                              ----------                              

                      WEDNESDAY, FEBRUARY 26, 2014
                         DEFENSE HEALTH AGENCY
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Davis, Hon. Susan A., a Representative from California, Ranking 
  Member, Subcommittee on Military Personnel.....................     2
Wilson, Hon. Joe, a Representative from South Carolina, Chairman, 
  Subcommittee on Military Personnel.............................     1

                               WITNESSES

Farrell, Brenda S., Director, Defense Capabilities and 
  Management, U.S. Government Accountability Office..............     7
Robb, Lt Gen Douglas J., USAF, Director, Defense Health Agency...     5
Woodson, Hon. Jonathan, M.D., Assistant Secretary of Defense for 
  Health Affairs, Department of Defense..........................     3

                                APPENDIX

Prepared Statements:

    Farrell, Brenda S............................................    47
    Wilson, Hon. Joe.............................................    23
    Woodson, Hon. Jonathan, M.D., joint with Lt Gen Douglas J. 
      Robb.......................................................    25

Documents Submitted for the Record:

    Statement of the American Clinical Laboratory Association....    69

Witness Responses to Questions Asked During the Hearing:

    Dr. Heck.....................................................    75
    Mr. Wilson...................................................    75

Questions Submitted by Members Post Hearing:

    Mr. Barber...................................................    84
    Mr. Castro...................................................    85
    Mr. Scott....................................................    83
    Ms. Tsongas..................................................    83
    Mr. Wilson...................................................    79
                         DEFENSE HEALTH AGENCY

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                        Subcommittee on Military Personnel,
                      Washington, DC, Wednesday, February 26, 2014.
    The subcommittee met, pursuant to call, at 2:00 p.m., in 
room 2212, Rayburn House Office Building, Hon. Joe Wilson 
(chairman of the subcommittee) presiding.

  OPENING STATEMENT OF HON. JOE WILSON, A REPRESENTATIVE FROM 
  SOUTH CAROLINA, CHAIRMAN, SUBCOMMITTEE ON MILITARY PERSONNEL

    Mr. Wilson. Ladies and gentlemen, welcome to a meeting of 
the House Armed Services Committee, Military Personnel 
Subcommittee. Today the subcommittee meets to hear testimony on 
the Defense Health Agency [DHA]. I would like to begin by 
acknowledging the remarkable military and civilian medical 
professionals who provide extraordinary care to our service 
members and their families here at home and around the world, 
often in some of the toughest and most austere environments.
    I have firsthand knowledge of their dedication and 
sacrifice from my son, Lieutenant Commander Addison Wilson, 
Jr., who is a Navy orthopedic surgeon stationed in Naples, 
Italy.
    In June 2011, the House passed legislation establishing a 
joint unified medical command as a method of making a 
streamlined and efficient Military Health System [MHS], which 
has been shown by multiple studies to be a potential source of 
great cost savings. Ultimately, the Department of Defense [DOD] 
rejected the option of a joint command, deciding instead to 
establish the Defense Health Agency as part of an overall 
restructure of governance of the Military Health System to 
drive efficiencies and cost savings. This was done, despite 
concerns raised by the Government Accountability Office [GAO] 
about the Department's analyses of options for restructuring 
the Military Health System.
    I am anxious to hear from our witnesses how the Defense 
Health Agency is progressing, including your forecast for 
accomplishing the goals of increased efficiency and cost 
reduction. To that end, I would like the witnesses to address 
the following: First, the Government Accountability Office 
offered several recommendations regarding implementation of the 
Defense Health Agency. How has the Department addressed these 
recommendations? Was a comprehensive cost analysis of the 
Defense Health Agency conducted? And what were the results?
    Second, in June of 2013, the Department estimated that the 
Defense Health Agency staffing requirement would be 1,081. By 
October 2013, that estimate nearly doubled to 1,941. What is 
the current DHA staffing level? If it has been deviated from 
the estimate, please explain why. Are further increases in 
staffing required?
    Pardon me. The phone has come to life.
    Third, given that 7 of the 10 shared services were 
implemented at the beginning of this fiscal year, are current 
savings and spending levels on par with projections, especially 
the pharmacy program, which was projected to attain early 
savings?
    Finally, I would like to hear how the military surgeons 
general were involved in the implementation process.
    I hope that our witnesses will address these important 
issues as directly as possible in their oral statements and in 
response to Member questions.
    Before I introduce our panel, let me offer Ranking Member 
Susan Davis from California an opportunity to make opening 
remarks.
    [The prepared statement of Mr. Wilson can be found in the 
Appendix on page 23.]

    STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE FROM 
 CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON MILITARY PERSONNEL

    Mrs. Davis. Thank you, Mr. Chairman. I also want to welcome 
Assistant Secretary Woodson, General Robb, and Ms. Farrell.
    Given the recent budget released by the Secretary of 
Defense on Monday, I am certainly looking forward to and I am 
sure many people here are, to hearing from our DOD witnesses on 
the state of the Defense Health Agency and its efforts to 
consolidate functions, to better coordinate care, and reduce 
resources.
    As we all know, military healthcare budget is nearly $50 
billion a year. And while we have a budget agreement for 2014, 
sequestration still remains in effect for 2015 and future 
years.
    So difficult decisions will need to be made on how 
reductions are going to be implemented and how the impact of 
these reductions will be minimized as to not adversely impact 
beneficiaries or their quality of care provided to them. 
However, such achievements can only occur if there is 
transparency and accountability of how the Department makes and 
implements their decisions. The establishment and the 
implementation of the Defense Health Agency is a case study 
before us on where the Department can achieve transparency and 
accountability within the Military Health System.
    Ms. Farrell, thank you for coming. I look forward to 
hearing GAO's assessment on the establishment of the DHA and 
whether there are further areas of concern that the 
subcommittee should continue to conduct oversight activities.
    And I also look forward to hearing from Secretary Woodson, 
of course, good to see you again, and General Robb on how the 
DHA is moving forward, what efficiencies and savings have been 
achieved to date, what is expected over the long term, and 
where the DHA is in implementing all of the GAO's 
recommendations.
    So we thank you very much. Mr. Chairman, and look forward 
to the discussion today.
    Mr. Wilson. Thank you, Mrs. Davis.
    We have three witnesses today. We would like each witness 
the opportunity to present his or her testimony and each Member 
an opportunity to question the witnesses. I would respectfully 
remind the witnesses that we desire you to summarize to the 
greatest extent possible the high points of your written 
testimony in 3 minutes. I assure you that your written comments 
and statements will be made part of the hearing record.
    I also want to announce that to ensure all Members have an 
opportunity to question our witnesses we will use the 5-minute 
rule when recognizing Members for questioning.
    At this time, without objection, I ask unanimous consent 
that an additional statement from the American Clinical 
Laboratory Association be included in the record of this 
hearing.
    Without objection, so ordered.
    [The information referred to can be found in the Appendix 
on page 69.]
    Mr. Wilson. Let me welcome the panel. Returning, the 
Honorable Dr. Jonathan Woodson, M.D., Assistant Secretary of 
Defense, Health Affairs, Department of Defense.
    Thank you for being here.
    Lieutenant General Doctor Douglas J. Robb, Director, 
Defense Health Agency, U.S. Air Force, and Ms. Brenda S. 
Farrell, Director Defense Capabilities and Management, U.S. 
Government Accountability Office.
    And before we begin, I would like to extend a special 
welcome to General Robb, as this is his first appearance before 
this subcommittee, and we appreciate your service to our 
country.
    As we begin, Dr. Woodson, and then we will shift over, and 
then we will begin our questions. Thank you.

 STATEMENT OF HON. JONATHAN WOODSON, M.D., ASSISTANT SECRETARY 
      OF DEFENSE FOR HEALTH AFFAIRS, DEPARTMENT OF DEFENSE

    Dr. Woodson. Well, thank you very much, Chairman Wilson, 
Ranking Member Davis, members of the committee. It is indeed a 
privilege to be here today and update you on the Department's 
implementation of an important reform in the Military Health 
System, a needed reform in this era of significant challenges 
for the Department and American health care at large.
    Our national security and defense strategies must be 
supported by a strong, relevant, agile, and forward-leaning 
Military Health System. Our service members deserve and the 
American people expect excellent care delivered reliably, 
effectively, efficiently, and compassionately anywhere our 
service members are stationed or deployed. We have good 
evidence that joint integrated care improves results in combat.
    Today, if a Marine unfortunately is wounded in combat, he 
or she will be treated by a Navy corpsman immediately; 
transported by an Army medevac unit to a level 2 or 3 facility, 
staffed by Air Force, Army or Navy personnel working together; 
further strategically evacuated, receiving critical care en 
route by Air Force assets, to a level 4 or 5 facility where 
again definitive advanced care will be given by a multiservice 
healthcare team. This integrated, synchronized, coordinated 
combat casualty care system transcends service and command 
distinction and has resulted in the highest survival rates and 
the lowest case fatality rates in recorded warfare.
    This has come about not by chance but by designing a data-
driven integrated system focused on wounded warrior care and 
improving outcomes. The system reduces variability and provides 
for evidence-based common clinical and business processes 
reform. Together with the surgeon generals, we have moved 
forward to bring this design to all of our healthcare 
operations.
    Secretary Hagel has outlined his priorities for managing 
the significant change needed in the coming years. These 
include introducing institutional reforms, reevaluating our 
military force planning construct, preparing for prolonged 
readiness challenges, protecting investments in emerging 
military capabilities, balancing forces between Active and 
Reserves, and reforming personnel and compensation policies.
    In order to meet our mission in these changing times, I 
have outlined six lines of effort for the Military Health 
System in support of the Secretary's priorities. These include 
modernize the Military Health System's management with an 
enterprise focus, define and deliver the medical capabilities 
and manpower needed in the 21st century, invest in and expand 
strategic partnerships, assess the balance of our medical force 
structure, modernize the TRICARE health program, and define the 
Military Health System's global health engagement requirements.
    These strategic lines of effort will help us deliver on our 
overwhelming--or our overarching quadruple aims of readiness, 
improving the health of the populations we serve, improving the 
experience of care in our system, and responsibly managing the 
costs.
    Today we will focus on the first priority, modernizing our 
management structure. The establishment of the Defense Health 
Agency represented a major milestone in the Department, and it 
serves as a starting point for comprehensive enterprise-wide 
reform.
    In a few moments, General Robb will be sharing with you 
steps we have taken and some early successes. But I also want 
to provide additional context to our current situation. In 
addition to the significant changes underway in our national 
security posture, there is also dramatic change occurring in 
American health care that will affect how we do business and 
require us to refresh our thinking of health, health care, and 
healthcare delivery systems. In addition to rising costs, 
technology, subspecialization, information management, access, 
and workforce issues are challenging the American healthcare 
system. Health systems across the country, including ours, are 
focused on ways to reduce variation in care, improve patient 
safety, and more effectively use health information technology 
to improve clinical decisionmaking and outcomes.
    Within the military, there are additional imperatives for 
designing an integrated health system, which includes more 
joint basing, joint operations, and maintaining readiness. My 
office, the service medical departments, and the Defense Health 
Agency are partners in this process. We have created an agile 
governance for policy and enterprise-wide operational 
decisionmaking. We are holding ourselves accountable, using a 
disciplined process for identifying opportunities and using 
common enterprise-wide performance measures to see and check 
what we are doing. We use the Government Accountability 
Office's approach to conducting our business case analyses and 
business process reengineering efforts. The GAO's reports to 
Congress have been helpful, and we have taken continuous 
corrective action to improve our analytic work and our project 
management.
    The Department is proud of its progress and the progress it 
has made, but we need to be persistent in these efforts. I 
thank you for the opportunity to speak today, and I look 
forward to your questions.
    [The joint prepared statement of Dr. Woodson and General 
Robb can be found in the Appendix on page 25.]
    Mr. Wilson. Thank you, Secretary Woodson.
    And again, welcome, General Robb.

 STATEMENT OF LT GEN DOUGLAS J. ROBB, USAF, DIRECTOR, DEFENSE 
                         HEALTH AGENCY

    General Robb. Chairman Wilson, Ranking Member Davis, 
members of the committee. It is indeed an honor to be here for 
the first time and to join Dr. Woodson in updating you on the 
Defense Health Agency and our way forward over the coming 
months and years. Dr. Woodson has already provided the 
overarching strategy to make the MHS stronger, better, and more 
relevant for our future. I am pleased to share with you how the 
Defense Health Agency is going to contribute to that effort.
    This agency came about after 18 studies over 50 years. The 
vast majority of the 17 previous studies had recommended 
greater integration of the Army, the Navy, and the Air Force 
assets. However, little or no change occurred from those 
earlier reports. However, we are proud that this, in the 18th 
study, conducted in the summer of 2011, that I served as the 
co-chair, the senior civilian military leaders in our 
Department did indeed come together. And we analyzed almost 
every possible organizational structure for the Department of 
Defense. The Department then took action and selected the 
Defense Health Agency as the best possible option to improve 
the effectiveness and the efficiency without the cost and 
disruption that would have accompanied other options.
    In addition to providing the structure to create a more 
integrated system of care, the Department also designated the 
Defense Health Agency as a combat support agency. This is 
important. It makes me accountable to the Chairman of the Joint 
Chiefs of Staff, as well as Dr. Woodson, for ensuring that the 
medical readiness needs of our combatant commanders are met. 
And every 2 years, I will be graded by the chairman on how well 
we are meeting that mission.
    This is the central principle that I have conveyed to the 
chairman, to the services, and to my own staff. The DHA stands 
as a supporting organization, ensuring that the combatant 
commanders and the service medical departments have the 
resource support they require to meet their mission. Consistent 
with the joint governance processes that Dr. Woodson outlined a 
few minutes ago, the DHA's role as an integrator is to enhance 
the ability of the services to accomplish their mission.
    We have made significant progress in the first 150 days of 
this reform effort. And we are on track with most of our major 
milestones. Dr. Woodson mentioned the discipline and the rigor 
of our approach in improving how we do business. This approach 
has also provided all of us with insight into our most 
challenging issues. In some instances, this process has allowed 
us to rapidly introduce new processes, and we have accelerated 
timelines for implementation and achieved savings, reduced 
variation, and streamlined processes earlier than initially 
projected. Our written testimony provided examples of the 
status of all 10 of our shared services that comprise the 
Defense Health Agency. I will not repeat that summary here, 
but, rather, I want to highlight a few examples that illustrate 
the value of the path that we are on and the reason for 
optimism regarding the future.
    In medical logistics, for example, we initially believed 
fiscal year 2014 would require nominal investments or 
additional costs to achieve the downstream savings in the 
fiscal year 2015 through fiscal year 2019 period. However, the 
DHA medical logistics community shared service implementation 
effort identified opportunities to change the buying behaviors 
even as we launched the agency in October. As a result, we are 
on a path to cover our investment costs and save over $10 
million when we previously projected no savings for this year.
    Similarly, in the health information and technology shared 
service, there are a number of initiatives to reduce redundancy 
and consolidate IT contracts. The consolidation of the service 
medical chief information officers into the DHA has allowed to 
us move more quickly than we had anticipated, and we have 
identified savings of almost $25 million in this fiscal year.
    Of course, the most significant cost savings potential for 
the Department still remains in the purchase healthcare sector. 
Our efforts to improve the execution of the TRICARE health plan 
are focused on long-term systemic challenges and how we better 
integrate our direct care and private care health services 
delivery and contracts for healthcare support. As this 
generation of TRICARE contracts nears the end of its current 
term, the Department is looking to reshape contracts in ways 
that take advantage of strategic sourcing, improving 
integration with military medical facilities, reduce 
unnecessary overhead, and achieve greater simplicity and 
flexibility for the beneficiary and for the government.
    A final personal observation, after 5 months in this 
position, as I work with my colleagues in the Army, the Navy, 
and the Air Force, and with my own team in the Defense Health 
Agency, we spend many hours studying how we can develop even 
more common clinical and business efforts in support of our 
warfighters. And at the end of each review, we can see progress 
that we are making, the differences that we are making. And 
more times than not and to a person, I hear the same thing: 
this is the right way to go. In my personal experience 
interacting with our partners, such as the Director of the 
Defense Logistics Agency, is that they clearly see the benefit 
of us operating as a single enterprise, and they are pleased 
that we can present a single point of contact for Military 
Health System issues. And the refrain from our internal team 
and external partners is the same: we should have been doing 
this sooner.
    But we are not looking backwards, we are looking to the 
future. Proud of the work we have accomplished, but even more 
eager to identify ways that we can integrate our system on 
behalf of the incredible people that we are privileged to 
serve. Again, I appreciate the opportunity to be with you 
today, and I look forward to your questions.
    [The joint prepared statement of General Robb and Dr. 
Woodson can be found in the Appendix on page 25.]
    Mr. Wilson. Thank you, General.
    Director Farrell.

STATEMENT OF BRENDA S. FARRELL, DIRECTOR, DEFENSE CAPABILITIES 
     AND MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Farrell. Thank you, Mr. Chairman.
    Chairman Wilson, Ranking Member Davis, and members of the 
subcommittee, thank you for the opportunity to be here today to 
discuss whether the Defense Health Agency is positioned to 
achieve the goals of DOD's effort to reform its Military Health 
System. Let me briefly summarize my written statement.
    DOD's Military Health System costs almost $50 billion 
annually. The system's governance structure has been the 
subject of many studies since 1949, some recommending major 
changes to improve the cost efficiency of the system. GAO has 
conducted a body of work reviewing efforts to reform the system 
since 2006. In 2012, DOD announced the creation of the Defense 
Health Agency by October 1, 2013. Congress required DOD to 
provide its reform plans before the agency began initial 
operations. Further, GAO was mandated to review DOD's reform 
plans. My testimony today is based primarily on our report 
issued in November 2013 that assessed DOD's plans. My main 
message today is that DOD's senior leadership needs to take 
additional actions to increase transparency and enhance 
accountability of DOD's reform plans. These actions address 
staffing, cost, and performance measures.
    First, DOD has not determined its staffing requirements, 
military, civilians, and contractors, for the new Defense 
Health Agency. DOD did not have the data to determine how the 
creation of the Defense Health Agency will affect the total 
number of the system's headquarters staff because it does not 
have a baseline assessment for current staff.
    Notwithstanding, in 2011, using data that DOD later noted 
was inaccurate, DOD identified estimated personnel savings as 
part of the rationale for creating the new agency and 
identified a resulting savings of almost $46 million. Our 
previous work highlighted the need for Federal agencies to have 
valid, reliable data, and to be aware of the size of their 
workforce, its deployment across the organization, and the 
knowledge, skills, and abilities needed for the agency to 
accomplish its mission. A baseline assessment of a number of 
current headquarters personnel is a crucial first step for 
developing an estimate of the number of personnel that will be 
required once the DHA is fully operational.
    Second, DOD's cost savings estimates are unclear, as they 
were missing key details, such as the sources for savings for 
the various functions of its 10 shared services it is planning 
as part of the reform effort. DOD aggregated the separate 
business lines of its shared services, which obscures the size 
and the cost of planned efficiencies for each business line. A 
business case analysis requires detailed information to 
convince customers and stakeholders that the selected business 
process is the appropriate means for achieving performance.
    In addition, DOD has not clarified its plans to monitor 
implementation costs. In major reengineering efforts, 
implementation costs can be the dominant cost element and the 
area of greatest uncertainty. DOD's past experience with large-
scale projects, such as its initiative to acquire an electronic 
health records system, demonstrates the difficulties in 
controlling rising implementation costs. Greater clarity with 
regard to the sources of cost savings is also needed to allow 
senior leaders to monitor progress in achieving estimated 
savings.
    Third, DOD did not include critical details in performance 
measures it developed to assess progress in achieving the seven 
goals of the reform effort. Specifically, DOD did not develop 
explanations for how each measure relates to the goals of the 
reform effort, did not define the specific measure to be 
developed, did not provide a baseline assessment of the current 
performance that is to be measured and, most importantly, did 
not identify quantifiable targets for assessing progress. Fully 
developed performance measures are key to senior leaders' 
ability to assess if DOD's reform effort is achieving the goals 
or if corrective action is needed.
    Let me conclude by noting that our November 2013 report 
included recommendations in each of these areas to DOD, and DOD 
concurred with our recommendations. DOD has taken action to 
address these recommendations, but it has not completed them. 
We continue to believe that it is imperative for DOD to 
complete these actions so that decisionmakers will have 
accurate and complete information to gauge reform progress 
toward controlling costs versus adding to them.
    Thank you, Mr. Chairman. I will be pleased to take 
questions when you are ready.
    [The prepared statement of Ms. Farrell can be found in the 
Appendix on page 47.]
    Mr. Wilson. Thank you very much, Ms. Farrell.
    And we will begin now with each member of the subcommittee 
asking questions for 5 minutes.
    And a person above reproach, Jeanette James, is going to 
keep the time.
    And so this will be right on schedule. And we have votes 
within the next possible 45 minutes. So that is why the time is 
so important.
    For each one of you, beginning with Secretary Woodson, when 
the Department announced its decision to stand up the Defense 
Health Agency as a more efficient governance structure, the 
Government Accountability Office offered several 
recommendations on improving the Department's decision process. 
In response, the Department agreed to develop a comprehensive 
cost analysis of the Defense Health Agency structure. What were 
the results of the cost analysis?
    Dr. Woodson. Thank you very much for that question.
    And I want to reiterate that we have appreciated the GAO 
review of our work. Some of the reports are a little out of 
sequence in terms of the work that was actually done. And we 
have clearly done a lot more work in terms of the analysis 
relative to the questions that have been asked.
    The issue about the cost investment is a significant one. 
And one of the issues relative to that is that we are dealing 
with a lot of shifting sets of program. We know what the base 
cost and the base issues were relative to, let's say, TRICARE 
Management Activity [TMA]. But, in fact, what we are doing is 
we are layering on the shared services and bringing folks over 
from the service headquarters.
    I think the issue really is that, as we look at all of the 
work that is done and we look at just fiscal year 2014, we 
projected about $148 million in savings this year. And through 
the first quarter, we have already achieved $80 million dollars 
of that savings.
    And so the issue is that we are ahead of schedule in terms 
of the savings. And then, as we look at all of the areas, 
particularly related to the shared services, again, we are 
outpacing our projections. So, in the pharmacy area, of course, 
we are projecting about $437 million in savings in fiscal year 
2014. And we can submit for the record our estimation of these 
savings.
    So the bottom-line message that I am saying is that--giving 
is that this is really, was complicated stuff in trying to 
identify what was being done and what was the cost in each of 
the headquarters, what was the baseline cost within the Defense 
Health Agency. But the performance to date has been better than 
projected.
    And we can provide for you, again, a detailed assessment 
for every shared service, what the estimate was and where we 
are performing at this time. And, of course, to date, we have 
incorporated a total for OIC [officer in charge] of six of the 
shared services with four more to come on board.
    [The information referred to can be found in the Appendix 
on page 75.]
    Mr. Wilson. Thank you, Dr. Woodson. Actually, complicated 
but very impressive numbers.
    General Robb.
    General Robb. In regards to--I will cover specific 
recommendations from the GAO report. And again, as Dr. Woodson 
had mentioned, it only covered the first two reports to 
Congress. In many of the issues that were raised by the GAO, 
and appropriately so, were addressed in the third MHS report to 
Congress. And what was good about their recommendations is it 
allowed us to focus on what we needed to concentrate on.
    So, in the first GAO recommendation, we have established 
analytics function in the DHA. And that is key. We have never 
done that in MHS. And that is key because that is going to 
drive the standardization of the metrics across the enterprise. 
So we are well down the, again, the road to standardizing, 
again, an analytic function for our defense agency, which then 
will drive, like you said, the measures, quantifiable, 
objectable in a baseline assessment.
    And then, just for some specific accomplishments, as far 
the execution, our MHS enterprise core dashboard has been 
developed. And, again, we are working its way through our new 
governance structure to get buy-in from the services. And then 
our multiservice market dashboard, where the rubber meets the 
road, where those, again, the joint execution of health care is 
going to occur, has also been approved and is currently being 
used. And, again, we are using that to help drive and to 
support our 5-year business plans.
    On our second recommendation, we have--one of the 
objectives is that, you know, our 10 shared services are well 
on their way. Five of them stood up at IOC [initial operating 
capability] when four were actually scheduled, and one of them 
said, Hey, we are ready. And then, recently, we had budget and 
accounting just came on board ahead of time, and we have three 
more to go. So we have got that timeline, and we are staying on 
track. And again, for the record, we would be glad to give that 
to you.
    And then more potential sources of cost savings. We had 
projected the cost savings for the 10 shared services. Again, 
2014, we are--again, we weren't--you know, we are 2015 to 2019, 
we have predictions. We are looking at 2014. In fact, I review 
that monthly, and so does our new governance system. Again, as 
we are tracking the savings that are actually going to cover 
many of our initial investments. Been a long time since I have 
been in the military when we have been able to cover our costs 
actually ahead of time. And so we are excited about that. 
Because the folks out there, again, are dedicated to make this 
happen. And then, again, we are going to--we can share again 
the timelines for all our five shared services, actually the 
four that remain and where we are going with that.
    And then the--each of our shared services has--and we 
talked about the specifics of it. Each one of them has started 
out with a minimum of five business case analysis and five 
businesses plus engineering. And again, the four that are 
already on board, plus the fifth one--I gave logistics as an 
example. You know, this isn't the future, this is already 
executing and already getting a return on investment. So, 
again, we track those monthly.
    Our new governance system. We roll that up quarterly. We 
just had the quarterly review. Again, we are 120 days, now 150 
days into this. And again, they are very transparent on being 
on target and on time and on glide slope to make sure that we 
meet those recommended savings that we said that we were going 
to do.
    And then, number four, monitor implementations. Like I 
talked about, these reviews, that the transparency is none like 
I have ever seen it in my tenure in the MHS. One inside the 
DHA, working its way up through the directors in the shared 
services, and then, two, the new governance system that Dr. 
Woodson had shared with you where our ones, you know, our 
threes and fives, you know, our eights get together, almost 
like a joint staff model, and again work out the issues. And 
again transparency across the services, again, unheard of in my 
tenure in the MHS.
    And then, finally, develop and present to Congress baseline 
assessment. So we--the staffing model for the DHA, again, is a 
work in progress. But Dr. Woodson, and I will allow Dr. Woodson 
to actually probably elaborate more on this. But we--there will 
be no growth. I mean, my folks look at me, and I go, if you say 
that you need something and where is it coming from. I mean, it 
is clear there is no growth going to occur, especially in both 
the military and civilian as we walk this through.
    So our DHA, and all our folks understand this, is made up 
of formerly known as TMA. But the shared services are the men 
and women, again, who do the dedicated work inside each 
service.
    Mr. Wilson. Thank you, General.
    My time is up.
    General Robb. Yes.
    Mr. Wilson. Ms. Farrell, if you could just provide for the 
record later.
    [The information referred to was not available at the time 
of printing.]
    Mr. Wilson. And we proceed to our ranking member, Susan 
Davis.
    Mrs. Davis. Thank you very much, Mr. Chairman.
    I must say, I know that for a lot of people that are just 
deep in the weeds of this in the audience, I think that they 
have a good level of understanding. But if anybody else is 
watching, they may be a little confused, because it is 
difficult to sort of get a handle on this.
    And I think one of the things that jumps out at me, I have 
a sense, Ms. Farrell, that you are trying to get much more 
detailed information, particularly in the staffing area. And 
yet, you know, we are hearing that that is being provided. And 
I am not exactly clear about that. So I am wondering, are you 
satisfied with the sources of savings in that arena?
    Ms. Farrell. It is true that our November 2013 report was 
based on the first two submissions to Congress. But for this 
testimony today we did obtain and review the third submission.
    DOD noted in the comments to our 2013 report that many of 
the--that they agreed with our findings, and many of the 
actions would be taken and included in the third submission. 
However, our review of that submission shows that it is still 
lacking.
    I do not want to take away from the very complex work under 
the leadership of Dr. Woodson and Lieutenant General Robb. This 
is a movement that we have seen much further than any of the 
other reform efforts. But we still do not see a baseline 
assessment, for example, that we were told would be in the 
third submission. It is our understanding that that might be in 
the 2014 strategic plan. Perhaps they can elaborate on that. We 
do not believe that at this time DOD officials can determine 
whether or not there will be an increase or a decrease in 
staffing, since they do not have that baseline. And we 
emphasize that the baseline should include not only military 
and civilians, but the contractor workforce. We issued a report 
last year that noted that the contractor services for DOD was 
about 90 percent of the DOD Federal employees. The contractor 
workforce is a significant part of the total workforce. DOD's 
guidance even instructs them to consider all personnel 
resources when making the manpower mix decisions, including 
that of contractors. So we would encourage them to get that 
inventory down.
    Mrs. Davis. To include that. Because I guess, going to Dr. 
Woodson and General Robb, if we are trying to get a 20 percent 
savings and you don't have the baseline, how do we get there?
    Dr. Woodson. So, you know, that is an excellent question. 
And let me just give you sort of the idea of the complexity of 
this. We have to map what is a new agency. Right. This has 
never been done before.
    Mrs. Davis. I want to say as well, I am delighted to see 
the shift.
    Dr. Woodson. Yes. It has, you know, got a core of, let's 
say, TMA. And we can map those numbers, so we know we are on a 
glide path to reducing those numbers down by 20 percent. We--
the reason being is that we were under a previous mandate to do 
that under some Track Four Efficiencies and the like that the 
Secretary had outlined some time ago.
    But the issue really is, never before in the history of the 
Military Health System have we had to map it back to the 
headquarters of the individual service headquarters and some of 
their sub-headquarters because of where the functions were 
being performed.
    And so that is a complicated process, and we do have better 
fidelity on that now. But this will continue to be a work in 
progress.
    Anecdotally, though, what we are----
    Mrs. Davis. Excuse me, Dr. Woodson.
    Can I just interrupt for a second because we are almost out 
of time. Because some of the information I have would suggest 
that in the IT consolidated services alone that we have seen 
the numbers really increase significantly there.
    Dr. Woodson. Yes.
    Mrs. Davis. So how is that?
    Dr. Woodson. That is a great example. That is a great 
example. Because one of the agreements between the services is 
that the services wanted to get out of the health IT issue. And 
so all of their folks transferred to DHA. So you are going to 
see that swell. But what we found in the process is that we 
immediately see duplications in positions. And so we are 
working through what should be the glide path for reducing 
those positions. So it is the first time really that we have 
great--or understanding of this duplication that was occurring 
within the service. So that is an absolute great example. So, 
on the surface, it looks like a large bolus, and the reason is 
that the service divested themselves of those people, but at 
the same time, we immediately see where the duplications are.
    Mrs. Davis. Okay. We will stop it there for now.
    Thank you, Mr. Chairman.
    Mr. Wilson. Thank you, Ms. Davis.
    We now proceed to Congressman Dr. Joe Heck of Nevada.
    Dr. Heck. Thank you, Mr. Chairman.
    Thank you all for being here. I can just--can't even begin 
to fathom the task. I mean, it is not like somebody handed you 
a TDA [Table of Distribution and Allowances] and said, go build 
Defense Health Agency. So I understand the numbers are going to 
swing wide, like you just said. As you consolidate and people 
come into your house, that is--the good side is now you have 
increased visibility of where all these positions are. Now you 
can start to right-size the force.
    And I have no doubt, Dr. Woodson, that based on your 
distinguished civilian and military career, that you are the 
right guy to get this done.
    And, General Robb, being a fellow D.O. [Doctor of 
Osteopathy], I am sure you will be up to the task as well.
    One of the shared lines of effort listed was medical 
research and development. How will that, if it will at all, 
impact, or what is the plan as it pertains to the 
congressionally directed medical research program?
    Dr. Woodson. I don't think that will negatively impact that 
at all. But what it does do is it brings again great focus on 
the research enterprise and allows us to set priorities more 
effectively and achieve efficiencies in carrying it out. What 
we have done, of course, is that in the old scheme, MRMC 
[Medical Research and Materiel Command] was the basis on which 
the services actually relied for many of its infrastructure 
operations and carrying out research. Although, of course, Navy 
had its assets and Air Force had its assets.
    What we have done is we have linked the Defense Health 
Agency to MRMC so the director of the Defense Health Agency is 
now the deputy commander of MRMC. And it brings great clarity 
and great unity in the issue of setting research priorities. It 
actually allows us to leverage our dollars more effectively in 
setting the priorities, get out the waste and the 
infrastructure. Everything from, like, assurances to multiple 
IRBs [independent review boards] will be dealt with and will 
produce an efficiency in the research program that I don't 
think has ever been seen before.
    Dr. Heck. Great. That is very encouraging and I think long 
overdue.
    Now, I just want to ask, before I ask the question, were 
you all aware of the statement from the Clinical Laboratory 
Association that was going to be put into the record or what 
the issue is that is contained herein?
    Dr. Woodson. No.
    Dr. Heck. Okay. So, evidently--there have been a lot of 
questions, and this is probably going to be something that is 
more at the tactical level than the strategic level, so if you 
need to take it for the record, please do. Questions about the 
TRICARE reimbursement on the laboratory-developed tests and the 
lack of reimbursement for some of the molecular genetic tests. 
And the question of why those tests were no longer being 
covered if they were performed by an outside provider vice if 
they were performed at an MTF [military treatment facility] and 
whether or not they were or are not FDA-approved, how that all 
came in. Some of the questions were, why was that decision 
made? How was that decision made? And what are we going to do 
to make sure that our beneficiaries have access to those tests 
when needed?
    Dr. Woodson. Thank you very much. I wasn't aware about the 
submission for the record, but I do know about the subject. I 
will take it and respond back to you fully. But let me give you 
the bottom line up front. We have recognized sort of a 
discrepancy. We have a program in place actually to fix it. And 
none of the beneficiaries will be denied the tests that they 
need to get great care.
    [The information referred to can be found in the Appendix 
on page 75.]
    Dr. Heck. Regardless of whether it is done at an MTF or a 
civilian location?
    Dr. Woodson. Exactly. We are going to harmonize that whole 
issue. It has to do with an issue of what we can pay for under 
TRICARE care versus what can be done within the direct-care 
system. It is a technical question that should never have come 
into play with actually administration. It should be an 
evidence-based decision about the test, not----
    Dr. Heck. Great. I appreciate the quick response; look 
forward to the full response for the record. Thanks.
    Yield back, Mr. Chair.
    Mr. Wilson. Thank you very much, Dr. Heck.
    We really appreciate you being here today. And so we will--
I was conferring with the ranking member, Susan Davis. We will 
continue for another round, and then we will recess and run 
across the street.
    For Dr. Woodson and General Robb, in June of 2013, the 
Department estimated the Defense Health Agency staffing 
requirement would be 1,081. By October 2013, that estimate 
nearly doubled to 1,941. What is the current Defense Health 
Agency staffing level? Please explain any deviation from the 
estimate. Are further increases in staffing requirements 
expected?
    Secretary Woodson.
    Dr. Woodson. Thank you, Chairman, for that question.
    Again, this gets back to the issue of mapping individuals, 
where they are coming from and what category they fall in. So 
let me try and walk you through this. First of all, we need to 
understand that the Defense Health Agency again is--was much 
more than TMA. We are laying on shared service and bringing in 
people from the services to do this work.
    The baseline staffing for TMA had been estimated in 
previous reports at over 2,800, basically. And this admittedly 
took civilians and uniformed people and contractors.
    Again, as it looks now, right with the six shared services 
that are in, we are at 1,900. It looks like the core staffing, 
though, is, again, at a glide slope of about 900, with a look 
to reduce them to about 754. And what we are going to have to 
do is map out all of these various categories and again matrix 
it back to the headquarters to make sure that the headquarters 
are not growing when they shift--even when they shift people 
over. So it is a complicated process.
    The data we have thus far suggests that we are on a glide 
slope to reduce. We do understand, as mentioned before, that we 
have gotten in duplications, if you will. So health IT is again 
that issue where we are going to have to sort these individuals 
out. But never before has anyone attempted to look at the grand 
scheme of the MHS and map the FTEs [full-time equivalents] and 
the duplication. And we are in that process. But I really feel 
very sure that we are going to produce the efficiencies just 
simply because they are showing up almost every day in terms of 
the duplications.
    Mr. Wilson. That is encouraging.
    General Robb.
    General Robb. Again, I will support Dr. Woodson in the 
sense of we are building this. And as you see, an agency isn't 
headquarters. An agency is an institution that provides a 
service that we are supporting our organization. So when you 
look at it from that perspective, for example, HIT [healthcare 
information technology] was a prime example. And it depends on 
the shared service. Some of it would be just executive 
oversight and management. But the rest, like HIT, they are the 
ones doing the work. They are the ones that are the CIO [chief 
information officer] shops for the services. So, before, they 
used to be in the service; now they are in our agency. And so--
and there has been no--there is no growth in the sense that the 
numbers.
    Now, Dr. Woodson talks about once we bring all those CIOs 
together, they have already identified redundancies, and they 
have already--again, as they do the business case analysis and 
the business process reengineering, this is realtime; in other 
words, this wasn't all done last summer, much less at IOC. And 
again, there is work to be done in R&D [research and 
development] and education training. But HIT is a great 
example. So we have identified civilians for reduction. We have 
identified military members for a reduction because of the 
duplication. And again, as you can imagine--and, ma'am, to your 
point, contracts. And so there is--that area there is ripe for, 
one, inventory, and, two, reset.
    Dr. Woodson. If I might add just one other example to give 
sort of clarity on these numbers and how we have moved in a 
positive direction. If you were to take, let's say, just the 
movement of the NCR [National Capital Region] Directorate into 
the DHA, JTF CAPMED [Joint Task Force National Capital Region 
Medical] had probably about 130, 140-plus individuals with a 
manning document that was probably about 176 or so. We have 
reduced that to 42.
    Mr. Wilson. My goodness.
    Dr. Woodson. Forty-two. And this is the power of the 
construct and the shared entity.
    Mr. Wilson. We appreciate your oversight.
    And we now proceed to Ranking Member Susan Davis.
    Mrs. Davis. Thank you. I know we have talked about those 
shared services. Could you share a little bit more about the 
consolidation of education and training services as well, and 
how is that figuring in with these cost savings? Where can we 
go with that?
    Dr. Woodson. So, thank you, again, for that question.
    So one of the I think enabling factors in standing up the 
DHA was the fact that we had begun in certain isolated pockets 
to go to joint entities. The Medical Education and Training 
Center in San Antonio is one of those issues. In my opening 
statement, where I talked about that medic who first attended 
to the wounded Marine, although he was a Navy corpsman, he 
probably was trained at the Medical Education Training Center 
next to the Air Force buddy and an Army buddy, basically. So it 
was an easy move for that entity to come into education and 
training.
    But beyond that, we educate all the time medical personnel. 
And so the money we spend on continuing medical education and 
e-learning, graduate medical education, and the like, are all 
opportunities to harmonize, synergize, and produce efficiencies 
in that area.
    Mrs. Davis. And you feel that--where--because--in some 
ways, we want to be sure that we are--we are really allowing 
the kinds of, I guess, creativity to come forward. And do you 
think that is going to be better served?
    Dr. Woodson. That is an excellent question. And I think 
that is probably the most pertinent question we can ask.
    We have been talking about standardization, efficiencies, 
reducing variability. And sometimes that is considered counter 
to innovation and, you know, really moving, advancing ahead.
    The truth of the matter is that if you manage the processes 
correctly, one helps the other. So reducing variability is 
about identifying the best standard and then making sure we 
create wisdom without--in the system so everybody operates at 
that best standard.
    But at the same time, I have stood up an innovation cell to 
ensure that we are linking the appropriate communities of 
interest so that we can find new ideas, whether it is advances 
in strategies for education or strategies for care, we can feed 
it and resource those appropriately, see if they are validated 
by measuring, putting metrics against them, and then, at the 
earliest opportunity, spreading it across the enterprise. So we 
have not neglected the issue of innovation.
    Mrs. Davis. Can you overlay employee satisfaction on that? 
Because it is my understanding, again, that as we look at that 
right now that the Defense Health Agency is kind of ranked 
fairly low. And I don't know whether that is just because we 
are in a transition. I mean, this is a difficult time for 
everybody. But how are you evaluating morale? And where you see 
that it is low, to what do you attribute that?
    Dr. Woodson. So another great question.
    I think, you know, our experience is that when you talk to 
folks in the field, they are excited about the change. They 
recognize that they have been working with their brothers and 
sisters in the other services for some time. And they recognize 
the opportunities of working in fellow service institutions.
    I think the issues--we have to be careful at this time in 
our history. We have been at war for 13-plus years. We have got 
all of these budget issues in the news. Everybody is talking 
about downsizing and the like. And it gets to be a very 
confusing picture about what is driving morale.
    I think in the medical community, what we are hearing when 
you talk to the individual, everybody is nervous about change. 
We are human beings; we get nervous about change. But the issue 
is they are excited about the possibilities I think that this 
new endeavor creates. So I have a different take on it. I think 
there is some general anxiety out there about all that is going 
on. I don't see the morale within the medical community as 
having suffered.
    Mrs. Davis. Director Farrell, do you pick up that also when 
you are doing your gathering information? Is that something you 
could weigh in on?
    Ms. Farrell. We have ongoing work that is driven by this 
committee specifically looking at the integration of medical 
education in San Antonio. I would note that that is an effort 
that actually started with BRAC in 2005, for consolidation of 
facilities, not necessarily the education itself, that being 
the courses. So we are currently looking at what integration 
has actually taken place. What is the morale of the students? 
What are the strengths? Are there any issues that are 
developing? And we will be reporting that back to this 
committee next month.
    Mrs. Davis. All right. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Wilson. Thank you, Ms. Davis.
    Now Congressman Dr. Joe Heck.
    Dr. Heck. Thanks, Mr. Chair, for the second round of 
questioning. Actually, my questions are in response to some of 
the other answers to the other questions.
    On medical education, is USUHS [Uniformed Services 
University of Health Science] going to be within your wiring 
diagram now?
    Dr. Woodson. So USUHS is--yes, it is a report to me.
    Dr. Heck. And as you move these other entities now, like 
using IT from the services into DHA, who is the bill payer? Do 
they stay on the services' books or are you picking up the tab?
    Dr. Woodson. So a lot of that we have been picking up the 
tab for, anyway. That is DHP [Defense Health Program] money. 
And so it is very interesting. This project is just fascinating 
in some sense.
    So one of the things we had to figure out is, you know, 
where the money goes. And so one of the initiatives, of course, 
is we have developed a common cost accounting system. Never 
been done before. So that we can track.
    The bottom-line answer to your question, though, is that it 
is DHP money, so we have been the bill payer. It is just that 
we are now being able to centralize the portfolios, clean up 
the portfolios so that we don't have duplicate IT programs and 
the like. And it is just much more efficient. But we are the 
bill payer.
    Dr. Heck. And then, lastly, the whole concept for this was 
put into place or developed prior to sequestration passing. 
With the advent of sequestration, how do you see that, or does 
it impact your ability to move forward on what you need to do 
with DHA?
    Dr. Woodson. Thank you, again, for another good question.
    I hope everyone realizes that last year was a very 
challenging year for us, right? We had the program cuts for the 
Budget Control Act. We had sequestration. We had furloughs. We 
had--this agency stood up in the middle of a government 
shutdown. And yet it has delivered on the promise of the 
savings and is getting the job done.
    In direct answer to your question, though, thank God we 
started down this path. Because if we had not and we had these 
budgetary concerns and all of the issues in forced management, 
forced reduction and the coming concerns, it would have spelled 
disaster, I think, for the Military Health System. So we 
started with vision in mind about what we need to do, because 
it was right. It turns out it serves a purpose of efficiency 
and meeting the budgetary issues as well.
    Dr. Heck. Great. Again, thank you all for what you are 
doing.
    Yield back.
    Mr. Wilson. Thank you very much, Dr. Heck.
    And thank you all for being here today.
    And indeed, we appreciate your promoting efficiencies, as 
you indicated, in an extraordinarily disruptive environment. 
That is very impressive.
    If there is no further comment, we shall be adjourned.
    [Whereupon, at 3:31 p.m., the subcommittee was adjourned.]
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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                           February 26, 2014

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             RESPONSES TO QUESTIONS SUBMITTED BY MR. WILSON

    Dr. Woodson and General Robb. GAO recommended that DOD develop (1) 
a comprehensive cost analysis for its potential MHS governance options, 
(2) a business case analysis and strategy for implementing its shared 
services concept, and (3) more complete analyses of the options' 
strengths and weaknesses. DOD concurred with developing a business case 
analysis for its shared services concept. DOD did not concur with the 
other 2 recommendations, stating that further analysis would not alter 
its conclusions. Section 731 of the FY 2013 required that the 
Department report to Congress on the progress achieved in standing up 
the Defense Health Agency and Shared Services. In our first report to 
the congressional defense committees, dated March 15, 2013, we 
identified our reform efforts and provided detailed goals, milestones 
and schedules for implementing the Defense Health Agency (DHA), the 
enhanced multi-Service markets (eMSMs), and the National Capital Region 
(NCR) Directorate. In our second report, dated June 27, 2013, we 
provided our strategic objectives, success measures, and business case 
analyses for four of the initial ten identified shared services. In the 
third report, dated October 25, 2013, we provide specific information 
for each shared service, including our assessments for the remaining 
six shared services, to be implemented in FY 2014.   [See page 9.]
                                 ______
                                 
              RESPONSES TO QUESTIONS SUBMITTED BY DR. HECK

    Dr. Woodson and General Robb. Providing safe and effective care for 
our beneficiaries is our top priority. The DOD is committed to ensuring 
that our beneficiaries have access to the full array of proven health 
services, technologies, and products available in the United States. 
Title 32, Code of Federal Regulations (CFR), Section 199.4(g)(15)(i), 
provides that TRICARE cannot cost-share unproven drugs, devices, 
medical treatments, or procedures, and that a drug, device, or medical 
treatment or procedure is unproven if the drug or device cannot be 
lawfully marketed without the approval or clearance of the United 
States Food and Drug Administration (FDA). The Federal Food, Drug, and 
Cosmetic Act (FFDCA) provides for the regulation of medical devices. 
These medical devices are defined broadly in Title 21, United States 
Code, Section 321, to include: ``an instrument, apparatus, implement, 
machine, contrivance, implant, in vitro reagent, or other similar or 
related articles, including any component, part or accessory which is . 
. . intended for use in the diagnosis of disease or other conditions, 
or in the cure, mitigation, treatment or prevention of disease.'' A 
laboratory developed test (LDT) is a test developed by a single 
clinical laboratory that provides testing to the public, but does not 
sell the lab kit or its technological processes to other labs. LDTs are 
considered to be medical devices by the FDA and the Defense Health 
Agency (DHA).
    The FDA has stated that clinical laboratories developing LDTs are 
acting as manufacturers of medical devices and are subject to FDA 
jurisdiction under the FFDCA, thus requiring either a Premarket 
Notification 510(k) or Premarket Approval. However, the FDA has chosen 
to exercise ``enforcement discretion'' regarding regulatory oversight 
of LDTs, meaning the FDA has not required the removal of these tests 
from the market. As a result, LDTs are available in the market without 
FDA approval or clearance. However, when the FDA elects to exercise 
enforcement discretion, this choice does not change the fact that the 
law applies to those products. Consequently, and in accordance with the 
federal regulations governing the TRICARE program, medical devices, 
including LDTs, that require FDA approval or clearance for marketing 
when such approval or clearance has not been given may not be cost-
shared by TRICARE.
    As stated above, there has not been a change in TRICARE's 
underlying coverage policies regarding non-FDA approved LDTs. Our 
managed care support contractors (MCSCs) and beneficiaries are aware of 
TRICARE's existing coverage policies, including the exclusion for 
devices that are not FDA cleared/approved. The adoption of new Current 
Procedural Terminology (CPT) codes, effective January 1, 2013, provided 
payers, including the DOD, with greater transparency in billing for 
laboratory tests. These coding changes allowed the DHA to identify 
specific LDTs that: (1) have not been approved or cleared by the FDA, 
and/or (2) failed to meet TRICARE criteria for coverage (e.g. demand 
genetic testing that is not medically necessary and does not assist in 
the medical management of the patient). While the revised codes allowed 
TRICARE to accurately determine TRICARE coverage for specific tests, 
there was no change in TRICARE's underlying coverage policies. 
Consistent with the change in CPT coding, the DHA moved LDTs that were 
not FDA approved or otherwise failed to meet TRICARE coverage criteria 
to the Government's No Pay Procedure Code List.
    The DHA recognizes that some non-FDA approved LDTs may be useful to 
providers and patients with certain treatment decisions. This is due, 
in part, to the on-going development of new medical tests and 
technologies. In the absence of FDA approval/clearance of LDTs, we need 
to establish an alternative process to ensure safety and efficacy. As a 
result of beneficiary and provider input, TRICARE has chosen to 
initiate a new demonstration project to review the safety and efficacy 
of a broad range of non-FDA approved LDTs with potential high 
utilization and potential high clinical impact for our beneficiaries. 
This demonstration project will collect data to support potential 
future regulatory revisions and enhance the flexibility of the MHS in 
responding to emerging technologies. This new effort will expand upon 
our existing demonstration project, which provides coverage for certain 
LDTs that inform clinical decision making in cancer diagnosis and 
treatment. Under the new demonstration project, we will assess the 
safety and efficacy of a broader range of LDTs with potential high 
utilization and potential high clinical impact on our TRICARE 
beneficiaries. This demonstration project will also collect the 
additional and necessary data to support future regulatory revisions. 
In keeping with other demonstration projects, LDTs approved under the 
new demonstration project will be covered by TRICARE during the 
demonstration period and will also be available in Military Treatment 
Facilities (MTFs). Once formalized, details of the demonstration 
project will be published in the Federal Register.
    We recognize there are differences between the purchased care 
sectors and direct care sectors (MTFs) in the ability to obtain certain 
LDTs; however, this is due to differing functions and specific federal 
regulatory requirements for the purchased care sector. The new 
demonstration project is an important first step in ensuring patients 
seen in either the direct or purchased care sectors have the same 
access to non-FDA approved LDTs that are determined to be safe and 
effective. LDTs approved under the new demonstration for our purchased 
care sector will be integrated into the direct care sector providing 
more consistency between both systems.   [See page 14.]
?

      
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              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                           February 26, 2014

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                   QUESTIONS SUBMITTED BY MR. WILSON

    Mr. Wilson. Families report significant barriers and delays to 
enroll in the ABA Pilot and that care is often delayed by months. Can 
you please tell me how many beneficiaries are currently receiving 
services under the ABA Pilot? Please provide explanation for treatment 
delays.
    Dr. Woodson. Based on contractor feedback (TRICARE purchased-care 
claims can be submitted up to one year after the service is provided 
and, therefore, claims data incomplete and not a reliable indicator of 
current ABA Pilot participation), as of January 31, 2014 there were 94 
beneficiaries approved to receive Applied Behavior Analysis (ABA) for 
treatment of Autism Spectrum Disorder (ASD) under the ABA Pilot and 
another 168 pending approval. Completion of psychometric testing and 
assessment is required for approval. Obtaining the required 
psychometric testing--Autism Diagnostic Observation Schedule, Second 
Edition (ADOS-2) and/or Vineland Adaptive Behavior Scale II (Vineland-
II), is the primary reason for reported delays. There have been several 
meetings between the Managed Care Support Contractors and the Director, 
TRICARE Health Plan to address this issue. Also, individual outreach 
has been conducted to families in the approval process to assist them 
in completing any needed actions to include completion of psychometric 
testing.
    Mr. Wilson. Why are the enrollment and authorization requirements 
for the ABA Pilot more burdensome than authorizations under the Autism 
Demonstration and the TRICARE Basic program?
    Dr. Woodson. In sum, the enrollment and authorization requirements 
for the Applied Behavior Analysis (ABA) Pilot are more burdensome than 
authorizations under the Autism Demonstration as the ABA Pilot will 
evaluate the feasibility of using standardized measures, not currently 
a requirement under the ECHO Autism Demonstration, to assess ABA 
treatment progress and report its findings to Congress concerning the 
ABA Pilot for Non-Active Duty family members (NADFMs).
    One objective of the ABA Pilot is to evaluate the use of 
standardized measures to assess ABA treatment progress based on the 
Behavior Analyst Certification Board (BACB) Guidelines for Health Plan 
Coverage of Applied Behavior Analysis Treatment of Autism Spectrum 
Disorders (2012). The guidelines recommend that data from standardized 
tests are helpful to ``inform issues related to selection and 
prioritization of treatment goals and determining a response to 
treatment.'' This standardized psychological testing requirement 
applies only to beneficiaries who choose to participate in the ABA 
Pilot. There is no change for any other TRICARE beneficiaries--whether 
Active Duty family members (ADFMs) or NADFMs--receiving ABA under the 
TRICARE Basic Program, or for ADFMs receiving autism-related services 
under the Extended Care Health Option Autism Demonstration.
    An on-going series of focus groups is being held to solicit 
feedback in hopes of using this information to optimally meet the needs 
of beneficiaries.
    Mr. Wilson. Families report that dollar caps under the Autism 
Demonstration and the ABA Pilot prevent them from accessing recommended 
treatment services. Can you please explain why so many families cannot 
obtain coverage for treatment services that have been medically 
prescribed?
    Dr. Woodson. The National Defense Authorization Act for FY 2009 
section 732, established the limit of Government liability for Extended 
Care Health Option (ECHO) benefits at $36,000 per year. This change was 
implemented on April 1, 2009. In FY 2013, 4.2 percent of Active Duty 
Family Members using only ECHO program services (218 of 5,131 users) 
had annual expenditures at or near the $36,000 annual cap (we define 
this as those with more than $35,000 annually). The $36,000 annual cap 
for ABA services under the ABA Pilot mirrors the Extended Care Health 
Option (ECHO) cap.
    Under the TRICARE program, all necessary medical care is provided 
without a cap or dollar limit. This medical or behavioral health care 
is provided through the basic TRICARE program whether the beneficiary 
has chosen TRICARE Prime or TRICARE Standard. These medical and 
behavioral therapies include those which are provided for ABA services. 
The tutor services which are a part of some ABA approaches are provided 
through the ECHO.
    Mr. Wilson. Based on the testimony of Dr. Woodson and General Robb 
savings from the consolidation of Medical Logistics is projected to be 
$10 million. What is the amount of savings at this time?
    Dr. Woodson. Defense Health Agency Medical Logistics initiatives 
have resulted in $8.2M in FY14 savings to date.
    Mr. Wilson. Based on the testimony of Dr. Woodson and General Robb 
$24.7 million is the projected savings from consolidation of Health 
Information Technology. In what fiscal year will this savings be 
attained? Please provide a detailed explanation of where these savings 
come from.
    Dr. Woodson. As of February 26, 2014, the Defense Health Agency has 
achieved $24.7M in Health Information Technology (IT) savings for FY 
2014.
    These savings are attributable to efficiencies implemented in FY14 
in the following areas:
    Reengineering IT Management: $3.8M is attributed to reductions in 
the operations and consultant contracts
    Infrastructure Consolidation: $12.2M is attributed to contract 
efficiencies in Service medical software licenses, help desk 
operations, and information assurance activities
    Portfolio Rationalization: $8.7M is attributed to contract 
efficiencies in Service medical systems trainers and systems support
    Mr. Wilson. The Department has outlined how closing walk-in 
customer service centers in favor of call center based customer service 
will provide savings. How does the Department plan to gauge customer 
satisfaction with the new process? What method will the Department use 
to survey, including how the survey will be conducted and what 
population of customers will be queried.
    Dr. Woodson. The Department uses a survey to monitor how well our 
contractors' Customer Service Call Centers are performing. Monthly a 
random survey of recent TRICARE users (those with a claim within the 
past 30 days) is conducted. The beneficiaries selected are called and 
asked if they used the Call Center in the past month and, if so, to 
please rate the services provided on a scale of 1-6. Since December 
2013, 86% to 98% of those surveyed each month rated services provided 
by the call centers as ``completely satisfied, very satisfied or 
somewhat satisfied.''
    Additionally, the Department has made several changes to the 
tricare.mil website and the online enrollment portal to ensure the 
other ``self-service'' options are user-friendly. The website usage has 
increased each month since December 2013 (27,000 daily users to 32,000 
users) and the online enrollment and enrollment change application from 
36,000 to 55,000 monthly users.
    The survey results and feedback received from our military 
treatment facilities, military associations, and beneficiary inquiries 
are closely monitored by the Defense Health Agency leadership to ensure 
TRICARE beneficiaries continue to receive prompt, quality customer 
services.
    Mr. Wilson. Please discuss, in detail, the cost savings to date 
from changes in purchased care accounts
    Dr. Woodson. Prior Year Initiatives: The following savings 
initiatives were implemented in previous years to slow the growth in 
DOD's health care costs.
      Federal Ceiling Price: Beginning in 2008, the Department 
implemented regulations and extensive administrative procedures to 
implement a change in law (known as Federal Ceiling Price) that 
required pharmaceutical manufacturers to provide discounts for drugs 
for TRICARE beneficiaries through retail network pharmacies.
        --  Federal Ceiling Price discounts for drugs are at least 24% 
        less than the average manufacturer's price for its non-Federal 
        customers.
        --  Discounts are achieved through quarterly collection of 
        refunds from pharmaceutical manufacturers based on the quantity 
        of their brand name drug utilized in the TRICARE retail network 
        pharmacies.
      TRICARE Home Delivery: The Department implemented a 
comprehensive pharmaceutical Home Delivery (mail order) marketing 
program in 2010, which has contributed to an overall increase in Home 
Delivery of pharmaceuticals and a decline at retail locations. FY 2013 
results continued to build on FY 2012 positive trends:
        --  In FY 2013, mail order use increased by 15.6% compared to 
        FY 2012. The monthly volume of over 1.5M prescriptions 
        continued the upward trend from 2012 for TRICARE Home Delivery.
        --  Retail prescription volume fell 6% in FY 2013 as compared 
        to FY 2012.
      TRICARE For Life Pilot: A FY 2013 NDAA-directed TRICARE 
For Life Pharmacy Pilot will start mid-February 2014. This pilot will 
require TRICARE For Life beneficiaries who fill prescriptions for 
select maintenance medications at a retail network pharmacy to switch 
to either home delivery or a military pharmacy.
      Outpatient Prospective Payment System: In 2009, by 
aligning its payments with Medicare rates (known as the Outpatient 
Prospective Payment System), the Department instituted changes in the 
way it reimburses private hospitals for outpatient services provided to 
TRICARE.
        --  Over a four-year transition period that commenced in mid-
        2009, TRICARE pays hospitals on a prospective payment basis for 
        hospital outpatient services, which allows for a reasonable 
        profit and eliminates excessive facility charges.
      TRICARE Prime Enrollment Fees: In FY 2012, the Department 
was allowed to implement a modest increase in Prime enrollment fee 
($30/$60 per year increase for individual/family coverage), indexed to 
annual retiree COLA starting in FY 2013.
      Pharmacy co-pay adjustment: The Department implemented 
pharmacy co-pay changes in FY 2012 and the FY 2013 National Defense 
Authorization Act included some additional adjustments to the TRICARE 
pharmacy co-pay structure.
      U.S. Family Health Plan (USFHP): In FY 2013, we 
implemented a lower and more accurate capitation rate to reimburse 
USFHP plans for health care delivery. As part of the FY 2012 
President's Budget Request, the Department submitted a legislative 
proposal requiring new USFHP enrollees to move to the TRICARE for Life 
(TFL) Program upon becoming eligible for Medicare like all other 
military retirees. This proposal was enacted as part of the FY 2012 
National Defense Authorization Act. This change is reducing demand on 
the Medicare Eligible Retiree Health Care Fund (MERHCF) because, 
previously, TRICARE was the primary payer for TFL-eligible retirees 
enrolled in USFHP instead of the second payer to Medicare as is the 
case for all other TFL retirees not residing overseas.
      Managed Care Support Contract (MCSC) Specific Initiatives 
and Demos
        --  The third generation of TRICARE contracts (known as T3) 
        requires network discount guarantees and other utilization 
        management strategies which show significant positive results 
        and are holding the rate of purchased sector health care cost 
        growth below the national average.
        --  Two demonstration projects (in the North Region and South 
        Region) were initiated to enroll beneficiaries in network 
        Primary Care Medical Homes to discover if this will increase 
        quality and coordination of care and decrease costs as per the 
        literature.
        --  Managed Care Support Contractors each instituted care 
        coordination systems/initiatives and utilization management 
        initiatives as enhancements in the contracts that drive cost 
        savings through better care coordination and management.
        --  A demonstration project was initiated to reduce emergency 
        room costs by allowing U.S. Coast Guard beneficiaries in the 
        South region to access urgent care center visits without 
        authorization where medically appropriate.
        --  A comprehensive model to assist MTFs to identify healthcare 
        recapture opportunities was developed. The model is now in use 
        in all three regions.
        --  An initiative that places reasonable limits on services, 
        such as physical therapy, has resulted in significant savings 
        without diminishing the outcome of the care provided.
        --  The implementation of improved use of information, coupled 
        with outreach to both patients and providers, has demonstrated 
        initial results of a decrease of over ten percent in inpatient 
        hospital care. Inpatient hospital care is the most expensive 
        form of care provided.
    Current Year Initiatives: The following savings initiatives have 
started or are planned to start in FY 2014 to slow the growth in DOD's 
health care costs.
      Sole Community Hospital: The Department has revised its 
payment rules to reimburse inpatient care claims at sole community 
hospitals by complying with federal law and aligning its reimbursement 
more closely with Medicare rates.
        --  Previously, we reimbursed at rates that were, on average, 
        75-85% higher than rates used by Medicare.
        --  New payment rules went into effect on January 1, 2014. 
        Reimbursement changes will phase-in over multiple years that 
        will help hospital's reduce potential impacts, reducing the 
        Department's health care costs and leading to significant cost 
        savings for the agency. There is also an adjustment available 
        to qualifying network hospitals serving a disproportionate 
        number of Active Duty Service members and Active Duty family 
        members, and deemed essential for readiness.
      Electronic Prescribing: TRICARE's focus is on 
implementing electronic prescribing from civilian providers to MTF 
pharmacies. Implementing e-prescribing at MTFs will result in an 
increase in MTF filled prescriptions, which is the least expensive 
point of service, and a decrease in retail pharmacy-filled 
prescriptions which is the most expensive point of service. A 1% shift 
in non-specialty maintenance medications (270,000 prescriptions) to 
MTFs from retail pharmacies has substantial cost-avoidance to the MHS. 
The electronic prescribing is currently in a test phase with a 
projected roll out date of mid-2014.
      Other Health Insurance: Beneficiaries do not always 
provide their Other Health Insurance (OHI) information to ensure 
TRICARE pays second on any civilian claims or to allow MTFs to bill for 
care rendered. The Defense Health Agency (DHA) will contract with a 
commercial vendor to identify missing OHI policy information to 
decrease the cost of purchased care claims and increase the MTF's 
revenues.
      Prime Service Area Reduction: On October 1, 2013, the 
Department reduced the number of TRICARE Prime Service Areas (PSAs) in 
the Unites States. PSAs are now being maintained only around MTFs and 
base realignment and closure (BRAC) sites. This initiative has been 
planned since 2007.
        --  No beneficiary lost TRICARE health care benefits. The 
        retirees and their family members living in an affected area 
        could re-enroll to a more distant PSA, if one was available 
        within 100 miles from their residence, or they had immediate 
        access to TRICARE Standard. TRICARE Standard is the basic 
        entitlement by law.
        --  Fiscal Year 2014 NDAA also allows each affected eligible 
        beneficiary who was enrolled in TRICARE Prime as of September 
        30, 2013, to may make a one-time election to continue such 
        enrollment in TRICARE Prime contingent upon certain provisions.
      TRICARE Service Center (TSC) Initiative: The TSCs will no 
longer provide walk-in customer service at the 189 TSCs in all 50 
States, as of April 1, 2014.
        --  TSCs were established 20 years ago to assist beneficiaries 
        with questions concerning enrollment, billing benefits, etc., 
        when TRICARE replaced CHAMPUS. They are regional contractor-
        operated offices, with a limited number of staff providing 
        face-to-face customer services.
        --  With more and more beneficiaries now using electronic 
        communications for assistance (internet, mobile applications, 
        telephone, etc.), walk-in customer service is no longer deemed 
        necessary or cost effective. It is the most expensive customer 
        service option available.
        --  Few, if any, commercial health plans offer a similar walk-
        in customer service. Due to the unique nature of the overseas 
        environment, all overseas TSCs will continue providing walk-in 
        customer services.
        --  All TSC walk-in services can be provided by long-standing 
        and well tested toll-free call centers or multiple internet and 
        mobile sites.
      Health Plan Headquarters Initiatives:
        --  Consolidation of the MCSC under a single TRICARE Regional 
        Office Director has resulted in increased consistency in the 
        award fee process and savings in awards.
        --  Initiatives to decrease print materials and the move to 
        increased electronic communications have resulted in 
        substantial savings over previous years.
    Mr. Wilson. Based on the testimony of Dr. Woodson and General Robb 
savings from the consolidation of Medical Logistics is projected to be 
$10 million. What is the amount of savings at this time?
    General Robb. Defense Health Agency Medical Logistics initiatives 
have resulted in $8.2M in FY14 savings to date.
    Mr. Wilson. Based on the testimony of Dr. Woodson and General Robb 
$24.7 million is the projected savings from consolidation of Health 
Information Technology. In what fiscal year will this savings be 
attained? Please provide a detailed explanation of where these savings 
come from.
    General Robb. These savings are attributable to efficiencies 
implemented in FY14 in the following areas:
    Reengineering IT Management: $3.8M is attributed to reductions in 
the operations and consultant contracts
    Infrastructure Consolidation: $12.2M is attributed to contract 
efficiencies in Service medical software licenses, help desk 
operations, and information assurance activities
    Portfolio Rationalization: $8.7M is attributed to contract 
efficiencies in Service medical systems trainers and systems support
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MS. TSONGAS

    Ms. Tsongas. What can TRICARE do to help address the issue of obese 
and overweight DOD dependents and obese or overweight Active Duty 
personnel?
    Dr. Woodson. The Department is addressing the issue of obese and 
overweight DOD dependents and obese or overweight Active Duty personnel 
by actively screening weight as part of the Military Health System 
(MHS) strategy to provide improved patient-centered delivery of 
healthcare services in place within our Patient Centered Medical Homes. 
Adults with a Body Mass Index (BMI) of 25 or adolescents and children 
with a BMI greater than the 85th percentile are typically encouraged to 
receive nutritional and physical activity counseling as part of the 
primary care visit. Additionally, as part of the National Prevention 
Strategy, we are working to shape the physical and nutritional 
environment on installations making the healthy choice the easy choice. 
Specifically, a demonstration project called The Healthy Base 
Initiative (HBI), is designed to test pilot initiatives to inform a 
strategic way ahead to improve the health of the community. For 
example, the Military Nutrition Environment Assessment Tool (m-NEAT) 
built in collaboration with the Services will assist individuals with 
evaluating the nutritional quality of foods provided at all military 
and commercial dining environments on installations. This approach will 
pay dividends in both readiness and in better health for our 
beneficiaries.
    Ms. Tsongas. What are TRICARE's processes and procedures for the 
review of new medical treatments including new categories of FDA-
approved pharmaceutical products not currently covered by TRICARE?
    Dr. Woodson. TRICARE only covers medically necessary services and 
supplies for which the safety and efficacy have been proven. In order 
to ensure our beneficiaries are receiving safe and effective care, 
TRICARE uses a ``hierarchy of reliable evidence'' to determine when a 
drug, device, or medical procedure is safe and effective. This also 
prevents our beneficiaries from being exposed to less than fully 
developed and tested medical procedures and to avoid the associated 
risk of unnecessary or unproven treatment. The below list shows the 
documentation TRICARE utilizes during coverage reviews.
    TRICARE uses the following hierarchy of reliable evidence:
    1. Well controlled studies of clinically meaningful endpoints, 
published in refereed medical literature. 2. Published formal 
technology assessments. 3. Published reports of national professional 
medical associations. 4. Published national medical policy organization 
positions; and 5. Published reports of national expert opinion 
organizations.
    Specifically not included in the meaning of reliable evidence are 
reports, articles or statements by providers or groups of providers 
containing only abstracts, anecdotal evidence or personal-professional 
opinions.
    Ms. Tsongas. What is the medical cost to TRICARE for conditions and 
diseases associated with obesity?
    Dr. Woodson. Regarding the medical cost to TRICARE, a cost of 
disease model published in 2010 of the cost of overweight and obesity 
for TRICARE estimated a charge to TRICARE of approximately $1.1 billion 
annually. This analysis incorporated the role of excess weight in the 
development of a range of chronic medical conditions such as type 2 
diabetes, cardiovascular disease, stroke and some types of cancers, all 
of which increase medical costs, impact quality of life, and contribute 
to premature mortality. This estimate, which focused on TRICARE prime 
beneficiaries, represents a significant proportion of cost but likely 
underestimates the total annual medical costs to the DOD.
                                 ______
                                 
                    QUESTIONS SUBMITTED BY MR. SCOTT

    Mr. Scott. In response to a recent Congressional inquiry, the DOD 
stated they were only immunizing military personnel stationed in Asia 
against Japanese encephalitis (JE) ``based on Service guidance, unit 
mission or other occupational requirements (for example those who 
operationally deploy to a high-risk field environment)'', which is 
resulting in extremely low vaccine coverage rates except for the 
Marines and a few other special operations units. Why is the DOD Not 
following the recommendations issued by the CDC and Dr. Woodson to 
immunize all ``Service members, Department of Defense civilians, and 
beneficiaries who are, or will be, stationed or visiting for more than 
30 days in JE endemic areas''?
    Dr. Woodson. The Department of Defense follows the Centers for 
Disease Control and Prevention (CDC) recommendations and the Health 
Affairs guidance. The Health Affairs guidance mirrors the 
recommendations from the CDC. Individuals deploying to endemic or rural 
areas in the U.S. Pacific Command (PACOM) should be administered the JE 
vaccine in accordance with the latest PACOM Force Health Protection 
guidance. The Services and PACOM may issue more specific requirements 
based on a medical threat within the area of operations and have done 
so for certain Marine and special operations units.
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MR. BARBER

    Mr. Barber. Numerous newspaper articles indicate an adversarial 
relationship between the TRICARE contractor, beneficiaries and local 
providers in the Philippines. Constituents complain about a lack of 
reliable information on the benefit and a lack of responsiveness to 
customer support. Major national pharmacy firms and the Red Cross and 
all of its field offices have refused to work with the contractor 
denying beneficiary access to numerous pharmacies and a major source of 
blood. One of four internationally accredited hospitals and the only 
one in the southern Philippines cannot be used by beneficiaries for 
what appears to be nothing more than a paperwork exercise as it is 
obviously a licensed and legitimate hospital with better quality than 
many currently certified and hospitals.
    In 2008 the beneficiaries were promised an onsite employee that 
would listen to their issues and learn the nuances of the local health 
care industry so access to care could be restored. In 2011 the DODIG, 
as the result of a multi-year investigation of the contractor, 
recommended to the TRICARE Management Activity, ``Consider establishing 
a TRICARE presence in the Philippines to service military retirees and 
their dependents.'' Their response was ``TMA is in the process of 
selecting a location for a TRICARE Satellite Office in Manila, 
Philippines to provide assistance to military retirees and their 
dependents residing there. The office will be staffed by a TMA 
Government employee, and TMA is currently in the process of advertising 
that position.'' Yet in 2014 there is no such position and my 
constituents indicate DHA is now silent when questioned about the 
promised position.
    Given the adversarial relationship that has developed between the 
contractor, beneficiaries and the local health care industry and the 
current ongoing Demonstration, that also appears to be in trouble, 
wouldn't it be prudent to take immediate action to place the promised 
employee on the ground so they can work with beneficiaries and the 
local health care industry to finally insure good access to care to 
these beneficiaries?
    General Robb. All three of the major national pharmacy firms 
operating in the Republic of the Philippines are TRICARE certified. 
Mercury Drug was certified in September 2010; Rose Pharmacy in April 
2012; and Watsons Pharmacy in July 2013. Certification of these 
pharmaceutical companies at the corporate level allow TRICARE 
beneficiaries to access any of these pharmacies' stores, regardless of 
where in the country they are located. The Philippine National Red 
Cross is TRICARE certified effective February 19, 2014. Similar to the 
certification of the pharmacy companies, certification of the Red Cross 
at the national level allows TRICARE beneficiaries to access any of the 
80 Red Cross Chapters in the Philippines to obtain the necessary 
testing and blood supplies they may need. Due to the delay in 
certifying the Philippine National Red Cross, the Defense Health Agency 
has directed the TRICARE Overseas Program contractor to reprocess all 
previously submitted claims since September 2010 and provide the 
appropriate reimbursement to the beneficiaries for their out of pocket 
expenses for testing and blood supplies obtained from any Philippine 
Red Cross chapter.
    In 2008, the Deputy Director, TRICARE Management Activity (TMA), 
visited the Republic of the Philippines. Based on what he saw and heard 
from the retired beneficiaries, as well as his awareness of significant 
fraud issues in the Philippines, the Deputy Director directed 
establishment of a satellite office in the Philippines to enable the 
TRICARE Area Office-Pacific to better support beneficiaries living 
there. At that time, office space was identified at the old Clark Air 
Force Base, and coordination was completed to have a U.S. citizen who 
would staff the office fall under the protection of the U.S. Embassy. 
Since that time, the space at the old Clark Air Force Base is no longer 
available.
    In 2012, the Deputy Director, TMA reversed the previous decision to 
establish a satellite office in the Philippines in light of several 
factors. These factors included the award of the TRICARE Overseas 
Program (TOP) contract in 2009 to International SOS Assistance 
(International SOS). This contract requires the operation of a 24/7 
Regional Call Center, staffed with customer service representatives 
trained to assist beneficiaries and host nation providers with 
questions about claims, locating a provider, benefit determinations, 
and authorizations for care. Additionally, the agency had decided to 
implement the Philippine Demonstration Project which is designed to 
increase access to quality health care, eliminate the need for 
beneficiaries to file their own claims, and control costs. The 
Demonstration Project began in January 2013. Nowhere else do we have a 
TRICARE office specifically to support the retiree population in any 
other overseas location and establishing one in the Philippines would 
be potentially precedent-setting, resulting in retirees living in other 
overseas locations expecting to have a satellite office established 
specifically to support them. And finally, in this resource constrained 
environment, establishing a satellite office in the Philippines was not 
a fiscally sound decision.
    The purpose of the Philippine Demonstration is to test an 
alternative method for the delivery of health care in the Philippines 
to continue to control costs, reduce aberrant billing activity, and 
eliminate balance-billing issues while providing quality health care to 
TRICARE Standard beneficiaries residing in the Philippines and 
receiving care in designated demonstration area(s). This will be 
accomplished by using approved demonstration providers who have agreed 
to accept TRICARE reimbursement as payment in full, file the claim on 
behalf of the beneficiary, collect only the applicable cost-share and 
deductible, and agree to on-site verification and provider 
certification.
    Selection of Approved Demonstration Providers was based on a 
thorough review of claims history over the past two years with the 
objective to recruit and retain a sufficient number and mix of Approved 
Providers in designated demonstration areas. Criteria for the selection 
of approved providers consisted (1) the number of claims submitted by 
the providers/facilities and (2) whether or not the providers/
facilities were under any type of pre-payment review. As of March 2014, 
there are 11 approved institutional facilities that provide inpatient 
services and 323 approved individual providers in designated 
demonstration areas. Additionally, throughout the Philippines there are 
301 certified institutional facilities that provide inpatient services 
and 4,335 individual certified providers.
                                 ______
                                 
                   QUESTIONS SUBMITTED BY MR. CASTRO

    Mr. Castro. DOD has had great success with the creation of the 
Armed Forces Institute of Regenerative Medicine (AFIRM), a medical 
research consortium established to bring the best minds across military 
and civilian research communities to focus on a high priority area for 
the military. DOD has recently joined with the Department of Veteran's 
Affairs to create consortiums in Traumatic Brain Injury and Post 
Traumatic Stress which are also high priority areas for the military. 
What are the next priority areas of research where these civilian/
military consortiums should take place, especially in looking to 
maintain advances in military medicine and translating the lessons 
learned from Iraq and Afghanistan into civilian medicine?
    Dr. Woodson and General Robb. The DOD is exploring the feasibility 
of research collaborations or research consortia for a systems approach 
to all transport, equipment, and clinical aspects of en-route trauma 
care, hearing loss, prosthetics, and artificial vision.
    Civilian-military consortia would focus on medical (e.g., 
medications, blood products, oxygen-carrying substitutes) and 
procedural (e.g., devices to control pain and hemorrhage and to promote 
perfusion to the brain and heart) strategies in the pre-hospital and 
en-route care setting. These consortia would synergize the development 
of new monitoring and triage devices (e.g., predicting those in the 
early stages of shock) as well as expand data gathering and 
telemedicine capabilities.
    Mr. Castro. In this era of declining budgets what steps is the 
Defense Health Agency taking to assure that its medical research and 
development remains focused on the high priority gaps defined in the 
2008 Guidance for the Development of the Force? Have these gaps been 
resolved and if not, how are we resolving them and are they properly 
resourced?
    Dr. Woodson. The Office of the Assistant Secretary of Defense for 
Health Affairs (OASD(HA)) conducts regular reviews and analyses of the 
medical research and development (R&D) portfolio to assure that 
investments are aligned to capability gaps, to assess the current state 
of science in a gap area, and to identify R&D gaps and needs that 
inform future resource strategies.
    The Military Health System strategic priorities that drive R&D 
investments are based on the Joint Capabilities Integration and 
Development System (JCIDS) that informed the 2008 Guidance for the 
Development of the Force gaps. Using the JCIDS, the DOD re-validates 
and re-evaluates joint force health protection and readiness 
capabilities through the Capabilities Based Assessments (CBA) process. 
A CBA, sponsored by the OASD(HA), will re-validate, revise, or 
establish new capability requirements and associated capability gaps 
based upon operational lessons learned, changing needs, and gap 
assessment. Gap resolution is an on-going process. Over the last five 
years, considerable progress has been made in specific gap resolution 
for the 2008 guidance but the CBA will revise existing gaps or create 
new gaps.
    Mr. Castro. In this era of declining budgets what steps is the 
Defense Health Agency taking to assure that its medical research and 
development remains focused on the high priority gaps defined in the 
2008 Guidance for the Development of the Force? Have these gaps been 
resolved and if not, how are we resolving them and are they properly 
resourced?
    General Robb. The Office of the Assistant Secretary of Defense for 
Health Affairs (OASD(HA)) conducts regular reviews and analyses of the 
medical research and development (R&D) portfolio to assure that 
investments are aligned to capability gaps, to assess the current state 
of science in a gap area, and to identify R&D gaps and needs that 
inform future resource strategies. During this fiscal year, the Defense 
Health Agency will begin to assume management responsibility for 
medical R&D.
    The Military Health System strategic priorities that drive R&D 
investments are based on the Joint Capabilities Integration and 
Development System (JCIDS) that informed the 2008 Guidance for the 
Development of the Force gaps. Using the JCIDS, the DOD re-validates 
and re-evaluates joint force health protection and readiness 
capabilities through the Capabilities Based Assessments (CBA) process. 
A CBA, sponsored by the OASD(HA), will re-validate, revise, or 
establish new capability requirements and associated capability gaps 
based upon operational lessons learned, changing needs, and gap 
assessment. Gap resolution is an on-going process. Over the last five 
years, considerable progress has been made in specific gap resolution 
for the 2008 guidance but the CBA will revise existing gaps or create 
new gaps.

                                  
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