[Senate Hearing 114-806]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 114-806

                       DEFENSE HEALTH CARE REFORM
=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 23, 2016

                               __________



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                      COMMITTEE ON ARMED SERVICES
                      
                                       
                      JOHN McCAIN, Arizona, Chairman
                      
JAMES M. INHOFE, Oklahoma 	        JACK REED, Rhode Island           
JEFF SESSIONS, Alabama		        BILL NELSON, Florida	
ROGER F. WICKER, Mississippi		CLAIRE McCASKILL, Missouri		
KELLY AYOTTE, New Hampshire		JOE MANCHIN III, West Virginia
DEB FISCHER, Nebraska			JEANNE SHAHEEN, New Hampshire
TOM COTTON, Arkansas			KIRSTEN E. GILLIBRAND, New York
MIKE ROUNDS, South Dakota		RICHARD BLUMENTHAL, Connecticut
JONI ERNST, Iowa			JOE DONNELLY, Indiana					
THOM TILLIS, North Carolina		MAZIE K. HIRONO, Hawaii
DAN SULLIVAN, Alaska			TIM KAINE, Virginia
MIKE LEE, Utah				ANGUS S. KING, JR., Maine
LINDSEY GRAHAM, South Carolina		MARTIN HEINRICH, New Mexico
TED CRUZ, Texas	         
                                 
                                     
                 Christian D. Brose, Staff Director
             Elizabeth L. King, Minority Staff Director

                                  (ii)                     
   


                         C O N T E N T S

    _________________________________________________________________

                           February 23, 2016

                                                                   Page

Defense Health Care Reform.......................................     1

Loftus, Dr. Bernadette C., Associate Executive Director and           4
  Executive-in-Charge for the Mid-Atlantic Permanente Medical 
  Group.
Fendrick, Dr. A. Mark, Director of the Center for Value-Based         8
  Insurance Design and Professor in the Departments of Internal 
  Medicine and Health Management and Policy at the University of 
  Michigan.
McIntyre, David J., Jr., President and CEO of TRIWEST Healthcare     18
  Alliance.
Whitley, Dr. John E., Senior Fellow at the Institute for Defense     24
  Analyses.
Woodson, Honorable Jonathan, M.D., Assistant Secretary of Defense    58
  for Health Affairs.
Bono, Vice Admiral Raquel C., USN, Director of the Defense Health    60
  Agency.
West, Lieutenant General Nadja Y., USA, Surgeon General of the       69
  Army and Commanding General U.S. Army Medical Command.

Ediger, Lieutenant General Mark A., USAF, Surgeon General of the     75
  Air Force.

Faison, Vice Admiral C. Forrest, III, USN, Surgeon General of the    79
  Navy and Chief, Bureau of Medicine and Surgery.

Questions for the Record.........................................    92

Appendix A--Additional Statements
    National Military Family Association.........................   117
    Cleveland Clinic.............................................   136
    National Guard Association of the U.S........................   141
    National Association of Chain Drug Stores....................   144
    The Fleet Reserve Association................................   151
    The Military Coalition.......................................   157

                                 (iii)

 
                       DEFENSE HEALTH CARE REFORM

                              ----------                              


                       TUESDAY, FEBRUARY 23, 2016

                               U.S. Senate,
                         Subcommittee on Personnel,
                               Committee on Armed Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:31 p.m. in 
Room SD-G50, Dirksen Senate Office Building, Senator Lindsey O.
Graham (chairman of the subcommittee) presiding.
    Subcommittee members present: Senators Graham, McCain, 
Wicker, Tillis, Gillibrand, Blumenthal, and King.

         OPENING STATEMENT OF SENATOR LINDSEY O. GRAHAM

    Senator Graham. The committee will come to order.
    I thank everyone for attending.
    We meet this afternoon to discuss military health care 
system reform and to learn how we can redesign an outdated 20th 
century health care system that has become unsustainable and 
does not work as well as it should for service men and women 
and their families.
    We are fortunate to have two panels of distinguished 
witnesses joining us today.
    On the first panel, we have Dr. Bernadette Loftus, 
Associate Executive Director and Executive-in-Charge for Mid-
Atlantic Permanente Medical Group; Dr. Mark Fendrick, Director 
of the Center for Value-Based Insurance Design and Professor in 
the Departments of Internal Medicine and Health Management and 
Policy at the University of Michigan; Mr. David McIntyre, 
President and CEO [Chief Executive Officer] of the TriWest 
Healthcare Alliance; Mr. John Whitley, Senior Fellow at the 
Institute for Defense Analysis.
    On the second panel, we have the Honorable Jonathan 
Woodson, Assistant Secretary of Defense for Health Affairs; 
Vice Admiral Bono, Director of the Defense Health Agency; 
Lieutenant General Mark Ediger, Surgeon General of the Air 
Force; Vice Admiral Faison, Surgeon General of the Navy; 
Lieutenant General West, Surgeon General of the Army.
    Senator McCain has made this a priority of the committee to 
try to find a way to reform health care. We made a good effort 
and I think some breakthroughs in terms of retirement reform. 
Now it is health care's turn because it is such a big part of 
the budget.
    Last year, the Military Compensation and Retirement 
Modernization Commission gave us an important report on the 
military compensation and retirement system, complete with 
numerous recommendations to modernize that system. Without the 
commission's great work, we could not have reformed the 
military retirement system in the comprehensive way that we 
did. We have more work to do.
    The commission also made recommendations to assure 
servicemembers receive the best possible combat casualty care 
to improve access, choice and value of health care for all 
beneficiaries and improve support for family members with 
special medical needs.
    In the NDAA [National Defense Authorization Act] for the 
fiscal year 2016, we began the journey to accomplish military 
health system reform by requiring DOD [Department of Defense] 
to establish and publish appropriate access standards requiring 
DOD to be more transparent in the important areas of health 
care quality, patient safety, and beneficiary satisfaction by 
requiring them to publish outcome measures on public websites, 
mandating a pilot program that allows TRICARE beneficiaries to 
get urgent care without needing to get a time-consuming, 
unnecessary pre-authorization for treatment and requiring the 
DOD to implement a pilot program on value-based reimbursement 
whereby health care providers are reimbursed for improving 
health care economics, outcomes, patient satisfaction, and the 
experience of care.
    Although the commission published this report over 1 year 
ago, we have seen little progress made by DOD to fix the many 
problems in their hospitals and clinics. In fact, we continue 
to get frequent reports of the difficulties military families 
face every day. Here are two examples.
    An expectant mother with a high-risk pregnancy moved with 
her husband to a new duty station during the 28th week of her 
pregnancy. Before being assigned to an obstetrician at the new 
duty station, she had to see her primary care manager and get a 
pregnancy test, despite the fact that her medical records 
verified her high-risk status. After going through all of this, 
she still could not get an appointment with a military 
obstetrician until the 36th week.
    A spouse of a retiree injured her wrist in December and she 
scheduled an appointment at Walter Reed for an evaluation. At 
the appointment, the provider spent more time berating the 
patient for being overweight than examining her wrist. A wrist 
x-ray was done, but the provider dismissed the wrist injury as 
a carpal tunnel syndrome. No follow-up appointment was given. 
One month later, the patient received a letter from the 
radiology department at Walter Reed advising her that she had a 
broken wrist. The patient now has a cast on her arm.
    In my view, these failures to provide timely quality health 
care are symptoms of the many ills within the military health 
care system. Clearly there are problems. There are centers of 
excellence in the system, but these centers are not large 
enough and frequent enough. In my view, we have seen a military 
health care system designed and structured over decades to 
deliver peacetime health care in a way that is being passed by 
by time and modernization in the private sector.
    On the battlefront, there are many soldiers alive today 
that would have died in other wars because of the quality of 
military health care. That has to be acknowledged. To those on 
the front line of this fight, you have done amazing things.
    The purpose of this committee is to learn about how we can 
make things better, to listen to the private sector of what 
works there, and see if we can take a 20th century health care 
system designed to benefit the bravest among us to have better 
outcomes, more value, and to make it more sustainable.
    With that, I will turn it over to my colleague, Senator 
Gillibrand, who has been terrific in everything reform.

           STATEMENT OF SENATOR KIRSTEN E. GILLIBRAND

    Senator Gillibrand. Thank you, Senator Graham, for your 
leadership and the work you do for this committee. I join with 
you today in welcoming our witnesses as we begin our discussion 
of military health care reform.
    I was pleased to read about the many exciting and good 
approaches to health care in all of the witnesses' testimony, 
including Dr. Fendrick's mention of value-based insurance 
design utilized in my home State of New York and I am looking 
forward to hearing more about those approaches today.
    Last year, the Senate and House Fiscal Year 2016 National 
Defense Authorization Act conference report included a 
commitment to work with the Department of Defense to begin 
reforming the military's health care system. The conference 
report called the reforms aimed at improving access, quality, 
and the experience of care for beneficiaries.
    Today's hearing is the Senate's first step to fulfilling 
this agreement. We begin with a panel of experts from outside 
the Department of Defense to discuss innovations and best 
practices in health care across the U.S. From this panel, we 
hope to learn about the possibilities for improving military 
health care.
    The first panel will be followed by a panel of officials in 
charge of health care for our servicemembers, retirees, and 
families. From this panel, we expect to hear about current and 
prospective future initiatives in the military's health care 
system, as well as their assessment of innovations and best 
practices described by the witnesses on the first panel.
    As we consider changes to the military health care system, 
it is critical that we ensure that no servicemembers or their 
families are left behind and that the care we provide accounts 
for the unique needs of our military community and that any 
changes we consider improve access, quality, and experience for 
beneficiaries.
    I am particularly interested in hearing about innovations 
and best practices to address health care of military families 
with special needs. I am interested in hearing about the 
private sector's management of pediatric populations with 
chronic or complex health problems such as those with autism or 
other developmental disabilities and how we may be able to 
adapt these practices to serving our military families.
    Specifically, many on this committee are aware of my work 
to
ensure that all military children with autism have access to 
ABA [Applied Behavior Analysis] therapy, which is considered 
the gold standard treatment to help these kids reach their full 
potential. I appreciate that the military has put in place a 
demonstration program to help military families, and I am 
pleased with this program's success.
    However, I am worried that the proposed changes to 
reimbursement rates for ABA therapy providers may derail this 
program. In your remarks, I would appreciate a discussion of 
your recommendations and perspectives regarding families with 
special needs children.
    Finally, we have to make sure that our military health care 
providers maintain the skills and experiences they need to 
continue to provide world-class health care to our 
servicemembers wounded on the battlefield, and we have to 
ensure that those who have served our country bravely return to 
a health care system that is able to meet their physical and 
mental health care needs. Our servicemembers, retirees, and 
their families deserve the highest quality of care.
    Again, I thank our witnesses for the time and effort they 
have put into this important issue.
    Senator Graham. Senator McCain?
    Chairman McCain. No. Thank you.
    Senator Graham. Dr. Loftus, if you would start.

  STATEMENT OF DR. BERNADETTE C. LOFTUS, ASSOCIATE EXECUTIVE 
     DIRECTOR AND EXECUTIVE-IN-CHARGE FOR THE MID-ATLANTIC 
                    PERMANENTE MEDICAL GROUP

    Dr. Loftus. Good afternoon, Mr. Chairman and committee 
members. Thank you for the invitation to be here today. I am 
Dr. Bernadette Loftus, Executive-in-Charge of the 1,300-
physician Mid-Atlantic Permanente Medical Group at Kaiser 
Permanente.
    Kaiser Permanente is the largest private integrated health 
care delivery system in the United States providing health care 
services to 10 million members in eight States and the District 
of Columbia. Kaiser Permanente is a high-performing health 
system as recognized by the Commonwealth Fund and the National 
Committee for Quality Assurance, or NCQA. In 2015, only two 
systems in the entire U.S. received a 5 out of 5 rating from 
NCQA for both commercial and Medicare patients, and they were 
Kaiser Permanente of the Mid-Atlantic States and Kaiser 
Permanente of Northern California. In fact, no Kaiser 
Permanente plan received lower than a 4.5 out of 5 rating in 
2015, a level that only 10 percent of plans achieved 
nationwide.
    We believe attaining excellent outcomes is based on 
understanding and relentlessly measuring performance so that 
opportunities for our improvement are continuously identified. 
We strategically exploit the full benefits of our electronic 
medical record, creating systems of care that make it easy to 
do the right thing and hard to do the wrong. This is 
accompanied by clear expectations around behavioral norms and 
performance for our physicians and staff. The reliable 
achievement of better results starts with knowledge of current 
results. We measure all aspects of our care at all levels. We 
choose metrics for measurement that are evidence-based, 
nationally recognized, and reasonably comparable across 
geographies and populations. This minimizes distracting 
arguments that my patients are so unique, you cannot hold me 
accountable for any particular outcome. We do believe we can 
fairly assess performance across diverse populations using 
these standard measures.
    We assiduously measure access to care because, obviously, 
without access, quality suffers. We have learned from 2 decades 
of studying correlations between patient satisfaction and the 
objective speed to access in days that patients have a much 
higher standard for access than doctors may feel is strictly 
medically necessary. Because of this, we base our access 
standards solely on our members' expectations. Our best levels 
of patient satisfaction with routine specialty care, for 
example, correlate with a speed to access of significantly less 
than 10 days from date of referral. We measure and report 
access to care daily. The expectation for physician managers is 
that the supply of appointments will be managed dynamically on 
a daily basis to adjust to the ebb and flow of demand.
    The science of excellent access is just that, a science, 
although it is a relatively simple one. Supply of available 
appointments must always exceed historical demand in order to 
ensure great access. Hence, our physician managers are 
thoroughly trained on the constant management that must be 
brought to bear to maintain access.
    High achievement in quality requires the same degree of 
performance measurement, analytics, and reporting. Specific to 
quality management, we produce monthly variation reports, which 
graphically display variation in performance on quality metrics 
on multiple levels. These unblinded reports allow us to 
identify the high and low performers in similarly situated 
practices, and this creates the opportunity for dialogue around 
improvement. Data transparency spurs not only dialogue, but a 
little competition as well, which in turn engenders more rapid 
improvement. Data is delivered directly to every physician's 
desktop. Our primary care physicians can, on a daily basis, 
check their own performance on quality measures against those 
of others in their department.
    We do not, however, leave prevention and quality 
achievement solely to our primary care physicians. It is our 
cultural expectation that every physician, regardless of 
specialty, addresses the prevention and chronic disease needs 
of every patient she sees. This means that dermatologists and 
orthopedic surgeons are as responsible for ensuring that each 
diabetic gets his hemoglobin A1c measured timely or that a 
woman gets her mammogram that is due, as are those patients' 
primary care physicians. We continually collect and analyze 
data about our patients' health status and other findings and 
use that to create extensive population health registries that 
in turn inform decision support software in our EMR [Electronic 
Medical Records] so that every physician is alerted at every 
visit to every patient that is due for a prevention or 
treatment measure. We believe high achievement of quality is 
everyone's job.
    Again, thank you for today's invitation. I hope the 
information provided about Kaiser Permanente will be useful to 
you as you consider changes to the military health system and 
the TRICARE program. Kaiser Permanente would be honored to 
provide further assistance to you in the future and to serve 
this population in any way we can.
    [The prepared statement of Dr. Loftus follows:]

              Prepared Statement by Dr. Bernadette Loftus
    Subcommittee Chairman Graham, Ranking Member Gillibrand, and 
Members of the Committee, thank you for the invitation to testify 
today. I am Dr. Bernadette Loftus, Executive-in-Charge of the Mid-
Atlantic Permanente Medical Group at Kaiser Permanente. As you continue 
your efforts to build and maintain a top performing health care 
delivery system for the women and men of our armed services and their 
families, Kaiser Permanente is pleased to support you and the leaders 
of the Military Health System.
                      introduction and background
    Kaiser Permanente is the largest private integrated healthcare 
delivery system in the U.S., with 10.3 million members in eight states 
and the District of Columbia. We are committed to providing high-
quality, affordable health care services and improving the health of 
our members and the communities we serve. Our roots date back to 1945. 
Our model was born out of the innovation and ingenuity that mobilized 
our nation for World War II when Henry J. Kaiser and Dr. Sidney 
Garfield teamed up to provide medical care for tens of thousands of 
workers building ships around the clock for the war effort.
    Today, Kaiser Permanente comprises Kaiser Foundation Health Plan, 
Inc., the nation's largest not-for-profit health plan, and its health 
plan subsidiaries outside California and Hawaii; the not-for-profit 
Kaiser Foundation Hospitals, which operates 38 hospitals and over 600 
other clinical facilities; and the Permanente Medical Groups, which are 
multi-specialty group practices employing over 18,000 physicians that 
contract with Kaiser Foundation Health Plan to provide or arrange 
health care services for Kaiser Permanente's members. Kaiser Permanente 
operates in California, Hawaii, Oregon, Washington, Colorado, Georgia, 
Maryland, Virginia and the District of Columbia. Many of our service 
areas include a significant presence of military personnel and 
families.
    Kaiser Permanente is honored and grateful to have many former 
career military and military-trained physicians, nurses, and other 
clinicians working in our system, including some who remain Active in 
the Reserves. The training and practice environment of the Military 
Health System, as well as the values and mission-driven spirit of the 
women and men who join the Military Health System, produce clinicians 
who succeed in, and help lead our system. We also appreciate the 
ongoing opportunities our clinical and operational leaders have to 
collaborate with leaders in the Military Health System to share best 
practices and learn from one another.
aligning incentives for high-performing integrated health care delivery
    Kaiser Permanente's integrated model of care is based on prepayment 
rather than the volume-driven, fee-for-service reimbursement that 
dominates U.S. health care. Our integrated delivery system is also 
characterized by the direct operation of state-of-the art inpatient and 
outpatient facilities, pharmacies, and diagnostic and laboratory 
services. Care is delivered primarily by our contracted multi-specialty 
physician groups and clinical staff employed by our physician groups, 
hospitals, and health plans in each of our regions.
    By combining care and coverage in an integrated system, our 
physicians are able to prioritize prevention and population health, 
while also delivering high quality complex and acute care. Kaiser 
Foundation Hospitals and Health Plan's not-for-profit governance 
structure means our financial margins are reinvested in care 
infrastructure and care transformation, health information technology, 
research, workforce training, and the support of community health and 
community benefit.
    Our advanced electronic medical record, called KPHealthConnect, 
allows our clinicians to collaborate in teams, share information 
securely, and reduce duplicative testing. It also provides longitudinal 
tracking of our members' health, and supports our robust quality 
improvement programs. The member-facing component of our electronic 
health record, My Health Manager, allows members to exchange secure 
email with their care team, schedule appointments, get test results, 
and request prescription refills online. These features are also 
incorporated in our mobile ``app'' to provide more ways for our members 
to connect with us and manage health needs. In 2014, Kaiser Permanente 
members sent more than 20 million secure emails to their providers.
                      delivering high-quality care
    Kaiser Permanente is a high performing health system as recognized 
by the Commonwealth Fund and the National Committee for Quality 
Assurance (NCQA). In 2015, only two systems in the entire U.S. received 
a ``perfect'' 5 out of 5 rating from NCQA for both commercial and 
Medicare patients, and they were Kaiser Permanente of the Mid-Atlantic 
States, and Kaiser Permanente of Northern California. In fact, no 
Kaiser Permanente plan received lower than a 4.5 out of 5 rating in 
2015, a performance level that only 10 percent of all plans nationwide 
achieved.
    At Kaiser Permanente, we believe that achievement of excellent 
outcomes is based on understanding and relentlessly measuring current 
performance, so that opportunities for improvement are continuously 
identified. We strategically exploit the full benefits of a uniform 
system-wide electronic health record, which we use to create systems of 
care that make it easy to do the right thing, and hard to do the wrong. 
This is accompanied by crystal-clear expectation around behavioral 
norms and performance of our physicians and staff.
              a commitment to measuring quality and access
    No health care delivery system can reliably achieve better results 
unless it knows its current results. At Kaiser Permanente, we measure 
all aspects of our care delivery at an individual, local, regional, and 
national level. We choose measures that are evidence-based, nationally-
recognized, and reasonably comparable across geographies and 
populations. This is to minimize the distracting argument that goes 
like this: ``my patients are unique, therefore I cannot be held 
accountable to achieve any particular measurement or outcome.'' In 
recognition that some patients are sicker than others, we do employ 
standard risk-adjustment methodologies where appropriate, primarily 
with inpatient quality measures. As a result of our measurement 
philosophy, we spend a lot of time on HEDIS (Healthcare Effectiveness 
Data and Information Set) measures, \1\ Consumer Assessment of Health 
Plans and Systems (CAHPS) \2\ satisfaction measures, and their 
inpatient twin, HCAHPS (both developed by the Agency for Healthcare 
Research and Quality), and The Joint Commission core and ORYX (Care 
Measures) measures. \3\ We feel confident that we can fairly assess 
performance, down to the individual practitioner level, across diverse 
populations using these measures.
---------------------------------------------------------------------------
    \1\ http://www.ncqa.org/HEDISQualityMeasurement/HEDISMeasures.aspx
    \2\ https://cahps.ahrq.gov/
    \3\ http://www.jointcommission.org/accreditation/performance--
measurementoryx.aspx
---------------------------------------------------------------------------
    We also assiduously measure access to care, because there is no 
quality of care unless there is first access to care. We have learned 
from over two decades of studying the correlation between patient 
satisfaction and our objective speed-to-access in days, that patients 
have a much higher speed-to-access in days than physicians generally 
feel is medically necessary. Because of this, we set our internal 
access standards based on our members' expectations. Our best levels of 
patient satisfaction with routine specialty access, for example, 
correlate with a speed-to-access of less than ten calendar days from 
date of referral. We measure and report access in primary care on a 
daily basis. The expectation for physician managers is that the supply 
of appointments in primary care will be managed dynamically on a daily 
basis to adjust to the ebb and flow of demand. We measure and report 
specialty access weekly, and expect responsible managers to take action 
to augment appointment supply when our predictive models indicate the 
likelihood that access will not meet our standards.
    The science of excellent access is just that, a science, although 
it is a relatively simple one. The supply of available appointments 
must always exceed historical demand for appointments, in order to 
ensure great access, and so our physician managers are trained and 
retrained on the constant management that must be brought to bear to 
maintain access.
    Advances in technology enable us to augment face-to-face 
appointment access with secure email communications between patients 
and their physicians, and now video visits. Our prepaid model allows us 
to adopt these technologies to create capacity for expanded access 
using the most clinically appropriate, convenient options for our 
patients. We currently offer video visits through our clinical advice 
call centers, which operate 24 hours a day, and we are rolling out the 
option of telehealth visits in primary care and many specialties across 
our regions. As a data-driven system, we are collecting data and 
evaluating patient outcomes as we expand these virtual services. Early 
results show our members value these new modalities of care.
    High achievement in quality requires the same degree of performance 
measurement, analytics, and reporting. Specific to quality management, 
we produce monthly ``variation'' reports, which display, with clear 
graphics, the variation in performance on key quality metrics between 
departments on those same measures. These unblinded reports allow us to 
identify the high and low individual performers in similarly situated 
practices, and this creates the opportunity for dialogue around 
improvement. Data transparency spurs not only dialogue, but a little 
competition as well, which in turn engenders more rapid improvement. 
Data literally is delivered to every physician's desktop. Our 
physicians are able to check their own performance on quality measures 
against those of others in their department on a daily basis.
         emphasizing prevention and managing chronic conditions
    At Kaiser Permanente, prevention and quality is everyone's 
responsibility. We do not leave it up to our primary care physicians 
alone. It is our cultural expectation that every physician, regardless 
of specialty, will address the prevention and chronic disease measures 
for every patient she sees. This means that dermatologists and 
orthopedic surgeons are as responsible for ensuring that each patient 
with diabetes gets his HgbA1c (Glycated Hemoglobin) measured at the 
appropriate interval, or that a woman gets her screening mammogram that 
may be due, as are those patients' primary care physicians. We 
continually collect and analyze data about our patients' health status, 
and lab, imaging, and other test results, and use that information to 
create extensive population health registries. These registries inform 
decision support software in our electronic health record. As a result, 
every physician--primary care or specialist--is alerted at every visit 
to every patient who is due or overdue for prevention or treatment 
measures.
    Patients with chronic conditions (i.e. diabetes, asthma, congestive 
heart failure, and hypertension) often require the most resources. By 
stratifying patients according to diagnosis and need, effective disease 
management programs are seamlessly integrated into our care models, 
with features that include dedicated case managers, teams that include 
nurses, social workers, dieticians, and pharmacists, and clinical 
practice guidelines and decision-support tools. By making the right 
thing easy to do, our goal is to provide care that is safe, reliable, 
effective, and equitable.
                               conclusion
    Once again, thank you for inviting me to testify before the Senate 
Armed Services Committee today on behalf of Kaiser Permanente. I hope 
that the information provided will be useful to you as you consider 
possible changes to the Military Health System and the Tricare program. 
Kaiser Permanente would be honored to provide further assistance to you 
in the future, and to serve the men and women of the U.S. Military and 
their families in any way we can.

 STATEMENT OF DR. A. MARK FENDRICK, DIRECTOR OF THE CENTER FOR 
 VALUE-BASED INSURANCE DESIGN AND PROFESSOR IN THE DEPARTMENTS 
 OF INTERNAL MEDICINE AND HEALTH MANAGEMENT AND POLICY AT THE 
                     UNIVERSITY OF MICHIGAN

    Dr. Fendrick. Good afternoon and thank you, Chairman 
McCain, Chairman Graham, Ranking Member Gillibrand, and members 
of the subcommittee. I am Mark Fendrick, a primary care 
physician and professor at the University of Michigan.
    Mr. Chairman, I applaud you for holding this hearing on 
defense health care reform because access to quality care and 
containing costs are among the most pressing issues for our 
military personnel and our national well-being.
    Yet, moving from a volume-driven to value-based delivery 
system requires a change in both how we deliver care and how we 
engage consumers to seek care. Reforming care delivery and 
payment policies are important, as you just heard. However, 
less attention is paid to how we can alter consumer behavior. 
Today I propose that clinically driven consumer incentives, 
through the creation of benefit designs that promote smarter 
decision-making, can assist us in achieving our clinical and 
financial goals.
    The most common approach used by payers to impact consumers 
in the United States is cost-shifting. With some notable 
exceptions, most health plans, including TRICARE, implement 
cost-sharing in a one-size-fits-all way, in that beneficiaries 
are charged the same for every doctor visit, every diagnostic 
test, and every prescription drug.
    People frequently ask me if TRICARE members' co-payments 
are too high, too low, or just right. The answer, of course, is 
it depends. Asking TRICARE members to pay more for all 
services, despite clear differences in clinical value, results 
in decreases in both non-essential and essential care, which in 
certain clinical circumstances lead to adverse health outcomes 
and higher overall costs. I see this approach as pennywise and 
pound foolish.
    Does it make sense to you, Mr. Chairman, that my TRICARE 
patients pay the same out-of-pocket cost for essential visits 
such as a cardiologist after a heart attack or a therapist for 
opioid addiction or autism? They pay the same amount to see a 
dermatologist for mild acne. They pay the same for drugs that 
are lifesaving for cancer, diabetes, and depression as drugs 
that make their toenail fungus go away or their hair grow back.
    Realizing that TRICARE members avail themselves to too 
little high-value care and too much low-value care, we endorse 
smarter, clinically nuanced cost-sharing as a potential 
solution, one that encourages TRICARE members to use more of 
the services that make them healthier and discourages them away 
from the services that do not. We refer to these plans that use 
clinical nuance as value-based insurance design, or V-BID. V-
BID simply sets cost-sharing to encourage the use of high-value 
services and providers and discourages the use of low-value 
care.
    For the record, I support high cost-sharing levels but only 
for those services that do not make TRICARE members healthier. 
The fundamental idea of buy more of the good stuff and less of 
the bad stuff has made V-BID one of the very, very few health 
care reform ideas with broad multi-stakeholder and bipartisan 
political support. Led by the private sector, V-BID has been 
implemented by hundreds of private and public employers, 
several States, and most recently the Medicare program. It is 
common sense. When barriers to high-value services are reduced 
and access to low-value services are discouraged, we attain 
more health for every dollar.
    Therefore, I recommend incorporating V-BID into TRICARE 
plans in the following ways.
    First, TRICARE plans should vary cost-sharing for services 
in accordance to who provides them, such as high-performing 
providers, as Dr. Loftus mentioned, or the location of care 
based on quality, as well as cost.
    Second, TRICARE plans should implement V-BID programs that 
combine reductions in high-value services but also include 
increases in cost-sharing for low-value care. As we think about 
fiscal sustainability, it is important to point out that 
immediate and substantial savings are accumulated from waste 
identification and elimination.
    Last, TRICARE plans should vary cost-sharing based on 
information such as clinical risk factors, special needs, and 
disease diagnosis.
    The successful practice of precision medicine requires 
precision benefit design. As cost-sharing becomes a necessity 
for TRICARE's fiscal sustainability, I encourage this committee 
to take a common sense approach of setting member co-payments 
based on whether a clinical service makes a TRICARE member 
healthier instead of the status quo, which is basing 
contributions exclusively on what they cost. If such an 
approach encourages the utilization of high-value care and 
discourages only low-value services, these TRICARE plans can 
improve health, enhance consumer responsibility, and reduce 
costs.
    I am honored to support the men and women of the U.S. 
military and their families and am happy to provide the 
committee further assistance. Thank you very much.
    [The prepared statement of Dr. Fendrick follows:]

               Prepared Statement by Dr. A. Mark Fendrick
    Good morning and thank you, Chairman Graham, Ranking Member 
Gillibrand, and Members of the Subcommittee. I am Mark Fendrick, 
Professor of Internal Medicine and Health Management & Policy at the 
University of Michigan. I am addressing you today, not as a 
representative of the University, but as a practicing primary care 
physician, a medical educator, and a public health professional. I have 
devoted much of the past two decades to studying the United States 
health care delivery system, and founded the University's Center for 
Value=Based Insurance Design [www.vbidcenter.org] in 2005 to develop 
and evaluate insurance plans designed to engage consumers, optimize the 
health of Americans and ensure efficient expenditure of our public and 
private health care dollars.
    Mr. Chairman, I applaud you for holding this hearing on Defense 
Health Care Reform, because access to quality care and containing costs 
are among the most pressing issues for our military personnel and our 
national well-being and economic security. We are well aware that the 
U.S. spends far more per capita on health care than any other country, 
yet lags behind other nations that spend substantially less, on key 
health quality and patient-centered health measures. Since there is 
consistent agreement within both political parties, and among key 
stakeholders, that there is already enough money being spent on health 
care in this country, I would like to emphasize that if we reallocated 
our existing dollars to clinical services for which there is clear 
evidence for improving health and away from those that don't, we could 
significantly enhance quality and substantially reduce the amount we 
spend. Thus, instead of the primary focus on how much we spend--I 
suggest we shift our attention to how well we spend our military health 
care dollars.
               from a volume-driven to value-based system
    Moving from a volume-driven to value-based military health delivery 
system requires a change in both how we pay for care (supply side 
initiatives) and how we engage consumers to seek care (demand side 
initiatives). Previous discussions and earlier testimonies focused on 
the critical importance and progress regarding reforming care delivery 
and payment policies. Many sections of the 2016 National Defense 
Authorization Act (NDAA) address payment issues; Sec. 726 explicitly 
calls for a pilot program to test value-based reimbursement in TRICARE.
    These are important and worthy conversations. Yet, less attention 
has been directed to how we can alter consumer behavior as a policy 
lever to bring about a more efficient delivery system. While you have 
heard about the potential of pay-for-performance programs, patient-
centered medical homes, bundled payment models, and other initiatives 
to influence providers, today I propose that value-driven consumer 
incentives--through benefit design reforms that promote smart decisions 
and enhanced personal responsibility--must be aligned with payment 
reform initiatives for us to achieve our clinical and financial goals 
for military health care. I commend the Subcommittee for exploring this 
matter today.
dangers of a blunt approach to beneficiary cost-sharing--the importance 
                          of `clinical nuance'
    Over the past few decades, public and private payers--including the 
TRICARE program--have implemented multiple managerial tools to 
constrain health care cost growth with varying levels of success. The 
most common approach to directly impact consumer behavior is consumer 
cost shifting: requiring beneficiaries to pay more in the form of 
higher premiums and increased cost-sharing for clinician visits, 
diagnostic tests and prescription drugs. Of note, the Defense 
Department budget proposal for 2017 calls for increasing the member 
out-of-pocket contributions for TRICARE members, most dramatically for 
military retirees under 65.
    With some notable exceptions, most U.S. health plans--including 
TRICARE--implement cost-sharing in a `one-size-fits-all' way, in that 
beneficiaries are charged the same amount for every doctor visit, 
diagnostic test, and prescription drug [within a specified formulary 
tier]. People frequently ask me whether the amount of cost-sharing 
faced by TRICARE members is too high, too low, or just right. The 
answer, of course, is ``it depends.'' As TRICARE members are asked to 
pay more for every clinician visit and for every prescription--despite 
clear differences in health produced--a growing body of evidence 
demonstrates that increases in patient cost-sharing lead to decreases 
in the use of both non-essential and essential care. Unfortunately, 
research suggests that increasing `skin in the game' has not produced a 
savvier health care consumer.
    A noteworthy example of the undesirable impact of `one-size-fits-
all' increases in cost-sharing is a New England Journal of Medicine 
study that examined the effects of increases in copayments for all 
doctor visits for Medicare Advantage beneficiaries [Trivedi A. N Engl J 
Med. 2010;362(4):320-8]. As expected, individuals who were charged more 
to see their physician(s) went less often; however, these patients were 
hospitalized more frequently and their total medical costs increased. 
While this blunt approach may reduce TRICARE expenditures in the short-
term, lower use rates of essential care may lead to inferior health 
outcomes and higher overall costs in certain clinical circumstances. 
This effect simply demonstrates that the age-old aphorism `penny wise 
and pound foolish' applies to health care.
    Conversely, decreases in cost-sharing applied to all services 
regardless of clinical benefit--which may have been the case in certain 
TRICARE plans--can lead to overuse or misuse of services that are 
potentially harmful or provide little clinical value. For the record, I 
support high cost-sharing levels for those services--but only those 
services--that do not make TRICARE members healthier. That said, I 
don't think it makes sense to raise cost-sharing on the services I beg 
my patients to do, such as fill their prescriptions to manage their 
chronic conditions (e.g. diabetes, depression, HIV) and laboratory 
tests that allow the monitoring of a specific disease (e.g., 
cholesterol, blood sugar).
    Since there is evidence of both underuse of high-value services and 
overuse of low-value services in the TRICARE program, `smarter' cost-
sharing is a potential solution--one that encourages TRICARE members to 
use more of those services that make them healthier, and discourages 
the use of services that do not. Therefore, to more efficiently 
reallocate TRICARE medical spending and optimize health, the basic 
tenets of clinical nuance must be considered. These tenets recognize 
that: 1) clinical services differ in the benefit provided; and 2) the 
clinical benefit derived from a specific service depends on the patient 
using it, who provides it, and where it is provided.
    Does it make sense to you, Mr. Chairman, that my TRICARE patients 
pay the same copayment to see a cardiologist after a heart attack as to 
see a dermatologist for mild acne--Or that the prescription drug 
copayment is the same amount for a lifesaving medication to treat 
diabetes, depression, or cancer, as it is for a drug that treats 
toenail fungus--On the less expensive generic drug tier available to 
most TRICARE members (current copayments are $10 at retail pharmacies 
and $0 through a mail order pharmacy), certain are drugs so valuable 
that I often reach into my own pocket to help patients fill these 
prescriptions; while for the same price there are also drugs of such 
dubious safety and efficacy, I honestly would not give them to my dog. 
The current `one-size-fits-all' cost-sharing model lacks clinical 
nuance, and frankly, to me, makes no sense. As we deliberate Defense 
Health Care benefit redesign, there is bipartisan recognition that the 
current structure of the TRICARE benefit is outdated, confusing, and in 
need of reform. Taking steps to improve the current array of confusing 
deductibles, copayments and coinsurance is long overdue. I could not 
agree more that our military personnel deserve better. Only after we 
acknowledge the limitations and inefficiencies of the TRICARE cost-
sharing structure, can we identify ways to improve it. It is my 
impression that TRICARE members avail themselves of too little high-
value care and too much low-value care. Precision medicine needs 
precision benefit design. We need benefit designs that support 
consumers in obtaining evidence-based services such as diabetic retinal 
exams and discourage individuals through higher cost-sharing from using 
dangerous or low-value services such as those identified by 
professional medical societies in the Choosing Wisely initiative. By 
incorporating greater clinical nuance into benefit design, payers, 
purchasers, beneficiaries, and taxpayers can attain more health for 
every dollar spent.
   value-based insurance design [v-bid]: implementing clinical nuance
    Realizing the lack of clinical nuance in available public and 
commercial health plans, more than a decade ago the private sector 
began to implement clinically nuanced plans based on a concept our team 
developed known as Value-Based Insurance Design, or V-BID. The basic V-
BID premise calls for reducing financial barriers to evidence-based 
services and high-performing providers and imposing disincentives to 
discourage use of low-value care. A V-BID approach to benefit design 
recognizes that different health services have different levels of 
value. It's common sense--when barriers to high-value treatments are 
reduced and access to low-value treatments is discouraged, these plans 
result in better health with the potential to substantially lower 
spending levels.
    Let me be clear, Mr. Chairman, I am not asserting that implementing 
V-BID into TRICARE is a single solution to TRICARE's problems. If we 
are serious about improving our members' experiences and health 
outcomes, while also bending the health care cost curve, we must change 
the incentives for consumers as well as those for providers. Blunt 
changes to TRICARE benefit design--such as those recently announced--
must not produce avoidable reductions in quality of care. Instead, I 
would recommend clinically driven--instead of a price driven--
strategies.
    I'm pleased to tell you that the intuitiveness of the V-BID concept 
is driving momentum at a rapid pace in both the private and public 
sectors, and we are truly at a `tipping point' in its adoption. 
Hundreds of private self-insured employers, public organizations, non-
profits, and insurance plans have designed and tested V-BID programs. 
The fundamental idea of `buy more of the good stuff and less of the 
bad' has made V-BID one of the very few health care reform ideas with 
broad multi-stakeholder and bipartisan political support.
    V-BID implementation has occurred in many of the states represented 
by members of this subcommittee. Mr. Chairman, V-BID principles have 
been implemented in your State of South Carolina Medicaid program to 
ensure that vulnerable beneficiaries have better access to potentially 
life-saving drugs used to treat chronic diseases. Senator Gillibrand, 
the Empire state has highlighted V-BID in Governor Cuomo's state 
innovation plan and is a key element of the State Innovation Model 
(SIM) program. Senator King, V-BID has a similar high profile role in 
the Maine SIM program. Senator Cotton, Arkansas has been a national 
leader in aligning consumer engagement initiatives with the episode-
based payment model. Senators Tillis and Blumenthal, V-BID plans are 
now offered to state employees in North Carolina and Connecticut. Of 
note, the Connecticut Health Enhancement Plan--a V-BID plan for state 
employees--has demonstrated high levels of participation in healthy 
behaviors (98 percent), and preventive care, and has significantly 
reduced emergency room visits in only two years. This plan has become a 
national model used by several other states and public employers.
    The last and most important example I would like to mention is the 
implementation of V-BID in the Medicare program, a crucial component of 
our nation's commitment to take care of the elderly and disabled among 
us. The `one-size-fits-all' approach to Medicare coverage dates back to 
its inception in the 1960s, driven by discrimination concerns. Over the 
past several years, bipartisan, bicameral Congressional support has 
grown to allow Medicare to implement clinically nuanced benefit 
designs. In 2009, Senators Hutchison and Stabenow introduced a 
bipartisan bill, ``Seniors' Medication Copayment Reduction Act of 
2009'' (S 1040), to allow a demonstration of V-BID within Medicare 
Advantage plans. Last May, Senators Thune and Stabenow introduced the 
``Value-Based Insurance Design Seniors' Copayment Reduction Act of 
2015'' (S 1396). A companion bill included in the ``Strengthening 
Medicare Advantage through Innovation and Transparency for Seniors Act 
of 2015'' (HR 2570) passed the U.S. House of Representatives in June 
with strong bipartisan support.
    This strong Congressional backing led the Center for Medicare & 
Medicaid Innovation (CMMI) to announce a program to test V-BID in 
Medicare Advantage (MA) plans in September 2015. The 5-year 
demonstration program will examine the utility of structuring patient 
cost-sharing and other health plan design elements to encourage 
patients to use high-value clinical services and providers, thereby 
improving quality and reducing costs. The model test will begin in 
January 2017, in Arizona, Indiana, Iowa, Massachusetts, Oregon, 
Pennsylvania, and Tennessee.
                infusing `clinical nuance' into tricare
    Flexibility in benefit design would allow TRICARE plans to achieve 
even greater efficiency and to encourage personal responsibility among 
members in the following ways:

I. Differential Cost-Sharing for use of Different Providers or Settings

Since the value of a clinical service may depend on the specific 
provider or the site of care delivery, TRICARE plans should have the 
flexibility to vary cost-sharing for a particular outpatient service in 
accordance with who provides the service and /or where the service is 
delivered. This flexibility is increasingly feasible, as quality 
metrics and risk-adjustment tools become better able to identify high-
performing health care providers and/or care settings that consistently 
deliver superior quality.

II. Differential Cost-Sharing for use of Different Services

To date, most clinically nuanced designs have focused on lowering 
patient out-of-pocket costs for high-value services (carrots). These 
are the services I beg my patients to do--for which there is no 
question of their clinical value--such as immunizations, preventive 
screenings, and critical medications and treatments for individuals 
with chronic disease such as asthma, diabetes, and mental illness (e.g. 
as recommended by National Committee for Quality Assurance, National 
Quality Forum, professional society guidelines). Despite unequivocal 
evidence of clinical benefit, there is substantial underutilization of 
these high-value services by TRICARE members. Multiple peer-reviewed 
studies show that when patient barriers are reduced, compliance goes 
up, and, depending on the intervention or service, total costs go down.

Yet, from the TRICARE program's perspective, the cost of incentive-only 
`carrot-based' V-BID programs depends on whether the added spending on 
high-value services is offset by a decrease in adverse events, such as 
hospitalizations and visits to the emergency department. While these 
high-value services are cost-effective and improve quality, many are 
not cost saving--particularly in the short term. However, research 
suggests that non-medical economic effects--such as the improvement in 
productivity associated with better health--can substantially impact 
the financial results of V-BID programs.

While significant cost savings are unlikely with incentive-only 
`carrot' programs in the short term, a V-BID program that combines 
reductions in cost-sharing for high-value services and increases in 
cost-sharing for low-value services can both improve quality and 
achieve net cost savings. Removing harmful and/or unnecessary care from 
the system is essential to reduce costs, and creates an opportunity to 
improve quality and patient safety. Evidence suggests significant 
opportunities exist to save money without sacrificing high-quality 
care. For example, in 2014, the lowest available estimates of waste in 
the U.S. health care system exceeded 20 percent of total health care 
expenditures. Though less common, some V-BID programs are designed to 
discourage use of low-value services and poorly performing providers. 
Low-value services result in either harm or no net benefit, such as 
services labeled with a D rating by the U.S. Preventive Services Task 
Force.

It is important to note that many services that are identified as high 
quality in certain clinical settings are considered low-value when used 
in other patient populations, clinical diagnoses or delivery settings. 
For example, cardiac catheterization, imaging for back pain, and 
colonoscopy can each be classified as a high- or low-value service 
depending on the clinical characteristics of the person, when in the 
course of the disease the service is provided, and where it is 
delivered.
Fortunately, there is growing movement to both identify and discourage 
the use of low-value services. The ABIM [American Board of Internal 
Medicine] Foundation, in association with Consumers Union, has launched 
Choosing Wisely, an initiative where medical specialty societies 
identify commonly used tests or procedures whose necessity should be 
questioned and discussed. Thus far, over 40 medical specialty societies 
have identified at least five low-value services within their 
respective fields. Substantial and immediate cost savings are available 
from waste identification and elimination. Thus, V-BID programs that 
include both `carrots' and `sticks' may be particularly desirable in 
the setting of budget shortfalls.

III. Differential Cost-Sharing for Certain Services for Specific 
        Enrollees

Since a critical aspect of clinical nuance is that the value of a 
medical service depends on the person receiving it, we recommend that 
TRICARE plans encourage differential cost-sharing for specific groups 
of enrollees. The flexibility to target enrollee cost-sharing based on 
clinical information (e.g., diagnosis, clinical risk factors, etc.) is 
a crucial element to the safe and efficient allocation of expenditures. 
Under such a scenario, a plan may choose to exempt certain enrollees 
from cost-sharing for a specific service on the basis of a specific 
clinical indicator, while imposing cost-sharing on other enrollees for 
which the same service is not clinically indicated. Under such an 
approach, plans can recognize that many services are of particularly 
high-value for beneficiaries with conditions such as diabetes, 
hypertension, asthma, and mental illness, while of low-value to others. 
(For example, annual retinal eye examinations are recommended in 
evidence-based guidelines for enrollees with diabetes, but not 
recommended for those without the diagnosis.) Without easy access to 
high-value secondary preventive services, previously diagnosed 
individuals may be at greater risk for poor health outcomes and 
avoidable, expensive, acute-care utilization. Conversely, keeping cost-
sharing low for all enrollees for these services, regardless of 
clinical indicators, can result in overuse or misuse of services 
leading to wasteful spending and potential for harm.

    Permitting `clinically nuanced' variation in cost-sharing would 
give TRICARE plans a necessary tool needed to better encourage members 
to receive high-value services. This addition would eliminate many of 
the challenges and limitations of the `one-size-fits-all' model.
    alignment of consumer engagement with alternative payment models
    The TRICARE program is currently examining many exciting, some 
unproven, value-based reimbursement initiatives such as bundled 
payments, pay-for-performance, and patient-centered medical homes, some 
of which are explicitly addressed in the 2016 National Defense 
Authorization Act. As these initiatives provide incentives for 
clinicians to deliver specific services to particular patient 
populations, it is of equal importance that consumer incentives are 
aligned. As a practicing physician, it is incomprehensible to realize 
that my patients' insurance coverage may not offer easy access for 
those exact services for which I am benchmarked. Does it make sense to 
offer a financial bonus to get my patient's diabetes blood sugar under 
control, when her benefit design makes it prohibitively expensive to 
fill her insulin prescription or provide the copayment for her eye 
examination? The alignment of clinically nuanced, provider-facing, and 
consumer engagement initiatives is a necessary and critical step to 
improve quality of care, enhance the member experience, and contain 
cost growth for the TRICARE program.
                               conclusion
    As this committee considers changes to the TRICARE benefit design, 
it is an honor for me to present one novel approach to better engage 
TRICARE members. As a practicing clinician, I believe that the goal of 
the military health system is to keep its members healthy, not to save 
money. That said, I strongly concur that health care cost containment 
is absolutely critical for the sustainability of the TRICARE program 
and our nation's fiscal health. While there is urgency to bend the 
health care cost curve, cost containment efforts should not produce 
avoidable reductions in quality of care. As cost-sharing becomes a 
necessity for fiscal sustainability, I encourage you to take a common-
sense approach of setting member co-payments on whether a clinical 
service makes a TRICARE member healthier--instead of the current 
strategy of basing member contributions on the price of the service. In 
other words, make it harder to buy the services they should not be 
using in the first place. If such principles encourage the utilization 
of high-value providers and services and discourage only low-value 
services, TRICARE plans can improve health, enhance consumer 
responsibility, and reduce costs.
    Thank you.


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
      

   STATEMENT OF DAVID J. McINTYRE, JR., PRESIDENT AND CEO OF 
                  TRIWEST HEALTHCARE ALLIANCE

    Mr. McIntyre. Good afternoon, Chairman McCain, Chairman 
Graham, Ranking Member Gillibrand, and members of the Personnel 
Subcommittee of the Senate Armed Services Committee.
    It is a privilege to appear before you today at this 
initial hearing on defense health care reform, and I hope that 
my participation in today's hearing will be of assistance to 
you and the Defense Department as you seek to ensure that the 
military health system is strengthened and is able to continue 
to provide optimal support to those who wear the cloth of this 
Nation, their families, and those who earned a retirement 
benefit due to their career of service.
    I believe any framework for reform needs to begin with an 
assessment of what is working and not working, what the 
environmental conditions are likely to look like in the future, 
including the `go to war' capabilities and needs, and what 
approach will likely ensure success in the future.
    For my nearly 20 years of privileged service at the side of 
DOD and now VA [Veterans Affairs], I believe there are four 
fundamental questions worthy of exploration.
    First, does DOD have the optimal footprint and most 
effective, efficient management structure and tools and system 
to deliver on the needs? Is the investment in the direct care 
system being optimized? There is a great deal of expense 
inherent in the physical footprint, the equipment that has to 
be purchased and kept current and the personnel required to 
effectively staff the footprint. There is great efficiency and 
effectiveness to be gained when sizing a system, when making 
`make versus buy' decisions and collaborating appropriately, 
and perhaps even when leasing versus traditional ownership of 
plant and equipment is broached.
    I also believe that telehealth and data and analytics tools 
and the corollary personnel investments need to be maximized, 
especially in this day and age.
    As for management structure, there has been much written, 
proposed, and discussed on this topic over the years. It would 
seem that there is an opportunity in this space as well to 
achieve savings and enhance effectiveness, just as has been 
done with the evolution in the way in which the military 
medical community now supports the warfighter in theater. While 
not easy, streamlining the number of players and consolidating 
functions will also make the organization more agile and 
fiscally efficient.
    Second, does the benefit available to the population make 
sense and is it priced properly?
    The individual that testified just before me spoke 
eloquently of one component part that ought to be considered. 
As we all know, the TRICARE benefit has evolved greatly in the 
last 20 years. Having said that, one challenge that remains 
constant is what to do with the pricing structure which was 
previously addressed. I believe that part of that needs to 
include indexing. One of the challenges often with programs 
that are developed is that we fail to index them. I think a 
simple, actuarially based and automatic triggered index would 
be worthy of consideration.
    Third, is access to care easy, and what is the optimal 
approach to providing the direct care system with the needed 
elasticity to ensure that access to quality providers is 
available to meet the needs that the direct system cannot meet 
itself?
    My understanding is that an electronic authorization system 
that allows workflow to efficiently and effectively move 
between the direct system and the TRICARE contractors and 
providers still does not exist. I would say that needs to be 
remedied, and it needs to be grounded in processes that are 
effective and efficient, to include supporting how to make sure 
that appointments work effectively and accurately.
    Lastly, I would say that the networks built by those that 
support the DOD as contractors need to be constructed to match 
the need that exists for care in the community. One size does 
not fit all. In order to optimize the DOD budget, those 
networks should be priced at market rate.
    Fourth, are we optimally promoting health and effectively 
and efficiently supporting those whose unmanaged health issues 
are both bad for the individual and presenting avoidable 
expense to the taxpayer?
    Optimally promoting health starts with effectively 
supporting the patient, which my colleagues have addressed 
previously. If done right, it also results in cost avoidance, 
so the two go hand in hand. Segmenting the population and 
focusing in on those who benefit most from assistance in the 
management of their conditions is just smart and annually 
reviewing the analysis of the population's health is critical 
to doing this right.
    Developing and deploying an integrated approach to disease 
management for that specific profile of conditions is also 
critical, something that we tried in TRICARE when I was doing 
it and we failed to focus in on the right spaces where 
opportunity exists. You want the treatment to be coordinated 
and well managed, regardless of where the care is delivered, 
whether it is in the direct system or in the community.
    There should then be the development of a customized 
treatment plan for the individual patient and the modification 
of the design of the TRICARE program to provide a series of 
incentives and disincentives for compliance with that treatment 
plan.
    Lastly, provider payment models that appropriately reward 
providers for quality outcomes and reduce an overall spend need 
to be adopted as they are the key partner in delivering care. I 
would suggest doing pilots to continue to test this, but then 
deploying it effectively and quickly is important.
    Senator Gillibrand, I would like to draw your attention to 
one prototype that I was privileged to be a part of with one of 
the next panel's participants. That is at the side of the first 
lady then of the Marine Corps, Annette Conway, who was a 
special educator. We had the privilege, then-Captain Faison and 
myself, now the Navy Surgeon General, to prototype how to put a 
special needs program together to serve the families at Camp 
Pendleton. I believe, sir, that that worked extremely 
effectively. There are some clues there from a while ago, and 
there are probably clues from current pilots that could be 
rolled out and made available as you map the final policy.
    In closing, I want to thank you for the invitation to 
appear before you today. It was an honor and a privilege for my 
colleagues and I at TriWest Healthcare Alliance and our 
nonprofit owners to be of service to the beneficiaries of the 
military health system at the side of the ladies and gentlemen 
who wear the cloth of the Nation. That is work we will not 
return to because we have the awesome privilege now of leaning 
forward at the side of the VA in the current furnace, and that 
is where we will stay focused until our job is done.
    I hope that my testimony today has been helpful to you as 
you contemplate the way ahead as it relates to continuing to 
refine the military health system and the important TRICARE 
benefit. I look forward to answering any questions you might 
have. Thank you.
    [The prepared statement of Mr. McIntyre follows:]

            Prepared Statement by Mr. David J. McIntyre, Jr.
                              introduction
    Good afternoon Chairman Graham, Ranking Member Gillibrand, and 
members of this distinguished Committee.
    Thank you for the invitation to appear before you today at this 
initial hearing on Defense Health Care Reform. I applaud you and your 
colleagues for taking on this subject and I am pleased to share with 
you my views on this topic, as you and the Defense Department seek to 
ensure that the Defense Health System remains strong and is able to 
provide optimal support to those who wear the cloth of the nation, 
their families and those who earned a retirement health benefit due to 
their career of service in the uniformed services.
    For almost 20 years I have had the distinct privilege of co-
founding and leading a company, TriWest Healthcare Alliance, whose sole 
mission is standing alongside the federal government--initially with 
the Department of Defense and now with the Department of Veterans 
Affairs (VA)--in serving the health care needs of those who serve this 
country in uniform and their families. Prior to this privileged work, I 
had the honor of serving almost nine years in the offices of the U.S. 
Senate, where I was responsible for health-policy issues for the 
Chairman of this Committee, Senator John McCain, and Senator Slade 
Gorton (R-WA). That time included much engagement in this space, 
including at the time of the birthing of the TRICARE program 
legislatively.
    It is with this comprehensive policy and business background that I 
am in front of you today. I did not go out looking to testify before 
you but I feel it is my personal responsibility, based on my experience 
in working with the federal government in this critical space and in 
understanding the needs of our deserving Service members and their 
families, that I share with you my view of how to bring best commercial 
practices to bear in the military health space while also maintaining 
the readiness of our military and ultimately ensuring the long-term 
fiscal health of the Department of Defense (DOD).
    In 1996, a group of non-profit health plans and university health 
systems came together and founded TriWest Healthcare Alliance. Our 
initial mission was to serve the DOD in bringing up the first TRICARE 
contract in what were then Regions 7 and 8, which we assisted the DOD 
in folding into the TRICARE Central Region at a savings to the 
government. We then went on to serve the 21-state TRICARE West Region. 
While today TRICARE is recognized as a solid benefit for our nation's 
Service members and their eligible family members, it took many years 
of hard work, focus, and most importantly partnership between the 
contractor community and DOD's health care system to mature it to the 
point of stability and fashion it into the successful program that it 
is today. I am proud of the role TriWest played, along with our 
colleagues in the contractor community, in the implementation, 
maturation, and improvement of that program during our years of service 
in support of the Defense Department. After being toughened up a bit, I 
am even more proud today to have the privilege of bringing that same 
focus and singular-purpose intensity to the side of VA as they seek to 
enhance access to care in the community and re-set themselves for this 
generation's Veterans and those that will follow.
    In addition, TriWest has the privilege of serving the U.S. Marine 
Corps as the worldwide operator of the DSTRESS stress and suicide-
prevention contact center and providing back-up to their Sexual Assault 
Prevention and Response (SAPR) line. While certainly not perfect, I am 
proud to say that we have not lost a Marine in our nearly seven years 
of work in this critical space. We also serve the U.S. Air Force by 
providing appointing service in three Military Treatment Facilities in 
the Continental U.S.
    At TriWest, we found that the successful delivery of all of these 
services demands a collaborative approach between all the stakeholders. 
I believe that history will continue to reflect positively on the road 
that we collectively traveled during our time at the side of DOD, as we 
achieved much collective success to the benefit of those that we were 
jointly privileged to serve. Though it took a bit of time to mature, as 
all large and complicated programs do, TRICARE demonstrated one of its 
core intended purposes in being stood up . . . giving the direct care 
portion of the DOD Health System the ability to necessarily project 
forward into a theater/theaters of war and continue to provide for the 
needs of those staying behind given the elasticity provided through 
consolidated civilian provider networks. I am also very proud of the 
unique success we had in mapping and developing networks to Guard units 
across the vast expanse of our 21 states of operation, so that they and 
their families might have access to the basics when they were not 
available in their geographic locale through DOD's physical footprint.
    Much of the work we did so successfully at the side of DOD has 
carried over to that which we are now privileged to do in support of VA 
as it seeks to re-tool to more successfully meet the needs of Veterans, 
including those of our generation's War on Terror. While that work, 
much like that which we were privileged to perform in support of DOD, 
demands our all at this moment, it was nice to have a reason to step 
back and reflect a bit . . . and be prepared to share with you a few of 
my thoughts regarding the next generation of refinement/reform of the 
Military Health System (MHS).
    Mr. Chairman and members of this distinguished Committee, I believe 
that any framework for reform needs to begin with an assessment of what 
is working and not working, what the environmental conditions are 
likely to look like in the future--including the ``Go to War'' 
capabilities, and what approach will likely ensure success in the 
future.
    It goes without saying that the DOD Health System, like VA, is not 
the private sector . . . and, parts of their mission and the 
expectation we all have as citizens in how we will care for and support 
those who put themselves in harm's way--sometimes at a very high 
personal cost to their health--necessarily means that it will not and 
should not mirror the private sector. However, there are definitely 
places where the private sector can ensure elasticity of access for the 
direct care system and bring core competencies to the equation that 
also afford the direct care system the ability to achieve its quality 
objectives and keep costs under control.
    As I stepped back and thought about the reform question, based on 
now having the benefit of 20 amazing years of serving those who serve 
at the side of DOD and now VA, I would be asking four questions.
    First, knowing what we know today and looking into the future, do 
we have the optimal footprint and most effective/efficient management 
structure and tools/support system? Are we effectively and efficiently 
optimizing the investment in the direct care system?
    Second, does the benefit available to the population make sense, 
and is it priced properly?
    Third, is access to care easy and do we have the optimal approach 
to provide the direct care system with needed elasticity in access to 
providers when they are unable to meet the health care need directly?
    Fourth, are we optimally promoting health and effectively and 
efficiently supporting those whose unmanaged health issues are both bad 
for the individual and more costly to the DOD?
           optimal footprint, management structure and tools
    First, knowing what we know today and looking into the future, do 
we have the optimal footprint and most effective/efficient management 
structure and tools/support system? Are we effectively and efficiently 
optimizing the investment in the direct care system?
    There is a great deal of expense inherent in the physical 
footprint, the equipment that has to be purchased and kept current, and 
the personnel required to staff the footprint. Over the years, the DOD 
has had a solid focus on downsizing from hospitals to clinics where it 
made sense and testing various models for how to make more efficient 
use of operating resources. As you know, there has even been the 
exploration of joint use DOD/VA facilities over the years, with the 
most recent project in Chicago. There is great efficiency and 
effectiveness to be gained when sizing, make versus buy and 
collaboration are approached properly, and I believe it is time to look 
at making this approach the rule instead of the exception. I also think 
that evaluating leasing options versus traditional ownership is 
worthwhile.
    I would suggest that part of optimal footprint design is the 
leveraging of telehealth. While DOD has made much use of this 
technology over the years--and certainly has been very effective in 
harnessing it of late to support the needs of the warfighter--I believe 
there would be much gained from exploring its application, and the 
associated tools that are starting to emerge in the marketplace, in 
optimizing the reach of both military and civilian providers in 
supporting those who use today's manpower-intense nurse advise lines, 
those who suffer from chronic illnesses and those for whom behavioral 
health counseling would be more accessible through leveraging this mode 
of access.
    I would also observe that all of us in health care are increasingly 
learning the importance of data, and data analytics capability to feed 
optimal decision-making . . . whether it is used to determine what is 
made versus bought, identify the most effective targets for disease and 
condition management investment, or how to optimally tailor provider 
networks to effectively meet patient need. Solid data and the skilled 
people who have the ability to understand and use it must be at the 
core of any health reform effort. This is an area where investments are 
essential, and if done properly will yield much dividend down the line. 
Thus, I would encourage a deliberate focus on what is needed to achieve 
success . . . in terms of the systems, the data analytics tools, and 
the investment in personnel needed to give the MHS [Military Health 
System] the critical tools needed in this area.
    As for management structure, there has been much written, proposed 
and discussed over the years. It would seem that there is opportunity 
in this space as well to achieve savings and enhance effectiveness, 
just has been done with the evolution in the way in which the military 
medical community is collaborating and integrating to support the 
warfighter. While not easy, streamlining the number of players and 
consolidating functions will also make the organization more agile in 
the work that it does.
                            tricare benefit
    Second, does the benefit available to the population make sense and 
is it priced properly?
    As we all know, the TRICARE benefit has evolved into a solid 
element of the compensation package for military personnel, their 
families and military retirees. The early days of the program were not 
easy as tweaks needed to be made. We all stayed at it and at the time 
we left our work at the side of DOD, it had evolved into one of the 
highest rated health plans in existence.
    Having said that, one of the challenges that seem to perpetually 
exist is what to do with the pricing structure for the various elements 
of the TRICARE plan. As you and the Department work through this year's 
version of those decisions, I would encourage serious consideration be 
given to how to effectively establish an indexing approach that is 
simple, actuarially-based and has automatic triggers so that the need 
for Congress to engage in rate-setting decisions on an annual basis 
becomes a thing of the past.
                             access to care
    Third, is access to care easy and do we have the optimal approach 
to provide the direct care system with needed elasticity in access to 
providers when they are unable to meet the health care need directly?
    One of the areas we spent a great deal of time and energy on during 
our work supporting the Defense Department and its TRICARE 
beneficiaries in the West Region was easing the complications of access 
to care when the supply existed within the Military Treatment 
Facilities. It required an elaborate and evolved set of tools and 
processes customized to each location to support the referrals into the 
facilities. When we came into the second generation of the TRICARE 
contracts there was to have been an electronic system which we were to 
connect to in order to make the process seamless. It was never built. 
Rather than wringing our hands, we stepped back and re-configured our 
approach in order to make the processes work in the absence of the 
electronic systems availability. My understanding is that such a system 
that allows for the connection between the direct care system and the 
TRICARE contractor seeking to ensure the maximal use of the direct care 
system, to the benefit of the patients and the taxpayer, still does not 
exist. It was a worthy notion then, and I believe that remains the 
case.
    In working this piece, it is critical, though, that the focus not 
just be on electronics. It needs to start with a review of the 
processes for how appointments are made and managed and how 
authorizations move between the direct care system and the TRICARE 
contractors. This review should be done in order to both allow for the 
refinements in those processes and ultimately to ensure that the 
systems work for the processes they were designed to serve.
    Lastly, a core element of access to care is ensuring that the 
networks built by the TRICARE contractors are constructed to match the 
need that exists for care in the community. They should provide optimal 
elasticity for the direct care system, which means that it is incumbent 
on the direct care system to be engaged in recurring Demand Capacity 
modeling with the TRICARE contractors. In order to optimize the budget, 
the networks should be priced at market rate.
               optimally promoting and paying for health
    Fourth, are we optimally promoting health and are we effectively 
and efficiently supporting those whose unmanaged health issues are both 
bad for the individual and more costly to the DOD?
    With infrastructure optimized, critical tools in place and fully 
leveraged, and access to care within the direct care system being fully 
leveraged with necessary and appropriate elasticity available through 
the provider network in the community, we are to the final piece I 
would like to touch on. That is optimally promoting health . . . which 
starts with supporting the patient, and, if done right, results in cost 
avoidance.
    It is about improving value for the patient and improving value for 
the taxpayer. If done right, these are not mutually exclusive concepts. 
Indeed, those who are doing it well in the private sector are 
demonstrating that both are possible. My colleagues on this panel, in 
fact, are very steeped in this topic.
    When I look at it from my vantage point, I think there are several 
core elements to success.
    First, it is segmenting the population and focusing in on those who 
benefit most from assistance in the management of their conditions. To 
facilitate this, I would suggest that requiring an annual analysis of 
the population's health by both the MHS and the TRICARE contractor 
would be of value.
    Second, it is the development and deployment of an integrated 
approach to disease management for that specific profile of conditions 
. . . so that the treatment will be coordinated and well managed 
regardless of whether a specific component of care is delivered by a 
provider in the direct care system or a provider in the network.
    Third, it is the development of a customized treatment plan for the 
individual patient and the modification of the TRICARE program to 
provide a series of incentives and disincentives for compliance with 
the treatment plan. The most effective programs in the country are 
using a mix of carrots and sticks to encourage adherence.
    Fourth, is the adoption of provider payment models that 
appropriately reward providers for quality outcomes and reductions in 
overall spend as the key partner that they are in serving the patient. 
I would suggest doing pilots in this area to test what would work 
optimally in a unique system like the MHS, but I am confident that you 
will find significant benefit from a better alignment with the new pay 
tools that are emerging in the private sector and also being tested in 
Medicare.
                               conclusion
    In closing, I want to thank you for the invitation to appear before 
you today. It was an honor and privilege for my colleagues and I at 
TriWest Healthcare Alliance to be of service to the beneficiaries of 
the Military Health System as it is to now be of service to our 
nation's Veterans at the side of VA. I hope that my testimony today has 
been helpful to you as you contemplate the way ahead as it relates to 
continuing to refine the Military Health System and the TRICARE 
benefit, and I look forward to answering any questions you might have.

    STATEMENT OF DR. JOHN E. WHITLEY, SENIOR FELLOW AT THE 
                 INSTITUTE FOR DEFENSE ANALYSES

    Dr. Whitley. Mr. Chairman, members of the committee, it is 
a privilege to participate in this panel. The views I express 
are my own and should not be interpreted as reflecting any 
position of the Institute for Defense Analyses.
    The military medical community is a dedicated force trying 
to provide beneficiaries a high-quality benefit and maintain 
their readiness to provide lifesaving care on the battlefield. 
This community works within a military health system that often 
fails to encourage these outcomes and, at times, actually 
hinders their ability to succeed. I commend the Congress for 
addressing these challenges.
    I make three primary points in my written testimony, which 
I will summarize briefly here.
    First, TRICARE reform is not simply raising beneficiary 
cost-shares. TRICARE reform is a chance to fix a program that 
has become out of step with current trends in health care. It 
is not simply raising costs on retirees to save DOD money. It 
should be able replacing a system of 5-year, winner-take-all, 
largely pass-through, largely fee-for-service contracts with a 
modernized system that improves the quality of the benefit for 
our families and retirees while saving the taxpayer money.
    Second, TRICARE reform is an opportunity to bring an 
increased focus on readiness to the military health system, in 
particular on how to retain the capability built during the 
wars. As the Compensation Commission reported, quote, research 
reveals a long history of the military medical community 
needing to refocus its capabilities at the start of wars after 
concentrating during peacetime on beneficiary health care.
    Well before the wars in Iraq and Afghanistan began, GAO 
[Government Accountability Office] was reporting that, ``Since 
most military treatment facilities provide health care to 
Active Duty personnel and their beneficiaries and do not 
receive trauma patients, military medical personnel cannot 
maintain their combat trauma skills during peacetime by working 
in these facilities.''
    Although there were a lot of improvements made during the 
war, military physicians are still reporting, ``Today the 
service that the physician was referring to has less than a 
dozen pre-hospital physician specialists and about the same 
number of trauma surgeons on Active Duty.'' By comparison, that 
service has roughly the same number of radiation oncologists 
and nearly three times the number of pediatric psychiatrists 
and orthodontists in the force. This is largely because the 
medical specialty allocations are based on traditional 
peacetime beneficiary care needs. Refocusing on wartime needs 
could populate key institutional and operational billets with a 
critical mass of trained pre-hospital and trauma specialists 
and drive further advances in battlefield care during 
peacetime. End quote.
    This focus on the beneficiary care mission brings me to my 
third point. TRICARE reform is also an opportunity to reform 
the entire military health system. The MHS is a complex, 
interweaving set of missions, delivery systems, benefits, and 
funding streams. It involves duplicative management layers and 
fails to incentivize unity of effort on the key system-wide 
outcomes of readiness, high-quality benefit delivery, and cost 
control.
    A prime example of these MHS problems is the military 
hospital network. The MHS direct care system includes over 50 
inpatient hospitals and over 300 outpatient clinics. The 
purpose of having a DOD-run hospital system is to provide the 
clinical skill maintenance platform for the operationally 
required military medical force. The day-to-day workload and 
operations of these hospitals are almost exclusively focused on 
beneficiary health care. As an example, I show in my written 
statement how different the inpatient workload in the direct 
care hospitals is from the deployed inpatient workload.
    This puts military hospital commanders in an almost 
impossible situation, and it creates a climate of confusion 
within the MHS that affects everything from staffing decisions 
to major investment decision-making.
    These military hospitals are expensive and a key driver of 
excess cost--of health care costs within the DOD.
    Many of these incentive challenges and the mission 
confusion in the MHS are driven by a lack of transparency in 
funding. The line service leadership, the Office of the 
Secretary of Defense, and Congress cannot identify how much is 
spent on beneficiary care and how much is spent on readiness, 
reducing the effectiveness of resource allocation decision-
making and reducing accountability.
    I offer suggestions on potential reform options for each of 
these challenges in my written testimony, and I would very 
happy to elaborate on them in the question and answer period.
    I would just like to close by, again, commending you for 
taking on these important and complex issues and for including 
me in this conversation.
    [The prepared statement of Dr. Whitley follows:]

                 Prepared Statement by Dr. John Whitley
    Mr. Chairman and Members of the Committee: It is a privilege to 
participate in this panel. The views I express are my own, and should 
not be interpreted as reflecting any position of the Institute for 
Defense Analyses. The military medical community is a dedicated force 
trying to provide beneficiaries a quality benefit and maintain their 
readiness to provide lifesaving care on the battlefield. This community 
works within a Military Health System (MHS) that often fails to 
encourage these outcomes and, at times, actually hinders their ability 
to succeed. I commend Congress for addressing these challenges and 
would like to make three primary points in my testimony:

    1.  TRICARE reform is an opportunity to improve choice and access 
for beneficiaries while controlling costs in DOD--it is not simply 
increasing cost-shares or tweaking contracts.

         For much of the last 10 years, TRICARE reform has been 
defined as increasing cost-shares for beneficiaries to reduce 
utilization and raise revenue--saving DOD money.

         TRICARE is a flawed program that is out of step with 
healthcare trends.

          -  It is focused on purchasing procedures, with few tools to 
promote health outcomes, manage utilization, coordinate care, or 
control costs.
          -  Pass through (government bears risk) contracting fails to 
incentivize contractors to manage care and improve health outcomes.
          -  Five-year, winner-take-all contracts are cumbersome, 
uncompetitive, and hinder the infusion of new ideas from the private 
sector.
          -  Result is poor beneficiary experience (e.g., poor choice/
networks) at high cost.
          -  Raising cost shares or tweaking the TRICARE contracts 
cannot fix this problem.

         TRICARE should be based on purchasing a benefit (not 
procedures) for an individual with a risk-bearing contract.

          -  The healthcare sector knows how to administer a health 
benefit to maximize outcomes while controlling cost--DOD should use 
this expertise, not shun it.
          -  Annual (evergreen) contracts should be used to ensure 
timely adaption of new innovations as they are introduced in the 
rapidly evolving healthcare sector.
          -  Contracts should shift financial risks and provide 
flexibility to incentivize contractors to use state of the art business 
practices in delivering the benefit.

         Cost shares are only a part of this discussion; they 
are a tool, but only one of many.

    2.  TRICARE reform can be used to improve medical readiness, 
breaking the historic cycle of letting medical readiness atrophy when 
DOD returns to a peacetime focus following war.

         A tremendous deployed medical capability was built 
during the wars, but the MHS does not have the needed case mix and 
volume of workload in military hospitals to sustain it.

         Congress can leverage TRICARE reform to help prevent 
the loss of this capability.

    3.  TRICARE reform is an opportunity to reform the MHS--improving 
efficiency and incentives.

         MHS is a complex interweaving set of missions, 
delivery systems, benefits, and funding.

         It involves duplicative management layers and fails to 
incentivize unity of effort on the key system-wide outcomes of 
readiness, high-quality benefit delivery, and cost control.

         TRICARE reform, with a readiness focus, could begin 
the process of transitioning the MHS into a more streamlined system 
incentivized to focus on outcomes.

    tricare reform is not simply increasing beneficiary cost-shares
    For much of the last 10 years, TRICARE reform has largely been 
defined by the Department of Defense (DOD) as increasing cost-shares 
for beneficiaries; this would reduce utilization of healthcare services 
and raise revenue, reducing the cost to DOD of providing the healthcare 
benefit. As the Military Compensation and Retirement Modernization 
Commission (MCRMC) report pointed out, this narrative is, at best, 
incomplete. The TRICARE program is structurally flawed, and the result 
is poor performance at high cost. Its poor performance can be observed 
for many attributes other than cost-shares (e.g., choice and access). 
These limitations in the TRICARE benefit are largely driven by 
structural flaws in the design of the program. TRICARE reform is not 
simply raising beneficiary cost-shares; it is an opportunity to address 
these structural flaws to improve choice and access while controlling 
costs.
    This framing of the debate is important. When TRICARE reform is 
defined as raising cost-shares, it creates a clear winner (DOD) and 
loser (beneficiaries who are paying more for the same quality of 
benefit). When TRICARE reform is understood to be modernizing a poorly 
performing program, it focuses discussion on solutions that leave many 
beneficiaries better off while simultaneously saving DOD money. The 
debate is no longer about whether to harm beneficiaries to help DOD, it 
is about how best to modernize the purchase and administration of 
healthcare to benefit everyone. Cost-shares can be an element of 
reform, but they are not the only element, and beneficiaries can be 
rewarded with better choice and access in return for higher cost-
shares.
Structural Flaws in the Design of the TRICARE Program
    In the late 1980s, as the Cold War was ending, DOD's limited method 
of purchasing healthcare was the Civilian Health and Medical Program of 
the Uniformed Services (CHAMPUS), used primarily for recruiters and 
others located far from military hospitals. By the 1990s, as large-
scale post-Cold War rationalization of DOD infrastructure began, it had 
become clear that DOD healthcare was going to have to shift to a more 
integrated system with greater reliance on private sector care. The 
dominant method for purchasing care in the private sector was fee-for-
service (FFS), in which doctors and other healthcare providers are paid 
for each service or procedure performed. FFS purchasing was also a 
simple approach for a system focused on purchasing wraparound or 
overflow care to augment its in-house facilities in select markets and 
situations in which it could not deliver all care itself. In this 
environment, the limited CHAMPUS system was transformed into the much 
larger TRICARE system, which today comprises three geographic regions 
that purchase community care through pass-through (i.e., no substantive 
risk transfer) five-year FFS contracts, one per region. The initial 
contracts (called T1) were built on pass-through FFS purchasing of 
care, but did allow some limited use of alternative methods for 
purchasing care, risk sharing between the government and the regional 
contractor, and contractor provision of ancillary services such as 
augmenting staff in military hospitals.
    DOD is now on a third round of contracts (T3) and is currently in 
the process of contracting for T4. Two particular trends that have 
occurred since TRICARE's inception are important to highlight for 
understanding the structural flaws in the TRICARE program. The first is 
the movement away from FFS purchasing of healthcare in both the private 
and public sectors. The primary alternative to FFS when TRICARE was 
established was the staff model health maintenance organization (HMO). 
The two methods formed opposing poles, with various private sector 
insurers and other market participants ranging along the continuum 
between these poles. Modern healthcare no longer fits into this 
framework. There are very few market participants at these poles and 
the continuum between them has been replaced by intense competition in 
a wide-ranging space of alternative value-based purchasing (VBP) 
methods. The healthcare sector discovered that pass-through FFS 
contracting provided poor (and sometimes perverse) incentives for 
utilization management, care coordination, and promotion of health 
outcomes--in short, it was not a sustainable business model. FFS 
purchasing remains an element of an overall strategy for purchasing 
healthcare, but its use as the only method in a non-risk-bearing 
contract with a contractor has greatly diminished. FFS coupled with no 
risk transfer to the contractor is a poor program design. In the public 
sector, the traditional FFS Medicare (of which TRICARE is a variant) 
has already seen one-third of beneficiaries migrate to Medicare 
Advantage (risk-based plans) and the Administration has set targets to 
have 30 percent of individual Medicare payments made through 
alternative (non-FFS) methods by 2016 and 50 percent by 2018. The 
second important trend is that, although TRICARE started out with 
contracts that promoted a broader focus than just pass-through FFS 
purchasing of healthcare, over three generations of contracts TRICARE 
devolved to just that. While the healthcare sector has moved away from 
that model, TRICARE has narrowed to little else.
    This history helps identify some of the key flaws in the design of 
the TRICARE program:

    1.  TRICARE contracting is based on pass-through (non-risk bearing) 
contracting for procedures instead of purchasing a benefit for an 
individual with a risk-bearing contract: TRICARE should not be built on 
the purchase of individual procedures or visits; it should be built on 
the purchase of a benefit for the individual or family. This is 
essential for ensuring that care is coordinated, utilization is 
managed, and health outcomes are promoted--the key outcomes of 
interest. In addition, the purchase of this benefit must transfer risk 
to the contractor. The healthcare sector is rapidly evolving, and a 
focus of a reformed TRICARE should be on the incentives being provided 
to the contractors to adopt and further innovate in their use of these 
VBP tools to promote the key outcomes of interest. Insurance carriers 
focus on these problems every day and are professional managers of 
healthcare. DOD should leverage their expertise and put it to work on 
behalf of military beneficiaries.

    2.  TRICARE cost control strategies are based on costs per 
procedures instead of the total cost for the value received: One 
unfortunate impact of pass-through FFS contracting is that it focuses 
attention on per-procedure costs while distracting attention from, and 
providing few tools to manage, utilization and total cost. DOD's system 
is anchored in its use of Medicare reimbursement rates for procedures, 
and TRICARE often contracts for procedures at 20 percent or more below 
commercial rates. This has become an overriding focus in DOD and a 
primary measure by which reform alternatives are evaluated (i.e., a key 
evaluation criterion is often whether it raises per-procedure rates). 
FFS models, however, incentivize increased utilization that may not be 
clinically necessary, and in DOD, utilization rates are 30-40 percent 
higher than demographically similar comparison groups. Despite paying 
less per procedure, DOD pays more in total per beneficiary.

       The healthcare sector is focused on total cost and the value 
received for the amount paid. To take a common example (taken 
specifically from interviews conducted in Alexandria, Louisiana), a 
particular market may have several orthopedic surgeons performing total 
knee replacements. The best surgeons may charge higher rates for the 
surgery (there is higher demand for their services) but may also have 
lower costs for the entire episode of care (driven by lower failure 
rates, quicker healing rates, shorter physical therapy requirements, 
etc.). Private insurers will observe this difference and be willing to 
pay the higher surgical rate, incentivizing their patients to use the 
more expensive surgeons. This cannot be done in the TRICARE system; 
regardless of health outcomes and total cost, the surgeons with the 
lowest per-procedure cost will be the only ones allowed. The focus on 
procedure rates drives other perverse results as well, e.g., narrow 
networks and poor access.

    3.  TRICARE contracts are long-lived and winner-take-all instead of 
competitive evergreen contracts: TRICARE uses winner-take-all (one 
successful contractor per region) five-year (often extended) contracts. 
The process by which TRICARE's contracts are awarded is complicated, 
prolonged, and characterized by protests and delays, increasing 
TRICARE's costs. More importantly, the lack of competition and multi-
year duration of contracts limits TRICARE's ability to innovate and 
keep pace with healthcare trends and advances. Most other public sector 
healthcare programs use competitive, annual (sometimes known as 
evergreen) contracts, e.g., Medicare Part C, Medicare Part D, and 
Federal Employees Health Benefits Program (FEHBP). Large, multi-year, 
winner-take-all contracts can appear simple at first and may be 
attractive for this reason, but TRICARE experience demonstrates 
otherwise.

    These challenges are fundamental to the design of the current 
TRICARE program. Minor tweaks of the program such as retaining the 
five-year, winner-take-all pass through structure but directing VBP 
instead of FFS purchasing will not substantively change the result. 
Each of the structural flaws should be addressed as part of TRICARE 
reform and the flaws are interconnected--fixing one element without the 
others can leave the program performing just as poorly as it currently 
does.
Implications of TRICARE Program Flaws
    The structural flaws of the TRICARE program design cause poor 
performance in many areas. From the perspective of healthcare 
experience to the beneficiary, the flaws cause limitations on choice 
and access. From the perspective of DOD and the taxpayer, the flaws 
cause unnecessary overutilization and high costs.
    The most important attribute to beneficiaries in benefit design is 
choice. Families and individuals in different stages of life (e.g., 
child-bearing years versus retirement years) and with different 
situations (e.g., higher income versus lower income, married versus 
single, and healthy versus infirm) have different healthcare wants and 
needs. Providing choice among a variety of plan options allows 
beneficiaries to select the plan that best suits their needs, trade off 
added benefits against the associated premium increases, and take 
ownership of their healthcare experience. In a study on employer-
sponsored insurance, it was found that the value placed on choice by 
beneficiaries equated to 16 percent of their employer-provided 
healthcare subsidies. \1\ Choice is the most important attribute 
because it is the one that empowers beneficiaries to correct 
deficiencies in other attributes--with choice, the beneficiary can 
simply walk away from the plan (or provider) that isn't meeting their 
expectations and choose another.
---------------------------------------------------------------------------
    \1\ Leemore Dafny, Kate Ho, and Mauricio Varela, ``Let Them Have 
Choice: Gains from Shifting Away from Employer-Sponsored Health 
Insurance and Toward an Individual Exchange,'' American Economic 
Journal: Economic Policy 5, no. 1 (2013): 33, 56.
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    Providing choice among plans also has significant value in program 
design and management. It corrects the winner-take-all structural flaw 
identified above. Under a centrally directed program design (a uniform 
benefit), the central authority (DOD, in accordance with statutory 
direction, in the case of TRICARE) designs the healthcare plan and 
dictates its terms to beneficiaries. Under a program designed around 
beneficiary choice among multiple plans, competition between the plans 
is created. To survive in the marketplace, contractors/carriers have to 
attract beneficiaries to their plan (and away from competing plans). 
This means that the plans have to focus carefully on designing options 
that are attractive to beneficiaries and provide the services 
beneficiaries want. It also means that they have to be price 
competitive, so they have to offer those desired services as cheaply as 
possible. Instead of having a central authority dictate to 
beneficiaries regardless of their preferences, a program design based 
on choice harnesses beneficiary preferences to improve program 
performance. The Office of Personnel Management (OPM) stated to the 
MCRMC that this competition among plans drove a one percent reduction 
in premium growth in the FEHBP compared to similar employer sponsor 
premium growth in recent years. TRICARE has experienced average cost 
growth several percentage points above civilian healthcare.
    For most DOD beneficiaries, there are two health plan options: 
TRICARE Prime and the combined TRICARE Extra (network) and Standard 
(non-network) plan. To understand choices available to other 
beneficiary groups, one simple comparison group is federal civilians. 
Table 1 compares the plan choices available to military beneficiaries 
in three markets compared to the choices available to the federal 
civilian workforce in those markets.

                 Table 1.--Plan Choices for Military Beneficiaries Compared to Federal Civilians
----------------------------------------------------------------------------------------------------------------
                         Market Area                           Military Beneficiaries       Federal Civilians
----------------------------------------------------------------------------------------------------------------
Las Vegas, Nevada...........................................                        2                        19
Pensacola, Florida..........................................                        2                        18
Leesville, Louisiana........................................                        2                        16
----------------------------------------------------------------------------------------------------------------

    Another key attribute is the size of the provider network available 
to the beneficiary. A regular concern raised by military beneficiaries 
is that TRICARE has limited networks. Table 2 provides a comparison 
between the civilian providers available to military beneficiaries in 
three geographic markets compared to the networks available to federal 
civilians in those markets for two FEHBP plans, the Government 
Employees Health Association (GEHA) plan and the Blue Cross and Blue 
Shield (BCBS) plans. Two of these markets (Fayetteville and San Diego) 
have military treatment facilities (MTFs) in them that expand the pool 
of available providers for the subset of military beneficiaries 
enrolled in Prime to the MTF, but even for this subset of 
beneficiaries, the list of available providers is dwarfed by the plans 
available to federal civilians.

              Table 2.--Provider Networks for Military Beneficiaries Compared to Federal Civilians
----------------------------------------------------------------------------------------------------------------
               Market Area                          Specialty              TRICARE        GEHA          BCBS
----------------------------------------------------------------------------------------------------------------
Fayetteville, NC 28310 (Fort Bragg)......  Family Practice............           64           123           148
                                           OB/GYN.....................           28            86           111
                                           Orthopedic Surgery.........           19            43           163
----------------------------------------------------------------------------------------------------------------
Phoenix, AZ 85004........................  Family Practice............           94           158           124
                                           OB/GYN.....................          114           126           138
                                           Orthopedic Surgery.........           84           111           108
----------------------------------------------------------------------------------------------------------------
San Diego, CA 92136......................  Family Practice............          111           149           149
                                           OB/GYN.....................           53            93            78
                                           Orthopedic Surgery.........           90           142           130
----------------------------------------------------------------------------------------------------------------
Source: Sarah K. Burns, ``Network Analysis Methodology,'' Power Point presentation, March 3, 2015.


    It is important to note that the ``narrow networks'' of the TRICARE 
program are different from the trend in civilian healthcare being used 
to control costs. The narrow network options in civilian healthcare are 
focused on the best value providers. The Aetna Aexcel Specialist 
Performance Network provides a good example. Aetna considers this its 
``Tier 1'' network, and it is narrower than their traditional network. 
Beneficiaries get reduced cost shares for using providers in this 
network. The network is developed in accordance with Aetna's Aexcel 
Performance Network Designation Measurement Methodology. \2\ The 
designation process is conducted every two years for a provider and is 
based on four criteria: volume, clinical performance, efficiency, and 
network adequacy. Table 3 illustrates selected clinical performance 
measures used by Aetna.
---------------------------------------------------------------------------
    \2\ Aetna Performance Network Designation Measurement Methodology, 
2016.

      Table 3.--Aetna Aexcel Clinical Selected Performance Measures
------------------------------------------------------------------------
                                                           Specialty
             Measure                  Description         Attribution
------------------------------------------------------------------------
30 Day Readmission Rate--         This measure        All specialties
 Management Physician.             calculates the      included in
                                   percentage of       Aexcel.
                                   acute care
                                   inpatient
                                   hospitalizations
                                   followed by a
                                   subsequent acute
                                   care inpatient
                                   hospitalization
                                   within 30 days of
                                   the discharge
                                   date of the first
                                   hospitalization.
                                   This measure
                                   excludes
                                   readmissions that
                                   would have been
                                   expected based on
                                   the clinical
                                   nature of the
                                   case.
------------------------------------------------------------------------
Adverse Event Rate/Acute          This measure        All specialties
 Inpatient Hospitalization--       calculates the      included in
 Managing Physician.               percentage of       Aexcel.
                                   acute care
                                   inpatient
                                   hospitalizations
                                   that include an
                                   identified
                                   undesirable
                                   (adverse) event
                                   during the
                                   hospitalization.
------------------------------------------------------------------------
Adverse Event Rate--Outpatient    This measure        Gastroenterology,
 Procedure.                        calculates, for     Obstetrics/
                                   members having      Gynecology,
                                   selected            Orthopedics,
                                   outpatient          Otolaryngology,
                                   procedures, the     Plastic Surgery,
                                   frequency of an     Surgery, Urology
                                   adverse event
                                   within the 30
                                   days after the
                                   procedure.
------------------------------------------------------------------------
Asthma: Use of Appropriate        This measure        Otolaryngology
 Medication.                       calculates the
                                   percentage of
                                   members age 5 to
                                   64 who were
                                   identified as
                                   having persistent
                                   asthma and
                                   receiving
                                   appropriately
                                   prescribed
                                   medication.
------------------------------------------------------------------------


    In contrast, the TRICARE network is based almost exclusively on 
per-procedure cost. TRICARE is a strictly FFS program design that bases 
its procedure rates on Medicare procedure pricing. A major determinant 
of network designation for TRICARE is the willingness of the provider 
to accept a procedure rate below Medicare rates. In other words, the 
TRICARE network is limited to those providers in a market willing to 
take the lowest rates for their services. Although basic standards of 
licensure and credentialing are maintained, there is little room for 
consideration of health outcomes similar to that described in Table 3 
for Aetna's Aexcel program.
    This creates a contrast between Aetna's definition of a narrow 
network option and TRICARE's narrow networks. Aetna's narrow network is 
built upon the providers offering the best value, whereas TRICARE's 
narrow network is based on the providers that accept the lowest rate. 
This difference in perspective is driven by the fact that the 
healthcare sector is focused on total cost and the value received for 
the amount paid. An example of this was provided above about an 
orthopedic surgeon in Alexandria, Louisiana. That market has several 
orthopedic surgeons performing total knee replacements. The surgeon 
widely-regarded as the best surgeon in the area can charge higher rates 
for the surgery (there is higher demand for their services), but 
generally experiences lower costs for the entire episode of care 
(because of lower failure rates, quicker healing rates, shorter 
physical therapy requirements, etc.). Private insurers observe this 
difference and are willing to pay the higher surgical rate, 
incentivizing their patients to use the more expensive surgeon. This 
cannot be done in the TRICARE system; regardless of health outcomes and 
total cost, the surgeons with the lowest per procedure cost will be the 
only ones allowed in the TRICARE network. The surgeon discussed in 
Alexandria was not a TRICARE network orthopedic surgeon.
    It is also important to note that this is not a criticism of the 
TRICARE contractors. They are presumably doing the best job they can, 
given the contracts awarded to them and the constraints of the system 
within which they operate. In fact, the incumbent contractors have 
experience outside of TRICARE, where they are making great strides in 
raising quality while controlling costs--but they are prohibited from 
applying those innovations to TRICARE.
    From the perspective of DOD and the taxpayer, the problems created 
by the flawed design of the TRICARE program include high utilization 
and cost. Healthcare utilization necessary for good health outcomes is 
a good thing, but the TRICARE program design encourages utilization for 
which the benefits do not exceed the costs. One simple comparison is to 
use DOD's data on utilization rates for inpatient care for military 
beneficiaries compared to the utilization for a demographically similar 
group of people in civilian healthcare plans. This comparison can be 
made for beneficiaries in TRICARE Prime with a comparison group in 
civilian HMO plans and, separately, beneficiaries in TRICARE Standard 
and Extra with a comparison group in civilian Preferred Provider 
Organization (PPO) plans. Figure 1 provides these comparisons for 2014, 
showing that, for Prime enrollees, utilization is 68 percent higher 
than the comparison group and, for Standard and Extra users, 
utilization is 133 percent higher than the comparison group. \3\
---------------------------------------------------------------------------
    \3\ For outpatient utilization, Prime enrollees had more encounters 
than their demographic equivalents in HMO plans, while Standard and 
Extra users had fewer encounters than their demographic equivalents in 
PPO plans.
---------------------------------------------------------------------------
      
    
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
    
      
    For cost, one simple exercise is to compare DOD's data on the cost 
of healthcare utilization for TRICARE beneficiaries to the utilization 
for a demographically similar group of people in civilian health care 
plans. Figure 2 provides this comparison for Active Duty family members 
and, separately, for non-Medicare eligible retirees. The comparison is 
for Prime enrollees compared to a demographically similar group 
enrolled in a civilian HMO (Health Maintenance Organization) plan. \4\
---------------------------------------------------------------------------
    \4\ Results are similar for Active Duty family members who are 
Standard and Extra users. Retirees who are Standard and Extra users 
show a smaller difference in cost.
---------------------------------------------------------------------------
      
   
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
      
    The lower cost shares of the TRICARE program (primarily in TRICARE 
Prime) are only one factor driving these differences in utilization and 
cost. The nature of the TRICARE contracts incentivizes increased 
utilization--the lack of risk transfer along with the lack of 
flexibility provided to the contractors means that they have little 
incentive or ability to manage utilization for cost control. In 
testimony to the MCRMC, Dr. Gail Wilensky provided cost estimates of 
the potential savings from TRICARE reform, and only about half of the 
estimated savings was from changes to cost shares; the rest was from 
non-cost-share improvements to program design. \5\
---------------------------------------------------------------------------
    \5\ Gail Wilensky, ``Alternative Strategies to Influence Cost and 
Utilization,'' PowerPoint presentation, April 9, 2014.
---------------------------------------------------------------------------
Some Basic Principles for TRICARE Reform
    The healthcare sector is adopting VBP (Value-Based Purchasing) 
methods to promote health outcomes, improve utilization management, 
better coordinate care, and control cost. TRICARE reform should be 
informed by these trends but, as stated above, simply directing VBP 
within the existing TRICARE program structure is not modernization of 
the program.
    Every transaction is different and a clean and definitive taxonomy 
of VBP methods has not yet emerged. Some of the more common examples 
include:

    1.  Capitation: Imposing risk (partial or full) on delivery system 
to incentivize improved management of the provider and greater 
coordination of care.

    2.  Bundling: A set of providers agreeing to collectively accept a 
pre-determined payment equal to the expected cost for a given set of 
healthcare services.

    3.  Accountable Care Organizations (ACOs): Integration of providers 
to achieve joint accountability for achieving quality improvements and 
reductions in the rate of spending growth.

    4.  Pay-for-Performance: Linking payment to measures of quality and 
care.

    My fellow panelists are experts in these trends and will likely 
speak in much more detail about them.
    These VBP purchasing trends are primarily focused on the market 
between the contractor and the delivery system. DOD's direct influence 
is on the transactions between the employer (DOD) and the contractor. 
This is where DOD has the opportunity to incentivize efficient 
purchasing practices. Figure 3 illustrates the structure of the market 
within which the TRICARE contracts operate. As stated above, the market 
between DOD and the contractor is currently composed of five-year, 
winner-take-all contracts with little substantive risk-bearing by the 
contractor, and largely restricts the contractor to FFS purchasing 
methods in the downstream market between the contractor and the 
delivery system.
      

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
    
      
    Three basic principles for the design of the TRICARE program in the 
relationship between DOD and the contractor that will determine how 
well the program will ultimately perform are:

      Competitiveness: This is a key to incentivizing carriers/
contractors to focus on the preferences of beneficiaries.

      Risk-bearing: This is a key to incentivizing the 
carriers/contractors to aggressively manage cost and improve outcomes.

      Flexibility: This allows the risk-bearing carrier/
contractor to compete and evolve their suite of tools as the market 
changes and conditions vary across markets.

    As discussed above, choice is the key attribute of benefit design 
because it empowers the beneficiary to correct other problems with the 
benefit, and it creates a simpler program design that is self-
correcting and monitoring--a plan that fails to offer what the 
beneficiaries want is driven from the market, with no DOD intervention 
required. The ultimate objective of TRICARE reform should be to ensure 
that beneficiaries have multiple options in each market from which they 
can choose. Most large federal healthcare programs are based on this 
principle (e.g., Medicare Part C, Medicare Part D, and FEHBP). These 
existing government programs provide examples of how TRICARE reform 
could accomplish this. Per the MCRMC recommendation, TRICARE reform 
could provide a cafeteria-style menu of plan options in each market 
(similar to FEHBP). The MCRMC recommended moving at once to this 
alternative to avoid paying overhead for two distinct program designs 
and for improved incentives, but an alternative would be to make FEHBP 
enrollment an option for beneficiaries in select markets to begin a 
process of transitioning to a competitive framework. Alternatively, the 
Medicare Part C approach could be used and, in fact, is already used in 
six areas of the country with the United States Family Health Plan 
(USFHP), although this is the only allowed alternative in these 
markets, which does not allow for full competition. In this framework, 
TRICARE reform could include the expansion of additional fully 
capitated (i.e., risk-bearing) plans in individual markets. These 
additional plans could be delivery system-based like USFHP or could be 
expanded to allow traditional insurance carriers to provide options 
within markets. Like Medicare Part C and USFHP, specific plan 
attributes could be regulated (e.g., covered services and cost-share 
structures).
    Risk-bearing contracting incentivizes the contractor to focus on 
cost. In traditional contracting, forcing the contractor to bear risk 
raises cost, and self-insuring (DOD bearing the risk) lowers average 
cost. That logic applies when all else is held constant. In healthcare 
contracting, the biggest factors in determining the contractor's costs 
are the incentives placed on them to manage care and control cost. In 
other words, exposing the contractor to risk can actually lower the 
cost of delivering the benefit.
    With competitive, risk-bearing contracts, the contractor can then 
be given the flexibility (in both VBP methods and, within established 
bounds, in benefit design) to deliver the benefit. In the current 
TRICARE design, DOD's strategy for ensuring contractor performance is 
to micromanage the contractor (e.g., directing them to use FFS 
contracting only). With competitive, risk-bearing contracts, the choice 
behavior of beneficiaries ensures contract performance, and the 
contractors can be left free to innovate and adapt to market conditions 
as they vary geographically and evolve over time.
    Different reform options (e.g., making FEHBP available or adding 
capitated plans in each market) can be evaluated based on the degree to 
which they advance these principles. The more the three principles are 
advanced, the higher the quality of the benefit will be and the greater 
the savings to DOD. Figure 4 illustrates how these different reform 
options can be evaluated.
      

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]    
      
    Although they are not the primary focus of this testimony, it is 
also important to briefly mention two additional populations of TRICARE 
beneficiaries: Reserve Component members and Medicare-eligible 
retirees. Members of the Guard and Reserve eligible for TRICARE 
benefits experience many of the same challenges with choice and access 
as Active Duty family members and retirees, but the impact of TRICARE's 
design flaws can be even more severe. Many Guard and Reserve members 
live further from military bases than the Active and retiree 
populations, where TRICARE networks can be even less developed, driving 
even more significant choice and access problems. TRICARE reform is an 
opportunity to improve the health benefit provided to Guard and Reserve 
members.
    Medicare-eligible retirees using the TRICARE for Life (TFL) program 
present a unique opportunity for TRICARE reform if Congress decides to 
include that population. TFL beneficiaries' healthcare costs are paid 
both by Medicare and DOD. Their costs tend to be very high and, for 
similar reasons to the discussion above, there is little coordination 
of their care for promotion of health outcomes and cost control. This 
is even more important for this older population because of the higher 
complexity of their care as they age. Neither DOD nor Medicare are 
fully in control of this situation or incentivized to deal with the 
problem because of the division of the costs. Significant opportunities 
are likely available to improve care while reducing costs by 
introducing capitated (e.g., Medicare Advantage-like) plans for 
Medicare-eligible retirees.
        tricare reform can be used to improve medical readiness
    The readiness of the military medical force to conduct its deployed 
mission should be a primary consideration in TRICARE reform. The 
military medical community built an incredible level of capability and 
readiness during the wars in Iraq and Afghanistan. The MHS in its 
current form cannot maintain that capability, and it will atrophy as 
attention returns to peacetime beneficiary care delivery. The MCRMC 
found that ``[r]esearch reveals a long history of the military medical 
community needing to refocus its capabilities at the start of wars, 
after concentrating during peacetime on beneficiary health care.'' \6\ 
TRICARE reform should be leveraged to break this historic cycle and 
help ensure we start the next war with the most ready medical force 
possible.
---------------------------------------------------------------------------
    \6\ MCRMC report, citing Bernard Rostker, Providing for the 
Casualties of War: The American Experience Through World War II (Santa 
Monica, CA: RAND, 2013) and General Accounting Office, Medical 
Readiness: Efforts Are Underway for DOD Training in Civilian Trauma 
Centers, GAO/NSIAD-98-75 (Washington, DC: GAO, April 1998), 12.
---------------------------------------------------------------------------
Medical readiness challenges
    The military medical mission of DOD is to provide a medical force 
ready to deploy for the provision of medical care. The MHS combines 
this operational mission with the delivery of beneficiary healthcare by 
using the military medical force during peacetime to deliver a portion 
of beneficiary healthcare in house in military hospitals. Although 
there have been long standing challenges with this model, \7\ it arose 
in a period of time when medicine was less specialized than today and 
theater medical care included significantly longer-term care than is 
currently practiced.
---------------------------------------------------------------------------
    \7\ Rostker, Providing for the Casualties of War.
---------------------------------------------------------------------------
    The challenges with the model have grown over time as there have 
been changes to warfighting and the practice of medicine. Examples of 
these changes include: \8\
---------------------------------------------------------------------------
    \8\ This material is drawn from John E. Whitley, Brandon Gould, 
Nancy Huff, and Linda Wu, ``Medical Total Force Management,'' IDA Paper 
P-5047 (Alexandria, VA: Institute for Defense Analyses, May 2014). See 
that paper for a more detailed discussion.

      Moving to a more decentralized, mobile battlefield--which 
drives a smaller medical footprint in operational theaters;
      Evacuating casualties early--which is better for the 
casualties and reduces risk to forces in theater;
      Greater specialization in the profession of medicine; and
      Shifts in medical workload on the modern battlefield, 
e.g., more immediate and less definitive care, different wound and 
injury patterns as body armor and weapons evolve, and earlier 
transportation of patients than would have occurred in earlier 
conflicts.

    These changes in warfighting have implications for medical force 
requirements and readiness. The shift to more mobile operational forces 
with a lighter theater footprint produced a shift in the required 
operational medical capabilities--medical forces may be often forward-
deployed with operational units and provide more immediate complex 
medical care. There is also less definitive care, as the historic model 
of extensive in-theater care, practiced in World War II and Korea, has 
been replaced with rapid evacuation to hospitals outside the 
operational theater. Lower in-theater holding times decrease the 
deployable medical requirement. However, a lower theater medical 
requirement that is deployed further forward and provides more 
immediate care limits the opportunities for substitution across 
specialties, increasing demand for highly specialized medical 
personnel. A hospital with a requirement for ten surgeons can more 
readily substitute two obstetricians alongside eight surgeons than a 
forward-deployed surgical team with a requirement for two surgeons; 
there is not enough overlap in staff for the requirement to be met with 
one surgeon and one obstetrician. In summary, the degree of overlap 
between the operational mission and the beneficiary care mission has 
eroded over time, causing the readiness requirement to become 
increasingly focused on more complex immediate life-saving care that is 
seldom seen in peacetime military hospitals.
    As the MCRMC report identified, ``[r]elying on existing MTF medical 
cases as a training platform for combat care can result in a 
misalignment of military medical personnel compared to the medical 
requirements necessary to support the operational missions.'' \9\ Table 
4 illustrates this misalignment in the early years of Operation Iraqi 
Freedom and Operation Enduring Freedom. The Service-identified medical 
force requirements were for operationally required specialties such as 
surgeons and anesthesiologists, but the actual executed force was 
composed of specialties more in demand for beneficiary healthcare.
---------------------------------------------------------------------------
    \9\ MCRMC Final Report, 64-65.

                                     Table 4.--Misalignment of Medical Force
----------------------------------------------------------------------------------------------------------------
                                        FY 2004 Military       FY 2004 Executed  End-      End-Strength  Minus
             Specialty                     Requirement                Strength                 Requirement
----------------------------------------------------------------------------------------------------------------
Pediatrics........................                      286                       645                       359
Obstetrics........................                      208                       387                       179
Anesthesiology....................                      318                       259                       -59
General Surgery...................                      685                       443                      -242
----------------------------------------------------------------------------------------------------------------
Source: ``DOD Force Health Protection and Readiness--A Summary of the Medical Readiness Review, 2004-2007,''
  June 2008.


    Although this misalignment improved during the wars, \10\ more 
recent research has still found misalignment:
---------------------------------------------------------------------------
    \10\ John E. Whitley et al., ``Medical Total Force Management.''

        Today the U.S. Army has less than a dozen prehospital physician 
        specialists and about the same number of trauma surgeons on 
        Active Duty. By comparison, the Army has roughly the same 
        number of radiation oncologists and nearly three times the 
        number of pediatric psychiatrists and orthodontists. This is 
        largely because medical specialty allocations are based on 
        traditional peacetime beneficiary care needs. Refocusing on the 
        wartime needs could populate key institutional and operational 
        billets with a critical mass of trained prehospital and trauma 
        specialists and drive further advances in battlefield care 
        during peacetime. \11\
---------------------------------------------------------------------------
    \11\ R. L. Mabry and R. DeLorenzo, ``Challenges to Improving Combat 
Casualty Survival on the Battlefield,'' Military Medicine 179, No. 5 
(May 2014): 477-82.

    These alignment issues are a significant readiness challenge. 
During the wars, the medical force experienced uneven deployment rates, 
with the operationally required specialties having relatively high 
deployment rates and experiencing potential force stress while other 
specialties hardly deployed. \12\ Interviews conducted with Combatant 
Command (COCOM) staffs by the MCRMC found challenges in sourcing 
operational medical requirements.
---------------------------------------------------------------------------
    \12\ Whitley et al., ``Medical Total Force Management.''
---------------------------------------------------------------------------
    The reason for this misalignment is that the military hospital 
system does not have sufficient workload to support the operationally 
required specialties--so the military medical force migrates to 
beneficiary care specialties. The challenge is compounded by the fact 
that even when the right specialties are employed, the workload is 
still not ideal for preparing the medical personnel for their deployed 
mission. As the MCRMC report identified,

        [s]urgeons overwhelmingly cited vascular surgeries as the most 
        difficult cases [they faced in combat], followed by 
        neurosurgical procedures, burns, and thoracic cases. Surgeons 
        reported they had difficulty with these procedures because they 
        had not performed them in nondeployed clinical settings, and 
        because there had been a substantial time lapse since they had 
        last treated these types of injuries. \13\
---------------------------------------------------------------------------
    \13\ MCRMC Final Report, 63-64, citing Joshua A. Tyler et al., 
``Combat Readiness for the Modern Military Surgeon: Data from a Decade 
of Combat Operations,'' Journal of Trauma and Acute Care Surgery 73, 
No. 2 (2012): S64-S70, http://www.ncbi.nlm.nih.gov/pubmed/22847097.

    GAO found ``[s]ince most military treatment facilities provide 
health care to Active Duty personnel and their beneficiaries and do not 
receive trauma patients, military medical personnel cannot maintain 
combat trauma skills during peacetime by working in these facilities.'' 
\14\
---------------------------------------------------------------------------
    \14\ General Accounting Office, ``Medical Readiness: Efforts Are 
Underway,'' 12.
---------------------------------------------------------------------------
    To illustrate this challenge, Table 5 provides the top ten 
inpatient diagnoses in the military hospital system in 2015 and Table 6 
provides the top ten inpatient diagnoses in Iraq in 2007.

    Table 5.--Top Ten Inpatient Diagnoses in Military Hospitals, 2015
------------------------------------------------------------------------
      Clinical Classification Software (CCS) Grouping       Dispositions
------------------------------------------------------------------------
Newborn Care..............................................       48,490
Normal Pregnancy and Delivery.............................       46,947
Complications of Pregnancy................................       45,427
Unclassified Care.........................................       44,281
High Blood Pressure.......................................       43,701
Perinatal Conditions......................................       37,695
Screening/History of Mental Health and Substance Abuse....       36,403
Complications of Pregnancy--Care of Mother................       32,708
Disorders of Lipid Metabolism.............................       31,305
Nutritional, Endocrine, and Metabolic Disorders...........       27,887
------------------------------------------------------------------------


           Table 6.--Top Ten Inpatient Diagnoses in Iraq, 2007
------------------------------------------------------------------------
      Clinical Classification Software (CCS) Grouping       Dispositions
------------------------------------------------------------------------
Open wounds of head, neck, and trunk......................        3,488
Open wounds of extremities................................        2,650
Other injuries and conditions due to external causes......        2,274
Fracture of lower limb....................................          992
Nonspecific chest pain....................................          986
Abdominal pain............................................          683
Crushing injury or internal injury........................          589
Other specified and classifiable external causes of injury          571
Fracture of upper limb....................................          563
Skin and subcutaneous tissue infections...................          543
------------------------------------------------------------------------

    These tables understate the challenge because, in addition to 
having different preponderances of diagnoses, even when the diagnoses 
overlap, they differ in their severity. For example, open wounds of the 
head, neck, and trunk are seen in military hospitals, but the cases 
seen in Iraq were over twice as severe (as measured by probability of 
death) as those seen in military hospitals. For open wounds of 
extremities, the Iraq cases were almost four times as severe as the 
military hospital cases.
Leveraging TRICARE reform to improve medical readiness
    The MCRMC recommended a comprehensive solution to deal with these 
challenges that included:

      Providing new tools and access to new beneficiary 
populations to attract a medical workload of the required case mix and 
complexity to maintain medical readiness;
      Developing a new concept of ``Essential Medical 
Capabilities'' (EMCs) and integrating EMCs into readiness reporting 
tools and processes to increase measurement, transparency, and 
accountability for medical readiness;
      Realigning funding to improve incentives for maintaining 
medical readiness; and
      Establishment of new command structures and changes to 
Joint Staff structures to focus leadership attention on medical 
readiness and provide authority to ensure it is a priority.

    The third element of the recommendation (realigning funding) will 
be discussed in the final section of this testimony under MHS reform. 
The fourth element of the recommendation (new command structures) is 
beyond the scope of this testimony on TRICARE reform (although 
streamlining management structures is mentioned in the final section on 
MHS reform). The first two tie integrally into TRICARE reform.
    The first element (new tools and populations) is directly relevant 
to TRICARE reform. In its simplest form, there are only two solutions 
to the readiness problem--patients providing the right case mix have to 
be brought to the military medical personnel for training or the 
military medical personnel have to be taken to the right patients. Our 
allies have wrestled with this problem already. The United Kingdom 
closed its military hospitals and moved its military personnel to 
civilian hospitals with more volume and better case mix. Germany still 
has military hospitals but has opened them to civilian patients. We are 
big enough to follow an ``all of the above'' approach. TRICARE reform 
provides an opportunity to begin this transformation.
    DOD currently has few tools for attracting care into MTFs. 
Compounding this problem is that the few tools available, e.g., 
cancelling civilian primary care managers, brings the wrong care into 
MTFs--it brings routine and primary care into MTFs when what is needed 
is a case mix that includes complex surgery and trauma. Redesigned 
TRICARE contracts can include provisions to channel certain types of 
care into MTFs. The most rigorous example of this is provided by the 
MCRMC recommendation that the MTFs be reimbursed for the care they 
deliver and allowed to differ the prices of procedures to attract the 
right case mix. Although using price is the most powerful way to 
channel care, there are also more limited options that can be used. One 
straightforward method would be to include performance measures in the 
redesigned TRICARE contracts that include channeling of care and are 
tied to payments. Another would be to make the MTFs available to the 
contractors for free or reduced-price care for the required case mix.
    TRICARE reform also provides opportunities for getting military 
medical personnel out to civilian settings that provide a better case 
mix. One direct approach would be if delivery systems become TRICARE 
contractors. This would increase DOD's ties to these healthcare 
providers and expand opportunities for placement of military personnel 
into civilian facilities.
    The EMC recommendation of the MCRMC is focused on improving 
transparency and accountability for readiness. An important reason for 
directing DOD to implement the EMC framework as part of TRICARE reform 
is that it will give Congress information on readiness that can be used 
to evaluate readiness trends, providing Congress an opportunity to 
provide oversight and further direction if DOD begins to let readiness 
lapse during peacetime.
            tricare reform is an opportunity for mhs reform
    The MHS is a complex interweaving of missions (beneficiary care and 
readiness), delivery systems (MTFs and purchased care), benefits, and 
funding sources. It involves duplicative management layers and fails to 
incentivize unity of effort on the key outcomes of maintaining 
readiness, providing a high-quality benefit, and controlling cost. 
TRICARE reform provides Congress an opportunity to reform the entire 
MHS to create a more streamlined system that incentivizes a focus on 
these outcomes.
    As stated in the previous section, the MHS combines two primary 
missions. The operational or readiness mission--inherently military and 
performed with military personnel--is to provide medical care during 
wartime or other deployed contingencies. The MHS also supports the 
beneficiary care mission, which does not have to be performed with 
military personnel or hospitals; about two-thirds of this mission is 
delivered by purchasing private sector care. The reason that some of 
the beneficiary care mission is performed in house is because it has 
historically been used as the training venue for the military medical 
personnel supporting the operational mission. These personnel have had 
dual assignments; they are assigned to a military hospital to provide 
beneficiary healthcare in-house and are also assigned (directly in 
their assignment orders or indirectly by forming a pool of available 
personnel) to an operational platform such as a theater hospital or a 
surgical company. Figure 5 illustrates this dual-mission framework.
      

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]    
      
    The dual mission framework dominates the organization of the MHS. 
Military personnel are required for the operational mission, but used 
for the beneficiary care mission. MTFs are justified as readiness 
training platforms for the operational mission, but used for the 
beneficiary care mission. A large portion of the funding for both 
missions is provided in a consolidated appropriation (the Defense 
Health Program (DHP)). Leadership are responsible for both missions, 
but may have their evaluations dominated by beneficiary care 
considerations.
    Specific challenges created by the structure of the MHS include:

      Conflicting missions for the military hospital system: 
The ``direct care'' system of MTFs exists to support the readiness of 
the military medical force, but is generally used for beneficiary 
healthcare with little readiness focus in its day-to-day operations.
      Lack of transparency in funding: The line Service 
leadership, Office of Secretary of Defense (OSD), and Congress cannot 
identify how much is spent on beneficiary care and how much is spent on 
readiness, reducing effectiveness of resource allocation decision 
making and accountability.
      Lack of focus on readiness (discussed in the previous 
section).
Conflicting Missions for the Military Hospital System
    The MHS direct care system includes over 50 inpatient military 
hospitals and over 300 outpatient clinics. The purpose of having a DOD-
run MTF system is for it to serve as the clinical skill maintenance 
platform for the operationally required military medical force. Its 
day-to-day workload and operations are almost exclusively focused on 
beneficiary healthcare. This puts military hospital commanders in an 
almost impossible situation and creates a climate of confusion within 
the MHS that affects everything from staffing decisions to major 
investment decision making. Some simple examples of the confusion 
include:

      Emergency Medicine: Emergency medicine physicians were 
one of the specialties with the highest deployment rates to Iraq and 
Afghanistan. \15\ Touring a typical MTF reveals that the Emergency 
Department is often staffed with contracted civilian physicians while 
pediatrics and obstetrics are mostly military.
---------------------------------------------------------------------------
    \15\ Whitley et al., ``Medical Total Force Management.'' See Figure 
2, p. 32.
---------------------------------------------------------------------------
      Outsourcing Surgical Workload: Surgical workload is 
generally more relevant for maintaining the clinical skills of the 
military medical force, but MTFs generally outsource this workload to 
private sector care while retaining in house more care in areas like 
obstetrics. Table 7 illustrates this for three DOD markets, and it can 
be seen that obstetric workload is generally kept in house at over 
twice the rate of surgical workload.

                                Table 7.--Surgical versus Obstetric Workload Mix
----------------------------------------------------------------------------------------------------------------
                                                   Surgical Workload                  Obstetric Workload
                                         -----------------------------------------------------------------------
                 Market                    Military    Purchased               Military    Purchased
                                           Hospital      Care     % Military   Hospital      Care     % Military
----------------------------------------------------------------------------------------------------------------
Las Vegas, Nevada.......................      1,315       4,749         22%         582         651         47%
Pensacola, Florida......................        657       5,403         11%         368         888         29%
Ft. Polk, Louisiana.....................        192         203         49%         409          24         94%
----------------------------------------------------------------------------------------------------------------

      Graduate Medical Education (GME) Programs: The direct 
care system supports DOD-run GME or residency programs, but there is 
little attempt to focus these on operationally required specialty areas 
like trauma, surgery, emergency medicine, etc.

    This confusion is an important driver of excessive costs in the 
MHS. The direct care system is expensive to operate, with the average 
military hospital costing about 50 percent more to deliver inpatient 
care than it would cost to purchase that care in the local markets at 
current payment rates. \16\ Table 8 illustrates this cost difference 
for three markets in which DOD operates. \17\
---------------------------------------------------------------------------
    \16\ See Philip Lurie, ``Comparing the Costs of Military Treatment 
Facilities with Private Sector Care,'' IDA P-5262 (Alexandria, VA: 
Institute for Defense Analyses, 2016) (forthcoming). See Table 6, p. 
27.
    \17\ Inpatient care is used for illustrative purposes. Comparisons 
of outpatient care yield similar results.

 Table 8.--Military Hospital Inpatient Costs versus Private Sector Care
------------------------------------------------------------------------
                                                      Cost of Purchasing
             Market               Inpatient Military     Care in Local
                                     Hospital Cost          Market
------------------------------------------------------------------------
Nellis Air Force Base, Nevada...        $34,624,144         $29,909,465
Naval Air Station Pensacola,            $31,180,755         $13,747,915
 Florida........................
Ft. Polk, Louisiana.............        $14,727,029          $6,604,439
------------------------------------------------------------------------
Source: Lurie, ``Comparing the Costs of Military Treatment Facilities
  with Private Sector Care.''


    When the direct care system is successfully delivering its 
readiness mission, i.e., providing readiness training for the military 
medical force, this excess cost may be justified--a necessary cost for 
ensuring our warfighting capability. In cases in which the direct care 
system is not succeeding in its mission, this excess cost is a source 
of inefficiency in the MHS--wasting taxpayer resources that could be 
used to increase compensation or reallocated elsewhere in the defense 
budget for mission delivery.
    DOD recently conducted an extensive internal study of the direct 
care system, finding that many military hospitals did not have 
economically viable inpatient capacity and should be right-sized to the 
workload they can effectively support. This study, the MHS 
Modernization Study, was not able to directly assess the degree to 
which military hospitals were meeting the readiness mission and instead 
focused on workload in major specialty areas. Although imperfect, this 
workload analysis provided a valuable ``lower bound'' measure for the 
readiness question--a hospital that does not have enough workload in a 
particular specialty area to maintain an economically viable capacity 
does not have enough workload to maintain the readiness of military 
providers in that area.
    The MHS Modernization Study also ended up providing important 
evidence on why the direct care system is so costly. It found very low 
levels of productivity across specialties and across facilities in the 
direct care system. The study began by obtaining civilian provider 
workload by specialty. It then compared DOD providers in the direct 
care system to these civilian distributions, finding that providers in 
the DOD direct care system were generally below the tenth percentile of 
civilian providers in workload produced per year. Table 9 provides data 
DOD shared with the MCRMC from the MHS Modernization Study. For four 
specialties, it provides the average workload--as measured by relative 
value units (RVUs), which provide a measure of intensity-adjusted 
workload--of providers within MTFs as a percentage of the civilian 
median. Since percentage of median is not a commonly used statistical 
measure of a distribution, Table 10 converts it to a percentile of 
civilian providers under the assumption that the civilian distribution 
is approximated by a gamma distribution. As can be seen, the average 
providers in MTFs operate at significantly lower workload levels than 
civilian providers.

             Table 9.--Average Workload in Ten Largest DOD Markets as Percentage of Civilian Median
----------------------------------------------------------------------------------------------------------------
             Market               Emergency Medicine    Family Medicine     General Surgery   Orthopedic Surgery
----------------------------------------------------------------------------------------------------------------
National Capital Area...........                31%                 43%                 18%                 26%
Tidewater, Virginia.............                49%                 36%                 22%                 41%
San Diego, California...........                60%                 48%                 34%                 35%
Puget Sound, Washington.........                33%                 27%                 36%                 43%
San Antonio, Texas..............                28%                 54%                 39%                 41%
Bragg/Pope, North Carolina......                21%                 30%                 36%                 39%
Ft. Hood, Texas.................                47%                 15%                 37%                 37%
Colorado Springs, Colorado......                35%                 39%                 28%                 36%
Hawaii..........................                34%                 22%                 39%                 41%
Jacksonville, Florida...........                59%                 55%                 41%                 29%
----------------------------------------------------------------------------------------------------------------


          Table 10.--Average Workload in Ten Largest DOD Markets as a Percentile of Civilian Providers
----------------------------------------------------------------------------------------------------------------
             Market               Emergency Medicine    Family Medicine     General Surgery   Orthopedic Surgery
----------------------------------------------------------------------------------------------------------------
National Capital Area...........                 1%                  2%                  0%                  0%
Tidewater, Virginia.............                 8%                  1%                  0%                  3%
San Diego, California...........                15%                  3%                  2%                  2%
Puget Sound, Washington.........                 1%                  0%                  2%                  4%
San Antonio, Texas..............                 1%                  6%                  3%                  3%
Bragg/Pope, North Carolina......                 0%                  0%                  2%                  2%
Ft. Hood, Texas.................                 6%                  0%                  2%                  2%
Colorado Springs, Colorado......                 2%                  1%                  1%                  2%
Hawaii..........................                 2%                  0%                  3%                  3%
Jacksonville, Florida...........                15%                  7%                  3%                  1%
----------------------------------------------------------------------------------------------------------------

    Very low productivity is an important proximate cause of the high 
cost of the direct care system, but to understand how to reform the 
system, it is necessary to identify root causes for the inefficiency. 
Likely root causes include the following factors:

      Direct care system run as military units: Military 
hospitals are led and administered as military units and justified by 
their readiness mission. In actual practice they are almost exclusively 
focused on beneficiary healthcare delivery. This misalignment of 
leadership and administrative structure with actual operations and 
functions means that the wealth of experience in civilian healthcare at 
running effective and efficient hospitals is not applied to military 
hospitals. Professional business management of these large complex 
businesses is not used.
      Military hospitals don't have to directly compete for 
business: Private hospitals that cannot manage themselves effectively 
lose business and either get better or go bankrupt. Military hospitals 
are protected from this disciplining force of markets by simply being 
given bigger budgets to account for their inefficiency and attempts are 
made to coerce beneficiaries that choose to go elsewhere to return to 
the system. \18\
---------------------------------------------------------------------------
    \18\ See, for example, Amy Bushatz, ``Families Forced to Give Up 
Civilian Health Care,'' June 27, 2014. http://www.military.com/daily-
news/2014/06/27/some-families-forced-to-give-up-civilian-health-
care.html
---------------------------------------------------------------------------
      Military hospitals given a budget for inputs instead of 
paid for outputs: Funding large DOD support missions that approximate 
commercial activities with direct appropriation for their inputs 
instead of on a reimbursable basis for outputs produced is a funding 
mechanism long ago abandoned in most other large support mission areas, 
e.g., logistics, financial services, and information services. Military 
hospitals still receive their funding according to the inputs they 
consume instead of the outputs they produce.
      Military hospitals overuse military personnel for non-
operational specialties: As discussed in the readiness section above, 
the military medical force is overstaffed in beneficiary care areas 
like pediatrics and obstetrics. Military personnel are generally more 
costly than civilian personnel, so the use of military personnel not 
required to be in uniform for delivery of beneficiary care is 
inefficient and drives higher costs.
Lack of Transparency in Funding
    The root causes listed above all relate, at least in part, to a 
lack of transparency in the funding structure of the MHS. The DHP 
appropriation provides almost all of the funding for beneficiary 
healthcare and a large portion of the funding for the readiness of the 
medical force in a single, undifferentiated amount. The impact of this 
on resource allocation decision making includes:

      Healthcare benefits and medical readiness are put into a 
direct tradespace with each other, competing for resources against each 
other. Decision makers are forced to make tradeoffs between increasing 
medical readiness at the expense of the health benefit or vice versa, 
with no direct considerations of readiness more broadly or compensation 
more broadly.
      Medical readiness is removed from the tradespace of other 
readiness functions within each Service so that the Services cannot 
easily create a balanced readiness plan across medical and non-medical 
functions.
      Healthcare benefits are removed from the tradespace of 
compensation instruments (e.g., base pay, special and incentive pays, 
retirement, and quality of life programs) so that compensation cannot 
be easily understood and balanced across the range of compensation 
instruments.

    This distortion of decision making trade-off spaces is compounded 
by the lack of visibility and transparency available to the Service 
line leadership, OSD, and Congress. This reduces incentives to manage 
healthcare. For example, a Service Chief has little incentive to 
actively manage the healthcare portfolio because doing so incurs the 
political cost of managing a three star officer within the Service, but 
fails to yield a benefit because the savings are within an OSD account 
and unlikely to be given to the Service.
Some Basic Principles for MHS Reform
    The overarching principle that should guide MHS reform is 
increasing transparency between and separation of the operational 
mission and beneficiary healthcare. Complete separation may not be 
obtainable (at least in the short-run), but an increased degree of 
separation will improve focus on readiness and allow for more rational 
management of the direct care system and benefit. Incremental steps in 
which this further separation can be achieved include reforms to 
funding, MTF management, and benefit administration.
    One of the biggest challenges mentioned above is the commingling of 
funding for readiness and beneficiary healthcare. TRICARE reform 
provides an opportunity to advance the principle of clearly identifying 
the costs of the health benefit and separately budget for them in the 
appropriate way, i.e., in the military personnel budget account. 
Purchasing a benefit in a risk-bearing contract provides a clear 
measurement of benefit cost. In addition, the budgets for many of the 
overhead functions are spread across DHP accounts, and TRICARE reform 
would centralize them in the contracts. Placing this funding into the 
MILPERS appropriation account would then separate it from readiness and 
provide it in the appropriate location for its function, increasing 
transparency of the defense budget and improving incentives for 
compensation management within DOD.
    With the health benefit costs separately identified and accounted 
for in the military personnel accounts, the remaining funding in the 
unified medical program is readiness-related (or inefficiency) and can 
then be placed in Service readiness accounts. In addition to increasing 
transparency, this removes the artificial tradespace created between 
medical readiness and benefits. It puts medical readiness into a 
tradespace with other readiness investments so that efficient decision 
making can occur. Basic principles of funding and budgetary account 
structure include:

      Costs of personnel benefits should reside in MILPERS 
budget accounts.
      Costs of readiness should appear in Service readiness-
related budget accounts.
      MTFs and other activities replicating commercial 
activities should be funded according to outputs produced, not inputs 
consumed.
      Costs should be recognized in the budget when the 
obligation is incurred.

    The high costs of the MTF system are a major driver of costs in 
delivering the healthcare benefit. Ultimately, DOD will likely have to 
rationalize a large number of its current facilities and focus its 
direct care investments on the core MTFs that can become readiness 
training platforms, creating truly world class capabilities in the 
things DOD should be focused on, such as trauma, burns, and brain 
injuries. TRICARE reform provides an opportunity to begin reform of the 
MHS in ways that will improve incentives for more effective and 
efficient MTF management. Three basic principles that should be applied 
include:

      MTFs should be professionally managed: Organizing and 
operating MTFs like military units when the majority of the daily 
operations are the provision of beneficiary healthcare with little 
difference from civilian hospitals is inefficient. It fails to take 
advantage of the expertise resident in the healthcare sector at running 
medical facilities. A simple incremental step that could be taken as 
part of TRICARE reform is directing that a group of MTFs be placed 
under civilian management (e.g., as government owned, contractor 
operated (GOCO) facilities) on a trial basis. One limited example of 
professional management being used in the management of the direct care 
system already is two outpatient clinics in the national capital region 
and by most accounts this is considered very successful. If military 
hospitals are to be maintained, they should be led and operated by 
business professionals.
      MTF management layers should be reduced: The direct care 
system is actually four separate systems, three systems separately 
managed by each Military Department and one additional system (the 
National Capital Region) managed by the Defense Health Agency (DHA). 
This duplication of overhead functions is another driver of high costs. 
Consolidating oversight of the MTFs in conjunction with the 
introduction of professional management per the item above would likely 
reduce cost. If MTFs were managed separately from the readiness 
function (e.g., the MTFs are consolidated within the DHA), this would 
also help improve the focus on medical readiness within the Services by 
removing the conflicting priority they face.
      MTFs should be funded according to outputs instead of 
inputs: The MTFs are the last large support function in DOD that are 
still funded with a budget for inputs instead of for the outputs they 
produce. One way to achieve this is by placing them in a revolving 
fund. Another, overlapping, option would be to GOCO the MTFs with the 
contractor's payments based on healthcare delivered.
      MTFs should face competition: Competition is the ultimate 
disciplining force in markets, and lack of competition is a primary 
driver of inefficiency. Ensuring that the MTFs face competition for 
beneficiaries and care delivery is the most important structural reform 
for focusing them on improvement. It should also be noted that this 
does not threaten readiness. The care the MTFs are primarily delivering 
and that would be at risk of moving to the private sector if the MTFs 
failed to effectively compete is obstetrics and other areas of 
beneficiary care that are not readiness related. In areas where DOD has 
invested in developing world-class readiness capabilities (e.g., burns 
and orthopedic rehabilitation in San Antonio), DOD should have no 
trouble competing for patients.
      MTFs that cannot succeed in their mission should be 
downsized or closed: Many MTFs today are not providing sufficient 
workload of the required case mix to support their readiness mission. 
For many of these, there is no reasonable or practical way to get the 
right workload into the facility and, thus, the facility will not be 
able to succeed in its mission. These facilities should be transitioned 
to clinics or closed.

    Finally, TRICARE reform offers an opportunity to improve benefit 
administration. Purchasing a benefit for an individual or family in a 
risk-bearing contract implies transferring many of the benefit 
administration functions currently conducted in-house by DOD to 
professionals from the private sector that perform these functions for 
a living. This will have the likely effect of streamlining MHS 
bureaucracy and lowering the costs of these administrative functions. 
TRICARE reform could go further and affirmatively transfer 
responsibility for benefit administration to the personnel management 
and compensation community. Providing a healthcare benefit is not an 
inherently military function, and evidence shows that it becomes a 
competitor for medical readiness when combined in the MHS. Clearly 
defining healthcare benefits as a compensation issue to organize and 
manage them as such within the DOD would be an important MHS reform.

    Senator Graham. Thank you all.
    I will lead this off and let other members ask questions. I 
want to thank my colleagues for attending.
    I am going to make a general statement and see if you agree 
with it. The battlefield medical care provided in the last 14 
years has produced outcomes historic in terms of warfare. Does 
anybody disagree with that?
    [No response.]
    Senator Graham. The answer is you all agree. Nod your 
heads. Everybody nodded their head.
    Let us make sure we do not break the one thing that is 
working.
    Now, Mr. Whitley, you said that military hospitals are 
skewed toward basically family care and not battlefield 
medicine readiness. Well, how do you explain that in light of 
my first statement?
    Dr. Whitley. It is a very sensitive issue and I want to be 
very careful in how I describe it, Senator.
    You said that the survival rates on the battlefield have 
reached unprecedented heights, and that is true. I think that 
is a great testament to everybody involved in that situation.
    What I would caution, though, is using that as a measure of 
success of the clinical currency, the clinical readiness of the 
medical force prior to deployment, particularly at the start of 
the wars in 2001 and 2002 and 2003. That measure of the overall 
survival rate was contributed to by many things. We fought the 
war differently. We organized the battlefield differently. We 
moved patients differently, and we had some of the best men and 
women in uniform providing medical care down-range that we 
could have ever possibly had. That measure is the cumulative 
effect of all those things.
    I think what we are asking here when we talk about the 
military hospitals, we talk about the readiness of the medical 
force, we have get down to more specific measures that get at 
the question of----
    Senator Graham. Here is my concern. If you a uniformed 
doctor or nurse, you can be deployed. TRICARE network 
physicians are not going to be deployed. What I want to do is 
make sure that in trying to fix a system that I think is very 
much in need of repair that we do not destroy the one thing 
that seems to work very well. I am going to look at your reform 
measures, but I also want to make sure that anything we do in 
the military hospital systems enhances the battlefield 
medicine. If we need that footprint, even though it may not be 
the most efficient way to deliver health care, because these 
doctors and nurses will do something nobody else will do--they 
will go to the battlefield themselves, and they are going and 
they are going to practice in an environment where they can be 
shot at. Let's don't miss that boat.
    Dr. Loftus and Dr. Fendrick, when you look at TRICARE for 
families, for the retiree community and family members and 
Active Duty members, how antiquated would you say it is on an A 
to F rating?
    Dr. Loftus. Well, that is a difficult question.
    Senator Graham. That is why I asked it.
    Dr. Loftus. Yes. I would say that I have seen aspects or 
observed from the outside aspects that I think do----
    Senator Graham. What grade would you give it overall?
    Dr. Loftus. A grade on an antiquated basis? I would give it
a B.
    Senator Graham. We are starting with a B.
    What about you, Dr. Fendrick?
    Dr. Fendrick. I would say B-plus actually.
    Senator Graham. Dr. McIntyre?
    Mr. McIntyre. I would say somewhere around a B-minus in 
terms of keeping up with where we need to be.
    Senator Graham. Dr. Whitley?
    Dr. Whitley. I will be the odd man out. I give it a C at 
best.
    Senator Graham. What is the 30-second answer to get us to 
A?
    Dr. Loftus. I think that the military health system needs 
to do a better job of measuring its actual performance and 
trying to compare itself to internal and external benchmarks 
and to work continuously to improve that care.
    Senator Graham. Dr. Fendrick?
    Dr. Fendrick. I would pay providers more for providing the 
services that make military members healthier. There is a very 
strong evidence base that backs that up and go further to make 
it easy for those members to do that. It is very 
straightforward.
    Senator Graham. Mr. McIntyre?
    Mr. McIntyre. I would ensure that providers are getting 
paid for their performance and their quality.
    Number two, I would make the patient in part responsible 
for their care from an incentive and disincentive perspective.
    Third, I would index the benefit so that it properly keeps 
pace with inflation.
    Fourth, I would focus on the question of alignment of the 
providers that are in the direct care system with the providers 
that are downtown both in terms of requirements but also in 
terms of what their focus is for the patient.
    Senator Graham. Dr. Whitley?
    Dr. Whitley. I would focus with respect to the TRICARE 
contracts--I would focus on increasing greater competition, 
having annual contracts with multiple winners per location. I 
would focus on making those contracts risk-bearing, and I would 
focus on increasing the flexibility to the contractor to manage 
the care.
    Senator Graham. If you have not done so, could you provide 
in a three- or four-page report to the committee how you would 
go from C to A and B-plus to A? Be specific.

    [The information referred to follows:]

    Dr. Whitley. In the Defense Healthcare Reform hearing on February 
23, 2016, Senator Graham requested from the witnesses a three or four-
page report to the committee on how to reform TRICARE from a C to A 
grade. This response provides comments on how to grade TRICARE, why it 
currently gets such a low grade, and options for improving TRICARE's 
grade.
How to Grade TRICARE
    It is relatively straight forward to identify the outcomes we want 
from the TRICARE program and assess its performance for these outcomes. 
The outcomes include choice, network size and quality, access, and 
healthcare quality from the beneficiary perspective; and utilization 
management, care coordination, and cost control from the perspective of 
DOD and the taxpayer. My written statement submitted for the hearing 
provides an assessment of TRICARE with respect to many of these 
outcomes and in many cases the results indicate poor program 
performance.
    Assessment of these outcomes by themselves, however, doesn't 
provide insights on how to reform the program. To understand program 
reform, assessment must be based on key program design attributes. 
There are three basic attributes for the design of the TRICARE 
contracting relationship between DOD and the contractor that will 
largely determine how well the program performs:

      Competitiveness: How many carriers/contractors compete 
and have an opportunity to provide services to beneficiaries in a 
location. This is a key to incentivizing carriers/contractors to focus 
on the preferences of beneficiaries.
      Risk-bearing: How much financial risk do carriers/
contractors bear. This is a key to incentivizing the carriers/
contractors to aggressively manage cost and improve outcomes.
      Flexibility: How much flexibility do risk-bearing 
carriers/contractors have to compete and evolve their suite of tools as 
the market changes and conditions vary across markets.

    Grading the TRICARE contracts can be accomplished by evaluating 
them on these three attributes.
      

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]    
      
Why TRICARE's Grade is So Low
    TRICARE earns a low grade because it relies on five-year winner-
take-all contracts that are largely pass through from the perspective 
of the contractor (administrative services only) and do not allow for 
or encourage value-based purchasing (VBP) of healthcare by the 
contractor. In other words, TRICARE gets a very low score on each of 
the three key attributes identified above. Some specific points of 
further elaboration on these program design flaws include:

    1.  TRICARE contracting is based on pass-through (non-risk bearing) 
contracting for procedures instead of purchasing a benefit for an 
individual with a risk-bearing contract: TRICARE should not be built on 
the purchase of individual procedures or visits; it should be built on 
the purchase of a benefit for the individual or family. This is 
essential for ensuring that care is coordinated, utilization is 
managed, and health outcomes are promoted--key outcomes of interest. In 
addition, the purchase of this benefit must transfer risk to the 
contractor. The healthcare sector is rapidly evolving, and a focus of a 
reformed TRICARE should be on the incentives being provided to the 
contractors to adopt and further innovate in their use of these VBP 
tools to promote the key outcomes of interest. Insurance carriers focus 
on these problems every day and are professional managers of 
healthcare. DOD should leverage their expertise and put it to work on 
behalf of military beneficiaries.

    2.  TRICARE cost control strategies are based on costs per 
procedures instead of the total cost for the value received: One 
unfortunate impact of pass-through fee-for-service (FFS) contracting is 
that it focuses attention on per-procedure costs while distracting 
attention from, and providing few tools to manage, utilization and 
total cost. DOD's system is anchored in its use of Medicare 
reimbursement rates for procedures, and TRICARE often contracts for 
procedures at 20 percent or more below commercial rates. This has 
become an overriding focus in DOD and a primary measure by which reform 
alternatives are evaluated (i.e., a key evaluation criterion is often 
whether it raises per-procedure rates). Non-risk bearing FFS models, 
however, can incentivize increased utilization that may not be 
clinically necessary, and in DOD utilization rates are 30-40 percent 
higher than demographically similar comparison groups. Despite paying 
less per procedure, DOD pays more in total per beneficiary.

       The healthcare sector is increasing its focus on total cost and 
the value received for the amount paid. To take a common example (taken 
specifically from interviews conducted in Alexandria, Louisiana), a 
particular market may have several orthopedic surgeons performing total 
knee replacements. The best surgeons may charge higher rates for the 
surgery (there is higher demand for their services) but may also have 
lower costs for the entire episode of care (driven by lower failure 
rates, quicker healing rates, shorter physical therapy requirements, 
etc.). Private insurers will observe this difference and be willing to 
pay the higher surgical rate, incentivizing their patients to use the 
more expensive surgeons. This cannot be done in the TRICARE system; 
regardless of health outcomes and total cost, the surgeons with the 
lowest per-procedure cost will be the only ones allowed. The focus on 
procedure rates drives other perverse results as well, e.g., narrow 
networks and poor access. Expanding DOD's focus from controlling per 
unit input prices to focusing on total cost and experience of care is 
part of a cultural change that is hard for any bureaucracy.

    3.  TRICARE contracts are long-lived and winner-take-all instead of 
competitive evergreen contracts: TRICARE uses winner-take-all (one 
successful contractor per region) five-year (often extended) contracts. 
The process by which TRICARE's contracts are awarded is complicated, 
prolonged, and characterized by protests and delays, increasing 
TRICARE's costs. More importantly, the lack of competition and multi-
year duration of contracts limits TRICARE's ability to innovate and 
keep pace with healthcare trends and advances. Most other public sector 
healthcare programs use competitive, annual (sometimes known as 
evergreen) contracts, e.g., Medicare Part C, Medicare Part D, and 
Federal Employees Health Benefits Program (FEHBP). Large, multi-year, 
winner-take-all contracts can appear simple at first and may be 
attractive for this reason, but TRICARE experience demonstrates 
otherwise.

    These challenges are fundamental to the design of the current 
TRICARE program. Minor tweaks of the program such as retaining the 
five-year, winner-take-all pass through structure but directing VBP 
instead of FFS purchasing will not substantively change the result. 
Each of the structural flaws should be addressed as part of TRICARE 
reform because the flaws are interconnected--fixing one element without 
the others can leave the program performing just as poorly as it 
currently does.
Options for Improving TRICARE's Grade
    The healthcare sector is adopting VBP methods to promote health 
outcomes, improve utilization management, better coordinate care, and 
control cost. TRICARE reform should be informed by these trends but, as 
stated above, simply directing VBP within the existing TRICARE program 
structure is not modernization of the program.
    Most large civilian federal healthcare programs have dealt with 
these issues in the past and their experience provides examples for how 
DOD might improve its program design and performance. Three 
particularly relevant examples are:

      Medicare Part C (Medicare Advantage): A health insurance 
program that serves as a substitute for ``traditional'' Medicare (Parts 
A and B). Each year, plans submit ``bids'' (per enrollee cost) to cover 
the standard Medicare Parts A and B benefits. Every plan that meets 
specified requirements is accepted. The bids are compared to formula 
benchmarks that establish the maximum amount Medicare will pay a plan 
in a given area. Plan's with bids higher than the benchmark are 
permitted (enrollees pay the difference as a monthly premium). Plans 
that bid below the benchmark split the difference between the bid and 
the benchmark (government savings is one share and the other share is 
used to provide additional benefits or reduced costs to enrollees). The 
government maintains direct authority to specify the minimum benefit 
provided.
      Medicare Part D (pharmacy benefit): The pharmacy benefit 
in Medicare. Each year, plans submit bids to provide a pharmacy benefit 
meeting minimum benefit requirements. The national average of the bids 
is then used to develop a government subsidy amount and monthly 
premiums for beneficiaries.
      Federal Employees Health Benefit Program (FEHBP): The 
health benefit program for federal civilian employees. Health insurers 
submit their plans each year, the plans must meet minimum requirements 
set by the government but can vary significantly over benefits above 
the minimum and cost-shares. Beneficiaries choose their plan in each 
year's open season.

    All three programs use annual contracts, have multiple winners per 
location, allow beneficiary choice across the multiple winners, pass 
financial risk to the contractor, and allow flexibility to the 
contractor for how to purchase and manage care. They all score 
significantly higher than TRICARE on competition, risk bearing, and 
flexibility and provide examples of how TRICARE reform can be 
implemented.
    There are multiple ways that TRICARE reform could be implemented to 
improve competition, risk bearing, and flexibility. Some options 
achieve high levels of each attribute, while others make incremental 
progress but do not move TRICARE all the way to a high grade. Some have 
gradations within them that could be used to increase or decrease 
performance in a given attribute. Specific examples include:

      TRICARE ``Advantage'': A reform similar to Medicare Part 
C could be introduced that allows for alternative capitated plans to be 
offered from which beneficiaries could choose (beneficiaries could also 
choose to remain in ``traditional'' TRICARE). This could be done in all 
markets, or could be introduced in pilot form in selected markets. A 
more limited approach would direct the incumbent contractor to offer a 
capitated alternative more similar to what they offer in their civilian 
practices, a more expansive approach would allow multiple plans to be 
introduced in a market that compete with each other.

      Contractor Markets: Each TRICARE contractor could be 
directed to administer the TRICARE plans, creating their own 
contractor-operated market places within their regions. The set of 
plans could be similar to today's plans (a preferred-provider network 
style plan and a health maintenance organization style plan) or could 
be expanded to include a wider range of plans. Ideally contractors 
would be paid on a per plan basis (risk bearing), providing improved 
incentives for efficient utilization management.

      TRICARE ``Choice'': The best performance would be 
achieved by implementing the full MCRMC TRICARE Choice proposal (along 
with a premium support cost-share structure). A more limited pilot 
approach that would move in this direction would be to open FEHBP to 
TRICARE beneficiaries as an option (either in a limited number of 
markets as a pilot or in all markets), although this would be costly to 
DOD given the older population in FEHBP.

    Some related issues that should be considered in designing a 
TRICARE reform proposal include:

      Overhead: TRICARE overhead costs are substantial. For 
example, FEHBP (which covers a population similar in size to TRICARE) 
is administered with approximately 100 people (which are funded from 
premiums). The number of personnel administering TRICARE are 
significantly higher (exact figures are difficult to compute but likely 
number in the thousands). The slower the reform is implemented, the 
longer these high overhead costs have to be paid. The MCRMC recommended 
moving at once to this alternative to avoid paying overhead for two 
distinct program designs and for improved incentives. Slower 
transitions are an option, but it must be understood that this reduces 
the available savings.

      Cost-Shares: Setting cost-shares is an important 
decision, but one that can be separated from TRICARE reform. In most of 
the options described above, cost-shares could largely be maintained at 
their current level or changed without effecting reform implementation. 
In some examples (e.g., options similar to Medicare Part C), the entire 
range of cost-shares can be set by policy. In other examples (e.g., the 
options similar to FEHBP), the premium cost-share can be easily set at 
any level desired (using a premium support mechanism, for example) 
while copayment cost shares would be determined in the market place.

    Senator Gillibrand?
    Senator Gillibrand. Thank you, Mr. Chairman, and thank you 
all for being here.
    Our country has a shortage of mental health providers 
resulting in many patients receiving mental health care from 
their primary provider. What do you see as the solution to this 
problem? Mr. McIntyre, specifically how does TriWest ensure 
that mental health providers in its network have experience 
with unique needs and experience with servicemembers and their 
dependents, including military children? Last, does TRICARE 
require this type of experience?
    Mr. McIntyre. I will start. We no longer do the work in 
TRICARE, which was probably partly why I am here because I do 
not have a conflict in that regard.
    When we did that, we built out a mental health network that 
was mapped to the needs of the population, both those that are 
close to a military installation but also those that served in 
the Guard and Reserve, mapped to ZIP [Zone Improvement Plan] 
codes where they reside.
    What we currently do is relevant to that topic, and that is 
we are doing exactly the same thing, and we are looking at the 
ZIP codes as to where people live. We are looking at what the 
direct care system actually has in the way of footprint, which 
I believe is applicable to the DOD, and we are in the process 
of going back to something that we did at the start of the 
wars, and that is to train the mental health providers and the 
primary care providers in how do you recognize where a threat 
is for your patient from a mental health perspective, how do 
you be relevant, and where do you turn people to if they are in 
distress.
    Senator Gillibrand. Others?
    Dr. Fendrick. I would just say very quickly that if we 
really were serious about changing our conversation from how 
much we spend to how well we spend, we would see a serious 
investment in infrastructure for mental health and also incent 
providers and patients to do those evidence-based services.
    Senator Gillibrand. What infrastructure changes would you 
make?
    Dr. Fendrick. The problem is that most medical services 
that are most profitable are not producing a lot of health for 
the money you spend, and as long as you continue to allow a 
fee-for-service payment system, they will go to those services 
that produce lots of revenue. They have never been measured on 
the health that has been produced, which are points made by 
folks to the right and left of me. I think if we again get to 
this point and you say I am going to still pay a lot of money 
for military health care but insist that it goes to services 
and providers for things that are actually needed, so whether 
it be mental health, opioid abuse, or other types of things 
that are away from the standard cardiology, orthopedic surgeon, 
other types of things that are needed but deemed to be overused 
in the system--we have enough money there. It just takes the 
courage to make the shifts that may be going upstream against 
some interests who may not want that to happen.
    Dr. Loftus. I would add that integrating mental health care 
into primary care is actually important. I do not mean that 
mental health care is provided solely by primary care 
physicians, but breaking down the barriers in referral and in 
sharing information about patients with behavioral health 
problems is actually important. There are great privacy 
concerns about behavioral health, but when primary care 
physicians and others treating the same patients are not aware 
of those issues, we cannot bring to bear all of the power of 
the entire multi-specialty power that we have in front of us to 
the care of those mental health patients.
    Dr. Whitley. I have nothing to add. I agree with all my 
colleagues. I think they said it very well.
    Senator Gillibrand. Another major concern is the care for 
servicemembers' special needs dependents, which I mentioned in 
my opening. Military families move frequently and that means 
that moving to and from locations with different levels of 
service provision.
    From your private sector experience, how do we ensure that 
the continuity of care for these special needs are met whenever 
servicemembers might be moved? Mr. McIntyre, how does TriWest 
handle provision of this specialized service?
    Mr. McIntyre. I think that is a fundamental question in 
this space. The thing that Captain Faison and myself learned at 
the time--then-Captain Faison--through the lens of the Marine 
Corps was you need to come to understand what the needs are and 
you need to pay attention to them and meet them while they are 
in your midst, and then you need to prepare and plan for their 
change geographically so that as they move from place to place, 
you are actually thinking about not only them moving forward 
but the receipt of them on the other side. The same thing 
applies, I would say, to those that are injured and those that 
have mental health needs as they move within the system in the 
military and as they also move between the military and the VA.
    The last thing I would say, if I can go back for a second 
to the mental health piece that you raised previously. Very few 
providers in this country are trained in evidence-based 
therapies. We have a network of 25,000 mental health providers 
now built across 28 States. We are in the process of looking at 
that issue market by market. We are doing a test in Phoenix 
actually this weekend. We are doing something together with the 
private community as well as those that serve in the Federal 
space.
    The bottom line is it is possible to go through and do that 
training. The expertise of it exists in the DOD and the VA 
spaces. It is getting those that bring those networks to the 
table to narrow in on the populations that need services, how 
many there are, what types of EBTs [Emotional Brain Training] 
you need, and then make the investments to actually ensure that 
they are trained. We are going to be testing that in the 
chairman's hometown of Phoenix, Arizona starting this weekend.
    Senator Graham. With that, Senator McCain.
    Chairman McCain. Dr. Whitley, I am very interested in your 
recommendations, one of them, MTF management layers should be 
reduced. Are you talking about one service?
    Dr. Whitley. I think there are many options to do that. One 
option that others have talked about is consolidating the 
military hospital system into the existing Defense Health 
Agency. Another would be a single service. I think there are 
many options of ways you get there, Senator.
    Chairman McCain. Would you do me a favor and send that to 
me in writing?
    Dr. Whitley. I would be very happy to, sir.
    [The information referred to follows:]

    Dr. Whitley. In the Defense Healthcare Reform hearing on February 
23, 2016, Senator McCain requested a written response on options for 
consolidating and improving the management of military hospitals. This 
response provides options for consolidating management of these 
hospitals, additional options for reforming the management of the 
hospitals, implementation considerations for military hospital reform, 
and an appendix that summarizes some of the current challenges with 
military hospitals from my written testimony submitted at the hearing.
Options for Consolidating Military Hospitals
    Many of the current challenges with military hospitals discussed in 
the appendix (e.g., funding inputs instead of outputs and lack of 
competition) would be directly addressed or would be more easily 
addressed with a consolidation of the military treatment facility (MTF) 
system. This section discusses two aspects of consolidation: the 
organization/management of MTFs and their funding.
    The direct care system is actually four separate systems, three 
systems separately managed by each Military Department and one 
additional system (the National Capital Region) managed by the Defense 
Health Agency (DHA). This results in a duplication of overhead 
functions which increases costs and makes other reforms of MTFs more 
difficult. In addition, there are many geographic markets with multiple 
facilities (from different Services) within them and rationalizing this 
expensive infrastructure footprint is difficult in the current 
structure. A system of multi-Service market management has been 
established, but has not yet been able to effectively deal with this 
challenge. Consolidation of the organization and management of MTFs 
would reduce overhead, improve asset and care coordination within 
markets, and make other reforms easier to implement.
    There is another important benefit from consolidating the direct 
care system. Many of the problems identified in the appendix stem from 
the confusion created by the inter-weaving of the readiness and benefit 
missions. If MTFs were combined and managed separately from the 
readiness function, this would help improve the focus on medical 
readiness within the Services by removing the conflicting priority they 
face. Instead of facing incentivizes to protect a large asset base, the 
Surgeons General would be incentivized to focus on their core mission 
of maintaining readiness for war.
    The typical way such a consolidation would be handled within the 
DOD structure is with an Agency or Field Activity. Examples of how this 
has been done in the past include consolidation of finance and 
accounting services in the Defense Finance and Accounting Service 
(DFAS), supply and logistical functions in the Defense Logistics 
Agency, the commissaries in the Defense Commissary Agency (DeCA), and 
information technology in the Defense Information Systems Agency. The 
logical choice for MTFs would be the already existing Defense Health 
Agency (DHA). Alternative options include placement within a military 
command (e.g., the maintenance depots, although these are Service 
specific) or creation of a new military Service (e.g., the German 
medical Service). Disadvantages of these two alternatives are that they 
mis-match the function with the structure, running hospitals is a 
commercial activity and military command structures are better suited 
for military essential functions.
    Most of the examples mentioned above (finance and accounting 
services, supply functions, information technology, and depot 
maintenance) are consolidated in another way. In addition to their 
organization and management they are consolidated into a commercially 
oriented funding account. The current Defense Health Program (DHP) 
appropriation structure contributes to the challenges we face today. 
The DHP includes the consolidated operations and maintenance and 
procurement funding for the MTFs (a good start), but the funding is 
promptly divided across the Services in execution and not managed 
jointly. The DHP also consolidates a large portion of the funding for 
the readiness mission and largely leaves this inappropriate bundling in 
place as the funding is passed to the Services. The impact of this on 
resource allocation decision making includes:

      Healthcare benefits and medical readiness are put into a 
direct tradespace with each other, competing for resources against each 
other. Decision makers are forced to make tradeoffs between increasing 
medical readiness at the expense of the health benefit or vice versa, 
with no direct considerations of readiness more broadly or compensation 
more broadly.
      Medical readiness is removed from the tradespace of other 
readiness functions within each Service so that the Services cannot 
easily create a balanced readiness plan across medical and non-medical 
functions.
      Healthcare benefits are removed from the tradespace of 
compensation instruments (e.g., base pay, special and incentive pays, 
retirement, and quality of life programs) so that compensation cannot 
be easily understood and balanced across the range of compensation 
instruments.
      Unified resource management of MTFs is not achieved.

    Consolidating the organization of the MTFs would provide an 
opportunity to consolidate and reform MTF funding (and reform funding 
for the entire Military Health System). Basic principles of funding and 
budgetary account structure include:

      Costs of personnel benefits should reside in MILPERS 
budget accounts.
      Costs of readiness should appear in Service readiness-
related budget accounts.
      MTFs and other activities replicating commercial 
activities should be funded according to outputs produced, not inputs 
consumed.
      Costs should be recognized in the budget when the 
obligation is incurred.

    MTFs are the last large support function in DOD that are still 
funded with an appropriated budget for inputs instead of for the 
outputs they produce. One way to consolidate MTF funding and improve 
incentives by funding for outputs is by placing them in a revolving 
fund. Another approach used for commissaries is a non-appropriated fund 
instrumentalities, which establishes them as a fiscal entity. Another, 
overlapping, option would be to convert the MTFs to government-owned, 
contractor-operated (GOCO) organizations with the contractor's payments 
based on healthcare delivered.
Reforming the Management of Military Hospitals
    Consolidating organization/management and funding of MTFs would 
make a wide range of other, some inter-related, reforms easier. 
Examples of these additional reforms include:

      MTFs should be professionally managed: Organizing and 
operating MTFs like military units when the majority of the daily 
operations are the provision of beneficiary healthcare with little 
difference from civilian hospitals is inefficient. It fails to take 
advantage of the expertise resident in the healthcare sector at running 
medical facilities. A simple incremental step that could be taken as 
part of TRICARE reform is directing that a group of MTFs be placed 
under civilian management (e.g., as GOCO facilities) on a trial basis.
      MTFs should face competition: Competition is the ultimate 
disciplining force in markets, and lack of competition is a primary 
driver of inefficiency. Ensuring that the MTFs face competition for 
beneficiaries and care delivery would focus them on improvement. It 
should also be noted that this does not threaten readiness. The care 
the MTFs are primarily delivering and that would be at risk of moving 
to the private sector if the MTFs failed to effectively compete is 
obstetrics and other areas of beneficiary care that are not readiness 
related. In areas where DOD has invested in developing world-class 
readiness capabilities (e.g., burns and orthopedic rehabilitation in 
San Antonio), DOD should have no trouble competing for patients.
      MTFs that cannot succeed in their mission should be 
downsized or closed: Many MTFs today are not providing sufficient 
workload of the required case mix to support their readiness mission. 
For many of these, there is no reasonable or practical way to get the 
right workload into the facility and, thus, the facility will not be 
able to succeed in its mission. These facilities should be transitioned 
to clinics or closed.
Implementation Considerations for Military Hospital Reform
    Consolidating the organization and funding of MTFs, and reforming 
their management, are major reforms that would require careful 
attention in implementation. Some examples of implementation 
considerations that will need to be addressed include:

      Strategic Plan for the Direct Care System: The number of 
MTFs with inpatient capacity has fallen by about a half since the end 
of the cold war. This change, however, was not analytically pre-
planned; instead it was often the result of a struggle between some 
attempting to protect as much infrastructure as possible while Congress 
and DOD's leadership attempted to impose fiscal reality. Better results 
will be achieved if DOD could develop a plan identifying the direct 
care system mission, what its core infrastructure needs actually are, 
and how it plans to transition from the current state to the future 
state. Past efforts at this have not been rigorously implemented within 
DOD (e.g., labor and delivery care identified as a key element of 
readiness), so rigorous Congressional oversight of the plan development 
would be required.
      Leadership: Most defense agencies replicating civilian 
functions are civilian led, e.g., DFAS and DeCA (along with combat 
support agencies like the National Geospatial-Intelligence Agency). The 
DHA, perhaps inappropriately, has military leadership. Properly 
realigning leadership structure can be challenging (e.g., transitioning 
DeCA leadership from military to civilian), so it is valuable to get it 
right from the beginning.
      Private Sector Management: Considerations for the 
implementation of professional management that may include 
Congressional assistance include:

         How to effectively manage the transition of existing 
government civilian staff.
         Information technology inter-connectivity within the 
government and between the government and contractor.
         Establishing standards for accreditation and 
consistency across the system.
         Establishing realistic transition timelines that 
allow, for example, hiring the best personnel.
         Transparency and provision of data (e.g., providing 18 
months of historic workload data to ensure full information about the 
market).
         Selection criteria for priority facilities include 
facility age and condition, individual product lines, community size, 
and community integration.
      Isolated Locations: Reforming MTFs in isolated locations 
(e.g., Ft. Irwin and Mountain Home) is a community integration issue, 
not a DOD infrastructure issue. The goal is market optimization across 
civilian and military populations, not stove-piped consideration of 
military infrastructure.
                 Appendix: Military Hospital Challenges
    The Military Health System (MHS) combines two primary missions. The 
operational or readiness mission is to provide medical care during 
wartime or other deployed contingencies. The beneficiary care mission 
is to provide a high quality healthcare benefit to military families 
and retirees. A core challenge of the MHS today is that these two 
missions continue to grow increasingly different from each other. \1\
---------------------------------------------------------------------------
    \1\ The written testimony submitted of John Whitley for the hearing 
provides a more detailed discussion of this trend.
---------------------------------------------------------------------------
    The MHS direct care system includes over 50 inpatient military 
hospitals and over 300 outpatient clinics. These Military Treatment 
Facilities (MTFs) sit at the intersection of the two primary MHS 
missions, they are supposed to serve as a skill maintenance venue of 
military medical personnel for the readiness mission by providing 
beneficiary healthcare. The increasing divergence of these two missions 
is making it increasingly difficult for the MTFs as currently organized 
and managed to fill this role. This puts MTF commanders in an almost 
impossible situation and creates a climate of confusion within the MHS 
that affects everything from staffing decisions to major investment 
decision making. Some simple examples of the confusion include:

      Emergency Medicine: Emergency medicine physicians had one 
of the highest physician deployment rates to Iraq and Afghanistan. \2\ 
Some MTFs have the Emergency Department staffed with contracted 
civilian physicians while pediatrics and obstetrics are mostly 
military.
---------------------------------------------------------------------------
    \2\ Whitley et al., ``Medical Total Force Management.'' See Figure 
2, p. 32.
---------------------------------------------------------------------------
      Outsourcing Surgical Workload: Surgical workload is 
generally more relevant for maintaining the clinical skills of the 
military medical force, but MTFs generally outsource this workload to 
private sector care while retaining in house more care in areas like 
obstetrics. Table 1 illustrates this for three DOD markets, and it can 
be seen that obstetric workload is generally kept in house at over 
twice the rate of surgical workload.

                                Table 1.--Surgical versus Obstetric Workload Mix
----------------------------------------------------------------------------------------------------------------
                                          Surgical Workload                        Obstetric Workload
                             -----------------------------------------------------------------------------------
           Market               Military      Purchased                   Military      Purchased
                                Hospital        Care       % Military     Hospital        Care       % Military
----------------------------------------------------------------------------------------------------------------
Las Vegas, Nevada...........        1,315         4,749           22%           582           651           47%
Pensacola, Florida..........          657         5,403           11%           368           888           29%
Ft. Polk, Louisiana.........          192           203           49%           409            24           94%
----------------------------------------------------------------------------------------------------------------

      Graduate Medical Education (GME) Programs: The direct 
care system supports DOD-run GME or residency programs, but there is 
little attempt to focus these on operationally required specialty areas 
like trauma, surgery, emergency medicine, etc.

    This confusion is an important driver of excessive costs in the 
MHS. The direct care system is expensive to operate, with the average 
MTF costing about 50 percent more to deliver inpatient care than it 
would cost to purchase that care in the local markets at current 
payment rates. \3\ Table 2 illustrates this cost difference for three 
markets in which DOD operates. \4\
---------------------------------------------------------------------------
    \3\ See Philip Lurie, ``Comparing the Costs of Military Treatment 
Facilities with Private Sector Care,'' IDA P-5262 (Alexandria, VA: 
Institute for Defense Analyses, 2016) (forthcoming). See Table 6, p. 
27.
    \4\ Inpatient care is used for illustrative purposes. Comparisons 
of outpatient care yield similar results.

                     Table 2.--Military Hospital Inpatient Costs versus Private Sector Care
----------------------------------------------------------------------------------------------------------------
                                                                 Inpatient Military      Cost of Purchasing Care
                           Market                                   Hospital Cost            in Local Market
----------------------------------------------------------------------------------------------------------------
Nellis Air Force Base, Nevada...............................              $34,624,144               $29,909,465
Naval Air Station Pensacola, Florida........................              $31,180,755               $13,747,915
Ft. Polk, Louisiana.........................................              $14,727,029                $6,604,439
----------------------------------------------------------------------------------------------------------------
Source: Lurie, ``Comparing the Costs of Military Treatment Facilities with Private Sector Care.''


    When the direct care system is successfully delivering its 
readiness mission, i.e., providing readiness training for the military 
medical force, this excess cost may be justified--a necessary cost for 
ensuring our warfighting capability. In cases in which the direct care 
system is not succeeding in its mission, this excess cost is a source 
of inefficiency in the MHS--wasting taxpayer resources that could be 
used to increase compensation or reallocated elsewhere in the defense 
budget for mission delivery.
    DOD recently conducted an extensive internal study of the direct 
care system, finding that many MTFs did not have economically viable 
inpatient capacity and should be right-sized to the workload they can 
effectively support. This study, the MHS Modernization Study, was not 
able to directly assess the degree to which MTFs were meeting the 
readiness mission and instead focused on workload in major specialty 
areas. Although imperfect, this workload analysis provided a valuable 
``lower bound'' measure for the readiness question--a hospital that 
does not have enough workload in a particular specialty area to 
maintain an economically viable capacity does not have enough workload 
to maintain the readiness of military providers in that area.
    These challenges have caused a specific set of management problems 
in the direct care system:

      Direct care system run as military units: MTFs are led 
and administered as military units and justified by their readiness 
mission. In actual practice they are almost exclusively focused on 
beneficiary healthcare delivery. This misalignment of leadership and 
administrative structure with actual operations and functions means 
that the wealth of experience in civilian healthcare at running 
effective and efficient hospitals is not applied to MTFs. Professional 
business management of these large complex businesses is not used.
      MTFs don't have to directly compete for business: Private 
hospitals that cannot manage themselves effectively lose business and 
either get better or go bankrupt. MTFs are protected from this 
disciplining force of markets by simply being given bigger budgets to 
account for their inefficiency and attempts are made to coerce 
beneficiaries that choose to go elsewhere to return to the system. \5\
---------------------------------------------------------------------------
    \5\ See, for example, Amy Bushatz, ``Families Forced to Give Up 
Civilian Health Care,'' June 27, 2014. http://www.military.com/daily-
news/2014/06/27/some-families-forced-to-give-up-civilian-health-
care.html.
---------------------------------------------------------------------------
      MTFs given a budget for inputs instead of paid for 
outputs: Funding large DOD support missions that approximate commercial 
activities with direct appropriation for their inputs instead of on a 
reimbursable basis for outputs produced is a funding mechanism long ago 
abandoned in most other large support mission areas, e.g., logistics, 
financial services, and information services. MTFs still receive their 
funding according to the inputs they consume instead of the outputs 
they produce.
      MTFs overuse military personnel for non-operational 
specialties: The military medical force is overstaffed in beneficiary 
care areas like pediatrics and obstetrics. Military personnel are 
generally more costly than civilian personnel, so the unnecessary use 
of military personnel for delivery of beneficiary care is inefficient 
and drives higher costs.

    Chairman McCain. You also say that MTFs should be 
professionally managed. Does that mean you contract out to a 
management group? Is that what you are saying?
    Dr. Whitley. I think that should be an option that is on 
the table and used in appropriate situations, Senator.
    Chairman McCain. Does that mean like in a pilot program? 
Would you recommend a pilot program where we contracted out for 
a non-military associated organization to conduct some of these 
functions?
    Dr. Whitley. I would add, Senator, I think that should 
definitely be an option to consider. I would add that there are 
outpatient clinics that are operated that way today within the 
direct care system. Then I would add that----
    Chairman McCain. How is that working?
    Dr. Whitley. My understanding is that the beneficiaries 
that use them are very pleased. I think the next panel can talk 
about their experiences with that from a management 
perspective.
    Chairman McCain. MTFs should face competition. This is 
pretty much along the same line of what we are talking about.
    Dr. Whitley. Yes, Senator. I mean, the best way to motivate 
people to improve is to make sure that they know they are not 
the only game in town.
    Chairman McCain. How do you do that? The same way? A pilot 
program?
    Dr. Whitley. Yes, sir. You could take specific markets and 
you could allow beneficiaries to choose among plans or choose 
between venues for where they are going to receive their care. 
It would be interesting to see what happens in those pilots. It 
would be interesting to see where the beneficiaries choose to 
go. It would be interesting to see what happens to costs in 
those markets, what happens to outcomes in those markets.
    Chairman McCain. For example, who would be the option?
    Dr. Whitley. I am sorry, Senator.
    Chairman McCain. You say there would be other options that 
they would pursue. What would those options be?
    Dr. Whitley. Civilian provision of the health care, 
Senator.
    Chairman McCain. Would that be in a private hospital or a 
private provider or a private insurer?
    Dr. Whitley. I mean, all of the above. They could decide 
where to go for their primary care--that would be a primary 
care practice--where to go for their acute care. Yes, Senator.
    Chairman McCain. MTFs that cannot succeed in their mission 
should be downsized or closed. Has there ever been an MTF 
downsized or closed?
    Dr. Whitley. There have been many, Senator. The direct care 
system is about half the size it was about 25 years ago.
    Chairman McCain. Twenty-five years ago, one was----
    Dr. Whitley. It is about half the size. We are at about 55, 
56, ballpark, bedded facilities, and we were close to 100 
probably 20 years ago, Senator. Our folks coming in the second 
panel would have the numbers better than I would.
    Chairman McCain. To some degree, I think what you are 
talking about overall is competition.
    Dr. Whitley. Yes, Senator.
    Chairman McCain. Right now there is none?
    Dr. Whitley. There is some, and it manifests itself in 
various ways. I think it could be made much more explicit and 
it could be made much more of an effective tool for managing 
and for improving outcomes and the cost control in the system. 
Yes, Senator.
    Chairman McCain. Well, Mr. Chairman, I wonder if we ought 
to look at some of these recommendations at least as pilot 
programs as a beginning.
    Finally, Dr. Whitley, do you think we should have a one-
service medical corps or should we maintain three or four 
separate ones?
    Dr. Whitley. I have to apologize, Senator. I am going to 
punt on that. I am willing to take a stand on competition. I 
have never personally studied the joint question. I have to 
punt on that one, Senator.
    Chairman McCain. Does each service not have a medical 
staff?
    Dr. Whitley. Yes, sir, they do.
    Chairman McCain. Thank you, Mr. Chairman.
    Senator Graham. Senator Tillis?
    Senator Tillis. Thank you, Mr. Chairman. Thank you all for 
being here.
    Dr. Fendrick, I want to ask you a question. You in your 
testimony, both written and what you delivered before the 
committee, talked about value-based insurance design. That is 
something I got involved with down in North Carolina as a 
matter of public policy when I was speaker.
    I want to talk a little bit more about that and how you 
think maybe State health plans that have done it, to the extent 
that you can and any member of the panel, have benefited from 
it.
    If you could--it may not be related, but in the briefing 
materials, one thing that jumps out at me--and I would be 
interested in any of the panelists' opinions on this--are the 
discharge. The medical health system average annual inpatient 
discharges per 1,000 are some 61.7 for enrollees in the medical 
health plans and about 36. There seems to be a really big gap. 
Do you think that V-BID helps narrow that gap, or are there 
legitimate reasons why the gap is so great?
    Dr. Fendrick. I will first take the first half of the 
question about what is going on in the States, and maybe my 
fellow panelists can chime in about the level of optimism that 
V-BID might have to be part of the solution of this very 
important hospitalization problem.
    First off, I think you pointed out that V-BID programs have 
reduced financial barriers to high-value services and providers 
in many of the States represented by this panel. I think it is 
important to point out that in the State of South Carolina, the 
Medicaid program has reduced cost-sharing for high-value drugs 
for the most vulnerable populations there. As Senator 
Gillibrand pointed out, the Empire State has highlighted V-BID 
in the State's innovation plan and its very important role in 
the State innovation $100 million grant model. It is also 
highlighted in the Maine State innovation plan and is a very 
important part of the private sector Maine Business Coalition 
there.
    You pointed out and we are very proud of the fact that V-
BID plans are now offered to State employees in 13 States, 
including North Carolina. Of note, one voluntary V-BID plan was 
taken up by over 98 percent of State employees, and after 2 
years, we saw marked increases in healthy behaviors, increases 
in preventive screenings, much clearly delineated consumer 
satisfaction. The good news is we are seeing emergency room 
visits and specialty visits decline.
    I do not have information on hospitalizations because you 
know they tend to occur in a very compressed portion of the 
population. Those are often the people we are focused on more 
often and why we were so pleased to see a bipartisan, bicameral 
political support for a V-BID demonstration in Medicare 
Advantage, and we hope to be able study rigorously a V-BID 
program to actually lead to the reduction in re-admissions that 
you mentioned.
    I think over the long term, we will see modest impacts on 
ER visits and hospitalizations, but I think much more 
importantly, you will be able to tell your constituents and the 
American taxpayers that the American health care financial 
situation is moving not to things that make people money but 
are finally moving in a very systemic way to services that make 
them healthier.
    Mr. McIntyre. I would agree that providing incentives and 
direction for value-based incentives is the right thing to be 
doing.
    You know, the thing that is interesting about TRICARE and 
about the DOD system is that not all the care is provided in 
one domain. That makes it uniquely challenging. The chairman of 
the full committee is not here at this juncture, but the Air 
Force went through a pretty massive re-footprinting process 
back at the beginning of TRICARE about 20 years ago. It did an 
amazing job of re-footprinting its installations. I think some 
focus on the question of what the sizing and the structure 
ought to look like and then what do you actually have to 
supplement it with to give elasticity from a provider 
perspective and then what types of providers and systems do you 
want. If you are going to have an integrated system that is in 
the private sector in a certain market, how do you plug that 
in? Because some of those delivery systems--their models really 
need to take care of the entire patient not just part of the 
patient's needs.
    What I would also offer is that some of the prototypes of 
design that have been done over the last 20 years are worthy of 
exploration and assessment. There may be some new prototypes 
that need to be done, but I think there is probably a lot that 
has already been tested. Figuring out what its application 
might look like to end up making change as you go forward from 
here would be smart.
    I will tell you I am particularly intrigued with the notion 
that you take the Defense Department for a population that it 
has need for and you take the VA for a population that it has 
need for, and in the same community, you are melding that 
together. There is a series of prototypes that have been in 
place for almost 20 years now that do that in different ways in 
about eight different markets. The Chicago approach kind of 
threads it all together. Then how do you bring the third leg to 
the stool?
    Then you could go out to Gerald Champion in New Mexico. 
When Senator Domenici was a Senator here, there actually was a 
prototype that actually took a small community hospital in an 
Air Force location and actually took the airmen and put them in 
that hospital, took the VA folks, had them in that hospital 
delivering services in that environment doing operations there. 
Then the private sector was the third leg of the stool. It was 
the only prototype that was ever done like that.
    You know the incentives in communities that are smaller or 
on their own--they ought not to be doing everything 
themselves--offers some real interesting assessment. I think 
you might find that there is a lot of fodder already there to 
step back and say how do we do this right. What are we missing 
in models, or do we have most of them already tested? How do we 
footprint forward with the right kind of make/buy requirements 
of folks before they start doing design and construction?
    Senator Tillis. Thank you, Mr. McIntyre. I think that was a 
great model.
    Dr. Loftus, I am out of time. A part of what I was going to 
lead to is how would a high-performing health care system like 
Kaiser Permanente kind of play into that integrated solution. I 
think that that is a model that we have got to look at and 
develop, as Chairman McCain said, maybe through pilots. I do 
believe that helps us. I serve on the Veterans Committee. It is 
a very important topic. I think it is a way to target a lot of 
the needs in certain areas of the country.
    Mr. Chair, the only comment I wanted to make--it may be 
something I bring up in the next panel, but there is just one 
more detail level thing I wanted to get on the record. Senator 
Gillibrand, I think this is something you may have looked at as 
well. The ABA treatment for persons with autism and the 
proposed rate cut is something that I am concerned with, the 
timing of it. I hope that either in this committee or in my 
discussions with the panelists outside of this committee that 
we go back and maybe be a little bit more methodical. I think 
that we may be making a mistake potentially cutting treatment 
options down below the national average and produce a bad 
outcome for something that I think has been proven to be highly 
effective and highly beneficial to those who take advantage of 
the treatment.
    Thank you.
    Senator Gillibrand. Thank you all.
    Senator Graham. Thank you. That was excellent.
    Next panel, please. Thank you all very much for 
participating. It was very helpful.
    [Pause.]
    Senator Graham. Thank you to the first panel. This is the 
second panel, and we will start with Mr. Woodson. I am going to 
have to run to another subcommittee hearing. I will turn it 
over to Senator Gillibrand, and I will be back as quickly as I 
can. Let us go ahead and get started. Mr. Woodson?

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

    Dr. Woodson. Chairman Graham, Ranking Member Gillibrand, 
members of the committee, thank you for placing the issue of 
military health system reform high on your agenda for 2016.
    The military health system takes great pride in its 
performance in combat medicine over the last 14 years with 
greater than 95 percent survival rates for those wounded in 
battle. Our ability to prevent disease through exceptional 
primary care and preventive medicine services produced equally 
historic outcomes in reduction of disease and non-battle 
injuries.
    The challenges we face in medicine and in national 
security, however, continue to evolve and require new 
approaches to be prepared for the future.
    We have undertaken a number of initiatives to strengthen 
the military health system in all facets of its 
responsibilities, and they have been organized around six 
principal lines of effort, which we have spoken about in 
previous testimony. I, therefore, want to encourage that last 
year's Military Compensation and Retirement Modernization 
Commission reviewed and supported many of the initiatives that 
we have already set in motion in the Department. Let me briefly 
describe these efforts.
    First, we have modernized our management systems with an 
enterprise focus. We established the Defense Health Agency that 
Vice Admiral Bono leads. The agency is entrusted with providing 
common business processes and standards and support of the 
military departments and combatant commanders, an approach that 
provides greater operational efficiency and ensures joint 
solutions to our customers.
    We identified multi-service markets and developed 5-year 
business plans to promote common solutions and optimize the use 
of military treatment facilities while providing required care 
to beneficiaries in the purchase care sector.
    In addition, we acquired and are now preparing to deploy a 
new electronic health record using commercial, off-the-shelf 
products. Together with the Surgeons General and Vice Admiral 
Bono, we have established an enterprise-wide dashboard to 
actively manage our performance in readiness, access to care, 
quality, safety, patient satisfaction, and costs. The Defense 
Health Agency achieved the milestone of full operating 
capability on 1 October 2015 and, in its first 2 years, saved 
over $700 million.
    Second, we are defining and delivering medical capabilities 
and manpower needed in the 21st century. With the services, the 
Department has embarked upon a thorough process to define 
essential medical capabilities and metrics to monitor 
readiness.
    Third, as a result of the modernization study, we have 
analyzed infrastructure needs and right-sized several military 
treatment facilities, as well as made adjustments to move 
skilled medical personnel to markets where MTFs can recapture 
care, they can maintain their skills and reduce overall costs.
    The fourth line of effort is perhaps the main focus of 
today's discussion, and that is our plan for reforming TRICARE. 
We are appreciative of the input from beneficiaries and service 
organizations that in recent testimony have expressed support 
for TRICARE. The TRICARE benefit was named as the number one 
health plan in the country for customer experience by Temkin in 
2015, owing in no small part to the comprehensive coverage and 
low cost to our beneficiaries. By the way, we jockeyed for that 
position since 2011 with Kaiser Permanente.
    We also have heard loud and clear from our beneficiaries 
that access to both primary and specialty care needs attention, 
particularly in the MTFs. In response, we have implemented a 
number of access improvement initiatives last year to open up 
more appointments, resolve appointment issues on the first 
call. We are improving access to after-hours care, particularly 
for child care, whether that is through evening and weekend 
clinics, the ability to email providers questions through 
secure messaging, the availability of 24/7 nurse advice line 
that is integrated with our appointing system, streamlining the 
referral process, and implementing an urgent care demonstration 
program that Congress requested in last year's Defense 
Authorization Act.
    Our T-2017 contract will be awarded in 2016 and includes 
provisions that further improve the experience of care for our 
beneficiaries. The PB-17 proposal provides choice and 
incorporates feedback from our stakeholder groups.
    The fifth line of effort has been to expand strategic 
partnerships with civilian health organizations to enhance our 
ability to meet and exceed our responsibilities of readiness, 
quality, safety, and satisfaction. Partnerships with 
organizations such as the American College of Surgeons and the 
Institute for Health Care Improvement are providing tangible 
benefits that offer us ways to sustain our trauma system, 
improve clinical quality, and achieve our goals as a high 
reliability organization.
    Finally, the sixth line of effort is focused on global 
health engagement where the Department is deeply engaged in 
national security threats posed by infectious disease and 
building bridges through health care around the world. We have 
contributed to the surveillance, prevention, diagnosis, and 
treatment strategies to combat well known outbreaks to include 
Ebola and now Zika, as well as ongoing efforts to prevent other 
outbreaks from occurring.
    We entered 2016 confident that the reforms in the military 
health system and the health benefit can be further 
strengthened through a combination of legislative and 
operational reforms. I am grateful for this opportunity to be 
here today, and I look forward to your questions.

STATEMENT OF VICE ADMIRAL RAQUEL C. BONO, USN, DIRECTOR OF THE 
                     DEFENSE HEALTH AGENCY

    VADM Bono. Chairman Graham, Ranking Member Gillibrand, and 
members of the subcommittee, thank you for the opportunity to 
appear here today. I am pleased to represent the Defense Health 
Agency and explain how the DHA [Defense Health Agency] is 
contributing to the modernization of the military health 
system.
    In November, I was honored to become the Defense Health 
Agency's second Director. Only a month earlier, the agency had 
reached full operating capability after 2 years of 
collaborative work with the Army, Navy, Air Force medical 
leaders, and with the Joint Chiefs of Staff that established 
the concept of operations for many of the functions of the 
agency. Our responsibilities center on supporting the military 
departments and the combatant commanders in the execution of 
their missions.
    The Defense Health Agency was created in the recognition 
that most health care delivery is common across the Army, Navy, 
and Air Force, what we need, what we buy, what a best practice 
entails in both the clinical and administrative environments. 
The Defense Health Agency helps bring together common support 
functions into a new enterprise-focused organizational 
structure. We are able to help Dr. Woodson and the Surgeons 
General see and manage across the MHS in a more unified way.
    One of the principal ways in which we deliver the support 
is through the operation of shared services. Critical 
enterprise support activities include TRICARE, pharmacy 
operations, health information technology, medical logistics, 
public health, medical R&D, education and training, health 
facilities, contracting, and budget resources management.
    In addition to the ten shared services that have been 
implemented, the DHA has also brought in joint activities that 
had previously been distributed to the services that acted as 
executive agencies. These include the Armed Forces Health 
Surveillance Center, the Armed Forces Medical Examiner system, 
the DOD Medical Examination Review Board, the Defense Center of 
Excellence for Psychological Health and Traumatic Brain Injury, 
and the National Museum of Health and Medicine.
    The DHA offers value, however, to more than our COCOMs and 
services. We serve as a single point of contact for many intra-
agency, interagency, and external industry matters simplifying 
the process for our partners and outside colleagues to work 
with the Department of Defense in support of a number of 
imperatives such as research, global health engagement, 
adoption of emerging technologies, health care interoperability 
and more.
    The existence of the DHA has streamlined engagement with 
the Defense Logistics Agency, Defense Information Systems 
Agency, and other field agencies. External to the Department, 
the DHA provides a single point of contact for operational 
matters within the VA, a number of agencies within HHS [Health 
and Human Services] to include Centers for Medicare and 
Medicaid Services, the Food and Drug Administration, the 
Centers for Disease Control and Prevention, Public Health 
Service, and more. We have successfully collaborated with the 
Justice Department on the prosecution of health care fraud 
cases, most recently with highly suspect activities around 
compound medications. We work with Treasury, State, and the GSA 
on a number of critical functions that directly support our 
health care mission.
    I would like to focus on one shared service in particular, 
the operation of TRICARE, the military's health plan. TRICARE 
modernization is part of the MHS modernization plan that Dr. 
Woodson just outlined. We have a number of TRICARE initiatives 
already underway in 2016. Later this year, we will award the 
next round of TRICARE contracts known as T-2017, which is when 
health care will become operational under the new contracts. We 
are simplifying the contracts, reducing management overhead in 
both government and contractor headquarters by moving from 
three regions to two regions. We are expanding the means by 
which we manage the quality of our networks to ensure they meet 
the expectations for quality and safety that we expect for our 
beneficiaries whether in the direct system or in a private 
sector network.
    We also will introduce innovative models for value-based 
purchasing in the coming year. My staff, in close collaboration 
with the services, is also crafting the contract amendments to 
permit TRICARE enrollees to use urgent care centers without 
pre-authorization. Our analytics team provides the Department's 
civilian, military, and medical leadership at the headquarters 
and field level with the ability to assess the enterprise-wide 
performance of the military health system using agreed upon 
joint measures for readiness, health, quality, safety, 
satisfaction, and cost.
    The DHA is now an integral and integrated part of the 
military health system. We are proud to contribute to the 
modernization of the system through joint collaborative 
solution and responsible management approach.
    I am honored to represent the men and women of the Defense 
Health Agency, and I look forward to answering any questions 
you may have.
    [The prepared statement of Dr. Woodson and Admiral Bono 
follows:]

 Prepared Statement by Dr. Jonathan Woodson and Admiral Raquel C. Bono
    Chairman Graham, Ranking Member Gillibrand and members of the 
Committee, I am pleased to discuss the Department of Defense's multi-
year plan for modernizing military medicine in service to the 9.4 
million Americans who rely on DOD for the delivery and coordination of 
healthcare around the world. I am honored to have Vice Admiral Raquel 
Bono, Director of the Defense Health Agency (DHA), join me in 
presenting this plan. I am proud to have the Surgeons General of the 
Army, Navy, and Air Force also accompany us at today's hearing and 
speak to the Service-specific issues for which they are responsible.
    I want to thank the leadership of the Committee for placing 
military health care reform high on the agenda for action this year. 
There are a number of interconnected features of the Military Health 
System (MHS) that influence how we are organized, how we deliver and 
coordinate care, and how we interact with the broader American health 
system.
    Over the last two and half years, the MHS has fully embraced an 
enterprise management approach to our work. Together with the Service 
Medical Departments and the Defense Health Agency, we have crafted 
strategies, policies, enterprise support activities, and leadership 
development programs that benefit the system as a whole. Our approaches 
to access, quality and safety are executed in a collaborative, 
interdependent manner. Operationally, where we work together in 
deployed environments or in multi-service markets, we increasingly 
ensure there is an integrated operating model that facilitates support 
to line commanders, to servicemembers and to our patients.
    For our beneficiaries, we recognize TRICARE is an essential and 
valued piece of that health system. Both military medicine and the US 
health system are in a period of profound change driven by new 
discoveries, technological advances, and integrated delivery models 
aimed at increasing quality and controlling costs. Our proposals for 
modernization include both operational actions that we are undertaking 
right now, as well as legislative proposals that we have included in 
the President's budget.
    TRICARE is essential to recruiting and retention and is an integral 
part of our overarching strategy for the MHS--the Quadruple Aim: Ensure 
Readiness, Improve Health, Improve Healthcare, and Lower Cost.
    As we institutionalize the lessons learned from fourteen years of 
conflict, and as we implement a series of actions emerging from the 
Secretary's Review of the MHS, we must modernize our TRICARE program to 
better align with how medicine is delivered in 2016, and how patients 
expect to receive timely and high quality care.
    DOD is taking a new approach to our reform efforts in 2016 and 
2017. We are focused on defining value from the perspective of the 
patient. Emerging from the internal MHS Review, we have invested a 
great deal of time in understanding and evaluating our performance in 
access to care, clinical quality, and efficiency from our perspective 
as provider, insurer, and employer. In 2016, we are looking at 
healthcare delivery through the patient's lens, and developing systems 
and processes that are responsive to their needs.
    Our starting point in our modernization plan is the recognition 
that TRICARE is a good health benefit that supports an exceptional 
group of Americans. Recent testimony by beneficiary organizations to 
Congress reinforced the view that TRICARE is one of the most 
comprehensive health benefits offered by any employer in the United 
States. While valuing the TRICARE benefit, beneficiaries voiced to 
Congress and to DOD that they particularly want to see improvements in 
access to care. We have heard their concerns--and our reform strategy 
upholds the sacred promise we make to those who serve their country and 
to their families.
    Congress and DOD have expanded eligibility, benefits and services 
under TRICARE over the 22 years it has been in existence. The most 
notable expansions include: TRICARE For Life--extending TRICARE 
benefits as second payer to Medicare for dual-eligible beneficiaries, 
TRICARE Prime Remote--offering Prime-like benefits to Active Duty 
families when they are stationed far from military installations; and 
TRICARE Reserve Select--offering certain Reservists with the 
opportunity to enroll in TRICARE with a modest premium payment.
    We have tied our MHS modernization plan to our overarching 
strategic plan. Our MHS strategy continues to use the Quadruple Aim as 
our north star--Improved Readiness, Better Health, Better Care, Lower 
Cost. This is the framework I will use to describe the actions underway 
and those we have proposed.
  the military health system: readiness at the center of our strategy
    Over the last decade, the MHS performed superbly in providing 
combat casualty care and life-saving treatment, achieving historic 
outcomes in saving lives and preventing injuries and illnesses. Lessons 
from fourteen years of battlefield medicine, along with transformative 
changes in the practice of medicine in the United States, require new 
approaches to how we ensure medical readiness and how we best meet the 
expectations of our beneficiaries. We are continuously reevaluating and 
improving our approach to maintaining the health of the force, 
sustaining a ready medical force, and delivering quality healthcare to 
our beneficiaries--on the battlefield, on military installations, or in 
civilian healthcare settings
    The MHS is unique in our national health system. DOD operates a 
global system of hospitals, clinics, and health team--both fixed and 
deployable--to meet the health needs of our military force, and to 
maintain the ability of our MSH to meet the readiness needs of the 
force as we continue to assess reform strategies to improve this 
primary mission.
    When we say ``readiness'' is at the center of our strategy--we 
mean: the medical readiness of individual servicemembers, the readiness 
of medical forces--and the need to build and sustain the clinical 
skills of the entire medical team so they are best prepared for 
whatever mission they are called to perform. Readiness also refers to 
family readiness. The health and wellness of our military families 
affects servicemember readiness in direct and indirect ways. In 2016, 
we look at readiness from this broader perspective--with consideration 
for the family members' viewpoint of whether our health system supports 
their own health goals.
    TRICARE directly supports this readiness mission. In 2015, the 
Military Compensation and Retirement Modernization Commission (MCRMC) 
acknowledged the important role that MTFs have in sustaining the 
readiness of our medical forces. We have accepted a number of 
recommendations from the MCRMC and have launched a process to identify 
the essential medical capabilities needed to support the full spectrum 
of military operations.
    One of the most important actions that we undertook during the Iraq 
and Afghanistan conflicts was the establishment of the Joint Trauma 
System (JTS). This system contributed significantly to the MHS' ability 
to produce historic survivability rates for those wounded in action, 
and accelerated our ability to continuously improve combat casualty 
care research, training and practice. JTS will be embedded as an 
enterprise-wide system that provides essential support to our combatant 
commanders around the world.
    Of course, not all MTFs include the full spectrum of medical or 
surgical capabilities. This requires that we augment MTF-provided care 
by purchasing health services from civilian healthcare networks managed 
though the TRICARE program.
    In 2016, we plan to expand choices for our beneficiaries--allowing 
them the opportunity to more freely seek care from either military or 
civilian providers. There are a number of ways by which we can expand 
our service offerings. For example, retirees who are Medicare eligible 
can receive care in MTFs. Caring for these types of patients helps 
ensure military medical provider readiness. Likewise, resource sharing 
agreements with the Department of Veterans Affairs allow Veterans to 
receive care within MTFs, giving our military medical providers 
exposure to a more complex set of patient health needs. Other unique 
arrangements, such as civilian access to our Level I Trauma System and 
burn center at San Antonio Military Medical Center, ensure that our 
providers remain current with best practices in trauma and burn care--
important skills to maintain for military operations. In other external 
resource sharing arrangements, military providers obtain admitting 
privileges at nearby civilian institutions, where they can provide a 
wider range of care for our beneficiaries, also allowing for clinical 
skills maintenance.
    Although the MHS is an indispensable element of national security, 
the TRICARE feature of beneficiary choice also includes the choice of 
beneficiaries to receive all of their care from civilian providers. In 
some circumstances, this choice is driven by necessity--where 
beneficiaries reside in areas not near a military installation. In 
other circumstances, beneficiaries simply elect to receive civilian 
care even when military medical facilities are nearby. Some military 
retirees use other systems of care beyond TRICARE: the health care 
afforded to Veterans through the VA, the health insurance product 
provided through their employer, or the Medicare program. For those 
beneficiaries who elect to receive all of their care from civilian 
sources, whether by choice or circumstance, we are interested in 
exploring ways to direct beneficiaries to accessible, high quality 
providers.
    The MHS is a complex web of relationships that extend beyond DOD to 
include other federal health partners as well as the civilian 
community. This integrated system of care requires relentless attention 
to the development of leaders with skills to operate in the joint 
environment. We recently reviewed our leadership development programs 
and identified the need to better integrate and sequence these 
programs. I have directed our leadership team to put together a revised 
curriculum for leadership development in the joint environment that 
focuses on the development of management skills that further ensure 
readiness, improve health, access, and quality and responsibly manage 
cost.
                    mhs modernization: better health
    MHS modernization recognizes that our health system can be made 
even better; and that the delivery of accessible, high quality care, 
matched with exceptional customer service, is part of our mission, not 
secondary to it.
    Our multi-year modernization plan offers a significant advancement 
in how the MHS will be a leader in healthcare delivery and customer 
service in the country. Our modernization plan raises customer service 
performance levels; improves health; further expands choice; simplifies 
the process of getting care and offers additional new ways to access 
care; ensures access to the latest healthy technology; helps direct 
patients to the highest quality of care; and continues to offer value 
at an out-of-pocket cost to our people that is lower than virtually any 
health plan in the country.
    DOD has already begun its multi-year modernization of the TRICARE 
program. First, we will continue our efforts to prioritize health ahead 
of healthcare.
    TRICARE has always had excellent coverage of important preventive 
services--and we're making it better. Most of our preventive services 
are available without any cost share. For example, any beneficiary 
(Prime / Extra / Standard / TRICARE For Life) can get required 
immunizations from any provider, to include retail clinics. We are 
going to expand the ease and coverage of even more services in the 
coming year, and ensure our preventive services plan is fully aligned 
with the Affordable Care Act provisions.
                   tricare modernization: better care
    There are a number of components of health care delivery that are 
focused on better care. Access, quality and safety are among the 
predominant components in which we will dedicate our energy and 
resources in the coming year.
    Access--Easier, Patient-Centered. We are overhauling every aspect 
of our how our patients get care--whether primary or specialty care.
    Our patients deserve high quality care delivered safely and 
expeditiously. Yet, we frequently hear about problems accessing health 
care within the MHS. In our internal review, we heard that patients are 
concerned about being told to call back for an appointment, and 
dissatisfied with delays in getting care because of a cumbersome pre-
authorization and referral system.
    During the MHS Review, we found that MTFs generally meet defined 
access to care standards on average. However, there was a great deal of 
variation--there were MTFs that did not meet these standards and others 
who consistently performed better than the standard. In 2015, we 
incorporated two measures of access into an enterprise-wide, 
``Partnership for Improvement'' dashboard, which is reviewed monthly by 
me and the other MHS leaders present today.
    The same access standards apply to both MTF provided care and 
TRICARE Prime care delivered in the private sector. Assessment of 
purchased private sector primary care access is largely determined from 
patient experience surveys. According to survey data, individuals who 
use TRICARE Standard or Extra are more satisfied with the care provided 
when compared to those who use TRICARE Prime. In 2016, we will be 
exploring beneficiary concerns more deeply by engaging focus groups on 
specific subjects.
    Recent Congressional testimony from beneficiary groups suggests 
that the lower satisfaction with TRICARE Prime is related to the 
inability to get an appointment at an MTF and to the associated 
referral and authorization processes. NDAA 2016 called for improving 
access in the following ways: 1) make it easier for beneficiaries to 
move among the identified TRICARE managed care support contract 
regions; 2) allow TRICARE Prime beneficiaries access to urgent care 
centers without a preauthorization requirement under a pilot project; 
and 3) expand the public transparency of quality, safety and 
satisfaction information.
    We have taken a number of steps to improve access to care. We 
implemented ``first call resolution'' policies ensuring that the 
appointment or referral will be completed during the initial call for 
beneficiaries enrolled to our patient-centered medical homes. I issued 
initial guidance for simplified appointing and first call resolution on 
June 2, 2015. We have already begun to see the positive effect of these 
changes from the patients' perspective. Performance monitoring will 
ensure compliance and survey data is letting us know if our 
beneficiaries are satisfied with the results.
    We are not simply monitoring our performance from this one action. 
We have put a number of policy and operational actions into motion 
already this year,
    The Services and DHA undertook a listening tour to MTFs and with 
beneficiaries around the country. We learned a great deal from these 
visits. The Services and DHA have identified that peak hours of 
physician supply do not always match patient demand. In response, we 
are extending hours to evenings and weekends in a number of our MTFs. 
We have increased the number of urgent appointment by 32 percent since 
May 2015, and we have expanded the overall number of appointments by 
more than 11 percent.
    Part of our enterprise approach is to effectively use the 
demonstration authority that Congress has provided us and pilot new 
approaches to patient care delivery. We recognize that patients, 
particularly those with complex or chronic medical conditions, require 
ongoing services from a mix of primary care and specialty providers. I 
am directing demonstration projects in which we evaluate the use of 
``integrated practice units (IPUs)'' into our medical homes. The most 
important feature of the IPU is that it organizes medical services 
around the patient's needs and medical condition rather than organizing 
medical services from the health system's perspective.
    Contemporary access to healthcare is no longer confined to the four 
walls of a doctor's office or dictated by drive time standards. 
Instead, information technology offers a variety of opportunities for 
patients to engage the medical system. Providers can extend their reach 
to treat or advise their patients beyond the clinic's open hours or 
without requiring distant travel. Furthermore, many of these modalities 
offer new opportunities to support the warfighter wherever they are 
deployed. In January 2016, I expanded our policies to encourage greater 
use of telehealth, and permit its connection to the patient's home. The 
new policy will enhance our abilities to provide telemedicine services 
and expand access for our beneficiaries.
    In 2014, we established a Nurse Advice Line (NAL) for all of our 
beneficiaries. This new capability now fields 1,800 calls per day 
(significantly higher than we projected, and higher than most 
commercial health plans). Call volumes are increasing each month. Many 
patients, after engaging with the NAL, do not subsequently seek 
emergency care, but wait to be seen at their Primary Care Medical Home 
at the MTF. For those whose symptoms suggest a true emergency, the NAL 
activates the emergency medical system and stays on the phone until 
help arrives. Additionally, the 24/7 NAL is integrated with our 
appointing and referral systems, ensuring beneficiary have round-the-
clock access to healthcare advice and appointing services. We plan to 
expand the services offered by the NAL in the next year to increase 
convenient access.
    The TRICARE program has leveraged web-based technologies to provide 
beneficiaries with information, secure ways to enroll for health care 
services, review claims, pay bills, and even make appointments. 
Patients can communicate with their providers using secure messaging 
services and download their medical records using Blue Button 
technology. We are ensuring that all primary care providers and most 
specialists use and promote the secure messaging capability with their 
patients. The new electronic medical record will add even more 
functionality for patients.
    In 2016, the MHS will begin to deploy smart phone applications that 
will make it easy for our patients to contact their providers, access 
all of the TRICARE Online capabilities, and find useful information 
about the nearest MTF. We will also launch new telehealth capabilities 
that will allow providers to consult with their patients using video 
technology, along with capabilities for providers to securely monitor 
their patients' health remotely (e.g. blood pressure monitoring or 
other biometric data).
    DOD will also implement a pilot program that allows enrollees to 
access urgent care centers without requiring a preauthorization, 
consistent with NDAA 2016. I am confident that these additional means 
of access--both virtual and physical--will have a significant, positive 
affect on satisfaction with accessibility and customer service among 
our Prime population.
    For patients who receive referrals from their primary care 
providers, we are also streamlining referral processes so that patients 
will be advised of referral approval in a more timely way.
    We are also proposing to allow beneficiaries who live more than one 
hour away from an MTF to enroll for care at those facilities. While we 
believe that patients should live in close proximity to their primary 
care provider, we also believe that patients should be able to choose 
their provider, even if the provider is more than an hour's drive away. 
However, we will retain contract provisions that require the civilian 
network to be constructed in such a way as to ensure easy geographical 
access, to the extent possible, for our beneficiaries, using existing 
drive time standards.
    In our fiscal year 2017 proposed budget, we introduce a new 
approach to the DOD health benefit that further simplifies the program 
for beneficiaries. Patients would be able to choose between a managed 
benefit that prioritizes care in the MTFs (and continues to offer MTF 
care at no cost to beneficiaries), and an unmanaged option that 
sustains the freedom of choice for beneficiaries to seek civilian care 
without restriction.
    Our initiatives are intended to ensure retention of our existing 
enrollees as well as increase use of military treatment facilities for 
all beneficiaries. Our customer service enhancements are intended to 
encourage our beneficiaries who live near a military hospital or clinic 
to come back to the MTF.
    Finally, in 2016, we will also award the TRICARE-2017 (T-2017) 
contracts, with healthcare delivery slated to begin in 2017, allowing 
for a 12-month transition period between contractors. T-2017 is another 
element in our efforts to simply program management, reduce 
administrative costs, incentivize value and ensure quality with our 
network providers. We have also streamlined processes for portability, 
helping ease beneficiary transition as they move from installation to 
installation. We will reduce TRICARE regions from three to two, 
eliminating unnecessary administrative overhead for both the government 
and contractors.
    Quality of Care. The MHS is proud of the quality of care we 
deliver. The MHS Review found that the MHS performed well along the 
quality and safety parameters studied. However, similar to our findings 
on access, we found wide variation across MTFs and across safety and 
quality measures. Like health systems everywhere, we know we can 
improve further. We will.
    We have implemented a number of important measures to achieve that 
objective. In 2015, we standardized quality and safety measures across 
the enterprise and can now compare performance across all MTFs. We are 
now amending our TRICARE contracts to establish similar reporting for 
private sector care. Senior leaders monitor performance on a monthly 
basis.
    MTF commanders are being provided with tools to both educate their 
staffs and monitor their performance. We are expanding participation in 
the American College of Surgeons (ACS) National Surgical Quality 
Improvement Program (NSQIP) to all MTFs with surgical capabilities. 
This partnership provides these MTFs with insights into improving 
surgical mortality and morbidity. In the coming months, we will provide 
the Institute for Healthcare Improvement's (IHI) Global Trigger Tool 
(GTT) to all MTFs to proactively assist in identifying potential safety 
concerns.
    When serious chronic illness, medical conditions, special needs or 
injuries require a comprehensive coordination of care across multiple 
providers, beneficiaries will be assured of a personal case manager who 
will assist with coordinating care wherever it is provided--with other 
military hospitals, in the civilian sector, or with the VA.
    The Department is going to adopt or introduce value-based payment 
demonstration projects in 2016. In 2015, we opened discussions with the 
Centers for Medicare and Medicaid Services (CMS) to explore how we can 
participate in several of the innovative payment reform initiatives 
that CMS has introduced over the past several years. By aligning 
efforts with other federal initiatives focused on value-based payment, 
we can leverage the extensive research that led to these 
demonstrations. The complex rules related to payment formulas have been 
incorporated into contractor-operated, federal claims processing 
systems. Several of the bundled payment demonstration projects--such as 
the recent CMS demonstration around bundled payments for joint 
replacements--hold the most promise for the populations that we serve. 
We will provide the Committee with regular updates on our progress in 
this area.
    Comprehensive information on service delivery--access, quality, 
safety and satisfaction--is available online to the public for the 
military health system as a whole with some limited information visible 
at the MTF level. Additional information will soon be available at the 
MTF, consistent with the direction from the Secretary of Defense and 
the NDAA 2016. We have engaged and will continue to engage our military 
and veteran beneficiary organizations in how we might present this 
information in ways that make the information more relevant and easier 
to understand. We encourage our patients to ask us questions about our 
quality and safety record, and to engage in questions about their own 
plan for health. The DHA is working with CMS to place MHS performance 
information on Hospital Compare to provide another outlet where our 
performance information will be publicly shared. We are incorporating 
beneficiaries into our quality management activities.
    The MHS has identified six communities where there is a significant 
military medical presence by more than one Service Medical Department. 
We refer to these communities as ``multi-service markets.'' 
Collectively, over 40 percent of all care we deliver in DOD medical 
facilities occurs in these markets and an equally significant amount of 
care is purchased from the private sector in these markets. We have 
provided senior medical leaders in these markets with enhanced 
authorities to coordinate service delivery; standardize appointing and 
referral policies; and reallocate local resources to best meet 
beneficiary needs. We have achieved some early successes in these 
markets relative to access to care and patient satisfaction.
    These multi-service markets are major deployment platforms, and we 
similarly plan to use them as platforms for innovation. They reach 
across Service-specific populations and the lessons we learn from 
innovating in these markets can be more rapidly shared across the 
enterprise.
    Health Benefits and Technological Advances--Leaning Forward. 
Healthcare is changing fast. With the generous support of Congress, 
TRICARE has been made more flexible and more adaptive to the changes in 
technology to advance health. DOD now has greater authorities to 
approve emerging technologies for coverage. We have already started 
this process--for laboratory-developed tests and for other promising 
medical procedures. Where the medical evidence is present, we will look 
to do more.
    We are ensuring that TRICARE's mental health and substance use 
disorder benefit meets current standards of care and--like our 
preventive services benefits--align with the Affordable Care Act, 
Mental Health Parity Act and other federal health legislation. We have 
already eliminated the limit on inpatient behavioral health bed days, 
and we will finalize policies to ensure parity in other areas in 2016.
    One of the most important advances we will introduce in 2016 is the 
first phase of deployment of our new Electronic Health Record (EHR) in 
the Pacific Northwest. This multi-billion acquisition represents a 
major milestone for the Department. Our decision to purchase a 
commercial, off-the-shelf product provides DOD with a system that will 
support our journey to high reliability, allow ongoing private sector 
innovation to be incorporated into future releases, and support our 
interoperability objectives in sharing information with both the VA and 
with private sector providers. The EHR will also feature an advanced 
patient portal, providing our patients with easier access to their own 
health data--and improve their ability to manage their care.
    Support for Children with Special Needs. Over the last several 
years, we have modernized TRICARE and the Extended Care Health Options 
(ECHO) program, expanding services to retiree families and eliminating 
financial caps on services. We are continuing to improve our complex 
case management services, with a particular focus on the unique needs 
of military families and frequent relocations.
    TRICARE for Reservists. Issues regarding continuity of care, and 
continuity of coverage, for Reserve Component families have been raised 
by both the Reserve community and in the Military Compensation and 
Retirement Modernization Commission report in 2015. Although the 
TRICARE Reserve Select program has been well received and offers an 
excellent health benefit, the Department continues to explore 
opportunities that can accommodate those Reserve members and families 
who would prefer to retain their existing provider relationships.
    TRICARE Support. In October 2015, the DHA reached Full Operating 
Capability. The TRICARE Health Plan is one of the principal enterprise 
support activities--or shared services--for which the DHA is 
responsible. Working closely with the Service Medical Departments, we 
are better able to coordinate policy and operational decisions in 
support of TRICARE changes in a more agile and transparent manner. Our 
other enterprise support activities--pharmacy operations, health 
information technology, medical logistics, health facilities, public 
health, medical research and development, medical education and 
training, contracting, and budget & resource management--also provide 
essential support services to both combatant commanders and the 
Services.
    I would like to highlight just one element of how this enterprise 
support better enabled critical support in a crisis. In 2015, the MHS 
witnessed an alarming escalation in prescription drug costs, largely 
related to increased utilization of compound medications. The DHA 
monitoring system identified potential fraudulent activity; recommended 
and concurrently implemented a series of enterprise-wide screening 
procedures in our military pharmacies, mail order and retail network 
that precipitously and safely reduced inappropriate fills of compound 
drug prescriptions; and coordinated with the Department of Justice in 
the prosecution of fraudulent actors and the recovery of funds.
    Cost--Responsible, Moderate Changes in Beneficiary Cost-Sharing. 
The full complement of improvements and services that we have put 
forward also requires investment. Most of these additional costs will 
be borne by the Department. For example, the implementation of shared 
services led the Department to reduce defense health costs by $3.5 
billion over five years, savings that have already been decremented 
from our proposed budget.
    Since TRICARE and then TRICARE For Life were introduced, the 
percentage of care delivered in the private sector rather than in DOD 
medical facilities has grown. Today, over 60 percent of all DOD-funded 
health care is delivered in civilian settings through TRICARE. The 
integration of care delivered in military and civilian settings is--and 
will remain--a necessary feature of military medicine. We will continue 
to assess our partnership with our civilian network and the impact of 
its prominence upon our direct care facilities, recognizing cost 
efficiencies where possible. Over the last several years, overall 
defense health program costs have been well managed, with actual costs 
coming in less than projected at the beginning of the year.
    Although costs have stabilized in recent years through both 
management actions on the part of the Department and a general slowdown 
in US healthcare inflation, National Health Expenditure projections, a 
product of the Centers for Medicare and Medicaid Services, anticipate a 
gradual increase in per capita health care costs to roughly 5 percent 
in coming years.
    The Department has submitted several reform plans since 2005, 
largely to control health care costs. Last year, the submission of the 
President's Budget (PB) 2016 benefit reform proposal was relatively 
well received. The PB 2017 health benefit reform proposal leverages the 
PB 2016 proposal but makes some important adjustments. Following are 
the attributes of the PB 2017 proposal.

      A simpler system--provides beneficiaries with two care 
alternatives and overall less complexity in their health plan. TRICARE 
Select is an HMO-like (managed) option that is MTF-centric and TRICARE 
Choice is a PPO-like (unmanaged) option offering greater choice at a 
modestly higher cost.
      Economically emphasizes TRICARE Select leveraging MTFs as 
the lowest cost option for care to make full use of Direct Care 
capacity and also provides needed workload for military providers for 
readiness training.
      No change for Active Duty--who would maintain priority 
access to health care without any cost sharing but would still require 
authorization for civilian care.
      Copays--will depend on beneficiary category (excluding 
Active Duty) and care venue; it is designed to minimize overutilization 
of costly care venues. There would be no copays in MTFs to facilitate 
the effective use of military clinics and hospitals and thereby improve 
the efficiency of DOD's fixed facility cost structure. There would be 
fixed network copays for the TRICARE Choice option without a 
deductible.
      Participation fee--for retirees (not medically retired), 
their families, and survivors of retirees (except survivors of those 
who died on Active Duty). They would pay an annual participation fee or 
forfeit coverage for the plan year. There is no participation fee for 
Active Duty members or their family members. There is a higher 
participation fee for those retirees choosing the TRICARE Choice option 
($200 higher).
      Open season enrollment--similar to most commercial plans, 
participants must enroll for a 1-year period of coverage or lose the 
opportunity.
      Catastrophic caps--which have not gone up in 10 years 
would increase slightly but still remain sufficiently low to protect 
beneficiaries from financial hardship. The participation fee would no 
longer count towards the cap.
      Medically retired members and their families and 
survivors of those who died on Active Duty would be treated the same as 
Active Duty family members (ADFMs), with no participation fee and lower 
cost shares.
      To ensure equity among ADFMs, the proposal offers all 
ADFMs a no cost medical/surgical care option regardless of assignment 
location and zero copays for ADFM emergency room use, including in the 
network.
      The Department will offer a second payer option with a 
lower fee for those with other health insurance.
      Fees and copays will be indexed at the National Health 
Expenditures (NHE) per capita.

    There have been no changes to most cost-sharing elements of the 
TRICARE Program since it was established in 1994. At the time TRICARE 
was introduced, retiree family beneficiary out-of-pocket payments 
accounted for approximately 27 percent of total TRICARE health care 
costs. Today, retirees and their families only bear 8 percent of the 
costs, and our proposal raises that share to 10.5 percent of total 
costs. For Active Duty families, the changes are even smaller, moving 
out-of-pocket costs from 1.4 percent of total costs to 1.6 percent. By 
any measure, these changes are modest, responsible adjustments that 
place the Department's health program on a stable, long-term financial 
footing and preserve the foundation of the health system and its 
platforms for ensuring a medically ready and ready medical force.
    We enter 2016 confident that an excellent health benefit can be 
further strengthened through a combination of legislative, policy, and 
operational reforms. Our health benefit plays an important role in 
readiness as well as recruiting and retaining the men and women in 
uniform who serve this nation.
    The MHS continues to serve as a unique and indispensable national 
security asset. It supports our Active Duty force and it retains its 
clinical skills through an Active clinical practice in both peace and 
war. It offers a ready asset to respond to humanitarian assistance 
needs and disaster response. The full complement of preventive, public 
health, primary care, specialty and specialty care services that we 
offer are necessary components for meeting the national security 
obligations of the United States.
    Our health benefit must continue to ensure a ready medical force of 
military providers and support staff able to deploy anywhere, anytime 
with skills that support combatant commander requirements; provide 
access, choice and value of the health care benefit, and be fiscally 
sustainable for the Department.
    The MHS reforms we have outlined today will help us meet the 
appropriately high expectations that beneficiaries have for us. Service 
members, military retirees and their families are right to expect 
affordable, accessible quality health care is available to them from 
both military or civilian providers, wherever they reside. We are 
committed to increasing value from their vantage point.
    Our proposal represents a balanced, comprehensive package of 
reforms that are directly aligned with and address each element of our 
Quadruple Aim. We have initiatives that will improve readiness, improve 
health, improve care, and lower cost. We look forward to working with 
you over the coming months to further refine and articulate our 
objectives in a manner that improves value for everyone--our 
warfighters, our combatant commanders, our patients, our medical force, 
and the American taxpayer.
    Thank you for inviting the Surgeons General, Admiral Bono and me 
here today to speak with you about the essential linkage between our 
readiness mission and our health benefit, and about our plans to 
further improve benefits and services for the long term.

  STATEMENT OF LIEUTENANT GENERAL NADJA Y. WEST, USA, SURGEON 
 GENERAL OF THE ARMY AND COMMANDING GENERAL U.S. ARMY MEDICAL 
                            COMMAND

    LTG West. Chairman Graham, Ranking Member Gillibrand, and 
distinguished members of the subcommittee, thank you for this 
opportunity to provide the Army Medicine's perspective on 
defense health care reform.
    It is an honor, first I would like to say, to serve as the 
Army Surgeon General and Commanding General of the U.S. Army 
Medical Command.
    Since 1775, Army medicine has supported our Nation and our 
Army whenever and wherever needed. However, today I would like 
to focus on our more recent history.
    For the past 14 years, we have supported an all-volunteer 
force engaged across the globe and supporting the joint 
campaign fighting in Iraq and Afghanistan and responding to 
national disasters and other contingencies such as the U.S. 
Government response to the Ebola outbreak in West Africa. We 
have accomplished this while continuing to attract, educate, 
and train the next generation of Army medicine. We are 
collecting what we have learned over the past 14 years and 
ensuring that we are using these lessons to inform our daily 
efforts and how we prepare for the future.
    Our readiness to serve when needed is my number one 
priority. In assuring our readiness, Army medicine must 
maintain medical capabilities that are ready to deploy and 
support our warfighters.
    During the past 14 years of combat operations, we have 
achieved a survivability rate, as you heard Dr. Woodson 
mention, of 92 percent, the highest in the history of warfare 
despite the changing tactics of our adversaries and the 
increasing severity of battle injuries. We are not going to 
lose the knowledge and the best practices that helped us 
achieve the survivability rate. These advances in combat 
casualty care resulted from our integrated health services that 
span the continuum of care from prevention to treatment of 
illness and injury and to recovery and rehabilitation in both 
the garrison and the operational environments.
    We cannot, however, focus exclusively on sustainment of 
combat trauma, surgery, and burn capabilities. Our experience 
shows that the Army must be agile and adaptable and therefore 
must maintain a broad range of medical capabilities to support 
the full range of military requirements.
    To that end, we see our medical centers, hospitals, and 
clinics as health and readiness platforms. They ensure we 
maintain trained and ready medical personnel by exposing them 
to a diverse and broad range of patients with a wide variety of 
illnesses and injuries.
    Our medical centers also serve as platforms for our Army 
graduate medical education programs. These programs are the 
primary means for transferring the knowledge from this 
generation of military providers to the next. While we focus on 
our readiness mission, we must also ensure we provide our 
soldiers, their families, and our retired population with 
access to high-quality health care that meets their needs and 
encourages health.
    Improving access to care is a priority for Army medicine, 
and I have directed actions to rapidly improve access to care.
    First, we will enable our beneficiaries to book an 
appointment up to 6 months in advance, and we have already 
piloted that at some of our installations. Womack Army Medical 
Center is one example. We will increase the number of available 
appointments by increasing the time our providers are available 
to see patients and reducing the number of unfilled 
appointments and also working on the no-show rate, which leaves 
a large number of our appointments unfilled and unutilized.
    Additionally, we are opening three new community-based 
medical homes and we will evaluate where after-hour or urgent 
care clinics are necessary.
    As part of the health services enterprise, we will also 
continue to expand our telehealth program. We are currently 
conducting a pilot to treat low acuity patients in the 
emergency department at Fort Campbell as one example. We are 
also expanding remote health monitoring programs and leaning 
forward to expand our telehealth to the home. I would like to 
thank Dr. Woodson for recently signing the policy to help us 
expand that facility to home telehealth initiative.
    I understand reforms are necessary to ensure the long-term 
sustainability of TRICARE. However, reforms must not increase 
the financial burden on our Active Duty soldiers or their 
Active Duty family members and must minimize any impact to our 
retired population. Reforms should encourage beneficiary use of 
our direct care system to ensure our medical military skills 
are maintained and should also encourage healthy behaviors, as 
you have heard our colleagues mention previously.
    Reforms must not degrade our combat-tested system or 
readiness in an environment where we must remain rotationally 
focused and surge ready as the next large-scale deployment 
could be tomorrow. General Milley states that the Army's 
fundamental task is like no other. It is to win in the 
unforgiving crucible of ground combat.
    Now, Army medicine does not literally fight wars. I 
understand this. We are, however, a critical enable to ensure 
our Army achieves this end. Our Nation's mothers and fathers 
know that when their sons or daughters become ill or injured, 
we are there, we are ready, and this gives them the confidence 
to send them into harm's way if called. This is a truly sacred 
trust, and our readiness to support the warfighter can never, 
will never be in doubt.
    I want to thank you all for your continued support to our 
soldiers and to military medicine, and I look forward to your 
questions. Thank you.
    [The prepared statement of General West follows:]

              Prepared Statement by General Nadja Y. West
    Chairman Graham, Ranking Member Gillibrand, and distinguished 
members of the subcommittee, thank you for this opportunity to provide 
Army Medicine's perspective on defense health care reform and to 
discuss our efforts to improve Army Medicine. Army Medicine's clear 
objective remains to enable the readiness of our Army. We do so by 
ensuring our soldiers, past and present, and their Families receive the 
care they need while continuing to improve access and quality of health 
care for all beneficiaries.
    No other health care organization could have accomplished what Army 
Medicine has done since 2001. For the past 14 years we have supported 
an All-Volunteer force fighting the wars in Iraq and Afghanistan, 
responded to natural disasters across the globe, and deployed to other 
contingencies such as the US Government response to the Ebola outbreak 
in West Africa. While caring for soldiers and their Families we 
continued to embrace our retirees and veterans and ensured their 
pressing healthcare needs were met; even at the height of the wars.
    We do not rest on our laurels and today we must address the need 
for healthcare reform to ensure we maintain the lessons learned over 
the past 14 years and prepare for tomorrow's conflicts while continuing 
to provide a sustainable healthcare benefit to all who have earned it. 
We owe it to our soldiers and their Families to ensure any changes to 
the military health benefit honor their sacrifices and preserve the 
long-term viability of the All-Volunteer Force.
                               readiness
    The global security environment continues to degrade and to place 
high demands on the United States Army. The Army must be prepared to 
confront near-peer competitors abroad, defend the Homeland, and respond 
to a wide range of crises, ranging from peacekeeping to disaster relief 
and humanitarian assistance. Throughout last year, the Army committed 
approximately 190,000 soldiers to over 140 countries and to Homeland 
defense to advance our national security interests.
    The Army derives its power from the collective strength of its 
soldiers. Our soldiers are our primary weapon systems and ensuring they 
remain medically ready, trained, and prepared to deploy is our number 
one priority. Therefore, Army Medicine has a two-fold readiness 
mission. We must ensure soldiers are medically ready to deploy while 
maintaining medical forces, complete with trained personnel and 
equipment, to deploy and support our Nation's Army.
    During the past 14 years of combat operations, our trained and 
ready medical providers contributed to a survivability rate of 92 
percent, the highest in the history of warfare, despite the increasing 
severity of battle injuries. These advances in combat casualty care 
resulted from our integrated system of health that spans the continuum 
of care from the battlefield to our inpatient hospitals in the United 
States.
    However, it would be a mistake to focus exclusively on sustainment 
of combat trauma, surgery and burn capabilities. Our experience shows 
that the Army must maintain a broad range of medical capabilities to 
support the full range of military requirements. From 2001 to 2015, 
only 16 percent of those evacuated from Iraq and 21 percent of those 
evacuated from Afghanistan were injured in battle. The remaining 
Service members were evacuated for disease or non-battle injuries. 
Similarly, greater than 95 percent of those that received care and 
remained in theater were treated for disease and non-battle injuries 
rather than combat injuries.
    The 2014 deployment of over 2,500 personnel to support Operation 
United Assistance in Liberia demonstrated the value of non-trauma 
related medical specialties and the importance of force health 
protection in deployed environments where a major threat to our 
soldiers is infectious disease rather than armed combatants. The 
geographically endemic medical risks to our forces in support of the 
rebalance to Asia and continued operations in Africa point to the 
continued need to remain ready to utilize the entire spectrum of Army 
medicine in the execution of all manner of military contingency 
operations.
    Our medical centers, hospitals and clinics are our health and 
readiness platforms. They ensure we maintain trained and ready medical 
personnel. Our large medical centers serve as specialized training 
centers for our medical teams to provide care and clinical research for 
complex battle injury and illness. Our medical centers are complemented 
by a variety of military treatment facility types, from ambulatory 
clinics to community hospitals, to ensure our medical force is capable 
of providing primary and routine specialty care in the myriad of 
settings and conditions faced around the world. These facilities must 
be capable of providing a broad range of patients with a wide variety 
of illnesses and injuries.
    Our medical centers also serve as platforms for our Army Graduate 
Medical Education (GME) programs that are critical to develop trained 
and ready medical personnel. GME programs are vital to our ability to 
recruit and retain highly skilled medical providers. Army GME is the 
largest GME platform in the DOD and supplies more than 90 percent of 
all staff Medical Corps (MC) Officers for the Army. Our GME programs 
have nearly 1,500 trainees in 149 programs across 10 Army Health and 
Readiness platforms. Civilian GME programs do not have the capacity to 
absorb our interns, residents, and fellows. Our GME programs continue 
to lead the nation in training. The first time board certification pass 
rate of 95 percent across Army GME exceeds the 87 percent national 
rate. Agile GME program management assures ongoing alignment of 
training slots with deployment and readiness requirements.
    Reducing our beneficiary population to only Active Duty will result 
in an inability to sustain our GME programs due to lack of teaching 
cases and exposure to the wide breadth of disease within each specialty 
necessary to support any residency training program. Of the current 
1.34 million beneficiaries enrolled to Army Medicine, 66 percent are 
non-Active Duty Service Members (ADSMs). Excluding behavioral 
healthcare, 80 percent of our total inpatient workload and 70 percent 
of our high-acuity inpatient workload is for Family members, Retirees 
and other non-ADSMs. Additionally, non-ADSMs comprise 50 percent of 
total outpatient care, and 53 percent of our general surgery cases. The 
Active Duty population at most Army installations, comprised mostly of 
healthy young adults, is insufficient to maintain an inpatient 
hospital. Therefore, nearly all of our 22 inpatient MTFs would need to 
transition to outpatient clinics. Even at the largest Army 
installations, the case mix presented by a young, relatively healthy 
Active Duty population would be insufficient to maintain the medical 
skills of our providers.
    Beyond trained physicians, our deployable Combat Support Hospitals 
and Forward Surgical Teams require trained allied health professionals, 
nurses, OR [Operating Room] techs, lab techs, and other specialties 
that operate as teams and maintain their skills in our MTFs. The loss 
of inpatient capability would pose significant risk to the maintenance 
of their skills and directly impact the readiness of our operating 
force medical units. Training, once lost, cannot be replaced.
    The Army recognizes the need to maintain the skills learned over 14 
years of war to ensure these capabilities do not atrophy, while also 
ensuring that we maintain the full scope of medical capabilities needed 
to be flexible and adaptable to all future globally integrated 
operations. In conjunction with my fellow Service Surgeons General and 
the Joint Staff Surgeon, my staff is working to identify, define, 
categorize and prioritize the medical capabilities required to support 
future conflicts and contingencies. Readiness measures will be 
developed and reported in systems of record, such as the Digital 
Training Management System (DTMS) and the Defense Readiness Reporting 
System-Army (DRRS-A).
                         health benefit reform
    TRICARE is an excellent benefit tailored to support our 
beneficiaries and their unique needs and situations. However, most 
agree that change is necessary to ensure the long-term sustainability 
of the program and to improve performance. I support the TRICARE 
reforms proposed in the Fiscal Year 2017 President's Budget.
    Reforms should inspire beneficiaries to return back to our direct 
care system and military run medical facilities. I believe the best 
place for them to receive care is in our military treatment facilities 
where we understand their needs, can manage and document their care, 
ensure quality, and can ensure their readiness.
    Reforms should incentivize health and healthy lifestyles. This is 
key to long-term cost control.
    We must ensure our beneficiaries have access to high quality, safe 
healthcare in our MTFs and in the TRICARE network. To this end, we must 
increase transparency and exchange of data between both healthcare 
systems.
    Reforms must not increase the financial burden on Active Duty 
soldiers or Active Duty family members. Any increased financial burden 
on retirees must be modest and not inhibit them seeking necessary 
medical care in our facilities.
    Reform also provides the opportunity to identify and close gaps in 
the benefit. In some cases legislation established benefits for Active 
Duty but excluded similar benefits for Retirees or Family Members. In 
other cases, civilian insurance programs now provide benefit coverage 
for new or emerging technologies and treatment modalities not yet 
covered by TRICARE. TRICARE should be one of the most comprehensive 
health plans in the country and exceed all benchmarks under the 
Affordable Care Act. Our beneficiaries deserve nothing less.
                            improving access
    Improving access to care remains a priority for Army Medicine. 
Specifically, our beneficiaries expect better acute care access. While 
we have made significant improvements in access, 21 percent improved 
since 2014, we are still not meeting our beneficiaries' expectations. 
Therefore, I have directed actions to radically improve access to 
primary care in our MTFs. I have established a goal of creating 260,000 
(4 percent) more primary care visits above the 6.1 million visits we 
provided in fiscal year 2015 and 119,000 (1.5 percent) more specialty 
care visits above the 7.9 million we visits provide in fiscal year 
2015.
    We are standardizing processes across our enterprise to continue to 
drive improvement with access. Last year, Army Medicine instituted a 
first call resolution policy to ensure all enrolled beneficiaries 
receive a direct care appointment or network authorization on their 
first call. In addition, Army Medicine implemented a simplified 
appointing policy to reduce the types of primary care appointments from 
12 to 5, with the vast majority of these being 24 hour acute 
appointments and future or follow-up appointments.
    Army Medicine continues to expand our off-installation healthcare 
program by placing Community Based Medical Homes (CBMH) in communities 
surrounding our military installations closer to where our 
beneficiaries live and work. Today over 10 percent of our enrolled 
beneficiaries receive their primary care in a CBMH, many of which have 
extended hours and offer behavioral health, physical therapy, and 
prescription refill services. We currently have 20 CBMHs supporting 13 
installations. In fiscal year 2016, we will open three (3) more CBMHs 
at 3 installations and in fiscal year 2017, we will open two (2) more 
CBMHs and our first open access acute care clinic in San Antonio.
    To further improve access for routine care and specialty care, I 
have directed my staff to evaluate the feasibility of opening 
appointments beyond the current six-week template to six (6) months or 
more. This will allow beneficiaries to depart at the conclusion of 
their appointment with follow-ups booked in advance without the need to 
call back in the future. Additionally, we are also conducting a 
comprehensive assessment across our installations to determine where 
expansion of clinic hours or establishment of Urgent Care Clinics is 
necessary.
    We are partnering with the Navy, Air Force, Defense Health Agency, 
VA and other institutions to improve access as well. In San Antonio the 
Army will lease and outfit a CBMH that the Air Force will staff and 
run. We are also hiring civilian physical therapist and technicians to 
work in Air Force facilities. In Puget Sound the Army is hiring medical 
providers to work in Navy facilities. The Army is providing analytics 
and finance & accounting support to the National Capital Region Medical 
Directorate under the Defense Health Agency. We are providing staffing 
and analytic support to the enhanced Multi-Service Markets.
    Army Medicine will continue to seek opportunities to leverage 
technology to enhance access for our beneficiaries. In fiscal year 
2015, Army Telehealth (TH) provided over 40,000 provider-patient 
encounters and provider-to-provider consultations across 18 time zones 
in 30 specialties over 30 countries and territories including the 
operational environment.
    In fiscal year 2016, Army Medicine will initiate a pilot to utilize 
TH to assist with overused Emergency Departments (ED). This pilot will 
utilize primary care physicians from Fort Gordon to treat patients with 
low acuity at Fort Campbell. This will allow the ED physicians to 
concentrate their efforts on patients with higher acuity and should 
drive down ED wait times.
    The true promise of TH lies in the potential to reach patients in 
their homes. On February 3, 2016, the Assistant Secretary of Defense 
for Health Affairs signed a memorandum authorizing TH to a patient's 
home. We are leaning forward to develop implementation guidance to 
execute expansion of TH to the home.
                      improving quality and safety
    Since 1775, Army Medicine has been a reliable capability for our 
Nation, our Army and all those entrusted to our care. Army Medicine, in 
2012, began working to implement the tenets of the ``High Reliability 
Organization'' (HRO) to continue to evolve our understanding of patient 
safety. In 2015, we established the Deputy Chief of Staff for Quality 
and Safety to align all quality, patient safety, and organizational 
environmental and equipment safety elements within the same 
directorate. This alignment provides a synergistic environment to take 
advantage of analysis of problem areas and best practices across the 
full spectrum of quality and safety from within the command and in 
consultation with external experts and leaders.
    Army Medicine is collaborating with The Joint Commission to pilot 
an assessment to gauge the HRO maturity of four Army MTFs. The team 
completed three assessments in 2015, and one in January 2016.
    Army Medicine is increasing its participation in the American 
College of Surgeons' National Surgical Quality Improvement Program 
(NSQIP) to reduce surgical complications, improve outcomes, and improve 
patient satisfaction. Currently, nine (9) Army MTFs participate in 
NSQIP. By the end of 2016, all 22 Army MTFs with surgical services will 
participate in NSQIP. In 2015, Dwight D. Eisenhower Army Medical Center 
at Fort Gordon, GA was recognized by the American College of Surgeons 
as a top NSQIP performer and deemed ``Meritorious'' with regard to 
their composite quality score.
    To drive further improvement, MEDCOM will design, develop and 
implement a Quality and Safety Center to more effectively use patient 
safety data, improve sharing of lessons learned across the MEDCOM, and 
increase transparency and availability of quality and safety 
information available to our leaders, staff, and beneficiaries. This 
center will be established in coordination with the Army Combat 
Readiness Center and will leverage many of the successful practices 
incorporated by the CRC.
                         improving performance
    Since 2010, Army Medicine has maintained relatively stable 
enrollment of 1.4 million beneficiaries despite significant budget and 
personnel turbulence. As we improve access, quality, and safety, Army 
Medicine is also improving performance to maximize value. From fiscal 
year 2011 to fiscal year 2015, our operations and maintenance budget 
decreased from $7.6 billion to $7.0 billion. After reaching a high of 
over 43,648 civilian personnel in January 2013, MEDCOM lost 5,140 
civilian personnel due to the furlough and hiring freeze in 2013 and 
2014. MEDCOM civilian end strength has slowly risen back to our 
authorized civilian end strength of 40,583 that we require for mission 
accomplishment. DOD imposed constraints on the number of staff we can 
employ is a limitation to our capacity and, therefore, to our ability 
to improve access.
    Army Medicine is driving performance improvement at the MTF through 
the use of an innovative financial incentive model and performance 
based resourcing called the Integrated Resourcing and Incentive System 
(IRIS). IRIS aligns resources, funding and incentives to enhance MTF 
value production and adjusts resources based on actual performance 
compared to MTF business plans. IRIS financially rewards high-
performance and incorporates quality measures through financial 
incentives to the facility for achievement in Evidence Based Practice 
standards, data quality, patient satisfaction, and continuity of 
enrollee primary care encounters.
                         streamlining structure
    Army Medicine continues to evaluate its headquarters structure to 
ensure it is properly sized and aligned to support the Army. In Fall 
2013, the AMEDD Futures Task Force was established to review the MEDCOM 
headquarters structure and provide recommendations on how to best 
balance and align the headquarters structure. The Task Force 
recommended a flattened and more integrated structure that is 
geographically aligned to support the Army. The Secretary of the Army 
approved this reorganization on 27 April 15 and MEDCOM initiated its 
transformation on 8 July 2015.
    By the end of the two year implementation in fiscal year 2017, the 
MEDCOM will transform from 20 to 14 subordinate Command HQs. This 30 
percent reduction of headquarters will reduce our administrative 
overhead structure to less than 4.2 percent of MEDCOM's total 
requirements and authorizations. We will transform from fifteen 
functional regional command HQs to four multi-disciplinary Regional 
Health Commands (RHCs) by merging regional headquarters for public 
health and dental into the RHCs to create a single point of 
accountability for Health Readiness that is strategically aligned with 
the Army's operational force headquarters and units. Finally, we will 
transition the headquarters for the Public Health Command, Warrior 
Transition Command, and Dental Command to elevate and integrate them 
into key staff on the MEDCOM headquarters.
    Simultaneously, a work group was established to review the 
executive leadership within our MTFs. The results of this study led to 
an executive leadership model borrowed from the US Navy, the AMEDD 
Health Executive Leadership Organization Structure (HELOS), which was 
approved for implementation on 12 Jun 15. The model standardizes the 
leadership structure for medical centers, large hospitals, small 
hospitals, and clinics. It provides increased leadership opportunities 
at the deputy level and enhances oversight of quality, safety, the 
patient experience, staff development, and productivity within all 
MTFs. The new leadership positions will provide additional 
opportunities to groom future hospital and medical center commanders. 
The endstate will be more experienced leaders who are more accountable.
                               conclusion
    Army Medicine is one of the finest health care systems in the 
world. As the military health care reform discussion continues we must 
remain focused on maintaining readiness while continuing to improve the 
health of all those entrusted to our care. While our system has proven 
very successful over the last 14 years of supporting the Warfighter, we 
need to continue to improve and evolve it to meet the changing needs of 
our Nation's Army. No other health organization is required to provide, 
nor is capable of providing, the full spectrum of care from point of 
injury or illness on a battlefield through rehabilitative care while 
continuing to maintain high quality care in garrison environments for 
its beneficiaries. There is more we can do to improve readiness, 
enhance the benefit and ensure fiscal sustainability within our 
existing authorities. We remain fully committed to work with Congress, 
DOD, and all those entrusted to our care to improve our system.
    I want to thank my partners in the DOD, the VA, my colleagues here 
on the panel and the Congress for your continued support.

 STATEMENT OF LIEUTENANT GENERAL MARK A. EDIGER, USAF, SURGEON 
                    GENERAL OF THE AIR FORCE

    Lt. Gen. Ediger. Chairman Graham, Ranking Member 
Gillibrand, and distinguished members of the committee. Thank 
you for the opportunity to come before you today to discuss the 
future of the military health system.
    We fully support the committee's work to enhance the focus 
on value and delivery of the health benefit to those we serve, 
consisting of sustained good health, streamlined patient 
experience, readiness of the force we support, and the 
readiness of our medical force.
    Strong health systems must continuously improve. Changes to 
the Air Force performance management process implemented in 
2015, as part of the coordinated action plan following the 
military health system review, are producing continuous 
improvements in safety, quality, and timeliness of care. Recent 
evidence includes the joint commission of our hospital at Joint 
base Elmendorf-Richardson for outstanding performance on key 
quality measures, the Keesler Medical Center's top 10 percent 
ranking among all U.S. hospitals participating in HCAHPS 
[Hospital Consumer Assessment of Healthcare Providers and 
Systems] measures of patient perspectives, and favorable 
system-wide performance against national benchmarks in 
perinatal outcomes, diabetes management, and well child care. 
We know our performance as a health system is integral to our 
readiness, and we remain committed to continual improvement.
    Today we have 683 medical airmen deployed around the world 
providing medical support to contingency operations, including 
the trauma team at Craig Joint Theater Hospital in Bagram, 
Afghanistan, mobile surgical teams at various sites, and 
aeromedical evacuation teams with critical care capability.
    Our success in support of deployed operations is 
inextricably linked to the care we provide in our hospitals, 
our clinics, and our many partner institutions. The bedrock of 
our readiness is the military hospital. Of the 76 Air Force 
military treatment facilities, only 13 today are hospitals. I 
would add that 30 years ago in 1986, we had 73 hospitals. Over 
the past 30 years, the Air Force has closed and converted 60 
hospitals.
    Our capability to meet combatant command requirements with 
deployable medical teams hinges primarily on our eight largest 
hospitals. The broad scope of care we provide to retired 
military members, their families, and veterans is key to our 
readiness. The Air Force has a number of agreements with the VA 
under which we provide specialty care to veterans. As we 
consider changes to the military health system, we believe it 
is very important to facilitate retiree access to specialty 
care in military hospitals and provide tools enabling more 
agreements with the VA and other Federal health systems.
    To ensure our readiness, we have evolved to a model in 
which Air Force surgeons and critical care specialists devote a 
portion of their time to provision of care in partner 
institutions, such as VA medical centers and level 1 trauma 
centers where more complex care and trauma are prevalent. I 
would offer as an example the medical group at Nellis Air Force 
Base in Las Vegas where the surgeons on staff at Nellis, 
vascular surgeons, orthopedic surgeons, and general surgeons, 
do a significant portion of their cases in the VA medical 
center in Las Vegas but also at the University Medical Center 
in downtown Las Vegas, which is the only level 1 trauma center 
for Las Vegas. This provides the needed balance of complex 
cases for a proficient, deployable clinician.
    An additional key point pertains to primary care support 
for Active Duty families. Experience has shown that primary 
medical support to Active Duty families from our military 
treatment facilities enhances commanders' efforts to support 
families under stress and strengthens the resilience of 
families. As changes are considered, we strongly recommend 
sustaining care for Active Duty families in military treatment 
facilities.
    I thank the committee for its steadfast support and 
dedication to the welfare of the airmen, soldiers, sailors, 
marines, their families, and our veterans. Thank you.
    [The prepared statement of Lieutenant General Ediger 
follows:]

        Prepared Statement by Lieutenant General Mark A. Ediger
    Chairman Graham, Ranking Member Gillibrand, and distinguished 
members of the Committee, thank you for the opportunity to come before 
you today, to discuss the future of the Military Health System.
    We look forward to supporting the committee's work to enhance the 
delivery of the health benefit that is so vitally important to those 
who serve and have served our nation. Initiatives to structure health 
care delivery around provision of value hold great promise for those we 
serve. We fully support the pursuit of streamlining measures to improve 
access and the experience of care. For the Military Health System, 
value in provision of care equates to better health and performance for 
those we serve, as well as readiness of the medical force for mission 
support. I will focus my comments today on our strategies to meet the 
future needs of the Air Force and Joint Team. I will describe linkages 
to our readiness and our support to military operations that we believe 
to be important considerations as options are assessed for delivery of 
the health benefit. The Military Health System is unique in that its 
mission couples direct medical support to military operations around 
the globe with delivery of health care. Our care is provided to a very 
special population whom we are honored to serve. Today we have 683 
medical airmen deployed around the world providing medical support, 
even as we provide care and operational support from our 76 military 
treatment facilities at Air Force installations. Additionally, Air 
Force medical personnel conducted 61 global health projects in 2015, 
including a significant role in the U.S. response to the Ebola crisis 
in West Africa. Our history has clearly demonstrated that our success 
in support of deployed operations is inextricably linked to the care we 
provide in our hospitals and clinics. As we embark on change, we 
recommend careful assessment of the options that enhance our readiness 
and our support to Active Duty families.
    With a focus on the future, the Air Force has published the 
Strategic Master Plan and Future Operating Concept for the U.S. Air 
Force. These documents reflect a dramatic transformation in 
capabilities already in progress. Also, the Joint Staff has published 
the Joint Concept for Health Service Support. These documents shape our 
strategies in Air Force Medicine to enable a force capable of the 
following:

      Stabilization of casualties in austere forward locations 
with the agility to stabilize during patient movement
      Integration of human performance enhancement as part of 
the development of airmen
      State of the art, highly reliable specialty care with 
particular focus on operational health
      Precision prevention-focused health services to members 
and their families
      Continuous linkage of health data across all domains of 
medical support during and beyond Active service
      Global health response in support of national strategies

    In 2015, we saw indications these forecasted requirements are valid 
as the scope of counter-terrorism operations shifted medical 
requirements in the combatant commands.
    Our strategic actions to evolve to these capabilities are mapped 
and include four major initiatives currently in progress:

    1.  Full spectrum readiness in the medical force--incorporating 
clinical readiness standards into management of readiness for the 
medical force
    2.  Integrated operational medical support--extending medical 
support into the operational environment for missions with special 
performance requirements and/or operational health issues. This 
includes operations conducted from Air Force installations such as 
Integrated Strategic Reconnaissance
    3.  Trusted Care--application of high reliability principles in Air 
Force Medicine focused on the safest, highest quality care
    4.  Air Force Medical Home--progressive primary care leveraging new 
knowledge for precise, timely prevention and teammate-based care for 
airmen and their families

    There are two key points I wish to make in regard to our readiness. 
Both points are relevant when considering potential changes to the 
Military Health System. The first point relates to our hospitals and 
second relates to our support to Active Duty families.
    To sustain a deployable medical force in support of combatant 
command requirements, the Air Force uses a variety of tools that 
include partnerships with numerous trauma centers and academic medical 
institutions. These partnerships have proven valuable and will continue 
to move forward, but the bedrock of our readiness is the military 
hospital. Of the 76 Air Force military treatment facilities, only 13 
are hospitals. This represents a dramatic transformation from the early 
1990s, when most Air Force military treatment facilities were 
hospitals. This means our capability to meet combatant command 
requirements with deployable medical teams hinges on our remaining 
hospitals, primarily our eight largest hospitals. Those hospitals are 
the primary source for expeditionary Air Force hospitals and critical 
care transport teams. Furthermore, these Air Force hospitals are 
essential to our disaster response and humanitarian assistance 
capability.
    Research and innovations in deployed trauma stabilization surgery 
and movement of critical care patients originated in military hospitals 
and those innovations have advanced standard practices internationally. 
In order to keep our medical professionals at these hospitals current 
in clinical skills needed to support combat operations and global 
health missions, they must provide care in our hospitals to patients 
from beyond our Active Duty population.
    The readiness of our medical force is significantly dependent on 
the care we provide to retired military members, their families and 
veterans. The Air Force has a large and growing number of agreements 
with the VA under which we provide specialty care to veterans. We have 
more readiness-based capacity in specialty care to make available to 
retirees and veterans at our hospitals. As we consider changes to the 
Military Health System, we believe it is very important to facilitate 
retiree access to specialty care in military hospitals and provide 
tools to enable more agreements with the VA and other federal health 
systems.
    My second key point in regard to readiness pertains to primary care 
support for Active Duty families. Air Force leadership is committed to 
excellent primary care medical support to Active Duty families. 
Experience has shown that primary medical support to Active Duty 
families from our military treatment facilities enhances commanders' 
efforts to support families under stress, and strengthens their 
resilience. This is particularly important when the Active Duty member 
is deployed. The Air Force Medical Home is our strategic initiative to 
provide the best primary care support, and prepare for future 
opportunities presented by advancing science in identification and 
mitigation of health risk. As changes are considered, we strongly 
recommend sustaining care for Active Duty families in military 
treatment facilities.
    We also know timely access to primary care services for our 
population is a priority for the committee. It is a priority we share 
and has been a focal point over the past year for coordinated 
improvement across the Military Health System. In collaboration with 
the Army and Navy, we have implemented policy changes to improve 
appointing processes, and implemented a common performance management 
dashboard.
    In the Air Force, we have implemented changes that have increased 
the fill rates for primary care provider positions. We give top 
priority to operational health requirements, which requires a 
significant portion of dedicated primary care bandwidth. A recent 
example is the addition of separation health examinations to support 
disability applications by separating Airmen at a rate approaching 
3,000 per month. The Air Force performs 80 percent of these 
examinations on Airmen while the VA conducts 20 percent. We remain 
committed to managing our primary care resources to provide good access 
to care while meeting operational health requirements for Airmen. We 
are also committed to streamlining referral management processes to 
speed the provision of specialty appointments to our patients.
    We appreciate this opportunity to describe our initiatives for 
meeting the requirements of the rapidly evolving U.S. military 
capabilities. We are particularly grateful to discuss the many facets 
of our readiness and relevant linkages connected to delivery of the 
health benefit. As the committee considers revisions to the Military 
Health System, we stand ready to provide information or assist. I thank 
the committee for its steadfast support and dedication to the welfare 
of the airmen, soldiers, sailors and marines we serve.

 STATEMENT OF VICE ADMIRAL C. FORREST FAISON III, USN, SURGEON 
 GENERAL OF THE NAVY AND CHIEF, BUREAU OF MEDICINE AND SURGERY

    VADM Faison. Ranking Member Gillibrand, distinguished 
members of the committee, it is my honor to represent the men 
and women of Navy medicine, 63,000 dedicated professionals who 
every day honor a trust in caring for those who have sacrificed 
to defend our freedom. We are grateful for your strong and 
unwavering support of our servicemembers and their families.
    As you consider potential changes to the military health 
system, I thank you for that, but I would like to highlight 
important considerations that I believe are central to any 
discussions.
    Military readiness and combat support are our mission. Navy 
medicine protects, promotes, and restores the health of sailors 
and marines around the world at home and deployed and in all 
warfare domains. We are equally privileged to care for their 
families.
    In an increasingly complex world, as our Navy and Marine 
Corps stand ready and engaged around the globe, Navy medicine 
stands there as well to protect and to care for them. As an 
agile, rapidly deployable medical force, this is what sets us 
apart from civilian health care. No civilian health care 
company in the world routinely leaves their families and home 
on a moment's notice to willingly go into harm's way to care 
for those in need. No health care company in the world daily 
puts their lives on the line in battle to defend and care for 
their patients, as the young hospital corpsman 2nd class was 
privileged to see awarded the Silver Star 2 weeks ago did 
without thinking. No health care company in the world 
experiences the staff deployments and turnover we routinely 
experience and still delivers world-class care. Finally, no 
health care company in the world is daily and singularly 
focused on the combat readiness of its staff.
    The proof is on the battlefield, the highest combat 
survival in recorded history. Wounded warriors are alive today 
who, in any previous conflict, would have died from their 
injuries. They are the testament to the effectiveness of the 
military health system because every one of them, from point of 
injury on the battlefield to advanced treatment in our medical 
centers, received their care from men and women who got their 
training, their experience, and their preparation in our 
military treatment facilities. Those facilities are the 
foundation of battlefield survival. In my opinion, as a former 
commander of a deployed expeditionary combat medical facility, 
a robust military health system is critical to future 
battlefield survival. Unparalleled combat survival in our 
Nation's longest conflict is proof that a robust military 
health system that also serves as our training and search 
platforms for our battlefield providers from corpsman to 
physician is essential to both combat survival and agility in 
rapidly supporting our deploying operational forces.
    These three facts are not in dispute.
    One, we have the highest combat survival in recorded 
history.
    Two, many wounded warriors alive today would have otherwise 
died of their injuries in any previous conflict.
    Three, every wounded warrior received their care from 
injury on the battlefield to recovery in our medical centers 
exclusively by men and women who receive their training, their 
clinical experience, and preparation in one of our military 
treatment facilities. This is a system that works and has 
proven itself time and again in the thousands of men and women 
alive today.
    It is also a system that is not perfect, and I appreciate 
your attention to this much needed area of reform and 
improvement. The services are working hard to improve access, 
care continuity, convenience, and satisfaction with the care 
and benefit that we deliver in peacetime. We have made 
important strides in each of these areas while concurrently 
increasing enrollment, network recapture, staffing 
realignments, and other efforts to ensure we provide the 
clinical experience our staff needs to preserve skills, 
competencies, and ultimately combat survival in the next 
conflict.
    It is more than just trauma. 70 percent of the evacuations 
in the most recent conflict were not trauma-related. Every 
single person on our team, every single person wearing a 
uniform in the Navy today matched to an operational platform is 
assigned to an operational platform. We do not have people in 
uniform for peacetime care. All of them have necessary roles 
and responsibilities in the next conflict.
    More needs to be done, and none of us underestimates the 
effort required to improve our peacetime health care services. 
We are committed to continuing those necessary reforms which 
will improve our patients' experience and, most importantly, 
their health. However, we must do so without putting at risk 
the very system which has yielded such unprecedented survival. 
We will need your help in this effort, and for your tireless 
support, I thank you for helping us to ensure that those 
sailors and marines who will stand the watch in the future will 
have the same or better survival than today's wounded warriors 
have had. In our hands is a sacred trust to do all in our power 
to return home safely America's sons and daughters who have 
sacrificed to defend our freedom. I thank you for helping us to 
honor that trust today and tomorrow.
    [The prepared statement of Vice Admiral Faison follows:]

        Prepared Statement by Vice Admiral C. Forrest Faison III
    Chairman Graham, Ranking Member Gillibrand, distinguished Members 
of the Committee, thank you for providing me the opportunity to offer 
some perspectives on military medicine. All of us recognize that this 
Committee has been a strong and unwavering advocate for the men and 
women in uniform and we are particularly grateful for your support of 
the Military Health System (MHS). As you continue your important 
oversight role and deliberate on potential reforms to Defense health 
care, I would like to highlight some important considerations which I 
believe must remain in the forefront of any discussions.
    The President's Budget for fiscal year 2017 contains key TRICARE 
proposals which are needed to modernize the Department's health care 
program. I support these reform proposals as they will continue to 
sustain military readiness, improve beneficiary choice, and improve 
access as well as help realize cost savings. In addition, these 
initiatives will simplify TRICARE while encouraging the use of military 
treatment facilities (MTFs)--vital for medical readiness--and update 
beneficiary out-of-pocket costs with modest increases. These proposals 
will strengthen the Military Health System (MHS) and support 
sustainable health care benefits for all our beneficiaries.
    We recognize, however, that the proposed legislative changes must 
be complemented by internal changes and institutional reform efforts 
within the MHS that allow us to deliver exceptional, more convenient 
care to our beneficiaries. We are at a pivotal point. We must 
aggressively assess the transformative opportunities presented in 
today's environment to provide value-based care, employ technologies 
that make good clinical and business sense and eliminate administrative 
processes that can negatively impact access to care. The MHS leadership 
is committed to making these necessary internal reforms that will 
improve beneficiary experience, and more importantly, beneficiary 
health.
                    medical readiness is our mission
    Navy Medicine protects, promotes and restores the health of sailors 
and marines around the world, ashore and afloat, in all warfare 
domains. We exist to support the operational missions of both the Navy 
and Marine Corps. These responsibilities require us to be an agile, 
rapidly deployable, expeditionary medical force capable of meeting the 
demands of crisis response and global maritime security. The Chief of 
Naval Operations (CNO) and Commandant of the Marine Corps (CMC) expect 
Navy Medicine to keep their sailors and marines healthy, medically 
ready to deploy and to deploy with them. They, along with the combatant 
commanders, must always be confident in our capability to deliver 
world-class care, anytime, anywhere. This obligation to keep our 
Nation's servicemembers and their families healthy is both a privilege 
and sacred trust earned over years by providing care at sea, on the 
battlefield and around the world in our medical centers, hospitals and 
clinics.
    These demands set us apart from civilian medicine - we are truly a 
mission-ready, fully integrated medical system. This capability allows 
us to support combat casualty care, working side-by-side with our Army 
and Air Force colleagues, with unprecedented battlefield survival 
rates, as evidenced over the last 15 years. Our operational agility 
also enables us to rapidly meet global health threats as we did in 
deploying mobile labs and personnel to Liberia that slashed the Ebola 
virus testing time from days to hours. In addition, our hospital ships, 
USNS [United States Navy Ship] Mercy and Comfort, are capable of 
getting underway quickly for combat support or to support humanitarian 
assistance and disaster response efforts here and around the world, as 
evidenced by relief efforts in the Gulf Coast following Hurricane 
Katrina, Indonesia in the aftermath of the tsunami, and in Haiti 
following the devastating earthquake.
 our military treatment facilities are the foundation of our readiness
    We must recognize that the direct care system--our CONUS 
[Contiguous United States] military treatment facilities (MTFs)--are 
our most important readiness training platforms. These facilities are 
critical to sustaining the vital skills and clinical competencies for 
our medical personnel who are saving lives on the battlefield. I cannot 
overstate the importance of robust clinical experience to having a 
fully trained and ready medical force capable of sustaining 
unprecedented survival on the battlefield. From physicians to nurses to 
corpsmen, our personnel want to deliver health care and need that 
strong clinical experience to sustain and enhance their skills in 
preparation for the next deployment. These CONUS MTFs provide important 
surge capabilities, while our OCONUS [Outside Contiguous United States] 
facilities support our forces operating forward much like our 
expeditionary medical capabilities onboard ships.
    As a ready medical force, we have a responsibility to ensure we are 
as ready for the next mission or conflict. The improved battlefield 
survival rates we realized over the last 15 years of war were the 
result of highly trained, properly equipped medical personnel from our 
MTFs who had the capabilities to rapidly implement combat casualty care 
best practices and lessons learned. These outcomes were achieved and 
then sustained by the collective hard work by the men and women of 
military medicine and the critical resources provided to us by 
Congress. Our challenge remains holding these important gains moving 
forward.
    We are leaning forward to improve the effectiveness and efficiency 
of our CONUS MTFs to provide that robust clinical experience to 
preserve skills and competencies by moving more workload in-house, 
growing our patient enrollment, rebalancing staff and investing in our 
graduate training programs. This also has a side benefit of reducing 
overall private sector care expenditures. Our implementation of the 
Navy CONUS Optimization Plan resulted in the realignment of personnel, 
services, and graduate medical education (GME) programs at several of 
our MTFs to better sustain the operational readiness skills of our 
provider teams and optimize primary and specialty care services for our 
patients. I believe the fiscal year 2017 budget proposals will enable 
us to continue these efforts since they incent the use of the direct 
care system.
    Access to care for our beneficiaries is crucial to these efforts. 
Integrated and comprehensive primary care delivery is an important 
foundation in achieving cost efficient, accessible, and high quality 
health care. Nearly all of Navy Medicine's 790,000 MTF enrollees are 
receiving care in a National Committee for Quality Assurance (NCQA)-
accredited Medical Home Port (MHP). These patients have seen an 
improvement in same-day health care access with their MHP team, 
augmented by virtual access via e-mail communications with providers 
and access to a 24/7 Nurse Advise Line (NAL) and telehealth.
    As a result of this enhanced access, readiness, health outcomes and 
patient satisfaction have improved while unnecessary emergency room 
usage has decreased. We have expanded this by establishing Marine-
Centered Medical Homes (MCMHs) and Fleet-Centered Medical Homes (FCMHs) 
to enhance access and care for our operational forces. These teams also 
integrate behavioral and psychological health care providers to improve 
medical readiness. We currently have 23 MCMHs and five FCMHs with 
efforts under way to expand to additional locations in 2016.
    I believe an erosion of our direct care system would have 
significant adverse consequences on our ability to sustain medical 
force skills and competencies. This will have direct negative impact on 
our medical readiness capabilities and also potentially degrade our 
ability to recruit and retain our medical professionals. We need to 
recognize that comprehensive beneficiary care in our MTFs is directly 
linked to skills sustainment of our medical force and, from that, 
survival on the battlefield. Our beneficiaries, by agreeing to get 
their care in our MTFs, are helping to ensure we save lives on the 
battlefield in the next conflict.
   medical research and development and medical education are force 
                              multipliers
    In addition to the direct care system, investments in education and 
training are critical for meeting our current requirements and ensure 
that wherever our staff are deployed, they are well prepared. Our GME 
programs are among the nations' best and our young corpsmen are 
training with medics and airmen at the top-tier Medical Education 
Training Campus (METC) in San Antonio.
    Cutting-edge R&D [Research & Development] and innovative medical 
education are hallmarks of military medicine and directly enable our 
readiness mission. Over the years, some of medicine's most important 
breakthroughs have come from Navy R&D programs and this work continues 
today in our labs around the world. Ongoing research and development 
ensures the Navy and Marine Corps force is better protected, 
operational tempo is more effectively sustained, and, when needed, the 
rehabilitation of our ill and injured is continuously improved. Along 
with our MTFs, medical education and research and development are 
foundational to our system and form an important triad of excellence 
within Navy Medicine. Collectively, these capabilities are vital for 
our mission of force health protection.
                a rapidly evolving health care landscape
    We must recognize the transformation currently underway in health 
care. We are witnessing rapid changes in clinical care brought about by 
innovations in disease diagnosis and treatment. Advances in areas such 
as digital imaging, genetics, precision medicine, pharmaceuticals and 
therapeutics are all having significant impact on the delivery and cost 
of patient care.
    In addition, we know that our patients want convenience and, where 
possible, use of virtual technology to support their health care needs. 
This is the impact of the millennials on health care and it is not 
unique to the military although we are more impacted by it because of 
our patient demographics: Based on our most recent available data, 72 
percent of enlisted sailors and 85 percent of enlisted Marines are 30 
years old or younger. They and their families are very comfortable with 
digital technology and expect to incorporate their smart phones and 
tablets into their daily health care transactions whenever possible. 
Moving forward, traditional portals of care within our direct care 
system and the supporting TRICARE networks must be complemented with 
innovative and interconnected technological approaches to provide 
virtual outreach and care, including handheld device apps and 
telehealth.
    Our priority must remain the health of the force, their families, 
and those we serve. This commitment is not volume-based or supply-
driven. It's a patient-centered and readiness-focused strategy to help 
ensure that our servicemembers and their families get the care they 
need, when they need it, and in the venue most appropriate and 
convenient to get and keep them healthy. I continue to reinforce this 
point within Navy Medicine: In order to be the provider of choice for 
our beneficiaries and provide that strong clinical experience to 
prepare our staff for the next deployment, we must use every 
opportunity to enhance patient experience and breakdown any barriers to 
convenient, patient-centered care. Much is said about the potential 
burden of our patients in navigating the health care system. We take 
seriously the trust placed in our hands to provide them the best care 
possible. A significant part of that is being their advocate in that 
system. We do that best when they are enrolled to us and we have both 
the visibility and responsibility for their care in our facilities. We 
are working hard to improve that care through our collective efforts in 
building the MHS into a high reliability organization (HRO).
    In delivering trusted care to our patients, we must never lose 
sight that the most important component of Navy Medicine is our people. 
We have 63,000 officers, enlisted personnel, government civilians and 
contractors serving around the world delivering outstanding care and 
support services to sailors, marines, and their families. Our 
commitment to them is to ensure that they will be well-trained and 
ready to meet their responsibilities of protecting and preserving the 
health of those entrusted to their care, at home and deployed.
                              way forward
    Our sailors and marines know that Military Service can be 
professionally rewarding, physically demanding, and potentially 
dangerous. They and their families expect us to protect their health, 
prevent injury and disease as best we can, and heal them when they're 
wounded or injured. Equally important, they want that same support for 
their families by having access to high quality health care when they 
are deployed and at home. In addition, our retirees and their families, 
through service and sacrifice, have earned a health care benefit that 
is both comprehensive and affordable. A strong and vibrant direct care 
system allows us to do those things while providing that exceptional 
clinical experience for our staff, from sickbay to medical center, 
augmented by vibrant R&D and top quality education and training so that 
we can ensure we will have done all we can to save lives on the 
battlefield and return home safely America's sons and daughters.
    To this end, I believe that any health reform efforts must maintain 
the direct care system as the strong epicenter of the MHS. Our MTFs 
directly support the training, readiness, and sustainment of the men 
and women of Navy Medicine so they can continue to do what they have 
done since the founding of our Navy: Save lives when it matters most 
and provide the best care possible to those who have volunteered to 
defend our freedom. Any potential TRICARE reforms must contribute to 
this vital responsibility by leveraging the strength and talents of our 
medical forces and our MTFs, helping us embrace the rapid 
transformation underway in health care and accommodate the changing 
preferences of our patients and our force in how they seek healthcare. 
These factors present great opportunities for us as we aggressively 
implement best practices and scalable solutions throughout the MHS and 
build upon productive collaborative relationships with leading health 
system and academic medical centers. We continue to make solid progress 
but all of us recognize the formidable work ahead. We thank you for 
your leadership and look forward to working with this Committee in this 
important work.

    Senator Gillibrand [presiding]. Thank you all. I am very 
grateful for your testimony. I am very grateful for your 
service, and I appreciate this discussion today.
    I would like to start with Dr. Woodson. Senator Tillis and 
I are both very interested in this issue of comprehensive 
autism care. I am pleased that the Defense Agency initiated the 
comprehensive autism care demonstration in 2014, and I am very 
interested in seeing the outcomes of this program.
    However, I am concerned to hear that DHA [Defense Health 
Agency] intends to lower reimbursement rates for providers of 
ABA therapy for autism. I am most concerned that providers of 
ABA therapy will no longer be able to accept TRICARE because 
the reimbursement rates are too low.
    Are you at all concerned about the impact changing 
reimbursement rates will have on children's access to ABA 
therapy, and what steps have you taken to ensure that access to 
these services will not be adversely affected by changes in 
reimbursement rates?
    Finally, why not wait until the demonstration program is 
complete so that the results are not skewed by a rate change?
    Dr. Woodson. Senator, thank you for that very important 
question, and let me just assure you that I am, as we all are, 
very committed to special needs children. That has been a major 
emphasis in terms of many of our reform activities.
    In regards to the rate changes, the rate changes were 
actually delayed a year and a half. We did an internal study on 
rates because there were no established national rates, and of 
course, part of our statutes require us to pay Medicare rates. 
We set an amount and we studied it for a few years, did an 
internal review. Then we were about to make rate changes, and 
in fact, we heard from stakeholder groups, including Autism 
Speaks and others, convened repetitive conferences to engage 
them, and then commissioned two outside studies that confirmed 
that we were overpaying. I would be happy to share the details 
of these studies with you.
    Finally, just to ensure that in fact we will not negatively 
impact the services, we reviewed network adequacy almost on a 
monthly basis and certainly very frequently. We will be 
monitoring the situation very closely. Should we find, in fact, 
in any locality that it has been adversely affected, we will 
make rapid changes.
    The final point in regards to this is that we put in a 
safety valve in that we are not going to reduce rates right 
away completely. It is a stepwise progression over a number of 
years so that we can ensure that we do not lose providers.
    Senator Gillibrand. Well, I have some specific concerns 
with regard to the studies and the methodologies because I do 
not think they are reflective of the cost. I would like to 
request some follow-up information specifically on that and 
further consideration because I think it is inadequate. The 
reason why Autism Speaks spoke so forcefully against the 
proposed rate changes is because they are the experts on 
treating children with autism. I think your study is misleading 
in its outcome. I will follow up with specific questions, but I 
would like this to be readdressed because I am very concerned 
that there will be very negative consequences for patients.
    My second question is about innovation and different ideas 
about how to innovate health care for our servicemembers. When 
I was in Fort Drum earlier this month in upstate New York, I 
was impressed with their approach to health care. There they 
have a clinic on the base that provides basic primary care and 
service to members and their families--for their members. Their 
members and families also go off base for their specialty care. 
The clinics and providers in the community, by virtue of 
serving the military population, have an excellent 
understanding of the needs of our men and women in uniform and 
their families. This is along the lines of questions that 
Senator McCain asked to the last panel.
    Has DHA looked to Fort Drum as a model for providing health 
care, and how can we better leverage community health care 
options in serving the military community? Anyone can take the 
question.
    VADM Faison. Senator, I will share with you a pilot we have 
in San Diego right now. In San Diego County, one out of every 
five residents is eligible for military health care. That is 
250,000 people. Of those, 662 are what we call high utilizers. 
These are folks that use anywhere from 15 to 30 times as much 
health care as anyone else in the county.
    We have partnered with county public health to aggressively 
manage them as a community-based effort. These are folks that 
the car will break down and so they will call 911 to get a ride 
to the ER to get medications. Care will be fragmented in a 
variety different urgent care centers. By partnering with 
county public health and bringing to bear county services, as 
well as military provider services in a medical home approach, 
but in a community-based format, we have improved their health, 
cut their health care costs in the first year for 250 of them 
by over $4 million, in the second year, by $12 million, and 
dramatically cut by over 60 percent their hospitalizations. 
That is one issue that we are in the process of exporting 
across Navy medicine.
    Senator Gillibrand. Thank you.
    LTG West. Thank you, Senator Gillibrand.
    Regarding the innovation of health care in the Fort Drum 
model, that is a phenomenal model for that area. We have 
noticed that it might not fit in all of our demographic areas. 
The sizes of our MTFs vary from location to location, and that 
may not be reproducible.
    There are additional things that we are doing such as at 
Fort Leonard Wood, Missouri, the innovation of using telehealth 
where they actually have a virtual ICU [Intensive Care Unit] 
set up where they have a telehealth arrangement with an ICU in 
the State of Arkansas to help them with that. These are 
leveraging technology using telehealth, using other types of 
partnerships in order to achieve some of those same ends.
    I agree that for the Fort Drum community, that model that 
they have works very well.
    Lt. Gen. Ediger. Senator, I mentioned in my statement that 
the Air Force has 13 hospitals. That is actually below our 
operational requirement for deployable medical teams. We have 
had to use some innovative concepts in order to meet our 
operational requirements. We have about 2,500 Air Force medical 
personnel embedded in other services' hospitals, and that is 
one way we are doing this.
    The other way we are doing it is we have embedded surgical 
staff into private sector hospitals in Omaha, Nebraska; Tampa, 
Florida; Phoenix, Arizona; Oklahoma City; and in Birmingham, 
Alabama. They are providing beneficiary care in those 
hospitals.
    I would say, though, that while that model has been 
successful for us to some extent, I do not think we can go too 
heavily in that direction because, as I said in my statement, 
the military hospital remains the bedrock of our readiness 
because that provides readiness to the entire deployable team, 
the enlisted, the nursing staff. The embedded operations in 
private sector platforms tends to benefit the provider staff 
but not so much the nursing staff.
    VADM Bono. Ma'am, there are some other areas too where we 
have all been doing some innovative work, and this is in our 
enhanced multi-service markets. Each of the services has this 
where we have about 45 percent of our resources and 45 percent 
of our patients where they need care. What is innovative about 
that is that between the services, we are able to level-set 
some of our resources, and depending on where the demand is for 
care, one of the hospitals can send personnel to other 
hospitals within that same market where the demand is.
    Just as an example, here in the National Capital Region, 
when we were looking at the demand for physical therapy 
services, we were able to understand with a baseline assessment 
of where the demand for physical therapy consults were coming 
from, referrals. By using some of the assets within a couple of 
the bedded facilities, we were able to send physical therapists 
to those clinics where there was a high referral rate. By doing 
that, we were able to get care closer to the patient in a more 
timely manner, and it also decreased some of the demand for 
specialty care down the road. This is something that all of the 
services have with the enhanced multi-service markets.
    Senator Gillibrand. Thank you very much.
    Senator Graham [presiding]. Senator Tillis?
    Senator Tillis. Thank you, Mr. Chair.
    Mr. Woodson, rather than go back through what Senator 
Gillibrand brought up on the ABA treatment, I would like to 
join with Senator Gillibrand in some follow-up.
    I think the key there has to do with timing, and the most 
important thing is to understand the profoundly important value 
of this treatment for not only the child that may be receiving 
the treatment, but also the health and quality of life for the 
Active Duty personnel, the military personnel, and the spouses.
    Admiral Faison, I want to start with you and then probably 
ask the other Surgeons General to chime in because I think you 
are making a very important point about the unique nature of 
this health system. I also want to get to military hospitals, 
clinics produce inpatient, outpatient workload costs about 50 
percent higher than what it would cost if the services were 
purchased in the private sector.
    Can you give me some help in trying to rationalize what the 
real gap is? Because there is obviously some structural cost 
based on the unique nature of what you are doing. Give me some 
sort of sense of what you believe may be an attainable goal or 
some sort of narrowing of the gap. Or is that gap right and 
proper?
    VADM Faison. Yes, sir, absolutely. If you look at our 
costs, our costs break down really into two large buckets. 
There are smaller buckets, but the two large buckets, of 
course, are facility costs of maintaining bedded facilities. 
Those are important as we get casualties back, the Walter Reeds 
of the world and places like that----
    Senator Tillis. There is an unused capacity that you may 
not find in comparable private health care settings.
    VADM Faison. Absolutely. If you look at the civilian 
sector, they are running bed occupancies of 90-plus percent. We 
do not do that because our beds are in reserve for contingency 
operations.
    The others are personnel costs. We staff to operational 
plans of the combatant commanders. I do not staff to peacetime 
care. I have in some places more staff in uniform than 
necessary for peacetime demand, but that is because there is an 
operational war requirement. We try and put those personnel in 
places where can keep their skills current. As you have heard, 
sir, from the other Surgeons General, when we cannot do that, 
then we do out-service rotations at civilian centers and places 
like that.
    Senator Tillis. I am sorry to cut you off. I have just got 
a couple of questions. I want to make sure I get at least one 
more.
    Is there a good sort of breakdown or something that you all 
can provide us that really gives that to us in an empirical 
way? Because if we make decisions about going back and saying 
that we have narrowed the gap, that it is no longer 50 percent, 
if that is the right number, then we have to understand the 
tradeoffs that we have in terms of capacity and what you are 
preparing to deal with. I think that that would be very helpful 
to get back to this committee as we go through and identify 
maybe opportunities. You in your opening statement said you are 
not perfect. I want to go find out where those imperfections 
are and spend the bulk of our time on this committee fixing 
those rather than going down a path where if we look at the 
data, we may agree that it is a structural cost that is the 
cost of doing business and the unique nature of your business.

    [The information referred to follows:]

    VADM Faison. As I mentioned in my opening remarks, no health care 
plan in the world puts their lives on the line in battle to defend and 
care for their patients. It is not possible to accurately compare the 
Direct Care system to care delivered in the private sector. Navy 
Medicine is a rapidly deployable, fully integrated medical system and 
this is what sets us apart from civilian medicine. We are the last 
country in the world to have this capability. Our direct care system 
serves as the readiness platform for our providers and is critical to 
sustaining the vital skills and clinical competencies for our medical 
force.
    The range of costs for the same surgical procedure in the private 
sector can vary widely, making it difficult to equate to procedures 
performed in the direct care system. For example, in the Federal Health 
Care Benefit, Blue Cross costs more than Kaiser Permanente--an HMO. 
HMOs such as Kaiser control costs using limited choice in doctors, 
specialists, high co-pays and limits on access to care. We do not use 
these same tools in order to ensure choice, provide high quality care, 
and maximize access for our Active Duty servicemembers, retirees, and 
dependents as part of the TRICARE benefit.
    Additionally, Direct Care costs include the cost of readiness. We 
understand there is a desire to separate out these costs, and we are 
working towards a solution. Our goal in Navy Medicine is to provide 
exceptional value to those we serve by ensuring superior health 
outcomes through the safest and highest quality care, convenient 
access, full and efficient utilization of our services, and lower care 
costs.

    General, did you have a comment?
    Lt. Gen. Ediger. Yes, sir.
    I think one thing that is always a challenge, when you talk 
about differentiating the cost of readiness versus the cost of 
providing care, is as I said in my statement, the two are 
really inextricably intertwined. There is a lot of work we do 
that is operationally driven that is actually clinical in 
nature. If you look at our primary care operations, for 
example, things like medical evaluation boards, annual 
preventive health assessments, post-deployment health 
assessments, all of these things consume a significant amount 
of our primary care bandwidth. It is very challenging to try to 
look at perhaps the cost of providing care to enrollees to our 
clinics and cleanly cleave and separate the cost of readiness 
versus just the cost of providing care. That is one of the 
traditional challenges we have always had with answering this 
sort of question is that the two really are intertwined very 
significantly.
    Senator Tillis. Yes. I think the key is to try and 
normalize it in some way that people can understand it, again 
so that we set the priority on the things that we should 
improve rather than look at things from a purely numerical 
basis that on the surface may look like an opportunity to drive 
improvement, but the consequences could be just the opposite of 
what we want to accomplish on this committee, which is to work 
with you and improve.
    Mr. Woodson, the TRICARE legislative proposal did not 
contain, I do not believe, any recommended improvements for 
Guard and Reserve communities. What is in the offing there? 
What can we expect?
    Dr. Woodson. Thank you very much for that question because 
that set of proposals really requires some additional studies 
because I think there are several courses of action depending 
on what type of reservist we are talking about. Let me just 
give you some examples to crystallize.
    On the one hand, of course, we initiated TRICARE Reserve 
Select to fill the gap in what we thought was medical readiness 
at the height of the war. The consequence of that was that the 
reservist and family would have to switch insurance programs 
when they came on Active Duty.
    There is the possibility, frankly, of offering, of course, 
TRICARE Reserve Select to a larger population or including it 
in employer-based options, which might be reasonable.
    There is the possibility, as the commission talked about, 
of providing a basic allowance for health coverage when they 
come on Active Duty, and we need to sort that out.
    Then there are some other hybrid options that are out 
there.
    The issue with reservists is really about not forcing them 
to change providers when they come on Active Duty. There are 
different solutions, and we need to work those out and study 
those a little bit more.
    Senator Tillis. Thank you.
    Thank you, Mr. Chair.
    Senator Graham. Senator Blumenthal?
    Senator Blumenthal. Thanks, Mr. Chair.
    As you may recall, Dr. Woodson and other members of the 
panel, in the 2016 National Defense Authorization Act, I 
advocated for a uniform formulary for improved transition from 
DOD care to the VA as servicemembers transition out of Active 
service. This measure was successfully passed, and now we are 
in an implementation stage. This joint formulary I think is 
critical to the quality of care and, in fact, relates to a 
variety of related medical issues that may arise when there is 
a lack of sufficient transition in prescription drugs and other 
health care.
    What is the status of the implementation of the joint 
formulary from the DOD perspective?
    Dr. Woodson. I think there has been much progress certainly 
in the areas of mental health medications, pain medications, 
and some of those other critical medications for conditions in 
which a gap would create a great deal of problems. They have 
been mapped significantly to about the 96 percent level so that 
we have a single formulary. I know there is just a little bit 
more work that needs to be done on that, but there has been 
significant progress on that front.
    Senator Blumenthal. On the issue of prescription drugs, 
particularly pain killers and opioids, is there an ongoing 
danger in the military as, frankly, there is in the civilian 
world of over-prescription and over-reliance on pain killers?
    Dr. Woodson. Well, there is. That is something that needs 
to be addressed not only nationally but within the military 
health system.
    What I would say is I think in that regard, we are a little 
bit ahead of the curve and the reason being is that for a lot 
of different reasons, there has been a lot of focus on the use 
of pain medication. We have developed more comprehensive 
strategies in terms of clinical practice guidelines. We have 
courses that providers must take in terms of pain management. 
We have invested in research and integration of alternative 
methods for pain control. This has been part of a comprehensive 
set of programs I think that we could even make available to 
some civilian health care systems.
    Senator Blumenthal. On the issue of mental health care, has 
there been progress there, do you think?
    Dr. Woodson. I think there has been progress, but you know, 
mental health care--the more we study it, the more we try and 
refine it, the more we find out about it. If I could break this 
down into a couple of different issues.
    Oftentimes dealing with mental health care, it is more than 
just delivering mental health care. It is about delivering 
social services and family supports, and that is one issue.
    The other issue about mental health care is that we always 
have this issue about whether or not we have enough providers, 
but really what we need is a comprehensive new strategy for how 
we employ our mental health specialists in a rational way to 
deliver care. We never will have enough psychiatrists. We will 
never have enough pediatric psychiatrists. If we utilize them 
to do screening, then we make their time less available for 
treating complex problems. What we need to do right now is work 
on a more rational approach to how we employ, let us say, 
certified mental health counselors, psychologists, licensed 
psychological nurses, licensed social workers in a continuum of 
care that allows us to address all the needs more 
comprehensively because I am not sure we will ever generate 
enough mental health providers.
    Senator Blumenthal. That is the strategy that you say has 
to be developed or is being developed?
    Dr. Woodson. I think we are working on that. The previous 
panel talked about the issue of embedding mental health care in 
primary care practices. We have been doing that for years. We 
have been embedding mental health care technicians and 
practitioners in line units. We have already rolled out some of 
that more comprehensive strategy, but still, I think we need to 
array the different types of mental health professionals in a 
better way to take care of many different problems.
    Senator Blumenthal. As you know, Active Duty members of the 
military who may suffer emotional or mental diseases, some of 
them emanating from combat, post-traumatic stress and traumatic 
brain injury, sometimes are given bad conduct discharges or 
less than honorable discharges, bad paper, and then through a 
tragic irony are deprived of medical care to treat the very 
injury that causes their discharge under less than honorable 
conditions. I have sought to have those discharges reviewed. In 
fact, two Secretaries of Defense, beginning with Chuck Hagel 
and most recently Ash Carter, have committed to change the 
policies of the boards of correction review within each of the 
services.
    Has your input been sought on that issue? Because there are 
medical issues involved in those reviews.
    Dr. Woodson. The short answer, Senator, is yes. Let me, 
first of all, thank you for your advocacy in this area. Of 
course, for the last 2 years, we have actually reached out to 
individuals who have been discharged with so-called bad paper 
to let them know that their cases will be reviewed.
    To the last part of your question, we have given mental 
health professionals to these boards of review so that the 
cases can be accurately reviewed.
    Senator Blumenthal. Thank you. My time has expired.
    These subjects are tremendously important, and I want to 
thank all of the panel members for your hard work, all of the 
hard work done by the men and women under your commands. Thank 
you for being here today.
    Senator Graham. Thank you.
    I will be, it looks like, the last questioner here.
    How many casualties have we suffered in Iraq and 
Afghanistan? Not fatalities but injuries. How many people have 
been wounded requiring admission to a hospital? Does anybody 
know?
    Dr. Woodson. Senator, it depends on how you actually 
calculate those numbers, whether or not you include disease and 
non-battle----
    Senator Graham. It does not matter as long as you were in 
Iraq and Afghanistan.
    Dr. Woodson. It is over 100,000.
    Senator Graham. Admiral Faison, can you imagine a military 
health care system that did not have a military hospital?
    VADM Faison. Sir, no, I cannot.
    Senator Graham. Okay, because the bed space you have is not 
designed for everyday activity. It is designed for wartime 
contingencies. Is that right?
    VADM Faison. That is correct.
    Senator Graham. Most of these beds are empty during 
peacetime simply because they are built to deal with wartime 
contingencies.
    VADM Faison. Sir, if I may. Those beds are not empty. We 
work very closely with the managed care support contractor to 
get care back into our facilities----
    Senator Graham. What percentage of your beds are occupied--
--
    VADM Faison. In general, we try and maintain a bed 
occupancy of 80 percent or higher.
    Senator Graham. What about the Air Force?
    Lt. Gen. Ediger. Sir, we have a lower bed occupancy than 
that. We are more in the 50, sometimes up to 70 percent range.
    Senator Graham. What about the Army?
    LTG West. Sir, it varies. Some of our large MTFs, Fort 
Bragg and San Antonio, have a higher occupancy rate. Some of 
our smaller facilities have a low daily patient census, and 
those are the ones that we are actually looking at to realign 
capability there.
    Senator Graham. Here is my point. If we are going to reform 
something, we need to understand what we are trying to 
accomplish here. If you had civilian hospital administrators 
over military medical facilities, would that create a problem?
    VADM Faison. Sir, military hospitals are just like any 
other military command. I personally would not put a civilian 
in charge of a ship.
    Senator Graham. That is what you would be doing, would it 
not?
    VADM Faison. Exactly. Yes, sir.
    Senator Graham. A hospital is a military entity, and the 
military command structure cannot be substituted.
    VADM Faison. Yes, sir, because the good order and 
discipline carries over to the battlefield and it starts in the 
hospital.
    Senator Graham. General West, at the end of the day, what 
would happen if we opened up competition to all these military 
facilities? Where would the military doc go?
    LTG West. Sir, that is a very good question.
    Senator Graham. What would they do?
    LTG West. Sir, again----
    Senator Graham. Like a dentist. Like if it is cheaper to 
pull teeth downtown, which it may be, like how do our dentists 
stay proficient in pulling teeth?
    LTG West. Yes, sir, exactly. When you say open to 
competition, sir, I think we are not in the same business as 
for profit. No one appears they want to be in competition for 
our deployed environment.
    Senator Graham. You treat family members of Active Duty 
personnel, all of you. Right?
    LTG West. Yes, sir.
    Senator Graham. That keeps your skill level up. It is good 
for retention, good for recruitment.
    LTG West. Yes, Senator.
    Senator Graham. Does every member of the military have to 
through an annual physical? The answer is yes.
    VADM Faison. Yes, sir.
    Senator Graham. Is that not primary care, General Ediger?
    Lt. Gen. Ediger. Yes, sir.
    Senator Graham. That is a primary care activity that is 
related to readiness.
    Lt. Gen. Ediger. Yes, sir.
    Senator Graham. Those same doctors will be treating kids 
with a cold.
    Lt. Gen. Ediger. Yes, sir.
    I would add that what we do when we provide care in our 
MTFs, we are ultimately a mission support activity. We are 
actually supporting commanders who are conducting missions. In 
the Air Force, it is global mobility. It is the nuclear mission 
on its RPA [Remotely Piloted Aircraft] operations, cyber ops. 
By taking care of the airman and the family in our military 
treatment facility, we are actually helping that commander take 
care of that family.
    Senator Graham. When you say that a military hospital costs 
50 percent more to operate than a civilian counterpart, is that 
a fair comparison, given the unique nature of military 
medicine?
    Lt. Gen. Ediger. I think it is an apples and oranges kind 
of comparison, sir, because----
    Senator Graham. You agree with me you could make things 
more efficient.
    Lt. Gen. Ediger. Absolutely.
    Senator Graham. That is the goal. Right?
    Lt. Gen. Ediger. Yes, sir.
    Senator Graham. Do you all agree with me that the people 
under your command have done historic work on behalf of the 
Nation?
    VADM Faison. Absolutely.
    Senator Graham. I want to tell everybody on this committee, 
that in this war, which has been going on for 14 years now, 
there are people alive today that would not be alive in any 
other war, and you guys are the unsung heroes of this war, as 
far as I am concerned. I have been to forward-deployed areas 
where people come in who have been blown up, and it is amazing 
how you can put people back together again. That whole network 
from Landstuhl to Walter Reed is just literally priceless, but 
it needs to be more efficient.
    Any last comments?
    Dr. Woodson. Senator, if I may make one comment in 
connection with making sure everyone understands that the 
maintenance of a military health system is essential to the 
defense of this Nation. The point I would make and give you an 
example is that the MTFs are part of the medical force-
generating platform. Today in this country, there are 1,000 
fewer graduate medical education spots than there are American 
medical graduates. If we were to eliminate the military 
treatment facilities and the military health system, we could 
not generate enough doctors--and I would say also nurses, but 
doctors to come on Active Duty. There just are not enough 
training slots in this country. We must preserve this 
generating platform and we must preserve the graduate medical 
education program.
    Senator Graham. On not a happy note, I think TRICARE, as it 
is designed, is really antiquated. I would not give it a B. I 
am really going to be hard on your guys to come up with 
reforms, not just premium increases. We are going to look at 
TRICARE and turn it upside down and make it more transparent 
and make it more accountable because we are basically using 
civilian networks when it comes to retirees and their families.
    With that said, this has been a great hearing. Thank you 
all for your service, and we will stay in touch.
    The hearing is adjourned.
    [Whereupon, at 4:24 p.m., the committee was adjourned.]

    [Questions for the record with answers supplied follow:]

             Questions Submitted by Senator Lindsey Graham
                        guard/reserve healthcare
    1. Senator Graham. Dr. Woodson, DOD's TRICARE legislative proposal 
contained nothing of substance to improve healthcare delivery for the 
Guard and Reserve communities. At the hearing, you mentioned that the 
Department is exploring its options for the Guard and Reserve 
community. What options are you considering to improve the TRICARE 
Reserve Select program for Guard and Reserve members and their 
families?
    Dr. Woodson. First, we believe that TRICARE Reserve Select (TRS) 
will be improved by instituting TRICARE Choice. Guard/Reservists will 
pay the same 28 percent that they do now but get a more modern PPO like 
benefit with fixed network copays without paying a deductible. Second, 
DOD has made a separate legislative proposal that would require that 
Medicare participating physicians and other providers also participate 
in TRICARE and the Veterans Choice program. This directly addresses the 
issue of reserve family TRICARE beneficiaries having to change doctors 
when the member is called for extended Active Duty by strengthening the 
network of participating providers in all communities throughout the 
United States. Third, while most physicians already accept TRICARE, for 
those in areas with few TRICARE beneficiaries (as is true for many 
areas where reserve families live), we can use current authority to pay 
up to 115 percent of the normal rate for families of reservists called 
to Active Duty in support of a contingency operation. Fourth, we need a 
better understanding of the real issues involved in the transition of 
reserve family members from employer-sponsored coverage to TRICARE when 
the member is called to Active Duty. We need to supplement the 
scattered anecdotal reports of beneficiaries needing to change doctors 
with specific information on the circumstances of any transition 
problems so that we can develop appropriate solutions. Finally, we have 
conceptualized other possible approaches, such as: a Basic Allowance 
for Health Care (BAHC) for families of activated Guard/Reserves; 
options to make TRICARE Reserve Select more attractive; a plan similar 
to the Federal Employees Health Benefit Program; and a way to 
coordinate health coverage between employers and DOD for reserve 
component families. However, these possible options require more 
analysis, and perhaps limited pilot tests, to determine: 1) if they 
would actually solve documented problems; 2) their feasibility and 
cost; and 3) unforeseen second and third order consequences.

    2. Senator Graham. Dr. Woodson, what is your timeline for making a 
decision on which options to implement?
    Dr. Woodson. Step one is to get a better understanding of the 
specific friction points associated with the transition of reserve 
component family members from employer sponsored care to TRICARE when 
the member is called to extended Active Duty. This will ensure that we 
are developing solutions to actual problems, rather than perceptions 
and anecdotes. We will be studying the issue over the next several 
months and will propose potential solutions within one year. We expect 
that DOD would be able to present our findings and proposals during the 
first session of the next Congress.
                             tricare reform
    3. Senator Graham. Dr. Woodson, VADM Bono, Lt. Gen. Ediger, LTG 
West and VADM Faison, DOD's TRICARE legislative proposal for fiscal 
year 2017 would encourage beneficiaries, through targeted fee 
increases, to get the majority of their care in military hospitals and 
clinics. With DOD's proposal, the Department asks beneficiaries to 
trust that you will transform the direct care system into a high-
performing health system. For many years, we have heard DOD and the 
Services make promises to improve the delivery of healthcare for 
beneficiaries, but little progress has been made. Why should 
beneficiaries trust DOD and the Services to deliver on your current 
promises?
    Dr. Woodson. and VADM Bono. For one thing, DOD is implementing the 
very meaningful reforms that were included in the National Defense 
Authorization Act for Fiscal Year 2016, including requirements to 
ensure that access standards are met, implementation of the urgent care 
pilot, and much greater transparency in performance data on access, 
quality, patient safety, and beneficiary satisfaction. These and other 
actions lay the foundation for future improvements in care delivered 
through the MHS.
    In the near term, all of the Services are focusing on improving 
access and quality of care. Medical Home initiatives are being expanded 
and further supported, improving beneficiary access to comprehensive 
medical care. Roll-out of the Nurse Advice Line and secure messaging 
initiatives offer to increase beneficiary access to professional 
medical advice. Efforts to streamline the referral process are designed 
to lessen irritation. Telehealth capabilities are being expanded and 
enhanced right now. The Services are also implementing programs to 
improve Active Duty wellness and enhance behavioral health.
    Other actions are laying the groundwork for continued future 
improvement. Access measures have been added to the enterprise-wide 
dashboard, and are reviewed by senior leadership monthly. MHS is 
rolling out standard quality and safety measures across the enterprise 
to allow leadership to compare performance across MTFs. MHS is 
expanding participation in the American College of Surgeons National 
Surgical Quality Improvement Program (NSQIP), which provides a 
comprehensive suite of measures of the quality of surgical care. 
Enhanced measurement means problems are identified and corrected, and 
this sets the stage for improving trends in quality of care provided.
    In addition to these administrative improvements and the 
legislation to reform the TRICARE health plans, DOD's other health 
program legislative proposals are also part of a comprehensive Military 
Health System reform package. These include requiring Medicare 
participating providers to also participate in TRICARE and the Veterans 
Choice program. This will strengthen TRICARE networks of participating 
providers throughout the United States. We have also proposed enhanced 
preventive care services and an improved program of dental and vision 
coverage.
    We believe enactment of our package of legislative proposals and 
Active oversight of our continuing implementation of administrative 
reforms are the ways Congress can ensure that we deliver on real 
Military Health System reform.
    Lt. Gen. Ediger. The Air Force has improved access to care across 
our system by 20 percent over the past 18 months and continued 
improvement remains a top priority. We overhauled Air Force primary 
care in 2008 under the Patient Centered Medical Home model, which 
generated team-based care and improved performance against national 
averages in preventive care and care for chronic disease. Under this 
construct, team continuity of care is consistently above 90 percent 
across our system and patient satisfaction has risen above 90 percent.
    Our strategy for continued progress in improving access to care by 
enabling more same-day access, includes actions pertaining to filling 
of primary care provider positions, improved temporary fills of 
provider positions gapped due to deployments and standardization of 
management practices within the clinics. As our primary care teams are 
primarily staffed by Active Duty, access is negatively impacted each 
year by staff transitions due to reassignment, deployments and 
separations. In fact, such gaps are our top challenge in regard to 
access to care and would be alleviated with a staff mix with a higher 
proportion of civilian positions. Relief from the 2009 NDAA restriction 
on mil-to-civ conversions in the medical services would give the Air 
Force the flexibility to change the staffing mix in a way that would 
significantly improve access to care. As a measure to provide some 
degree of relief, the Air Force is in the process of seeking resources 
to add some civilian primary care positions to enable improved coverage 
of gaps in Active Duty fills.
    Additionally, the Air Force has implemented policies for first call 
resolution to patients; increase same day appointment availability; 
eliminate referrals for physical therapy; streamline the specialty care 
referral process; and implemented the FY16 NDAA urgent care pilot. The 
pilot allows Active Duty servicemembers (ADSMs) in TRICARE Prime 
Remote, non-ADSMs in TRICARE Prime, TRICARE Prime Remote, or TRICARE 
Young Adult, and TRICARE Overseas Program beneficiaries traveling in 
the U.S. to seek two urgent care visits each fiscal year without a 
referral or prior authorization. Jointly with the Army and Navy, we 
have developed a Military Health System Specialty Care Referral 
Accountability and Business Rules policy that will compress the 
timeline from referral order to specialty care appointment. The 
objective of the new policy is to make the referral management process 
more patient-centered by increasing uniformity, reducing wait times 
before appointment booking, and improving central accountability for 
referral management performance.
    LTG West. Army Medicine has made great strides towards transforming 
the direct care system to meet the needs of our beneficiaries 
particularly with access to primary and behavioral health care. We have 
significantly increased the annual number of primary care appointments 
for all patient beneficiary categories in our Medical Treatment 
Facilities (MTF) while concurrently increasing patient satisfaction 
with access to care. We have further increased primary care appointment 
capacity and convenience with our 20 Community Based Medical Homes and 
have immediate plans to add 4 more before the end of FY17. The number 
of behavioral health providers has more than doubled since 2007 and 
many are located in small clinics located near where soldiers live and 
work.
    Army Medicine has completely transformed its system for delivering 
behavioral health care in the last five years and now offers services 
that exceed the standard of care delivered in the private sector. The 
implementation of the Primary Care Behavioral Health team complements 
the efficiency of managing non-acute behavioral health concerns without 
a referral at the Army Medical Home appointment to foster an improved 
patient experience and improved satisfaction. MEDCOM has developed the 
nation's leading system for collecting and using clinical outcome data 
in the field of behavioral health. The Behavioral Health Data Portal, 
providing standardized information on patient's progress in treatment, 
has been used in over 2.2 million clinical encounters. Additionally, 
MEDCOM has established the Child and Family Behavioral Health System 
(CAFBHS) on all Army installations blending best practices in 
consultation, collaboration and integration of care to meet the needs 
of Army Children and Families in support of the Patient Centered 
Medical Home. CAFBHS includes School Behavioral Health, now present in 
60 schools across 14 installations, which places behavioral health 
providers in clinics within schools on Army installations.
    We continually focus on improving quality care and satisfaction for 
our female beneficiaries. Army Medicine has numerous quality measures 
which exceed the national perinatal average, such as: 1) Percent of 
Cesarean Deliveries is 23.9 percent in the Army (31 percent for the 
national average); 2) Primary Cesarean Delivery rate is 12.60 percent 
in the Army (17.53 percent for the national average); 3) Neonatal 
Mortality is 0.06 percent in the Army (0.24 percent for the national 
average); 4) Vaginal Deliveries with coded Shoulder Dystocia linked to 
Birth Trauma is 12.62 percent in the Army (13.75 percent for the 
national average); and 5) Postpartum Hemorrhage is 2.88 percent in the 
Army (3.69 percent for the national average). In addition, obstetric 
patient satisfaction, as measured from the TRICARE Inpatient 
Satisfaction Survey, continued to increase over the last year from 55.3 
percent to 64.5 percent in 3rd quarter of FY16. The Women's Health 
Service Line is invested in providing an outstanding patient experience 
for our beneficiaries and shares best practices across the enterprise 
in order to sustain improvements and continue increasing patient 
satisfaction.
    In addition to providing care during normal duty hours using 
traditional methods, Army Medicine actively promotes virtual health 
care, leverages technology, and provides extended care hours as medical 
force extenders. Army Tele-health and Tele-Behavioral Health provide 
clinical services across 18 time zones in over 30 countries and 
territories across all Regional Health Commands and in the deployed 
environment. Working together, TRICARE Online, the Nurse Advice Line 
and Army Medicine Secure Messaging improve access for our 
beneficiaries. TRICARE Online is used to schedule or cancel 
appointments, the Nurse Advice Line provides high-quality and safe 
professional medical advice to our beneficiaries 24 hours a day and 
Secure Messaging provides a confidential means of communication between 
beneficiaries and providers. Finally, many Army treatment facilities 
offer appointments after 1600 hours or on the weekends and have either 
an Acute Care Center (ACC) or a ``fast track'' clinic inside their 
Emergency Rooms.
    In April 2016, Army Medicine modified the first call resolution 
policy to ensure that 100 percent of enrolled beneficiaries receive an 
appointment at the time of the initial request. If an appointment is 
not available in the direct care system within the access to care 
standards, the call center clerk will offer the beneficiary the 
opportunity to be seen in a network ACC and will help the beneficiary 
find the nearest network ACC. Based on current survey methodology, 
MEDCOM's overall satisfaction with the phone appointing system service 
is now the highest it has been in over six years.
    Additionally, only 12.3 percent of U.S. hospitals participate in 
the American College of Surgeons sponsored National Surgical Quality 
Improvement Program (NSQIP), a voluntary risk-adjusted performance 
metric data collection. Army Medicine began submitting information to 
NSQIP about eight years ago for our eight largest hospitals. We are now 
submitting data for 17 of our 19 Army bedded hospitals. Overall, Army 
MTF performance for surgical quality is comparable with NSQIP 
participating civilian hospitals. In a review of quality of care issues 
related to patient volume, our outcomes were equal to or better than 
our civilian counterparts. We continue to strive for excellence in 
quality of surgical outcomes. All of the established NSQIP sites are 
active in the MHS Strategic Partnership with the American College of 
Surgeons, which is dedicated to surgical quality and provides 
opportunities for engaging in quality improvement initiatives.
    Army Medicine remains committed to meeting the needs of all our 
beneficiaries. Our significant gains in access and satisfaction provide 
a history of success. With continued focus and dedication, we will 
ensure beneficiary trust is rewarded with efficient, safe, and quality 
healthcare.
    VADM Faison. Navy Medicine understands that it is a privilege and 
honor to have the trust of our beneficiaries. We have made significant 
improvements in the way we deliver health care as a High Reliability 
Organization (HRO). We are committed to offering the best patient 
centered care the nation has to offer through innovative partnerships, 
access built around our patient's needs, the latest in virtual health 
and technology, and innovative treatments that impact health outcomes 
and the experience of care.
    Since the Military Health System (MHS) review in 2014, we have 
worked diligently across the enterprise to further enhance and build on 
efforts in the areas of access, safety and quality. As reported in the 
MHS Review, DoD Medical Treatment Facilities (MTF) were found to be 
``as good or better'' than many top tier civilian institutions 
nationwide. As an HRO, we have centered our efforts on further 
optimizing clinical outcomes, enhancing access, leveraging technology, 
enhancing the coordination of care, and achieving zero patient harm. A 
critical component of the HRO Operating Model is the Clinical Community 
Structure. Navy Medicine has established the role of Chief Medical 
Officer (CMO) throughout the enterprise with the responsibility to 
engage clinical leadership and promote transparency. Together these 
efforts build on past successes to shape a systemic culture with focus 
on safety and quality health care.
    We continue to search for innovative solutions to best serve our 
beneficiaries while maintaining the highest level of readiness for the 
next conflict. Primary care and many self-referral appointments are now 
available for on-line booking to ease the process for our patients. We 
also implemented a population health portal which provides a more 
holistic approach to our patient's health care needs. As part of a Tri-
Service initiative, Navy Medicine has launched a ``PCM On-Call'' pilot, 
where we are connecting patients to providers after hours by offering 
the option to speak with MTF-based clinicians.
    As a result of some of the initial improvements in readiness and 
health outcomes, we have expanded the Medical Home Program to 23 
Marine-Centered Medical Home and 5 Fleet-Centered Medical Homes to 
enhance access and care for our operational forces. We will also 
continue to invest in our robust secure messaging program, Tricare 
Online, and Nurse Advice Line to maximize access and convenience for 
our patients. For example and emulating goals from the civilian sector, 
we have set and are currently exceeding our goal of ensuring at least 
80 percent of secure messages are answered within one business day.
    Our Value Based Care Pilot at Naval Hospital Jacksonville focuses 
health care delivery on improved patient outcomes, increased readiness, 
higher patient satisfaction, and improved value with optimal resource 
utilization. To understand the patient's experience, we are using the 
Joint Outpatient Experience Survey to assess the patient experience 
with care received at Navy Medical Treatment Facilities and across all 
of the Services. Moreover, we are steadfast in recruiting and training 
aspiring health care professionals that will continue the long 
tradition of providing safe, efficient, and quality health care to the 
warfighters and their families.
    Navy Medicine is also leveraging technology to improve access and 
convenience for all beneficiaries. We continue to expand our web 
presence and implement tele-health options wherever feasible to ensure 
our patients have timely access to care. In addition, BUMED is 
developing an enterprise mobile application, based upon an extremely 
successful model utilized at Naval Hospital Camp Lejeune, where 
patients can easily view available appointments, pharmacy wait times, 
and access important facility information. Our dedication to technology 
helps ensure Navy Medicine remains viable in an extremely complex and 
dynamic health care environment.
                             access to care
    4. Senator Graham. VADM Bono, Lt. Gen. Ediger, LTG West and VADM 
Faison, instead of the current disjointed processes in place today, 
should the Defense Health Agency (DHA) and the Services implement a 
centralized, standardized medical appointment system with expanded 
appointment availability across military hospitals and clinics to 
improve access to care?
    VADM Bono. The Services and the DHA have implemented a centralized, 
standardized medical appointment system called the Composite Health 
Care System (CHCS). CHCS is the sole appointing system used by the 
military medical treatment facilities (MTFs) to schedule appointments. 
Appointment data from CHCS is transparent in the TRICARE Operations 
Center.
    Primary Care appointing processes are standardized across the 
Services and the DHA, regardless of whether the appointment is made by 
calling a centralized appointing center, the primary care clinic, on 
TRICARE OnLine or via secure messaging. Primary Care appointment 
processes were further standardized in fiscal year (FY) 2015 with two 
new Tri-Service policies:

      First Call Resolution policies outline standard Service 
and DHA-approved processes for use when Prime beneficiaries call the 
MTF for an appointment. These processes are designed to ensure the 
Prime beneficiaries are not asked to call back another time because no 
appointments are available. Currently, compliance with these polices is 
evaluated based on patient satisfaction with seeing a provider when 
needed. In addition, the Services and the DHA added a question 
specifically asking Prime enrollees if they were asked to call back for 
an appointment on the new Joint Outpatient Experience Survey (JOES); 
the JOES is expected to begin implementation in mid-fiscal year 2016. 
Finally, the Services and the DHA are modifying the CHCS appointing 
menu to allow measurement of how well MTFs are complying with the First 
Call Resolution policies.
      Simplified Appointing policy guidance was implemented 
August-October 2015; guidance standardizes requirements for primary 
care appointments including reducing the number of appointment types 
for most primary care appointments to two (24-hour and future), 
increasing the number of appointments available per day and maximizing 
the number of appointments visible to appointment clerks by minimizing 
``clinic book only'' appointments. In January 2016, almost 99 percent 
of primary care appointments are 24-hour and future types, the total 
number of primary care appointments available per duty day increased 24 
percent and almost 100 percent of primary care appointments are fully 
visible and available for (the <0.6 percent of exceptions includes such 
as vasectomies which are booked by the clinic).
      As a result of these policies and other standard Tri-
Service/DHA access to care initiatives in primary care, 24-hour 
appointment performance improved 31 percent since the Military Health 
System (MHS) Review and variance among MTFs decreased 33 percent. 
Future appointment performance improved 20 percent since the MHS Review 
and variance among MTF decreased 31 percent.
      Way Ahead: The Services and the DHA are continuing to 
standardize primary care practices based on MTF leading practices 
validated during the summer 2015 MTF Site Visits and Patient Listening 
Tours by Primary Care and Access Service and DHA experts. As discussed 
above, the Services and the DHA have increased the total number of 
appointments available per duty day by 24 percent and are working to 
further increase the availability of appointments by extending 
operating hours Monday-Friday and on weekends, based on an analysis of 
past demand. Many MTFs have already extended duty hours Monday-Friday 
and on weekends, especially in Pediatrics. The Services and the DHA 
also are working to offer additional opportunities for care by offering 
virtual phone visits with primary care managers after duty hours 
through the Nurse Advice Line. Currently, the direct care system 
captures over 90 percent of its enrollees' primary care needs; however, 
through the initiatives discussed above, the direct care system goal is 
to develop standard processes to meet an even higher percentage of its 
own enrollees' primary care needs.

    Specialty Care appointing is not standardized or centralized across 
the Services and the DHA in the same manner as primary care. The 
Services' specialty clinics review the appointment requests or 
referrals and determine if they can provide the care within access 
standards. If the individual specialty care clinic can provide the 
appointment within access standards, some specialty clinics contact the 
patient directly. In other cases, the patient is directed to call the 
specialty clinic within three days of the Primary Care Manager 
referring the patient to specialty care. The Services and the DHA 
recognize specialty appointing processes require standardization and 
centralization in order to increase efficiency and to be more patient-
centered. As a result, Service and DHA governance-approved new 
Specialty Appointing and Referral policy guidance on February 2016, 
which is based on some MTF and Enhanced Multi-Service Market leading 
practices. The Service and DHA specialty care appointing guidance is 
being formalized and will be implemented in fiscal year 2016. The goal 
of the policy guidance is to standardize and centralize specialty 
appointing processes to the greatest extent possible with the goal of 
providing the Prime enrollee with a specialty appointment date and time 
at the time the primary care manager recommends the care and before 
they depart the MTF. Finally, the Service and DHA Access Improvement 
Working Group is developing Specialty Care standardized appointing 
guidance similar to that implemented in primary care in order to 
increase the number of available appointments, which will facilitate 
centralized and standardized specialty appointing.
    Lt. Gen. Ediger. Central appointing is being utilized in some 
locations where more than a single military treatment facility exists. 
This, along with centralized referral management improves access by 
more completely utilizing available appointments when multiple military 
treatment facilities are in the same vicinity. The majority of Military 
Healthcare Facilities are not located within the 30 minute Primary Care 
Manager requirement of another military facility. We believe local 
management of appointment templates best enables commanders to meet the 
needs of the population and the mission. Local management of schedules 
enables template adjustments for deployment processing, exercise 
participation and readiness training.
    LTG West. Centralizing medical appointing within Enhanced Multi-
Service Markets is already occurring. While our focus remains on 
achieving efficiencies and building capacity for our enrolled 
beneficiaries within our MTFs, we recognize that cross-booking 
appointments may be a viable option for some locations. When exploring 
options for improving access to care we must also consider any impact 
on the overall patient experience, meet expectations for continuity of 
care, and improve outcomes.
    VADM Faison. A centralized, standardized appointment system for the 
entire Military Health System (MHS) will not improve access to care 
(ATC) because, except for multi-service markets (discussed next), MTFs 
are, in general, not proximal to each other's as one would find in 
civilian systems using centralized appointments where patients can 
easily drive between facilities to get the soonest appointment. In high 
military concentration areas where there is multi-service 
representation of Military Treatment Facilities (MTFs), this Multi 
Service Market standardization often makes sense and is in use today. 
In these areas, we share resources and capacity. Outside of these 
markets, we empower the MTFs to establish relationships, partnerships 
and systems that support local coordination for access to care that is 
patient-centered.
    All Navy Medicine MTFs have some type of centralized appointment 
center. Our large Naval Medical Centers use a central appointment line 
for primary care and specific specialty clinic appointments. Smaller 
MTFs have a more decentralized arrangement that is both practical and 
economically feasible. Also, all Navy MTFs use nearly identical 
appointing processes and the same record system called the Composite 
Health Care System (CHCS). This allows for oversight and surveillance 
reporting for Health System performance in analytical tools.
    Navy Medicine is very proud of our recent efforts that have 
improved access and developed two additional centralized appointing 
resources in use across our network of MTFs. We have also expanded 
appointment availability via the TRICARE Online website. Access to this 
website is available for all Navy MTF enrollees. For acute care needs, 
patients have the option of calling the Nurse Advice Line (1-800-
TRICARE), which connects them to a registered nurse who is authorized 
to book care into our MTFs.
                  operational medical force readiness
    5. Senator Graham. LTG West, what is the actual total operational 
medical force readiness requirement for the Army?
    LTG West. The total operational medical force readiness requirement 
for the Army is determined annually through the Total Army Analysis 
(TAA) process and is informed by current operational needs as validated 
by the Joint Staff. The current operational medical force requirements 
were last revalidated in TAA 18-22 in April 2015, totaling 20,478 
requirements for Army Medicine soldiers.
    This includes 5,262 requirements for Army Medicine soldiers 
assigned to medical units that perform missions above the Brigade 
Combat Team level such as our Combat Support Hospitals and Forward 
Surgical Teams.
    Additionally, 12,051 Army Medicine soldiers are required to be 
assigned organically to other Army units such as Brigade Combat Teams, 
the US Army Special Operations Command, and key staff positions such as 
Command Surgeon offices in Army mission command headquarters.
    Finally, the Medical Command (MEDCOM) contributes to medical force 
readiness by providing trained providers to operational force units 
through the Professional Filler System (PROFIS). Approximately 3,165 
MEDCOM positions are categorized as PROFIS. This number reflects valid 
Operating Force requirements as well as other needs for PROFIS such as 
backfill of critical specialties in Reserve Component medical units 
where shortfalls exist.

    6. Senator Graham. Lt. Gen. Ediger, what is the actual total 
operational medical force readiness requirement for the Air Force?
    Lt. Gen. Ediger. 27,999.

    7. Senator Graham. VADM Faison, what is the actual total 
operational medical force readiness requirement for the Navy?
    VADM Faison. The 2016 program of record for Navy Medicine to 
support the operational requirement is 38,802 (Total Force Manpower 
Management System data as of 23 December 2015). This requirement 
represents funded billets, not assigned personnel. Navy Medicine exists 
to provide a rapidly deployable health care system across a wide 
variety of operational settings in support of the Warfighter.
    Navy Medicine's Active Duty requirement is based on the operational 
mission in support of the Department of the Navy--the United States 
Navy (USN) and the United States Marine Corps (USMC). The modeling and 
analysis projections supporting our requirement for uniformed providers 
are derived directly from Combatant Commanders' Operational Plans 
coupled with the Medical Manpower All Corps Requirements Estimator 
(MedMACRE), a validated force planning tool. These plans outline the 
capabilities required to prosecute various wartime scenarios based on 
the Secretary of Defense's Defense Planning Guidance. Navy Medicine's 
support to the operational requirement includes the following three 
major categories:

      Day to day organically assigned personnel to support 
operational Navy and USMC units (Ships, subs, squadrons, overseas 
hospitals).
      Capabilities needed to augment the day to day operational 
forces, other theater medical assets to support operational forces, and 
contingency operations across the globe (Hospital Ships, Casualty 
Receiving Treatment Ships, and Marine Corps units).
      Development, honing & sustainment consisting of personnel 
assigned to training pipelines, provision of mission-specific support 
(Students, Faculty, Logistics, Public Health, R&D).

    8. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, how 
long has it been since the Department evaluated and updated the 
Combatant Commands' (COCOM's) operational medical force readiness 
requirements?
    Lt. Gen. Ediger. The AFMS Critical Operational Readiness 
Requirements determination was last updated in 2013. The readiness 
demand signal has remained the same since that time. We update the 
requirements when there is a major change in our force structure or 
demand signal.
    LTG West. The total operational medical force readiness requirement 
for the Army is determined annually through the Total Army Analysis 
(TAA) process and is informed by current operational needs as validated 
by the Joint Staff. TAA considers all COCOM daily operational 
requirements, defense strategic guidance, and other mission directives. 
These are modeled by the Center for Army Analysis to generate the total 
requirements and determine the resourcing within the programmed force 
constraints. TAA 18-22 was completed in April 2015. TAA 19-23 is 
ongoing.
    VADM Faison. Navy Medicine coordinates with OPNAV, Headquarters 
Marine Corps, and Naval Component Command Fleet staffs to update its 
requirements routinely throughout the Program Objective Memorandum 
(POM) process using the OSD directed Future Force Structure Planning 
Process, and revalidates that analysis each POM cycle.
    The last major change in the OSD directed Future Force Structure 
Planning Process was in 2013 when OSD directed the use of the 
Integrated Security Construct Bravo (ISC-B) set of planning scenarios 
for use in POM-15 analysis. This analysis was also reflected in the 
Military Health System Modernization Study Report.

    9. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, what 
is the full cost to the taxpayers to sustain your Service's operational 
medical force readiness requirement?
    Lt. Gen. Ediger. The Fiscal Year 2017 Air Force associated full 
costs to taxpayers is $6,269,204,000, which includes healthcare 
operations, research and procurement, as well as military personnel 
salaries for Air Force medical personnel, projected Medicare Eligible 
Retiree Healthcare Fund receipts, and Military Construction. Not 
included in this total are the Defense Health Agency costs for Private 
Sector Care attributed to Active Duty Air Force and their dependents, 
as well as the Defense Health Agency cost of shared services provided 
to the AFMS.
    LTG West. The cost to taxpayers to sustain the operational medical 
force for the Army is between $9.18 billion and $9.38 billion annually. 
These readiness costs are split between the Army funded medical field 
units (20 percent) and the Defense Health Program (DHP) (80 percent). 
The medical costs within the Army are funded with Army Operations & 
Maintenance; Army Procurement; Army Research, Development, Test, and 
Evaluation (RDTE), Military Personnel appropriations pay for a force 
that is manned, equipped, and trained. Costs to support the Army 
National Guard and Reserve medical units are not included in these 
calculations.
    VADM Faison. On December 14, 2015, Deputy Secretary of Defense Work 
signed out a memorandum requiring the Services and the Defense Health 
Agency to define military medical force readiness and develop a model 
to determine and project the Department's cost for medical force 
readiness. Navy Medicine is actively participating in this effort.

    10. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, what 
percentage of the total Active medical force (officer and enlisted 
personnel) in your Service deployed to a combat theater each year over 
the last 15 years?
    Lt. Gen. Ediger. The following data is for Air Force deployments 
for combatant command requirements from 2001-2015 that were filled by 
Active Duty Air Force Medical Service members. This data does not 
account for the 873 Air Force servicemembers who are on Prepare to 
Deploy Orders in support of the SECDEF's Global Response Force or 
United States Northern Command's Defense CBRNE (Chemical, Biological, 
Radiological, Nuclear, and Explosive) Response Force. This also does 
not include airmen supporting operations from AF installations, such as 
nuclear deterrence, cyberdefense, remotely piloted aircraft operations, 
intelligence operations centers, global mobility, long range strike and 
Homeland defense.

 
----------------------------------------------------------------------------------------------------------------
               Year                   Number of Deployments     AFMS AD End Strength         Percent of AFMS
----------------------------------------------------------------------------------------------------------------
2015..............................                    1,634                    28,574                      5.7%
2014..............................                    1,719                    29,190                      5.9%
2013..............................                    2,516                    30,123                      8.4%
2012..............................                    2,975                    29,986                      9.9%
2011..............................                    3,426                    30,164                     11.4%
2010..............................                    3,703                    30,610                     12.1%
2009..............................                    3,735                    30,176                     12.4%
2008..............................                    4,200                    29,792                     14.1%
2007..............................                    4,199                    30,551                     13.7%
2006..............................                    3,097                    30,750                     10.1%
2005..............................                    2,935                    31,173                      9.4%
2004..............................                    2,730                    32,519                      8.4%
2003..............................                    3,357                    31,203                     10.8%
2002..............................                    2,487                    31,068                      8.0%
2001..............................                      987                    30,402                      3.2%
----------------------------------------------------------------------------------------------------------------

    LTG West. The percentage of total Active medical force (officer and 
enlisted personnel) that deployed to a combat theater over the last 15 
years is as follows:

          2001:...................  0.54% deployed
      2002:.......................  1.70%
      2003:.......................  6.56%*
      2004:.......................  4.83%
      2005:.......................  5.46%
      2006:.......................  5.05%
      2007:.......................  5.73%**
      2008:.......................  5.05%
      2009:.......................  6.96%***
      2010:.......................  6.87%
      2011:.......................  6.47%
      2012:.......................  5.97%
      2013:.......................  5.71%
      2014:.......................  3.79%
      2015:.......................  1.51%
 
Notes: *Initiation of OIF 1 in 2003 / **OIF Surge 2007-2008 / ***OEF
  Surge 2009-2011


    VADM Faison. We define a combat theater as an Active area of 
responsibility with ongoing combat operations (i.e. OIF, OEF). This 
does not include personnel deployed on exercises or in support of 
humanitarian assistance/disaster relief (HA/DR) operations like Haiti, 
Katrina, Ebola and similar Navy Medicine HA/DR support operations. In 
addition, a significant portion of Navy and Marine Corps forces are 
forward deployed and on station 24/7, 365 days a year. These forces 
routinely rotate in and out of combat theaters throughout their 
operational tours. Navy Medicine personnel are directly assigned to 
these operating forces as organic assets.
    The table below represents the number of personnel deployed from 
shore-based Navy Medicine Medical Treatment Facilities (MTFs) compared 
to all Navy Medicine personnel assigned to these MTFs. Of note, the 
current Navy Medicine data application for tracking deployments was 
implemented in 2005. Data prior to 2005 is not available.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Fiscal Year
                    PRI--CAT                     -------------------------------------------------------------------------------------------------------
                                                    FY05      FY06      FY07      FY08      FY09     FY10      FY11     FY12     FY13     FY14     FY15
--------------------------------------------------------------------------------------------------------------------------------------------------------
Personnel.......................................    30,104    29,881    29,059    27,576   26,332    27,010   27,379   27,833   28,367   28,365   28,039
# Deployments...................................     4,472     4,071     3,443     2,929    2,418     2,986    2,058    1,423      857      811    1,499
Percentage of Personnel Deployed................    14.86%    13.62%    11.85%    10.62%    9.18%    11.06%    7.52%    5.11%    3.02%    2.86%    5.35%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Not included in the table above are the organically assigned Navy 
Medicine personnel within Navy and Marine Corps units. For fiscal year 
2015 these are approximately 5,726 billets of the Active medical force 
assigned to the Marine Corps (Budget Submitting Office (BSO)-27), and 
3,124 billets assigned to the Fleet (BSO-60, BSO-70). Historically, 
these organic assignments have remained stable over the last 10 years.
                     military provider productivity
    11. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, does 
lower military provider productivity contribute to problems with access 
to care for beneficiaries?
    Lt. Gen. Ediger. When considering productivity of Air Force (AF) 
providers, it is important to consider that 87 of AF medical personnel 
are uniformed servicemembers. Also, 96 percent of AF medical personnel 
are assigned to AF hospitals and clinics with only 4 percent assigned 
to operational units. This means AF providers in hospitals and clinics 
are not only providing health care, but also constitute the deployable 
medical force and support day-to-day military operations at the 
installation. We believe AF providers are fully productive across a 
broad spectrum of responsibilities, which include readiness training 
and engagement with the missions they support to address operational 
health concerns. We adjust enrollment ratios to a level that is 
estimated to match the clinical availability of military providers, but 
sometimes mission priorities decrease availability and thus diminish 
access. We are developing a new enrollment tool to adapt enrollment 
ratios to particular missions and more precisely match capacity to 
demand.
    It is also true that the AF has a significant number of relatively 
new providers due to turnover in the medical force. New providers are 
generally less productive clinically until they attain a certain level 
of experience. This is currently a factor in access to care due to the 
increase in new provider accessions over the past year subsequent to 
increased requirements for physician assistants and family nurse 
practitioners.
    LTG West. The Medical Command continues efforts to better predict 
and mitigate operational readiness requirements in order to improve 
access to care for all beneficiaries. Nonetheless, essential 
operational medical readiness requirements, including military training 
requirements, may impact military provider availability; however, our 
staffing levels and mix of military and civilian or contract providers 
take these requirements into account.
    VADM Faison. Low provider productivity does not impact access to 
care for Navy Medicine. With regard to access performance, the Navy has 
the best performance in the Direct Care system. Further, our wait times 
for appointments outperform civilian benchmarks used by most health 
systems. Per MHS policy, MTFs are required to provide a primary care 
appointment within 24 hours to meet a patient's acute care needs. Navy 
Medicine routinely meets or outperforms this standard. By comparison, 
available civilian performance standards for acute appointments is 
typically 48 hours. Likewise, a routine primary care visit is required 
by our system within 7 days. By comparison, the civilian performance 
for a routine primary care visit is typically 10 business days or more. 
Lastly, Initial Specialty Care visits are required to be seen within 28 
days for Navy MTFs. Navy Medicine meets or outperforms this standard in 
most cases when staff are available. Civilian specialty access varies 
widely by geographic region.
    Navy Medicine performs much better than the policy requires. The 
MHS measures access to available appointments with an industry tool 
called the ``3rd Next available'' measure. By definition, this measure 
counts the first 3 open appointments available for every clinic in the 
system. This measurement is performed daily across all MTFs. For 
calendar year 2015, Navy Medicine recorded 1.0 days as the ``3rd next 
measure'' for acute primary care appointments; the MHS average for the 
period was 1.6 days. That means for an average day in Navy medicine, 
patients needing an acute appointment had three potential appointments 
to choose from in the next 1.0 days (24 hours). ``3rd Next available'' 
performance for routine appointments in primary care was 6.3 days and 
for initial specialty care appointments the value was 13.3 days: both 
leading values are well within the more stringent MHS standards.
    To ensure quality access is maintained for our patients, our 
leadership at the MTF, Regional, and headquarters regularly track 
availability of appointments for patients using the ``3rd Next 
available'' measure.
    The factors which contribute to high productivity and quality 
access performance are generally independent of available patient 
appointments. We manage our appointments to meet the needs of our 
patients.

    12. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, what 
are you doing now to increase provider productivity, which will lead to 
enhanced access to care?
    Lt. Gen. Ediger. Primary actions to increase clinical throughput 
pertain to team processes to serve the patient fully while focusing 
provider activities on assessment and provision of care. This involves 
more effective use of support staff protocols which leverage the skill 
sets of various team members to deliver care for minor medical issues 
that do not require direct intervention by the provider. A number of 
processes have been developed and implemented across the Military 
Health System and Air Force Medical Service to enhance access and 
create more avenues for getting patients to the right level of care at 
the earliest possible opportunity. Some of these programs include: 
secure messaging email between patients and their primary care team; 
opportunities for patients to be booked directly into certain specialty 
care providers without first seeing their provider; and the TRICARE 
Nurse Advice line which connects patients directly to a registered 
nurse for advice.
    LTG West. Army Medicine methodically reviews primary care manager 
(PCM) clinical availability and productivity on a monthly basis. There 
is an established process that requires hospital, region, and 
headquarters approval for any non-standard activities that may take the 
provider out of the clinic. Additionally, PCM availability is 
summarized and briefed to the Deputy Commanding General for Operations. 
This process occurs monthly in order to focus on PCM availability and 
productivity which in turn improves access to primary care. Other 
initiatives to improve access to care include simplified appointing to 
reduce the number of appointment types, predictive tools to assess 
patient demand, and standardized time keeping/coding practices to 
ensure our providers are getting credit for the care they provide.
    VADM Faison. Navy Medicine leads the MHS in access to care 
performance, and our standards for performance exceed those for 
appointment availability in the private sector. Provider productivity 
does not impact access to care for Navy Medicine. In fact, provider 
clinical experience is important to us as part of skills preservation 
and sustainment for operational requirements.
    Navy Medicine also leverages technology to increase patient 
opportunities for care outside of the traditional patient visit 
(virtual care). Navy currently leads the services with 51 percent of 
patients enrolled to use our secure messaging platform, Relay Health. 
In 2015, Navy patients sent 2.4 million secure messages to their health 
care teams. This tool allows clinic teams to answer medical issues via 
secure message that might otherwise have resulted in a clinic visit. 
Navy also utilizes the Nurse Advice line as an enhanced access tool 
available for our patients. In 2015, this tool allowed our patients to 
make 132,870 calls to a registered nurse, 36.9 percent of those calls 
resulted in a resolution to the patient's issue without an in-person 
medical facility visit needed. These systems have a 97 percent patient 
satisfaction: our patients like what we have done.
    To ensure our providers have enough patients to both stay 
productive and sustain clinical skills, Navy Medicine recently enacted 
several recapture efforts based on the Patient Centered Medical Home 
strategy and model of primary care. By increasing enrollment of 
patients in our primary care clinics, we improve control of specialty 
care referrals because we can direct these patients to stay within our 
Military Treatment Facility (MTF). We also enjoy a contractual 
relationship with the Managed Care Support Contractor network that 
enables us to recapture network care that fits within the MTF 
capabilities using a ``First Care Opportunity'' or ``Right of First 
Refusal'' clause to redirect specialty care to a MTF, instead of 
incurring purchased care expenses for a resource available in our 
facility.
                       graduate medical education
    13. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, 
which of your Graduate Medical Education (GME) programs directly 
support COCOM operational medical force requirements? In other words, 
which GME programs, to include internships, residency programs and 
fellowship programs provide direct support to COCOM operational medical 
force requirements?
    Lt. Gen. Ediger. All of the Air Force GME programs either directly 
or indirectly support COCOM medical operational force requirements. The 
spreadsheet below provides a list of Tier 1 GME programs whose 
graduates fill Unit Type Code (UTCs) that directly support COCOM 
requirements. The remaining Tier 2 GME programs are required to 
maintain accreditation of Tier 1 GME programs, fill required OCONUS 
billets and deliver necessary health care to Department of Defense 
(DOD) personnel who will support COCOM requirements.
      
    
    
    Note a RED X in tier 2 denotes members with this skill set ready to 
deploy in a Tier 1 position at all times.
    LTG West. Current Army Graduate Medical Education (GME) physician 
training programs constitute the near exclusive pipeline for physicians 
providing direct COCOM support. The programs train physicians that 
provide health care directly contributing to COCOM medical force 
readiness by ensuring the readiness of the force and by developing the 
clinical skills necessary for the provision of direct care to the ill 
and injured for combat casualty care and humanitarian contingency 
operations. These programs develop critical clinical competencies that 
are fully aligned with the 31 August 2015 Joint Concept for Health 
Services Joint Medical Capabilities. Training program throughput is 
fully aligned with the Total Army Analysis sizing model operational 
wartime requirements.
    Most of these programs are conducted at Army military treatment 
facilities that also provide direct health care to combat casualties. 
These programs enhance hospital clinical capability and patient access 
to emerging state of the art diagnostics and therapeutics. These 
programs are also strategically placed to maximize opportunities for 
full health care team training and permit leveraging of assets to 
support co-located non-physician training programs (e.g., nursing, 
dental, allied health, etc.).
    Army Medicine hosted or sponsored residency programs that provide 
direct support to COCOM operational force medical requirements include: 
Aerospace Medicine; Anesthesiology; Dermatology; Emergency Medicine; 
Family Medicine; General Surgery; Internal Medicine; Neurology; 
Neurosurgery; Obstetrics-Gynecology; Occupational Medicine; 
Ophthalmology; Orthopaedics; Otolaryngology; Pathology; Pediatrics; 
Physical Medicine; Plastic Surgery; Preventive Medicine; Psychiatry; 
Psychiatry/Internal Medicine; Diagnostic Radiology; and Urology.
    Army Medicine hosted internship programs that provide direct 
support to COCOM operational force medical requirements include: 
general Transitional Year and designated Preliminary Transitional Year 
training programs preceding full residency training in Dermatology, 
Ophthalmology, Physical Medicine, Preventive Medicine, and Diagnostic 
Radiology.
    Army Medicine hosted or sponsored fellowship programs that that 
provide direct support to COCOM operational force medical requirements 
include: Adolescent Medicine; Critical Care; Blood Banking/Transfusion 
Medicine; Critical Care Ultrasound; Emergency Medicine Subspecialties 
(Austere & Wilderness Medicine, Cardiology, Emergency Medicine Services 
& Disaster Medicine, Emergency Toxicology, Pediatrics, Sports Medicine, 
Ultrasound); Family Medicine Subspecialties (Obstetrics, Psychiatry, 
Gastroenterology/Colonoscopy, Hospitalist, Sports Medicine); General 
Surgery Subspecialties (Colon/Rectal, Craniofacial, Pediatric, 
Thoracic, Trauma/Critical Care, Vascular); Internal Medicine 
Subspecialties (Cardiology, Gastroenterology, Hospitalist, Infectious 
Disease, Nephrology, Pulmonary/Critical Care Medicine); Neurology 
Subspecialties (Critical Care, Neuro-Ophthalmology); Neurosurgery 
Subspecialties (Trauma/Critical Care, Pain & Functional, Pediatric, 
Peripheral Nerve, Skull Base, Spine, Vascular); Obstetrics-Gynecology 
Subspecialties (Female Pelvic Medicine & Reconstructive Surgery, 
Maternal & Fetal Medicine); Occupational Medicine-Preventive Medicine; 
Ophthalmology Subspecialties (Corneal/External Disease, Neuro-
Ophthalmology, Oculoplastic/Orbital, Pediatric, Retinal); Orthopaedic 
Subspecialties (Adult Reconstructive/Total Joint, Sports Medicine, Foot 
and Ankle, Hand, Musculoskeletal Oncology, Trauma, Pediatric, Shoulder 
& Elbow, Spine); Otolaryngology Subspecialties (Facial Plastic/
Reconstructive, Head & Neck); Pain Management; Pediatric Anesthesia; 
Pediatric Subspecialties (Cardiology, Critical Care, Infectious 
Diseases, Neonatology, Pulmonary/Critical Care Medicine); Physical 
Medicine Subspecialties (Sports Medicine, Traumatic Brain Injury); 
Preventive Medicine-Occupational Medicine; Psychiatry Subspecialties 
(Addiction, Child/Adolescent, Preventive Psychiatry); Radiology 
Subspecialties (Musculoskeletal Imaging, Neuroradiology, Pediatric, 
Vascular/Intervention); Sleep Medicine; Urology Subspecialties (Female, 
General, Stone/Laparoscopy, Trauma Reconstructive).
    VADM Faison. All Navy, joint and civilian clinical GME programs 
attended by Navy Medical Corps personnel directly relate to the 
provision of medical operational requirements. The importance of 
maintaining quality control over physician training through our GME 
programs is grounded in the diversity of the remote, austere, and 
challenging environments in which our providers routinely operate in 
contrast to locations where most graduates of civilian residency 
programs will practice. The programs in support of operational 
requirements fall under two categories - primary or secondary.
    Primary programs refer to those for which Medical Manpower All 
Corps Requirements Estimator (MedMACRE) classifies the billets as 
operational. These include sea duty billets such as aboard an air craft 
carrier, and remote land based billets such as Administrative Support 
Unit Bahrain. In addition, it includes overseas billets as these 
provide medical readiness support to forward-deployed military 
personnel.
    Secondary programs are those not in immediate support of the 
readiness mission, but are in direct support of GME programs (required 
for accreditation).
    Examples of primary and secondary programs are as follows:

                          Primary:  Internal Medicine Residency
                        Secondary:  Internal Medicine Cardiology
                                     Interventional Fellowship
 
                          Primary:  Family Medicine Residency
                        Secondary:  Family Medicine Faculty Development
                                     Fellowship
 
                          Primary:  Obstetrics/Gynecology
                        Secondary:  Family Planning Fellowship
                                    Obstetrics/Gynecology Urology
                                     Fellowship
 
                          Primary:  Pediatrics Residency
                        Secondary:  Pediatric Endocrinology Fellowship
                                    Pediatric Gastroenterology
                                     Fellowship
 

    All Navy GME programs are fully accredited by the American college 
of Graduate Medical Education (ACGME), and 95 percent of our graduates 
pass their board certification at the first sitting. This strong 
approach to military physician training and GME allows us to assure 
American families that the providers caring for their sons and 
daughters, regardless of location, are among the best in the nation. 
These future leaders of the operational medical force are well prepared 
to save lives and protect health, which is a core responsibility of the 
operational combatant commander.

    14. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, how 
many personnel in each Service are currently training in those direct 
support programs?
    Lt. Gen. Ediger. There are 859 Air Force trainees in Department of 
Defense Graduate Medical Education (GME) programs.
    LTG West. Approximately 75 Army medical officers are currently 
training in a one year medical internship program. Army Medicine hosted 
internship programs that provide direct support to COCOM operational 
force medical requirements include the following programs and number of 
Army officers currently in training: General Transitional Year (47), 
and designated preliminary Transitional Year training programs that 
precede full residency training in Dermatology (7), Ophthalmology (5), 
Physical Medicine (3), Preventive Medicine (1), and Diagnostic 
Radiology (12).
    Approximately 1141 Army medical officers are currently training in 
a medical residency program. Army Medicine hosted programs or sponsored 
civilian residency training that provide direct support to COCOM 
operational force medical requirements include the following programs 
and number of Army officers currently in training: Aerospace Medicine 
(19); Anesthesiology (14); Dermatology (27); Emergency Medicine (105); 
Family Medicine (140); General Surgery (113); Internal Medicine (167); 
Neurology (13); Neurosurgery (17); Obstetrics-Gynecology (75); 
Occupational Medicine (5); Ophthalmology (22); Orthopaedics (97); 
Otolaryngology (34); Pathology (29); Pediatrics (82); Physical Medicine 
(15); Plastic Surgery (6); Preventive Medicine (8); Psychiatry (57); 
Psychiatry/Internal Medicine (2); Diagnostic Radiology (63); and 
Urology (30).
    Approximately 160 Army medical officers are currently training in a 
medical fellowship subspecialty training program. Fellowship training 
is based on current mission critical needs of Army Medicine that in 
part is driven by separations and retirements of previously trained 
experts. Thus training is not conducted in every subspecialty every 
year. Army Medicine hosted programs or sponsored civilian fellowship 
training that provide direct support to COCOM operational force medical 
requirements include the following programs and number of Army officers 
currently in training: Adolescent Medicine (4); Critical Care (2); 
Blood Banking/Transfusion Medicine (0); Critical Care Ultrasound (0); 
Emergency Medicine Subspecialties (Austere & Wilderness Medicine (2), 
Cardiology (0), Emergency Medicine Services & Disaster Medicine (3), 
Emergency Toxicology (1), Pediatrics (2), Sports Medicine (1), 
Ultrasound (3)); Family Medicine Subspecialties (Obstetrics (1), 
Psychiatry (0), Gastroenterology/Colonoscopy (1), Hospitalist (1), 
Sports Medicine (2)); General Surgery Subspecialties (Colon/Rectal (2), 
Craniofacial (1), Pediatric (2), Thoracic (1), Trauma/Critical Care 
(4), Vascular (6)); Internal Medicine Subspecialties (Cardiology (14), 
Gastroenterology (19), Hospitalist (0), Infectious Disease (9), 
Nephrology (2), Pulmonary/Critical Care Medicine (14)); Neurology 
Subspecialties (Critical Care (1), Neuro-Ophthalmology (0)); 
Neurosurgery Subspecialties (Trauma/Critical Care (0), Pain & 
Functional (0), Pediatric (0), Peripheral Nerve (0), Skull Base (0), 
Spine (2), Vascular (0)); Obstetrics-Gynecology Subspecialties (Female 
Pelvic Medicine & Reconstructive Surgery (4), Maternal & Fetal Medicine 
(7)); Occupational Medicine-Preventive Medicine (0); Ophthalmology 
Subspecialties (Corneal/External Disease (1), Neuro-Ophthalmology (0), 
Oculoplastic/Orbital (0), Pediatric (1), Retinal (0)); Orthopaedic 
Subspecialties (Adult Reconstructive/Total Joint (2), Sports Medicine 
(2), Foot and Ankle (0), Hand (4), Musculoskeletal Oncology (0), Trauma 
(0), Pediatric, Shoulder & Elbow (0), Spine (2)); Otolaryngology 
Subspecialties (Facial Plastic/Reconstructive (1), Head & Neck (0), 
Pediatric (1)); Pain Management (5); Pediatric Anesthesia (0); 
Pediatric Subspecialties (Cardiology (0), Critical Care (2), Infectious 
Diseases (1), Neonatology (5), Pulmonary/Critical Care Medicine (2)); 
Physical Medicine Subspecialties (Sports Medicine (0), Traumatic Brain 
Injury (0)); Preventive Medicine-Occupational Medicine (2); Psychiatry 
Subspecialties (Addiction, Child/Adolescent (7), Preventive Psychiatry 
(0)); Radiology Subspecialties (Musculoskeletal Imaging (2), 
Neuroradiology (4), Pediatric (0), Vascular/Intervention (2)); Sleep 
Medicine (3); Urology Subspecialties (Female (0), General (0), Stone/
Laparoscopy (0), Trauma Reconstructive (0)).
    VADM Faison. In fiscal year 2015, there were 991 Navy Medical Corps 
personnel attending Navy, joint or civilian clinical GME direct support 
programs.

    15. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, are 
there any direct support programs that could be eliminated from each 
Service while maintaining the essential medical capabilities of the 
Services to perform combat casualty care, higher echelon casualty care, 
and humanitarian assistance?
    Lt. Gen. Ediger. No.
    LTG West. All current graduate medical education training programs 
identified as providing direct COCOM support are fully aligned with 
joint medical capability requirements outlined in the 31 August 2015 
Joint Concept for Health Services. The Army Medical Department reviews 
graduate medical education programs on an annual basis to assure 
training meets clinical capability mission requirements. In addition, a 
comprehensive Army Graduate Medical Education program review has been 
initiated to further optimize graduate medical education alignment with 
readiness, critical skills, and system for health priorities.
    VADM Faison. No, all Navy, joint and civilian clinical GME programs 
attended by Navy Medical Corps personnel relate to the provision of 
medical operational requirements.
                          missed appointments
    16. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, from 
October 2014 through September 2015, there were over 1.6 million 
scheduled appointments missed by all categories of beneficiaries. 
Active Duty servicemembers missed over 700,000 of those scheduled 
appointments. How much money did missed appointments cost your Service, 
and ultimately the taxpayers, during this time period?
    Lt. Gen. Ediger. Note that the number of patients seen as ``walk-
ins'' in Air Force primary care clinics exceeds the number of no-shows. 
While the following calculation presents the value of appointments 
equivalent to the number of no-shows, most of this capacity is utilized 
to provide care for walk-in patients.
    From October 2014 through September 2015, the potential cost of 
beneficiaries missing their medical appointments is approximately $28M. 
The data used to generate this estimate reflects fiscal year 2015 
encounters for privileged providers only and excludes any dental 
appointments. Methodology used to calculate potential cost of missed 
medical appointments/no-shows:
    Average Provider Aggregate Relative Value Unit (paRVU) per 
encounter (x) Total number NoShows=Total Provider Aggregate Relative 
Value Units (paRVU) NoShows
    Provider Aggregate Relative Value Units (paRVU) NoShows (x) fiscal 
year 2015 Prospective Payment System (PPS) cost=Value
    This methodology uses a Prospective Payment System (PPS) value to 
determine the ``value'' of the no show encounter. The PPS value is not 
adjusted for geographic location. Additionally, this method does not 
consider the impact of over-booking or filling vacated patient 
appointments with walk-ins. The system does not permit tracking the 
number of missed appointment slots which are booked by last minute 
appointments or walk-ins. This method also does not take into account 
opportunity costs, the true cost of delivering the care (vs. MEPRS 
allocated cost) or the cost associated with delivering direct/indirect 
care to support Active Duty (PHAs, MEBs, security clearance record 
reviews) or the time providers and staff are required to spend outside 
the healthcare delivery system (readiness training, leadership 
activities, etc.).
    LTG West. During the timeframe of October 2014 through September 
2015 Army Medicine scheduled 9.6M appointments for all beneficiary 
categories. Of those scheduled appointments, 591,500 or 6.2 percent 
were recorded as a missed appointment. The estimated cost of a missed 
appointment is approximately $204. Therefore we estimate the total cost 
of missed appointments during fiscal year 2015 is $120.6M for all 
beneficiaries. Army Medicine has made a concerted effort to decrease no 
show rates. Our latest data shows improvement in this area. For the 
twelve months ending in February 2016, our no-show rate decreased to 
4.8 percent.
    VADM Faison. No show rates for Navy Medicine are well below 
civilian averages. In fiscal year 2015, Navy MTFs saw a total of 42.5 
million patient encounters. During this period, the total percentage of 
missed appointments when compared to the overall number of clinical 
encounters was 3.77 percent. Civilian rates of patients failing to keep 
appointments typically range from 6 percent to 30 percent, depending on 
the type of patient population.
    Our methods for attaining low no-show rates are a mixture of 
patient reminders, phone call patient confirmations, patient engagement 
by clinical staff, identifying high no-show patients, and use of a 
beneficiaries' chain-of-command to reinforce the importance of 
appointment attendance.
    We aggressively work to fill missed appointments with walk-in 
patients. These are patients who otherwise would have sought their care 
in either an Emergency Room or in the network. This allows us to both 
fully utilize our available appointments while decreasing costs for 
Emergency Room and network care.

    17. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, how 
significantly do these missed appointments affect your ability to 
provide timely care to other beneficiaries?
    Lt. Gen. Ediger. The Air Force experiences a no-show rate of 
approximately 5-7 percent, which is consistent with civilian industry. 
Although this is not a significant percent of the care we schedule, it 
does impact our patient's ability to schedule appointments. To mitigate 
the impact of missed appointments and provide additional access, 
clinics walk-in patients to take care of the most urgent needs as 
quickly as possible. Note that the number of walk-in patients seen in 
AF primary care clinics exceeds the number of no-shows.
    LTG West. Each patient no-show impacts both the patient and the 
system. Missed appointments can contribute to increased patient 
dissatisfaction with the timeliness of care. Missed appointments impact 
our ability to ensure readiness and positive outcomes for soldiers and 
beneficiaries. No-show appointments also represent a lost opportunity 
to provide healthcare services to beneficiaries and because they often 
result in rescheduled appointments, they reduce overall appointment 
availability and impact our ability to meet Access to Care standards. 
Over the past 3 years, Army Medicine's no-show rate has reduced from 
6.6 percent to 4.8 percent. We remain committed to working with line 
leaders and educating patients on the negative impact that no-shows 
have on the direct care system.
    VADM Faison. Missed appointments/no-shows in Navy Medicine do not 
significantly impact beneficiary access to care. This is evidenced by 
the fact that no-show rates for Navy Medicine are well below the 
civilian averages (i.e., 3.77 percent in Navy Medicine vs. 6 percent-30 
percent civilian averages) and Navy Medicine's access to care 
performance leads the Military Health System (e.g., Navy Medicine leads 
all Services in third-next available appointments and average days to 
be seen). We have no evidence that our low rate of missed appointments 
impedes, in any way, timely access to care by our other beneficiaries.

    18. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, what 
are you doing to fix this important problem--a problem that hinders 
access to care for all beneficiaries and wastes taxpayer dollars?
    Lt. Gen. Ediger. To minimize the volume of missed appointments, Air 
Force Military Treatments Facilities utilize an automated calling 
system to remind patients of scheduled appointments. The Air Force 
Medical Service also utilizes ``no-show posters'' as well as other 
education tools to inform patients of the impact of missing 
appointments. Some Military Treatment Facilities also send ``no-show'' 
letters to patients who miss their appointments to remind them of the 
importance of making their scheduled appointments. The Air Force 
Medical Service also educates patients on the benefits of the TRICARE 
Online notification system, which after sign-up provides the patient 
multiple notification options to include email and/or text.
    LTG West. We are deeply involved in initiatives to reduce missed 
appointments such as simplifying appointment cancellation procedures 
and utilization of tools such as TRICARE Online which provides organic 
email and text messaging appointment reminders directly to the 
beneficiary. Our facilities also use telephonic appointment reminder 
services that provide recorded reminder messages to our beneficiaries. 
Finally, we actively partner with the leadership of our posts, camps, 
stations and bases through community outreach efforts to ensure that we 
educate the beneficiary population on the value of their care provided 
at their medical treatment facility. In so doing we provide a 
consistent message concerning the importance of keeping appointments or 
cancelling them in a timely manner.
    VADM Faison. No-show rates for Navy Medicine are well below 
civilian averages. In fiscal year 2015, Navy Military Treatment 
Facilities (MTFs) saw a total of 42.5 million patient encounters. 
During this period, the total percentage of missed appointments when 
compared to the overall number of clinical encounters was 3.77 percent. 
Civilian averages of patients failing to keep appointments typically 
range from 6 percent to 30 percent, depending on the type of patient 
population.
    Navy Medicine has achieved this success via Active engagement at 
the local level and delegated to MTF leadership. Across our MTFs, staff 
utilize a mixture of patient reminders, phone call patient 
confirmations, patient engagement by clinical staff, identifying high 
no-show patients, and use of a beneficiaries' chain-of-command to 
reinforce the importance of appointment attendance. This strategy has 
proven successful in achieving and sustaining no-show rates much lower 
than those seen in the private sector.
                     medical headquarters staffing
    19. Senator Graham. Dr. Woodson, we have data to show that total 
medical headquarters staffing--military, civilian and contractor 
personnel in the Defense Health Agency and the Services combined--is 
over 12,000 persons.
    Do you think this is the right number of headquarters staff? If 
not, what is the right number of personnel required to manage the 
military health system?
    Dr. Woodson. Thanks for the opportunity to clarify this 
misconception that all 12,000 members of the DHA are categorized as 
``headquarters staff.'' In the DHA, we have about 9000 personnel 
working in the military treatment facilities at Walter Reed and Ft 
Belvoir, providing healthcare directly to patients. We have about 2600 
personnel working in consolidated shared services in ten functional 
areas, providing support directly to the Army, Navy, and AF military 
treatment facilities located around the world. In addition, the DHA has 
absorbed a number of organizations such as the Armed Forces Medical 
Examiner System (AFMES), DOD Medical Examination Review Board 
(DODMERB), Medical Education & Training Campus (METC), and Defense 
Center of Excellence (DCoE), which formerly were Executive Agencies and 
also provide enterprise support to the Services' medical missions. We 
expect that additional organizations will be absorbed into DHA in 
fiscal year 2017 and fiscal year 2018. The DHA has dedicated resources 
to assessing its manpower requirements as a result of these 
consolidations. We will continue to identify manpower reductions, while 
maintaining the high quality expected of military healthcare.

    20. Senator Graham. Dr. Woodson, should DOD further shrink medical 
headquarters staffs through additional consolidation of the 
headquarters functions of the DHA and the Services? If not, why not?
    Dr. Woodson. Yes, we need to be constantly looking for ways to 
improve efficiency and eliminate unproductive duplication and 
variation. Realistically, there is a limit on how much change can be 
implemented quickly without risking breakdowns. There is clearly more 
to do.
                   tricare medical support contracts
    21. Senator Graham. Dr. Woodson, why were the requirements for the 
next round of TRICARE medical support contracts based on a non-risk 
bearing contracting strategy that purchases medical services and 
procedures, instead of a risk-bearing contract strategy that purchases 
improved health outcomes and higher patient satisfaction?
    Dr. Woodson. TRICARE Medical Support Contracts are considered to be 
risk-bearing contracts. The T-2017 contract makes a number of important 
changes to how the Military Health System delivers care, including 
improvements to beneficiary experience and the measurement of quality, 
and holds the contractors responsible for these outcomes. In addition 
the National Trend Incentive provides a financial incentive for 
performance. We are also developing and implementing a number of value-
based care demonstrations which place providers at risk for quality 
outcomes and efficiency, and anticipate these will continue to expand 
during the life of the T-2017 contract. Our goal is to have 80 percent 
of all MHS private sector healthcare expenditures be tied to quality 
and efficiency by 2020, and to integrate this effort with the direct 
care system. Thus by the end of the T-2017 contract, we anticipate that 
most of our expenditures will be based on outcomes, not volume. We 
believe this is the best approach to ensure our beneficiaries have 
great access to outstanding care, and that our scarce resources are 
used in the most efficient and effective way possible.
                            healthcare costs
    22. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, 
military hospitals and clinics produce inpatient/outpatient workload at 
costs about 50 percent higher than what it would cost if those services 
were purchased in the private sector.1 Why does it cost more to provide 
health care services in military hospitals than it cost to purchase the 
same services in the private sector?
    Lt. Gen. Ediger. The Military Health System provides medical 
capabilities, not just a medical benefit associated with providing 
direct care. The AFMS provides the Nation with Medically Ready Airmen, 
medical support to the nuclear mission, Bioenvironmental Engineering 
and Public Health, and a trained medical force ready to save lives in 
garrison as well as in expeditionary settings.

    1)  Maintaining Medically Ready Airmen and providing the care 
necessary to our Active Duty force consumes about 16 percent of our 
budget. This averages out to about $181 per Direct Care visit vs the 
$131 to purchase their care (doesn't include the overhead costs paid to 
the Managed Care Support Contractors to administer the benefit). This 
is closer to a 28 percent difference, which we continually work to 
decrease by improving health through Medical Home initiatives, 
preventive medicine, and performance management in order to gain 
efficiencies where the mission allows.
    2)  Graduate medical and dental education, education and training, 
and Phase II Training programs account for 2 percent of the total 
costs.
    3)  Support for the AF's Mission includes provision of 
environmental, industrial, and occupational health via Bioenvironmental 
Engineering and Public Health programs, as well as direct support 
provided to AF Line units outside of providing the peacetime health 
benefit to include the Personnel Reliability Program and Dover Mortuary 
Support, which accounts for 9 percent of costs.
    4)  We maintain overseas military hospitals and Military Treatment 
Facilities (MTFs) to provide a US standard of care in countries where 
we maintain a military presence; this accounts for 12 percent of our 
budget.

    Reimbursements from private insurance payers are not considered, 
which would decrease the cost of care provided within an MTF by 
approximately 11 percent if considered.
    In summary, the total cost of these mission-essential capabilities 
account for about 39 percent of our total budget. Although there is 
some overlap in providing the care to ensure Medically Ready Airmen, 
the costs of ensuring a medically ready and trained force, direct 
support to the AF Mission and support to MTFs have not been effectively 
carved out of the cost allocation, because they are interrelated and 
dependent. A simple 50 percent cost comparison does not fully account 
for the fact that almost 40 percent of our total budget is allocated 
towards supporting the total readiness of the medic, warfighter 
readiness, and the health of our installations.
    LTG West. Actually, the Army is able to provide inpatient hospital 
services at a lower cost than most private sector hospitals. Analysis 
of fiscal year (FY) 2015 Army inpatient care and its inpatient 
supporting services reflect the Army inpatient cost-per-stay 
(disposition) is $11,528.10. Published research of hospital inpatient 
costs demonstrates a wide variation of civilian inpatient costs. The 
range of civilian inpatient cost-per-stay, inflation adjusted for 2015, 
is between $11,557 and $17,562 per stay nationally for civilian 
hospitals. The Army inpatient cost per stay compared to civilian 
inpatient cost per stay, therefore is less expensive by 0.3 percent to 
52.3 percent.
    Army outpatient services include emergency services, outpatient 
surgery, outpatient ancillary services, and professional primary care 
and specialty care encounters. Analysis of fiscal year 2015 Army 
outpatient care (excluding dental) and its supporting outpatient 
services reflect the Army outpatient services average cost per 
encounter is $237.03 and the Purchased Care average cost of a paid 
claim is $154.60. The Army average cost per encounter variance is 
$82.43 or 53 percent higher. The Army cost is higher due to functions 
not performed by Purchased Care practices such as ``readiness of the 
force'' activities (e.g. soldier readiness processing activities, 
Integrated Disability Evaluation System processes, flight medicine, and 
other similar functions). Additionally, Army hospitals/clinics are 
required to provide programs and functions affecting the Active Duty 
family member that include Early Interventional Program and Exceptional 
Family Member Programs, and respond to infectious disease threats. 
These types of programs occurring in the civilian sector are normally 
managed by state organizations. The medical treatment facility 
responses in these situations contribute to the overall readiness of 
the force and a higher average cost per encounter ratio.
    VADM Faison. It is not possible to accurately compare the Direct 
Care system (i.e., care delivered in military treatment facilities) to 
care delivered in the private sector. Navy Medicine is a rapidly 
deployable, fully integrated medical system and this is what sets us 
apart from civilian medicine. Our direct care system serves as the 
readiness and surge platform for our providers and is critical to 
sustaining the vital skills and clinical competencies for our medical 
force.
    Additionally, the range of costs for the same surgical procedure in 
the private sector can vary widely, making it difficult to equate to 
procedures performed in the direct care system. In the Federal Health 
Care Benefit, Blue Cross costs more than Kaiser Permanente--an HMO. Of 
course HMOs control costs with limited choice in doctors, specialists, 
high co-pays and limits on access to care. These same tools are not 
used in the military health care system in order to ensure choice, 
provide high quality care, and maximize access for our Active Duty 
servicemembers, retirees, and dependents as part of the TRICARE 
benefit.
    Finally, Direct Care costs include the cost of readiness. We 
understand there is a desire to separate out these costs, and we are 
working towards a solution. Our goal in Navy Medicine is to provide 
exceptional value to those we serve by ensuring superior health 
outcomes through the safest and highest quality care, convenient 
access, full and efficient utilization of our services, and lower care 
costs.

    23. Senator Graham. Lt. Gen. Ediger, LTG West and VADM Faison, what 
is the cost of readiness?
    Lt. Gen. Ediger. The cost of readiness in fiscal year 2017 is 
forecasted to be $5,487,586,000, which includes healthcare operations 
as well as salaries for Air Force medical personnel. Not included in 
this total are funds associated with modernization of facilities and 
equipment, Medicare Eligible Retiree Health Care Fund receipts, and 
Private Sector Care costs attributable to Active Duty Air Force and 
their dependents.
    LTG West. The cost of readiness within the Army's Defense Health 
Program (DHP) appropriation is approximately $7.32 billion annually. 
This cost accounts for 61.7 percent of the total funding received by 
the Army within the DHP.
    VADM Faison. Navy Medicine is a rapidly deployable, fully 
integrated medical system and this is what sets us apart from civilian 
medicine. It exists to support readiness and the operational missions 
of both the Navy and Marine Corps. In the context of the cost of 
readiness, we must recognize that fundamentally readiness includes the 
costs of keeping sailors, marines and their families healthy and 
medically ready to deploy. Our direct care system serves as the 
readiness platform for our providers and is critical to sustaining the 
vital skills and clinical competencies for our medical force.
    The cost of readiness encompasses multiple factors that fall 
outside of the scope of Navy Medicine. In considering the complex 
nature of how this estimate would be derived, a number for the cost of 
readiness cannot be determined at this time. In conjunction with DOD, 
DHA, and the other Services (as per the Deputy Secretary of Defense 
memorandum of 14 Dec 15), we are working towards a solution that begins 
to inform this effort. The development of the Essential Medical 
Capabilities across the services will provide a uniform standard that 
will help support the development of a model for the cost of one 
component, medical force readiness. This will also align Navy Medicine 
with how the Navy line estimates the cost of their readiness.
                       medical staff contracting
    24. Senator Graham. VADM Bono, what are your thoughts on a 
capability-based, outcomes-driven contracting model for contracted 
medical services rather than the present focus on ``piece-meal'' 
staffing augmentation? Has DHA considered implementing such a model? If 
so, what is the status? If not, why not?
    VADM Bono. Contracted medical services purchased to augment 
military treatment facilities have not traditionally used an outcomes-
driven contracting model for several reasons. First, this model 
requires that the contractors have control of the factors that enable 
them to meet or exceed the Government's outcome goals. Contracted staff 
members supplement military and civilian staffs in providing care and 
are integrated into provider and support teams. The contractor is not 
in control of the hospital's productivity schedule and associated 
support functions of laboratory, pharmacy, health information 
technology that would allow it to achieve an outcomes-driven model. 
Second, the augmentation model allows maximum flexibility for military 
treatment facilities to fill vacancies associated with deployments and 
other staffing gaps and to add staff in case of national emergencies 
without affecting or altering military or civilian positions. Patient 
care can continue in the facilities and, when military or civilian 
health care workers become available, contracts can be reduced at the 
Government's option. Finally, this model supports a robust the small 
business health care staffing industry. According to the Federal 
Procurement Data System, the military spent over $1.3B in fiscal year 
2015 on direct health care services using small business providers that 
are capable of finding, hiring and staffing these positions.
    DHA currently implements an outcomes-driven staffing model in two 
National Capital Region facilities--the Dumfries and Fairfax Health 
Centers. According to GAO, these two clinics represented 23 percent of 
contract health care professionals in the National Capital Region in 
fiscal year 2011. These clinics represent an effective use of an 
outcomes-driven contracting model where the contractor has full control 
of the staffing and provision of ancillary services.
    To date, DHA has not considered segregating functions within its 
military treatment facilities for outcomes-driven contracting because 
doing so would involve changing hospital military and civilian staffing 
models, which could affect the readiness and training missions of the 
facilities. The inability to split ancillary support services between 
contractor and Government-run operations could result in the 
contractor's inability to meet contractual metrics and result in 
requests for equitable adjustment. Finally, the augmentation model 
provides the required flexibility while supporting robust Small 
Business contracting opportunities for the Department of Defense.
                               __________
          Questions Submitted by Senator Kirsten E. Gillibrand
                         aba therapy for autism
    25. Senator Gillibrand. Dr. Woodson, when I asked you about the 
proposed changes in reimbursement rates for Applied Behavior Analysis 
(ABA) therapy, you stated that DHA ``commissioned two outside studies 
that confirmed we were overpaying.'' I have reviewed these studies, and 
I'm concerned that the studies found dramatically different 
reimbursement rates from each other. Yet, you selected one set of 
reimbursement rates, the Medicaid plus 20 percent rate, seemingly at 
random. How do you justify your selection of the Medicaid plus 20 
percent rate?
    Dr. Woodson. By statute, all TRICARE reimbursement rates mirror 
Medicare rates to the extent practicable. Because Medicare has not set 
rates for ABA services, we had to use an alternative method of 
calculating rates. If and when Medicare rates are established, those 
rates will be immediately adopted, so it is crucial the calculation 
formula chosen to determine the rates be based on data that can be 
positively confirmed and approximates the likely future Medicare rates 
to the greatest extent possible. This approach is most fair to all 
providers. The adopted rate calculation process ensures establishment 
of ABA rates based on external studies, a consistent and fair 
calculation process for all localities, an annual review of the rates 
like all other TRICARE rates, an approach that approximates future 
Medicare rates, and rates adjusted for the 89 geographic areas that are 
recognized by Medicare.
    Kennell provided us with four different possible approaches to 
setting rates, some of which did include commercial rates. The National 
Rate option chosen was determined to be the best predictor of where 
Medicare rates will eventually be set. This option was based on 
adjusting the average Medicaid rates to calculate a ``predicted'' 
Medicare rate. On average, the Medicare rates are about 22 percent 
higher than Medicaid rates for a sample of the three highest-volume 
individual mental health service codes. This selected methodology was 
not chosen at random, but chosen to provide a consistent calculation of 
rates for all localities based on rates that can be positively 
confirmed by each State versus trying to use commercial rates, which 
are proprietary and vary greatly due to different billing codes, types 
of Plans (HMO, PPO, indemnity, etc.) and types of providers.
    The intent of the 2016 reimbursement rates is to align the ABA 
reimbursement rate methodology with that used annually for all other 
TRICARE rates generally, to include locality adjustments, while 
ensuring excellent access for our beneficiaries and a very competitive 
rate for TRICARE providers. This action results in the rates being 
reviewed and appropriately adjusted each year, like all other TRICARE 
rates, and not frozen for another 7-year period.
    The current rates we are replacing have been used for over 7 years, 
with no change, and with the same rate paid in all locations, unlike 
all other TRICARE, Medicare, and commercial rates which are adjusted 
for each geographic locality. The current rates were arbitrarily set in 
2008 under the Extended Care Health Option Enhanced Access to Autism 
Services Demonstration Program, which was designed as educational, not 
medical, and was open to Active Duty Family Members only. The current 
rates were never intended to set the standard for a medical benefit 
since they were not based on any study of the nationwide rates. The 
revised rates make ABA reimbursement more consistent with the basic 
TRICARE benefit used for all other TRICARE services.
    The RAND Corporation's study was the first study commissioned as 
discussed with the autism advocates and providers. Both groups fully 
supported using RAND. That study provided calculations of the 
``average'' reimbursement rates for ABA services. The researchers 
calculated the average rates by developing weighted averages of 
Medicaid and private insurance payments in each state for which data 
were available. RAND's report found Medicaid and commercial rates to be 
very similar in many states.
    RAND's study was very well researched and prepared, but multiple 
changes were subsequently made across the nation as the States adopted 
or adjusted their autism programs and rates. For that reason, we 
commissioned the Kennell and Associates, Inc., study to collect more 
current data while still incorporating data from the RAND study as 
appropriate. Thus, the Kennell study can be seen as an update and 
expansion of the RAND study. Based on the two studies, Kennell proposed 
four options for setting ``National Rates.'' The National Rates are 
adjusted to calculate the locality rate for each of Medicare's 89 
localities. We and the Kennell team worked closely with the RAND 
researchers to further research several data points needed to establish 
rates.

    (1)  The RAND report did not include data for providing one-on-one 
ABA services by doctoral or master's level providers (billing codes 
0364T and 0365T) or for family adaptive treatment guidance (code 
0370T). Billing codes 0364T and 0365T are the codes most often used as 
they are billed when providing one-on-one services to the child. 
Kennell added data for these additional services which are very 
important to our beneficiaries.
    (2)  The RAND report used Medicaid data collected in late 2014 or 
early 2015. Since that time, many states either adopted or adjusted 
rates. We are currently adjusting the rates again based on 11 more 
states, for a total of 35, having adopted or adjusted Medicaid rates 
since October 2015.
    (3)  For one-on-one direct ABA services, RAND did not provide rates 
for bachelor's degree providers separate from those with less than a 
bachelor's degree. The TRICARE benefit is based on the ``tiered 
model,'' allowing services from doctoral and master's level behavior 
analysts and supervised bachelor's level assistant behavior analysts 
and behavior technicians. Thus, Kennell added these rates.
    (4)  The commercial rates obtained by RAND paid for direct, one-on-
one ABA services, by type of provider, are currently not available 
because the MarketScan data used by RAND does not distinguish between 
the four ABA provider types. Thus, any average rate paid by commercial 
plan would tend to understate rates paid to doctoral and master's level 
behavior analysts and overstate rates paid to supervised bachelor's 
level assistant behavior analysts and behavior technicians. This is a 
problem for services like direct, one-on-one ABA that are provided by a 
broad range of provider types, especially because the rates often vary 
substantially by type of provider.

    26. Senator Gillibrand. Dr. Woodson, the Medicaid plus 20 percent 
rates are significantly lower for bachelors level and high school level 
ABA therapy providers than the current rates. For example, bachelors-
level providers would be paid $15 less per hour than they currently 
earn. How do you justify such a significant cut in reimbursement?
    Dr. Woodson. The revised rates were calculated to reimburse the 
four provider types (e.g., doctoral and master's level behavior 
analysts and supervised bachelor's level assistant behavior analysts 
and behavior technicians) at rates appropriate for their education and 
based on two studies of the nationwide rates for ABA services. The 
current rates were not set based on a study of the rates when they were 
adopted 7 years ago. The current rates were set in 2008 under the 
Extended Care Health Option Enhanced Access to Autism Services 
demonstration program as an educational program, not medical, for 
Active Duty Family Members only. The current rates were never intended 
to set the standard for a medical benefit, since they were not based on 
any study of nationwide rates. The two recent studies were completed to 
formally establish a reliable, competitive rate methodology that 
applies to all locations, with rates calculated for each locality and 
annually adjusted like all other TRICARE rates. This rate methodology 
will be used until Medicare establishes ABA rates, which by law, 
TRICARE will immediately adopt.
    The 2016 ABA rates (recalculated this week based on 11 more states 
adopting or adjusting their rates since October 2015) reimburse 
bachelor's level assistants for one-on-one services with a range of 
$63.76 - $91.56 per hour, compared to the current $75.00 per hour. No 
rate is being reduced by $15.00 or more for bachelor's level assistants 
and some will actually see an increase. Overall, the ABA rates are 
consistent with those paid to other mental health providers with 
similar levels of training. There are no other bachelors level 
providers reimbursed for mental health services; however, we can 
compare rates paid to masters and doctoral level ABA providers with 
those paid to other doctoral level mental health providers. As a 
comparison, the revised 2016 ABA rates pay a range of $106.26 to 
$132.60 per hour for doctoral and master's level providers. These rates 
are actually above what doctoral clinical psychologists are paid 
nationwide for individual psychotherapy 60-minute sessions (range from 
$93.00 to $105.00). Based on the external studies we commissioned, as 
well as comparable rates in other mental health fields, we continue to 
conclude the revised 2016 ABA rates are very competitive.

    27. Senator Gillibrand. Dr. Woodson, you also stated that ``to 
ensure that in fact we won't negatively impact services, we reviewed 
network adequacy almost on a monthly basis and certainly very 
frequently. We'll be monitoring this situation very closely. Should we 
find, in fact, in any locality that has been adversely affected, we 
will make rapid changes.'' How have you been tracking access to and 
availability of ABA services?
    Dr. Woodson. My Autism Team meets at least twice per month with our 
three TRICARE Regional Offices and the Managed Care Support Contractors 
(MCSCs). During each of the calls, the MCSCs provide a summary of the 
beneficiary waiting lists, if any, and the status of their provider 
networks. Historically, the concept of ``wait lists'' has been a 
concern as providers report long waiting lists, when in actuality; most 
beneficiaries have found other providers and are not subsequently 
removed from the wait list. The team discusses the localities of 
concern based on the waiting list or any pending provider loss due to a 
clinic closing for any reason (e.g., provider relocation, retirement, 
etc.). The Military Services' ``Exceptional Family Member Program'' 
representatives also join the conference call to ensure they remain 
abreast of the available providers and to report any problems they have 
heard from beneficiaries regarding access to ABA services. To date, our 
MCSCs have been very successful placing the children on waiting lists 
with other providers, although some parents choose to wait for 
particular provider or specific time of day for services.
    The TRICARE network of providers is robust overall; however, there 
are some areas in the country with a limited number of providers 
similar to many other specialties, such as Alaska, parts of Georgia, 
Southern California, Seattle-Tacoma, Ft. Leonard Wood, Missouri, and 
Ft. Riley, Kansas. These are areas with very few providers in the 
community, and access in these areas is challenging whether the child 
has commercial insurance, Medicaid, or TRICARE. TRICARE's three MCSCs 
are continuously working to recruit new ABA providers for underserved 
areas to improve access. For example, our MCSCs have successfully 
recruited additional providers to Ft. Leonard Wood, Missouri; Luke Air 
Force Base, Arizona; Southern California; the Gulf Coast (i.e., Biloxi, 
Mississippi to Tampa, Florida); Ft. Campbell, Kentucky; and many other 
locations, which benefit all children in the community, not just those 
with TRICARE. We currently have over 23,500 ABA providers, including 
over 450 new providers since the new rates were released.
    Most importantly, please know that we are committed to ensuring 
every military child with the Autism Spectrum Disorder (ASD) diagnosis 
has access to the care they need, including ABA. The TRICARE MCSCs will 
always use the network providers whenever possible to enhance that 
relationship with ``our'' provider network partners and be most cost 
efficient. However, if a network provider is not available, the MCSCs 
will arrange for care with non-network providers until a network 
provider is available. This is the same process used to locate 
providers for all TRICARE Prime enrollees needing a specific provider 
of any type.

    28. Senator Gillibrand. Dr. Woodson, based on the reviews you have 
completed on network adequacy, have you seen any issues with access to 
ABA therapy and if so, what kind of issues?
    Dr. Woodson. The TRICARE network of providers is robust; however, 
there are some areas in the country with a limited number of providers 
whether the child has commercial insurance, Medicaid, or TRICARE. In 
particular, there are a limited number of ABA providers around military 
installations in Alaska, parts of Georgia, Southern California, 
Seattle-Tacoma, Ft. Leonard Wood, Missouri, and Ft. Riley, Kansas.
    TRICARE's three Managed Care Support Contractors (MCSCs) are 
continuously working to recruit new ABA providers for underserved areas 
to improve access. For example, our MCSCs have successfully recruited 
additional providers to Ft. Leonard Wood MO, Luke Air Force Base AZ, 
Southern California, the Gulf Coast (Biloxi MS to Tampa FL), Ft. 
Campbell KY and many other locations, which benefits all children in 
the community, not just those with TRICARE. We currently have over 
23,500 ABA providers, including over 450 new providers who have joined 
TRICARE since the new rates were released on December 3, 2015.
    Most importantly, please know that we are committed to ensuring 
every military child with the Autism Spectrum Disorder (ASD) diagnosis 
has access to the care they need, including ABA. The MCSCs will always 
use the network providers whenever possible to enhance that 
relationship with ``our'' provider network partners and be most cost 
efficient. However, if a network provider is not available, the MCSCs 
will arrange for care with non-network providers until a network 
provider is available. This is the same process used to locate 
providers for all TRICARE Prime enrollees needing a specific provider 
of any type.
    As a last resort, for areas chronically underserved by ABA 
providers, the military Services also carefully work the assignments 
for Active Duty servicemembers with children needing ABA services to 
ensure they are not transferred to a location with services limited or 
not available. The military Services can also transfer a family with a 
newly diagnosed child needing ABA services (or any other specialty 
service), to another location if necessary to ensure the needed 
services are available.
    While our contractors deserve a lot of credit for their recruitment 
efforts, another factor contributing to our robust ABA provider network 
is that the TRICARE benefit is one of the best in the nation. That is 
especially true since providers never have to collect a copayment, 
deductible, or any other payment from Active Duty families, who have 
100 percent coverage. Our TRICARE beneficiaries, to include our retired 
beneficiaries, do not have to make a decision on whether to forego 
needed care due to affordability, unlike most Americans who may owe 
copayments or a cost share for each service received.

    29. Senator Gillibrand. Dr. Woodson, how do you intend to quickly 
and robustly respond to any indications that children are losing access 
to needed ABA therapy?
    Dr. Woodson. Most importantly, please know that we are committed to 
ensuring every military child with the Autism Spectrum Disorder (ASD) 
diagnosis has access to the care they need, including ABA. The TRICARE 
Managed Care Support Contractors (MCSCs) will always use the network 
providers whenever possible to enhance that relationship with our 
provider network partners and be most cost efficient. However, if a 
network provider is not available, the MCSCs will arrange for care with 
non-network providers until a network provider is available. This is 
the same process used to locate providers for all TRICARE Prime 
enrollees needing a specific provider of any type.
    The military Services also carefully work the assignments for 
Active Duty Service members with children needing ABA services to 
ensure they are not transferred to a location with services limited or 
not available. This applies to both families needing ABA services or 
any other specialty care for a family member. The military Services can 
also transfer a family with a newly diagnosed child needing ABA 
services (or any other specialty service), to another location if 
necessary to ensure the needed services are available.
    As a result, although I do not anticipate any loss of access to ABA 
services, we stand ready to respond quickly to ensure every child has 
an ABA provider.
                              echo benefit
    30. Senator Gillibrand. Dr. Woodson and VADM Bono, I have heard 
from advocates that military families who are eligible for MEDICAID 
services have to reapply for MEDICAID benefits every time they move to 
a new state, and many encounter waiting lists that are longer than 
their assignments. To address this, the Military Compensation and 
Retirement Modernization Commission recommended that the Extended Care 
Health Option (ECHO) benefit be expanded to provide benefits similar to 
the MEDICAID benefit. What steps have you made to implement this 
recommendation?
    Dr. Woodson. and VADM Bono. We believe that providing effective 
support for military members with family members who have special needs 
improves beneficiary satisfaction and supports overall readiness. In 
collaboration with the Military Compensation and Retirement 
Modernization Commission (MCRMC) research team, the Defense Health 
Agency (DHA) developed five goals related to the Commission's 
recommendations: (1) identify gaps between current ECHO provided 
services and MEDICAID waiver programs; (2) evaluate the expansion of 
ECHO respite care and the provision of incontinence supplies (e.g., 
adult diapers); (3) conduct an investigation into the requirements for 
providing custodial care; (4) identify those MEDICAID waiver services 
that would create value for ECHO beneficiaries; and, (5) identify 
requirements and costs associated with a consumer directed care 
program. The DHA has already implemented a policy change to allow ECHO 
beneficiaries to receive personal incontinence supplies. This benefit, 
which became effective on October 1, 2015, is available to any ECHO 
beneficiary over age 3 who is incontinent as a result of spinal, 
neurological, or mobility issues. Working with the MCRMC research 
group, we are also continuing with an assessment of gaps between ECHO 
and state MEDICAID waiver programs which provide non-medical services 
for individuals who would otherwise be institutionalized. We have also 
worked side-by-side with the MCRMC group to investigate custodial care 
and consumer-direct care, analyzing the requirements and potential 
costs by collaborating with civilian health experts and federal 
programs that currently offer these benefits. We will use this 
information to conduct a survey (scheduled for June 2016) to better 
ascertain beneficiary needs and determine which MEDICAID services would 
bring value to ECHO beneficiaries. The results of this survey will 
shape future ECHO benefit revisions.
                          lab developed tests
    31. Senator Gillibrand. Dr. Woodson, in 2014, this committee gave 
you the authority in the Fiscal Year 2015 National Defense 
Authorization Act to cover emerging health care services and supplies, 
including Lab Developed Tests (LDTs) when ordered by physicians in the 
civilian provider network. These tests play a critical role in the 
diagnosis and treatment of disease, and include tests for Fragile X 
syndrome, Cystic Fibrosis, Spinal Muscular Atrophy, and many common 
cancers. What has DHA done to implement this authority?
    Dr. Woodson. Prior to the Fiscal Year 2015 National Defense 
Authorization Act that allowed authority to cover emerging health care 
services and supplies, the Defense Health Agency initiated a 
demonstration project on September 4, 2014, to evaluate non-FDA 
approved LDTs for TRICARE coverage. Utilizing this separate 
demonstration authority, the project was started to evaluate the 
feasibility of establishing a cost-effective and efficient way to 
review non-FDA approved LDTs. Since the demonstration began 73 LDTs are 
now covered, to include tests for cancer diagnosis, cancer risk, cancer 
treatment, blood or clotting disorders, genetic diseases or syndromes, 
and neurological conditions. Tests for Fragile X syndrome, Cystic 
Fibrosis and Spinal Muscular Atrophy are specifically covered. As of 
February 15, 2016, 101,340 beneficiaries have had LDTs completed under 
the demonstration and over $49M in claims have been paid.
    Section 704 of the NDAA for fiscal year 2015 provided the DOD with 
authority to extend provisional TRICARE coverage for an emerging 
healthcare service or supply. The ASD(HA) may authorize provisional 
coverage if the service or supply is widely recognized in the U.S. as 
being safe and effective but it does not yet meet the TRICARE standard 
for proven effectiveness. Surgical treatment for Femoroacetabular 
Impingement Syndrome (FAI) is the first emerging treatment to be given 
provisional coverage under the authority in Section 704. The Defense 
Health Agency (DHA) is currently evaluating several other potential 
treatments and technologies for provisional coverage focusing on those 
being done in Military Treatment Facilities but not covered by TRICARE. 
The DHA has engaged with Service consultants, specialty leaders, and 
clinical subject matter experts to assist in the evaluation process. A 
public announcement will be made when additional emerging treatments 
and technologies are approved for provisional coverage.

    32. Senator Gillibrand. Dr. Woodson, DHA announced a demonstration 
project, to begin in September 2014, to evaluate laboratory developed 
tests (LDTs) for coverage by the TRICARE program. However, LDTs that 
have been approved for coverage by the demonstration project still 
remain on the No Government Pay Procedure Code List with no indication 
that they have been approved for coverage. Why are these tests still on 
the government no-pay list?
    Dr. Woodson. The specific LDTs that are covered by TRICARE under 
the LDT demonstration are listed in the TRICARE Operations Manual, 
Chapter 18, Section 17, and easily accessible to the public. Codes for 
LDTs payable under the demonstration are still listed on the No 
Government Pay Procedure Code List (NGPL) because these non-FDA 
approved LDTs are not covered under the TRICARE Basic Program. The fact 
that a demonstration-approved LDT remains on the NGPL is specifically 
discussed in Section 17 and should have no adverse impact on 
reimbursement under the demonstration.
    Through meetings and letters, we have explained to the American 
Clinical Laboratory Association and our lab partners why LDT codes 
covered under the demonstration are on the NGPL and where to find the 
specific LDTs that have been approved for coverage under the 
demonstration. Codes that appear on the NGPL list are there because 
TRICARE statute, regulation, or policy has established that procedure 
as excluded under the TRICARE Basic Program. The NGPL does not 
represent an exhaustive list of all services that may be denied under 
the Basic program. Conversely, the fact that a code is not listed does 
not imply or guarantee coverage. It is critical to utilize the TRICARE 
statute, regulation, and policy as the authoritative sources of TRICARE 
coverage and benefit policy, not the NGPL. In addition, there may be 
other policy and special program provisions such as demonstration 
programs and the Extended Care Health Option program that affect listed 
codes, coverage, and reimbursement. Explicit processes within the 
TRICARE system allow specific codes to be paid under these special 
programs even though they appear on the NGPL.

    33. Senator Gillibrand. Dr. Woodson, under the demonstration 
project, why has DHA established exceedingly burdensome prior 
authorization requirements for tests? While appropriate in some 
circumstances, prior authorization is not standard practice for tests. 
In the best of circumstances, completing the prior authorization 
process takes a week or more. Meanwhile, other payers--including 
Medicare--automate their medical necessity determinations through 
coverage decisions that allow claim adjudication decisions based on 
diagnosis codes, whether LDTs are involved or not.
    Dr. Woodson. With the exception of preconception and prenatal 
Cystic Fibrosis (CF) carrier screening, prior authorization is required 
for LDTs covered under the demonstration. Prior authorization protects 
the beneficiary, provider, and laboratory by ensuring the requested 
test meets the clinical criteria for coverage under the demonstration 
and the claim paid. TRICARE's contract partners have created processes 
to facilitate the prior authorization process for providers and 
laboratories. Prior authorization is a standard process throughout the 
health industry for many LDTs.
    The Centers for Medicare and Medicaid Services National Coverage 
Policies for common laboratory tests utilize ICD-10 diagnoses codes for 
automated adjudication of claims. TRICARE also uses the same process 
for many common laboratory tests. However there is a distinction 
between routine laboratory tests and LDTs. LDTs are handled differently 
because they are only recognized for TRICARE coverage under the 
demonstration. Also LDT results play a critical role in the diagnosis 
and treatment of diseases such as cancer and genetic syndromes that 
cause developmental delays or cardiac abnormalities. Prior 
authorization ensures the requested LDT is being used appropriately 
within the published coverage criteria.
    We acknowledge there were difficulties at the beginning in 
execution of the demonstration project but our Managed Care Support 
Contractors (MCSCs) through their continued efforts have tried to make 
the prior authorization process as simple and easy as possible. We have 
encouraged our lab partners to work with the MCSCs to address prior 
authorization concerns and make recommendations for process 
improvements.
    This demonstration was started to evaluate the feasibility of 
establishing a cost-effective and efficient way to review non-FDA 
approved LDTs. Prior authorization will be one of the processes 
evaluated. The DHA wants to find the right balance in ensuring 
requested LDTs are medically necessary and appropriate and having as 
streamlined a process as possible from ordering to claim reimbursement.



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