Medicare Subvention Demonstration: DOD's Pilot HMO Appealed to	 
Seniors, Underscored Management Complexities (14-JUN-01,	 
GAO-01-671).							 
								 
This interim report reviews the implementation of the Department 
of Defense (DOD) Medicare Subvention Demonstration. GAO found	 
that the demonstration sites were successful in operating	 
Medicare managed care plans. Officials put substantial effort	 
into meeting Medicare managed care requirements and, according to
Health Care Financing Administration reviewers, were generally	 
successful as other new Medicare managed care plans in this	 
regard. Most sites reached the enrollment limits they had	 
established for retirees already covered by Medicare. DOD	 
officials indicated that the demonstration's effect was positive.
Enrollees received a broader range of services from DOD than in  
the past, when they got care only when space was available in DOD
facilities. Officials also noted that providing more		 
comprehensive care to seniors helped sharpen the skills of	 
military clinical staff, which contributed to their readiness for
supporting combat or other military missions. Some challenges	 
encountered in the demonstration reflect larger DOD managed care 
issues and may have implications for DOD managed care generally. 
Although access to care was generally good, the demonstration	 
experienced some problems in maintaining adequate clinical staff.
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-671 					        
    ACCNO:   A01009						        
  TITLE:     Medicare Subvention Demonstration: DOD's Pilot HMO       
             Appealed to Seniors, Underscored Management Complexities         
     DATE:   06/14/2001 
  SUBJECT:   Elderly persons					 
	     Health care programs				 
	     Health insurance					 
	     Health resources utilization			 
	     Managed health care				 
	     Retired military personnel 			 
	     DOD Medicare Subvention Demonstration		 
	     Program						 
								 
	     DOD TRICARE Prime Program				 
	     DOD TRICARE Program				 
	     DOD TRICARE Senior Prime Program			 
	     Medicare Choice Program				 
	     Medicare Program					 

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GAO-01-671
     
Report to Congressional Committees GAO

June 2001 MEDICARE SUBVENTION DEMONSTRATION

DOD?s Pilot HMO Appealed to Seniors, Underscored Management Complexities

GAO- 01- 671

Page i GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation
Letter 1

Results in Brief 2 Background 3 DOD Successfully Operated Medicare Managed
Care Plans,

Enrolled Many Retirees 9 DOD Officials Indicated That, On Balance,
Demonstration Had

Positive Effects 13 Demonstration Challenges Reflected, In Part, Larger DOD
Managed

Care Issues 15 Concluding Observations 22 Agency Comments 23

Appendix I Comments From the Department of Defense 25

Appendix II Comments From the Health Care Financing Administration 26

Related GAO Products 27

Tables

Table 1: Medicare Subvention Demonstration Sites 7 Table 2: Age- ins Were
One- Fifth of Total Senior Prime Enrollment 12

Figures

Figure 1: Features of the Contract Change Order Process 21 Contents

Page ii GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Abbreviations BBA Balanced Budget Act of 1997 DOD Department of Defense HCFA
Health Care Financing Administration MTF military treatment facility HHS
Department of Health and Human Services TMA TRICARE Management Activity GME
graduate medical education HEDIS Health Plan Employer Data and Information
Set

Page 1 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

June 14, 2001 Congressional Committees Historically, the Department of
Defense (DOD) health system and Medicare were entirely separate. DOD?s
TRICARE health plans covered military retirees to age 65. 1 However, once
eligible for Medicare, retirees were no longer eligible for TRICARE and
could not enroll in DOD?s managed care plan, TRICARE Prime. As nonenrollees,
Medicare- eligibles had access to care at military treatment facilities
(MTF) only to the extent that space not utilized by TRICARE?s enrolled
population was available. By law, DOD could not receive payments from
Medicare and was not responsible for providing the full range of benefits to
Medicare- eligibles. Recently, the situation has changed.

In 1997, Congress authorized the DOD Medicare subvention demonstration for a
3- year period. 2 Under this demonstration, DOD formed Medicare managed care
organizations that enrolled and served Medicare- eligible military retirees
at six sites. The DOD Medicare plan, which was called TRICARE Senior Prime,
combined TRICARE with Medicare benefits and requirements. The demonstration
also authorized DOD to receive payment from Medicare if certain conditions
were met. Senior Prime gave enrollees the same priority for military care as
younger retirees enrolled in TRICARE Prime, with minimal out- of- pocket
costs. With TRICARE Prime as its foundation, Senior Prime illustrated issues
that arose in bringing older retirees into DOD managed care. A major change
in health care arrangements for Medicare- eligible retirees from the
uniformed services will take place October 1, 2001. Under provisions of the
Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001, 3
these retirees will become eligible for TRICARE and will be able to use
their Medicare benefit within TRICARE. The new program is commonly termed
TRICARE For Life. Experience under Senior Prime illustrated some issues that
TRICARE might face in serving Medicare beneficiaries.

1 We will use the term ?retirees? in this report when referring to retirees
and their spouses and survivors. 2 ?Subvention? means a transfer of money
from one federal department to another.

3 P. L. 106- 398, sec. 712

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

The Balanced Budget Act of 1997 (BBA), 4 which established the
demonstration, also directed us to evaluate it during its initially
authorized 3- year period. 5 Our evaluation covers three key areas: effects
on beneficiaries in terms of access and quality of care; the feasibility of
the demonstration and the difficulties in implementing it; and costs to
Medicare and DOD. We have issued several interim reports, including a report
on implementation issues during the demonstration?s start- up phase, and
will issue further reports- including a final report on the demonstration-
later this year. 6

This interim report focuses on implementation of the demonstration once its
start- up phase was completed. Our objectives are to describe (1) the status
of the demonstration after roughly 2 years of operation, (2) its effect on
enrollees, sites, and providers, and (3) challenges encountered in managing
Senior Prime. To do so, we visited each of the demonstration sites and
interviewed military and contractor officials. We reviewed site documents
and examined legislation, agency policies, and other reports concerning
Medicare and the military health system. We interviewed health care and
contracting officials at DOD headquarters, and spoke with Medicare
officials. We also reviewed performance information available to managers at
the sites but did not analyze or verify the underlying data. In this report,
we do not address cost or financing issues; those issues will be covered in
later reports. We conducted our review from April 2000 through April 2001 in
accordance with generally accepted government auditing standards.

The demonstration sites were successful in operating Medicare managed care
plans. Officials put substantial effort into meeting Medicare managed care
requirements and, according to HCFA reviewers, were generally as successful
as other new Medicare managed care plans in this regard. Most sites reached
the enrollment limits they had established for retirees already covered by
Medicare. In addition, so many younger retirees who belonged to TRICARE
Prime enrolled in Senior Prime upon turning age 65 that some MTFs became
concerned about their capacity to accommodate

4 P. L. 105- 33, sec. 4015 5 The demonstration was extended for 1 year by
the Floyd D. Spence National Defense Authorization Act of 2001. However, our
evaluation is confined to the initial 3- year period. 6 See ?Related GAO
Products? at the end of this report. Results in Brief

Page 3 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

additional growth if Senior Prime were continued. Relatively few enrollees
have chosen to leave the program, suggesting that, after joining, most
enrollees were satisfied.

DOD officials indicated that, on balance, the demonstration?s effect was
positive. Enrollees received a broader range of services from DOD than in
the past, when they got care only when space was available in DOD
facilities. Officials also noted that providing more comprehensive care to
seniors helped sharpen the skills of military clinical staff, which
contributed to their readiness for supporting combat or other military
missions. Although somewhat less care was provided to nonenrolled seniors
than previously, site officials were divided over whether this was the
result of the demonstration, or simply continuation of a previous trend. At
its small scale, according to military officials, the demonstration had
little adverse effect on active duty members or other younger DOD managed
care enrollees. Although sites found that meeting Medicare managed care
requirements required considerable effort, contact with HCFA and private
Medicare managed care plan officials was educational for DOD officials and
generated ideas for improving military managed care in general.

Some challenges encountered in the demonstration reflect larger DOD managed
care issues and may have implications for DOD managed care generally.
Although access to care was generally good, the demonstration experienced
some problems in maintaining adequate clinical staff. The separation between
MTF and network delivery systems complicated care coordination, which made
it harder to maintain continuity of care from, for example, the hospital to
other settings. In addition, DOD?s inefficient contracting process made it
difficult to modify support contracts expeditiously as Medicare requirements
changed.

In commenting on a draft of this report, DOD and HCFA said the report
contained an accurate description of implementation issues encountered in
the demonstration.

The DOD Medicare subvention demonstration created a link between the DOD
health care delivery system and Medicare, a health insurance program for the
elderly and disabled, which is operated by the Health Care Financing
Administration (HCFA) within the Department of Health and Human Services
(HHS). DOD and HCFA implemented this demonstration during a period of change
in both Medicare and military health care. Background

Page 4 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Since its beginning in 1995, DOD?s health system, called TRICARE, has
offered care to active duty members of the uniformed services, retired
members under age 65, and their respective families and survivors- a
population of about 6. 6 million. An additional 1.5 million retirees
(including dependents) aged 65 and older could receive limited health care.
DOD delivers care through about 600 MTFs worldwide. TRICARE covers a broad
range of outpatient and inpatient services, including home health, hospice,
and skilled nursing facility care. Services not available at an MTF are
purchased through a network of civilian specialists and hospitals. TRICARE
includes a managed care option, TRICARE Prime, which offers care at the MTF
augmented by the civilian network. TRICARE Prime enrollees, including all
active duty members of the armed services, have priority for care at the
MTFs. There is also a fee- for- service option called TRICARE Standard that
offers a broader choice of civilian providers, and a preferred provider
option called TRICARE Extra. 7 These options offer generally similar
benefits but differ considerably in the nature and amount of costs to
beneficiaries. Pharmacy services are available at most MTFs for all TRICARE
eligibles as well as for retirees on Medicare. MTF pharmacy services are
free- of- charge but limited to the medications carried at each MTF.

TRICARE is managed at multiple levels. The Office of the Assistant Secretary
of Defense for Health Affairs sets TRICARE policy - which governs both MTF
and civilian care - and establishes regulations in coordination with the
Army, Navy, and Air Force. Responsibility for policy execution is delegated
to the TRICARE Management Activity (TMA) but is shared with the military
Surgeons General, who are responsible for implementing TRICARE policies
within their respective services. TMA performs programwide support
functions, such as managing TRICARE?s information technology and data
systems, preparing the budget and managing the accounts. In addition, TMA
selects, directs and pays managed care support contractors, who maintain the
private provider network and perform many services assisting beneficiaries
and supporting management. In each TRICARE region within the United States,
MTF and contractor activities are coordinated by a lead agent, usually the
commander of the region?s largest MTF. At the MTF level, MTF commanders
report to the Surgeon General of their respective service, who allocates
part of the service?s appropriated funds to each MTF. MTF

7 Under TRICARE Extra, beneficiaries receive a discount if they see
specialists from a selected network. DOD?s TRICARE System

Page 5 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

officials have input into network size and composition but lack direct
authority over these providers or the network, which the managed care
support contractor manages.

Medicare is a federally financed health insurance program for people aged 65
and over, some people with disabilities, and people with end- stage kidney
disease. Eligible beneficiaries automatically are covered under Part A,
which covers inpatient hospital, skilled nursing facility, and hospice care
as well as home health care that follows a stay in a hospital or skilled
nursing facility. They also can pay a monthly premium to join Part B, which
covers physician and outpatient services as well as those home health
services not covered under Part A. Traditional Medicare allows beneficiaries
to choose any provider that accepts Medicare payment and requires
beneficiaries to pay for part of their care as well as for any services not
covered by Medicare. To help meet these costs, some beneficiaries purchase
supplemental ?Medigap? policies from private insurers. Beneficiaries can
choose from up to 10 standard policies. The less expensive cover Medicare
deductibles and coinsurance, while the more expensive policies offer broader
coverage, including prescription drugs. The alternative to traditional
Medicare, Medicare+ Choice, offers beneficiaries the option of enrolling in
managed care or other private health plans. All Medicare+ Choice plans cover
basic Medicare benefits, and many also cover additional benefits such as
prescription drugs. Typically, these plans have limited cost sharing but
restrict members? choice of providers and may require an additional monthly
premium.

Under the Medicare subvention demonstration, DOD established and operated
Medicare+ Choice managed care plans, called TRICARE Senior Prime, at six
sites. Senior Prime added benefits and network providers to those already in
place for TRICARE Prime, where needed to meet Medicare managed care
requirements. Enrollment in Senior Prime was open to military retirees
enrolled in Medicare Part A and Part B who resided within the plan?s service
area. Open enrollment for those already in Medicare was capped at a number
that DOD selected- roughly 28,000 for the demonstration as a whole. In
addition, retirees enrolled in TRICARE Prime could ?age in? to Senior Prime
upon reaching age 65, even if the cap had been reached. Beneficiaries
enrolled in the program paid the Medicare Part B premium but no additional
premium to DOD. Senior Prime enrollees received the same priority for care
at the MTFs as younger retirees enrolled in TRICARE Prime. Care at the MTFs
was free, but Medicare

The Subvention Demonstration

Page 6 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

beneficiaries had to pay any applicable cost- sharing amounts for care in
the civilian network (for example, $12 for an office visit).

The demonstration authorized Medicare to pay DOD for Medicare- covered
health care services provided to retirees at an MTF or through private
providers under contract to DOD. HCFA calculated capitation rates for the
demonstration areas, discounted from what Medicare would pay private managed
care plans in the same area. However, to receive payment, DOD had to spend
at least as much of its own funds in serving this dual- eligible population
as it had in the recent past. 8

The six demonstration sites are each in a different TRICARE region and
include 10 MTFs 9 that vary in size and types of services offered. (See
table 1.) The five medical centers offer a wide range of inpatient services
and specialty care as well as primary care. These centers also have graduate
medical education (GME) training programs. The community hospitals are
smaller, have more limited capabilities, and can accommodate fewer Senior
Prime enrollees. At these smaller facilities, much of the specialty care is
provided by the civilian network. At the Dover site, the MTF is a clinic
that offers only outpatient services, thus requiring all inpatient and
specialty care to be obtained at another MTF or purchased from the civilian
network. For all the sites, Senior Prime?s share of total enrollment
(TRICARE Prime plus Senior Prime) was relatively small- an average of about
9 percent of all enrollees toward the end of 2000.

8 For more information on the payment mechanism, see Medicare Subvention
Demonstration: DOD Data Limitations May Require Adjustments and Raise
Broader Concerns (GAO/ HEHS- 99- 39, May 28, 1999). 9 Two sites have more
than one MTF.

Page 7 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Table 1: Medicare Subvention Demonstration Sites Demonstration site,
location of military treatment facilities Facility type TRICARE Prime

enrollment a Senior Prime enrollment b Senior Prime

enrollment cap c Colorado Springs

Fort Carson Colorado Springs, CO

Community Hospital 29,470 2, 371 2,000 U. S. Air Force Academy Colorado
Springs, CO

Community Hospital 42,351 1, 750 1,200

Dover

Dover Air Force Base Dover, DE Clinic 12,468 1, 062 1,500

Keesler

Keesler Air Force Base Biloxi, MS Medical Center 27,495 3, 507 3,100

Madigan

Fort Lewis Tacoma, WA Medical Center 54,100 4, 674 3,300

San Antonio

San Antonio area Fort Sam Houston San Antonio, TX Medical Center 30,688 5,
928 5,000 Lackland Air Force Base San Antonio, TX Medical Center 32,164 6,
523 5,000 Texoma area Sheppard Air Force Base Wichita Falls, TX Community

Hospital 15,091 1, 074 1,300 Fort Sill Lawton, OK Community

Hospital 28,938 1, 467 1,400

San Diego

San Diego, CA Medical Center 54,072 4, 751 4,000

Total 326,837 33,107 27,800

Note: Although the demonstration treats the San Antonio and Texoma areas as
one site, for the purposes of analysis we treated these areas as separate
sites. a Enrollment as of September 2000. Counts include enrollment at the
main MTF as well as at MTF

satellite clinics that enroll Senior Prime age- ins. Counts do not include
enrollment at nondemonstration satellite clinics or providers in the
civilian network. b Senior Prime enrollment as of December 2000. Senior
Prime enrollment includes age- ins as well as open enrollees. c An MTF?s
total Senior Prime enrollment may exceed the cap because the cap does not
apply to ageins.

Sources: TRICARE Prime enrollment data were provided by DOD?s TRICARE
Management Activity office. Senior Prime enrollment and cap figures are from
DOD?s TRICARE Senior Prime Plan Operations Report, January 29, 2001.

Page 8 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Before the demonstration, seniors at all demonstration sites received MTF
care when space was available, but at some sites seniors had more regular or
formalized access. At the medical centers, seniors had been a substantial
part of the workload to support GME in specialty care. In particular,
centers with GME programs in internal medicine had formed panels of retirees
who regularly received primary care at the MTF. However, at most of the
smaller sites, MTF care for seniors was more limited.

Senior Prime began delivering services just as a period of major change
started in both Medicare and DOD managed care. The BBA replaced Medicare?s
previous managed care program with Medicare+ Choice, which brought many
administrative changes, including a new process for demonstrating compliance
with Medicare managed care requirements. Medicare+ Choice also established a
more structured quality improvement program than had been in effect
previously. Medicare+ Choice officially began January 1, 1999, but the
process of issuing regulations and guidance continued into 2000. During this
same period, DOD initiated its Military Health System Optimization Plan, a
wide- ranging effort to re- engineer many facets of military health care.
Among the issues addressed in the plan are adjustments in primary care
staffing, adoption of productivity benchmarks for primary care, and use of
clinical best practices and other initiatives to improve health service
delivery.

More sweeping changes in retiree benefits and military health care are
occurring in 2001 as a result of the Floyd D. Spence National Defense
Authorization Act for Fiscal Year 2001. This legislation gave
Medicareeligible military retirees two major benefits:

 Pharmacy benefit- Beginning April 1, 2001, Medicare- eligible retirees
from the uniformed services were given access to prescription drugs through
TRICARE?s national mail order pharmacy and at retail pharmacies as well as
through pharmacies at MTFs. 10

 TRICARE eligibility- Beginning October 1, 2001, retirees enrolled in
Medicare Part B will also become eligible for TRICARE coverage- commonly
termed TRICARE For Life.

10 Beneficiaries who turned 65 prior to April 1, 2001, automatically qualify
for this benefit. Those who became 65 on or after that date must be enrolled
in Medicare Part B to obtain the pharmacy benefit. Changes in Medicare and

TRICARE

Page 9 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Under TRICARE For Life, military retirees who use traditional Medicare will
be able to stay with their current private sector providers, while being
relieved of most of their Medicare cost sharing. TRICARE will pay nearly all
out- of- pocket costs for Medicare- covered services that these retirees
previously had to pay. The law also authorizes continuation of Senior Prime-
with Medicare paying DOD for seniors? care, including care received in MTFs-
for 1 additional year (through 2001), with the possibility of further
extension and expansion. Any such continuation will require agreement
between DOD and HHS as well as congressional approval. DOD is reviewing its
options for providing military managed care to seniors under this
legislation and is holding discussions with HCFA.

The Senior Prime sites were successful in operating Medicare managed care
plans. Sites expended substantial effort to meet Medicare+ Choice
requirements, and HCFA reviewers said that they generally did as well as
other new health plans in meeting these requirements. The demonstration
showed that there is a demand among retirees for DOD managed care with low
out- of- pocket costs. Strong enrollment, and particularly the large number
who joined the program when they turned 65, generated concerns about MTFs?
capacity for further growth. Enrollees were generally satisfied and
relatively few left the program.

Meeting Medicare+ Choice requirements was a challenge for site officials,
who had no prior experience doing so. However, HCFA reviewers found no major
problems in the sites? compliance and said that such deficiencies as they
did note were generally typical of new plans.

Senior Prime sites put considerable effort into complying with Medicare
regulations. 11 The sites

 became familiar with Medicare+ Choice policies and procedures; 11 Some
Medicare+ Choice regulations were waived because of unique DOD
circumstances. For example, many military physicians do not have licenses to
practice in all states in which they are stationed, so the requirement for
physicians to obtain state licensure was waived. In addition, all
regulations relating to plans? financial soundness were waived as not
relevant to a federal agency. DOD Successfully

Operated Medicare Managed Care Plans, Enrolled Many Retirees

Sites Were Successful in Operating Medicare Managed Care Plans

Page 10 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

 added benefits and network providers as needed to meet Medicare
requirements;

 obtained Medicare+ Choice certification, which required developing
policies and procedures consistent with Medicare+ Choice requirements in
such areas as enrollment and quality assurance; and

 implemented grievances and appeals, claims processing, and performance
measurement procedures that differed from TRICARE Prime?s.

Sites had to perform new tasks and functions to meet these requirements with
no additional funds from DOD for Senior Prime administration. This was a
particular challenge for smaller MTFs that had limited administrative
resources.

However, TMA performed some administrative tasks centrally. For example, TMA
prepared informational materials for retirees. TMA also selected and paid
for contractors to do the special studies on quality that Medicare+ Choice
requires 12 as well as to report data on health status and HEDIS (the Health
Plan Employer Data and Information Set) performance measures. 13
Nonetheless, several sites observed that, even with this help, they faced
additional work because they had to make medical records available to the
contractors, which was time- consuming and, in some cases, disruptive to
normal operations.

By December 2000, HCFA had performed an initial review of each site and full
monitoring reviews at three sites. The reviews examined each site?s
compliance with Medicare+ Choice regulations, including documentation and
data submitted by the sites. HCFA staff and our review of HCFA reports
indicated that no major compliance problems were identified. HCFA reviewers
did identify deficiencies in administrative procedures that are common among
new Medicare+ Choice plans. For example, HCFA found instances of incomplete
documentation and correspondence and failure to meet timelines for action on
enrollment, grievances and appeals, and claims. However, HCFA said the
deficiencies rarely had a direct impact on the services that beneficiaries
received.

12 These studies measured performance, using standard indicators, for high-
volume services to seniors. Areas that DOD studied included community-
acquired pneumonia, congestive heart failure, and immunization.

13 HEDIS is a set of standardized measures used to compare health plans.

Page 11 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Senior Prime attracted enrollees throughout the demonstration period. By
December 2000, enrollment in Senior Prime was only about 1,600 short of the
demonstrationwide cap of roughly 28,000 for open enrollment. Six of the 10
MTFs had waiting lists and two others were at 90 percent of their enrollment
caps. The two MTFs that fell significantly short of the cap- Dover and
Sheppard- were among the smallest and were located in nonmetropolitan areas.

In addition, more than 6,500 younger retirees enrolled in Senior Prime when
they turned age 65. Under demonstration rules, TRICARE Prime enrollees who
had a primary care manager at a Senior Prime MTF could

?age- in? to Senior Prime, and MTFs could not limit the number of such age-
ins. In fact, the majority of those eligible to age- in did so. All but one
MTF enrolled more age- ins than expected, and by December 2000 age- ins
accounted for about one- fifth of overall Senior Prime enrollment. (See
table 2.) This increased concern among MTF officials about MTFs? capacity to
accommodate future growth, especially at sites that had reached their
enrollment caps early in the demonstration. TMA asked sites to examine their
capacity in light of continuing growth because of age- ins, but decided
against any major change in enrollment policy. However, it did, with HCFA?s
concurrence, start requiring that age- ins live within the Senior Prime
service area. Sites Attracted and Kept

Medicare Enrollees

Page 12 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Table 2: Age- ins Were One- Fifth of Total Senior Prime Enrollment Enrolled
beneficiaries Demonstration site, location of military treatment facilities
Open enrollment Age- ins Total Senior

Prime enrollment Age- ins as percent of total Colorado Springs

Fort Carson Colorado Springs, CO 1,988 383 2,371 16.2 U. S. Air Force
Academy Colorado Springs, CO 1,190 560 1,750 32.0

Dover

Dover Air Force Base Dover, DE 963 99 1,062 9.3

Keesler

Keesler Air Force Base Biloxi, MS 2,806 701 3,507 20.0

Madigan

Fort Lewis Tacoma, WA 3,303 1,371 4,674 29.3

San Antonio

San Antonio area Fort Sam Houston San Antonio, TX 4,974 954 5,928 16.1
Lackland Air Force Base San Antonio, TX 4,953 1,570 6,523 24.1 Texoma area
Sheppard Air Force Base Wichita Falls, TX 851 223 1,074 20.8 Fort Sill
Lawton, OK 1,257 210 1,467 14.3

San Diego

San Diego, CA 3,958 793 4,751 16.7

Total 26,243 6, 864 33,107 20.7

Note: Senior Prime enrollment data are as of December 2000. Source: GAO
analysis of data from DOD?s TRICARE Senior Prime Plan Operations Report,
January 29, 2001.

While Senior Prime?s growing enrollment indicates that retirees found its
benefits attractive, enrollees also appeared relatively satisfied with
Senior Prime. Relatively few enrollees left the program. In addition, both
DOD data and our survey of enrollees, 14 as well as site officials?
observations,

14 Our survey methodology will be described in a forthcoming report on
beneficiaries? access to care under the demonstration.

Page 13 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

suggest that enrollees were generally satisfied with Senior Prime. Site
officials said that features such as limited out- of- pocket costs and a
substantial drug benefit made the program attractive compared to other
Medicare+ Choice plans. The demonstration also appealed to many retirees
because it would give them better access to MTF care. However, the
demonstration does not allow us to tell definitively which feature of Senior
Prime- its low out- of- pocket costs or access to MTF care- was more
important to enrollees.

DOD officials said that providing coordinated care for limited numbers of
retirees yielded benefits for both retirees and medical staff. In addition,
given its small scale, Senior Prime had little adverse effect on younger
TRICARE Prime enrollees. While noting that it took considerable effort to
meet Medicare requirements, officials also said that working with HCFA had
spurred improvements in DOD administrative and clinical practices.

Site officials reported that Senior Prime enrollees received coordinated
care and a broader range of services in contrast to the episodic
spaceavailable care or the mix of military and private care that many had
received prior to Senior Prime. In Senior Prime, enrollees were assigned to
primary care managers who were responsible for their patients? care in both
the MTFs and civilian networks. Also, those with complex problems were given
case managers who coordinated and helped arrange services. Senior Prime also
augmented its network to provide services such as skilled nursing facility
care that DOD did not provide to seniors under space- available care.

Site officials said that providing a broad range of primary and specialty
care to seniors also benefited MTF clinical staff. Providing a broader set
of services to seniors exposed staff to a wider range of conditions than
seen under space- available care for seniors or among younger patients. At
smaller MTFs, Senior Prime offered clinicians more experience providing
inpatient care. MTF providers also reported that they were more satisfied
because they could be assured that follow- up and other services would be
available when needed.

Site officials also identified ways in which seniors? care contributed
specific skills that are important for medical readiness. For example,
surgeons need practice in joint and vascular surgery, and intensive care DOD
Officials

Indicated That, On Balance, Demonstration Had Positive Effects

Site Officials Said Demonstration Benefited Seniors, Enhanced Readiness
Skills, Had Little Adverse Effect on Other Beneficiaries

Page 14 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

teams need to learn how to work together under pressure. Seniors? joint and
circulatory problems and the conditions that put them in intensive care are
not the same as would be experienced on the battlefield but, site officials
explained, treating such conditions keeps staff familiar with relevant
medical procedures. Experience with the elderly can also be directly
relevant to peacekeeping and humanitarian missions, where staff may deal
with chronically ill or older individuals. Officials at one medical center,
however, noted that despite these benefits, they were seeing fewer seniors
overall because they were providing more comprehensive services to Senior
Prime enrollees and offering less space- available care to nonenrolled
seniors. These officials noted that, in some specialties, this smaller pool
of seniors did not provide as many of the complex cases that are important
for readiness training. 15

Site officials found little evidence that, at its current small scale,
Senior Prime had affected TRICARE Prime enrollees? satisfaction or access to
care. Even where enrollment met the cap, Senior Prime remained a small
portion of each MTF?s enrolled population. By late 2000, the demonstration
accounted for 9 percent of the enrolled population, although it reached 16
percent at two MTFs. Through their routine monitoring, officials identified
some decreases in satisfaction and access among younger TRICARE Prime
enrollees, but attributed them largely to factors other than Senior Prime.
These included a sudden increase in TRICARE Prime enrollment, changes in
appointment systems, and decreases in available MTF services.

Site officials had varying views about the extent to which Senior Prime
affected nonenrolled retirees? access to space- available care. Some said
that space- available care had declined largely due to Senior Prime
enrollment and health care use. (Many of those who enrolled in Senior Prime
were previous users of space- available care.) However, other officials
indicated that the decline would have occurred even in the absence of Senior
Prime. Many officials emphasized that the growth in TRICARE Prime resulted
in less capacity for space- available care. Other factors that predated
Senior Prime, including staffing reductions, also limited space- available
care.

15 Even prior to the demonstration, seniors had been a substantial part of
workload at the medical centers, where their care was important to GME
programs.

Page 15 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Despite the effort required to implement a Medicare+ Choice managed care
plan, DOD officials at every site readily acknowledged that working with
HCFA was educational and spurred improvements. Requiring DOD to take a close
look at its administrative and clinical procedures for a small population
led to insights that could be applied more generally. For example, HCFA
requirements and oversight highlighted the importance of accurately
recording all care a patient receives and led to improvements in coding and
patient records. Implementing requirements, such as Medicare+ Choice appeals
and grievance rules, suggested improvements for similar TRICARE processes,
and several sites planned to implement parts of the Medicare procedures in
TRICARE Prime. Similarly, the quality improvement studies undertaken for
Medicare+ Choice revealed opportunities for improving patient care that site
officials said could be applied to the TRICARE Prime population.

Working with HCFA also brought MTF officials into contact with private
Medicare+ Choice plans, practices, and data. Staff at two sites met
regularly with private Medicare+ Choice plan representatives and said that
they found it useful to discuss Medicare+ Choice issues with them and HCFA
staff. Participation in Senior Prime also led sites to compare their
performance with that of private plans. The Madigan and San Diego sites
purchased data on private plans in their market area from a private firm,
including benchmarks for utilization of services. 16 The private plan data
provided DOD with a basis for comparing performance as well as for
understanding how patient care and data recording practices differ between
the two sectors.

Although some difficulties that DOD encountered in implementing Senior Prime
reflected Medicare+ Choice requirements or factors specific to the
subvention demonstration, others highlighted underlying features of DOD
managed care. These included maintaining sufficient staff, given military
medical staff turnover and deployments; managing care that is delivered in
two separate systems- the military system and the contractor- managed
network; and working within the confines of a slow and cumbersome
contracting process.

16 Statistical adjustments for differences in patient demographics as well
as adjustments for different clinical practices and reporting were necessary
to make meaningful comparisons. (For example, DOD?s ?outpatient visit?
measure includes telephone consults and its emergency room statistics from
some MTFs include some acute care visits that were not counted in the
private firm?s data.) Involvement With

Medicare Spurred Certain Improvements

Demonstration Challenges Reflected, In Part, Larger DOD Managed Care Issues

Page 16 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Ensuring the availability of MTF and network providers and maintaining
continuity of care are issues in TRICARE generally, but sites? experiences
showed that these issues are more pressing when seniors are involved. This
is because seniors typically have more health care needs than younger
beneficiaries and use certain specialists and services more intensively.
While Senior Prime enrollees generally had good access to care and sites
managed to provide the full range of services, sites had difficulty in
arranging some resources that were particularly critical for seniors.

MTF Providers

Maintaining adequate staff at MTFs is an ongoing challenge because of
routine turnover, military deployments, and readiness training. In the
demonstration, replacement staff needed due to routine turnover did not
always arrive when they were needed, sometimes reporting months after the
previous staff had left. Staff deployments and readiness training also led
to gaps in provider availability, although this varied among MTFs. Some MTFs
experienced mostly short- term deployments during the demonstration, while
others contributed staff for assignments lasting several months. The
resources deployed ranged from individual staff members, including
specialists important for senior care, to an entire operating room team.
Some of the larger MTFs were also responsible for filling positions at other
MTFs that were short- staffed, increasing the pressure on staff resources at
those sites.

Sites took several steps to mitigate the effect of military staff absences
on patient care. Some absences could be unpredictable, but sites often had
advance notice and could plan to minimize interruptions. For short- term
training absences, at least one MTF was able to adjust schedules so that not
all members of a particular team were away at once. For temporary
assignments, MTFs could sometimes send specialists rather than primary care
providers, thereby minimizing the impact on primary care management. To
cover for absent Senior Prime primary care managers, some MTFs used other
primary care team members or specialists to fill in, some arranged for
civilian providers to fill in temporarily, and one was able to arrange for a
temporary replacement from another MTF. For specialty care, larger MTFs
generally had more staff to cover short- term gaps, but smaller MTFs with
few providers in a specialty had to rely more on network providers.

Obtaining staff for the longer term was more problematic. First, DOD
procedures for assigning staff to MTFs are not generally geared to making
Sites Faced Challenges in

Securing and Maintaining Adequate Medical Staff

Page 17 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

needed adjustments quickly. MTFs sometimes could not meet their authorized
staffing levels because no one was available. Second, when MTFs tried to
hire civilian personnel, their ability to do so was generally dependent on
the local market, and several reported that recruiting civilians to fill
certain positions was difficult. Although another option, TRICARE?s
?resource sharing? program, allows MTFs to use civilian staff provided by
the managed care support contractors to deliver care with the MTFs, only a
few MTFs were using resource sharing providers to treat Senior Prime
enrollees. At the time of our visits, site officials did not share a common
understanding of when resource sharing could be used within Senior Prime. 17

Network Providers

Despite managed care support contractors? recruiting on an ongoing basis to
ensure network adequacy, several sites had problems securing local providers
for their network and had to send patients outside the network for care.
Pulmonology, dermatology, and rheumatology were areas in which more than one
site encountered problems. Also, site officials reported that some providers
were reluctant to contract with Senior Prime. For example, some did not want
to accept the contracted payment rate, which was lower than the out- of-
network rate they could otherwise receive.

Officials noted that network development was generally more difficult for
TRICARE in rural areas, where the supply of specialty providers is limited.
Rural sites were able to build networks that met most of their referral
needs, although their networks sometimes had only one or two providers in
certain specialties. Seniors who were enrolled at more rural MTFs at times
had to travel significant distances to reach certain specialist providers.
However, in some areas longer travel times were common. For example, an
official from the Texoma area commented that beneficiaries are accustomed to
traveling some distance for care, and that Senior Prime

17 DOD?s policy on how resource sharing could apply to Senior Prime changed
during the demonstration. In late 2000, the sites and TMA were working to
achieve a common understanding of this policy.

Page 18 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

still met Medicare?s standards regarding access to care for their
communities. 18

TRICARE in general has difficulty integrating MTF and network care, but
sites? experience showed that this is a larger issue for seniors, who have
more extensive needs than the TRICARE Prime population. From the start of
the demonstration, sites? ability to integrate care at the MTF with care
purchased through the network was limited. In particular, sites had to find
ways to coordinate those services that the military health system has not
traditionally provided to seniors as well as to resolve issues common to
TRICARE of integrating MTF and network data.

Coordination of Care

Most MTFs encountered problems in coordinating care to Senior Prime
enrollees, especially when they were in a skilled nursing facility or
nursing home.

 A central issue for the sites was the provision of case management
services by nurses or social workers. Senior Prime required a shift in focus
for case management, 19 from managing primarily catastrophic cases in a
younger population to coordinating chronic medical care for an older
population. This included support in assisting families and patients in
transitioning from the MTF to an institutional setting or to home.
Particularly for older patients, case managers are often pivotal in
coordinating care. Officials at five MTFs reported having added case
managers for Senior Prime or changed the case manager?s role. In addition to
providing case management, some MTFs had another problem: coordinating
information when an enrollee had two case managers- one at the MTF, the
other, a managed care support contractor responsible for the enrollee?s
network care.

 Sites also had to determine who would oversee the medical care of the
Senior Prime patient while he or she was in a skilled nursing facility or a
rehabilitation hospital- the MTF?s primary care physician who was

18 HCFA guidance on Medicare+ Choice generally requires that beneficiaries
have to travel no more than 30 minutes to receive primary care and commonly
used specialty care. However, it recognizes that in some parts of the
country this is not feasible; longer travel times are allowed in places
where this is customary, such as in rural areas.

19 Case management is a service function directed at coordinating existing
resources to assure appropriate and continuous care for individuals on a
case- by- case basis. Dual Delivery Systems

Added to Sites? Difficulties

Page 19 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

responsible for the enrollee?s care or a physician associated with the
civilian institution. This issue was complicated by the fact that MTF
physicians are typically not licensed to practice medicine in the state
where the MTF is located. As a result, they cannot be given medical
privileges at the local health care facilities. Most sites used the
institutional staff or network physicians to see the admitted Senior Prime
patients and relied on the managed care support contractor?s case managers
to communicate with the patient?s MTF physician. 20

 For patients who were in skilled nursing facilities or rehabilitation
facilities or receiving most of their care from network physicians, sites
had to decide who would provide needed lab tests and routine appointments-
the MTF or the network physicians. Some of the larger sites elected to
return Senior Prime patients admitted at local institutional facilities to
the MTF for lab tests ordered by the network physician or for routine clinic
appointments. This practice could help ensure that medical information, such
as the results of a lab test ordered by a network physician, was shared
between the MTF physician and the network physician. However, transporting
patients back and forth is not always feasible, cost- effective, or
convenient for the patient, and one MTF reported it was considering other
options.

Integration of Data

In managing patient care, MTF primary care physicians faced two additional
difficulties in bridging the gap between network and military care. First,
they needed to ensure that patients followed through on referrals- making
and keeping their appointments with network providers. TRICARE appointment
and referral procedures did not necessarily record this information, which
required good communication with providers outside the MTF. Second, MTFs
needed to ensure that clinical results of referrals were shared with the
patient?s primary care physician. One site, observing that the referral
process needed improvement, established centers to coordinate referrals. The
centers? staff created a database to track the status of referrals, so that
they could inform primary care physicians when patients had not made or kept
their referral appointments. The staff also monitored whether primary care
physicians had received the clinical results.

20 One site, Dover, ensured that its physicians were licensed in the state
of Delaware so they could continue to care for their Senior Prime patients
admitted to the local civilian health care facilities.

Page 20 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Integration of data on MTF care with data on network care was a problem for
overall management of Senior Prime as well as for physicians? management of
their individual patients? care. Different data systems were involved- one
for network care, maintained by the managed care support contractor, and one
for MTF care, maintained by DOD. To obtain a comprehensive picture of care
that individual patients or groups of patients (for example, all patients
with diabetes) received, sites had to manipulate the data in the two systems
extensively. This hindered the sites? obtaining such information routinely.

Both the sites and DOD are undertaking initiatives to improve the
integration of data from different sources. For example, DOD now maintains
three separate pharmacy data systems -one for prescriptions filled at an
MTF, one for prescriptions filled through DOD?s national mail order
pharmacy, and one for those filled at network pharmacies. DOD has begun
implementing a pharmacy data transaction system, which will create an
integrated record of all prescriptions received by TRICARE beneficiaries. In
general, however, DOD has encountered persistent problems in its efforts to
integrate other types of health care information (including data on network
care, MTF inpatient care, and MTF outpatient care).

Modifying managed care support contracts in a timely way was a significant
problem in the demonstration. Negotiating contract changes has been a
longstanding problem for DOD in managing TRICARE. The problem was more acute
for the demonstration because a significant number of additional contract
modifications had to be negotiated specific to subvention.

Shortly after Senior Prime?s startup, HCFA began implementation of Medicare+
Choice, which resulted in far- reaching changes in Medicare regulations.
These changes, which were released over more than a year, required Medicare+
Choice plans to implement new practices and procedures- generally, within 90
days of receiving the changes. Many of these changes affected contractor-
performed activities including enrollment, reporting, and network
contracting. Senior Prime involved six

?change orders?- modifications to the TRICARE managed care support
contracts- to set up the demonstration and make it conform to the evolving
Medicare+ Choice rules. DOD Contracting Process

Hindered Response to Necessary Changes

Page 21 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Handling these changes was cumbersome in several ways, detailed in figure 1,
and highlighted how ill- suited the contract change order process was to
making changes expeditiously. The problems encountered in Senior Prime were
typical of TRICARE change orders generally, except for the delay in
requesting proposals, which reflected the special circumstances of the
demonstration.

Figure 1: Features of the Contract Change Order Process

Lengthy process: The change order process takes over 6 months to complete.
Backlog of changes: The office that handles such change orders was
understaffed and had a backlog of several hundred TRICARE changes during the
demonstration period.

Delays in receiving cost proposals: Although TMA asks managed care support
contractors to submit cost proposals within 60 days of receipt of the change
order, responses typically take much longer. Time may be taken to clarify
the details and scope of the change, as it was for the Medicare+ Choice
compliance training requirement, and collect data from subcontractors. (Cost
proposals for Senior Prime were further delayed by TMA?s decision to wait
until the Medicare+ Choice changes were complete before asking contractors
to respond to them. In February 2000, TMA decided it could not wait any
longer and requested cost proposals for the first batch of changes.)

Interim authorization of work: TMA can authorize managed care support
contractors to implement changes before costs are negotiated and settled,
and has typically done so. For Senior Prime, DOD incorporated Medicare+
Choice changes into the operations manual that spells out managed care
support contractor responsibilities. This action authorized contractors to
proceed with the HCFA- required activities while cost issues were being
resolved.

Delays in payment: DOD cannot pay managed care support contractors for their
efforts until the contractors submit an acceptable cost proposal- and even
then, can only make provisional payments at less than the proposed cost. For
Senior Prime, it was about May 2000 before the first contractors began to
receive provisional payments for Medicare+ Choice changes. Full payments
could be completed once cost negotiations had been concluded.

This system had several disadvantages. First, delays in the process meant
that Medicare+ Choice requirements went into effect before TMA could
authorize contractors to implement them. In order to achieve the
demonstration?s timely compliance with Medicare+ Choice requirements, lead
agent staff wanted contractors to move forward without a formal change
order- which they sometimes did- although TMA contracting officials
cautioned against this practice. Second, lack of timely payment was a major
concern at the managed care support corporate level. Third, the fact that
contractors had already incurred actual costs may have put

Page 22 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

DOD at a disadvantage when negotiating change orders. Finally, TMA was
authorizing changes without knowing what they would actually cost. Unsettled
change orders could represent a significant future liability for the Defense
Health Program if they are settled at higher amounts than DOD estimated.

The backlog in processing contract changes and the practice of implementing
changes before their costs were negotiated have long been problems for
TRICARE. 21 Efforts initiated in 1997 to remedy the problem were not
successful. In July 2000, TMA began an effort to negotiate and pay for all
of its outstanding change orders. This effort eliminated most of the
backlog, but the $900 million cost of the settlements contributed to a
shortfall in funding for the Defense Health Program for fiscal year 2001.
TMA has instituted a new process that requires costs to be negotiated and
settled before changes are implemented, but evidence of the effectiveness of
this process is not yet available. 22

Senior Prime, while demonstrating that DOD can operate a Medicare+ Choice
plan, also illustrated the complexities of offering managed care within the
military health system. Some lessons from the demonstration apply to
military managed care generally. These include the difficulties of linking
MTFs with network care and the importance of reengineering the previous
managed care support contract change order process. Other lessons apply
specifically to military managed care for seniors. These include the
importance of accurately estimating MTFs? capacity for enrolling seniors,
especially given the potential for age- ins; the need to provide seniors
with more complex care, including case management and post- acute care; and
the value of contacts with HCFA and private Medicare+ Choice plans. Much of
Senior Prime?s experience in providing care to seniors may be applicable to
the new TRICARE For Life program. DOD officials may be able to draw on
lessons learned from Senior Prime as they define the new program?s options
for seniors.

21 See Defense Health Care: Actions Under Way to Address Many TRICARE
Contract Change Order Problems (GAO/ HEHS- 97- 141, July 14, 1997). 22 See
Defense Health Care: Continued Management Focus Key to Settling TRICARE
Change Orders Quickly (GAO- 01- 513, April 30, 2001). Concluding

Observations

Page 23 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

DOD and HCFA provided written comments on a draft of this report, which are
reprinted in appendixes I and II. Both agencies said the report contained an
accurate description of implementation issues encountered in the
demonstration. DOD noted that expanding Medicare subvention or making it
permanent should be approached cautiously, with an understanding of cost and
funding issues. We will address cost issues in future reports. The two
agencies also provided suggestions for clarity and technical comments, which
we have incorporated as appropriate.

We are sending copies of this report to the Secretary of Defense and the
Administrator of HCFA. We will make copies available to others upon request.

If you or your staffs have questions about this report, please contact me at
(202) 512- 7114. Key contributors to this assignment included Gail MacColl,
Robin Burke, and Lisa Rogers.

William J. Scanlon Director, Health Care Issues Agency Comments

Page 24 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

List of Committees The Honorable Carl Levin Chairman The Honorable John
Warner Ranking Minority Member Committee on Armed Services United States
Senate

The Honorable Max Baucus Chairman The Honorable Charles E. Grassley Ranking
Minority Member Committee on Finance United States Senate

The Honorable Bob Stump Chairman The Honorable Ike Skelton Ranking Minority
Member Committee on Armed Services House of Representatives

The Honorable W. J. ?Billy? Tauzin Chairman The Honorable John D. Dingell
Ranking Minority Member Committee on Energy and Commerce House of
Representatives

The Honorable William M. Thomas Chairman The Honorable Charles B. Rangel
Ranking Minority Member Committee on Ways and Means House of Representatives

Appendix I: Comments From the Department of Defense

Page 25 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Appendix I: Comments From the Department of Defense

Appendix II: Comments From the Health Care Financing Administration

Page 26 GAO- 01- 671 Medicare Subvention Demonstration: DOD Implementation

Appendix II: Comments From the Health Care Financing Administration

Related GAO Products Page 27 GAO- 01- 671 Medicare Subvention Demonstration:
DOD Implementation

Defense Health Care: Continued Management Focus Key to Settling TRICARE
Change Orders Quickly (GAO- 01- 513, April 30, 2001).

Medicare Subvention Demonstration: Enrollment in DOD Pilot Reflects Retiree
Experiences and Local Markets (GAO/ HEHS- 00- 35, January 31, 2000).

Medicare Subvention Demonstration: DOD Start- up Overcame Obstacles, Yields
Lessons, and Raises Issues (GAO/ GGD/ HEHS- 99- 161, September 28, 1999).

Medicare Subvention Demonstration: DOD Data Limitations May Require
Adjustments and Raise Broader Concerns (GAO/ HEHS- 99- 39, May 28, 1999).

Defense Health Care: Actions Under Way to Address Many TRICARE Contract
Change Order Problems (GAO/ HEHS- 97- 141, July 14, 1997). Related GAO
Products

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