DOD and VA Health Care: Incentives Program for Sharing Resources 
(27-FEB-04, GAO-04-495R).					 
                                                                 
Combined, the Department of Defense (DOD) and the Department of  
Veterans Affairs (VA) provide health care services to about 12	 
million beneficiaries at an estimated cost of about $53 billion  
for fiscal year 2004--$26.7 billion for DOD and $26.5 billion for
VA. In 1982 the Congress passed the VA and DOD Health Resources  
Sharing and Emergency Operations Act (Sharing Act) to promote	 
more cost-effective use of health care resources and more	 
efficient delivery of care. Specifically, the Congress authorized
military treatment facilities and VA medical centers to enter	 
into sharing agreements to buy, sell, and barter medical and	 
support services. To further encourage on-going collaboration,	 
the Congress, in section 721 of the Bob Stump National Defense	 
Authorization Act (NDAA) for Fiscal Year 2003, directed the	 
Secretary of Defense and the Secretary of Veterans Affairs to	 
establish a joint incentives program to identify and provide	 
incentives to implement, fund, and evaluate creative health care 
coordination and sharing initiatives between DOD and VA. To	 
facilitate the program, each Secretary is required to contribute 
a minimum of $15 million from each department's appropriation	 
into an account established in the U. S. Treasury for each fiscal
year from 2004 through 2007. DOD's TRICARE Management Activity	 
and VA's Medical Sharing Office administer the incentive fund	 
program. The offices have jointly issued a request for proposals 
from DOD and VA medical facilities around the country.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-495R					        
    ACCNO:   A09401						        
  TITLE:     DOD and VA Health Care: Incentives Program for Sharing   
Resources							 
     DATE:   02/27/2004 
  SUBJECT:   Financial management				 
	     Health care cost control				 
	     Health care planning				 
	     Health care services				 
	     Performance measures				 
	     Strategic planning 				 
	     Interagency relations				 
	     Appropriation accounts				 

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GAO-04-495R

United States General Accounting Office Washington, DC 20548

February 27, 2004

Congressional Committees

Subject: DOD and VA Health Care: Incentives Program for Sharing Resources

Combined, the Department of Defense (DOD) and the Department of Veterans
Affairs (VA) provide health care services to about 12 million
beneficiaries at an estimated cost of about $53 billion for fiscal year
2004-$26.7 billion for DOD and $26.5 billion for VA. In 1982 the Congress
passed the VA and DOD Health Resources Sharing and Emergency Operations
Act (Sharing Act) to promote more cost-effective use of health care
resources and more efficient delivery of care.1 Specifically, the Congress
authorized military treatment facilities and VA medical centers to enter
into sharing agreements to buy, sell, and barter medical and support
services. To further encourage on-going collaboration, the Congress, in
section 721 of the Bob Stump National Defense Authorization Act (NDAA) for
Fiscal Year 20032, directed the Secretary of Defense and the Secretary of
Veterans Affairs to establish a joint incentives program to identify and
provide incentives to implement, fund, and evaluate creative health care
coordination and sharing initiatives between DOD and VA. To facilitate the
program, each Secretary is required to contribute a minimum of $15 million
from each department's appropriation into an account established in the U.
S. Treasury3 for each fiscal year from 2004 through 2007. DOD's TRICARE
Management Activity and VA's Medical Sharing Office administer the
incentive fund program. The offices have jointly issued a request for
proposals from DOD and VA medical facilities around the country.

The NDAA requires that we submit a report on the implementation and
effectiveness of the program by February 28, 2004, and by February 28th
for each year thereafter that the program is in effect. As discussed with
the committees of jurisdiction, since the program is in its initial
development stage, our objective was limited to reviewing the status of
the program's implementation phase-primarily the process for selecting
proposals-during the first five months of fiscal year 2004. To do so, we
reviewed the DOD's and VA's plans for implementing the DOD-VA Health Care
Sharing Incentive Fund-including proposal submission guidelines and
evaluation and selection criteria-and interviewed agency officials from
DOD and VA involved

1 Pub. L. No. 97-174, 96 Stat. 70.
2 Pub. L. No. 107-314, S:721(a)(1), 116 Stat. 2589, 2595 (2002).
3 DOD-VA Health Care Sharing Incentive Fund.

in the oversight of the program. Our work was conducted from October 2003
through February 2004 in accordance with generally accepted government
auditing standards.

Results in Brief

During the first five months of the program DOD and VA have established
criteria for evaluating proposals. As of February 25, 2004, the
departments are reviewing 57 proposals that have been submitted. DOD and
VA program officials have not established a firm date for final selection
but anticipate it will take place during the summer of 2004. While the
agencies have made progress in implementing the program, they have not
made contributions to the fund; they anticipate doing so by March 31,
2004. VA has raised a concern whether services provided to veterans will
have to be commensurate with its contributions to the sharing incentive
fund. DOD and VA officials are discussing how the fund contributions will
be used. DOD and VA officials agreed the information in this report is
accurate.

Proposal Submission and Selection Process

The 57 proposals that are under review by DOD and VA are considered
concept proposals-they contain a broad range of sharing activities. DOD
and VA agency officials at each submitting medical facility jointly
developed these concept proposals. Examples of sharing services and
resources included in the concept proposals are

o  magnetic resonance imaging,

o  staffing,

o  telemedicine,

o  cardiac catheterization laboratories,  o  outpatient care,

o  sleep study analysis, and

o  information management/information technology.

According to program officials, the two agencies will review the concept
proposals and select the most promising. The selection and evaluation
criteria for the concept proposals include the following:

o  	support DOD's and VA's joint long-term approach to meeting the health
care needs of their beneficiary populations,

o  improve beneficiary access,

o  exportability to other facilities,

o  maximize the number of beneficiaries that would benefit from the
initiative,

o  result in cost savings or cost avoidance,

o  	develop in-house capability at a lesser cost for services now obtained
by contract, and

o  	demonstrate that the initiative will be self-sustaining-that is, a
separate source of funding other than the incentive fund for recurring
costs-within one or two years of the initial award.

Officials at each location whose proposals are selected will be asked to
submit a more detailed final proposal with a business case analysis that
will be reviewed by DOD's and VA's Chief Financial Officers and approved
by the interagency Health Executive Committee4.

Program Funding and Use of Funds

VA has raised a concern about the extent to which restrictions on the use
of its medical appropriations would continue to apply once funds from
those appropriations are transferred to the DOD-VA Health Care Sharing
Incentive Fund5. DOD and VA officials are discussing how the fund
contributions will be used and plan to reach agreement before final
proposals for projects are selected. DOD and VA expect to transfer funds
to the DOD-VA Health Care Sharing Incentive Fund by March 31, 2004, so
that money is available when selection of final proposals is made during
the summer of 2004.

DOD and VA program officials as well as DOD's and VA's Offices of General
Counsel reviewed a draft of this report and provided technical comments,
which were included where appropriate. They agreed the information in the
report is accurate.

                                     -----

We are sending copies of this report to the Secretary of Defense, the
Secretary of
Veterans Affairs, and other interested parties. We will provide copies of
this report to
others upon request. In addition, the report is available at no charge on
the GAO Web
site at http://www.gao.gov. If you or your staffs have any questions,
please contact
me at (202) 512-7101 or Michael T. Blair, Jr., at (404) 679-1944. Aditi
Archer and
Helen Desaulniers made key contributions to this report.

Cynthia A. Bascetta
Director, Health Care-Veterans'

Health and Benefits Issues

4 The Health Executive Committee membership includes senior leaders from
DOD and VA who are working to institutionalize DOD and VA sharing and
collaboration to ensure the efficient use of health services and
resources. The committee is co-chaired by the Assistant Secretary of
Defense for Health Affairs and the Department of Veterans Affairs Under
Secretary for Health. 5 VA's medical care appropriations are available for
the expenses of medical services, medical administration, and medical
facilities for VA beneficiaries. Section 1301(a) of title 31, United
States Code, provides that appropriations shall be applied only to the
objects for which they were made, except as otherwise authorized. In
addition, section 1532 provides that, in the absence of statutory
provisions to the contrary, appropriations authorized to be transferred
from one account to another are available for the same purpose provided by
the law appropriating the funds.

Congressional Committees

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

The Honorable Arlen Specter
Chairman
The Honorable Bob Graham
Ranking Minority Member
Committee on Veterans' Affairs
United States Senate

The Honorable Duncan Hunter
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives

The Honorable Christopher Smith
Chairman
The Honorable Lane Evans
Ranking Minority Member
Committee on Veterans' Affairs
House of Representatives

(290276)

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