Defense Health Care: TRICARE Claims Processing Has Improved but  
Inefficiencies Remain (15-OCT-03, GAO-04-69).			 
                                                                 
Testifying before Congress in 2002, military beneficiary groups  
and civilian managed care support contractors described problems 
with the processing of TRICARE claims for civilian-provided care.
These problems included slow payments and procedures that made	 
claims processing inefficient. The Bob Stump National Defense	 
Authorization Act of 2003 required GAO to review improvements to 
TRICARE claims processing and continuing impediments to claims	 
processing efficiency. Specifically, GAO describes (1) efforts to
improve claims processing and changes in processing timeliness	 
and (2) Department of Defense (DOD) procedures and data that	 
continue to affect claims processing efficiency. To identify	 
improvements to claims processing and impediments to processing  
efficiency, GAO analyzed 1999 and 2002 claims data for changes in
processing timeliness. GAO also interviewed and analyzed claims  
processing documentation from DOD officials, managed care support
contractors, and claims processors.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-69						        
    ACCNO:   A08720						        
  TITLE:     Defense Health Care: TRICARE Claims Processing Has       
Improved but Inefficiencies Remain				 
     DATE:   10/15/2003 
  SUBJECT:   Claims processing					 
	     Health care planning				 
	     Health care programs				 
	     Health care services				 
	     Internal controls					 
	     Performance measures				 
	     Strategic planning 				 
	     Managed health care				 
	     DOD TRICARE Program				 
	     Defense Enrollment Eligibility Reporting		 
	     System						 
                                                                 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-04-69

United States General Accounting Office

GAO

Report to the Committees on Armed

               Services, U.S. Senate and House of Representatives

October 2003

DEFENSE HEALTH CARE

        TRICARE Claims Processing Has Improved but Inefficiencies Remain

GAO-04-69

Highlights of GAO-04-69, a report to the Committees on Armed Services,
U.S. Senate and House of Representatives

Testifying before Congress in 2002, military beneficiary groups and
civilian managed care support contractors described problems with the
processing of TRICARE claims for civilian-provided care. These problems
included slow payments and procedures that made claims processing
inefficient.

The Bob Stump National Defense Authorization Act of 2003 required GAO to
review improvements to TRICARE claims processing and continuing
impediments to claims processing efficiency. Specifically, GAO describes
(1) efforts to improve claims processing and changes in processing
timeliness and (2) Department of Defense (DOD) procedures and data that
continue to affect claims processing efficiency.

To identify improvements to claims processing and impediments to
processing efficiency, GAO analyzed 1999 and 2002 claims data for changes
in processing timeliness. GAO also interviewed and analyzed claims
processing documentation from DOD officials, managed care support
contractors, and claims processors.

To improve the efficiency of TRICARE claims processing, GAO recommends
that DOD evaluate how it issues program changes and identify ways to
improve the consolidation and scheduling of such changes. DOD concurred
with the recommendation.

www.gao.gov/cgi-bin/getrpt?GAO-04-69.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Majorie E. Kanof at (202)
512-7101.

October 2003

DEFENSE HEALTH CARE

TRICARE Claims Processing Has Improved but Inefficiencies Remain

In an effort to improve TRICARE claims processing, DOD and its managed
care support (MCS) contractors have made changes that are designed to make
it more efficient. First, they have jointly identified-and then eliminated
or changed-certain DOD requirements they deemed inefficient and
nonessential to accurate claims processing. For example, contractors are
no longer required to hold claims with incomplete information and request
the missing information from the provider or beneficiary. Instead,
contractors may now return some claims with missing information. In
another change, DOD eliminated preauthorization requirements for certain
procedures and gave the MCS contractors more latitude for determining when
preauthorizations are appropriate. To encourage providers to submit their
claims electronically, DOD gave MCS contractors the authority to decide
whether to adjudicate electronically submitted claims sooner than those
submitted on paper. Further, MCS contractors have worked with their claims
processors to implement new technologies for data input, claims routing,
customer service, and claims submission. Finally, MCS contractors and
their claims processors have improved the timeliness with which they
process claims. In fiscal year 2002, claims processors processed over 97
percent of claims in 30 days or less-an improvement over fiscal year 1999,
when 91 percent of claims were processed in 30 days or less.

Although DOD and its MCS contractors have made changes to improve claims
processing, some DOD procedures and inaccuracies in its data continue to
create inefficiencies in TRICARE claims processing. Some DOD procedures
may create inefficiencies by inadvertently increasing the demand for
customer service, which claims processors are required to provide.
Additionally, inaccuracies in DOD eligibility data-data that are needed to
process TRICARE claims-can contribute to claims processing delays or
rework if, for example, claims must be reprocessed when errors are
identified. Finally, some DOD procedures lead to rework for claims
processors, either in the form of reprocessing claims or reprogramming
processing software. For example, when DOD makes program changes to
TRICARE to alter or create a health benefit, it does not adhere to any
schedule. In 2002, DOD made 123 program changes on 19 different dates
throughout the year. Given the fact that implementing these changes often
involves reprogramming and testing processing software, this approach can
create rework for claims processors when DOD issues similar or related
changes on separate occasions.

Contents

  Letter

Results in Brief
Background
DOD, MCS Contractors, and Claims Processors Have Made

Changes to Improve Claims Processing Efficiency, and
Timeliness Has Improved
DOD's Procedures and Inaccurate Data Continue to Create Some

Inefficiencies in Claims Processing
Conclusions
Recommendation for Executive Action
Agency Comments

                                       1

                                      3 4

                                       8

13 18 18 19

Appendix I Scope and Methodology

Appendix II 	Comparison of Current and Future TRICARE Regions

Appendix III TRICARE Claims Flow

Appendix IV Health Care Service Records

Appendix V Comments from the Department of Defense

Appendix VI GAO Contacts and Staff Acknowledgments 32

GAO Contacts 32
Acknowledgments 32

Related GAO Products

33

Tables

Table 1: Regions, Managed Care Support Contractors, and Claims
Processors 5
Table 2: Percentage of TRICARE Claims Processed in 30 Days or
Less in Fiscal Years 1999 and 2002 12

Figures

Figure 1: Current TRICARE Regions 23
Figure 2: Future TRICARE Regions After TNEX Implementation 24
Figure 3: TRICARE Claims Flow 27

Abbreviations

CDCF central deductible catastrophic cap file
CMS Centers for Medicare & Medicaid Services
DEERS Defense Enrollment Eligibility Reporting System
DMDC Defense Manpower Data Center
DOD Department of Defense
DRG diagnosis-related group
EMC electronic media claims
HCSR health care service record
HIPAA Health Insurance Portability and Accountability Act of 1996
MCS managed care support
MTF military treatment facility
OCR optical character recognition
PGBA Palmetto Government Benefits Administrators
TED TRICARE encounter data
TFL TRICARE for Life
TMA TRICARE Management Activity
TMAC TRICARE maximum allowable charges
WPS Wisconsin Physician Services

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

United States General Accounting Office Washington, DC 20548

October 15, 2003

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

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

In 2003, more than 8.7 million active duty personnel, their dependents,
and
retirees are eligible to receive health care through TRICARE, the
military's
$26.4 billion-per-year health care system. Medical care under TRICARE is
provided by Department of Defense (DOD) personnel in military treatment
facilities (MTF) or through civilian providers in civilian facilities.
Civilian-
provided care requires that providers or beneficiaries submit claims to
DOD managed care support (MCS) contractors who, on behalf of
TRICARE, are responsible for adjudicating and paying the claims
according to established policies and procedures. The MCS contractors
have each hired subcontractors, referred to as claims processors, to
perform these functions. During fiscal year 2002, DOD's MCS contractors
were responsible for processing approximately 42 million TRICARE
claims worth approximately $4.6 billion dollars.1

Since its inception in 1995, TRICARE has garnered criticism over its
claims
processing performance. During 2002, for example, testimony before the
House Armed Services Committee, Subcommittee on Military Personnel,

1These numbers do not include claims from TRICARE for Life (TFL), a
separate program from TRICARE. TFL is a program for Medicare-eligible
beneficiaries enrolled in Medicare Part B, which covers charges from
licensed practitioners, as well as clinical laboratory and diagnostic
services, surgical supplies and durable medical equipment, and ambulance
services. TFL pays expenses remaining after Medicare has paid its share of
claims.

discussed problems with the timeliness of claims payments.2 This testimony
also identified DOD policies and procedures for claims processing that
confuse beneficiaries and providers and create disincentives for
electronic claims submission, which is more efficient than paper claims
submission.

In response to concerns over claims processing, the Bob Stump National
Defense Authorization Act of 20033 directed us to report on improvements
to TRICARE claims processing and continuing impediments to claims
processing efficiency. Specifically, as agreed with the committees of
jurisdiction, this report describes (1) DOD, MCS contractor, and claims
processor efforts to improve TRICARE claims processing and changes in
processing timeliness and (2) DOD procedures and data that continue to
affect claims processing efficiency.

To identify improvements in TRICARE claims processing, we compared the
timeliness with which DOD processed its claims between fiscal years 1999
and 2002. To make this comparison, we obtained and analyzed data from
health care service records (HCSR), which are the final records of TRICARE
claims. To identify efforts to improve TRICARE claims processing, we
interviewed and obtained documentation from officials and representatives
from the TRICARE Management Activity (TMA), the DOD agency responsible for
managing TRICARE; DOD's MCS contractors; and claims processors. To obtain
information on TRICARE requirements that affect claims processing
efficiency, we interviewed the same officials and representatives, along
with beneficiary and provider representatives. We reviewed DOD's request
for proposals for the new health care contracts that DOD awarded in August
2003, and we interviewed DOD and MCS contractor officials to determine how
the new contracts might affect claims processing efficiency.4 We also
reviewed our prior work on TRICARE and Medicare claims processing. Our
review did not include claims processed under DOD's TFL program for
Medicare-eligible beneficiaries because TFL is a separate program that
follows different

2Hearings on the National Defense Authorization Act for Fiscal Year
2003-H.R. 4546 and Oversight of Previously Authorized Programs Before the
Subcomm. on Military Personnel of the House Comm. on Armed Services, 107th
Cong. 297-318 and 318-334 (2002) (statements of MCS contractors and
beneficiary representatives, respectively).

3Pub. L. No. 107-314, S: 711(c), 116 Stat. 2458, 2588 (2002).

4DOD issued a request for proposals in August 2002 because the current
health care contracts will be expiring.

program rules and uses different claims processing procedures. We
conducted our work from June 2002 through October 2003 in accordance with
generally accepted government auditing standards. For more on our scope
and methodology, see appendix I.

                                Results in Brief

In an effort to improve TRICARE claims processing, DOD and its MCS
contractors have made changes that are designed to make it more efficient.
First, they have jointly identified-and then eliminated or changed-certain
DOD requirements they deemed inefficient and nonessential to accurate
claims processing. For example, contractors are no longer required to hold
claims with incomplete information and request the missing information
from the provider or beneficiary. Instead, contractors may now return
claims with missing information, as long as the necessary information
cannot be supplied from in-house sources. In another change, DOD
eliminated preauthorization requirements for certain procedures and gave
the MCS contractors more latitude for determining when preauthorizations
are appropriate. In an effort to encourage providers to submit their
claims electronically, DOD gave MCS contractors the authority to decide
whether to adjudicate electronically submitted claims sooner than those
submitted on paper. Further, MCS contractors have worked with their claims
processors to implement new technologies for data input, claims routing,
customer service, and claims submission. Finally, MCS contractors and
their claims processors have improved the timeliness with which they
process claims. In fiscal year 2002, claims processors processed over 97
percent of claims in 30 days or less-an improvement over fiscal year 1999,
when 91 percent of claims were processed in 30 days or less.

Although DOD and its MCS contractors have made changes to improve claims
processing and MCS contractors have exceeded DOD's standard for processing
timeliness, some DOD procedures and inaccuracies in its data continue to
create inefficiencies in TRICARE claims processing. Some DOD procedures
lead to rework for claims processors, either in the form of reprocessing
claims or reprogramming processing software. For example, when DOD makes
program changes to TRICARE to alter or create a health benefit, it does
not adhere to any schedule. In 2002, DOD made 123 program changes on 19
different dates throughout the year. Given the fact that implementing
these changes often involves reprogramming and testing processing
software, this approach can create rework for claims processors when DOD
issues similar or related changes on separate occasions. Some DOD
procedures may create inefficiencies by inadvertently increasing the
demand for customer service, which claims

Background

processors are required to provide. For example, the method used for
calculating TRICARE's liability when beneficiaries have other health
insurance can lead to claim outcomes that are not understood by providers
and beneficiaries. When providers and beneficiaries question such
outcomes, claims processors must explain the benefit calculation. Finally,
inaccuracies in DOD eligibility data-data that are needed to process
TRICARE claims-can contribute to claims processing delays or rework if,
for example, claims must be reprocessed when errors are identified.

We are recommending that the Secretary of Defense direct the Assistant
Secretary of Defense for Health Affairs to evaluate DOD's process for
issuing program changes and to identify ways to improve the consolidation
and scheduling of such changes. In commenting on a draft of this report,
DOD concurred with the report's findings and recommendation.

Under TRICARE, MTFs provide the majority of health care for beneficiaries.
However, civilian providers supplement this care, and claims must be
submitted by providers or beneficiaries to MCS contractors' claims
processors for this civilian-provided care. There are three options under
which TRICARE beneficiaries may obtain civilian-provided care:

o  	TRICARE Prime, a program in which beneficiaries enroll and receive
care in a managed network similar to a health maintenance organization;

o  	TRICARE Extra, a program in which beneficiaries receive care from a
network of preferred providers; and

o  TRICARE Standard, a fee-for-service benefit that requires no network
use.

The Office of the Assistant Secretary of Defense for Health Affairs
establishes TRICARE policies and procedures and has overall responsibility
for the program. TMA, under Health Affairs, is responsible for awarding
and administering contracts to MCS contractors that manage the delivery of
care to beneficiaries in 11 regions. While the MCS contractors are
ultimately responsible for claims processing activities, all of them have
subcontracted with one of two claims processors that process the claims
and handle beneficiary and provider inquiries associated with them. (Table
1 contains a list of regions, their MCS contractors, and their claims
processors.)

Table 1: Regions, Managed Care Support Contractors, and Claims Processors

                           Region      MCS contractor        Claims processor 
                        Northeast Sierra Military         Palmetto Government 
                                  Health                             Benefits 
                                             Services          Administrators 
                 Mid-Atlantic and                         Palmetto Government 
                                      Humana Military                Benefits 
                        Heartland Healthcare Services          Administrators 
                    Southeast and                         Palmetto Government 
                                      Humana Military                Benefits 
                        Gulfsouth Healthcare Services          Administrators 
                        Southwest Health Net Federal     Wisconsin Physicians 
                                                                      Service 
                                             Services 
                                                          Palmetto Government 
                          Central TriWest Healthcare                 Benefits 
                                       Alliance, Inc.          Administrators 

Southern California, Health Net Federal Palmetto Government Benefits
Golden Gate, and Services Administrators
Hawaii-Pacific

Northwest 	Health Net Federal Wisconsin Physicians Service Services

Source: DOD

In August 2003, DOD awarded new civilian health care contracts, known as
TNEX that will reorganize the 11 regions into 3-North, South, and
West-with a single contract for each region.5 Implementation of these new
contracts is expected to begin in June 2004. See appendix II for maps
depicting the current and future TRICARE regions.

Claims processing begins with the receipt of claims-either paper or
electronic-and any supporting documentation that is submitted by providers
and beneficiaries.6 Information from paper claims must be scanned or
manually entered into the processing system used by the claims processor.
Data from electronic claims automatically enter the system after the
system verifies that each entry or field on the form contains appropriate
data. Compared to paper claims, electronically submitted claims can be
processed more efficiently because they do not

5DOD has awarded TNEX contracts to Health Net Federal Services for the
TRICARE North region, to Humana Military Healthcare Services for the
TRICARE South region, and to TriWest Healthcare Alliance Corp. for the
TRICARE West region. Palmetto Government Benefits Administrators will
process claims for the North and South regions, and Wisconsin Physicians
Service will process claims for the West region.

6According to TRICARE claims processors, providers submit about 99 percent
of the claims, with beneficiaries submitting the rest.

require handling in the mailroom, document preparation, imaging, data
entry, and storage of the original document. Furthermore, claims
processors told us that because each field in an electronic claim must be
completed before it is accepted into the processing system, electronic
claims generally are more complete and have fewer errors from imaging and
data entry than paper claims. As a result, they are more likely to be
processed without manual intervention.

Once claims data enter the system, they are subject to automatic edits
designed to ensure their accuracy and to determine how the claim will be
adjudicated. For instance, one edit cross-checks the Defense Enrollment
Eligibility Reporting System (DEERS) to verify beneficiaries'
eligibility.7 At any time during this automated process, a claim can
require manual intervention by claims processing employees to correct
errors, supply missing data, or verify that the provided care was properly
authorized, medically necessary, and appropriate. After adjudication, the
claim is either paid or denied and the beneficiary and provider are
notified of the outcome. The final record of the claim is sent to DOD in
the form of a HCSR. HCSRs do not affect the amount of beneficiary or
provider reimbursement, nor do they delay claims processing timeliness.
(Appendix III contains a more detailed description of the claims
processing flow. See app. IV for a more detailed description of the HCSR.)

DOD requires its MCS contractors to meet certain standards for claims
processing timeliness. Specifically, DOD requires them to process 95
percent of retained claims within 30 calendar days of receipt, 100 percent
of retained claims within 60 days, and 100 percent of all excluded claims
within 120 days, unless DOD specifically directs a MCS contractor to

7DEERS is a DOD database maintained by the Defense Manpower Data Center
(DMDC), a DOD contractor. DEERS contains service-related eligibility and
demographic data used to determine eligibility for military benefits,
including health care, commissary, and exchange privileges for all service
members, retirees, and their family members. As individuals enter the
military, the services add information to DEERS. The services are
responsible for updating information as service members' military status
changes. Individual service personnel are responsible for enrolling their
dependents in DEERS at local military installations and for notifying
DEERS when an eligible dependent's status changes.

continue holding for processing a claim or group of claims.8 DOD verifies
whether MCS contractors are meeting timeliness standards by monitoring its
database of HCSRs.

DOD, like other entities that offer health plans and are providers of
health services, is required by the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) to use uniform standards for data code
sets and electronic transactions, including claims filing.9 HIPAA was
enacted to combat waste, fraud, and abuse; to improve the portability of
health insurance coverage; and to simplify the administration of health
care.10 Uniform standards for electronic filing will allow providers to
use the same software to submit claims to all insurance plans, including
TRICARE. However, providers retain the option of submitting claims on
paper if they so choose.11 The compliance date for this requirement is

12

October 15, 2003.

8Before processing, DOD classifies submitted claims as either retained,
excluded, or returned. Retained claims are those held in the MCS
contractor's possession, which contain sufficient information to allow
processing to completion, and all claims for which missing information may
be developed from in-house sources. Excluded claims are claims held at the
discretion of the contractor for external development of information
necessary to process the claim to completion, claims requiring development
for possible third-party liability, or claims requiring intervention by
another MCS contractor or DOD. Returned claims are claims with missing,
incomplete, or discrepant information that cannot be resolved using all
in-house methods; are not held by the contractor as excluded claims; and
are subsequently returned to the sender.

9Pub. L. No. 104-191, sec. 262, S: 1175(a), 110 Stat. 1936, 2027 (codified
at 42 U.S.C. S: 1320d-2(a) (2000)).

10H.R. Rep. No. 104-496, pt. 1, at 174 (1996).

1165 Fed. Reg. 50,312, 50,314 (Aug. 17, 2000).

12Administrative Simplification Compliance Act, Pub. L. No. 107-105, S: 2
(a)(1), 115 Stat. 1004 (2001).

DOD, MCS Contractors, and Claims Processors Have Made Changes to Improve
Claims Processing Efficiency, and Timeliness Has Improved

DOD and its MCS contractors have made a number of changes to TRICARE
claims processing since the beginning of 1999 that are designed to improve
its efficiency. They have jointly identified certain procedural and
adjudication requirements as nonessential to claims processing. These
requirements have been eliminated or changed in an effort to reduce the
need for manual intervention during processing and to encourage the
electronic submission of claims. Furthermore, MCS contractors have worked
with their claims processors to implement best industry practices designed
to improve claims processing efficiency. These practices include the use
of new technologies for data input, claims routing, customer service, and
claims submission. Finally, MCS contractors, working with their claims
processors, have improved the timeliness with which they adjudicate and
pay claims.

DOD and the MCS Contractors Have Made Changes Designed to Improve Claims
Processing Efficiency

In July 1999, DOD and the MCS contractors instituted a joint initiative to
improve claims processing efficiency that eliminated an existing
requirement that claims processors hold claims submitted with incomplete
information and obtain, if possible, the information needed to process the
claim. Before July 1999, claims processors had been required to retain all
claims with missing information, request this information from providers
and beneficiaries if the information was not available from in-house
sources-such as the DEERS database-and ultimately deny the claim if the
information was not received within 35 days. The claims processors
reported that managing these claims and matching them with additional
information when it was received increased their workload. Also, according
to claims processors, the information was frequently received after the
35-day period elapsed. The claims processors would then have already
denied the claim, and it would have to be resubmitted. With the
elimination of the requirement, MCS contractors return claims with missing
information, as long as the necessary information cannot be supplied from
in-house sources. For example, a claim missing a required signature would
be returned to the submitter. In contrast, a claim missing a beneficiary's
date of birth would not be returned because this information could be
found in the DEERS database.

DOD and the MCS contractors also jointly identified certain requirements
that they determined were unlikely to alter payment or care decisions and
that, if eliminated, would make claims processing more efficient. One
joint DOD and MCS contractor initiative decreased the number of

DOD-required preauthorizations and gave the MCS contractors more latitude
to determine when preauthorizations are necessary.13 DOD eliminated
preauthorization requirements for 21 procedures, including cataract
removal, hernia repair, caesarian section, and tonsillectomy. Although
preauthorizations are used to ensure the medical necessity of and
appropriate access to health care before the care is provided, they also
can delay claims processing because they often require manual intervention
by claims processing staff to ensure the care was properly ordered. By
giving MCS contractors the authority to eliminate preauthorization
requirements that were not essential to accurate claims adjudication,
certain categories of claims could be processed and reimbursed with less
manual intervention.

Further, a joint initiative intended to create an incentive for providers
to submit claims electronically resulted in DOD giving MCS contractors the
authority to decide whether to adjudicate electronically submitted claims
at a faster rate than those submitted on paper.14 Electronically submitted
claims can be processed more efficiently than paper claims. However, prior
to this initiative, MCS contractors paid claims as they were received and
adjudicated with no distinction between paper or electronic submission. In
January 2000, DOD gave MCS contractors the authority to decide to pay
electronically submitted claims as soon as they were processed and to
delay payment of paper-submitted claims, as long as the contractors met
the basic overall standards for claims processing timeliness. In fiscal
year 2003, two MCS contractors responsible for 5 of the 11 TRICARE regions
decided to delay payment on some types of provider-submitted paper
claims.15 However, MCS contractors told us it was too soon to determine
whether this change has resulted in providers submitting more claims
electronically.

13Preauthorizations are a standard of managed health care that require a
physician or other medical provider to certify, before a procedure is
performed, that the procedure being considered is medically necessary and
the proposed location for delivery of care is appropriate. If required
preauthorizations for care are not obtained, the associated services
rendered may not be reimbursed or reimbursements may be reduced when
claims are processed.

14The Centers for Medicare & Medicaid Services (CMS) has encouraged
providers to submit claims electronically by requiring its claims
processing contractors to delay payment of Medicare claims submitted on
paper.

15The remaining two MCS contractors told us they decided to reimburse
paper claims and electronic claims in the order in which they were
processed.

DOD also adopted another initiative intended to increase the number of
electronically submitted claims. As of July 1, 2003, it changed the
requirements for provider identification on claims forms, making it easier
for providers to submit their claims electronically.16 The change allows
providers to submit claims using their Medicare identification number or
another alternate provider identifier. Before this change, the provider
identification number required for TRICARE claims was not compatible with
the software used by many providers to submit claims. As a result, many
providers had to modify their claim systems and retrain staff if they
wanted to submit TRICARE claims electronically. Because TRICARE is
generally a small portion of their business, providers had little
incentive to make these changes.17

In addition to their collaborative efforts with DOD, claims processors,
since the beginning of 1999, have implemented best industry practices,
including new technologies designed to increase the efficiency of claims
processing. These technologies include

o  	using optical character recognition (OCR) technology, which enables
the efficient, cost-effective, and high-quality capturing of claims data
without any manual data entry;

o  	providing claims processing staff with the capability to immediately
resolve and adjust claim errors when responding to provider and
beneficiary inquiries, instead of requiring them to hold corrections for
resolution at a later date; and

o  	employing electronic routing systems to send simpler claims to less
experienced processors and more complex ones to those who have been
trained to adjudicate them.18

16HIPAA required that the Secretary of Health and Human Services adopt
standard unique provider identifier numbers. Pub. L. No. 104-191, sec.
262, S: 1173(b)(1), 110 Stat. 1936, 2025. The regulations to implement
this provision were not expected until October 2003 at the earliest,
according to CMS officials responsible for these regulations. Providers
will be required to comply with the regulation beginning 2 years after its
effective date, which will be included in the regulation when it is
published.

17For example, one claims processor estimated that TRICARE is frequently
about 3 percent of a provider's business.

18For example, if a multifaceted surgery claim needed clinical review, the
electronic routing system would send the claim segments needing review to
a nurse with appropriate surgery expertise instead of the claim being
initially reviewed by an individual without the required expertise.

Claims processors have also adopted best industry practices by providing
customer service via the Internet and by providing the capability for
Internet claim submission. To do this, both claims processors have created
Web sites that providers and beneficiaries can use to inquire about the
status of submitted claims and to obtain patient and benefit information.
In addition, one claims processor gives physicians the option of
submitting claims via the Internet. In general, claims submitted via the
Internet can be immediately processed without human intervention.
According to this claims processor, the current number of Internet claim
submissions is small19 but is likely to grow because of the ease of
submission and the speed at which these claims are processed. MCS
contractors told us that they have plans for additional Web-based
enhancements that will further simplify TRICARE claims processing and
provide additional services for both providers and beneficiaries, such as
allowing institutions to submit claims via the Internet and providing
additional self-help features.

MCS Contractors' Claims In fiscal year 2002, MCS contractors' claims
processors processed over 97 Processors Have Improved percent of claims in
30 days or less-exceeding DOD's standard that 95 Claims Processing percent
of retained claims be processed within 30 calendar days.20 This is
Timeliness an improvement over fiscal year 1999, when they processed 91
percent of

all claims within 30 days.21 (See table 2.) During this time period, the
number of claims processed increased 43 percent, from 29.2 million in
fiscal year 1999 to 41.7 million in fiscal year 2002.22

19In June 2003, 2 percent of this processor's claims were submitted via
the Internet.

20We also found that in fiscal year 2002, 82 percent of all claims were
processed in 15 days or less, while in fiscal year 1999, 76 percent were
processed in 15 days or less.

21A portion of this improvement may be due to the DOD and MCS contractor
initiative that started late in fiscal year 1999 and permitted MCS
contractors to return claims submitted with insufficient or missing
information. About 2 percent of claims were returned in fiscal year 2002.
However, according to claims processors, many of these claims would have
been returned even before this initiative.

22In addition, claims processors processed 41.7 million TFL claims in
fiscal year 2002.

Table 2: Percentage of TRICARE Claims Processed in 30 Days or Less in
Fiscal Years 1999 and 2002

                                   1999 2002

Number Number Percent (in thousands) Percent (in thousands)

                      All claimsa 91.4 28,413 97.2 38,965

                           Method of claim submission

                       Electronic 97.7 11,968 99.0 19,533

                         Paper 86.8 16,445 95.4 19,432

b

             Type of provider Professional 88.5 18,770 96.0 24,923

                        Pharmacy 97.9 9,327 99.6 13,660

                        Institutional 69.7 316 86.5 382

                           Dollar amount paid by DOD

                     Less than $100 92.5 24,832 97.5 32,469

                       $100 to $999 84.9 3,205 96.2 5,991

                        $1,000 or more 72.3 376 89.1 505

Source: DOD.

Note: GAO analysis of DOD claims data.

aThese calculations include only claims for health care provided inside
the United States. They do not include Senior Pharmacy claims and Medicare
claims. In addition, they do not include claims if the final record of a
claim was modified due to reprocessing.

bProfessional claims represent care rendered by physicians and other
health care providers, such as physical therapists. Pharmacy claims are
claims for prescription drugs. Most institutional claims represent care
provided by hospitals.

Even though MCS contractors' processing timeliness increased in all
categories of claims from fiscal year 1999 to fiscal year 2002, timeliness
in each category varied. For instance, pharmacy claims, which in fiscal
year 2002 constituted about 35 percent of all claims, were almost always
processed within 30 days because they were submitted electronically in
nearly all cases. On the other hand, in fiscal year 2002, 86.5 percent of
institutional claims and 89.1 percent of claims with government liability
of $1,000 or more were processed within 30 days or less. Institutional and
high-dollar claims are usually more complicated and often require medical
review, adding to processing time. However, MCS contractors still met
DOD's standard for overall processing timeliness because institutional
claims comprised only about 1 percent of overall claims, and claims with
liability over $1,000 comprised only 1.3 percent of contractors' claims.

DOD's Procedures and Inaccurate Data Continue to Create Some
Inefficiencies in Claims Processing

Therefore, these claims had little effect on MCS contractors' ability to
meet DOD's standard.

Although DOD and MSC contractors have made changes to make claims
processing more efficient, some of DOD's procedures, as well as
inaccuracies in its data, continue to create inefficiencies in TRICARE
claims processing. In some cases, DOD's procedures lead to rework for
claims processors, either in the form of reprocessing claims or
reprogramming processing software. Other DOD procedures, such as the
method for calculating TRICARE's liability when beneficiaries have other
health insurance, lead to claim outcomes that are not understood by
providers and beneficiaries. This confusion may increase claims
processors' workload when there is additional demand for them to provide
customer service. Finally, inaccuracies in DOD eligibility data contribute
to claims processing delays and rework, which create inefficiencies in
TRICARE claims processing.

DOD's Procedures for Making Program Changes to TRICARE Lead to Rework and
Increased Demand for Customer Service

DOD's procedures for making program changes to TRICARE create
inefficiencies in claims processing. Program changes include the
introduction of new exclusions or inclusions in coverage, the creation of
new benefit packages for special populations, revisions to billing
procedures, changes in reporting requirements, or other administrative
changes. DOD does not adhere to a set schedule for making health benefit
or other program changes. In 2002, DOD made 123 program changes on 19
different dates throughout the year.23 For example, in May 2002, DOD made
41 changes on 4 different days. DOD officials told us they had limited
control over scheduling some program changes because approximately
one-third of changes result from new laws or regulations.

Implementing program changes often involves reprogramming and testing
processing software, and not adhering to a schedule for issuing changes
can create extra work for claims processors. When unscheduled changes give
claims processors little or no time to anticipate, implement, and test the
changes, claims processors said they are more likely to make errors in
their programming. These programming errors must be corrected and create
additional work when incorrectly processed claims must be reprocessed.

23In 1999, DOD made 310 program changes, in 2000 it made 194, and in 2001
it made 172.

In addition, when DOD has issued similar or related changes on separate
occasions, claims processors have needed to reprogram their software on
multiple occasions for a single benefit area. While DOD has made some
attempts to issue changes at the same time, three of the four MCS
contractors said these attempts to consolidate changes have, in some
cases, delayed the implementation of some changes. They said that such
delays result either in beneficiaries not receiving the benefits of a
change as soon as possible or in claims processing rework if adjudicated
claims are retroactively affected and must be reprocessed.

Unscheduled changes also make it difficult for providers and beneficiaries
to account for or learn about recent changes. When these changes result in
claims outcomes that providers and beneficiaries do not understand, claims
processors experience demands for customer service to explain the
outcomes, even if the claims in question have been properly adjudicated.
For example, according to a claims processor, providers often require
customer service when program changes have added to or deleted codes that
they use to bill for procedures. When this happens, providers become
confused when the amounts on recently adjudicated claims differ from the
amounts they previously were reimbursed for identical services.

MCS contractors are required to educate providers and beneficiaries about
policies and procedures that have an impact on claims processing-such as
new benefits or changes in billing requirements.24 However, because
TRICARE is often a relatively small portion of most providers' business,
providers have little incentive to participate in educational seminars or
to read the many bulletins and updates to stay current on the frequent
program changes. Therefore, MCS contractors told us that they also
maintain relationships with provider associations and provide one-on-one
education through phone conversations or on-site visits to individual
providers. Most educational efforts are directed at providers because
beneficiaries submit few claims. However, MCS contractors publish periodic
newsletters for beneficiaries and provide beneficiary briefings.

24MCS contractors disseminate information on program changes through Web
sites, monthly or quarterly newsletters, and periodic bulletins.

DOD's Procedures for the Coordination of the TRICARE Benefit with Other
Insurers May Increase Demand for Customer Service

According to DOD officials, MCS contractors, and claims processors, DOD's
procedures for calculating TRICARE liability when beneficiaries have other
health insurance is the claims processing area that causes the most
confusion for providers and beneficiaries.25 Officials told us that
providers and beneficiaries frequently misunderstand the outcomes of
claims involving other health insurance. Officials told us that TRICARE
providers and beneficiaries are often confused because in many cases
TRICARE does not provide any payment when a beneficiary has other health
insurance.26 In these cases, there is no TRICARE cost share because the
other health insurance reimbursement is equal to or greater than the
reimbursement that TRICARE allows. When providers and beneficiaries
question such decisions, claims processors must explain TRICARE's benefit
calculation. This increases the demand for customer service, which creates
inefficiencies in TRICARE claims processing. One MCS contractor told us
that about 10 percent of its priority inquiries during September and
October 2002 were related to questions about other health insurance.27

Although DOD officials, MCS contractors, and claims processors all told us
that the procedures for calculating TRICARE liability when beneficiaries
have other health insurance result in inefficiencies in claims processing,
the extent of this problem has not been determined. MCS contractors and
claims processors could provide very little data demonstrating the impact
of these procedures on the efficiency of claims processing. Furthermore,
DOD officials told us that when the new contracts for civilian-provided
care are implemented, the procedures for calculating TRICARE liability
when beneficiaries have other health insurance will be simplified.

25One claims processor told us that 25 percent of the TRICARE claims it
processed involved other health insurance. The other processor could not
provide these data for TRICARE claims.

2610 U.S.C. S: 1079(j)(1) (2000).

27Priority inquiries are those received from members of Congress, the
Office of the Assistant Secretary of Defense (Health Affairs), TMA
officials, Surgeons General, flag officers, state officials, and others.

DOD's Procedure for Determining Responsibility for Processing
Beneficiaries' Claims Contributes to Rework

DOD's procedure for determining which contractor is responsible for
beneficiaries' claims creates inefficiencies in TRICARE claims processing.
Confusion over this responsibility can lead to MCS contractors receiving-
and in some cases beginning to process-claims over which they have no
jurisdiction. These improperly submitted claims must eventually be
reprocessed by another MCS contractor. Under TRICARE rules, an MCS
contractor is responsible for processing all the claims of beneficiaries
who live or are enrolled in its region regardless of the region of the
country where care was received. As a result, when beneficiaries receive
care in regions where they do not live, some providers incorrectly submit
claims to the MCS contractor responsible for the region.28 When providers
submit claims to the incorrect MCS contractor, the claims processor must
then notify the provider and forward these claims to the MCS contractor
with proper jurisdiction. According to claims processors,
out-of-jurisdiction submission is the main reason for returned claims.29
In fiscal year 2002, officials from one claims processor told us they
returned nearly 1 million of the claims they received, and officials from
the other claims processor said they returned over 400,000 received
claims.30 Under the terms of TNEX, jurisdictional problems are likely to
be reduced when the 11 current regions will be replaced by 3 larger ones.

Inaccuracy of DOD Data Used to Verify Eligibility Creates Processing
Delays and Rework

Inaccuracies in DOD's DEERS data create delays in the processing of
claims. Processors are required to use the DEERS database to verify the
eligibility of TRICARE beneficiaries, but when these data are inaccurate,
the related claims cannot always be processed or they may be processed
incorrectly. There are two main reasons why DEERS eligibility data are
incorrect. First, TRICARE beneficiaries, who are responsible for keeping
their personnel data current, do not always report changes-such as
marriage, divorce, or the birth of a child-that may affect their
dependents' eligibility status. Second, when the military status of
TRICARE beneficiaries changes, the services may not report these changes
to update the database on time-even though these changes in status can
affect TRICARE eligibility. As a result, DEERS may not always indicate
whether beneficiaries have moved from inactive reserve to active

28In contrast, the jurisdiction for processing Medicare fee-for-service
physician claims is determined by the location where the service is
provided.

29Claims processors told us their statistics on returned claims include
those claims forwarded to another MCS contractor as well as those returned
to the submitter.

30The 400,000 claims include TFL claims submitted to the wrong contractor.

status or if they have changed the TRICARE option through which they are
receiving their health care. Moreover, when beneficiaries retire or change
their branch of service, these changes may not be correctly reflected in
DEERS on time.

According to DOD officials, MCS contractors are currently only allowed to
access and change information related to TRICARE enrollments that are less
than 289 days old.31 All other changes needed to update the database are
handled by DMDC, the contractor who maintains DEERS for DOD. Without
timely and accurate eligibility data, MCS contractors must delay
processing some claims whose outcomes are contingent on changes to DEERS
until DMDC makes the necessary corrections. According to a DOD contractor,
as of June 2003, about 1,000 military sponsors and their dependents had
claims that could not be immediately processed because of problems
stemming from DEERS.

In other cases, claims are processed with inaccurate data from DEERS,
leading to claim outcomes that are incorrect. For example, when reservists
are mobilized to active duty, their DEERS file must reflect this or their
dependents will appear to be ineligible for services and denied care.
Further, if DEERS does not indicate the correct enrollment status for a
dependent, his or her claim might be denied or if it is paid, may result
in copayment charges that might not have been required. Claims with
incorrect outcomes decrease claims processing efficiency because they must
be reprocessed when errors are identified and often require additional
customer service. According to MCS contractors and claims processors,
inaccuracies in DOD's DEERS are responsible for increased demands for
customer service and claims processing rework. However, MCS contractors
told us they have no specific data that demonstrate increased demands for
customer service or record how much rework is related to problems in
DEERS.

With the implementation of TNEX contracts, DOD will be upgrading the
existing DEERS system to New DEERS. According to a DOD official, New DEERS
will be easier to program than the existing DEERS and will help ensure
that some beneficiary changes-such as address and jurisdictional
changes-are immediately reflected in the system. However, problems

31According to DOD officials, this period was temporarily extended to 289
days when a July 2001 change in the system created many enrollment errors.
However, DOD specifications only allow contractors to change enrollment
data that are less than 60 days old.

Conclusions

Recommendation for Executive Action

related to beneficiaries' failure to notify the system of changes may
continue. In addition, with the implementation of TNEX, MCS contractors
will not be allowed to access and change enrollment information that is
more than 60-rather than 289-days old.

Since fiscal year 1999, the timeliness of TRICARE claims processing has
improved, and it currently exceeds DOD's timeliness standards. During this
time, DOD and its MCS contractors have also made a number of changes, both
procedural and technological, to TRICARE claims processing that are
intended to improve its efficiency. However, some DOD procedures result in
inefficiencies in TRICARE claims processing. Specifically, DOD's
procedures for introducing program changes continue to create additional
work and increased levels of provider and beneficiary inquiries, even
though DOD has taken some steps to improve the process for scheduling
program changes. DOD clearly faces a number of considerations when
determining how to schedule program changes and cannot always control when
legislative changes must be implemented. However, because MSC contractors
have raised significant concerns about the scheduling process, it appears
that further consolidation of program changes and improvements in
scheduling may be warranted.

Other inefficiencies may result from procedures for calculating the
TRICARE liability when beneficiaries have other health insurance, from
confusion over DOD's procedure for determining which contractor is
responsible for beneficiaries' claims, and from inaccuracies in DOD data
used to verify TRICARE eligibility. Inefficiencies resulting from these
procedures and inaccurate data may be reduced once the new contracts for
civilian-provided health care are implemented. However, at this time it is
not possible to determine the extent to which these inefficiencies may be
affected by the implementation of the new contracts.

To improve the efficiency of TRICARE claims processing, we recommend that
the Secretary of Defense direct the Assistant Secretary of Defense for
Health Affairs to evaluate DOD's process for issuing program changes and
to identify ways to improve the consolidation and scheduling of such
changes.

Agency Comments

DOD provided written comments on a draft of this report. (See app. V.) DOD
concurred with the report's findings and recommendation.

In its written comments, DOD noted that one of the constraints in
consolidating changes to TRICARE contracts is the variation in effective
revisions and other program enhancements, sometimes arising from statutory
effective dates for new provisions. However, DOD said it would work to
improve consolidations and scheduling of changes as it transitions to the
new TRICARE contracts over the next 18 months.

We are sending copies of this report to the Secretary of Defense,
appropriate congressional committees, and other interested parties. Copies
will also be made available 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 staff have questions about this report,
please contact me at (202) 512-7101. Other contacts and staff
acknowledgments are listed in appendix VI.

Marjorie E. Kanof Director, Health Care-Clinical and Military Health Care
Issues

                       Appendix I: Scope and Methodology

To identify improvements in claims processing timeliness, we compared the
timeliness with which the Department of Defense (DOD) processed its claims
between fiscal years 1999 and 2002. To do this we asked DOD to prepare two
spreadsheets using the database of health care service records (HCSR). The
first spreadsheet provided information on claims processing time and
included only initial1 claim submissions that had been processed to
completion for each year, stratified by type of claim (professional,
pharmacy, and institutional), processing time (less than or equal to 15
days, 16-30 days, 31-60 days, 61-120 days, and greater than 120 days),
submission method (electronic or paper), and the dollar amount paid by DOD
(less than or equal to $0, greater than $0 and less than $100, $100 to
$999, $1,000 to $4,999, $5,000 to $9,999, $10,000 to $99,999, and $100,000
and more). The second spreadsheet included all claims processed to
completion for each year, stratified by type of claim (professional,
pharmacy, and institutional), submission method (electronic or paper), the
dollar amount paid by DOD (less than or equal to $0 and greater than $0),
the presence or absence of other health insurance, and denied claims. Both
of these spreadsheets excluded claims for health care provided outside the
United States as well as Senior Pharmacy claims, TRICARE for Life (TFL)
claims, and Medicare claims from Base Realignment and Closure sites. These
types of claims were excluded because they follow different program rules
and use different claims processing procedures. We evaluated the
reliability of the HCSR database by obtaining information about DOD's
efforts to ensure its reliability and by assessing the consistency of the
resulting data by comparing it with internal DOD reports that were
produced using another database. Through this evaluation we determined
that the data were sufficiently reliable to provide information on the
timeliness of claims processing. However, we did not independently review
the computer programs DOD used to prepare these spreadsheets.

To identify DOD efforts to improve TRICARE claims processing, we
interviewed and obtained documentation from officials at (1) the TRICARE
Management Activity (TMA) in Aurora, Colo., (2) the four managed care
support (MSC) contractors-Sierra Military Health Services, Inc. in
Baltimore, Md.; Humana Military Healthcare Services in Louisville,

1Claims that were subsequently adjusted after their addition to the HCSR
database were excluded from this spreadsheet because the processing time,
which included adjustments, was not wholly under the control of the claims
processor. If these claims were included, the processing time would have
been artificially lengthened since submitters could take weeks before
providing the information that made the adjustment necessary.

Appendix I: Scope and Methodology

Ky.; TriWest Healthcare Alliance in Phoenix, Ariz.; and Health Net Federal
Services in Rancho Cordova, Calif., and (3) the two claims processing
subcontractors, Palmetto Government Benefits Administrators (PGBA) in
Surfside Beach, S.C., and Wisconsin Physician Services (WPS) in Madison,
Wis.

To describe how DOD procedures and data affect claims processing
efficiency, we interviewed and obtained documentation from officials at
TMA, the four MSC contractors, and claims processing subcontractors. We
reviewed TRICARE's process for creating a final record of a processed
claim, looking for inefficiencies in the process of creating HCSRs and
comparing the process with one that will be used to create data records
for TNEX. We obtained beneficiaries' views on claims efficiencies by
interviewing and obtaining documentation from officials from the Military
Coalition, an organization representing the members of the uniformed
services. We also reviewed our prior work on TRICARE and Medicare claims
processing. In addition, we obtained data from DOD's Change Order Tracking
System to identify the number of program changes DOD made in 1999, 2000,
2001, and 2002. We evaluated the reliability of the 1999 and 2000 database
by comparing it with lists of change orders obtained from the MCS
contractors, who were charged with implementing those change orders. This
comparison indicated that the data were sufficiently reliable for us to
use and, therefore, we did not do a similar comparison for data from 2001
and 2002.

To identify areas where DOD procedures and data might have affected claims
processing efficiency, we identified the major differences between
processing TRICARE claims and processing commercial or Medicare claims. We
confirmed this information in meetings with officials from the Centers for
Medicare & Medicaid Services (CMS) and with two of its claims processing
subcontractors-PGBA and WPS-who also process commercial healthcare claims.
We also obtained comparison information on claims processing from
officials from the American Medical Association and the Health Insurance
Association of America.

Finally, we obtained information from DOD on its next generation of
TRICARE contracts, TNEX, to identify how claims processing may change in
the future. We also interviewed and obtained documentation from DOD and
CMS experts on the Health Insurance Portability and Accountability Act of
1996 (HIPAA) to determine how it may affect claims processing efficiency.

Appendix I: Scope and Methodology

Our review did not include claims processed under DOD's TFL program
because TFL is a supplemental insurance program that pays second to
Medicare and follows some different claims processing procedures. We
performed our work from June 2002 through October 2003 in accordance with
generally accepted government accounting standards.

Appendix II: Comparison of Current and Future TRICARE Regions

The shaded areas in figure 1 represent the 11 current TRICARE geographic
regions. The shaded areas in figure 2 represent the 3 planned TRICARE
geographic regions under the TNEX contracts that were awarded in August
2003.

                       Figure 1: Current TRICARE Regions

Appendix II: Comparison of Current and Future TRICARE Regions

           Figure 2: Future TRICARE Regions After TNEX Implementation

                       Appendix III: TRICARE Claims Flow

TRICARE claims processing begins when claims processors receive claims in
one of three ways-on paper, electronically, or via the Internet.1 Paper
claims are sent to a unique post office box for each TRICARE contract.
Optical character recognition (OCR) technology is used to enter paper
claims directly into the processing system whenever possible. If this is
not possible, claims are manually entered into the system through
interactive data entry. The claims processing system preedits electronic
media claims (EMC) and Internet-submitted claims before accepting them
into the system to ensure that the required fields contain appropriate
data. For instance, system edits ensure that the fields identifying who is
submitting the claim are complete.

Once claims enter the processing system, paper and electronic claims are
processed similarly. The processing system either automatically finalizes
claims2 or identifies that they require manual intervention, deferring
finalization. Some manual intervention results from incorrect or missing
claims data, in which case claims processors obtain the needed information
from MCS contractor-maintained files or request additional information
from providers or beneficiaries before claims processing is resumed. Other
manual reviews, resulting from claim edits that stop the process, ensure
care was medically necessary and properly authorized.

As claims flow through the processing system, computer edits are applied
to each claim to ensure the precision and reliability of claim data and to
determine how the claim will be adjudicated. Among these edits are

o  	validity and consistency edits that confirm the data are accurate and
uniform;3

o  	provider edits that ensure only credentialed providers are reimbursed
for care and that identify the specific location services were rendered,
in order to apply the correct payment, including any discounts agreed to
by contracted providers;

1Providers generally use forms that they use to submit Medicare
claims-HCFA-1500 and UB-92. Beneficiaries submit claims on DD 2642 forms.
To obtain reimbursement for civilian care outside the United States,
providers and beneficiaries use DD form 2520.

2When a claim is finalized, the adjudication process is complete-a
decision has been made about whether DOD has a liability on the claim and
the amount that will be paid.

3Validity edits check for the presence of an expected value in the data
field, such as a number in an age field. Consistency edits check for the
accuracy of an expected data value relative to another, known data value,
such as relating `female' to `hysterectomy'.

Appendix III: TRICARE Claims Flow

o  	Defense Enrollment Eligibility Reporting System (DEERS) edits that
verify beneficiaries' eligibility for TRICARE and whether they are
enrolled in Prime;

o  	historical edits that confirm services rendered to a beneficiary are
in accordance with past utilization of care-such as examining any dramatic
changes in a beneficiary's use of health care services;

o  	edits that determine the benefits that TRICARE will pay and that
validate physician preauthorizations and referrals when they are required;

o  	ClaimCheck edits that help prevent overpayment by analyzing
relationships between medical procedure codes;

o  	duplicate logic reviews that ensure claims are not paid twice by
inspecting dates of service, provider numbers, types of service, and
procedure codes; edits that access pricing files to determine the amount
TRICARE can pay for provided services;4 and

o  	edits that access the central deductible catastrophic cap file (CDCF)
to determine the payment after deductibles are applied.5

Once claims are finalized, the system mails payments and explanations of
benefits to providers and beneficiaries and updates provider file
information and beneficiaries' claim histories.

After claims processing is complete, claims processors send Health Care
Service Records (HCSR) electronically to the Department of Defense (DOD),
where HCSRs are subjected to an additional set of validity and consistency
edits. DOD maintains and archives HCSRs, which are the final documentation
of each claim's adjudication. DOD uses HCSRs for monitoring contractor
performance, financial oversight, audit accountability, and fraud and
abuse detection. See appendix IV for additional information on HCSRs. See
figure 3 for an overview of EMC, Internet-submitted, and paper claim
processing flow.

4The claims system accesses diagnosis-related group (DRG) and TRICARE
maximum allowable charge (TMAC) files to determine the maximum amount that
DOD can pay for the specific services that have been provided.

5The CDCF also maintains information on the amount to be applied to
beneficiaries' catastrophic cap coverage for each fiscal year.

                       Appendix III: TRICARE Claims Flow

                         Figure 3: TRICARE Claims Flow

Source: GAO.

Note: The following is a list of the abbreviations used in this figure.

Auth/Ref: preauthorizations and referrals
CDCF central deductible catastrophic cap file
DEERS Defense Enrollment Eligibility Reporting System
DOD Department of Defense
DRG diagnosis-related group
EMC electronic media claims
HCSR health care service record
OCR optical character recognition
TMAC TRICARE maximum allowable charges

aAt any point between Interactive Data Entry and Pricing, processing can
be deferred and the claim
can loop back to obtain additional information, usually requiring manual
intervention.

                    Appendix IV: Health Care Service Records

The Department of Defense (DOD) requires claims processors to create an
electronic record of each claim called a Health Care Service Record
(HCSR). DOD uses HCSRs to ensure compliance with TRICARE requirements and
provide standardized information on medical services provided to TRICARE
beneficiaries. Claims processors create HCSRs either during claims
processing or after claim adjudication, depending on the system they have
developed. Claims processors then submit the HCSRs to DOD. Before HCSRs
are accepted into DOD's database, they are subject to many edits designed
to ensure that the data are correct and in a standard format. HCSRs do not
affect the amount of beneficiary or provider reimbursement, nor does
creating them delay claims processing.

When a HCSR fails an edit, claims processors must resolve the problem
before the data can be added to the HCSR database.1 Most HCSRs are
correctly rejected because they do not conform to DOD's specifications,
such as when a required data element is not present. However, according to
claims processors and DOD officials, in a very small percentage of cases
HCSRs are rejected because inaccuracies in DOD's editing programs
incorrectly reject them. For example, HCSRs were erroneously rejected when
DOD changed the codes used by claims processors to identify services and
procedures but did not modify its own edits to reflect these changes. This
error was subsequently corrected when claims processors identified the
problem.

HCSRs are useful to DOD. By requiring that claims processors produce data
in a format amenable to its edits, DOD attempts to ensure that MCS
contractors are following TRICARE requirements. In addition, DOD uses the
HCSR database for other purposes, including financial oversight and fraud
and abuse detection. HCSR data are also used in fraud investigations
conducted by other departments and agencies, including the Department of
Justice, Federal Bureau of Investigation, and Defense Criminal
Investigative Service.

Under the terms of the TNEX contracts, DOD will require claims processors
to submit TRICARE encounter data (TED) records instead of

1About 4 percent of submitted HCSRs-including TRICARE for Life and Basic
TRICARE claims-initially fail HCSR edits.

Appendix IV: Health Care Service Records

HCSRs.2 DOD, MCS contractors, and claims processors agree that TEDs is a
simpler format for claims records. DOD estimates that the number of
records submitted may be reduced by about 1 million annually under TNEX.

2The Floyd D. Spence National Defense Authorization Act for Fiscal Year
2001 required use of the TRICARE encounter data information system rather
than the health care service record for maintaining information on covered
beneficiaries. Pub. L. No. 106-398, S: 727(1), 114 Stat. 1654, 1654A-188
(2000).

Appendix V: Comments from the Department of Defense

Appendix VI: GAO Contacts and Staff Acknowledgments

GAO Contacts 	Kristi Peterson, (202) 512-7951
Lois Shoemaker, (404) 679-1806

Acknowledgments 	In addition to those named above, key contributors to
this report were Cynthia Forbes, Krister Friday, and John Oh.

Related GAO Products

Defense Health Care: Oversight of the TRICARE Civilian Provider Network
Should Be Improved. GAO-03-928. Washington, D.C.: July 31, 2003.

Defense Health Care: Oversight of the Adequacy of TRICARE's Civilian
Provider Network Has Weaknesses. GAO-03-592T. Washington, D.C.: March 27,
2003.

Defense Health Care: Most Reservists Have Civilian Health Coverage but
More Assistance Is Needed When TRICARE Is Used. GAO-02-829. Washington,
D.C.: September 6, 2002.

Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians'
Claims for Payment. GAO-02-693. Washington, D.C.: May 28, 2002.

Defense Health Care: Across-the-Board Physician Rate Increases Would be
Costly and Unnecessary. GAO-01-620. Washington, D.C.: May 24, 2001.

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

Defense Health Care: Tri-Service Strategy Needed to Justify Medical
Resources for Readiness and Peacetime Care. GAO/HEHS-00-10. Washington,
D.C.: November 3, 1999.

Defense Health Care: Claims Processing Improvements Are Under Way but
Further Enhancements Are Needed. GAO/HEHS-99-128. Washington, D.C.: August
23, 1999.

Defense Health Care: DOD Needs to Improve Its Monitoring of Claims
Processing Activities. GAO/T-HEHS-99-78. Washington, D.C.: March 10, 1999.

Defense Health Care: Reimbursement Rates Appropriately Set; Other Problems
Concern Physicians. GAO/HEHS-98-80. Washington, D.C.: February 26, 1998.

Defense Health Care: Actions Under Way to Address Many TRICARE Contract
Change Order Problems. GAO/HEHS-97-141. Washington, D.C.: July 14, 1997.

GAO's Mission

Obtaining Copies of GAO Reports and Testimony

The General Accounting Office, the audit, evaluation and investigative arm
of Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO's Web site (www.gao.gov) contains abstracts
and full-text files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document files.
To have GAO e-mail this list to you every afternoon, go to www.gao.gov and
select "Subscribe to e-mail alerts" under the "Order GAO Products"
heading.

Order by Mail or Phone 	The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:

U.S. General Accounting Office 441 G Street NW, Room LM Washington, D.C.
20548

To order by Phone: 	Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

To Report Fraud,	Contact: Web site: www.gao.gov/fraudnet/fraudnet.htm

Waste, and Abuse in E-mail: [email protected]

Federal Programs Automated answering system: (800) 424-5454 or (202)
512-7470

Jeff Nelligan, Managing Director, [email protected] (202) 512-4800

Public Affairs 	U.S. General Accounting Office, 441 G Street NW, Room 7149
Washington, D.C. 20548
*** End of document. ***