DOD and VA Health Care: Incentives Program for Sharing Health	 
Resources (28-FEB-05, GAO-05-310R).				 
                                                                 
Combined, the Department of Defense (DOD) and the Department of  
Veterans Affairs (VA) provide health care services to about 16.8 
million beneficiaries at an estimated cost of $58 billion for	 
fiscal year 2005--$30.4 billion for DOD and $27.7 billion for VA.
In 1982, the Congress passed the Veterans' Administration and	 
Department of Defense 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 DOD and VA to enter into	 
sharing agreements with each other to buy, sell, and barter	 
medical and support services. To further encourage ongoing	 
collaboration, the Congress passed the Bob Stump National Defense
Authorization Act (NDAA) for Fiscal Year 2003, which 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. Under	 
the program, DOD and VA are to solicit proposals from their	 
program offices, DOD military treatment facilities, or VA medical
facilities for project initiatives at least annually. DOD and VA 
health care officials are to develop program guidelines and	 
establish project evaluation and selection criteria. 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. The Financial Management Workgroup  
(FMWG) under the Health Executive Council (HEC) administers the  
Incentive Fund program. The NDAA also requires that we submit a  
report on the implementation of the program by February 28 of	 
each fiscal year the program is in effect. We reviewed 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 department	 
officials from DOD and VA involved in the oversight of the	 
program and those facility or program office officials		 
responsible for the projects that were selected for funding	 
during fiscal year 2004.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-310R					        
    ACCNO:   A18396						        
  TITLE:     DOD and VA Health Care: Incentives Program for Sharing   
Health Resources						 
     DATE:   02/28/2005 
  SUBJECT:   Financial analysis 				 
	     Health care programs				 
	     Health care services				 
	     Health resources utilization			 
	     Interagency relations				 
	     Program evaluation 				 
	     Health care cost control				 
	     Policies and procedures				 
	     DOD-VA Health Care Sharing Incentive		 
	     Fund						 
                                                                 

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GAO-05-310R

United States Government Accountability Office Washington, DC 20548

February 28, 2005

Congressional Committees

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

Combined, the Department of Defense (DOD) and the Department of Veterans
Affairs (VA) provide health care services to about 16.8 million
beneficiaries at an estimated cost of $58 billion for fiscal year
2005-$30.4 billion for DOD and $27.7 billion for VA.1 In 1982, the
Congress passed the Veterans' Administration and Department of Defense
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.2 Specifically, the Congress authorized DOD and
VA to enter into sharing agreements with each other to buy, sell, and
barter medical and support services.

To further encourage ongoing collaboration, the Congress passed the Bob
Stump National Defense Authorization Act (NDAA) for Fiscal Year 2003,3
which 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. Under the
program, DOD and VA are to solicit proposals from their program offices,
DOD military treatment facilities, or VA medical facilities for project
initiatives at least annually. DOD and VA health care officials are to
develop program guidelines and establish project evaluation and selection
criteria. 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. Treasury4 for each fiscal year
from 2004 through 2007. The Financial Management Workgroup5 (FMWG) under
the Health Executive Council6 (HEC) administers the Incentive Fund
program.

1DOD estimates the number of its eligible beneficiaries for fiscal year
2005 to be 9.1 million. VA
estimates the number of enrolled beneficiaries to be 7.7 million.
2Pub. L. No. 97-174, 96 Stat. 70.
3Pub. L. No. 107-314, S:721(a)(1), 116 Stat. 2458, 2589-2595 (2002).
4DOD-VA Health Care Sharing Incentive Fund.
5FMWG membership includes representatives from the Veterans Health
Administration Office of
Finance, the Office of Patient Care Services, the Office of the Deputy
Under Secretary for Health for
Operations and Management, and the Office of Health Informatics. DOD
membership includes
representatives from the Departments of the Army, Navy, and Air Force;
Health Affairs; and the
TRICARE Management Activity (TMA).
6HEC 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 DOD's Assistant Secretary of Defense for Health
Affairs and VA's Under
Secretary for Health.

The NDAA also requires that we submit a report on the implementation7 of
the program by February 28 of each fiscal year the program is in effect.8

We reviewed 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 department officials
from DOD and VA involved in the oversight of the program and those
facility or program office officials responsible for the projects that
were selected for funding during fiscal year 2004. Our work was conducted
from April 2004 through February 2005 in accordance with generally
accepted government auditing standards.

Results in Brief

From December 2002 through January 2005, DOD and VA developed program
guidelines and solicited, reviewed, selected, and funded projects. During
that time DOD and VA officials completed their review of 58 concept
proposals that were submitted, selected 12 projects for implementation,
and funded 9 of them. Three projects were awaiting funds as of February 3,
2005. Project selection took place in August 2004, and the departments
began funding projects in November 2004. According to the departments,
funding could not be provided until project officials and the Surgeons
General for DOD's Departments of the Army, Navy, and Air Force completed
certain administrative actions. These actions included project officials
ensuring that the project would be self-sustaining within 2 years and the
Surgeons General ensuring that service-specific department protocols for
disbursing funds were followed. DOD and VA officials generally concurred
with the information presented in this report.

Project Review and Selection Was Completed in August 2004; Project Funding
Began in November 2004

From the NDAA's enactment in December 2002 through February 2004, DOD and
VA developed program guidelines, solicited proposals, reviewed them, and
established an account within the U.S. Treasury for funding projects. A
Memorandum of Agreement entered into by DOD and VA assigned FMWG as the
administrator of the Incentive Fund under the direction of the HEC. DOD
and VA developed the following criteria to be used for evaluating the
concept proposals and selecting the final projects:

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

o  improve beneficiary access;

o  ensure exportability to other facilities;

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

o  result in cost savings or cost avoidance;

7The NDAA requires us to report on the program's effectiveness. As of
January 2005, however, the
projects had not been under way for a sufficient period for us to evaluate
their results.
8See also U.S. GAO, DOD and VA Health Care: Incentives Program for Sharing
Resources, GAO-04
495R (Washington, D.C.: Feb. 27, 2004).

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

o  	demonstrate that the project will be self-sustaining after incentive
funds are no longer supporting the project-that is, if funding is needed
beyond 2 years, the local facility, or the Surgeon General's office, or
the Veterans Integrated Service Network9 must agree to provide it.

In February 2004, the departments began review of the 58 concept proposals
that were submitted. In May 2004, DOD and VA officials completed their
initial review and selected 29 proposals for a more detailed second
review. Officials at each location whose concept proposals were selected
were asked to submit a more detailed final proposal with a business case
analysis for review by the FMWG. FMWG officials evaluated and ranked the
proposals and submitted their recommendations for final approval to the
HEC.

In August 2004, 12 projects from the 29 final proposals were selected by
the FMWG and approved by the HEC for implementation. A project cannot
receive funding until project officials submit a letter of certification
that the project would be selfsustaining within 2 years, or if not, that
it would have other funding to cover costs in future years. Disbursement
of funds must follow department-funding protocols and new accounts are
created to track the funding. For DOD, the transfer of funds involves four
sequential steps to move money from the Incentive Fund to DOD's Under
Secretary of Defense (Comptroller); to TMA; to departments' Surgeon
General offices' health care resource managers; and to military treatment
facilities responsible for the project. For VA, the transfer is made from
the Incentive Fund to the VA medical center or program office responsible
for the project.

Three projects were awaiting funds as of February 3, 2005. VA has delayed
funding for the project at McConnell Air Force Base/Robert J. Dole
Veterans Affairs Medical Center located in Wichita, Kansas, until it
receives approval to proceed with building construction from VA
headquarters. DOD also has delayed funding for two projects at Naval
Hospital Great Lakes/North Chicago Veterans Affairs Medical Center located
in Chicago, Illinois. The delay in Chicago occurred because the Navy
Surgeon General's office was waiting for final agreements from each
facility outlining the specific responsibilities of each facility for
implementing the project and the use of the funds. The Navy Surgeon
General's office received the final agreements on January 31, 2005, and is
in the process of approving the transfer of funds.

For each of the 12 approved projects, table 1 shows the DOD and VA
partner, the project description, the amount funded, and the date funds
were provided to the projects for implementation.

9The management of VA's hospitals and other health care facilities is
decentralized to 21 regional networks referred to as Veterans Integrated
Service Networks.

Table 1: Incentive Fund Projects

Total amount of project Project fundinga DOD partner VA partner Project
name and description (dollars) received date:

DOD TRICARE VA Chief Business F-Stop-Third Party  $14,929,000 Nov. 1, 2004 
               Obligation                                        
Management  Office Program: This national                     
               initiative                                        
    Activity          is intended to provide DOD and             
                      VA with a repository of                    
                   beneficiary insurance information             
                  to allow for increased third party             
                     collections-similar to a system             
                         utilized by the Centers for             
                       Medicare & Medicaid Services.             

Tripler Army VA Pacific Islands Medical Health Care Center, Hawaii System,
Hawaii Delta Systems II-Cad/Cam System: This is a fabrication technology
system that produces molds for prosthetics and orthotics from lightweight
foam through use of a laser scanner and mill. Installing this device at
Tripler is intended to allow for greater beneficiary access; reduce clinic
visits for casting, adjustments, and fittings; and allow for an increase
in VA beneficiary access.

                             515,300 Jan. 13, 2005

319th Medical  Fargo Veterans   Joint TeleMental System:    13,535 Jan. 4, 
                                                                         2005 
    Group, Grand     Affairs      Acquiring videoconferencing         
                     Medical                                          
     Forks Air      Center, N.     technology is intended to          
       Force           Dak.                  allow                    
Base, N. Dak.                  VA to provide mental health         
                                 services to DOD beneficiaries        
                                 approximately 80 miles away.         

60th Medical Group, Travis Air Force Base, Calif.

VA Northern California Health Care System, Calif.

Joint Dialysis Unit: Through upgrading equipment and increased staffing,
Travis Air Force Base's dialysis unit is expected to be able to
accommodate VA beneficiaries.

                             1,343,780 Jan. 5, 2005

Naval Hospital

        North Chicago Mammography Unit Expansion: 655,000 Awaiting funds

Great Lakes, Ill.

Veterans Affairs Medical Center, Ill.

The purchase of new digital mammography equipment, a stereotactic unit,
and hiring of support staff are intended to reduce wait times for DOD
beneficiaries and allow for VA beneficiary access.

92nd Medical Group, Fairchild Air Force Base, Wash.

Spokane Veterans Affairs Medical Center, Wash.

Teleradiology Initiative: This will upgrade DOD's system so it can
download images from VA for radiological interpretation and is intended to
allow VA to provide computed tomography scans for DOD beneficiaries.

                             333,537 Nov. 18, 2004

Naval Hospital

       North Chicago Women's Health Center: This 1,314,000 Awaiting funds

Great Lakes, Ill.

Veterans Affairs Medical Center, Ill.

project proposes to create a comprehensive women's health center for DOD
and VA beneficiaries by coordinating women's services and includes hiring
gynecology, wellness, and case management staff.

                                            Total amount of project (dollars)

Project fundinga received date:

              DOD partner VA partner Project name and description

3rd Medical Group, VA Alaska Health

              Enhanced Outpatient Diagnostic 535,000 Nov. 18, 2004

Care System, Alaska

Elmendorf Air Force Base, Alaska Services: The acquisition of diagnostic
equipment is intended to provide in-house imaging services to DOD and VA
beneficiaries.

 Fort Drum, N.Y. Syracuse Telepsychiatry: The hiring of a 330,000 Nov. 23, 2004

Veterans Affairs Medical Center, N.Y.

full-time VA psychiatrist is intended to allow VA to provide mental health
services to DOD beneficiaries via videoconferencing.

22nd Medical  Robert J.     Cardiac Catheterization     3,539,722 Awaiting 
                   Dole                                                 funds 
      Group,     Veterans  Laboratory: Remodeling existing           
     McConnell   Affairs                                             
     Air Force   Medical       VA space is intended to               
       Base,     Center,                                             
       Kans.       Kans.      accommodate new equipment              
                            and provide in-house cardiac             
                               services to DOD and VA                
                                   beneficiaries.                    

Moncrieff Army  Dorn Veterans  Expansion of Existing     2,013,387 Dec. 9, 
                                  Magnetic                               2004 
      Community    Affairs         Resonance Imaging Joint            
                   Medical                                            
    Hospital and    Center, S.C.  Venture: The acquisition            
        20th                      of an                               
Medical Group,                  Open Magnetic Resonance            
Shaw Air Force                 Imaging unit at Moncrieff           
                                  Army                                
     Base, S.C.                    Community Hospital and             
                                            20th                      
                                  Medical Group, Shaw Air             
                                  Force                               
                                  Base is intended to                 
                                  provide in-                         
                                  house services to DOD and           
                                  VA                                  
                                       beneficiaries.                 

     Wilford Hall Medical VA    North Central San Antonio 11,973,937 Nov. 18, 
           South Texas          Clinic:                                  2004 
Center, Lackland Health Care  The establishment of a              
                                          joint                      
Air Force Base, System, Tex. DOD/VA clinic is intended            
                                           to                        
               Tex.             provide greater access to            
                                           DOD                       
                                  and VA beneficiaries.              

Sources: DOD and VA.

aFunding received on this date may not be for the entire amount of the
project. In some cases, such as acquisition of equipment, the entire
amount may have been provided. In other cases, such as for staffing or a
technology upgrade, funding could be disbursed over a 2-year period.

In November 2004, DOD and VA issued a second request for proposals.
Submissions were due by January 12, 2005, and according to DOD and VA
officials, about 50 concept proposals have been submitted. DOD and VA are
in the process of reviewing these concept proposals.

We provided a draft of this report to DOD and VA for comment. DOD's
Assistant Secretary of Defense for Health Affairs and VA's Assistant
Secretary for Congressional and Legislative Affairs provided written
comments on it. (DOD's comments are reprinted in enclosure I and VA's
comments are reprinted in enclosure II.) Both departments generally
concurred with the information presented in the report and provided
technical comments, which were included where appropriate. DOD noted that
the report does not provide an assessment of the department's efforts in
identifying, evaluating, and implementing joint DOD and VA resource
sharing projects. Our report describes the activities DOD and VA took from
December 2002 through February 2005 to identify, select, and fund
projects. Project

funding began in November 2004, and three projects are still awaiting
funds. As we note in the report, it is too early to assess the program's
effectiveness because the projects have not been under way for a
sufficient period for us to evaluate their results.

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 was the
key contributor to this report.

Cynthia A. Bascetta
Director, Health Care-Veterans'

Health and Benefits Issues

Enclosures - 2

List of Committees

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

The Honorable Larry E. Craig
Chairman
The Honorable Daniel K. Akaka
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 Steve Buyer
Chairman
The Honorable Lane Evans
Ranking Minority Member
Committee on Veterans' Affairs
House of Representatives

                            Enclosure I Enclosure I

                    Comments from the Department of Defense

                           Enclosure II Enclosure II

                Comments from the Department of Veterans Affairs

                           Enclosure II Enclosure II

                                    (290367)

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