TRICARE: Changes to Access Policies and Payment Rates for	 
Services Provided by Civilian Obstetricians (31-JUL-07, 	 
GAO-07-941R).							 
                                                                 
About 111,000 women covered by the Department of Defense's (DOD) 
TRICARE program gave birth during 2006. During their pregnancies,
about half of these women received obstetric care from physicians
and other providers practicing at military hospitals and clinics 
called military treatment facilities (MTF), while half received  
their care from civilian physicians and other civilian providers.
In recent years, the use of civilian obstetric care has increased
among TRICARE beneficiaries. In 2004, 51 percent of TRICARE	 
beneficiaries delivered their babies at civilian hospitals; by	 
2006, 54 percent delivered at civilian hospitals. However,	 
through 2005, some TRICARE beneficiaries reported difficulties	 
obtaining obstetric care from civilian physicians. At the same	 
time, some civilian physicians contended that TRICARE payment	 
rates for obstetric care were too low. TRICARE reimburses	 
physicians for most obstetric care using two global payments, one
for uncomplicated vaginal delivery and the other for		 
uncomplicated cesarean delivery, each of which is a single amount
that covers a defined set of related services. In the case of	 
obstetrics, these global payments cover a woman's prenatal	 
visits, the physician's assistance at delivery of the baby, and  
postnatal care after the delivery of the baby. Under the TRICARE 
program, which is administered by DOD's TRICARE Management	 
Activity (TMA), beneficiaries may obtain care through three	 
different options. Beneficiaries enrolled in TRICARE's HMO-like  
option, called TRICARE Prime, generally obtain health care from  
physicians at an MTF. TRICARE Prime beneficiaries also may obtain
care from a network civilian physician when the MTF does not have
sufficient capacity to provide care. Beneficiaries who have not  
enrolled in Prime receive care under TRICARE Extra or TRICARE	 
Standard. These options allow beneficiaries to receive care	 
either from civilian physicians who belong to the TRICARE network
or from civilian nonnetwork physicians, who do not belong to the 
TRICARE network but have agreed to accept TRICARE beneficiaries  
as patients on a case-by-case basis. TRICARE Extra and Standard  
beneficiaries may also receive care from a physician at an MTF on
a space-as-available basis. TRICARE's civilian provider networks 
are developed by three managed care support contractors. Each	 
managed care support contractor is responsible for the delivery  
of care to TRICARE beneficiaries in one of three geographic	 
locations--North, South, and West. The managed care support	 
contractors, among other things, establish targets for the number
of physicians required to ensure a sufficient supply of providers
to TRICARE patients in civilian provider networks. In developing 
these targets, each contractor estimates the percentage of each  
physician's practice that will likely be made up of TRICARE	 
patients. The contractors also monitor progress in meeting	 
targets to ensure network adequacy and periodically make	 
adjustments to the targets to account for changes that occur in  
the availability of civilian physicians and demands for care of  
TRICARE beneficiaries. The National Defense Authorization Act	 
(NDAA) for Fiscal Year 2006 directed us to evaluate the 	 
effectiveness of DOD's TRICARE program in achieving adequate	 
access for beneficiaries to high-quality obstetric care. As	 
discussed with the committees of jurisdiction, this report (1)	 
describes changes TRICARE has made to obstetric coverage policy  
and payment rates since late 2003 to address concerns about	 
access to civilian outpatient obstetric care and about the	 
adequacy of payments to civilian physicians for obstetric care	 
and (2) examines the extent to which TRICARE's managed care	 
support contractors achieved targeted numbers of obstetric care  
providers in their civilian provider networks in 2005 and 2006,  
and potential implications for access to care.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-941R					        
    ACCNO:   A73694						        
  TITLE:     TRICARE: Changes to Access Policies and Payment Rates for
Services Provided by Civilian Obstetricians			 
     DATE:   07/31/2007 
  SUBJECT:   Beneficiaries					 
	     Comparative analysis				 
	     Cost analysis					 
	     Health care services				 
	     Managed health care				 
	     Medical fees					 
	     Medical services rates				 
	     Obstetrics 					 
	     Patient care services				 
	     Payments						 
	     Physicians 					 
	     Prenatal care					 
	     Health care personnel				 
	     Program evaluation 				 
	     DOD TRICARE Program				 

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GAO-07-941R

   

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July 31, 2007

Congressional Committees

Subject: TRICARE: Changes to Access Policies and Payment Rates for
Services Provided by Civilian Obstetricians

About 111,000 women covered by the Department of Defense's (DOD) TRICARE
program gave birth during 2006.1 During their pregnancies, about half of
these women received obstetric care from physicians and other providers
practicing at military hospitals and clinics called military treatment
facilities (MTF), while half received their care from civilian physicians
and other civilian providers.2 In recent years, the use of civilian
obstetric care has increased among TRICARE beneficiaries. In 2004, 51
percent of TRICARE beneficiaries delivered their babies at civilian
hospitals; by 2006, 54 percent delivered at civilian hospitals. However,
through 2005, some TRICARE beneficiaries reported difficulties obtaining
obstetric care from civilian physicians.3

At the same time, some civilian physicians contended that TRICARE payment
rates for obstetric care were too low.4 TRICARE reimburses physicians for
most obstetric care using two global payments, one for uncomplicated
vaginal delivery and the other for uncomplicated cesarean delivery, each
of which is a single amount that covers a defined set of related services.
In the case of obstetrics, these global payments cover a woman's prenatal
visits, the physician's assistance at delivery of the baby, and postnatal
care after the delivery of the baby.

1TRICARE offered health care to approximately 9.1 million active duty
personnel, retirees, and their dependents in 2006.

2Obstetrics is the branch of medicine that addresses the care of women
during pregnancy, childbirth, and the recuperative period following
delivery. In addition to obstetricians, other physicians may provide
obstetric care. In this report, we generally refer to physicians as the
providers of obstetric care, but obstetric care may also be delivered by
other types of providers such as nurse midwives and nurse practitioners.

3In general, TRICARE beneficiaries have shifted to civilian providers for
outpatient care in recent years. From fiscal year 2004 to fiscal year
2006, use of civilian providers increased from 37 percent to 43 percent of
total outpatient care provided. The trend toward increasing use of
civilian providers may partially reflect changes in TRICARE beneficiaries'
place of residence. Because of military base closures and shifts in the
mix of TRICARE beneficiaries (such as additional reservists and their
family members) the percentage of TRICARE beneficiaries who lived near an
MTF declined between 2000 and 2006 from 55 percent to 48 percent.

4In fiscal year 2006, TRICARE paid $82 million to civilian physicians for
outpatient obstetric care, which represented about 4 percent of the
program's total outpatient payments of $1.9 billion to civilian physicians
that year. The total TRICARE budget for fiscal year 2006 was about $39
billion.

Under the TRICARE program, which is administered by DOD's TRICARE
Management Activity (TMA), beneficiaries may obtain care through three
different options. Beneficiaries enrolled in TRICARE's HMO-like option,
called TRICARE Prime, generally obtain health care from physicians at an
MTF. TRICARE Prime beneficiaries also may obtain care from a network
civilian physician when the MTF does not have sufficient capacity to
provide care. Beneficiaries who have not enrolled in Prime receive care
under TRICARE Extra or TRICARE Standard.5 These options allow
beneficiaries to receive care either from civilian physicians who belong
to the TRICARE network or from civilian nonnetwork physicians, who do not
belong to the TRICARE network but have agreed to accept TRICARE
beneficiaries as patients on a case-by-case basis. TRICARE Extra and
Standard beneficiaries may also receive care from a physician at an MTF on
a space-as-available basis.

TRICARE's civilian provider networks are developed by three managed care
support contractors. Each managed care support contractor is responsible
for the delivery of care to TRICARE beneficiaries in one of three
geographic locations--North, South, and West. The managed care support
contractors, among other things, establish targets for the number of
physicians required to ensure a sufficient supply of providers to TRICARE
patients in civilian provider networks. In developing these targets, each
contractor estimates the percentage of each physician's practice that will
likely be made up of TRICARE patients. The contractors also monitor
progress in meeting targets to ensure network adequacy and periodically
make adjustments to the targets to account for changes that occur in the
availability of civilian physicians and demands for care of TRICARE
beneficiaries.6

The National Defense Authorization Act (NDAA) for Fiscal Year 2006
directed us to evaluate the effectiveness of DOD's TRICARE program in
achieving adequate access for beneficiaries to high-quality obstetric
care.7 As discussed with the committees of jurisdiction, this report (1)
describes changes TRICARE has made to obstetric coverage policy and
payment rates since late 2003 to address concerns about access to civilian
outpatient obstetric care and about the adequacy of payments to civilian
physicians for obstetric care and (2) examines the extent to which
TRICARE's managed care support contractors achieved targeted numbers of
obstetric care providers in their civilian provider networks in 2005 and
2006, and potential implications for access to care. In addition, we
provide information on the change in TRICARE payment rates for obstetric
care compared to inflation; this information is shown in enclosure I.

5When TRICARE beneficiaries who have not enrolled in Prime choose to
receive care from a network physician, they do so under the rules of
TRICARE Extra, which resembles a preferred provider organization. In
contrast, TRICARE Standard resembles a traditional fee-for-service
program. Nonenrolled TRICARE beneficiaries cannot be categorized as
belonging to either Extra or Standard because each time they seek care,
they can choose to see a network or nonnetwork civilian physician, and
this choice determines whether they receive coverage under Extra or
Standard.

6The managed care support contractors have a financial incentive to ensure
that they develop and maintain an adequate supply of physicians in the
civilian provider network. TMA requires, on a monthly basis, that not less
than 96 percent of all referrals of TRICARE beneficiaries who reside
within 40 miles of an MTF be made to a physician at an MTF or a physician
in the civilian provider network. If this standard is not met, TMA imposes
a monetary penalty that reduces its payment to the contractor.

7See Pub. L. No. 109-163, S 734, 119 Stat. 3136, 3353-55.

To provide information on TRICARE changes to policies regarding access to
obstetric care and payment rates, we reviewed relevant coverage and
payment policies implemented in late 2003 through 2006. We interviewed
officials from TMA, the office with responsibility for ensuring that DOD
health policy is implemented for the TRICARE program. We also interviewed
representatives of the American College of Obstetricians and Gynecologists
and the National Military Family Association.8

To provide information on the extent to which TRICARE's managed care
contractors met targets for the number of obstetricians9 in their civilian
provider networks, and implications for access to care, we analyzed data
provided by the managed care support contractors for TMA-defined service
areas called prime service areas (PSA).10 The managed care support
contractors provided us with periodic reports on the targeted and actual
number of network obstetricians participating in the civilian provider
networks during 2005 and 2006. For each reporting period, in each PSA, we
determined whether the actual number of network obstetricians fell short
of the targeted number of network obstetricians by one or more. Across the
entire reporting period of calendar years 2005 and 2006, we identified the
number of PSAs that had fewer obstetricians than were targeted for four or
more reporting periods. We considered these PSAs to have "frequently
fallen short" of the targets set by the managed care contractors. We also
interviewed representatives of the three managed care support contractors,
the American College of Obstetricians and Gynecologists, and the National
Military Family Association about TRICARE beneficiaries' access to
obstetric care during 2006.

Our analysis of the number of obstetricians participating in TRICARE's
civilian provider networks was limited by the data available. We asked the
managed care support contractors to provide monthly data for January,
April, July, and October 2005 and 2006. The North and West regions'
managed care support contractors provided periodic data reports for
calendar year 2005 and most of calendar year 2006, while the South region
managed care support contractor provided monthly data as we requested. The
North region was unable to report until March 2005, which resulted in
slightly different reporting periods for the North and West regions. The
data provided by the managed care support contractors were sufficient to
illustrate the extent to which each of the three managed care contractors
met its own targets for the number of network obstetricians during the
period for which data were provided, which generally covered early
calendar year 2005 through late calendar year 2006.

Through our review of relevant documentation and discussions with TMA
officials and representatives of managed care support contractors, we
determined that the data presented in this report were sufficiently
reliable for our purposes. We did not assess the soundness of TRICARE's
policy changes, nor did we evaluate the criteria used by the managed care
support contractors for determining the targeted number of network
obstetricians. Although we did not verify the managed care support
contractors' data on the number of network
obstetricians, we reviewed the data for implausible values and internal
consistency. Because TMA made several changes to its payment rates for
obstetric care that took effect during 2006, at the time of our review
data were not yet available to draw conclusions about the effect of these
changes on beneficiaries' access to civilian obstetric care.11

8The American College of Obstetrics and Gynecologists is a national
professional society that represents 90 percent of U.S. board-certified
obstetrician-gynecologists. The National Military Family Association
represents members of the armed forces and their families.

9TRICARE's managed care support contractors set targets for specialists in
obstetrics and gynecology, which may include providers other than
obstetricians.

10PSAs typically include a 40-mile radius around MTFs and thus can include
multiple counties. PSAs are also established for other areas where TMA has
determined that networks would be cost effective.

We conducted our work from December 2006 through June 2007 in accordance
with generally accepted government auditing standards.

Results in Brief

Since late 2003, TMA has made several changes aimed at addressing concerns
about TRICARE beneficiaries' access to civilian obstetric care. TMA's
nationwide changes began in late 2003; the most recent changes took effect
in 2006. In late 2003, TMA loosened controls over access to civilian
obstetric care nationwide by permitting TRICARE Extra and Standard
beneficiaries to obtain obstetric care from civilian physicians without
first receiving approval from the local MTF. In 2006, TMA made two
nationwide changes to its physician payment rates for obstetric care.
First, TMA began paying separately for maternity ultrasounds--outside of
TRICARE's two global payments for obstetric care--performed during an
uncomplicated pregnancy, which is likely to result in increased total
payments to physicians.12 Second, TMA increased payment rates for
obstetric care in geographic areas where TRICARE payment rates were lower
than the Medicaid payment rates for obstetrics, to match the Medicaid
payment rates.13 In addition, in response to localized concerns about
severe physician shortages, TMA increased payment rates for specialized
obstetric care in Alaska and raised payment rates for obstetric care in a
South Dakota PSA to improve access and network capacity in these
locations.

In 2005 and 2006, managed care support contractors met most of the
targets--77 percent--they set for numbers of obstetricians in TRICARE's
regionally based networks. Of the 175 PSAs in the civilian provider
networks, 24 PSAs (14 percent) fell short of obstetrician supply targets
for four or more reporting periods during 2005 and 2006, while another 16
PSAs (9 percent) fell short of these targets for one to three quarters.
The contractors' achievement in meeting the majority of their targets in
2005 and 2006 serves as an indicator that access was not likely a problem
for most TRICARE beneficiaries seeking obstetric care. However, we could
not be conclusive about access from these data alone because of other
factors that can influence access. For example, in PSAs where targets were
consistently met, access could have been a problem if the contractors
overestimated the percentage of TRICARE patients that network civilian
obstetricians were willing to treat. Conversely, in PSAs that frequently
fell short of established targets, network civilian obstetricians may have
been willing to absorb more TRICARE patients than had been estimated by
the contractors. Representatives of the American College of Obstetricians
and Gynecologists and the National Military Family Association told us
that they had not heard significant concerns from their members in 2006
about the adequacy of TRICARE's payment rates for obstetric care or access
to civilian obstetricians. In commenting on a draft of this report, DOD
agreed with our findings.

11TRICARE claims data offer information about trends in service use and
the number of physicians providing care to TRICARE beneficiaries, but
complete data have a lag time of about 1 year behind program changes as
physicians and other providers may take up to 1 year to submit claims for
payment. Only after claims are submitted for payment are the records of
service use and physician participation included in the claims database.

12Ultrasound is a type of imaging used by health professionals in many
types of examinations and procedures. A standard maternity ultrasound
creates a picture that helps a provider determine a baby's gestational age
and evaluate a baby's growth and development.

13Medicaid is the joint federal-state program that provides health care
coverage for certain low-income individuals. In fiscal year 2005, the last
year for which data were available, about 60 million low-income children,
families, and aged or disabled individuals were covered by Medicaid.

Background

To supplement health care provided in MTFs, TMA requires managed care
support contractors to develop civilian provider networks. To accomplish
this, managed care support contractors develop comprehensive network plans
that include physician targets for each specialty, including the number of
obstetric care providers required for each PSA. A key factor for civilian
obstetricians in deciding whether to participate in TRICARE has been the
payment rate for obstetric care, which has undergone significant changes
over the past decade as part of an overall effort to reduce military
health care costs. In geographic locations where the TRICARE program is
experiencing shortages of providers or access to health care is severely
impaired, TMA has the authority to approve payment rate increases to
encourage civilian physicians and other providers to participate in
TRICARE.

TRICARE Provisions for Extra and Standard Beneficiaries to Use Civilian
Care

TRICARE Standard is designed to provide TRICARE beneficiaries maximum
flexibility in selecting civilian providers. Under Standard, TRICARE
beneficiaries may obtain care from TRICARE-authorized nonnetwork civilian
providers of their choice.14 TRICARE beneficiaries using this option do
not need a referral for most specialty care. Network civilian physicians
enter a contractual agreement with the regional managed care support
contractors to provide health care to TRICARE beneficiaries. However,
network civilian physicians do not have to accept all TRICARE
beneficiaries seeking care if the physician's practice does not have
sufficient capacity. Nonnetwork civilian physicians do not have a
contractual agreement with a managed care support contractor, and may
accept TRICARE beneficiaries as patients on a case-by-case basis. They
also have the option of charging up to 15 percent more than the TRICARE
payment rate. The beneficiary must pay the additional 15 percent, along
with their required copayments.

TMA Oversight of TRICARE Program

TMA, in DOD's Office of the Assistant Secretary of Defense for Health
Affairs, establishes TRICARE policy and payment rates for services. To
help administer the program, TMA uses managed care support contractors to
develop networks of civilian providers and perform other customer service
functions, such as claims processing. Currently, there is one managed care
support contractor for each of TRICARE's three regions.15 For each PSA
within the regions, managed care support contractors are required to
maintain civilian provider networks that are large enough to provide
access to care for all TRICARE beneficiaries living in the area. To do so,
each contractor, using its own methodology, determines the number of
civilian physicians required for each PSA in its region, based on the
number of TRICARE beneficiaries in the PSA and other factors, such as the
estimated percentage of each physician's practice likely to be made up of
TRICARE patients.16 Separate targets are set for each specialty, including
obstetrics, and these targets along with other information on the network
size are updated by the contractors in monthly or quarterly reports.

14For more information about access to civilian health care providers for
TRICARE beneficiaries who have not enrolled in Prime see GAO, Defense
Health Care: Access to Care for Beneficiaries Who Have Not Enrolled in
TRICARE's Managed Care Option, GAO-07-48 (Washington, D.C.: Dec. 22,
2006).

15Each TRICARE region has about the same number of TRICARE beneficiaries.

For each region, TMA has established a TRICARE regional office and has
designated the office directors as health plan managers for their regions
with responsibilities for monitoring provider network adequacy, overseeing
the managed care support contractors, and monitoring customer
satisfaction. In 2006, about 9,600 obstetricians participated in TRICARE's
civilian provider network, representing about 26 percent of all civilian
obstetricians in the United States.17

TRICARE Payment Structure for Civilian Obstetric Care

TMA pays civilian physicians for most obstetric care using global
obstetric payments. Under a global payment, physicians are not reimbursed
separately for every office visit or individual service provided. Rather,
the physician receives one payment for a defined set of related services.
TRICARE's most frequently used global obstetric payments include payment
for prenatal care, the physician's attendance at delivery, and postnatal
care.18 Although TMA also pays physicians for obstetric care through 59
other billing codes, approximately 68 percent of TRICARE's obstetric
payments are made under the 2 billing codes that we refer to as global
payments--the payments for the set of obstetric services related to
uncomplicated vaginal deliveries and the set of services related to
uncomplicated cesarean deliveries. The other 59 billing codes used to
reimburse for obstetric care are for such obstetric-related services as
amniocentesis, a diagnostic procedure sometimes performed during
pregnancy, or delivery-only services for cases in which the physician does
not provide prenatal or postnatal care.

TRICARE's payment rates for obstetric care have been in transition for
over a decade. In the early 1990s, under DOD's former health care program,
DOD's payment rates to civilian physicians were based on historical
charges--an annual calculation of physicians' charges for services claimed
the previous year.19 Using this approach, DOD's payment rates were, on
average, 50 percent higher than those paid for identical treatment under
the Medicare program.20 Beginning with fiscal year 1991, in response to
concerns about rising costs of military health care, Congress required
that DOD's physician payments gradually be brought in line with payment
rates under the physician fee schedule for the Medicare program. Each
year, the payment rate for a particular service was to be reduced by no
more than 15 percent of the amount allowed during the previous year for
that service.21

16In developing civilian provider networks, managed care support
contractors also consider historical medical needs, availability of
existing services in MTFs, and the availability of civilian providers to
deliver care within the PSAs.

17According to the 2005 Area Resource File published by the National
Center for Health Workforce Analysis, Bureau of Health Professions, Health
Resources and Services Administration, Department of Health and Human
Services, in 2004 there were about 37,200 civilian obstetricians in the
United States. The Area Resource File provides data on county-level
demographics and health systems.

18Hospitals bill TRICARE separately for the hospital stay.

19DOD replaced its Civilian Health and Medical Program of the Uniformed
Services (CHAMPUS), which had been administered as a fee-for-service type
health care program, with TRICARE, a triple-option benefit type program,
in 1994. CHAMPUS payments were based on an annual calculation of the 80th
percentile of physicians' charges statewide.

As DOD implemented these payment revisions, however, civilian
obstetricians expressed concerns that the revised payment rates were too
low. In response, in July 1998, TMA returned payment rates for obstetric
billing codes to 1997 levels after having reduced those rates earlier in
the year. TMA then decided to freeze obstetric payment rates at 1997
levels until Medicare payment rates for obstetric care caught up to
TRICARE's 1997 payment rates.

Thus, TMA allowed inflation to gradually reduce the value of TRICARE's
obstetric payments.22 As shown in figure 1, from July 1998 through 2006,
TRICARE's global payments for the set of services related to uncomplicated
vaginal deliveries and uncomplicated cesarean deliveries have remained
relatively constant at about $1,600 and $1,800, respectively.

20DOD is now required by law to follow Medicare's reimbursement rules to
the extent practicable. See 10 U.S.C. S 1079(j)(2). Since 1992,
Medicare--the federal program that pays for health care services and items
on behalf of more than 42 million elderly and disabled beneficiaries--has
paid physicians using a fee schedule with payment rates for more than
7,000 services. The physician community is involved in setting the
relative differences in payment rates for these services, including
payment rates for services not commonly used by the Medicare population,
such as obstetric care.

21See Department of Defense Appropriations Act for Fiscal Year 1991, Pub.
L. No. 101-511, S 8012, 104 Stat. 1856, 1877 (1990). This provision was
codified at 10 U.S.C. S 1079(h).

22By 2006, 30 of the 61 obstetric billing codes were still paid at
TRICARE's 1997 payment rate levels.

Figure 1: Payment Rates for TRICARE's Most Frequently Used Billing Codes
for Obstetric Services, Known as Global Payments, 1997 through 2006

Note: In 2006, the two global obstetric payments represented 68 percent of
TRICARE's total physician payments for obstetric care. This figure shows
that TRICARE's global payments for obstetric care services have remained
relatively constant since July 1998, when TMA restored payment rates to
1997 levels in response to physicians' concerns that payment rates were
too low.

TMA Has Authority to Adjust Payment Rates under Certain Conditions

TMA has the authority to adjust TRICARE payment rates under certain
conditions to increase beneficiaries' access to care. Under TMA's
locality-based waiver authorities, TMA may approve increases in TRICARE's
payment rates for both network and nonnetwork providers in locations where
access to care is impaired. For example, TMA may approve payment rate
increases for network providers when it has determined that it is
necessary and cost effective to approve higher rates to ensure an adequate
number and mix of qualified health care physicians in a specific locality.
In such instances, payment rates can be raised to a maximum of 115 percent
of rates set in the TRICARE physician fee schedule.23 TRICARE payment
rates for specific services can also be adjusted for both network and
nonnetwork providers in localities where access to care has been severely
impaired.24 In such instances, one method that may be used to establish
the higher payment rates is to adopt the payment rates of other government
health care programs, such as Medicaid. If this method is used, TMA would
adopt the applicable state Medicaid rate if TRICARE's payment rate is
lower in a specific location.25

23See 10 U.S.C. S 1097b(a); 32 C.F.R. S199.14(j)(1)(iv)(E).

24See 10 U.S.C. S 1079(h)(5); 32 C.F.R. S 199.14(j)(1)(iv)(D).

Recent Changes Loosened a Restriction on Access to Civilian Obstetric Care
and Increased Some Obstetric Payment Rates

Since late 2003, TMA has made several changes aimed at addressing concerns
about TRICARE beneficiaries' access to civilian obstetric care. One change
loosened a restriction on access to civilian providers of obstetric care,
and other changes raised payment rates for obstetric care in some
geographic areas and for specific obstetric services.

In December 2003, in response to provisions in the NDAAs for fiscal years
2001 and 2002, TRICARE loosened restrictions on Standard and Extra
beneficiaries' access to civilian obstetricians and other civilian
providers of obstetric care.26 Prior to that time, Standard and Extra
beneficiaries who resided within a 40-mile radius of an MTF had been
expected to receive their obstetric care from military physicians at the
local MTF. Civilian obstetric care was permitted for those beneficiaries
only when the beneficiary lived more than 40 miles from the MTF or when
the local MTF provided a written statement of nonavailability, stating
that the MTF did not have sufficient capacity to provide obstetric care.
This limitation caused concern among some Standard and Extra beneficiaries
who received other medical care from civilian physicians. On December 28,
2003, TMA revised its regulations to allow Standard and Extra
beneficiaries who lived within a 40-mile radius of an MTF to access
obstetric care from civilian physicians without first obtaining a
nonavailability statement.27

Payment changes include the following:

           o TRICARE changed the way it paid for obstetric ultrasounds.
           Effective April 1, 2006, to help address concerns among civilian
           obstetricians about payment rates for obstetric care, TMA began
           paying for ultrasounds related to uncomplicated pregnancies
           outside the global obstetric payment. This additional payment is
           likely to result in overall higher payments for physicians who
           perform one or more ultrasounds during the course of pregnancy.28
           Prior to this change, TRICARE included ultrasounds performed for
           uncomplicated pregnancies in the global obstetric payment.29
           However, after an analysis of historical TRICARE claims data, TMA
           officials determined that the global obstetric payment was not
           sufficient to cover the physicians' payments for ultrasounds, and
           that its policy to include ultrasounds in the global obstetric
           payment may have inadvertently discouraged physicians from doing
           as many ultrasounds as might be needed.30
			  
25Medicaid payment rates are consistent across all geographic areas within
a state, whereas TRICARE rates are locality based. There are 89 TRICARE
payment rate localities for the United States and Puerto Rico.

26See Pub. L. No. 106-398, S 728, 114 Stat. 1654, 1654A-189 (2000); Pub.
L. No. 107-107, S 735, 115 Stat. 1012, 1171-72 (2001).

27TRICARE's Prime enrollees are not affected by this change. They are
expected to receive obstetric care from physicians at the local MTF,
unless the local MTF lacks sufficient capacity, in which case enrollees
are referred to civilian physicians for care.

28TMA estimated that program costs would increase by about $1.5 million
annually as a result of this change.

29TRICARE's policy has always been to pay separately--outside the global
obstetric payment--for ultrasounds performed during complicated
pregnancies.			  

           o TRICARE matched state Medicaid payment rates for
           physician-provided obstetric care. Effective May 1, 2006, TMA
           increased payment rates for obstetric care to ensure that
           TRICARE's payment rates were at least equal to Medicaid payment
           rates in each state. For a locality to qualify for increased
           obstetric payment rates under this policy change, TRICARE had to
           have been paying an amount below the state's Medicaid payment
           rate.31 Specifically, TMA identified states where at least one
           locality was below the state's Medicaid payment rate for any of
           the six most frequently billed codes for obstetric care. In those
           localities, TMA increased TRICARE payment rates to match the
           state's Medicaid payment rates for a broader range of obstetric
           care that includes services provided under 14 billing codes.32 For
           2006, this policy affected TRICARE's payment rates in 12 states,
           primarily in the West region, as shown
           in figure 2. Under this change, TRICARE's payments for the 14
           obstetric billing codes increased an average of 19 percent in the
           affected states.33, 34
			  
30We did not review TMA's analysis of the claims data.

31State Medicaid payments for obstetric care varied widely in 2006. In its
comparison of TRICARE payment rates and state Medicaid payment rates, TMA
found that state Medicaid payments for the set of obstetric services
related to an uncomplicated vaginal delivery (or the closest equivalent
set of services under the state's payment system) ranged from $616 in Ohio
to $2,859 in Connecticut.

32In 2006, the 6 billing codes used to identify states for the
Medicaid-related payment increase together accounted for about 90 percent
of TRICARE's total payments for obstetric care, while the 14 billing codes
together accounted for over 97 percent of payments for obstetric care.

33In implementing this change across the 12 states, TMA made a total of
118 distinct payment increases by adjusting its payment rates for any of
the 14 billing codes that were paid below the Medicaid payment rate in the
state. The average payment increase in 2006 was $142, with a median
payment increase of about $69. TMA estimated that program costs would
increase by about $2 million annually as a result of this change.

34Annually, TMA compares TRICARE payment rates and Medicaid state payment
rates for obstetrics. According to TMA, 11 of the 12 states that received
the increase to the Medicaid payment rate in 2006 (Arizona, Connecticut,
Massachusetts, Montana, Nebraska, Nevada, Oregon, South Carolina,
Washington, West Virginia, and Wyoming) also received matching rates in
2007. Alaska did not receive a Medicaid matching rate increase for 2007 as
its payment rates were raised above the Medicaid rate in February 2007 by
a TRICARE demonstration project.

           Figure 2: States Receiving TRICARE Payment Rate Increases for
           Obstetric Care Services to Match State Medicaid Rates, 2006

           o Under the locality-based waiver authority, TRICARE increased
           payment rates for perinatology services in Alaska. On November 21,
           2005, TMA approved a locality waiver request to raise payment
           rates for perinatologists in Alaska in response to obstetric
           specialist supply problems.35 TMA raised TRICARE payment rates to
           140 percent of the obstetric payment rates set in the TRICARE
           physican fee schedule in response to physician concerns that the
           TRICARE payment rate was too low. TMA officials noted that there
           were only three perinatologists in the state at that time; these
           providers had agreed to continue participating when the payment
           rate was raised to 140 percent. On February 1, 2007, under a
           3-year demonstration program, TMA began paying all physician
           services in Alaska at 135 percent of the rates set in the TRICARE
           physician fee schedule, including nonspecialty obstetric care
           services.36 As a result, the gap in payment for services provided
           by perinatologists and other physicians providing obstetric care
           in Alaska narrowed substantially.37
			  
35Perinatologists are obstetric specialists who provide care for women in
high-risk pregnancies. They generally receive the same global obstetric
payment level as obstetricians and other physicians who focus on patients
who are not high risk.

           o Under the locality-based waiver authority for network providers,
           TRICARE increased payment rates for physicians providing obstetric
           care in the Ellsworth Air Force Base PSA, South Dakota. On May 16,
           2006, TMA approved a locality waiver request to increase payment
           rates for obstetric services provided by a group practice of 12
           obstetricians in the Ellsworth Air Force Base PSA, South Dakota.38
           Stating that TRICARE's payment rates for obstetric care were too
           low, the group practice had decided to leave the TRICARE network.
           In its review of the waiver request, TMA found that obstetric care
           was not offered at the local MTF. Furthermore, there were no other
           civilian obstetricians practicing in the area to accept the
           TRICARE beneficiaries that were receiving care from the group
           practice. TMA concluded that its payment rates should be increased
           due to severely limited access to network-based obstetric care in
           the PSA. TMA set its obstetric payment rates at 115 percent of the
           established payment rate and the group of physicians agreed to
           remain in the civilian provider network. In the event that other
           obstetricians located in the area were willing to join the TRICARE
           network, TMA officials indicated that they would consider whether
           the increased payment rate was still necessary to ensure
           beneficiary access to care from network physicians.

           In 2005 and 2006, Managed Care Support Contractors Met Their
           Targets for Network Civilian Obstetricians in Most TRICARE
           Localities

           In 2005 and 2006, managed care support contractors met most of
           their targets for the number of obstetricians in TRICARE's
           civilian provider networks. Of the 175 PSAs subject to TRICARE's
           standards for network adequacy, 135 PSAs (77 percent) met targets
           for network civilian obstetricians during all reported periods
           during 2005 and 2006. Relatively few localities frequently fell
           short of the contractor-set targets, with "frequently" defined by
           us as missing targets during four or more reported periods during
           2005 and 2006. Across the three contractors' regions, 24 PSAs (14
           percent) frequently fell short of targets for obstetricians.
           Nineteen of these 24 PSAs were still short of their targets as of
           late calendar year 2006, the last reporting period for which we
           obtained data. Another 16 PSAs (9 percent) fell short of targets
           during one to three reporting periods in 2005 and 2006.
			  
36See 71 Fed. Reg. 67112-13 (Nov. 20, 2006).

37TMA officials indicated that the payment rate increase for Alaska was
necessary due to an overall scarcity of providers, their reluctance to
accept TRICARE payment rates, transportation issues, and other factors.
Through the demonstration project, TMA expects to obtain information about
how increased payment rates affect provider participation in TRICARE,
beneficiary access to care, and the cost of health care services.

38The waiver also included payment for gynecology, which focuses on
reproductive health care services for women.			  

           The 24 PSAs where contractors frequently fell short of targets for
           civilian obstetricians include a mixture of urban and rural
           counties. Sixteen of the 24 PSAs are made up of predominately
           urban counties while 8 PSAs are predominately rural counties.39
           Some of the locations may have been affected by overall shortages
           of practicing civilian obstetricians. In 2004, nationwide, there
           were 12.5 practicing obstetricians and gynecologists per 100,000
           population.40 In that year, 15 of the 24 PSAs were below this
           national average, whereas 8 of the 24 PSAs exceeded the national
           average.41

           The North region had the greatest number of localities--17
           PSAs--that frequently fell short of targets for civilian
           obstetricians. (See fig. 3.) The South region had 5 PSAs and the
           West, 2 PSAs, which frequently did not meet targets for civilian
           obstetricians during the review period.

           Our finding that more than three-fourths of PSAs met their
           physician supply targets for all reported periods is an indicator
           that access was not likely a problem for most TRICARE
           beneficiaries seeking obstetric care. However, we could not be
           conclusive about access from the contractors' data alone because
           of other factors that can influence access. For example, in PSAs
           where targets were consistently met, access could have been a
           problem if managed care support contractors overestimated the
           percentage of TRICARE patients that network civilian obstetricians
           were willing to treat. Alternatively, in PSAs that frequently fell
           short of established targets, network civilian obstetricians may
           have been willing to take on more TRICARE patients than had been
           estimated by the managed care support contractors.
			  
39The 24 PSAs with recurring shortfalls of civilian network obstetricians
include a total of 1,580 counties, of which 1,022 counties (65 percent)
are urban and 558 (35 percent) are rural.

40These figures are based on 2005 data from the Bureau of Health
Professions, Health Resources and Services Administration, Department of
Health and Human Services.

41Two of the PSAs are located within the same county and thus the 24 PSAs
collapse into 23 PSAs when reporting on county-level statistics.

           Figure 3: Number of PSAs That Met or Fell Short of Targets for
           Civilian Obstetricians by TRICARE Region, 2005 and 2006

           Note: Data for the North region are quarterly from March 2005
           through November 2006. Data from the West region are quarterly
           from January 2005 through September 2006, and data from the South
           region are monthly for January, April, July, and October 2005 and
           2006. Managed care contractors use different models to set targets
           for the number of physicians in the civilian provider network.

           In separate discussions with national associations representing
           obstetricians and military family members, association officials
           indicated that, in 2006, their members did not relate substantial
           concerns about the adequacy of TRICARE's payment rates or access
           to civilian obstetricians. The representatives of managed care
           support contractors also told us they had received a minimal
           number of concerns from beneficiaries and network civilian
           obstetricians about obstetric care matters.

           Agency Comments

           We provided a draft of this report to DOD for comment. DOD's
           comments are reprinted in enclosure II. In its comments, DOD
           stated that it agreed with our findings and provided technical
           comments. We incorporated DOD's technical comments as appropriate.

                                   - - - - -

           We are sending copies of this report to the Secretary of Defense
           and other interested parties. In addition, this report will be
           available at no charge on GAO's web site at [3]http://www.gao.gov
           . We will also make copies available to others upon request. If

           you or your staff have any questions about this report, please
           contact me at (202) 512-7114 or [4][email protected] . Contact
           points for our Offices of Congressional Relations and Public
           Affairs may be found on the last page of this report. Phyllis
           Thorburn, Assistant Director; Alexander Dworkowitz; Hannah Fein;
           Jenny Grover; and Darryl Joyce made key contributions to this
           report.

           Laurie E. Ekstrand
			  Director, Health Care

           Enclosures - 2

           List of Committees

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

           The Honorable Daniel K. Inouye
			  Chairman
			  The Honorable Ted Stevens
           Ranking Member
			  Subcommittee on Defense
			  Committee on Appropriations
           United States Senate

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

           The Honorable John P. Murtha
			  Chairman
			  The Honorable C.W. Bill Young
			  Ranking Member
			  Subcommittee on Defense
			  Committee on Appropriations
			  House of Representatives

Enclosure I

The Change in TRICARE Payments for Obstetric Care as Compared to Inflation

           Table 1 shows the change in TRICARE's payment rates for six common
           obstetric billing codes that include payment for childbirth,
           relative to the change in inflation, from 1997 to 2006.

           Table 1: Percentage Change in TRICARE Payment Rates for Six
           Obstetric Care Billing Codes Compared to the 2.7 Percent Average
           Annual Change in Medical Inflation, 1997 through 2006
			  
                                                        Average annual change 
Services billed under six obstetric codes                     (percentage) 
Set of obstetric services related to an                                0.3 
uncomplicated vaginal delivery                                             
Vaginal delivery only                                                  0.0 
Vaginal delivery and postpartum care                                   0.0 
Set of obstetric services related to an                                0.3 
uncomplicated cesarean section                                             
Cesarean delivery only                                                 0.0 
Cesarean delivery and postpartum care                                  0.0 			  

           Source: GAO analysis of TRICARE payment data.

           Note: Together, the six billing codes accounted for about 90
           percent of TRICARE's total payments for obstetric care in 2006.
           The rate of inflation is measured by the Medicare Economic Index
           (MEI). The MEI is a measure of inflation relative to physicians'
           practice costs and general wage levels. The MEI includes a set of
           inputs used in furnishing services such as a physician's own time,
           nonphysician employees' compensation, rent, and medical equipment.
           The MEI measures year-to-year changes in prices for these various
           inputs based on appropriate price proxies. TRICARE payment rates
           for four of the six obstetric care billing codes were above
           Medicare payment rates in 2006: vaginal delivery only; vaginal
           delivery, including postpartum care; cesarean delivery only; and
           cesarean delivery, including postpartum care.
			  
Enclosure II			  

                    Comments from the Department of Defense

           (290602)

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