Defense Health Care: DOD Needs to Address the Expected Benefits, 
Costs, and Risks for Its Newly Approved Medical Command Structure
(12-OCT-07, GAO-08-122).					 
                                                                 
The Department of Defense (DOD) operates one of the largest and  
most complex health systems in the nation and has a dual health  
care mission--readiness and benefits. The readiness mission	 
provides medical services and support to the armed forces during 
military operations. The benefits mission provides health care to
over 9 million eligible beneficiaries, including active duty	 
personnel, retirees, and dependents worldwide. Past Government	 
Accountability Office (GAO) and other reports have recommended	 
changes to the military health system (MHS) structure. GAO was	 
asked to (1) describe the options for structuring a unified	 
medical command recommended in recent studies by DOD and other	 
organizations and (2) assess the extent to which DOD has	 
identified the potential impact these options would have on the  
current MHS. GAO analyzed studies and reports prepared by DOD's  
Joint/Unified Medical Command Working Group, the Defense Business
Board, and the Center for Naval Analyses, and interviewed	 
department officials.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-122 					        
    ACCNO:   A77307						        
  TITLE:     Defense Health Care: DOD Needs to Address the Expected   
Benefits, Costs, and Risks for Its Newly Approved Medical Command
Structure							 
     DATE:   10/12/2007 
  SUBJECT:   Cost analysis					 
	     Federal agency reorganization			 
	     Health care services				 
	     Interagency relations				 
	     Management reengineering				 
	     Medical economic analysis				 
	     Military health services				 
	     National defense operations			 
	     Performance measures				 
	     Program evaluation 				 
	     Risk assessment					 
	     Managed health care				 
	     Military Health System				 

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GAO-08-122

   

     * [1]Results in Brief
     * [2]Background
     * [3]DOD Considered Different Options for the Command Structure a

          * [4]Joint/Unified Medical Command Working Group Identified Three

               * [5]Option 1: Establish a Unified Medical Command
               * [6]Option 2: Establish Two Separate Commands
               * [7]Option 3: Designate One Military Service to Provide All
                 Mili

          * [8]Senior DOD Officials Proposed a Fourth Option

     * [9]DOD Initiated Steps to Evaluate Options, but Did Not Perform

          * [10]DOD's Working Group Determined Some of the Benefits, Costs,
          * [11]DOD Did Not Comprehensively Analyze Costs, Benefits, or Risk

     * [12]Conclusions
     * [13]Recommendations for Executive Action
     * [14]Agency Comments and Our Evaluation
     * [15]GAO Contact
     * [16]Acknowledgments
     * [17]GAO's Mission
     * [18]Obtaining Copies of GAO Reports and Testimony

          * [19]Order by Mail or Phone

     * [20]To Report Fraud, Waste, and Abuse in Federal Programs
     * [21]Congressional Relations
     * [22]Public Affairs

Report to Congressional Committees

United States Government Accountability Office

GAO

October 2007

DEFENSE HEALTH CARE

DOD Needs to Address the Expected Benefits, Costs, and Risks for Its Newly
Approved Medical Command Structure

GAO-08-122

Contents

Letter 1

Results in Brief 4
Background 5
DOD Considered Different Options for the Command Structure and Operations
of Its Military Health System 7
DOD Initiated Steps to Evaluate Options, but Did Not Perform a
Comprehensive Analysis of All Options 15
Conclusions 19
Recommendations for Executive Action 19
Agency Comments and Our Evaluation 20
Appendix I Scope and Methodology 23
Appendix II Comments from the Department of Defense 25
Appendix III GAO Contact and Staff Acknowledgments 28

Figures

Figure 1: Current Military Health System Organizational Structure 7
Figure 2: Notional Structure for a Unified Medical Command 9
Figure 3: Notional Structure for a Separate Medical Command and Healthcare
Command 11
Figure 4: Notional Structure for a Single Service Medical Command 12
Figure 5: Notional Structure for a Joint/Unified Medical Command 14

Abbreviations

ASD (HA) Assistant Secretary of Defense (Health Affairs)
BRAC Base Realignment and Closure
CNA Center for Naval Analyses
DBB Defense Business Board
DOD Department of Defense
MHS military health system
MTF military treatment facility
USD P&R Under Secretary of Defense for Personnel and Readiness

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separately.

United States Government Accountability Office
Washington, DC 20548

October 12, 2007

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


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

The Department of Defense (DOD) operates one of the largest and most
complex health systems in the nation and has a dual health care
mission--readiness and benefits. The readiness mission provides medical
services and support to the armed forces during military operations and
involves deploying medical personnel and equipment as needed to support
military forces throughout the world. The benefits mission provides health
care to over 9 million beneficiaries, including active duty personnel,
retirees, and dependents worldwide. DOD's health care mission is carried
out through military hospitals and clinics, commonly referred to as
military treatment facilities (MTF), such as Walter Reed Army Medical
Center in Washington, D.C.; National Naval Medical Center in Bethesda,
Maryland; and Landstuhl Regional Medical Center, in Landstuhl, Germany, as
well as civilian providers. Each military service, under a surgeon
general, is responsible for managing its own MTFs. The Army and Navy each
have a medical command, which manages each service's MTFs and other
activities through a regional command structure. The Navy's medical
department supports both the Navy and Marine Corps. The Air Force Surgeon
General, through the position as medical advisor to the Air Force Chief of
Staff, exercises essentially the same authority as the other surgeons
general. Each service also recruits and funds medical personnel to
administer its medical programs and to provide medical services to
beneficiaries. The Department of Defense (DOD) operates one of the largest
and most complex health systems in the nation and has a dual health care
mission--readiness and benefits. The readiness mission provides medical
services and support to the armed forces during military operations and
involves deploying medical personnel and equipment as needed to support
military forces throughout the world. The benefits mission provides health
care to over 9 million beneficiaries, including active duty personnel,
retirees, and dependents worldwide. DOD's health care mission is carried
out through military hospitals and clinics, commonly referred to as
military treatment facilities (MTF), such as Walter Reed Army Medical
Center in Washington, D.C.; National Naval Medical Center in Bethesda,
Maryland; and Landstuhl Regional Medical Center, in Landstuhl, Germany, as
well as civilian providers. Each military service, under a surgeon
general, is responsible for managing its own MTFs. The Army and Navy each
have a medical command, which manages each service's MTFs and other
activities through a regional command structure. The Navy's medical
department supports both the Navy and Marine Corps. The Air Force Surgeon
General, through the position as medical advisor to the Air Force Chief of
Staff, exercises essentially the same authority as the other surgeons
general. Each service also recruits and funds medical personnel to
administer its medical programs and to provide medical services to
beneficiaries.

Past GAO reports have highlighted a range of long-standing issues
surrounding the military health system (MHS) structure. For example, in a
1995 report on defense health care, we found that interservice rivalries
Past GAO reports have highlighted a range of long-standing issues
surrounding the military health system (MHS) structure. For example, in a
1995 report on defense health care, we found that interservice rivalries
and conflicting responsibilities hindered MHS improvement efforts.1 We
further noted that the services have historically resisted efforts to
change the way military medicine is organized, including consolidating the
services' medical departments, in favor of maintaining their own health
care systems, primarily on the grounds that each service has unique
medical activities and requirements. We also noted that the lines of
authority and accountability between hospital commanders, the services,
the service surgeons general, and the Assistant Secretary of Defense
(Health Affairs) (ASD (HA)) are complicated and sometimes conflict. In
2001, a RAND Corporation study2 on reorganizing the MHS uncovered at least
13 studies that had addressed military health care organization since the
1940s. All but 3 of those studies had either favored a unified system or
recommended a stronger central authority to improve coordination among the
services.

In our February 2005 report on key challenges facing the U.S. government
in the 21st century,3 we identified DOD's health care system as an example
of an area in which DOD could achieve economies of scale and improve
delivery by combining, realigning, or otherwise changing selected support
functions. That report also noted that while DOD's civilian and military
leaders appear committed to reform, DOD must overcome cultural resistance
to change and the inertia of various organizations, policies, and
practices that became well rooted in the Cold War era--along with
long-standing organizational and budgetary problems, such as the existence
of stovepiped or siloed organizations and the involvement of many layers
and players involved in decision making. DOD's February 2006 Quadrennial
Defense Review Report acknowledges the department's need to reform its
defense enterprise, including the MHS.

In December 2004, DOD directed the Under Secretary of Defense for
Personnel and Readiness (USD P&R), to work with the Chairman of the Joint
Chiefs of Staff to develop an implementation plan for a joint medical
command by the fiscal years 2008-2013 program/budget review. In 2005, the
USD P&R and the Director, Joint Staff established the Joint/Unified
Medical Command Working Group, which developed options with the goal of
improving DOD's MHS by eliminating unnecessary duplication; streamlining
organizational structures; and aligning authority, responsibility, and
financial control.

1GAO, Defense Health Care: Issues and Challenges Confronting Military
Medicine, [23]GAO/HEHS-95-104 (Washington, D.C.: Mar. 22, 1995).

2Rand Corporation, Reorganizing the Military Health System: Should There
Be a Joint Command?, MR-1350-OSD (2001).

3GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, [24]GAO-05-325SP (Washington, D.C.: February 2005).

The House Armed Services Committee4 directed us to review the various
unified medical command studies that DOD and other organizations have
undertaken and provide an analysis of the various unified medical command
structures under consideration. This report (1) describes the options for
structuring a unified medical command that have been recommended in recent
studies by DOD and other organizations and (2) assesses the extent to
which DOD has identified the potential impact these options would have on
the MHS. We provided a briefing to congressional committees on our
preliminary observations in March 2007. This report expands on the
information delivered in that briefing and includes recommendations to the
Secretary of Defense.

To identify and describe the options for structuring a unified medical
command, we obtained and reviewed studies and reports undertaken by DOD's
Joint/Unified Medical Command Working Group, the Center for Naval Analyses
(CNA), and the Defense Business Board (DBB). We also obtained and reviewed
a concept plan presented by the USD P&R and the ASD (HA). To gain a better
understanding of the structure and organization of each option and how
each differs from the current MHS's structure, we interviewed officials
from DOD's Joint/Unified Medical Command Working Group, the Office of the
ASD (HA), the Joint Staff Logistics Directorate, and the Offices of the
Surgeons General of the Army, Navy, and Air Force. To determine the extent
to which DOD has identified the potential impact these options would have
on the MHS, we analyzed studies and documents obtained from the
Joint/Unified Medical Command Working Group, the Joint Staff Logistics
Directorate, the Office of the ASD (HA), and CNA. In addition, we
interviewed officials from DOD's Joint/Unified Medical Command Working
Group, the Office of the ASD (HA), and the Joint Staff Logistics
Directorate, and CNA to discuss the implications of each option and to
identify any limitations in their assessments. We also reviewed GAO's
Business Process Reengineering Assessment Guide5 to determine guidelines
for assessing reengineering efforts. Other issues, such as determining the
appropriate command and control structure within DOD to manage the MHS,
did not fall within the scope of this review nor did evaluating the
validity of the cost implications developed by CNA. We conducted our work
from December 2006 through September 2007 in accordance with generally
accepted government auditing standards. Further details on our scope and
methodology can be found in appendix I.

4H.R. Rep. No. 109-452, at 343 (2006).

5GAO, Business Process Reengineering Guide, GAO/AIMD-10.1.15 (Washington,
D.C.: May 1997).

Results in Brief

DOD considered options to address the department's dual health care
mission that differed in their approaches to both command structure and
operations. In April 2006, the Joint/Unified Medical Command Working Group
identified three options. These options were (1) establishing a unified
medical command on par with other functional combatant commands; (2)
establishing two separate commands--a Medical Command, which would provide
operational/deployable medicine, and a Healthcare Command, which would
provide beneficiary care through MTFs and civilian providers; and (3)
designating one of the military services to provide all health care
services across the department. Subsequently, in November 2006, the USD
P&R and the ASD (HA) presented a fourth option that would consolidate key
common services and functions, which are currently being performed within
each of the services, such as finance, information management and
technology, human capital management, support and logistics, and force
health sustainment. This option would leave the existing structures of the
Army, Navy, and Air Force medical departments over all MTFs essentially
unchanged. In November 2006, the Deputy Secretary of Defense approved the
latter option.

Although DOD initiated steps to evaluate the impact that some
restructuring options might have on the MHS, it did not perform a
comprehensive cost-benefit analysis of all potential options. GAO's
Business Process Reengineering Assessment Guide6 emphasizes that an
organization should explore each alternative thoroughly enough to
convincingly demonstrate its potential to achieve the desired performance
goals. The Guide has also established that a comprehensive analysis of
alternative processes should include a performance-based, risk-adjusted
analysis of benefits and costs for each alternative. The working group
used several methods to determine some of the benefits, costs, and risks
of implementing its three proposed options. For example, it used CNA to
determine the cost of implementing each option, and it solicited the views
of key stakeholders. However, DOD did not comprehensively analyze any of
the four options. According to the working group methodology, the group
intended to conduct a more detailed cost-benefit analysis of whichever of
the three options senior DOD leadership selected, but the group's work
ceased once the fourth option was formally approved by the Deputy
Secretary of Defense. Moreover, DOD has not demonstrated that its decision
to move forward with the fourth option was based on a sound business case.
A sound business case should include detailed qualitative and quantitative
analyses in support of selecting and implementing the new process in terms
of benefits, costs, and risks. We have not evaluated the pros and cons of
DOD's chosen approach. However, based on our review of DOD's business
case, DOD only described what it believes its chosen option will
accomplish. The business case does not demonstrate how DOD determined the
fourth option to be better than the other three in terms of its potential
impact on medical readiness, quality of care, beneficiaries' access to
care, costs, implementation time, and risks because DOD does not provide
evidence of any analysis it has performed of the fourth option or a sound
business case justifying this choice. Without such analysis and
documentation, DOD is not in a sound position to assure the Secretary of
Defense and Congress that it made an informed decision in choosing the
fourth option over the other three or that its chosen option will have the
desired impact on DOD's MHS. Furthermore, the business case does not
document any performance measures that will be used to assess whether the
fourth option will meet the goals for improving DOD's MHS--eliminating
unnecessary duplication; streamlining organizational structures; and
aligning authority, responsibility, and financial control--or whether it
will achieve the promised benefits.

6GAO/AIMD-10.1.15.

We are recommending that DOD address the expected benefits, costs, and
risks for implementing the fourth option and provide Congress the results
of its assessment. We are also recommending that DOD develop performance
measures to monitor the progress of its chosen plan toward achieving the
goals of the transformation. In written comments on a draft of this
report, DOD concurred with our recommendations. DOD's comments are
reprinted in appendix II.

Background

DOD operates one of the largest, most complex health systems in the
nation. DOD's MHS has a dual health care mission--readiness and benefits.
The readiness mission provides medical services and support to the armed
forces during military operations and involves deploying medical personnel
and equipment as needed to support military forces throughout the world.
Additionally, activities that ensure the readiness of medical and other
military personnel to deploy also contribute to the medical readiness
mission. The benefits mission provides medical services and support to
members of the armed forces, their family members, and others entitled to
DOD health care. The ASD (HA) is responsible for executing DOD's dual
health care mission and exercises authority, direction, and control over
the medical personnel, facilities, funding, and other resources within
DOD.

DOD's dual health care mission is carried out through military hospitals
and clinics, commonly referred to as MTFs, and civilian providers. MTFs
comprise DOD's direct care system for providing health care to
beneficiaries. Within the direct care system, each military service, under
its surgeon general, is responsible for managing its MTFs. The Army and
Navy each have a medical command, headed by a surgeon general, who manages
MTFs and other activities through a regional command structure. The Navy's
medical department supports both the Navy and Marine Corps. The Air Force
Surgeon General, through the position as medical advisor to the Air Force
Chief of Staff, exercises essentially the same authority as the other
surgeons general. Each service also recruits and funds its own medical
personnel to administer the medical programs and provide medical services
to beneficiaries.

DOD also operates a purchased care system that uses civilian managed care
support contractors to develop networks of civilian primary and specialty
care providers. The TRICARE Management Activity, under the ASD (HA), is
responsible for awarding, administering, and overseeing these contracts.

Figure 1 shows the current organizational structure of the MHS.

Figure 1: Current Military Health System Organizational Structure

DOD Considered Different Options for the Command Structure and Operations of Its
Military Health System

DOD considered options to address the department's dual health care
mission that differed in their approaches to both command structure and
operations. In April 2006, the Joint/Unified Medical Command Working Group
identified three options: the establishment of a unified medical command;
establishing two separate commands, one to provide operational/deployable
medicine and another to provide beneficiary care through MTFs and
purchased care providers; and designating one of the military services to
provide all health care services across the department. Subsequently,
senior DOD officials presented a fourth option, which consolidates key
common services and functions that are currently being performed within
each of the services. In November 2006, the Deputy Secretary of Defense
approved the latter option.

Joint/Unified Medical Command Working Group Identified Three Options

In April 2006, the Joint/Unified Medical Command Working Group proposed
three options for restructuring the MHS.7 According to the working group,
each of its options was designed to promote effectiveness and efficiency
by increased sharing of resources, use of common operating processes, and
reduction in duplicative functions and organizations. However, each
differs in its approach to both command structure and operations.

  Option 1: Establish a Unified Medical Command

This option would establish a unified medical command on par with other
functional combatant commands. As the single organization for managing
both halves of DOD's dual health care mission--readiness and benefits--the
unified medical command would oversee four subordinate commands: the
Operational Health Care Command, the Modernization Command, the Force
Health Protection Command, and the Medical Education and Training Command.
Figure 2 illustrates the proposed unified medical command structure.

^7The Joint/Unified Medical Command Working Group initially developed a
range of options and eventually proposed three options for restructuring
the MHS.

Figure 2: Notional Structure for a Unified Medical Command

Under the unified medical command option, operational responsibilities
would be divided across the following four subordinate commands:

           o The Operational Health Care Command would exercise command and
           control over MTFs, which are currently being operated by each of
           the services through the direct care system. It would also manage
           the purchased health care for beneficiaries that the TRICARE
           Management Activity, under the ASD (HA), currently oversees
           through a network of contracted civilian providers.
           o The Modernization Command would develop joint medical combat and
           medical doctrine, in addition to overseeing acquisition,
           contracting, and medical research and development.
           o The Force Health Protection Command would have command and
           control over institutional force health protection assets that
           have both medical surveillance8 and preventive medicine9
           capabilities.
           o The Medical Education and Training Command would work with the
           services to set standards for all medical training and conduct
           initial military medical training and professional medical
           training for both officers and enlisted personnel. This command
           would also be responsible for joint medical training and
           specialized training to meet unique mission requirements, with the
           exception of the joint interoperable medical training and
           standards currently overseen by the Special Operations Command.

This option is similar to a recommendation made by DBB. In July 2006, the
Deputy Secretary of Defense requested that DBB form a task group to give
an independent and objective assessment and make actionable
recommendations regarding the most rational model for the MHS. DBB
unanimously approved the task group's recommendation that the Secretary of
Defense establish a unified medical command, and included it in its
September 2006 report.10

  Option 2: Establish Two Separate Commands

This option proposed establishing a command structure for each of DOD's
two medical missions--a Medical Command, which would provide
operational/deployable medicine, and a Healthcare Command, which would
provide beneficiary health care through MTFs and purchased care providers.

The Medical Command was designed as a unified command headquarters with
the same four subordinate commands as under the first option. The
responsibilities of three of its four subordinate commands would be the
same as under the first option. The Operational Health Care Command, now
called the Operational Medical Command, would be responsible only for the
readiness mission--providing medical services and support to the armed
forces during military operations. Under the Medical Command, the services
would provide information on planning and programming to ensure that
service-specific issues are addressed.

8DOD defines "medical surveillance" as the ongoing, systematic collection,
analysis, and interpretation of health data.

9DOD defines "preventive medicine" as the anticipation, identification,
and control of preventable diseases, illnesses, and injuries while on duty
at home or during deployment.

10Defense Business Board, Military Health System--Governance, Alignment
and Configuration of Business Activities Task Group Report (Washington,
D.C.: September 2006).

The Healthcare Command would be responsible for the benefits
mission--providing both direct and purchased health care to all
beneficiaries. Under this command, the services would identify clinical
training needs for deployable personnel. Also, the services would exercise
administrative control for personnel assigned to the different commands.
Figure 3 shows the proposed general organizational structure for the two
commands and highlights the relationships between the services and their
subordinate commands.

Figure 3: Notional Structure for a Separate Medical Command and Healthcare
Command

  Option 3: Designate One Military Service to Provide All Military Health Care

The single medical service option designates one of the services--the
Army, the Navy, or the Air Force--to serve as a single unified medical
commander that would provide all health care services across the
department. This structure would operate much like the current arrangement
between the Navy and Marine Corps, in which the Navy provides all health
care for the Marine Corps. As shown in figure 4, the single service
proposal includes the same four subordinate commands as the first two
options.

Figure 4: Notional Structure for a Single Service Medical Command

Under this option, the subordinate commands would have the same
responsibilities as in the first option. However, the single service would
assume administrative control over all medical personnel regardless of
service affiliation. Nevertheless, each of the services would retain a
surgeon general with only a small support staff to monitor and advocate
for service-specific requirements.

Under each of the preceding three options, the command and control of
medical forces would change during deployment and transition to war. In
all three instances, commanders would transfer operational control of
deployable elements to the relevant joint force commander.

Senior DOD Officials Proposed a Fourth Option

In November 2006, the USD P&R and the ASD (HA) presented a fourth option.
Although senior officials described this option as a refinement to the
working group's three options to achieve the goals of eliminating
unnecessary duplication; streamlining organizational structures; and
aligning authority, responsibility, and financial control, it leaves the
existing command structure governing DOD's MTFs essentially unchanged. As
shown in figure 5, the fourth option's principal feature is the creation
of a new Joint Military Health Services Directorate.

Figure 5: Notional Structure for a Joint/Unified Medical Command

The proposed Joint Military Health Services Directorate would consolidate
key common services and functions, which are currently being performed
within each of the services, such as finance, information management and
technology, human capital management, support and logistics, and force
health sustainment under a joint senior flag officer who will report to
the ASD (HA). Another innovation proposed by this option is the
combination of all medical research and development assets and programs
under the Army Medical Research and Material Command. As figure 5 also
shows, this option includes several actions that were previously
recommended by the 2005 Base Realignment and Closure (BRAC) round,
including establishing joint medical markets--one in the National Capital
Area and the other in San Antonio, Texas; establishing a Joint Medical
Education and Training Center; and colocation of services' medical
headquarters.

This option essentially leaves the current service-centric medical command
structures in place--with separate Army, Navy, and Air Force medical
departments. Each military service, under a surgeon general, will continue
to be responsible for managing its own MTFs.

Although the fourth option helps to consolidate some services and
functions, it does not fundamentally alter the way DOD provides health
care services to servicemembers and their beneficiaries. In November 2006,
the Deputy Secretary of Defense approved the fourth option. In the
memorandum approving the fourth option, the Deputy Secretary of Defense
established a 3-year timeline, beginning in fiscal year 2007, for
establishing a transition team and beginning the phased implementation of
the fourth option. According to DOD officials, the phased implementation
of the fourth option is currently under way.

DOD Initiated Steps to Evaluate Options, but Did Not Perform a Comprehensive
Analysis of All Options

Although DOD initiated steps to evaluate the impact that some
restructuring options might have on the MHS, it did not perform a
comprehensive analysis of all proposed options. Although DOD's working
group determined some of the benefits, costs, and risks of implementing
its three options, it did not complete a comprehensive analysis.

DOD's Working Group Determined Some of the Benefits, Costs, and Risks for the
First Three Options

DOD's working group took steps to determine some of the benefits, costs,
and risks of implementing its three options, but it did not complete a
comprehensive analysis. GAO's Business Process Reengineering Assessment
Guide emphasizes that an organization should explore each alternative
thoroughly enough to convincingly demonstrate its potential to achieve the
desired performance goals.11 The Guide has also established that a
comprehensive analysis of alternative processes should include a
performance-based, risk-adjusted analysis of benefits and costs for each
alternative. An organization should also factor into its analysis a
consideration of barriers and risks of implementing each alternative.

The working group used several methods to evaluate its proposed options.
First, the working group's Navy representative commissioned CNA to
determine the cost implications of its three options. In May 2006, CNA
issued a report on the cost of the working group's three options.12 Based
on CNA's report estimates, DOD could achieve savings from $254 million to
$417 million annually,13 depending on which of the three options it
implemented. Based on our discussion with a CNA official and our review of
CNA's report findings, we concluded that CNA's analysis was generally
logical, well-documented, and reasoned given its assumptions, which
focused primarily on the potential annual savings from changes in
personnel levels in the long run. CNA's methodology did not include any
transition costs, except for an estimated annual cost of adopting a single
accounting and finance system, which would be necessary for implementing
the first two options. In addition, CNA's methodology did not include cost
implications associated with infrastructure changes or possible changes in
clinical operations. Therefore, the actual cost implications of any option
will remain uncertain without more rigorous analysis.

Second, the working group solicited the views of key stakeholders in 23
different DOD offices, including the Joint Staff, the military services'
departments, and the combatant commands. The stakeholders were asked
whether the working group should proceed with restructuring the MHS and,
if so, which of the working group's three options would they support.
According to working group officials, the results showed that the majority
(15 of 23) of the stakeholders contacted endorsed implementing option
one--a unified medical command.

11GAO/AIMD-10.1.15.

12Center for Naval Analyses, Cost Implications of a Unified Medical
Command (Alexandria, Va.: May 2006).

13CNA reported its estimates in 2005 dollars.

The working group also used the military medical judgment of its members
to identify the benefits and risks of each option. The group was made up
of representatives from the offices of the joint staff, ASD (HA), and each
of the services. As a result of these quantitative and qualitative
assessments, the working group chose option one, the unified medical
command, as its preferred option.

DOD Did Not Comprehensively Analyze Costs, Benefits, or Risks of Any Options

DOD did not comprehensively analyze the costs, benefits, or risks of any
of the four options. According to the working group methodology, the group
intended to conduct a more detailed cost-benefit analysis of whichever of
the three options senior DOD leadership selected, but the group's work
ceased once the fourth option was formally approved by the Deputy
Secretary of Defense. In addition, DOD has not demonstrated that its
decision to move forward with the fourth option was based on a sound
business case.

While there is no one approach to business process reengineering, such as
DOD's efforts to restructure its MHS, GAO's Guide advocates a business
case as a key document for agency executives to use in deciding whether to
go ahead with implementing a new process.14 A sound business case should
include detailed qualitative and quantitative analyses in support of
selecting and implementing the new process in terms of benefits, costs,
and risks.

According to DOD's business case, its preferred approach to restructuring
its MHS

           o takes incremental and achievable steps that will yield
           efficiencies of operations,
           o achieves true economies of scale by combining common functions,
           o provides structural changes enabling MHS transformation
           initiatives outlined in the Quadrennial Defense Review,
           o preserves service-unique culture for each of the services'
           medical components,
           o supports the principles of unity of command and effort under
           joint operations,
           o maintains USD P&R and ASD (HA) oversight of the Defense Health
           Program,
           o facilitates consolidation of medical headquarters under 2005
           BRAC law,
           o creates a joint environment for the development of future MHS
           leaders, and
           o positions the MHS for further advances, if warranted, toward
           more unification.
			  
14GAO/AIMD-10.1.15.			  

           Although we have not evaluated the pros and cons of DOD's chosen
           approach, based on our review of DOD's business case DOD only
           described what it believes its chosen option will accomplish.
           DOD's business case does not, however, document how it determined
           the fourth option to be better than the other three in terms of
           its potential impact on medical readiness, quality of care,
           beneficiaries' access to care, costs, implementation time, and
           risks. In addition, DOD has not provided documentation to show
           that the stated benefits of the fourth option were obtained based
           on any quantitative analysis. DOD officials told us that the
           fourth option takes incremental and achievable steps that will
           yield efficiencies of operations. The officials acknowledged that
           the business case lays the foundation for future analysis. Until
           DOD provides documentation of any analysis of the fourth option
           and a sound business case with specific information for
           implementing this fourth option along with a cost-benefit analysis
           justifying this choice, DOD will not be in a sound position to
           assure the Secretary of Defense and Congress that it made an
           informed decision when it chose the fourth option over the other
           three or that its chosen option will have the desired impact on
           DOD's MHS.

           Furthermore, the business case does not document any
           results-oriented performance measures that will be used to assess
           progress toward achieving the goals of restructuring DOD's medical
           command structure. The Government Performance and Results Act of
           199315 requires federal agencies to develop performance plans with
           goals and indicators to measure or assess the outcomes of program
           activity and provide a basis for comparing actual program results
           with established performance goals. DOD's business case outlines
           broad goals the fourth option will accomplish, but does not
           provide measures by which to judge the relative success of the
           option in achieving the goals. For example, although DOD cites
           that the fourth option will yield efficiencies of operations and
           achieve true economies of scale, it does not provide an indicator
           or target by which to measure the success of this effort in
           reducing costs and improving efficiencies. As a result, the
           department is not in a position to assure itself or Congress
           whether the fourth option will achieve the promised benefits.
			  
15Pub. L. No. 103-62 (1993).

           Conclusions			  

           As DOD begins to restructure its MHS, it is important that DOD be
           able to make informed decisions when selecting and implementing
           the way ahead. Although DOD initiated steps to evaluate options
           for restructuring its system and selected one option to implement,
           it has not demonstrated that its decision to move forward with the
           option was based on a sound business case that includes detailed
           qualitative and quantitative analyses in support of its decision.
           Without such a business case, DOD is not in a sound position to
           assure the Secretary of Defense and Congress that it made an
           informed decision or that its chosen options will have the desired
           impact on DOD's MHS. Further, until DOD develops results-oriented
           performance measures that focus on the outcome of DOD's chosen
           fourth option, the department will not be well-positioned to
           determine or assure Congress that its chosen option is achieving
           the desired impact.
			  
			  Recommendations for Executive Action

           To improve visibility over its decision-making process related to
           the establishment of a unified medical command structure, we
           recommend that the Secretary of Defense direct the Deputy
           Secretary of Defense to take the following two actions:

                        o demonstrate a sound business case for proceeding
                        with its chosen option, including detailed
                        qualitative and quantitative analyses of benefits,
                        costs, and risks associated with implementing the
                        transformation, and
                        o provide Congress with the results of that
                        assessment.

           Furthermore, to monitor whether the transformation is meeting its
           goals of eliminating unnecessary duplication; streamlining
           organizational structures; and aligning authority, responsibility,
           and financial control, we recommend that the Secretary of Defense
           direct the Deputy Secretary of Defense to establish and monitor
           outcome-focused performance measures to help guide the
           transformation.
			  
			  Agency Comments and Our Evaluation

           DOD provided written comments on a draft of this report and
           concurred with our recommendations.

           DOD concurred with our first recommendation to demonstrate a sound
           business case for proceeding with its chosen option, stating that
           an implementation team will conduct comprehensive planning to
           include an assessment of implications for doctrine, organization,
           training, material, leadership, personnel, and facilities.
           According to DOD, the implementation team will then write a
           comprehensive business case for DOD's chosen option, including a
           qualitative and quantitative analysis of the risks, benefits, and
           change management challenges. DOD further stated that Congress
           will be provided with the results of the analysis. While DOD's
           response is encouraging, we remain concerned that the department's
           description of its planned actions does not include what actions,
           if any, DOD plans to take to document how it determined the fourth
           option to be better than the other three in terms of its potential
           impact on medical readiness, quality of care, beneficiaries'
           access to care, costs, implementation time, and risks. In the
           absence of more specific details on its planned actions, we
           continue to emphasize the department's need for a sound business
           case with specific information for implementing the fourth option
           along with a cost-benefit analysis justifying this choice. Without
           such information, DOD will not be in a sound position to assure
           the Secretary of Defense and Congress that it made an informed
           decision when it chose the fourth option over the other three
           options.

           In an overall comment discussing the basis for its decision, DOD
           noted that once the review of the three options proposed by the
           Joint Unified Command Working Group was completed, there remained
           very strong objection to proceeding with full implementation of a
           unified medical command. DOD noted that in the opinion of the
           department, this reluctance to proceed with wholesale change was
           an indicator of the strength of the cultural challenges to
           successful implementation. DOD further noted that as in GAO's
           Business Process Reengineering Assessment Guide, failure to
           address change management issues can result in failure of
           transformation efforts.

           While DOD's response correctly identified cultural challenges as a
           potential barrier to implementing a unified medical command, DOD's
           business case only described what it believes its chosen option
           will accomplish. GAO's Guide cites numerous potential
           implementation barriers--including cultural resistance to
           change--that need to be considered when deciding among various
           business options. GAO's Guide, however, makes clear that the
           potential impact of these barriers and the costs of addressing
           them are to be factored into the cost-benefit analyses before the
           decision--not simply used as justifications for not carrying out
           the suggested analyses of those options, as DOD has done. The
           department's view that there is a strong cultural challenge to
           successful implementation should underscore the need for
           department leadership to address the challenge rather than be used
           to justify a decision by the department to avoid necessary change.
           While we agree that there are occasions when incremental
           improvements are appropriate to address change management issues,
           such as when an organization is not prepared to undergo dramatic
           change, a crucial step for the department is to comprehensively
           analyze and document the costs, benefits, and risks of all
           proposed options and provide a sound business case justifying its
           decision to choose one option over the others. We believe that it
           is very important that DOD include the outcome of this analysis in
           the assessment results provided to Congress as we recommended.

           With regard to our second recommendation to monitor whether the
           transformation is meeting its goals, DOD concurred with our
           recommendation, noting that it will implement specific
           outcome-focused performance measures.

           DOD's comments are reprinted in appendix II. DOD also provided
           technical comments, which we have incorporated in the final report
           where appropriate.

           We are sending copies of this report to the appropriate
           congressional committees. We are also sending copies to the
           Secretary of Defense; the Deputy Secretary of Defense; the Under
           Secretary of Defense for Personnel and Readiness; the Assistant
           Secretary of Defense (Health Affairs); the Vice Chairman of the
           Joint Chiefs of Staff; the Secretary of the Air Force; the
           Secretary of the Army; the Secretary of the Navy; the Executive
           Director, Defense Business Board; and the Director, Center for
           Naval Analyses. This report will also be available at no charge on
           GAO's Web site at [25]http://www.gao.gov .

           Should you or your staff have any questions concerning this
           report, please contact me at (202) 512-4300 or [26][email protected]
           . Contact points for our Offices of Congressional Relations and
           Public Affairs may be found on the last page of this report. GAO
           staff members who made major contributions to the report are
           listed in appendix III.

           Henry L. Hinton, Jr.
			  Managing Director
			  Defense Capabilities and Management
			  
			  Appendix I: Scope and Methodology

           To address our objectives, we obtained and reviewed documents,
           reports, and other information, as available, related to the
           development of options for a unified medical command structure
           within the Department of Defense (DOD). We also interviewed
           officials within the Office of the Assistant Secretary of Defense
           (Health Affairs); the Offices of the Surgeons General of the Air
           Force, Army, and Navy; the Joint Staff Logistics Directorate; the
           Defense Business Board; and the Center for Naval Analyses.

           To identify and describe the options for structuring a unified
           medical command that have been recommended in recent studies by
           DOD and other organizations, we obtained and analyzed various
           reports, studies, and DOD documents outlining options and
           proposals to reconfigure the military health system (MHS). In
           conducting our review, we limited our focus to studies for a
           unified medical command structure within the last 3 years.
           Specifically, we reviewed concepts of operations for three unified
           medical command structure options developed by DOD's Joint/Unified
           Medical Command Working Group and a concept plan presented by the
           Under Secretary of Defense for Personnel and Readiness and the
           Assistant Secretary of Defense (Health Affairs). We also reviewed
           recent reports issued by the Center for Naval Analyses and the
           Defense Business Board related to reconfiguring the MHS. In
           addition, we reviewed relevant sections of Program Budget Decision
           753, Military Health System Strategic Plan, 2006 Quadrennial
           Defense Review Roadmap for Medical Transformation, and Medical
           Joint-Cross Service Group 2005 Base Closure and Realignment
           Report. To gain a better understanding of the structure and
           organization of each option, we interviewed officials from DOD's
           Joint/Unified Medical Command Working Group, the Office of the
           Assistant Secretary of Defense (Health Affairs), and the Joint
           Staff Logistics Directorate. We also interviewed officials from
           the Defense Business Board to discuss their effort related to the
           restructuring of DOD's MHS and their recommendation to implement a
           unified medical command structure.

           To determine the extent to which DOD has identified the potential
           impact of the options for a unified medical command under
           consideration, we analyzed the documents and studies obtained from
           DOD's Joint/Unified Medical Command Working Group, the Joint Staff
           Logistics Directorate, and the Center for Naval Analyses to
           identify their assessments of the implications for each option on
           quality of care, access to care, and medical readiness. We
           reviewed and analyzed the DOD Joint/Unified Medical Command
           Working Group briefings, point papers, organizational charts, and
           any other documents that were available that pertained to DOD's
           MHS restructuring efforts, plans, and status. Additionally, we
           reviewed and analyzed the cost implications study performed by the
           Center for Naval Analyses for the three options developed by DOD's
           Joint/Unified Medical Command Working Group and interviewed its
           chief author to determine the extent of the analyses performed,
           the basis of the analyses, and any limitations of the study. We
           did not independently review the validity of the estimates that
           the Center for Naval Analyses developed, but we concluded that its
           study was logical, well-documented, and reasonable given its
           assumptions and focus. We interviewed officials from DOD's
           Joint/Unified Medical Command Working Group, the Office of the
           Assistant Secretary of Defense (Health Affairs), and the Joint
           Staff Logistics Directorate to discuss the implications of each
           option and identify any limitations in their assessments. We also
           reviewed GAO's Business Process Reengineering Assessment Guide to
           determine guidelines for assessing reengineering efforts. Other
           issues, such as determining the appropriate command and control
           structure within DOD to manage the MHS, did not fall within the
           scope of this review.

           We conducted our work from December 2006 through September 2007 in
           accordance with generally accepted government auditing standards.
			  
			  Appendix II: Comments from the Department of Defense
			  
			  Appendix III: GAO Contact and Staff Acknowledgments
			  
			  GAO Contact

           Henry L. Hinton, Jr., (202) 512-4300 or [email protected]
			  
			  Acknowledgments

           In addition to the contact named above, Derek B. Stewart (retired
           Director); Sandra B. Burrell, Assistant Director; Rebecca S.
           Beale; Benjamin A. Bolitzer; Grace A. Coleman; Susan C. Ditto;
           Steve J. Fox; Julia C. Matta; Clara C. Mejstrik; Ty B. Mitchell;
           Charles W. Perdue; and Terry Richardson made key contributions to
           this report.
			  
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(350934)

To view the full product, including the scope
and methodology, click on [33]GAO-08-122 .

For more information, contact Henry L. Hinton, Jr. at (202) 512-4300 or
[email protected].

Highlights of [34]GAO-08-122 , a report to congressional committees

October 2007

DEFENSE HEALTH CARE

DOD Needs to Address the Expected Benefits, Costs, and Risks for Its Newly
Approved Medical Command Structure

The Department of Defense (DOD) operates one of the largest and most
complex health systems in the nation and has a dual health care
mission--readiness and benefits. The readiness mission provides medical
services and support to the armed forces during military operations. The
benefits mission provides health care to over 9 million eligible
beneficiaries, including active duty personnel, retirees, and dependents
worldwide. Past GAO and other reports have recommended changes to the
military health system (MHS) structure. GAO was asked to (1) describe the
options for structuring a unified medical command recommended in recent
studies by DOD and other organizations and (2) assess the extent to which
DOD has identified the potential impact these options would have on the
current MHS. GAO analyzed studies and reports prepared by DOD's
Joint/Unified Medical Command Working Group, the Defense Business Board,
and the Center for Naval Analyses, and interviewed department officials.

[35]What GAO Recommends

GAO is recommending that DOD address the expected benefits, costs, and
risks for implementing the fourth option and provide Congress the results
of its assessment. In commenting on a draft of this report, DOD concurred
with GAO's recommendations.

DOD considered options to address the department's dual health care
mission that differed in their approaches to both command structure and
operations. In April 2006, the Joint/Unified Medical Command Working Group
identified three options: (1) establishing a unified medical command on
par with other functional combatant commands; (2) establishing two
separate commands--a Medical Command, which would provide
operational/deployable medicine, and a Healthcare Command, which would
provide beneficiary health care through the military treatment facilities
and civilian providers; and

(3) designating one of the military services to provide all health care
services across the department. Subsequently, in November 2006, a fourth
option was presented that would consolidate key common services and
functions, which are currently performed within each of the services, such
as finance, information management and technology, human capital
management, support and logistics, and force health sustainment. This
option would leave the existing structures of the Army, Navy, and Air
Force medical departments over all military treatment facilities
essentially unchanged. The Deputy Secretary of Defense approved this
fourth option in November 2006.

Although DOD initiated steps to evaluate the impact that some
restructuring options might have on the MHS, it did not perform a
comprehensive cost-benefit analysis of all potential options. GAO's
Business Process Reengineering Assessment Guide establishes that a
comprehensive analysis of alternative processes should include a
performance-based, risk-adjusted analysis of benefits and costs for each
alternative. The working group used several methods to determine some of
the benefits, costs, and risks of implementing its three proposed options.
For example, it used the Center for Naval Analyses to determine the cost
implications for each option, and it solicited the views of key
stakeholders. However, based on the working group's methodology, the group
intended to conduct a more detailed cost-benefit analysis of whichever of
the three options senior DOD leadership selected, but the group's work
ceased once the fourth option was formally approved. While DOD approved
the fourth option, DOD has not demonstrated that its decision to move
forward with the fourth option was based on a sound business case. Based
on GAO's review of DOD's business case, DOD has described only what it
believes its chosen option will accomplish. The business case does not
demonstrate how DOD determined the fourth option to be better than the
other three in terms of its potential impact on medical readiness, quality
of care, beneficiaries' access to care, costs, implementation time, and
risks because DOD does not provide evidence of any analysis it has
performed of the fourth option or a sound business case justifying this
choice. Without such analysis and documentation, DOD is not in a sound
position to assure the Secretary of Defense and Congress that it made an
informed decision when it chose the fourth option over the other three or
that its chosen option will have the desired impact on DOD's MHS.

References

Visible links
  23. http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-95-104
  24. http://www.gao.gov/cgi-bin/getrpt?GAO-05-325SP
  25. http://www.gao.gov/
  26. mailto:[email protected]
  27. http://www.gao.gov/
  28. http://www.gao.gov/
  29. http://www.gao.gov/fraudnet/fraudnet.htm
  30. mailto:[email protected]
  31. mailto:[email protected]
  32. mailto:[email protected]
  33. http://www.gao.gov/cgi-bin/getrpt?GAO-08-122
  34. http://www.gao.gov/cgi-bin/getrpt?GAO-08-122
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