Defense Health Care: Tri-Service Strategy Needed to Justify Medical
Resources for Readiness and Peacetime Care (Letter Report, 11/01/1999,
GAO/HEHS-00-10).

Pursuant to a legislative requirement, GAO provided information on the
Department of Defense's (DOD) military health system (MHS), focusing on:
(1) the need for national capital area (NCA) military treatment
facilities (MTF) and DOD's strategy for assessing such needs; (2)
identifying any obstacles hindering DOD's ability to make coherent needs
assessments; and (3) whether current care coordination among NCA MTFs
could be improved.

GAO noted that: (1) despite successful DOD and service efforts to
improve MHS management, DOD still lacks a comprehensive tri-service
strategy for determining and allocating medical resources among MTFs;
(2) consequently, neither GAO nor DOD can fully address the need for, or
appropriate size of NCA MTFs or MTFs elsewhere in MHS; (3) a tri-service
strategy applied systemwide would enable DOD to assess the need for each
MTF by taking into account the resources needed for both readiness and
peacetime care available at all NCA MTFs; (4) also, resources available
in the local civilian community need to be considered; (5) such a
strategy would also provide a systematic basis for justifying budget
requests; (6) DOD has recently begun to address this fundamental
deficiency; (7) a key obstacle to developing a tri-service strategy is
the military services' long-standing independence; (8) historically, the
services have had enough resources to maintain separate health care
systems, with capabilities overlapping during peacetime; (9) as a
result, over the years, formal interservice management efforts have been
limited and, today, remain difficult to achieve; (10) a second obstacle
is that DOD and the services have not determined the cost of MHS'
evolving readiness mission or the cost of its peacetime care; (11)
without knowing such costs, DOD is hampered in justifying MHS' size and
defending the need for individual MTFs; (12) exacerbating this has been
the emerging peacetime care emphasis during this decade--projected to
continue in the next--which competes for resources with MHS' basic
readiness mission; (13) regarding service coordination with NCA, GAO
found that MTFs have entered into numerous, varying agreements to share
resources; (14) such ad hoc agreements are vulnerable to changes in MTF
budgeting approaches and other factors that can affect the MTFs'
willingness to coordinate their efforts; (15) DOD and the services'
Surgeons General have undertaken improvement initiatives, including
implementing DOD's managed care program, TRICARE; reducing the number of
medical personnel; consolidating graduate medical education programs;
establishing partnerships with the Department of Veterans Affairs;
reducing hospital stays; restructuring hospitals into more efficient
clinics; and revising budget processes to more closely link funding to
cost-effective health care; and (16) among these the most critical in
GAO's and DOD's view is to develop a tri-service strategy that takes
into account current and projected beneficiary populations and optimally
seeks to realign MTF staffing and resource allocations.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-00-10
     TITLE:  Defense Health Care: Tri-Service Strategy Needed to
	     Justify Medical Resources for Readiness and Peacetime Care
      DATE:  11/01/1999
   SUBJECT:  Military downsizing
	     Military cost control
	     Managed health care
	     Health care programs
	     Combat readiness
	     Interagency relations
	     Health resources utilization
	     Health services administration
	     Military hospitals
	     Redundancy
IDENTIFIER:  CHAMPUS
	     DOD TRICARE Program
	     Civilian Health and Medical Program of the Uniformed
	     Services
	     Defense Health Program

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Cover
================================================================ COVER

Report to Congressional Requesters

November 1999

DEFENSE HEALTH CARE - TRI-SERVICE
STRATEGY NEEDED TO JUSTIFY MEDICAL
RESOURCES FOR READINESS AND
PEACETIME CARE

GAO/HEHS-00-10

Justifying Military Medical Resources

(101615)

Abbreviations
=============================================================== ABBREV

  CHAMPUS - Civilian Health And Medical Program of the Uniformed
     Services
  DHP - Defense Health Program
  DOD - Department of Defense
  FEHBP - Federal Employees Health Benefits Program
  MHS - military health system
  MTF - military treatment facility
  NCA - national capital area

Letter
=============================================================== LETTER

B-282939

November 3, 1999

The Honorable Stephen E.  Buyer
Chairman
The Honorable Neil Abercrombie
Ranking Minority Member
Subcommittee on Military Personnel
Committee on Armed Services
House of Representatives

The Honorable Wayne Allard
Chairman
The Honorable Max Cleland
Ranking Minority Member
Subcommittee on Personnel
Committee on Armed Services
United States Senate

The Department of Defense's (DOD) military health system (MHS),
costing about $16 billion annually, offers care to 8.2 million
military and civilian beneficiaries.  The system has a dual role of
medically supporting wartime deployments--its readiness mission\1
--while caring for active duty members, retirees, and their families
in peacetime.  The Army, Navy, and Air Force provide most of the
system's care through their own medical centers, hospitals, and
clinics, totaling about 580 treatment facilities worldwide.  Regional
networks of civilian providers supply the remaining care.  MHS has
undergone major demographic changes and, today, serves more retirees
than active duty beneficiaries and their respective families.  Also,
mirroring overall military end-strength decreases during this decade,
military treatment facilities (MTF) have been closed or downsized,
their budgets constrained, and medical practices shifted toward an
emphasis on managed care.  Such conditions have focused attention on
the prospective need for MTFs, the coordination of peacetime care
among them, and alternative care delivery approaches. 

Among the areas affected by the changes is the national capital area
(NCA), in and around Washington, D.C.  There, the three services
offer care to about 400,000 beneficiaries in 26 MTFs, including 3
medical centers.  Concerned about potential service overlaps and
whether increased efficiencies are possible, the Congress, in the
1998 Defense Authorization Act mandated that we review the need for
and coordination of care among NCA MTFs.  This review is the second
of two GAO reviews mandated by the act.  In the first review, we
examined the Navy's and Army's attempts in 1997 to downsize and close
certain graduate medical education programs--the primary source of
military physicians.  In the resulting April 1998 report, we found
that DOD and the two services lacked mutually acceptable criteria and
methods for targeting the graduate medical education programs.  DOD
agreed with our recommendation to develop the needed guidance and is
now doing so.\2

As agreed with your offices, this review's objectives are to (1)
evaluate the need for NCA MTFs and DOD's strategy for assessing such
needs, (2) identify any obstacles hindering DOD's ability to make
coherent needs assessments, and (3) determine whether current care
coordination among NCA MTFs could be improved.  We also agreed that,
because NCA MTFs are integral parts of the overall MHS, we would
assess recent DOD initiatives to make MHS management improvements. 
We conducted our work between March 1998 and September 1999 in
accordance with generally accepted government auditing standards. 
For details on our methodology, see appendix I. 

--------------------
\1 MHS readiness needs are generally derived by projecting the active
duty medical personnel and equipment required to support major
wartime conflicts. 

\2 Collaboration and Criteria Needed for Sizing Graduate Medical
Education (GAO/HEHS-98-121, Apr.  29, 1998). 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Despite successful DOD and service efforts to improve MHS management,
DOD still lacks a comprehensive tri-service strategy for determining
and allocating medical resources among MTFs.  Consequently, neither
we nor DOD can fully address the need for, or appropriate size of,
NCA MTFs or MTFs elsewhere in MHS.  In the current health care
environment, each service has its own needs determination and
resource allocation approach.  Generally, each allocates resources
based on prior year budgets, facility size, location, historical
workload, and readiness and political considerations.  A tri-service
strategy applied systemwide would enable DOD to assess the need for
each MTF by taking into account the resources needed for both
readiness and peacetime care available at all NCA MTFs.  Also,
resources available in the local civilian community need to be
considered.  Such a strategy would also provide a systematic basis
for justifying budget requests.  DOD has recently begun to address
this fundamental deficiency. 

A key obstacle to developing a tri-service strategy is the military
services' long-standing independence.  Historically, the services
have had enough resources to maintain separate health care systems,
with capabilities overlapping during peacetime.  As a result, over
the years, formal interservice management efforts have been limited
and, today, remain difficult to achieve.  A second obstacle is that
DOD and the services have not determined the cost of MHS' evolving
readiness mission or the cost of its peacetime care.  Without knowing
such costs, DOD is hampered in justifying MHS' size and defending the
need for individual MTFs.  Exacerbating this has been the emerging
peacetime care emphasis during this decade--projected to continue in
the next--which competes for resources with MHS' basic readiness
mission.  Today, for example, retirees outnumber active duty
beneficiaries and their respective families.  Studies during the
period have identified deficiencies in medical personnel readiness. 
As a result, questions recur about whether MHS is too large; what the
potential extent of service overlap and inefficiencies are among MTFs
and if all are needed; whether more attractive alternatives to MTF
care are available; and whether military providers are being placed
and trained properly to manage readiness effectively. 

Regarding current service coordination within NCA, we found that MTFs
have entered into numerous, varying agreements to share resources,
such as one MTF sending specialty providers to other MTFs on a
monthly basis.  While the agreements appear beneficial, they are
mostly ad hoc and results are not well documented.  Such agreements
are vulnerable to changes in MTF budgeting approaches and other
factors that can affect the MTFs' willingness to coordinate their
efforts.  A recent DOD effort to further consolidate NCA MTF services
by merging NCA medical centers met with major disagreements about
what care should be provided and where.  As a result, the effort was
put on hold and the centers continue to operate independently. 

During this decade, DOD and the services' Surgeons General have
undertaken improvement initiatives, including implementing DOD's
managed care program, TRICARE; reducing the number of medical
personnel; consolidating graduate medical education programs;
establishing partnerships with the Department of Veterans Affairs;
reducing hospital stays; restructuring hospitals into more efficient
clinics; and revising budget processes to more closely link funding
to cost-effective health care.  Recently, DOD began new initiatives. 
Among these, the most critical in our and DOD's view is to develop a
tri-service strategy that takes into account current and projected
beneficiary populations, focuses on MHS' basic wartime and peacetime
care missions, and optimally seeks to realign MTF staffing and
resource allocations.  This action is needed to justify MHS' basic
resource needs in a continually changing health care environment. 
Also, the realignment should help to maximize enrollment and provide
more effective care to enrolled beneficiaries as a result of savings
and the avoidance of unnecessary costs.  Progress on this initiative
must be made before most of the others can proceed. 

The tri-service team assembled to develop the new MHS strategy faces
a daunting challenge, given the task's complexity and the services'
history of independence.  For this reason, we believe DOD and the
services need to continue dedicating high-level management attention
to ensure the project succeeds.  To enhance congressional oversight
of this critical endeavor, we also believe DOD needs to periodically
report to the cognizant congressional committees as the project
progresses. 

   BACKGROUND
------------------------------------------------------------ Letter :2

MHS costs about $16 billion annually and offers care to a beneficiary
population of about 8.2 million active duty personnel\3 and their
dependents, and military retirees and their dependents and survivors. 
By law, MHS has a dual role of supporting wartime and other
deployments and providing peacetime care.  For peacetime care, the
services provide similar medical services worldwide to both military
and civilian beneficiaries.  However, the services differ in their
medical support requirements for deployments.  For example, the Army
medically supports ground combat, the Navy supports the Naval Fleet
and the Marine Corps on shipboard and land, and the Air Force is the
primary means for air evacuation of wartime casualties. 

MHS' readiness mission determines the minimum numbers of active duty
medical personnel required by each service.  Each service's readiness
mission has two key components.  The first component is the
personnel\4 and equipment needed to support two major regional
conflicts.  If, for example, major conflicts developed in two parts
of the world and the United States entered the conflicts, sufficient
medical resources would be needed to care for an estimated number of
U.S.  casualties.  Such resources would be needed where the conflict
was occurring and where casualties were evacuated to, such as remote
bases or stateside.  Today's readiness mission, which continues to
evolve, calls for a smaller, more mobile medical force then during
the Cold War.  The second component is the routine daily support for
active duty personnel not in combat and their dependents assigned
outside the United States and to certain remote U.S.  locations. 
Both readiness mission components rely on a U.S.  rotational base
that allows medical personnel to rotate to and from assignments. 
Because assignments abroad are commonly only for 12 to 24 months, a
continuous replacement flow is needed.  Also, added medical personnel
in training are needed to provide for attrition.  Medical personnel
are also available to help provide peacetime care.  And, while MTFs
are not required to provide peacetime care for non-active-duty
beneficiaries, such care can provide readiness training for military
providers. 

As shown in figure 1, active duty personnel comprise a small
percentage--19 percent--of the 8.2 million beneficiaries, and they
have first priority for MTF care.  Active duty dependents represent
almost 30 percent of the eligible population.  Retirees and their
dependents and survivors are just over 50 percent of the beneficiary
population. 

   Figure 1:  Eligible
   Beneficiaries

   (See figure in printed
   edition.)

Note:  Due to rounding, pie slices do not add to 100. 

Source:  Defense Health Program, Fiscal Year 2000/2001 Biennial
Budget Estimates (Feb.  1999). 

About three-fourths or $12 billion of MHS' costs are incurred by
about 580 MTFs--15 medical centers, 76 hospitals, 374 medical
clinics, and about 115 dental clinics.  Medical centers are large
critical care facilities that provide a broad range of inpatient and
outpatient health care, serve as referral centers with specialized
and consultative support, and provide graduate medical education. 
Hospitals provide inpatient and outpatient treatment with diagnostic
and therapeutic services, such as preventive medicine.  Clinics are
smaller medical facilities offering primary care, mostly on an
outpatient basis.  Most MTFs are on military installations--in or
near urban areas or remotely located--to support active duty
personnel.\5 Some MTFs, mostly clinics, are located off installations
in urban areas to more conveniently serve local retiree and other
beneficiaries.  And medical centers may be located off installations,
where beneficiary populations can provide sufficient patient workload
volume and mix.  MTFs are similar to civilian medical centers,
hospitals, and clinics, although military providers receive special
training for readiness. 

The remaining one-fourth, or about $3.5 billion, of the system's cost
is for care delivered through civilian support contracts under DOD's
TRICARE program.  TRICARE, introduced in 1994, is DOD's managed care
approach to controlling costs and improving access and quality of
care.  Since March 1995, the civilian contracts have been implemented
on a sequential regional basis across the nation.  The contract that
included NCA was implemented last--in June 1998. 

TRICARE encompasses MTF care as well as civilian contracted care. 
TRICARE offers beneficiaries three health care options:  Prime,
Standard, and Extra.  TRICARE Prime is the managed care approach that
requires beneficiaries to enroll, does not require copayments for
care, and offers them top priority for MTF care.  Active duty
personnel are automatically enrolled in Prime.  DOD and the services
consider Prime their best option for controlling costs and improving
care access and quality.  Beneficiaries may also elect the Standard
and Extra care options, which are fee-for-service approaches not
requiring beneficiary enrollment. 

The Assistant Secretary of Defense for Health Affairs establishes MHS
policy and coordinates TRICARE, including administering the support
contracts.  Further, Health Affairs plans and budgets for health care
operations and maintenance.\6 Each service has its own medical
department, headed by a Surgeon General, which operates its MTFs and
recruits and funds its military medical personnel.  Table 1 shows the
number of MTFs by service and facility type, excluding clinics that
provide only dental care.  MTF physicians and medical support\7
include active duty personnel (about 75 percent of all provider and
support personnel) and civilians.  Appendix II provides a profile of
the NCA MTFs. 

                                Table 1
                
                 Worldwide MTFs by Service and Facility
                          Type, as of May 1999

                                        Medica
                                             l
                                        center  Hospit  Clinic
                                             s     als       s   Total
--------------------------------------  ------  ------  ------  ------
Army                                         7      21     178     206
Navy                                         3      22     148     173
Air Force                                    5      33      48      86
======================================================================
Total                                       15      76     374     465
----------------------------------------------------------------------
Note:  Facilities that provide only dental care are not included. 

Source:  DOD and each service's Office of the Surgeon General. 

Reflecting the one-third decrease in active duty forces during the
past 10 years, MHS has steadily declined, with military medical
personnel declining 15 percent and one-third of the MTFs closing. 
These conditions, along with constrained MTF budgets, have raised
concerns about the continued need for all medical facilities and
assets and how peacetime care can best be optimized. 

As an integral part of MHS, NCA has 26 MTFs in a radius of about 60
miles around Washington, D.C.  (See fig.  2.) Three of these MTFs are
medical centers--Walter Reed Army Medical Center in Washington, D.C.;
National Naval Medical Center in Bethesda, Maryland; and the Air
Force's Malcolm Grow Medical Center at Andrews Air Force Base in
Maryland.  The Army and Navy each have 12 MTFs, while the Air Force
has only its medical center and 1 clinic. 

   Figure 2:  MTFs in the National
   Capital Area

   (See figure in printed
   edition.)

Source:  Health Affairs, TRICARE Region 1 Lead Agent, and various MTF
officials. 

NCA includes about 5 percent of MHS' beneficiaries and, in fiscal
year 1998, incurred about 5 percent or $778 million of MHS' total
costs.  In 1998, the three medical centers accounted for 75 percent
of the NCA MTFs' costs--including 95 percent of inpatient and 65
percent of outpatient costs.  From 1995 to 1998, NCA inpatient
admissions declined 44 percent and related costs declined 23 percent. 
Outpatient visits have also declined by 14 percent, but related costs
have risen 22 percent, reflecting nationwide trends toward providing
more costly care, including surgery, on an outpatient basis. 

Walter Reed, located in Washington, D.C., near the Maryland border,
began operating in 1909.  It has branch clinics at the Pentagon and
in the District at Fort McNair.  The Army also has a community
hospital at Fort Belvoir, Virginia, with four branch clinics in
Virginia and a clinic at Fort Meade, Maryland, which also has three
branch clinics in Maryland.  The Naval Medical Center in Bethesda
opened in 1942 about 5 miles north of Walter Reed.  Bethesda has
eight branch clinics in Washington, D.C.; Maryland; and Virginia. 
Separately, the Navy has two clinics in Maryland--at Annapolis and at
Patuxent River--and one clinic in Quantico, Virginia.  Malcolm Grow
Medical Center opened in 1958 at Andrews Air Force Base in Maryland. 
The Air Force also has a clinic at Bolling Air Force Base in
Washington, D.C.  (See app.  II for more details on NCA MTFs.)

--------------------
\3 Includes members of the Coast Guard and the Commissioned Corps of
the National Oceanic and Atmospheric Administration and of the Public
Health Service, who are eligible for care in the military health
system. 

\4 This includes reliance on medical forces activated from the
reserves. 

\5 For example, many of the medical personnel needed to support the
82nd Airborne Division at Fort Bragg, North Carolina, provide
services at Womack Army Medical Center, also located at Fort Bragg. 

\6 DOD medical program funds are provided through a single Defense
Health Program (DHP) appropriations account.  This account provides
funds for operations and maintenance, procurement, research, and
development, but it excludes funds for active and reserve personnel
(funded through the services) or for military construction (funded
through a separate account).  The Assistant Secretary of Defense for
Health Affairs directs the distribution of the funds to the services,
which allocate the funds to their facilities. 

\7 DOD medical personnel include physicians, dentists, nurses,
administrators, medical technicians, veterinarians, and corpsmen. 

   THE NEED FOR AND APPROPRIATE
   SIZE OF NCA AND OTHER MTFS ARE
   NOT NOW DETERMINABLE
------------------------------------------------------------ Letter :3

It is not possible to fully address the need for or appropriate size
of NCA MTFs or MTFs elsewhere in MHS because DOD and the services
lack an overall strategy for determining and allocating medical
resources among MTFs.  While efforts to coordinate care among
services have occurred, DOD and the services have not systematically
collaborated in seeking the most cost-effective placement and use of
all medical resources.  This is so even though MTFs in close
proximity, such as the NCA MTFs, have overlapping care capabilities
and treat any beneficiary regardless of service affiliation.  The
need for an overall strategy was reaffirmed recently when DOD
suspended an effort to merge NCA medical centers and medical centers
in San Antonio, Texas, for lack of clarity of the medical centers'
missions. 

Service officials told us that each service has its own distinct
approach for determining and allocating MTF resources and generally
does not take into account the other services' resources when making
such decisions.  Moreover, the services use different organizational
structures to plan for and manage their NCA MTFs.  While NCA MTFs are
integral parts of the larger MHS, they are primarily concerned with
the day-to-day delivery of peacetime care.  NCA MTF officials told
us, for example, that they focus their attention on such matters as
budgets, rising pharmacy costs, beneficiary satisfaction, facility
maintenance, medical and support personnel staffing levels, and the
day-to-day running of a hospital or outpatient clinic.  In addressing
the need for their facilities, they largely refer to present and
historical patient care workloads and the various care specialties
their facilities provide.  And, while officials generally cite
readiness as their primary mission, beyond the numbers of military
providers, none readily identified which health care activities and
costs were needed to support readiness requirements.  In this regard,
the most recent major study of NCA MTF needs and operations and
others like it prepared during the early 1990s have largely focused
on peacetime care.\8

In delivering services, we found that the NCA MTFs are
interdependent.  MTF service areas overlap, so the hospitals and
clinics can serve the same patients.  Thus, patients in an Army MTF
may be Air Force or Navy active duty members, dependents, or
retirees.  Likewise, some MTF providers and support staff may come
from another service through a cooperative agreement between the
facilities.  For example, providers from DeWitt Army Community
Hospital at Fort Belvoir provide outpatient prenatal care at a Navy
clinic at nearby Quantico and deliver babies at the Army hospital. 

Further, many of the smaller NCA MTFs, which are branch clinics of
the larger MTFs, also serve as referral sources for specialty care
provided in any of the area's medical centers, which also serve
populations outside the area.  For example, both Bethesda and Walter
Reed treat patients from around the world in specialty care such as
open heart surgery and neurosurgery.  Thus, NCA MTFs influence each
others' workloads, and individual MTF need is not necessarily
determined only by NCA care requirements. 

Recently, the TRICARE managed care support contract that covers 13
northeastern states-- including Maryland, Virginia, and Washington,
D.C.--was implemented, introducing added care options for NCA
beneficiaries.  Many will be able to access both the MTF and the
contractor's civilian care network.  The TRICARE contractor becomes a
fifth major player--along with the Army, Navy, Air Force, and DOD's
Office of the Assistant Secretary for Health Affairs--in the
management and delivery of NCA military health care.  Thus, the
contractor plays a supportive role with MTFs in helping to maintain
military readiness and providing peacetime care.  But this further
complicates the process of determining the need for individual NCA
MTFs and MTFs elsewhere and further underscores the need for DOD and
the services to collaboratively determine each MTF's role in and
share of the area's health care delivery. 

During our review, DOD sought to merge NCA medical centers and
medical centers in San Antonio.  The attempts were suspended,
however, when DOD concluded the medical centers' missions needed to
be clarified before their peacetime care workloads could be analyzed
for possible consolidation.  To illustrate, the Air Force objected to
the proposed elimination of certain services at Malcolm Grow that had
limited patient workloads.  Officials at Malcolm Grow argued that
personnel providing the services were essential to its wartime tasks. 
Such arguments were coupled with the services' traditional objections
to substantially altering their medical centers' structures and
operations.  As a result, the efforts were put on hold and the
centers continue to operate as before.  Until DOD and the services
develop a comprehensive overall approach for justifying each MTF's
size and resources, neither we nor DOD can assess NCA MTFs' needs. 

--------------------
\8 TRICARE Region 1 Integration of Specialty Services Study Final
Report (Healthcare Studies, Vector Research, Inc., Oct.  10, 1995). 

   OBSTACLES IMPEDE DEVELOPING A
   TRI-SERVICE MEDICAL RESOURCE
   STRATEGY
------------------------------------------------------------ Letter :4

Currently, the Army, Navy, and Air Force have separate methods,
rather than an overall tri-service strategy, for determining needs
and allocating resources to MTFs.  And the services define workload,
such as patient visits, differently, which limits DOD's ability to
measure performance across the services.  Several obstacles have
allowed such conditions and deterred development of a tri-service
approach, including the services' long-standing independence and DOD
and the services' not yet having identified readiness costs so that
their systems' peacetime components can be cost-effectively managed. 
Exacerbating these obstacles is the emerging emphasis during this
decade on peacetime care, which competes with MHS' evolving readiness
mission.  As a result, concerns continue about the system's size and
potential MTF care overlaps and inefficiencies.  Also at issue are
whether potentially more attractive MTF care alternatives are
available and whether military providers are being effectively placed
and trained so that readiness is managed effectively. 

      EACH SERVICE HAS ITS OWN
      APPROACH TO DETERMINING
      NEEDS AND ALLOCATING
      RESOURCES
---------------------------------------------------------- Letter :4.1

Currently, each service uses its own model for estimating the number
of medical personnel needed to support its wartime missions, and each
resisted DOD's efforts to apply a common model for determining
minimum medical readiness requirement numbers.  The services have
agreed, however, to use a common approach when DOD's reengineering
initiative, discussed in detail later, is implemented.  The common
model is referred to as the DOD sizing model.  (See app.  III for
descriptions of the services' models.)

Each service also has its own method for allocating resources to its
MTFs--that is, deciding where, how many, and what type of military
providers, support staff, and related funds should be distributed to
each MTF.  To make such decisions, each service generally relies on
historical staffing and workload levels, facility size, and readiness
and political considerations.  Also, each uses different models to
support its decisions.  At the same time, the services' separate
methods for projecting and validating MTF resource needs are and have
been in a continual state of change, and their reliability remains at
issue.  The Army, for example, in its latest MTF needs modeling
effort,\9 reported that a year of mostly on-site MTF work is required
to validate performance data from at least eight or nine sources,
including MHS-wide cost and workload data systems.  The Army also
reported that its other ongoing resource allocation modeling
exercises, while generally useful, were inadequate for specifically
addressing facility and staffing needs.  The Air Force's latest
allocation model version similarly raised reliability issues.  At
Malcolm Grow, for example, officials argued that the model severely
understated pediatric workload and, if followed, would have resulted
in fewer personnel than needed to provide care. 

Accurate, comparable MTF workload data are needed for performance
measurement, cost-effectiveness assessments, and alternative care
delivery evaluations.  Such data include numbers and cost of
outpatient clinical visits, inpatient admissions, and average length
of stay.  But each service defines workload differently, and as basic
an element as a clinic visit is not counted the same.  Also, the cost
and workload data captured in DOD's information systems is neither
accurately reported nor recorded.\10 Thus, cost and performance
comparisons across MTFs are generally unreliable.  For example, we
reported this year that the results of the Medicare subvention
demonstration--which is to demonstrate in six selected locations the
cost and other effects of serving Medicare-eligible military retirees
as MTF enrollees--would be affected by cost data inaccuracies in
DOD's systems. 

While differing in their modeling and resource allocation efforts,
the services also respond differently to reductions in active duty
MTF medical staffing and disagree on readiness needs.  The Army, for
example, apportions reductions among MTFs based on related reductions
in the active duty forces each MTF supports.  The Air Force generally
shares the losses among MTFs but favors facilities that appear most
productive.  In the same vein, in 1993, a tri-service attempt to
develop MTF provider workload standards was abandoned for lack of
support and agreement among the services' participants.  And such
service differences in MTF needs assessment have also been apparent
in DOD-wide attempts to agree on medical readiness needs.  DOD and
service officials told us that the minimum numbers of active duty MTF
physicians needed to treat active duty forces has been a major
disagreement area. 

Moreover, because of their independent approaches, DOD and the
services have not collaborated in seeking the most overall
cost-effective arrangement of medical resources.  For example, the
three large NCA medical centers--Walter Reed, Bethesda, and Malcolm
Grow--are in close proximity and have overlapping service areas.  But
the centers are assigned their resources by the Army, Navy, and Air
Force, respectively, independent of the other hospitals.  As a
result, these facilities provide duplicative services and, in some
cases, lack sufficient workload. 

--------------------
\9 Regional Uniform Benefit model (see app.  III for a description of
the model). 

\10 Medicare Subvention Demonstration:  DOD Data Limitations May
Require Adjustments and Raise Broader Concerns (GAO/HEHS-99-39, May
28, 1999). 

      LONG-STANDING SERVICE
      INDEPENDENCE MAKES
      COORDINATED STRATEGY
      DEVELOPMENT DIFFICULT
---------------------------------------------------------- Letter :4.2

We and many others have reported that DOD has had difficulty
modernizing its health system because of traditional rivalries among
the services and their diverse organizational structures and duties. 
The lines of authority and accountability among hospital commanders,
the service Surgeons General, and the Assistant Secretary of Defense
for Health Affairs are complicated and sometimes at odds.  MHS
funding, for example, is controlled by different entities:  The
Assistant Secretary controls funding for operations, and each service
controls funding for its military personnel who operate the system. 
The services generally have had, until recent years, enough resources
to maintain independent health care systems with overlapping
peacetime care capabilities.  Thus, over the years, while some
collaborative efforts were made, the services generally have not
found it necessary to engage in formal interservice management
efforts, even in today's tight budget times. 

Past studies have suggested changes to the organization of military
medicine, including merging the services' medical departments into a
single health agency,\11 but the services have resisted such efforts. 
Each service believed it had unique medical needs and activities\12
and thus fought to maintain its own health system.  Yet, some
analysts have argued that, in wartime, the U.S.  military fights and
provides medical care under the authority of unified commands, not as
individual services.  The Navy, for example, handles sea, land, and
air functions so that one system could perform all functions.  These
debates continue, while the services' NCA MTFs have sought to make
informal care arrangements with one another for increased
efficiencies, care access, and care quality.  These activities are a
sign that peacetime care delivery, for the most part, takes the same
form regardless of service.  However, a strategy for formally
coordinating resource planning and distribution among the services
while recognizing the uniqueness of their wartime missions has yet to
be achieved. 

--------------------
\11 The Feasibility of Uniting the Medical Services of the Various
Branches of the Armed Forces Into a Single Corps, Congressional
Research Service (Washington, D.C., Aug.  1993). 

\12 Defense Health Care:  Implementing Coordinated Care--A Status
Report (GAO/HRD-92-10, Oct.  3, 1992). 

      CHANGING READINESS NEEDS AND
      COSTS IMPAIR JUSTIFYING THE
      NUMBER AND SIZE OF MTFS
---------------------------------------------------------- Letter :4.3

During the 1990s, following the end of the Cold War, the level of
medical resources--and their costs--needed to ensure readiness has
been widely debated.  With the Soviet Union's dissolution and the
emergence of regional threats, DOD's wartime medical needs changed
markedly.  In 1994, a DOD study, known as the 733 study, estimated
that DOD had twice the military physicians it needed for wartime. 
The services disagreed with the 733 study and individually estimated
that higher numbers of physicians were needed to meet their readiness
missions.  More recently, efforts begun in 1995 to update the 733
study have also met with resistance and disagreements, and the
study's long overdue final report was not signed until May 19993
years after it was due.  DOD pointed out, however, that rather than
its numerical results, the study's analytical approach to determining
medical requirements is to be considered its most important outcome. 

In 1995, the Congressional Budget Office reported that MHS could
decrease its physical capacity by 50 percent.\13 While medical
resource reductions ensued, DOD and the services have yet to agree on
what resources are needed for readiness versus peacetime care.  In
fact, a base closure and realignment study\14 concluded that no
military medical downsizing effort, no matter how well designed,
would accomplish meaningful, appropriate reductions until DOD and the
services agreed on MHS' readiness needs and how best to meet them. 

Without clear distinctions between medical readiness and peacetime
care needs and costs, DOD and the Surgeons General are hampered in
trying to justify the number and size of their MTFs.  For example,
MHS budget requests over the last 3 years have been insufficient to
cover their costs, requiring DOD to request supplemental
appropriations to the cognizant congressional subcommittee's
dissatisfaction.  To develop the basis they need, DOD and the
services together have to define, assign cost to, and agree on what
specific elements comprise medical readiness--namely, deployments;
what activities, including training, prepare military providers for
deployment; and what activities enable the rotation and sustainment
of deployed active duty medical personnel.  Not having done this, DOD
and the services continue operating their health systems not knowing
what percentage of their total costs are for readiness needs and what
percentage are for nonreadiness, peacetime care.  Another consequence
is that DOD has little basis for deciding whether or not to make or
buy its peacetime care services or otherwise to make informed
management decisions about such care. 

--------------------
\13 Restructuring Military Medical Care (Congressional Budget Office,
July 1995). 

\14 In July 1995, the Defense Base Closure and Realignment Commission
submitted a report to the president recommending certain military
bases for closure or realignment.  The report also recommended that
DOD pursue MTF consolidation and restructuring, including the use of
civilian sector resources where it was cost-effective and maximizing
the remaining military resources across service lines. 

      MHS' EMERGING PEACETIME CARE
      EMPHASIS COMPETES WITH
      READINESS MISSION
---------------------------------------------------------- Letter :4.4

MHS' primary mission--and the justification for having active duty
medical providers--is wartime medical readiness.  But in the past 20
years, driven by budget pressures and a growing retiree population's
demands, DOD has increasingly focused on providing peacetime care. 
Throughout the 1980s, MHS costs significantly escalated, fueled by
large cost overruns in the Civilian Health and Medical Program of the
Uniformed Services (CHAMPUS).\15 Between 1980 and 1990, DOD's health
care budget grew by almost 225 percent, and the largest single
program growth--about 350 percent--occurred in CHAMPUS.  Meanwhile,
DOD's non-active-duty population continued to increase.  During the
1990s, MHS budgets generally leveled off, while the numbers of
retirees and their dependents grew to more than half of the total
beneficiary population.  This trend, developing over the past 40
years, is projected to continue.  (See fig.  3.)

   Figure 3:  Actual and Projected
   Active and Non-Active-Duty
   Beneficiaries and Their
   Respective Dependents for
   Selected Years

   (See figure in printed
   edition.)

\a Available data do not categorize retirees and their dependents as
under or over age 65. 

Source:  Office of the Assistant Secretary for Health Affairs. 

In 1994, the Congressional Research Service reported that the growing
portion of DOD's budget for civilian medical care had become a
concern.  Also, we and others reported that, while DOD was
aggressively pursuing its peacetime care duties, training for medical
readiness received less attention. 

Also at issue is whether military care providers have the training
and skills needed for war.  After the Gulf War, we\16 and DOD's
Inspector General\17 questioned DOD's ability to meet wartime medical
needs.  Among other things, we found large numbers of medical
personnel were not deployable due to their unacceptable physical
conditions, lack of required skills, mismatched medical specialties,
and a pervasive lack of wartime readiness training.  Since then, the
services have worked to correct these problems, but concerns persist. 
For example, the Air Force and Navy are now shifting requirements and
providers needed for wartime deployments from their smaller MTFs to
larger facilities to help ensure adequate training.  But each service
generally makes these decisions independent of the others, so that
the physicians may be placed in the same proximities where patient
workloads may be insufficient to train all the physicians. 

Recent legislation continues the peacetime care emphasis.  For
example, the Balanced Budget Act of 1997 authorized a Medicare
subvention demonstration, which extends TRICARE benefits to those
aged 65 and over.  Also, the fiscal year 1999 Defense Authorization
Act mandated a pharmacy demonstration that gives those 65 and over
increased access to the pharmacy benefit through mail order and
retail pharmacies.  The Federal Employees Health Benefits Program
(FEHBP) demonstration, which was also authorized by the 1999 act,
provides another MTF care alternative for those 65 and over by
offering health care coverage that federal civilian employees have. 
Finally, the 1999 act also called for a demonstration of the effects
of providing another TRICARE benefit supplement for senior retirees. 
Managing such alternative care demonstrations while seeking to
eliminate MTF service overlaps and inefficiencies make DOD's need for
a comprehensive tri-service resource management strategy all the more
urgent. 

--------------------
\15 Before TRICARE was fully implemented, DOD operated CHAMPUS, an
insurance-like program that paid for a portion of the care military
families and retirees under age 65 received from private sector
health care providers. 

\16 Medical Readiness:  Efforts Are Under Way for DOD Training in
Civilian Trauma Centers (GAO/NSIAD-98-75, Apr.  1, 1998), Chemical
and Biological Defense:  Emphasis Remains Insufficient to Resolve
Continuing Problems (GAO/NSIAD-96-103, Mar.  29, 1996), Operation
Desert Storm:  Problems With Air Force Medical Readiness
(GAO/NSIAD-94-58, Dec.  30, 1993), Operation Desert Storm: 
Improvements Required in the Navy's Wartime Medical Program
(GAO/NSIAD-93-189, July 28, 1993), Medical Readiness Training: 
Limited Participation by Army Medical Personnel (GAO/NSIAD-93-205,
June 30, 1993), and Operation Desert Storm:  Full Army Medical
Capability Not Achieved (GAO/NSIAD-92-175, Aug.  18, 1992). 

\17 Medical Mobilization Planning and Execution (Inspector General,
DOD, Report No.  93-INS-13, Sept.  30, 1993). 

   NUMEROUS NCA COORDINATION
   AGREEMENTS SEEM BENEFICIAL, BUT
   AN OVERALL STRATEGY IS NEEDED
------------------------------------------------------------ Letter :5

Driven by tight budgets and rising costs, NCA MTFs have entered into
numerous agreements to share resources since 1995.\18 These
agreements cover a wide range of services, both within and across
military departments, and illustrate the need for and potential
benefits of MTF resource sharing in areas such as NCA.  However, the
agreements focus on improving the MTFs' everyday peacetime care
delivery rather than being built into an overall strategic plan
founded on MHS' readiness needs and optimal use of each MTF's
resources. 

Thus, while NCA MTFs have many coordination agreements, it is unclear
how well each facility's agreements support its particular health
system role.  Also, the agreements' largely informal nature make them
vulnerable to proposed MTF budgeting changes and to MTF commanders'
rotation, both of which can affect MTFs' willingness to share
resources.  Such conditions for NCA care coordination provide little
assurance that optimal results are being achieved and argue, in our
view, for an overall resource planning and allocation strategy.  Such
a strategy would provide for the major coordination activities needed
to support each MTF's dual mission. 

--------------------
\18 About 150 agreements were in effect among NCA MTFs at the time of
our review.  Almost all involved one or more of the three medical
centers.  Agreements ranged in scope and duration from continuing
divisions of specialty care among the medical centers to small
exchanges of personnel to cover short-term MTF shortages. 

      NCA MTFS HAVE ENTERED INTO
      NUMEROUS AGREEMENTS AIMED AT
      ENHANCING PEACETIME CARE
---------------------------------------------------------- Letter :5.1

Since 1995, NCA MTFs have entered into numerous agreements to share
personnel, facility space, and equipment to enhance care delivery. 
Such agreements demonstrate that MTF commanders recognize the need
and have taken the initiative to look beyond their own facilities to
best provide medical care.  Most agreements are handled directly by
and among the NCA MTF commanders.\19 MTF commanders told us that the
service agreements have largely been driven by rising care costs and
recent level budgets.  (See fig.  4.)

   Figure 4:  National Capital
   Area MTF Budgets

   (See figure in printed
   edition.)

Source:  Operations and maintenance budget data from NCA MTFs. 

The NCA MTF budget total increased only 5 percent between 1995 and
1998 (in dollars not adjusted for inflation).  Conversely, the cost
of providing care has risen significantly.  The NCA cost per
inpatient admission has increased from $6,224 in 1995 to $8,648 in
1998--a 39-percent increase.  The NCA cost per outpatient visit has
increased from $126 in 1995 to $177 in 1998--a 41-percent increase. 

The following illustrate the variety of current NCA coordination
agreements with respect to genesis, purpose, size, and complexity. 
Due to the varying availability of information about them, the
examples are not presented for comparative purposes nor did we
attempt to judge their individual or collective costs and benefits. 

  -- Exemplifying care coordination within the same service, in 1998,
     Walter Reed and Kimbrough Army Ambulatory Care Clinic at Fort
     Meade arranged to have Walter Reed provide surgeons to Fort
     Meade for outpatient surgeries in areas such as orthopedics and
     ear, nose, and throat.  Fort Meade provides the surgical space,
     support staff, and supplies.  During fiscal year 1998, Walter
     Reed's surgeons performed over 1,000 outpatient surgeries at
     Fort Meade, with patients coming from Walter Reed, each service,
     and across the area.  Benefits cited included reducing Walter
     Reed's surgical backlogs and improving training for surgeons,
     anesthesia nurses, and support staffs. 

  -- Illustrating care coordination between two different service
     MTFs, in 1995, Fort Belvoir's DeWitt Army hospital agreed to
     provide obstetric services at Quantico, a Navy clinic about 23
     miles away, and deliver the babies at Fort Belvoir.  The Army
     hospital sends an obstetrician or nurse practitioner to Quantico
     about twice a week for routine outpatient obstetrical visits. 
     Officials told us that, so far, about 120 deliveries have been
     done at Fort Belvoir.  They estimated savings of $128,000,
     comparing the MTF costs with alternative civilian care the
     services would have otherwise had to reimburse.  Also, Fort
     Belvoir officials cited the added convenience for beneficiaries
     of receiving routine obstetrical care at their local MTF. 

  -- Illustrating an agreement that crosses the three services, in
     1998, the NCA MTFs leased a common type of communication pager
     from a single vendor for their medical staffs.  MTF officials
     estimated savings at over $66,000 a year.  Other benefits cited
     were equipment uniformity and reliability, a consolidated
     directory of pager users, and ease of contact among physicians,
     particularly those serving patients in more than one MTF. 

  -- Representing an extensive tri-service care arrangement, in 1995,
     the three NCA military medical centers agreed to divide the
     provision of inpatient mental health care.  Walter Reed now
     provides all the adult psychiatric care, Bethesda provides all
     the adolescent psychiatric care, and Malcolm Grow provides all
     the substance abuse services in the area.  An exception to
     normal coordination agreements, this arrangement was supported
     by a cost analysis because of the considerable MTF costs
     associated with mental health care.  The arrangement involves no
     exchange of funds but does include exchange of personnel, with
     doctors and nurses of one service working in the other services'
     hospitals.  The major benefits expected are better cost control
     and mental health care quality. 

  -- One set of interservice agreements was not locally initiated. 
     In response to DOD directives since 1994 that unnecessary,
     duplicative graduate medical education programs in the same area
     should be consolidated, Walter Reed and Bethesda agreed to
     integrate nearly a dozen such programs.  And the centers
     continue reviewing the feasibility of combining more of their
     programs.  One integrated program, inpatient neurology, for
     example, is now administered by Walter Reed, is jointly staffed,
     and has nine Army and six Navy trainees.  The Army and Navy have
     made other attempts to significantly downsize their programs,
     including 1997 Navy efforts to eliminate some of its NCA
     graduate medical education programs and the Army's attempt to do
     so at William Beaumont Army Medical Center in El Paso, Texas. 
     But, the efforts were thwarted by lack of DOD and service
     agreement on criteria for deciding which programs to target. 

--------------------
\19 An NCA Federal Health Council informally oversees coordination
among NCA MTFs.  The Council consists of the three medical center
commanders and the Uniform Services University of the Health Sciences
and, recently, the Department of Veterans Affairs Medical Center in
Washington, D.C.  The council, through its work groups, continues to
identify and assess opportunities to coordinate military medical care
delivery. 

      MTF COORDINATION COULD BE
      IMPROVED BY BEING BUILT INTO
      SYSTEMWIDE PLANNING
---------------------------------------------------------- Letter :5.2

The current NCA service coordination agreements have certain general
characteristics.  While appearing to improve care access and quality
at particular facilities, the agreements are not part of any overall
plan for military care delivery in NCA.  And, with few exceptions,
they were entered into without formal cost analyses and generally are
voluntary and nonbinding.  Also, the agreements commonly do not
entail fund transfers among the services or MTFs, although MTF
officials told us that their goal was that no MTF would be
financially disadvantaged by the agreements.  Another characteristic
is that readiness requirements were not driving forces in entering
into the agreements.  Rather, MTF officials told us that, while they
informally considered the agreements' effects on readiness, perceived
dollar savings and improving peacetime care delivery were the main
reasons for sharing their resources.  Officials told us that
achieving the agreements depended heavily on the initiative of senior
NCA medical officers.  And, except for the merger of NCA graduate
medical education programs, DOD and the services' surgeons general
have not had substantial influence on the NCA coordination
agreements. 

The current NCA agreements may be made financially unattractive by
pending MTF budgeting changes and may or may not withstand a
requirement that they be more consistently and formally justified. 
NCA MTF officials told us that under a proposed budgeting
approach--enrollment-based capitation\20 --MTFs would be funded based
largely on their enrolled populations.  The officials told us that if
the approach was adopted without allowing for the current no-cost
service exchanges among facilities, MTFs would be deterred from
entering care coordination agreements unless they are reimbursed. 
For example, the Naval Medical Center at Bethesda routinely sends
physicians to other Naval clinics at no cost to treat beneficiaries
not enrolled at Bethesda.  Bethesda officials told us that, under
enrollment-based capitation, they would be hesitant to continue such
agreements unless reimbursed for the physicians' costs.  Also,
officials told us that the administrative burden of pricing and
recording medical care given and received under the agreements could
seriously affect any agreement's viability.  As a result, agreements
would be abandoned or never started, and individual MTFs would have
the care gaps and overlaps that the current agreements attempt to
address.  Thus, to facilitate voluntary MTF participation, most
agreements have been kept informal and nonbinding.  But such
conditions do not ensure that optimal results are being achieved, may
not be supportive of the system's basic mission, and argue for an
overall tri-service strategy for determining needs and allocating
resources. 

Therefore, while the NCA MTF coordination agreements are numerous and
appear beneficial, we believe the key strategic question is, how well
do they individually and collectively support each MTF's health
system role?  And, further, which of the current and what additional
MTF coordination is needed to support MHS' readiness and peacetime
mission?  But DOD and the services do not have a systemwide strategic
plan that positions them to identify such NCA MTF coordination needs
and provide for the most effective arrangements.  Such a strategy,
for example, might specifically recognize the need to coordinate
costly mental health services, while providing parameters within
which MTF commanders could exercise discretion in arranging smaller,
more temporary resource exchanges. 

--------------------
\20 Under enrollment-based capitation, an MTF's per enrollee funding
rates would be based on the MTF's estimated care costs.  And, if an
MTF's enrollee is referred to and receives care at another MTF, the
home MTF would reimburse the provider MTF at the provider's service
rates.  This may create disincentives for commanders of smaller NCA
clinics, such as Annapolis and Quantico, to refer their enrollees for
needed care at the larger, more costly NCA MTFs, like Bethesda. 

   DOD AND THE SERVICES HAVE BEGUN
   ADDRESSING PROBLEMS, BUT
   SUCCESS REQUIRES THEIR TOTAL
   COMMITMENT
------------------------------------------------------------ Letter :6

During the past decade, DOD experienced many of the same challenges
that confronted U.S.  health care generallyincreasing costs, uneven
care access, and disparate benefit and cost-sharing packages for
similar categories of beneficiaries.  In response, DOD and the
services' Surgeons General initiated, with congressional authority, a
series of demonstration programs across the country to explore ways
to more cost-effectively manage and deliver care to military
beneficiaries.  These demonstration programs provided many valuable
lessons, which DOD has applied to its health care system. 

In 1994, such experiences led DOD to introduce a nationwide managed
care program called TRICARE to improve beneficiary access to
high-quality care while controlling MHS' costs.  Also, DOD and the
Surgeons General improved military care management by consolidating
graduate medical education programs; establishing partnerships with
the Department of Veterans Affairs; reducing hospital stays;
restructuring hospitals into smaller, more efficient clinics;
revising MTF budget processes to more closely link funding to
cost-effective health care; and a host of other improvements. 

DOD and the Surgeons General recognize that their medical system
continues to evolve and its appropriate size and relative costs and
effectiveness will continue to undergo intense scrutiny.  As a
result, in 1998, DOD began 29 separate initiatives to modernize MHS
management.  (See app.  IV.) The initiatives were prompted by
increasing concerns about whether DOD and the services had the right
medical resources in the right places to meet readiness needs and to
optimize peacetime health care.  Other concerns included rising
system costs, recent tight MTF budgets, and growing competition from
such potential care alternatives as FEHBP.  DOD's initiatives range
from improving medical technician training to resizing and
consolidating medical centers.  As DOD pursued these efforts, one
initiative emerged as the central focus for the others.  This
initiative is DOD's and the services' development of an overall
medical resource strategy to provide for readiness needs and optimize
care delivery. 

DOD officials told us they view the initiative as critical to MHS'
future.  They also told us the effort has so far received DOD and
service collaboration and commitment.  But the officials told us that
many obstacles exist, including maintaining tri-service--both medical
and line--support, and getting buy-in from key external stakeholders
such as cognizant congressional committees. 

      SYSTEM IMPROVEMENT
      INITIATIVES ADDRESS
      TRI-SERVICE ISSUES
---------------------------------------------------------- Letter :6.1

The 29 initiatives begun in 1998 address tri-service issues, such as
centralized purchasing, pharmacy management, outsourcing functions,
improved information systems, and graduate medical education
development.  Regarding centralized purchasing, for example, DOD is
seeking to standardize medical and surgical supplies, while achieving
economies of scale through joint purchasing.  DOD's initiatives to
address pharmacy management problems--which we reported on in 1998\21
--include linking existing pharmacy databases to facilitate reviews
of drug use, cost, and safety and to standardize drug formularies
across the various military pharmacies. 

Another initiative looks at the advantages and feasibility of buying
medical training services, such as for pharmacy and radiology
technicians, from the private sector.  Such training is now provided
within MHS.  The initiative to improve information systems seeks to
enhance and integrate military health data systems and to consolidate
their administration.  The graduate medical education initiative is
attempting to develop a departmentwide policy for targeting such
programs for consolidation, downsizing, and closure, which responds
to recommendations we made in a 1998 report. 

--------------------
\21 Defense Health Care:  A Fully Integrated Pharmacy System Would
Improve Beneficiary Services and Cost-Effectiveness (GAO/HEHS-98-176,
June 12, 1998). 

      FOCUS ON TRI-SERVICE
      STRATEGY IS EMERGING
---------------------------------------------------------- Letter :6.2

Soon after DOD and the services began these efforts, they found that
a more fundamental strategy was needed to more completely address
basic system problems and decide how large the military medical
system should be, including where resources should be placed and used
to best support readiness and provide peacetime care.  Thus, in
November 1998, DOD established a tri-service team of senior
officers\22 to develop such a strategy.  Among the team's goals are
to devise an approach to determine each MTF's correct size, identify
excesses and shortages of medical personnel by specialty, and
determine the right MTF provider mixes.  DOD officials agree with us
that, until this is done, it is not possible to judge the need for
nor relative efficiency of MTFs in their health system.  Because the
analytical tools needed to make these key decisions were not
available, the team identified the following eight areas as crucial
to the strategy's development. 

  -- Develop a tri-service approach for determining medical personnel
     readiness requirements and for distributing them among MTFs. 
     Determining medical readiness requirements has been the subject
     of heated controversy and study since the end of the Cold War. 
     This year, however, the three services agreed to tie their
     baseline staffing to an existing DOD sizing model.  When fully
     implemented, the model is expected to determine minimum wartime
     service staffing levels.  Based on such staffing levels, and
     using common tri-service guidelines, each service will design
     its own staffing distribution model to fit its mission, facility
     capabilities, and the needs of beneficiaries served by those
     facilities. 

  -- Cost out MTF-readiness-related services so that both readiness
     and nonreadiness costs can be defined and defended.  Never done
     before, this essential step would enable DOD and the services to
     identify which of their care system costs can be subjected to
     make versus buy decisions.  This task is complicated by the
     services' differing definitions of readiness and how indirect
     MTF costs, such as facility maintenance, should be apportioned
     between the dual missions.  Of course, the resultant cost of DOD
     medical readiness is highly sensitive to how expansive or narrow
     a definition of readiness activities is finally used.  That is,
     if the readiness definition is broader, more MTF costs can be
     justified and fewer peacetime costs would be subject to make
     versus buy decisions. 

  -- Use civilian best practices to develop provider (primary and
     specialty care) to beneficiary workload ratios.  This task's
     purpose is to standardize resource distribution among MTFs and
     to help ensure that sufficient population and workload exist at
     each MTF to use and properly train military providers for
     readiness and cost-effective care.  A private care ratio, for
     example, is about 2,000 beneficiaries per primary care provider. 
     According to DOD officials, adjusting for readiness training, a
     military provider would serve from 1,300 to 1,900 beneficiaries. 
     Another goal for this exercise is to minimize MTF underuse.  DOD
     officials told us that such workload standards will help
     identify unused MTF capacity and enable MTFs to recapture
     beneficiaries now using civilian support contractors and less
     expensively care for them. 

  -- Establish uniform workload reporting.  Decisions on where
     providers should be placed and what MTF care alternatives should
     be considered require accurate, consistent, comparable data on
     MTF and the support contractors' workload, costs, and
     performance.  But MTF cost and workload data problems have been
     pervasive, and DOD continues to struggle with its data system
     inaccuracies.  As we and others have reported, the root cause
     has been DOD's and the services' lack of oversight and
     incentives to ensure the data's accuracy, timeliness, and
     completeness.  In response to our recent report on its Medicare
     subvention demonstration, however, DOD has acted to improve its
     data and otherwise committed itself to overhauling its data
     systems.\23

  -- Implement an enrollment-based capitation budget approach for
     MTFs.  This proposed approach represents a significant change
     from the MTFs' historical budget approaches, which largely based
     each year's budget on the prior year's budget and workload. 
     Capitated budgeting for MTFs would pay them a fixed amount for
     enrolled beneficiaries, with certain other allowances.  The aim
     is to focus MTFs on providing care primarily to its enrolled
     population and to urge MTF commanders to manage within these
     budgets. 

  -- After identifying an MTF's readiness-based resource needs,
     determine what added resources would make it as efficient and
     cost-effective as possible.  This task recognizes that an MTF's
     readiness-based medical needs normally have to be supplemented
     with other care capabilities to enable the facility to optimally
     function as a full care facility.  The question is whether such
     added care should be provided in the MTF by a military or
     civilian provider, or bought from the private sector. 

  -- Use utilization management and clinical practice guidelines to
     optimize health outcomes across the health system.  A major
     shift in military care philosophy, this approach would change
     the system's current emphasis on intervention following disease
     or injury to preventive services aimed at improving and
     maintaining the beneficiary population's health.  Another goal
     is to maximize clinical productivity, treatment consistency, and
     care quality.  DOD officials told us that the critical step in
     making the philosophical shift is to maximize MTF beneficiary
     enrollment so the services can truly manage their health care. 
     Currently, MTFs also provide space-available care, which tends
     to be episodic and leaves beneficiaries with alternatives to
     enrolling in managed care.  Recently, we reported that the lack
     of a universal enrollment requirement had other adverse effects
     significantly limiting DOD's ability to predict MHS costs and
     effectively plan and manage its health care system.\24 Also, in
     1998, we testified that maximum enrollment was needed to take
     full advantage of cost-effective managed care principles and
     practices.\25

  -- Identify measures needed to assess progress toward system health
     goals.  Currently, numerous performance indicators are in use
     for gauging MTFs' and contractors' performance, such as hospital
     stay lengths, appointment delays, and number of outpatient
     visits.  The goal is to identify measures that will enable the
     services to comparatively assess progress toward system goals. 
     Also, a key outcome is to identify and use measures that mirror
     civilian performance and quality indicators to facilitate
     cross-sector comparisons of quality of care. 

The completion of these tasks should help the services properly size
each of their MTFs.  The idea is that the process would begin with
the determination of each service's readiness requirements.  Next,
decisions would be made about how to distribute providers among the
MTFs.  Such decisions would consider each MTF's readiness role, the
beneficiary population to be served, and the availability of other
MTF and civilian services.  With this information in hand, each MTF's
readiness-based resources would be projected using adjusted civilian
best practice norms.  Because such resources alone are usually too
limited in numbers, mix, and support to amount to an effective
peacetime care system, other staff--both active duty and
civilians--would be added.  Once the best MTF profile has been
developed, its empirical care levels would be assessed to identify
whether unused capacity may exist.  An overall goal is to fill this
unused capacity by recapturing beneficiaries currently served by
TRICARE contractors. 

The tri-service team's goal is to complete its overall planning
effort by April 2000 to be ready for resource planning and budgeting
for the year 2002.  However, the team faces daunting tasks, not the
least of which are defining readiness and its costs; sustaining DOD
and the services' commitment to the effort; obtaining buy-in from
line command and other key stakeholders, including cognizant
congressional committees and members; obtaining accurate cost and
workload data; and achieving the shift from medical intervention to
preventive health care. 

--------------------
\22 The team also includes Health Affairs and TRICARE Management
Activity representatives. 

\23 GAO/HEHS-99-39, May 28, 1999. 

\24 Defense Health Program:  Reporting of Funding Adjustments Would
Assist Congressional Oversight (GAO/HEHS-99-79, Apr.  29, 1999). 

\25 Defense Health Care:  Operational Difficulties and System
Uncertainties Pose Continuing Challenges for TRICARE
(GAO/T-HEHS-98-100, Feb.  26, 1998). 

   CONCLUSIONS
------------------------------------------------------------ Letter :7

DOD is operating a $16-billion-a-year health care system, the bulk of
which is provided through MTFs.  But DOD has not identified how much
it spends for wartime medical readiness--its primary mission. 
Meanwhile, the beneficiary population has changed significantly, and
retirees now outnumber active duty beneficiaries and their respective
beneficiaries--and the trend is continuing.  Moreover, MHS' growing
day-to-day medical focus is on its other mission, peacetime care
delivery.  A pivotal system deficiency is that DOD and the services
lack a comprehensive strategy for ensuring that the right resources
are budgeted for and located in the right places to meet readiness
needs and cost-effectively provide peacetime care.  The problems have
persisted due to service independence and mission differences and
because, historically, the services have had enough resources to
maintain separate overlapping systems. 

Absent a comprehensive strategy for determining and allocating
resources across the services' MTFs, neither we nor DOD can
adequately judge the need for NCA MTFs or their appropriate size. 
Likewise, while NCA service coordination agreements among MTFs appear
beneficial and show good faith efforts to improve care and reduce
costs, the agreements are ad hoc and not governed by a systemwide
strategy that would help guide such decisions and maximize outcomes. 
Meanwhile, MTFs are challenged to be cost-effective care providers by
a growing peacetime workload coupled with rising costs, fewer
military medical personnel, and competition from alternative care
sources such as FEHBP. 

DOD and the services have recently recognized that the time has come
for such a strategy--one that clearly defines readiness costs and
justifies peacetime care based on make versus buy analyses--and have
taken actions aimed at developing it.  Among a series of DOD system
improvement initiatives begun this year is one now aimed at
identifying medical resource needs and developing an approach for
distributing resources among MTFs, identifying readiness costs,
determining peacetime care needs that MTFs can most cost-effectively
meet, and shifting care emphasis from medical intervention to
prevention.  As we have reported and testified in the past, DOD also
needs to enroll as many beneficiaries as possible at MTFs to be
better able to predict MHS costs and truly manage beneficiary health
care.  In short, maximizing enrollment is critical to the tri-service
strategy. 

We support the thrust of DOD's initiative believing that such a
resource strategy would position it and the services to make
informed, prudent decisions about MTF resource needs.  But major
obstacles exist, such as the difficulty in defining and obtaining
consensus on readiness needs and costs, and sustaining DOD and
tri-service commitment over the long term.  Thus, we believe DOD and
the services need to dedicate top-level management attention to
ensuring the project's successful completion.  And, to enhance
congressional oversight of this critical endeavor, DOD needs to
periodically report on the project's progress. 

   RECOMMENDATIONS
------------------------------------------------------------ Letter :8

To ensure, among other matters, that the defense medical system is
properly sized, that inefficiencies and overlaps among MTFs are
eliminated, and that readiness is effectively managed, we recommend
that the Secretary of Defense direct the Assistant Secretary of
Defense for Health Affairs and the services' Surgeons General to

  -- complete the development and implementation of a comprehensive
     tri-service medical resource planning and allocation strategy
     that clearly defines the cost of readiness and justifies
     nonreadiness peacetime care based principally on
     cost-effectiveness analyses;

  -- emphasize MTF beneficiary enrollment as a key element of the
     tri-service strategy, and make every effort to enroll as many
     current MTF users as possible so that the services and MTFs can
     truly manage health care;

  -- ensure that the overall strategy identifies and provides for
     significant care coordination opportunities such as in the NCA;

  -- work with the line commanders and key stakeholders such as
     cognizant congressional committees and key members, advocacy
     groups, and others to obtain support for the implementation of
     the strategy; and

  -- periodically report progress toward developing and implementing
     the strategy to cognizant House and Senate committees. 

Developing and implementing the tri-service medical resource strategy
may require actions by and coordination with other DOD Assistant
Secretaries; therefore, as appropriate, the Secretary should direct
the affected Assistant Secretaries' support and participation. 

   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

In its written comments on a draft of this report, DOD agreed with
the report and each of our recommendations.  It also agreed that the
tri-service team assembled to develop and coordinate implementation
of the resource planning and allocation strategy faces a formidable
challenge.  Hence, DOD stated that the Department's senior leadership
is now and will continue providing oversight and support for the
project and that the project plan was provided to the Senate and
House Appropriations Committees on September 23, 1999-- during this
draft report's comment period.  DOD plans to brief the cognizant
congressional oversight committees, seek their buy-in and support,
and keep them apprised of the project's progress.  DOD's comments are
reprinted as appendix V. 

---------------------------------------------------------- Letter :9.1

We are sending copies of this report to the Honorable William S. 
Cohen, Secretary of Defense, and will make copies available to others
upon request. 

Please contact me at (202) 512-7101 or Dan Brier, Assistant Director,
at (202) 512-6803 if you or your staff have any questions concerning
this report.  Other GAO staff who made contributions to this report
are Elkins Cox, Allan Richardson, Cheryl Brand, and Cherie Starck. 

Stephen P.  Backhus
Director, Veterans' Affairs and
 Military Health Care Issues

SCOPE AND METHODOLOGY
=========================================================== Appendix I

To assess the need for NCA MTFs and the coordination of health care
among MTFs, we examined the roles and activities of those MTFs and
their related guidance and support from DOD and service command
levels.  We interviewed officials and analyzed records at each of
those levels to assess the information and processes officials use
for determining MTF resource needs and coordinating resource use. 
The scope of our work necessarily extended beyond the national
capital area to include issues affecting MHS as a whole, with its
dual mission of maintaining wartime readiness and providing peacetime
care, because NCA MTFs are integral parts of that system and its dual
mission.  However, this review focuses on MHS within the United
States and does not include those MTFs located overseas. 

Beginning our work among the 26 NCA MTFs, we conducted interviews and
analyses at the 3 military medical centers--representing 75 percent
of NCA MTF costs--and at 8 other MTFs, including all of the larger
ones and a selection of smaller branch clinics.  There, we discussed
and analyzed information on how and to what extent MTF resource
requirements are defined, measured, and justified, taking into
account the MTFs' dual missions.  We also analyzed beneficiary
population, workload, and cost data associated with NCA MTFs compared
to national totals to generally assess the level of services provided
to NCA beneficiaries.  Through discussions with MTF officials, and
focusing on a selection of NCA MTF coordination agreements, we
examined the nature, purpose, achievements, and future expectations
of care coordination activities among MTFs. 

We did not attempt to verify or compare costs and benefits among the
NCA MTF coordination agreements because of the limited and widely
varying data on those agreements.  We contacted civilian NCA health
care provider organizations along with health care consultants to
obtain comparable information on how civilian health care facilities
coordinate local health care services. 

Because each of the military services has its own methods for
determining health care needs and allocating resources among its
MTFs, we reviewed those processes at the services' regional and
Surgeon General levels.  There we discussed and obtained data on the
services' modeling tools and other guidance and analytical processes
affecting MTF resource allocation decisions and coordination of care
among MTFs.  That included considering how the services' independent
approaches differed in design and effects on their MTFs.  We then
followed up on the application of such independent tools to find how
they affect selected NCA MTFs in terms of supporting readiness and
providing peacetime care and to identify any problems in their
applications. 

We assessed the current and potential effects of TRICARE
implementation on MTF needs and coordination in the national capital
area and elsewhere, based on the experiences and expectations of the
MTFs we visited, the expected role as viewed by the TRICARE lead
agent and DOD, and our current and prior TRICARE work.  We also
relied on current and prior work and our reports and those by others
in assessing the role, needs, and performance of MHS. 

Finally, we considered the purposes and potential effects of a broad
approach, begun by DOD and the services during our review, to improve
MHS management.  Of the approach's 29 initiatives, we focused on the
one that appears to be key--the development of a tri-service medical
resource planning and distribution plan intended to optimize use of
MTF resources.  Through a series of discussions and review of the
plan with the team leading that effort and with others, we considered
the initiative's potential to address the problems we found in the
services' approaches to MTF needs assessment and care coordination in
the national capital area and elsewhere. 

PROFILE OF MTFS IN THE NATIONAL
CAPITAL AREA
========================================================== Appendix II

   ORGANIZATION OF NCA MTFS
-------------------------------------------------------- Appendix II:1

The services use separate structures to plan and manage their NCA
MTFs.  For example, the Army's 12 NCA MTFs are centrally managed as
part of the Walter Reed Health Care System.  This system is also part
of a single regional command that covers 21 states and the District
of Columbia.  In contrast, only some of the Navy's 12 NCA MTFs are
directed by the Naval Medical Center in Bethesda, Maryland; the other
clinics report to a Navy Health Support Office in Norfolk, Virginia. 
The Air Force's one NCA medical center and its one NCA clinic
separately report to different major commands.  Along with operating
independently, each service's complex command structure can limit the
extent to which resource use is coordinated among the service's
facilities.  For example, the Air Force medical center has sought
control of the clinic to reduce duplicative administrative costs and
staffing.  But the clinic reports to the Office of the Air Force
Surgeon General, who has retained the current structure. 

      ARMY NCA MTFS
------------------------------------------------------ Appendix II:1.1

All Army NCA MTFs come under the Walter Reed Health Care System and
consist of the medical center, a community hospital, a clinic with
same-day surgery capability, and their respective clinics.  Walter
Reed Medical Center is a 350-bed tertiary care facility located in a
residential area of the District of Columbia, near the Maryland
border.  The center, which began admitting patients in 1909, provides
primary health care services and about 50 specialty and subspecialty
services.  Walter Reed is also a worldwide referral center and has
research and medical training programs.  Walter Reed's wartime
mission is being a designated casualty receiving center for injured
military personnel.  Further, over one-third of its military
personnel are designated to deploy during war.  Walter Reed has
branch clinics at the Pentagon in Virginia and Fort McNair in
Washington, D.C.  These outlying facilities offer the beneficiary
convenient access to routine and urgent primary health care services
with referral to Walter Reed for specialty care.  These facilities
treat beneficiaries in MHS who might otherwise seek care in the
civilian sector. 

DeWitt Army Community Hospital, located in Fort Belvoir, Virginia, is
the only NCA inpatient military facility in northern Virginia.  It is
a 68-bed hospital with an intensive care unit, medical/surgical
wards, labor and delivery and mother/baby wards, pharmacies, and a
24-hour emergency room.  DeWitt provides a number of specialty
services and has a family medicine residency training program. 
DeWitt hospital and its clinics provide the primary medical support
for several major Army commands and crosses service lines by
providing obstetric and orthopedic services to Marines and their
family members at the Quantico, Virginia, naval clinic.  DeWitt's
clinics are at Fort Meyer and A.P.  Hill, Virginia.  A.P.  Hill, the
southernmost NCA MTF, provides care to reservists on active duty and
the cadre of active duty running the reserve training facility there. 
DeWitt also has clinics in Fairfax and Woodbridge, Virginia, where
there are concentrations of dependent and retiree beneficiary
populations. 

Kimbrough Ambulatory Care Center at Fort Meade, Maryland, provides
primary care as well as a wide range of same-day surgery.  Specialty
services include general surgery; orthopedics; vascular surgery;
urology; ophthalmology; gynecology; and ear, nose, and throat.  The
clinic performs approximately 2,000 ambulatory surgeries each year
using assigned providers and staff from Walter Reed and the Naval
Medical Center in Bethesda.  Kimbrough's clinics at Aberdeen Proving
Ground, Edgewood, and Fort Detrick, Maryland, offer primary care
services.  Kimbrough cares for personnel assigned to the National
Security Agency and the Defense Information School.  Fort Detrick
supports the U.S.  Army Medical Research and Development Command. 
Aberdeen and Edgewood support a variety of Advanced Individual
Training programs conducted by the U.S.  Army Ordnance Corps. 

      NAVY NCA MTFS
------------------------------------------------------ Appendix II:1.2

The National Naval Medical Center at Bethesda, Maryland; its branch
clinics; and separate clinics at Annapolis and Patuxent River,
Maryland, and Quantico, Virginia, comprise the Navy NCA MTFs. 
Bethesda has 239 beds and provides primary health care services but
is known for its specialty and subspecialty services, such as mother
and infant care and breast care.  Bethesda is a worldwide referral
center, providing services for 16 different specialties, as well as
conducting medical training programs and research.  Bethesda's
readiness mission includes staffing the USN Comfort, a hospital ship,
as well as contributing staff to Navy and Marine ships, bases, and
hospitals in the United States and overseas. 

Bethesda has eight branch clinics located throughout Washington,
D.C.; Maryland; and Virginia that support Navy active duty commands. 
The outlying facilities offer beneficiaries convenient access to
primary health care services with referral to Bethesda for specialty
care.  The clinics treat beneficiaries in MHS who might otherwise
seek care from civilian providers. 

The Indian Head, Maryland, and Arlington Annex and Dahlgren,
Virginia, clinics provide outpatient primary care, occupational
medicine, preventive medicine, and industrial hygiene services to all
eligible DOD beneficiaries.  The Washington Navy Yard clinic and
Naval Air Facility, Washington, clinic at Andrews Air Force Base
provide outpatient primary care, occupational medicine, preventive
medicine, and industrial hygiene services to active duty personnel
along with occupational medicine services for civil service
personnel.  Naval Air Facility provides physical exams for most Navy
and Marine Corps personnel in Washington, D.C., and medical support
and training to reserve personnel.  The Carderock, Virginia, clinic
and the clinic at the Naval Research Laboratory in Washington, D.C.,
provide occupational medicine and industrial hygiene services to
active duty and civil service personnel.  The Naval Security Station,
Maryland, clinic provides sick call services to active duty personnel
located at the Naval Security Station. 

The Naval Medical Clinic in Annapolis provides primary care for all
beneficiaries but mostly focuses care on the 4,000 midshipmen at the
Naval Academy.  The Naval Medical Clinic in Quantico provides primary
care for all beneficiaries and care for trainees at the Marine
Officer School.  The Naval Medical Clinic in Patuxent River provides
primary care for a mix of active duty, dependent, and retiree
beneficiaries. 

      AIR FORCE NCA MTFS
------------------------------------------------------ Appendix II:1.3

There are only two Air Force NCA MTFs:  Malcolm Grow Medical Center
and Bolling clinic, each reporting to separate commands.  Malcolm
Grow, the 89th Medical Group, is a 70-bed tertiary center located at
Andrews Air Force Base, Maryland.  The center reports to the Air
Mobility Command in Scott Air Force Base, Illinois, and provides
primary health care services but is known for more than 30 specialty
and subspecialty clinics.  It is also has a family practice residency
program.  During wartime, Malcolm Grow is the entry port for all
patients air evacuated from overseas locations in Europe.  The 89th
Medical Group also provides physiological training, which consists of
intense altitude chamber training to familiarize personnel with the
physiological effects of flying. 

Bolling clinic, the 11th Medical Group, is located at Bolling Air
Force Base in Washington, D.C., and provides primary medical and
dental care to eligible DOD beneficiaries, which includes Defense
Intelligence Agency, Naval Research Laboratory, and Bellevue Navy
Housing staff.  It reports to the Air Force Surgeon General's office. 
Flight surgeons also provide medical support to the offices of the
Secretary of Defense and the Chairman of the Joint Chiefs of Staff. 

   SELECTED NCA MTF DATA
-------------------------------------------------------- Appendix II:2

Table II.1 lists the NCA MTFs, the number of hospital beds, their
1998 DHP operations and maintenance (O&M) budget, their 1998
personnel numbers, and workload data. 

                                        Table II.1
                         
                            NCA MTFs' Number of Beds, Budget,
                         Personnel, and Outpatient Workload, 1998

                                                      Personnel
                                       ----------------------------------------
                                                                                 Outpatie
             Number of        DHP O&M                                                  nt
MTF          beds              budget    Military  Civilian  Contract     Total    visits
-----------  ------------  ----------  ----------  --------  --------  --------  --------
Army
-----------------------------------------------------------------------------------------
Walter Reed  350           $147,839,9       1,804     1,185       155     3,144   645,975
                                   00
DeWitt       68            59,945,000         340       399       104       843   611,019
Kimbrough    Outpatient    46,349,000         273       423        32       728   321,691
              only

Navy
-----------------------------------------------------------------------------------------
Bethesda     239           146,847,00       2,599       926       215     3,740   555,059
                                    0
Annapolis    Outpatient     6,455,000         122        36        14       172    89,257
              only
Patuxent     Outpatient     7,361,000         152        67         5       224    73,109
 River        only
Quantico     Outpatient     8,451,000         194        51        16       261    89,569
              only

Air Force
-----------------------------------------------------------------------------------------
Malcolm      70            33,213,000       1,314       264        --     1,578   394,477
 Grow
Bolling      Outpatient     5,390,000         189        28         1       218    52,644
              only
-----------------------------------------------------------------------------------------
Note:  Walter Reed figures include Pentagon clinic and Fort McNair;
DeWitt includes clinics at Fairfax, Fort Myer, A.P.  Hill, and
Woodbridge; Kimbrough includes clinics at Aberdeen, Edgewood, and
Fort Detrick; Bethesda includes branch clinics at Dahlgren, Indian
Head, Arlington Annex, Washington Navy Yard, Naval Air Facility,
Carderock, Naval Research Lab, and Security Station. 

SERVICE MODELS
========================================================= Appendix III

Historically, the Army, Navy, and Air Force--because of their
independence, diverse organizational structures, and general lack of
coordination--have developed their own approaches for identifying,
allocating, and validating MTF requirements.  The approaches include
an array of technical, mathematical-based models.  The brief
descriptions below indicate the variety and changing nature of models
used; they are not comprehensive, comparative assessments. 

      ARMY MODELS
----------------------------------------------------- Appendix III:0.1

For wartime requirements, the Army, unlike the Navy and Air Force,
begins with its Total Army Analysis model to determine the number and
type of support units, including medical, needed to support the
Army's combat forces in wartime and other contingencies.  In addition
to the two near-simultaneous major regional conflicts, the model also
includes requirements for post-hostility requirements--such as
treating civilians and refugees--operations other than war, homeland
defense, and domestic disaster relief.  Building on the baseline
obtained from the model, the Army uses its Total Army Medical
Department Personnel Structure model to determine additional military
medical personnel needed for rotation and training. 

Recently, the Army's North Atlantic Regional Medical Command began
comparing medical personnel levels among MTFs within the command to
correct imbalances caused by changes in the medical environment. 
Changes that affect the size of MTFs include TRICARE implementation,
shift from inpatient to outpatient care, base closure and
realignments, downsizing of the active duty force, increased
deployments, decreased budgets, and increased costs of providing
health care.  Thus, the North Atlantic Regional Medical Command
developed the Regional Uniform Benefit model, which compares and
validates medical personnel allocation.  The objectives of the model
are to distribute resources to meet population needs, benchmark
productivity and performance, optimize contract dollars, and develop
"what if" analyses before implementing a change in services or a
facility.  For example, at an MTF outside the national capital area,
the model identified excess resources, which resulted in a decrease
of about 120 staff, a decrease in its budget by $5.5 million, and the
elimination of a plan to build a new surgical suite.  The model has
been completed at most NCA MTFs except at Walter Reed.  The model has
been briefed to other Army offices and may be expanded beyond the
North Atlantic Regional Command.  Army officials told us that the
Automated Staffing Assessment model and other models, while useful,
had been inadequate in addressing total facility and personnel needs. 

      NAVY MODELS
----------------------------------------------------- Appendix III:0.2

The Navy uses its Total Health Care Support Readiness Requirements to
project its active duty medical force readiness requirements.  The
Navy readiness mission is to support all Navy and Marine Corps
operational missions, including wartime and day-to-day operations. 
This includes mobilizing hospital ships--USN Mercy on the West Coast
and the USN Comfort on the East Coast--supporting Navy Fleet and
Marine Corps operations ashore and afloat and numerous Fleet
hospitals, as well as maintaining military treatment facilities
outside the United States.  Its day-to-day operational support
mission allows Navy medical personnel to rotate between the United
States, ships at sea, and overseas assignments.  Also included is
training of medical personnel. 

The Navy uses a number of models to determine wartime requirements,
allocate military medical personnel among MTFs, and validate MTF
manpower requirements.  The Total Health Care Support Readiness
Requirements model defines readiness requirements as the minimum
number of military medical personnel required to support and sustain
its readiness mission.  This model is the basis for DOD's overall
sizing model.  The Navy uses its allocation model called the CONUS
Healthcare Readiness Infrastructure Sizing model to allocate military
medical personnel among its MTFs in the United States.  The model
attempts to validate the number of military personnel needed by the
MTF to staff its assigned wartime tasks.  All military personnel in
excess of wartime requirements assigned to the MTF are considered to
be part of the Navy peacetime healthcare mission.  Finally, the Navy
uses its efficiency reviews to further validate the number and type
of personnel needed at an MTF to provide the peacetime health care
benefit using workload, number of personnel, and workload standards. 
An efficiency review determines how an MTF's military and civilian
staffing compares with applicable standards. 

      AIR FORCE MODELS
----------------------------------------------------- Appendix III:0.3

The Air Force projects its requirements for military medical
personnel using DOD's overall sizing model.  This model identifies
the number of military medical personnel needed to support the Air
Force's mission of supplying air-transportable hospitals, contingency
hospitals, and critical care air transport teams.  In addition, the
Air Force has decided that military medical personnel should provide
primary care services to active duty personnel and active duty family
members at all bases.  According to Air Force officials, this has
resulted in an additional requirement of about 200 military medical
personnel. 

The Air Force Surgeon General and the major commands, such as the Air
Mobility Command, that fund and control the various MTFs, distribute
the wartime taskings and allocate associated military medical
personnel needed among MTFs based on major command wartime
requirements and on which MTFs can best support those requirements. 
The Air Force tries to concentrate many of the wartime taskings at
large MTFs that have the beneficiary population--high volume of
workload--to support military provider readiness training.  The Air
Force also uses its Strategic Resourcing Portfolio, an economic
manpower sizing model, as a tool to help determine where it may be
economical and feasible to allocate military medical personnel. 

Currently, the Strategic Resourcing Portfolio projects the numbers
and mix of personnel needed at an MTF based on the demographics of
the beneficiary population, historical workload,\26 and the cost of
providing health care services.  The model also reflects the number
of military medical personnel assigned to meet the MTF's wartime
taskings.  The health care services provided by the military
personnel in excess of this number and by civilian personnel are part
of the peacetime mission.  However, the latest edition of this model
raised reliability issues, as we reported. 

--------------------
\26 In the future, when TRICARE is fully implemented, it will be
based on the enrolled population. 

DOD'S 29 REENGINEERING,
CONSOLIDATION, AND OPTIMIZATION
INITIATIVES
========================================================== Appendix IV

Prompted by concerns about whether it could meet readiness needs, as
well as optimize peacetime health care, DOD began 29 separate
initiatives to modernize MHS management in 1998.  DOD's 29
reengineering, consolidation, and optimization initiatives and their
objectives are listed below. 

Pharmacy national mail order program:  Redirect patients from using
Standard CHAMPUS pharmacies to retail network pharmacies. 

Pharmacy automation and formulary management. 

Pharmacy distribution and pricing agreements. 

System/facility optimization: 

  -- Improve care management consistent with recognized science-based
     best clinical practice. 

  -- Improve practice patterns. 

  -- Implement evidence-based medicine and prevention. 

  -- Reduce inappropriate variance from and speed adoption of
     clinical/administration best practice. 

  -- Implement utilization management system for all of TRICARE. 

  -- Recapture most local area care to MTFs where cost beneficial. 

  -- Optimize enrollee-to-provider ratio (for example, 1,500
     enrollees per physician). 

  -- Right size hospitals and clinics. 

  -- Right size each MTF's primary and specialty care providers. 

  -- Improve care management of high-intensity illnesses. 

  -- Increase number and speed adoption of clinical guidelines for
     high-intensity, high-cost illnesses. 

  -- Develop patient safety initiative with the Department of
     Veterans Affairs and other agencies. 

  -- Implement MHS quality initiatives, and develop quality
     initiatives with Department of Health and Human Services,
     Department of Veterans Affairs, and Office of Personnel
     Management. 

  -- Reengineer clinic infrastructure to support modern ambulatory
     care. 

  -- Reengineer clinical and administrative processes to meet access
     and satisfaction standards. 

  -- Increase percentage of users who are enrolled. 

  -- Increase nonphysician support in clinical settings. 

  -- Shift nonemergent and nonurgent care in the emergency rooms to
     other ambulatory care settings. 

  -- Retain flexibility in MHS to respond to future internal and
     external factors. 

  -- Determine MHS readiness requirements for nonphysicians as well
     as for physicians and move to that number, unless a make versus
     buy analysis indicates additional in-house MTF staffing is
     advantageous. 

Consolidate medical information management/information technology
activities within DHP: 

  -- Consolidate administration into a single activity. 

  -- Move to more paperless processing. 

  -- Improve the integration and connectivity of multiple systems to
     support user needs. 

  -- Improve information systems, such as Composite Health Care
     System II, Government-Computerized Patient Record, and pharmacy
     management. 

Reduce/flatten/lean infrastructure:  Eliminate duplicate management
activities/functions at intermediate commands in the three military
departments and TRICARE regional lead agents. 

Reduce cross-service duplications: 

  -- Consolidate preventive medicine. 

  -- Consolidate environmental health. 

  -- Consolidate blood donor labs. 

Consolidate the number of medical centers. 

Merge overlapping NCA medical centers and San Antonio medical
centers. 

Reengineer aeromedical evacuation (program analysis and evaluation). 

Reengineer Air Force Institute of Pathology. 

Managed care support contract: 

  -- Reduce TRICARE managed care support contract administrative
     costs. 

  -- Reduce/consolidate number of change orders for managed care
     support contracts. 

  -- Extend contracts when advantageous to government and
     beneficiaries. 

Managed Care Support 3.0 contract:  Implement new managed care
support contract structure/process. 

Contract policy/payment change. 

Military construction projects:  Refer or reduce certain military
construction projects (Air Force Institute of Pathology, classroom
project at Army Medical Center and School, Center for Health
Promotion and Preventative Medicine). 

Accelerate military personnel reductions (Air Force). 

Consolidate graduate medical education administration and development
of Department graduate medical education policy. 

Purchasing/acquisition activities for all medical supplies used in
MTFs (excluding fielded medical units and deployable medical
systems): 

  -- Regionalize. 

  -- Implement universal product numbers, joint purchasing,
     standardization for medical and surgical supplies. 

Nationalize or regionalize maintenance and repair contracts for
medical equipment used in medical and dental treatment facilities and
in medical training activities. 

Outsourcing of advanced medical technical training for areas such as
laboratory, radiology, electrocardiograph, and pharmacy
technologists, as well as all other outsourcing initiatives related
to quadrennial Defense reviews. 

Consolidate medical facility acquisition and life-cycle management
activities into a single-facility life-cycle management organization. 

Beneficiary support: 

  -- Emphasize themes:  Taking care of our own, Protecting our
     forces' health, Customer first.

  -- Support and improve patient self-care and reduce overutilization
     of care. 

  -- Improve communication through increased use of Internet and
     other information tools. 

  -- Implement report cards and other performance assessment tools. 

  -- Implement consumer councils in all MTFs. 

  -- Strengthen grievance resolution procedures. 

  -- Expand customer satisfaction assessment to all of TRICARE. 

TRICARE benefit policy: 

  -- Simplify, rationalize, and make more uniform the TRICARE benefit
     (include pharmacy). 

  -- Carry out successful TRICARE Senior demonstration. 

  -- Carry out successful DOD demonstration (MacDill). 

  -- Obtain authorization for TRICARE Senior (Medicare reimbursement)
     nationwide. 

TRICARE staff training and education: 

  -- Increase training in good managed care for MTF staff. 

  -- Move trauma training into the private sector wherever it makes
     economic or readiness sense. 

  -- Use Internet and other advanced distributive learning tools. 

Improve assessment, purchase, and use of medical technology. 

Outsourcing quadrennial Defense reviews:  Outsource functions better
done by the private sector. 

Reengineer, improve prevention: 

  -- Focus on and shift resources to outcome-based, evidence-based
     prevention. 

  -- Implement putting prevention into practice.

  -- Push reduction in high-priority areas--tobacco use, alcohol
     abuse, injuries. 

  -- Increased immunization rates. 

  -- Increase line support of troop fitness and wellness. 

  -- Improve infectious disease prevention, surveillance, and
     response. 

Improve resourcing: 

  -- Adjust payments to Uniform Services Treatment Facilities. 

  -- Move to capitation funding more quickly. 

  -- Reduce double payments by Medicare and DOD. 

  -- Increase third-party collection rates. 

Improve MHS management: 

  -- Manage MHS by performance at all levels. 

  -- Design/refine/implement performance measures--outcomes, cost,
     access, quality. 

  -- Further develop/reinforce partnership among Health Affairs and
     the services. 

  -- Strengthen leadership at all levels of MHS. 

  -- Make smart make versus buy decisions throughout MHS. 

  -- Develop/implement strategic communications with customers,
     public, DOD, and the Congress. 

  -- Develop stronger market analysis and marketing efforts. 

  -- Refine budget preparation to improve collaboration and earlier
     determination of MHS priorities. 

  -- Strengthen fraud and abuse reduction efforts with Inspector
     General. 

(See figure in printed edition.)Appendix V
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================== Appendix IV

(See figure in printed edition.)

(See figure in printed edition.)

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