Defense Health Care: Improvements Needed to Reduce Vulnerability to Fraud
and Abuse (Letter Report, 07/30/1999, GAO/HEHS-99-142).

Pursuant to a legislative requirement, GAO reviewed the Department of
Defense's (DOD) health care system, focusing on: (1) DOD's estimates of
the extent of health care fraud and abuse; (2) DOD's efforts to reduce
health care fraud and abuse in civilian settings; and (3) initiatives
and incentives that could improve DOD's antifraud efforts.

GAO noted that: (1) it is impossible to precisely quantify the amount
lost to health care fraud and abuse given the nature of such activities,
but there is general consensus in DOD and the health care industry that
fraud and abuse could account for 10 to 20 percent of all health care
costs; (2) given TRICARE managed care contract expenditures of $5.7
billion between 1996 and 1998, DOD could have lost over $1 billion to
fraud and abuse during this period; (3) in addition to the financial
loss, health care fraud and abuse can also adversely affect the quality
of care provided and may cause serious harm to patients' health; (4) DOD
and its contractors have had limited success in identifying TRICARE
fraud and abuse; (5) for example, contractors have identified a
negligible number of potential fraud cases; (6) this low level of fraud
identification has occurred, in part, because DOD contracts do not
require contractors to aggressively identify and prevent fraud and
abuse; (7) during this same period, DOD recovered about $14 million in
fraudulent payments out of the $5.7 billion spent; (8) to its credit,
DOD recognizes the need to reduce its vulnerability to fraud and abuse
and has identified a number of revisions it could make to its antifraud
policies and requirements; (9) however, it has been slow to implement
these policy revisions, which collectively would require contractors to
put into place a more aggressive fraud and abuse identification program;
(10) once these revisions are implemented, existing contracts can be
modified to include specific results-oriented goals and performance
measures, thus putting DOD in a better position to evaluate contractors'
progress in identifying and reducing fraud and abuse; (11) given the
magnitude of potential financial loss and harm to patients' health, it
is important that DOD place a high priority on, and establish a
concerted strategy for, reining in health care fraud; and (12) DOD's
strategic plan for the military health system, prepared in response to
the Government Performance and Results Act of 1993, provides an
appropriate vehicle for articulating DOD's strategy and establishing how
the agency will identify and prevent TRICARE fraud and abuse.

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

 REPORTNUM:  HEHS-99-142
     TITLE:  Defense Health Care: Improvements Needed to Reduce
	     Vulnerability to Fraud and Abuse
      DATE:  07/30/1999
   SUBJECT:  Health care programs
	     Managed health care
	     Fraud
	     Program abuses
	     Department of Defense contractors
	     Internal controls
	     Contract oversight
IDENTIFIER:  DOD TRICARE Program

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

Report to the Committees on Armed Services, U.S.  Senate and House of
Representatives

July 1999

DEFENSE HEALTH CARE - IMPROVEMENTS
NEEDED TO REDUCE VULNERABILITY TO
FRAUD AND ABUSE

GAO/HEHS-99-142

Defense Health Care Fraud

(101621)

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

  DCIS - Defense Criminal Investigative Service
  DOD - Department of Defense
  HCFA - Health Care Financing Administration
  TMA - TRICARE Management Activity

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

B-282038

July 30, 1999

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

The Honorable Floyd D.  Spence
Chairman
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Services
House of Representatives

In fiscal year 1998, the Department of Defense (DOD) spent about $2.5
billion through contracts to provide health care in civilian settings
to about 1.5 million beneficiaries, including dependents of active
duty personnel, military retirees, and their dependents.  As with
other health care systems, fraud and abuse threaten DOD with
significant financial loss and may adversely affect the quality of
care delivered if beneficiaries are exposed to unnecessary care or
not treated at all. 

The military health care system is administered by the military
services in partnership with civilian contractors (see app.  I). 
TRICARE, DOD's managed health care program, was established to
improve beneficiaries' access to health care while maintaining
quality and controlling costs in a time of military downsizing and
budgetary concerns.  DOD, including its Office of Inspector General,
and its civilian contractors work together to prevent and detect
TRICARE fraud and abuse. 

Senate Report 105-189, accompanying the National Defense
Authorization Act for fiscal year 1999, expressed congressional
concerns regarding the impact of fraud on military health care and
directed that we evaluate DOD efforts to combat it.  In response, we
(1) analyzed DOD estimates of the extent of health care fraud and
abuse, (2) evaluated DOD efforts to reduce health care fraud and
abuse in civilian settings, and (3) identified initiatives and
incentives that could improve DOD's antifraud efforts.  We conducted
our work between August 1998 and June 1999 in accordance with
generally accepted government auditing standards (see app.  II for
details on our scope and methodology). 

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

It is impossible to precisely quantify the amount lost to health care
fraud and abuse given the nature of such activities, but there is
general consensus in DOD and the health care industry that fraud and
abuse could account for 10 to 20 percent of all health care costs. 
Given TRICARE managed care contract expenditures of $5.7 billion
between 1996 and 1998, DOD could have lost over $1 billion to fraud
and abuse during this period.  In addition to the financial loss,
health care fraud and abuse can also adversely affect the quality of
care provided and may cause serious harm to patients' health.  For
instance, when a provider fabricates test results instead of actually
conducting the tests for which it bills DOD, patients can receive
incorrect diagnoses and inadequate medical treatment. 

DOD and its contractors have had limited success in identifying
TRICARE fraud and abuse.  For example, contractors have identified a
negligible number of potential fraud cases:  of the approximately 50
million claims that contractors processed between 1996 and 1998, they
referred only about 100 potential fraud cases to DOD for further
investigation.  This low level of fraud identification has occurred,
in part, because DOD contracts do not require contractors to
aggressively identify and prevent fraud and abuse.  During this same
period, DOD recovered about $14 million in fraudulent payments out of
the $5.7 billion spent. 

To its credit, DOD recognizes the need to reduce its vulnerability to
fraud and abuse and has identified a number of revisions it could
make to its antifraud policies and requirements.  However, it has
been slow to implement these policy revisions, which collectively
would require contractors to put into place a more aggressive fraud
and abuse identification program.  Once these revisions are
implemented, existing contracts can be modified to include specific
results-oriented goals and performance measures, thus putting DOD in
a better position to evaluate contractors' progress in identifying
and reducing fraud and abuse.  Given the magnitude of potential
financial loss and harm to patients' health, it is important that DOD
place a high priority on, and establish a concerted strategy for,
reining in health care fraud.  DOD's strategic plan for the military
health system, prepared in response to the Government Performance and
Results Act of 1993, provides an appropriate vehicle for articulating
DOD's strategy and establishing how the agency will identify and
prevent TRICARE fraud and abuse.  This report makes recommendations
to the Secretary of Defense for reducing TRICARE's vulnerability to
fraud and abuse. 

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

The mission of the military health care system is to maintain the
health of active duty service personnel and provide health care
during military operations.  The system also offers health care to
non-active duty beneficiaries, including dependents of active duty
personnel and military retirees and their dependents, through various
military-operated hospitals and clinics worldwide; the system is
supplemented through contracts with civilian health care providers. 
TRICARE, the name given to the program providing this care, is a
triple-option benefit program designed to give beneficiaries a choice
among a health maintenance organization, a preferred provider
organization, and a fee-for-service benefit.  Five managed care
support contractors create networks of civilian health care
providers.  These providers submit claims, either individually or as
part of a group practice, to contractors for payment of medical care
they have provided to DOD beneficiaries.  Fraud occurs when health
care providers knowingly submit claims containing false information. 
Common types of provider fraud and abuse include billing for services
not rendered, misrepresentation of services, and conducting
unwarranted medical procedures. 

Multiple players support DOD's health care fraud identification and
prevention efforts.  DOD's TRICARE Management Activity's (TMA)
Program Integrity Branch serves as the centralized administrative hub
for TRICARE fraud and abuse activity worldwide.  Its primary
responsibilities include (1) developing policies and procedures for
the prevention, detection, investigation, and control of TRICARE
fraud and abuse; (2) educating beneficiaries, health care providers,
and others about various health care fraud and abuse issues; (3)
initiating administrative remedies, such as sanctioning fraudulent
providers; and (4) coordinating with other DOD and external
investigative agencies, such as the Federal Bureau of Investigation,
to assist in investigations of health care fraud and abuse.  TMA
staff are also responsible for overseeing and ensuring that the five
contractors comply with contractual antifraud requirements. 

Each DOD TRICARE contractor is responsible for establishing a program
for identifying and reporting potential health care fraud and abuse
to DOD.  To help with this effort, the contractors have subcontracted
with one of two companies to process TRICARE claims.  In conjunction
with their claims processing duties, the subcontractors provide
various prepayment controls and perform postpayment reviews that are
designed, among other things, to identify erroneous billings,
duplicate claims, and unusual or excessive patterns of care. 

DOD's health care fraud identification and prevention efforts are
further supported by investigators from the Defense Criminal
Investigative Service (DCIS), the investigative unit of DOD's Office
of Inspector General.  While DCIS is involved in some efforts to
identify fraudulent activity through undercover operations, the vast
majority of cases it investigates are referred from other sources,
such as TMA and whistleblowers. 

   DOD COULD BE LOSING HUNDREDS OF
   MILLIONS OF DOLLARS TO FRAUD
   AND ABUSE
------------------------------------------------------------ Letter :3

While the exact extent of health care fraud and abuse can never be
precisely quantified, the general consensus, based on the experience
of public and private sector organizations such as DOD, the Health
Care Financing Administration (HCFA), the U.S.  Chamber of Commerce,
the Health Insurance Association of America, and the National Health
Care Anti-Fraud Association, is that fraud and abuse could account
for 10 to 20 percent of all health care costs.  Applying this
percentage to TRICARE contract expenditures of about $5.7 billion
between 1996 and 1998, DOD could have lost between $570 million and
$1.14 billion to fraud and abuse over the last 3 years.  As health
care costs increase over time, fraud and abuse can be expected to
increase proportionally. 

Health care fraud and abuse also affect the quality of care provided
and may cause serious harm to patients' health.  For example, illegal
practices such as sink testing, which involves throwing out
patients' blood and urine specimens and fabricating test results,
rather than actually performing the necessary tests, can result in
improper diagnoses and either no medical treatment or unnecessary
treatment.  Another health care fraud scheme that may affect
patients' health involves individuals who provide unauthorized care
by falsely representing themselves as licensed medical providers. 

   DOD HAS HAD LIMITED SUCCESS IN
   IDENTIFYING FRAUD AND ABUSE
------------------------------------------------------------ Letter :4

DOD and its contractors have had limited success in identifying
TRICARE fraud and abuse.  To date, contractors have referred
relatively few cases to TMA for further investigation and
development, in part, because DOD's contracts do not require
contractors to establish a focused, aggressive antifraud program. 
Furthermore, DOD has recovered only a relatively small portion of its
estimated losses to fraud and abuse. 

      DOD CONTRACTORS HAVE
      REFERRED FEW FRAUD CASES TO
      TMA
---------------------------------------------------------- Letter :4.1

DOD depends on its contractors to help it combat fraud and abuse.  Up
to this point, however, contractors have identified and referred
relatively few potential fraud cases to TMA.  Table 1 shows that, of
approximately 50 million claims processed between 1996 and 1998,
contractors referred only about 100 potential fraud cases to TMA for
further investigation, 92 of which were referred by the contractor
with the most TRICARE experience.  Although DOD has not established a
specific number of cases its contractors should refer, DOD officials
acknowledge that its contractors could be more aggressive in their
efforts to identify potentially fraudulent activity.  According to
DOD officials, this lack of aggressiveness is due, in part, to the
fact that DOD contracts do not specify to what extent contractors
should be identifying and referring potential fraud cases.  Moreover,
some contractor program integrity staff told us that they were
unclear about the types of potential fraud cases to refer to TMA and
that they were not adequately trained to identify fraud and abuse. 
In addition, DOD officials told us that, because two of the five
contractors were relatively new to the TRICARE program, they had not
yet compiled sufficient data to identify fraudulent behavior. 

                          Table 1
          
              Claims Processed and Potentially
            Fraudulent Cases Referred by TRICARE
                    Contractors, 1996-98

                                              Referrals of
                                                 potential
                                      Claims         fraud
Contractor                         processed       cases\a
------------------------------  ------------  ------------
Foundation Health Federal         25,700,000            92
 Services, Inc.
Humana Military Healthcare        14,500,000             4
 Services, Inc.
TriWest Healthcare Alliance,       6,100,000             3
 Inc.
Anthem Alliance for Health,        2,700,000             2
 Inc.
Sierra Military Health             1,000,000             0
 Services
==========================================================
Total                             50,000,000           101
----------------------------------------------------------
\a Potential fraud cases may involve multiple claims. 

Source:  TMA. 

In addition to their modest efforts specifically associated with
identifying and referring potential fraud cases, contractors use
claims editing software and other approaches to ensure that accurate
payments are made to authorized providers and eligible beneficiaries. 
Such software and prepayment screens could also serve to deter
fraudulent and abusive behavior.  While TRICARE contractors prevented
various types of erroneous payments totaling about $73 million in
1998 through the use of claims editing software and other prepayment
screens and edits, neither TMA nor contractors could quantify what
portion of this amount might be associated with fraud and abuse.  TMA
officials acknowledged that while some of this amount could have been
related to fraud and abuse, they believe the vast majority
represented payments generated by clerical and other types of errors. 
They told us, however, that prepayment screens and edits are likely
to deter fraudulent and abusive behavior on the part of some health
care providers. 

      DOD HAS RECOVERED A SMALL
      AMOUNT OF ITS ESTIMATED
      LOSSES TO FRAUD AND ABUSE
---------------------------------------------------------- Letter :4.2

DOD and its contractors' antifraud efforts have resulted in the
recovery of a tiny fraction of DOD's estimated losses from fraud and
abuse.  For example, as table 2 shows, between 1996 and 1998, DOD
recovered only about $14 million in fraudulent payments.  This amount
is negligible when compared with estimated losses of between $570
million and $1.14 billion during the same period.  Even though the
exact extent of TRICARE fraud and abuse is unknown, the small amount
of recoveries indicates that DOD efforts have considerable room for
improvement and that DOD's vulnerability to fraud and abuse is still
high. 

                          Table 2
          
          Results of TMA Antifraud Efforts, 1996-
                             98

                                                Fraudulent
                      DOD estimates of            payments
                       fraud and abuse     recovered\a (in
Year                     (in millions)          millions)\
------------------  ------------------  ------------------
1996                          $130-260                $1.2
1997                           190-380                 7.1
1998                           250-500                 6.1
==========================================================
Total                       $570-1,140               $14.4
----------------------------------------------------------
\a These figures may be related to cases identified in previous
years. 

In addition to recovering fraudulent payments, between 1996 and 1998
DOD participated with other organizations in investigations of
TRICARE and other government health care programs, such as Medicare
and Medicaid, which resulted in penalties, fines, and other
assessments totaling approximately $804 million, 199 criminal
charges, and 150 civil settlements.  TMA officials told us, however,
that they could not identify the portion of these penalties, fines,
and other assessments associated with the TRICARE program or its
funds. 

   OPPORTUNITIES EXIST TO IMPROVE
   TRICARE'S ANTIFRAUD EFFORTS
------------------------------------------------------------ Letter :5

While DOD recognizes that it needs to reduce its vulnerability to
fraud and abuse, it has been slow to implement revised policies and
requirements directing its contractors to put into place a much more
aggressive fraud and abuse identification program.  Once these
revisions are implemented, DOD's efforts could also be strengthened
by establishing results-oriented goals and performance measures in
its managed care contracts and by overseeing contractors to assess
their performance against these goals and measures.  In addition,
given the potential magnitude of fraud and abuse within TRICARE, DOD
top management could better focus and otherwise improve DOD's
antifraud efforts by committing itself to, and developing a concerted
strategy for, addressing the problem in its military health system
strategic plan.  Such plans are mandated by the Government
Performance and Results Act of 1993 (also known as the Results
Act).\1 These steps should improve DOD's antifraud activities and
help reduce the adverse impact fraud and abuse currently have on
TRICARE and its beneficiaries. 

--------------------
\1 The Results Act (P.L.  103-62) requires agencies to clearly define
their missions, set goals, measure performance, and report on their
accomplishments. 

      TMA IS IN THE PROCESS OF
      IMPLEMENTING REVISED
      ANTIFRAUD REQUIREMENTS
---------------------------------------------------------- Letter :5.1

According to the Chief of TMA's Program Integrity Branch, DOD's
antifraud policies and procedures are vague concerning contractors'
responsibilities.  She told us that DOD policies do not direct
contractors to provide their antifraud staff with training in fraud
detection and prevention methods, nor do the policies guide
contractors as to the level of emphasis they should place on such
activities.  In an effort to improve the effectiveness of its
antifraud efforts, TMA is in the process of implementing revised
program integrity policies and procedures to require more aggressive
fraud identification activities by its contractors.  Although TMA
originally intended that its contractors implement these revisions by
October 1, 1998, TMA and the contractors have been negotiating for
over 8 months to formally implement these changes.  As of June 1,
1999, DOD and its contractors had not yet agreed to contract terms. 
If and when implemented, these changes would include the following
requirements of TRICARE contractors: 

  -- Develop and publish a corporate antifraud strategy.  This
     strategy, developed and endorsed by corporate management to
     underscore its commitment to health care fraud detection and
     prevention, includes plans for (1) maintaining a focus on
     increased health care fraud awareness, (2) developing processes
     that identify fraud, (3) aggressively referring health care
     fraud cases to TMA, (4) assisting in the prosecution of cases,
     and (5) developing deterrents to health care fraud.  TMA
     officials told us that having a published corporate antifraud
     strategy would better enable its contractors to focus their
     fraud prevention and detection activities, as well as generate
     companywide support for these efforts. 

  -- Use new antifraud software.  Antifraud software will be used to
     analyze health care data associated with the type, frequency,
     duration, and extent of services to identify patterns of
     probable fraudulent or abusive practices by providers and
     beneficiaries.  TMA officials told us that using artificial
     intelligence software would allow contractors to be more
     effective in identifying fraud and would likely increase the
     number of fraud cases they referred to TMA. 

  -- Establish and maintain an antifraud training program. 
     Specifically, contractors will train their staff to identify
     abnormal patterns of care, over- or underutilization of
     services, and other practices that may indicate fraudulent or
     abusive behavior.  According to TMA officials, with new
     developments in information technology and frequent contractor
     staff turnover, structured training would help institutionalize
     contractors' antifraud activities.  Some contractor and
     subcontractor staff told us they were not adequately trained to
     effectively identify fraud and abuse and would benefit from a
     structured, continuously updated antifraud education program. 

In addition, in an effort to increase beneficiary awareness of health
care fraud and abuse, TMA has directed its contractors to include a
fraud hot line telephone number and mailing address on beneficiaries'
"explanation of benefits" statement.  This information provides
beneficiaries with a contact in the event fraudulent activity is
suspected or observed.  As of April 1999, all five contractors had
included an antifraud contact on their explanation of benefits
statements. 

Although TRICARE policy requires that claims be denied when submitted
under a clinic or group practice subidentifier, TMA waived this
requirement in 1996 in an effort to improve claims processing
timeliness.  However, our March 1999 testimony raised a concern that
TRICARE claims did not always identify the individual provider
rendering care, potentially masking fraudulent or abusive activity. 
In response, as of June 1, 1999, TMA directed all of its contractors
to pay only those claims that identify providers individually, rather
than their group or clinic affiliation.\2 TMA officials told us that
information on individual providers is also needed to monitor quality
of care. 

TMA has not established results-oriented goals or performance
measures for its managed care contracts, although doing so would help
it assess contractors' performance as well as enable contractors to
track their own progress in combating fraud and abuse.\3 Comparing
contractor performance with established goals and measures would
enable TMA to identify program deficiencies and help contractors
focus their efforts on needed improvements. 

--------------------
\2 Defense Health Care:  Management Attention Needed to Make TRICARE
More Effective and User-Friendly (GAO/T-HEHS-99-81, Mar.  11, 1999). 

\3 In 1994, DOD's Office of Inspector General recommended that DOD
establish performance measures related to its health care fraud
detection activities. 

      DOD'S MILITARY HEALTH SYSTEM
      STRATEGIC PLAN DOES NOT
      ADDRESS TRICARE FRAUD AND
      ABUSE
---------------------------------------------------------- Letter :5.2

As required by the Results Act, agencies must articulate, in a
strategic plan, how they will address issues that significantly
affect their ability to manage program operations.  Given the
potential magnitude of health care fraud and abuse within TRICARE, it
is important for DOD to address this concern in such a plan.  DOD's
current military health system strategic plan, however, does not
specify how the agency will combat TRICARE fraud and abuse.  A more
complete plan would provide better direction and guidance by
including an antifraud mission statement, identifying long-term
antifraud objectives and describing how DOD would achieve them, and
explaining key external factors that could affect achievement of
those objectives. 

In addition, taking a more strategic approach would help TMA
establish annual performance goals and measures related to its
long-term objectives and determine how it will assess its progress in
achieving them.  Specific performance measures could include
calculating the cost-effectiveness of TMA's antifraud efforts.  By
benchmarking and periodically assessing its progress in combating
TRICARE fraud and abuse, TMA would be in a better position to measure
its vulnerability to such activity, focus its antifraud efforts on
the most prevalent types of fraud and abuse, and allocate an
appropriate level of resources to combat this problem. 

   CONCLUSIONS
------------------------------------------------------------ Letter :6

Health care fraud and abuse within TRICARE potentially result in the
loss of hundreds of millions of dollars and adversely affect the
health of untold numbers of beneficiaries.  Despite TRICARE's known
vulnerability, DOD's activities thus far have not been very
successful in identifying fraud and abuse.  Furthermore, as health
care costs increase over time, fraud and abuse can be expected to
increase proportionally.  While DOD recognizes the importance of its
contractors' role in combating fraud and abuse and has been
negotiating with them to implement new antifraud requirements, it has
been slow in doing so.  If effectively implemented, these
requirements would help DOD and its contractors increase the
effectiveness of their antifraud efforts; in our view, immediate
attention should be focused on getting these requirements in place. 
In addition, by establishing results-oriented goals and performance
measures for its contractors, TMA would be in a better position to
identify program deficiencies and help its contractors more
effectively target their efforts to reduce fraud and abuse.  Given
the relatively few dollars DOD has recovered and the magnitude of
potential fraudulent activity, DOD would also benefit from adopting a
more strategic approach.  We believe DOD's military health system
strategic plan provides an appropriate mechanism for articulating
this approach and for setting forth the specific goals, objectives,
and strategies for reducing DOD's vulnerability to TRICARE fraud and
abuse.  Ultimately, the success of DOD's antifraud efforts will
depend on the priority it places on fraud prevention and detection
and how effectively it oversees its contractors' antifraud
activities. 

   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

To reduce TRICARE's vulnerability to fraud and abuse, we recommend
that the Secretary of Defense direct the Assistant Secretary of
Defense (Health Affairs) to

  -- expedite implementation of TMA's revised antifraud requirements,
     including the requirements that contractors develop a corporate
     antifraud strategy, utilize new antifraud software, and develop
     an antifraud training program;

  -- modify current contracts to establish specific results-oriented
     goals and performance measures for contractors; and

  -- include in DOD's military health system strategic plan how DOD
     will combat health care fraud and abuse and an assessment of
     DOD's performance in combating such activity. 

   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

In commenting on a draft of this report, the Assistant Secretary of
Defense (Health Affairs) stated that the report will provide DOD with
invaluable assistance as it begins to do more in the area of reducing
fraud and abuse in its health care program.  In response to our
recommendations, DOD agreed to expedite implementation of revised
antifraud requirements by requiring contractors to develop a
corporate antifraud strategy, utilize antifraud software, and develop
an antifraud training program.  In addition, DOD agreed to include in
the TMA strategic plan how DOD will combat health care fraud and
abuse. 

However, DOD is concerned about establishing specific
results-oriented goals and performance measures for its contractors. 
While DOD agrees that establishing goals and measures is desirable,
it states it is unaware of a methodology that would enable it to do
so.  We recognize that finding the right methodology is challenging,
but establishing program-specific goals and performance measures for
key program activities is a fundamental responsibility placed on all
agencies by the Results Act.  In our view, combating fraud and abuse
is a key management activity; therefore, DOD needs to establish goals
and measures to assess contractors' performance, identify program
deficiencies, and enable contractors to track their own progress in
combating fraud and abuse. 

DOD also raised concerns about data presentation in two areas. 
First, it was concerned that a comparison between the number of
claims processed and the number of fraud cases identified presupposes
a correlation between the two sets of data.  DOD stated that no
industry standard based on such a correlation exists.  We do not
dispute that there is no industry standard.  However, by virtually
any standard, DOD contractor referrals of 101 potential fraud cases
out of about 50,000,000 processed claims represent a minimal level of
activity.  In this context, it seems clear that there is room for the
contractors to be more aggressive in their efforts to identify
fraudulent activity.  Further, DOD concurred with our recommendation
to expedite the implementation of revised antifraud policies and
requirements that place greater demands on contractors to identify
and prevent fraud. 

Second, DOD raised a concern that the report compares gross estimates
of potential amounts lost to fraud and abuse with only the amounts
recovered in fraud cases.  Our report clearly states that DOD was
unable to estimate recoveries for abuse but reported that contractors
prevented erroneous payments totaling about $73 million.  Moreover,
most of this $73 million was not attributable to abuse but rather to
payments resulting from clerical and other types of errors. 

DOD's comments are included as appendix III. 

---------------------------------------------------------- Letter :8.1

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

If you or your staffs have any questions about this report, please
contact me at (202) 512-7101 or Michael T.  Blair, Jr., Assistant
Director, at (404) 679-1944.  Jeffrey L.  Pounds, Steve D.  Morris,
and Michael Tropauer also made key contributions to this report. 

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

TRICARE CONTRACTORS AND
SUBCONTRACTORS RESPONSIBLE FOR
ANTIFRAUD EFFORTS
=========================================================== Appendix I

                    TRICARE
TRICARE regions     contractors         Subcontractors
------------------  ------------------  ------------------
Northwest           Foundation Health   Wisconsin
                    Federal Services,   Physicians Service
                    Inc.

Southwest           Foundation Health   Wisconsin
                    Federal Services,   Physicians Service
                    Inc.

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

Southeast and Gulf  Humana Military     Palmetto
South               Healthcare          Government
                    Services, Inc.      Benefits
                                        Administrators

Central             TriWest Healthcare  Palmetto
                    Alliance, Inc.      Government
                                        Benefits
                                        Administrators

Northeast           Sierra Military     Palmetto
                    Health Services     Government
                                        Benefits
                                        Administrators

Mid-Atlantic and    Anthem Alliance     Palmetto
Heartland           for Health, Inc.    Government
                                        Benefits
                                        Administrators
----------------------------------------------------------

SCOPE AND METHODOLOGY
========================================================== Appendix II

To evaluate DOD's antifraud efforts, we met with DOD officials
responsible for planning, managing, and implementing TRICARE's
antifraud program.  We reviewed DOD regulations, policies, and
requirements pertaining to its program integrity functions, as well
as strategic plans developed by DOD.  We also reviewed antifraud
requirements outlined in contracts with managed care support
contractors hired by DOD to administer the TRICARE program
regionally.  In addition, we visited DOD's five contractors and their
two subcontractors to obtain information on their antifraud efforts. 
We also interviewed representatives of public and private sector
organizations involved in health care fraud issues, including the
Health Care Financing Administration; the Federal Bureau of
Investigation; and the National Health Care Anti-Fraud Association,
whose mission is to improve the private and public sectors'
detection, investigation, and prevention of health care fraud. 

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

(See figure in printed edition.)

(See figure in printed edition.)

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