VA and Defense Health Care: Rethinking of Resource Sharing Strategies is
Needed (Testimony, 05/17/2000, GAO/T-HEHS-00-117).

Pursuant to a congressional request, GAO discussed the Department of
Veterans Affairs'(VA) and the Department of Defense's (DOD) sharing of
federal health care resources.

GAO noted that: (1) while VA and DOD partners are sharing resources and
have reported a number of benefits from this exchange, the majority of
sharing is occurring under a few agreements and at a few facilities; (2)
certain barriers have created confusion about the status of current
sharing agreements and presented challenges for future collaboration;
(3) both VA and DoD face changes in their health care delivery systems
that are likely to alter the potential for sharing; (4) GAO identified a
number of benefits that have resulted from sharing, including increased
revenue, enhanced staff proficiency, full utilization of staff and
equipment, and reduced costs; (5) as required by the law, VA and DOD
have reported annually to the Congress on the status of the sharing
program and have claimed growth; (6) GAO's work identified certain
barriers that could jeopardize current sharing agreements and limit
future collaboration; (7) in addition to inconsistent reimbursement and
budgeting policies, two long-standing barriers that GAO has reported on
previously, a 1999 DOD legal opinion and subsequent policy has caused
concern among VA and DOD officials that many of these agreements could,
in effect, be nullified; (8) DOD's contracts with private health care
companies through its managed care program, TRICARE, may supersede the
sharing of direct medical care between VA and DOD facilities; (9)
according to the military Surgeons General and local VA and DoD
officials, local VA partners are being paid too little, the policy is
causing confusion over what services can be shared; and (10) to provide
stability to the current sharing program and to have VA and DoD jointly
assess the most cost-effective ways to share health care resources in
the future, GAO has made several recommendations.

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

 REPORTNUM:  T-HEHS-00-117
     TITLE:  VA and Defense Health Care: Rethinking of Resource Sharing
	     Strategies is Needed
      DATE:  05/17/2000
   SUBJECT:  Health care services
	     Veterans benefits
	     Health resources utilization
	     Health services administration
	     Interagency relations
	     Cost effectiveness analysis
IDENTIFIER:  VA Veterans Integrated Service Network
	     DOD TRICARE Program

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   * For Release on Delivery
     Expected at 10:00 a.m.

Wednesday, May 17, 2000

GAO/T-HEHS-00-117

VA AND DEFENSE HEALTH CARE

Rethinking of Resource Sharing Strategies is Needed

        Statement of Stephen P. Backhus, Director

Veterans' Affairs and Military Health Care Issues

Health, Education, and Human Services Division

Testimony

Before the Subcommittee on Health, Committee on Veterans Affairs, House of
Representatives

United States General Accounting Office

GAO

VA and Defense Health Care: Rethinking of Resource Sharing Strategies Is
Needed

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to discuss the Department of Veterans
Affairs' (VA) and the Department of Defense's (DOD) sharing of federal
health care resources. VA and DOD combined provide health care services to
more than 12 million beneficiaries and operate more than 700 medical
facilities at a cost of about $34 billion annually. As you know, in May
1982, the Congress enacted the VA and DOD Health Resources Sharing and
Emergency Operations Act (Sharing Act) to promote more cost-effective use of
these resources and more efficient delivery of care. Specifically, the act
authorizes VA medical centers (VAMC) and military treatment facilities (MTF)
to become partners and enter into sharing agreements to buy, sell, and
barter medical and support services.

You asked us to conduct a review of the sharing program, which we initiated
in January 1999. As part of this review, we visited a number of VA and DOD
facilities participating in sharing and surveyed over 400 local sharing
partners to determine the extent to which VA and DOD actually exchange
services-the first time such data have been collected. Our report, being
issued today, provides extensive information on the extent of sharing, the
benefits reported by VA and DOD, and the barriers and challenges both
agencies face in their efforts to share health resources. My statement today
will summarize our findings and highlight the steps we believe VA and DOD
need to take in the future to ensure the efficient use of federal health
care resources.

In summary, we found that while VA and DOD partners are sharing resources
and have reported a number of benefits from this exchange, the majority of
sharing is occurring under a few agreements and at a few facilities. In
addition, certain barriers have created confusion about the status of
current sharing agreements and presented challenges for future
collaboration. Finally, both VA and DOD face changes in their health care
delivery systems that are likely to alter the potential for sharing. To
provide stability to the current sharing program and to have VA and DOD
jointly assess the most cost-effective ways to share health care resources
in the future, we are making several recommendations.

Our survey and fieldwork identified a number of benefits that have resulted
from sharing, including increased revenue, enhanced staff proficiency,
fuller utilization of staff and equipment, and reduced costs. As required by
the law, VA and DOD have reported annually to the Congress on the status of
the sharing program and have claimed growth. For fiscal year 1998, VA and
DOD stated that virtually all VAMCs and MTFs had sharing agreements under
which more than 10,000 services could potentially be exchanged. However,
these numbers reflect the number of facilities that have an agreement and
the range of services that could be exchanged, but they do not capture the
actual volume of services exchanged under the agreements.

Our survey revealed that sharing activity occurred under 412, or about
three-quarters, of the existing local sharing agreements. Direct medical
care accounted for about two-thirds of services exchanged; the remaining
one-third included ancillary and support services. However, most activity
occurred under a few agreements and at a few facilities. Reimbursements for
care provided under sharing agreements-another indicator of activity-were
similarly concentrated. Three-quarters of the $29 million in reimbursements
for provided care was collected by only 26 of the 146 facilities
participating in active agreements. At the joint venture sites, where
another $21 million in services was exchanged, we found activity was
concentrated at the two locations where VA and DOD integrated many hospital
services and administrative processes.

Our work also identified certain barriers that could jeopardize current
sharing agreements and limit future collaboration. In addition to
inconsistent reimbursement and budgeting policies-two long-standing barriers
that we have reported on previously-a more recent barrier has major
implications for the nature and future of sharing. Specifically, a 1999 DOD
legal opinion and subsequent policy has caused concern among VA and DOD
officials that many of these agreements could, in effect, be nullified.
DOD's contracts with private health care companies through its managed care
program, TRICARE, may supersede the sharing of direct medical care between
VA and DOD facilities. According to the military Surgeons General and local
VA and DOD officials, the policy is causing confusion over what services can
be shared. Additionally, changes to DOD payment procedures, initiated
without clear guidance to VA or DOD contractors, has exacerbated the
situation. According to VA officials, local VA partners are being paid too
little, too late, or not at all. Over the past 2 weeks, we have been
informed that VA and DOD have taken certain steps to begin to address some
of the concerns. However, we have not yet been provided the opportunity to
review these steps to determine whether they are adequate to resolve these
problems.

Background

   * Local sharing agreements allow VAMCs and MTFs to exchange inpatient
     care, outpatient care, and ancillary services as well as support
     services, such as education and training and laundry.

   * Joint venture sharing agreements pool resources to build new facilities
     or to capitalize on existing facilities. Joint ventures require more
     cooperation and flexibility than local agreements because VA and DOD
     must work together to develop multiple sharing agreements and establish
     operational procedures that allow them to operate as one system.

   * National sharing initiatives, under the VA/DOD Executive Council, are
     interagency initiatives, such as joint disability discharge physicals,
     which eliminated the duplicative examinations that military personnel
     were required to undergo to be discharged and receive VA disability
     benefits.

   * Other collaborative efforts not specifically covered under the Sharing
     Act include the joint purchasing of pharmaceuticals, laboratory
     services, medical supplies and equipment, and other support services.

Over the past 2 decades, changes in beneficiary populations, resources, and
the health care environment have significantly influenced VA's and DOD's
health care delivery systems and how the two agencies share health
resources. Since 1980, the veteran population has declined from more than 30
million veterans to about 26 million in 1998. VA estimates that the number
of veterans will drop to 16 million by 2020. DOD's beneficiary population is
also changing. The number of military retirees is increasing and, while the
number of active duty personnel is declining, the number of dependents is
increasing. Over the past several years, DOD and VA resources have also
changed. For example, DOD closed one-third of its MTFs, and VA has
consolidated a number of its health care facilities.

To respond to these changes, VA and DOD have made significant changes in
their health care systems, mainly adopting managed care principles and
shifting care from inpatient to outpatient treatment. In October 1995, VA
began to transform its hospital-based health care delivery system into a
community-based system. VA developed 22 Veterans Integrated Service Networks
(VISN)-geographic service areas defined by patient populations, referral
patterns, and facility locations. Each VISN has operational control over and
responsibility for a capitated budget for all service providers and patient
care facilities, including hospitals.

DOD's health care system has undergone a similar transformation. In March
1995, DOD established its managed health care program, TRICARE, and created
12 service regions, each with a capitated budget primarily based on the
total number of beneficiaries in the region. Under TRICARE, beneficiaries
can choose one of three program options: TRICARE Prime, similar to a health
maintenance organization; TRICARE Extra, similar to a preferred provider
organization; and TRICARE Standard, a fee-for-service benefit. Each TRICARE
service region is administered by a lead agent who coordinates the health
efforts of the three military departments and is responsible for ensuring
that the provider network is adequate. Through competitive bid procedures,
DOD contracts with private health care companies for services that DOD
facilities are unable to provide.

VA and DOD Partners Report Benefits From Sharing Resources, but Sharing
Activity Is Concentrated

Since the sharing law was enacted, VA and DOD have claimed growth in the
sharing program, citing increases in the number of facilities with sharing
agreements and the range of services that could potentially be exchanged
under these agreements. Between fiscal years 1984 and 1994, VA and DOD
reported that the combined total of VA and DOD facilities with local sharing
agreements had increased from 102 to 284. For fiscal year 1998, the most
recent year for which the annual report was issued, VA and DOD stated that
virtually all VAMCs and MTFs were involved in sharing agreements. VA and DOD
also reported that, between fiscal years 1987 and 1998, the number of
services covered under these agreements

had increased from 1,387 to 10,586 services. In fiscal year 1998, that
number included services that could be provided by VA through TRICARE.

VA and DOD's numbers, however, indicate only the potential for sharing, not
the actual volume of services shared. Through our survey, we found that, in
fiscal year 1998, about 70 percent of the local sharing agreements were
active-that is, services had been provided. VA provided services under 352
agreements at 108 facilities, and DOD provided services under 60 agreements
at 37 facilities. About 75 percent of these agreements were for direct
medical care provided mostly by VA. VA and DOD partners also reported
collecting a total of $29 million in sharing agreement reimbursements for
providing health and support services in fiscal year 1998. Although dollar
values were not assigned for all bartered agreements, those that did assign
a value reported about $775,000.

Eighty-four percent of the total reimbursements reported were for direct
medical care. VA and DOD also provided other health services, such as
pharmacy, dental, and vision, as well as support services, such as training
and laundry, under sharing agreements. For other types of health services,
VA and DOD collected a total of almost $5 million; for support services, VA
and DOD collected a total of over $3.5 million, with VA receiving $2 million
for laundry services.

More recently, VA and DOD partners have entered into a total of eight joint
ventures. Six of the eight were operational as of 1998, generating a notable
amount of activity. For example, in 1998, these six joint ventures reported
a total of about 360,000 episodes of care. Finally, VA and DOD have
pursued-to a lesser degree-opportunities to share through national
initiatives and sharing under authority other than the Sharing Act.

While actual sharing is occurring through a majority of agreements, most of
this activity is under just a few local agreements and at a few facilities,
usually in locations where VA and DOD facilities were nearby or where
facilities provided specialized services. For example, 75 percent of all
inpatient care provided occurred under just 12 local sharing agreements.
Similarly, 26-or 18 percent-of the facilities participating in active
agreements collected three-quarters of the $29 million in reimbursements.

Activity was similarly concentrated at the joint venture sites in Nevada and
New Mexico-the two locations where VA and DOD integrated many hospital
services and administrative processes. Specifically, 83 percent of all
episodes of care provided through the operational joint ventures were
provided at these two locations. In addition, 13 VAMCs and 22 MTFs reported
that, in fiscal year 1998, they had entered into one or more joint
purchasing contracts-not covered by the Sharing Act-to purchase
pharmaceuticals, laboratory services and supplies, medical supplies and
equipment, and other types of services.

Several Barriers and Challenges Require VA and DOD to Rethink Resource
Sharing Strategies

Local VA and DOD officials identified a number of long-standing and new
barriers that could jeopardize current sharing agreements or impede further
sharing of federal health care resources. Of particular concern are the
implications that a 1999 TRICARE policy and program changes have had for
sharing. Unless these barriers and challenges are overcome, VA and DOD will
face difficulties sharing resources in the future.

Long-Standing Barriers Continue to Jeopardize Sharing

Thirty-one percent of VA survey respondents and 25 percent of DOD
respondents also cited the process for approving sharing agreements as a
barrier to sharing. Local VAMCs generally have the authority to approve
their participation in sharing opportunities that they have identified. Once
agreements have been reached locally, VA headquarters gives approval for
entry into the sharing database and grants local officials program
oversight. According to VA headquarters' officials, this approval process
has been expedited and now is completed within 3 work days. MTFs, on the
other hand, must receive approval from DOD headquarters to participate.
According to local DOD officials, this requirement prolongs the process and
has resulted in some agreements not being entered into. Some indicated that
such experiences have discouraged them from seeking other potential sharing
arrangements.

TRICARE Policies Call Into Question Current and Future Sharing

DOD also issued a policy transferring funding and payment responsibility for
MTF-referred care-primarily for active duty members-from the MTFs to TRICARE
support contractors, effective October 1, 1999. VA officials told us that
since this new policy went into effect, VA sharing partners have been paid
late, have received payments for services provided under sharing agreements
at less than the sharing agreement negotiated rate, or have not received
payment at all. These payment problems are the result of VA's and the
TRICARE contractors' different billing processes and the lack of clear
guidance from DOD. For sharing agreements, VA submits one bill for all
medical and professional services, whereas TRICARE requires itemized bills
for each service. Therefore, when TRICARE support contractors receive bills
for sharing agreements, they often reimburse for only one service, resulting
in VA not getting reimbursed for a number of the services it provided.
According to VA officials, this policy has negatively affected collaboration
and, unless addressed, will continue to be a disincentive to future efforts.
We recently learned that VA and DOD have taken certain steps to begin to
address some of these concerns, but we have not yet been provided the
opportunity to review these steps to determine whether they are adequate
remedies.

While TRICARE contractors are encouraged to include VA health care
facilities in their networks, VA officials believe that VAMCs will not be
used as extensively as they were under the sharing agreements because they
will be among many other network providers from which beneficiaries can
choose. As of September 1999, DOD reported that 137 VAMCs were TRICARE
subcontractors. We recently verified this information.

Due to the expressed concern from VA officials that the TRICARE policy may
reduce sharing activity, we conducted a follow-up survey with VA partners to
measure the extent to which activity has been affected. We learned that
since TRICARE changes went into effect, 82 percent of VA respondents
reported that none of their local sharing agreements with DOD have been
terminated and a majority reported that the volume of sharing activity had
either stayed the same or increased. Of those who reported that agreements
had been terminated, more than two-thirds said that the VA facility will
continue to provide services to DOD beneficiaries under TRICARE. However,
significant problems with reimbursements persist. In particular, local VA
partners continue to report that they have not been adequately paid for
services rendered.

Conclusions

Notwithstanding the recent steps reportedly taken to address certain
barriers, VA and DOD will need to consider the criteria and conditions that
make resource sharing a cost-effective option for the federal government-not
for VA or DOD alone. To determine the most cost-effective means of providing
care to beneficiaries from the federal government's perspective, we have
recommended that the Secretaries of VA and DOD jointly assess how best to
achieve the goals of health resource sharing, considering the changes that
have occurred over the last decade in the VA and DOD health care systems and
the populations they now serve. In addition, we recommended that the
agencies jointly address the barriers that have impeded sharing and
collaboration, by establishing procedures to accommodate each other's
budgeting and resources management functions as well as facilitate timely
billing, reimbursement, and agreement approval. To provide stability to the
current sharing program while VA and DOD reassess how best to achieve the
goals of resource sharing legislation, we also recommended that the
Secretary of Defense direct the Assistant Secretary (Health Affairs) to
review and clarify DOD's policy on the extent to which direct medical
sharing is permitted with VA.

In commenting on a draft of our report, VA and DOD generally agreed that
there are opportunities to improve the administration of the sharing
program. VA did not concur with our joint recommendation because it believes
it has taken strong actions to improve efforts to reach program goals. While
DOD concurred with the joint recommendation and agreed to reassess its
policies' effects on the sharing program, it noted that the policy on
TRICARE does not prohibit sharing, which seems to contradict its legal
opinion on TRICARE. As the health care environment in which VA and DOD share
resources continues to evolve, VA and DOD will likely continue to be
challenged in their collaborations on how best to make effective use of
excess federal health care resources. In the event that the two agencies are
unable to resolve their differences in a reasonable amount of time, we
suggested that the Congress consider providing direction and guidance to
clarify the criteria, conditions, roles, and expectations for VA and DOD
collaboration.

(101642)

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