Defense Health Care: TRICARE Progressing, but Some Cost and Performance
Issues Remain (Testimony, 03/07/96, GAO/T-HEHS-96-100).

GAO discussed the Department of Defense's (DOD) implementation of
TRICARE, its nationwide managed health care program. GAO noted that: (1)
although early TRICARE implementation is basically proceeding as
planned, there was some initial beneficiary confusion due to a shortage
of adequately trained staff and uncoordinated education and marketing
efforts; (2) DOD needs to gather demographic and other data to assess
enrollment impact on program costs; (3) DOD plans to provide training on
resource sharing and utilization management to improve TRICARE cost
control efforts; (4) DOD is not obtaining and analyzing all of the
information it needs to evaluate TRICARE's provision of accessible,
high-quality care while controlling costs; and (5) DOD, Congress, and
beneficiary groups have proposed solutions to address retirees' concerns
about their access to military health care through TRICARE, but the
solutions' costs and effectiveness remain uncertain.

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

 REPORTNUM:  T-HEHS-96-100
     TITLE:  Defense Health Care: TRICARE Progressing, but Some Cost and 
             Performance Issues Remain
      DATE:  03/07/96
   SUBJECT:  Managed health care
             Retired military personnel
             Health care programs
             Military personnel
             Health care cost control
             Quality assurance
             Health services administration
             Military dependents
IDENTIFIER:  DOD TRICARE Extra Program
             DOD TRICARE Prime Program
             DOD TRICARE Program
             Civilian Health and Medical Program of the Uniformed 
             Services
             CHAMPUS
             
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Cover
================================================================ COVER


Before the Subcommittee on Military Personnel, Committee on National
Security, House of Representatives

For Release on Delivery
Expected at 2:00 p.m.
Thursday, March 7, 1996

DEFENSE HEALTH CARE - TRICARE
PROGRESSING, BUT SOME COST AND
PERFORMANCE ISSUES REMAIN

Statement of Stephen P.  Backhus, Associate Director, Health Care
Delivery and Quality Issues
Health, Education, and Human Services Division

GAO/T-HEHS-96-100

GAO/HEHS-96-100T


(101490)


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

  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  DOD - Department of Defense
  TRICARE - Tricare

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

Thank you for the opportunity to discuss the Department of Defense's
(DOD) implementation of its nationwide managed health care
program--TRICARE.  The changes embodied in the TRICARE program
represent a sweeping reform of the $15 billion per year military
health care system. 

Among TRICARE's goals are to improve access to care and ensure
high-quality, consistent health care benefits for the 1.7 million
active-duty Service personnel\1 and some 6.6 million nonactive-duty
beneficiaries.  It also seeks to preserve choice for nonactive-duty
beneficiaries by giving them the option of enrolling in TRICARE
Prime, which is like a health maintenance organization; using a
preferred provider organization called TRICARE Extra; or using
civilian health care providers under a fee-for-service arrangement
like the current CHAMPUS program.\2

Another system goal is to contain DOD's health care costs. 

We have reported several times over the past 9 years on DOD's efforts
to reform the military health care system and on the evolving
development of TRICARE.\3 Now that TRICARE is well into
implementation in some areas of the country and beginning to be
implemented in others, we appreciate this chance to discuss what is
occurring as the program moves from the drawing board toward becoming
a real part of the lives of the people served by military health
care. 

You asked that we talk about DOD's experience in enrolling people and
delivering health care to them under the program.  In this regard, we
would like to focus on four issues: 

  First, whether DOD's experiences with initial implementation of
     TRICARE have produced the outcomes DOD expected;

  second, how early outcomes may affect costs;

  third, whether DOD has defined and is capturing the information
     needed to manage and assess TRICARE's performance; and

  fourth, concerns about the health care needs of retirees. 

My comments today are based on an extensive body of work we have
completed and have under way covering various aspects of TRICARE. 

In summary, our TRICARE work to date has shown that despite initial
beneficiary confusion caused by education and marketing problems,
early implementation of the program is progressing consistent with
congressional and DOD goals.  Steps may be necessary now, however,
such as gathering certain cost and access-to-care data to help
improve DOD's and the Congress' ability to assess the program's
success in the future.  In addition, retirees, who represent about
one-half of the population eligible for military health care, remain
concerned about the implications of TRICARE on their access to
medical services. 


--------------------
\1 Includes members of the Coast Guard and the Commissioned Corps of
the Public Health Service and of the National Oceanic and Atmospheric
Administration who are also eligible for military health care. 

\2 The Civilian Health and Medical Program of the Uniformed Services
is a DOD program to finance private sector care for dependents of
active-duty members; and retirees, survivors, and their dependents. 

\3 See app.  I for a listing of related GAO products. 


   TRICARE'S ORIGINS AND
   DEVELOPMENT
---------------------------------------------------------- Chapter 0:1

Before DOD's transition to managed care, the military health services
system consisted of military hospitals and clinics supplemented by a
fee-for-service insurance program known as CHAMPUS.  This system
lacked sufficient incentives and tools to control expenditures and
provide beneficiaries accessible care on an equitable basis.  DOD's
frequently large CHAMPUS cost overruns and other system shortcomings
prompted the Congress to authorize demonstrations of alternative
health care delivery approaches.  DOD's experience with these
initiatives culminated in its decision to implement TRICARE for
military beneficiaries. 

TRICARE's implementation is occurring in a rapidly changing military
environment.  Post-cold war contingency planning scenarios, efforts
to reduce the overall size of the nation's military forces, federal
budget reduction initiatives, and base closures and realignments have
heightened scrutiny of the size and makeup of DOD's health care
system, how it operates, whom it serves, and whether its missions can
be satisfactorily carried out in a more cost-effective way. 

TRICARE incorporates cost-control features of private sector managed
care programs, such as primary care managers, capitation budgeting,
and utilization management.\4 One significant feature retained from
the earlier demonstration programs is the use of contracted civilian
health care providers to supplement care provided in military
hospitals.  DOD estimates that these contracts will cost about $17
billion over the 5-year contract period.  In all, DOD is awarding
seven 5-year contracts covering its 12 health care regions, as shown
in figure 1.  Thus far, DOD has awarded four of the seven contracts. 
DOD's goal is to have all contracts awarded and the TRICARE program
fully operational by August 1997. 

   Figure 1:  DOD Regions Served
   by the Seven Managed Care
   Support Contracts

   (See figure in printed
   edition.)

Note:  Managed care support for Alaska will be addressed separately
from these regions. 

Last year, after reviewing early TRICARE procurement problems, we
reported that while DOD had taken steps to improve future contract
awards, several areas of concern remained.\5

Among our recommendations--which DOD agreed to adopt--were that DOD
consider the potential effects on competition of such large TRICARE
contracts and weigh alternative award approaches to help ensure
competition during the next procurement round.  We also urged, and
DOD agreed, that DOD try to simplify the next round's solicitation
requirements and seek to incorporate best-practice, managed care
techniques in the contracts.  We plan to follow up on these issues
and to begin a study of how well DOD's contractors are performing
under the current contracts. 


--------------------
\4 Utilization management involves the use of such techniques as
preadmission hospital certification, concurrent and retrospective
reviews, and case management to determine the appropriateness,
timeliness, and medical necessity of an individual's care. 

\5 Defense Health Care:  Despite TRICARE Procurement Improvements,
Problems Remain (GAO/HEHS-95-142, Aug.  3, 1995). 


   TRICARE IMPLEMENTATION IS
   PROCEEDING DESPITE SETBACKS
---------------------------------------------------------- Chapter 0:2

Despite procurement and other unanticipated obstacles, DOD's early
implementation of TRICARE appears to be moving forward toward meeting
congressional and DOD expectations for the program.  After some
initial problems, DOD is enrolling large numbers of beneficiaries
into TRICARE Prime.  It has also succeeded in encouraging Prime
enrollees to select military health care providers--the source of
care that DOD believes is more cost effective than civilian-provided
care.  DOD is also addressing implementation problems that early on
have caused confusion for beneficiaries and difficulties for military
health care managers. 

As of January 31--after fewer than 12 months of operation in one
region and fewer than 4 months in four others--over 400,000 people
have enrolled in TRICARE Prime.\6 As DOD intended through its
marketing efforts, many active-duty dependents have chosen to enroll
in TRICARE Prime.\7 For example, in the Northwest Region, about
two-thirds of active-duty dependents have chosen this option.  Also,
in those regions under way, the bulk of those beneficiaries choosing
Prime have enrolled with military, as opposed to civilian, health
care providers. 

DOD has encountered a number of unanticipated obstacles as it
implements TRICARE.  For example, in the Northwest Region, the first
region to begin enrollment, DOD saw much higher, much faster rates of
Prime enrollment than expected--58,000 people enrolled in just 4
months, compared with the 28,000 that were expected in the first
year.  This created a significant amount of confusion among
beneficiaries because the contractor had to hire temporary employees
who were not adequately trained and were not able to sufficiently
address beneficiaries' questions.  However, the Southwest Region's
managers and contractor learned from the Northwest's experience and
avoided these problems by anticipating an early surge in enrollment
and making sure sufficient numbers of adequately trained staff were
ready to handle it. 

DOD also has learned that marketing and beneficiary education efforts
must be a continuously coordinated process.  Even in the Southwest
Region, where marketing and education efforts have, for the most
part, gone smoothly, beneficiaries continue to express confusion
about such program details as cost sharing and how to make
appointments.  As a result, DOD has reemphasized marketing and
education as an ongoing priority, as well as the need to further
focus education programs on its own health care providers--staff who
have daily face-to-face contact with beneficiaries. 


--------------------
\6 400,000 enrollees does not count active-duty military personnel,
who are automatically enrolled in TRICARE Prime. 

\7 Active-duty dependents tend to have a high level of reliance on
the DOD health system. 


   COST ISSUES HAVE EMERGED DURING
   EARLY IMPLEMENTATION
---------------------------------------------------------- Chapter 0:3

As DOD implements TRICARE, it faces uncertainties regarding the
program's potential costs.  The intent of the Congress is that
TRICARE must not increase DOD's health care costs.  However, factors
we see in TRICARE's early implementation, both within and outside
DOD's and its managed care support contractors' control, may stand in
the way of achieving this goal. 

DOD's ability to control its health care costs depends to a large
degree on the extent to which beneficiaries who currently do not use
military health care enter the system for care, generating higher
costs.  If large numbers of people stop using other sources of care
and begin to use military care, the overall cost of the system will
increase.  It will be important for DOD to know the extent to which
this phenomenon has occurred as it analyzes the cost-effectiveness of
the TRICARE reforms.  DOD does not now appear to be taking the steps
needed to gather the demographic and other data to do this.  We are
continuing to explore this question with DOD as part of our ongoing
work. 

Also, TRICARE depends on managed care cost-reduction techniques to
achieve maximum efficiency of its military facilities and control
rising health care costs.  Strategies such as sharing resources with
the support contractor and managing beneficiaries' utilization of
health care services are key to TRICARE's success.  However,
implementation continues to be a problem, and the actual effect of
these measures on overall TRICARE costs remains to be seen.  Early
indications are that confusion exists among military health care
managers and DOD's contractors about resource sharing under
TRICARE.\8 The details of how agreements should be developed appear
to be not well understood.  Similarly, DOD and its contractors have
not fully incorporated utilization management at the hospital level,
despite intentions to do so at the start of health care delivery
under TRICARE.  DOD officials told us that they plan to provide
additional training for resource sharing and to work with the
contractors to improve utilization management. 


--------------------
\8 Resource sharing allows the contractor, through agreements with
DOD, to provide personnel, equipment, or supplies to a military
facility to improve its capability to provide care. 


   UNRESOLVED PERFORMANCE DATA
   ISSUES
---------------------------------------------------------- Chapter 0:4

Because of TRICARE's newness, size, and complexity, appropriate and
effective information management has become increasingly important. 
We see some gaps in DOD's efforts to obtain and analyze the
information it will need to evaluate whether TRICARE is meeting its
goals of providing beneficiaries increased access to high-quality
care while controlling system costs. 

For example, in addition to the information DOD needs to analyze the
program's potential costs, military health care managers are not
currently measuring whether TRICARE is meeting DOD's standards for
beneficiary access to primary care services--a long-standing area of
beneficiary dissatisfaction.  While DOD expects to have the
capability to gather this information in the future, in the interim,
without this information it will be difficult to determine whether
DOD has accomplished a pivotal TRICARE goal of improving
beneficiaries' ability to obtain the services they need. 


   CARE FOR MILITARY RETIREES
---------------------------------------------------------- Chapter 0:5

Care for military retirees and their dependents and survivors is an
important issue for both beneficiaries and DOD.  Concerns about their
access to military health care services, as well as Medicare-eligible
beneficiaries' ineligibility for CHAMPUS, existed before TRICARE and
would still exist regardless of whether TRICARE had been instituted. 
At issue is whether, and if so, how, DOD can help provide care for
retirees without impeding access for other beneficiaries or greatly
increasing costs. 

Currently, military retirees, survivors, and their dependents make up
over half of all those eligible for care and almost a third of those,
about 1.2 million people, are age 65 and over.  This
Medicare-eligible population is expected to grow by 25 percent
through the year 2002, while the number of the rest of the military
population is expected to decline.  DOD has traditionally treated
many retired beneficiaries in military hospitals on a space-available
basis.  DOD officials contend that some care of this population is
important for training and practice needed to maintain wartime
readiness of their physicians because it adds to the physicians'
range of experiences.  However, DOD's health care eligibility
legislation and funding considerations in TRICARE constrain DOD's
ability to include Medicare-eligible beneficiaries in the TRICARE
program. 

For some of these members of the military community, Medicare and
space-available care in military hospitals are their only health care
options.  These beneficiaries are greatly concerned that TRICARE,
combined with the effects of base closures and downsizing, will push
them entirely out of the military health care system.  This issue was
raised repeatedly in focus groups assembled by DOD in the Northwest
and Southwest Regions. 

Several potential solutions have been offered by DOD, beneficiary
groups, and the Congress, including (1) reimbursement to DOD by the
Health Care Financing Administration for care provided to
Medicare-eligible beneficiaries (known as Medicare subvention), (2)
extending CHAMPUS coverage to beneficiaries aged 65 and over as a
second payer to Medicare, and (3) offering coverage under the Federal
Employees Health Benefits Program.  The cost and effectiveness of
these and other proposals remain uncertain but are obviously very
important. 

As discussed with your staff, in the coming months we will explore
the pros and cons of proposed alternative solutions to address this
issue. 


   CONCLUSION
---------------------------------------------------------- Chapter 0:6

TRICARE represents a major change in the way the military provides
for the health care needs of its people.  We would not expect an
undertaking of this size to proceed without some problems, and DOD
has done well in overcoming early difficulties.  However, we believe
that unless DOD takes steps now to track certain cost and performance
information, it will be difficult to measure the overall success of
the program.  Also, an important unanswered question is how DOD can
help provide care for retirees without impeding access for other
beneficiaries or greatly increasing costs. 

Mr.  Chairman, this concludes my prepared statement.  I will be glad
to respond to any questions you or other members of the Subcommittee
may have.  We look forward to continuing to work with this
Subcommittee as it exercises its oversight responsibility for this
important program. 


   CONTRIBUTORS
---------------------------------------------------------- Chapter 0:7

For more information on this testimony, please call Daniel M.  Brier
at (202) 512-6803.  Other major contributors include Bonnie Anderson,
Sylvia Jones, David Lewis, Allan Richardson, and Catherine Shields. 


=========================================================== Appendix 1


RELATED GAO PRODUCTS
=========================================================== Appendix I

VA Health Care:  Efforts to Increase Sharing With DOD and the Private
Sector (GAO/T-HEHS-96-41, Oct.  18, 1995). 

Defense Health Care:  Despite TRICARE Procurement Improvements,
Problems Remain (GAO/HEHS-95-142, Aug.  3, 1995). 

Defense Health Care:  Problems With Medical Care Overseas Are Being
Addressed (GAO/HEHS-95-156, July 12, 1995). 

Defense Health Care:  DOD's Managed Care Program Continues to Face
Challenges (GAO/T-HEHS-95-117, Mar.  28, 1995). 

Defense Health Care:  Issues and Challenges Confronting Military
Medicine (GAO/HEHS-95-104, Mar.  22, 1995). 

Defense Health Care:  Challenges Facing DOD in Implementing
Nationwide Managed Care (GAO/T-HEHS-94-145, Apr.  19, 1994). 

Defense Health Care:  Expansion of CHAMPUS Reform Initiative Into
DOD's Region 6 (GAO/HEHS-94-100, Feb.  9, 1994). 

Decision Regarding Protests Filed by Foundation Health Federal
Services, Inc.  and QualMed, Inc.  (Redacted Version) (B-254397.4,
and others, Dec.  20, 1993). 

Defense Health Care:  Expansion of the CHAMPUS Reform Initiative Into
Washington and Oregon (GAO/HRD-93-149, Sept.  20, 1993). 

DOD Health Care:  Further Testing and Evaluation of Case-Managed Home
Care Is Needed (GAO/HRD-93-59, May 21, 1993). 

Defense Health Care:  Lessons Learned From DOD's Managed Health Care
Initiatives (GAO/T-HRD-93-21, May 10, 1993). 

Defense Health Care:  Additional Improvements Needed in CHAMPUS's
Mental Health Program (GAO/HRD-93-34, May 6, 1993). 

Defense Health Care:  CHAMPUS Mental Health Demonstration Project in
Virginia (GAO/HRD-93-53, Dec.  30, 1992). 

Defense Health Care:  Efforts to Manage Mental Health Care Benefits
to CHAMPUS Beneficiaries (GAO/T-HRD-92-27, Apr.  28, 1992). 

Defense Health Care:  Obstacles in Implementing Coordinated Care
(GAO/T-HRD-92-24, Apr.  7, 1992). 

Defense Health Care:  Implementing Coordinated Care--A Status Report
(GAO/HRD-92-10, Oct.  3, 1991). 

The Military Health Services System--Prospects for the Future
(GAO/T-HRD-91-11, Mar.  14, 1991). 

Defense Health Care:  Potential for Savings by Treating CHAMPUS
Patients in Military Hospitals (GAO/HRD-90-131, Sept.  7, 1990). 

Potential Expansion of the CHAMPUS Reform Initiative
(GAO/T-HRD-90-17, Mar.  15, 1990). 

Implementation of the CHAMPUS Reform Initiative (GAO/T-HRD-89-25,
June 5, 1989). 

Defense Health Care:  CHAMPUS Reform Initiative:  Unresolved Issues
(GAO/HRD-87-65BR, Mar.  4, 1987). 


*** End of document. ***