United States Government Accountability Office

Washington, DC 20548 

July 31, 2007

Congressional Committees 

Subject: TRICARE: Changes to Access Policies and Payment Rates for Services Provided by 

Civilian Obstetricians

About 111,000 women covered by the Department of Defense’s (DOD) TRICARE program 

gave birth during 2006.1

 During their pregnancies, about half of these women received 

obstetric care from physicians and other providers practicing at military hospitals and clinics 

called military treatment facilities (MTF), while half received their care from civilian 

physicians and other civilian providers.2 In recent years, the use of civilian obstetric care has 

increased among TRICARE beneficiaries. In 2004, 51 percent of TRICARE beneficiaries 

delivered their babies at civilian hospitals; by 2006, 54 percent delivered at civilian hospitals. 

However, through 2005, some TRICARE beneficiaries reported difficulties obtaining obstetric 

care from civilian physicians.3

At the same time, some civilian physicians contended that TRICARE payment rates for 

obstetric care were too low.4

 TRICARE reimburses physicians for most obstetric care using 

two global payments, one for uncomplicated vaginal delivery and the other for 

uncomplicated cesarean delivery, each of which is a single amount that covers a defined set 

of related services. In the case of obstetrics, these global payments cover a woman’s prenatal 

visits, the physician’s assistance at delivery of the baby, and postnatal care after the delivery 

of the baby.

 1

TRICARE offered health care to approximately 9.1 million active duty personnel, retirees, and their 

dependents in 2006. 

2

Obstetrics is the branch of medicine that addresses the care of women during pregnancy, childbirth,

and the recuperative period following delivery. In addition to obstetricians, other physicians may 

provide obstetric care. In this report, we generally refer to physicians as the providers of obstetric 

care, but obstetric care may also be delivered by other types of providers such as nurse midwives and 

nurse practitioners. 

3

In general, TRICARE beneficiaries have shifted to civilian providers for outpatient care in recent 

years. From fiscal year 2004 to fiscal year 2006, use of civilian providers increased from 37 percent to

43 percent of total outpatient care provided. The trend toward increasing use of civilian providers may

partially reflect changes in TRICARE beneficiaries’ place of residence. Because of military base 

closures and shifts in the mix of TRICARE beneficiaries (such as additional reservists and their family 

members) the percentage of TRICARE beneficiaries who lived near an MTF declined between 2000 

and 2006 from 55 percent to 48 percent. 

4

In fiscal year 2006, TRICARE paid $82 million to civilian physicians for outpatient obstetric care, 

which represented about 4 percent of the program’s total outpatient payments of $1.9 billion to civilian 

physicians that year. The total TRICARE budget for fiscal year 2006 was about $39 billion. 

 GAO-07-941R TRICARE Civilian Obstetric Care 
Under the TRICARE program, which is administered by DOD’s TRICARE Management 

Activity (TMA), beneficiaries may obtain care through three different options. Beneficiaries 

enrolled in TRICARE’s HMO-like option, called TRICARE Prime, generally obtain health care 

from physicians at an MTF. TRICARE Prime beneficiaries also may obtain care from a 

network civilian physician when the MTF does not have sufficient capacity to provide care. 

Beneficiaries who have not enrolled in Prime receive care under TRICARE Extra or 

TRICARE Standard.5 These options allow beneficiaries to receive care either from civilian 

physicians who belong to the TRICARE network or from civilian nonnetwork physicians, 

who do not belong to the TRICARE network but have agreed to accept TRICARE 

beneficiaries as patients on a case-by-case basis. TRICARE Extra and Standard beneficiaries 

may also receive care from a physician at an MTF on a space-as-available basis. 

TRICARE’s civilian provider networks are developed by three managed care support 

contractors. Each managed care support contractor is responsible for the delivery of care to 

TRICARE beneficiaries in one of three geographic locations—North, South, and West. The 

managed care support contractors, among other things, establish targets for the number of 

physicians required to ensure a sufficient supply of providers to TRICARE patients in civilian 

provider networks. In developing these targets, each contractor estimates the percentage of 

each physician’s practice that will likely be made up of TRICARE patients. The contractors 

also monitor progress in meeting targets to ensure network adequacy and periodically make 

adjustments to the targets to account for changes that occur in the availability of civilian 

physicians and demands for care of TRICARE beneficiaries.6

The National Defense Authorization Act (NDAA) for Fiscal Year 2006 directed us to evaluate 

the effectiveness of DOD’s TRICARE program in achieving adequate access for beneficiaries 

to high-quality obstetric care.7

 As discussed with the committees of jurisdiction, this report 

(1) describes changes TRICARE has made to obstetric coverage policy and payment rates 

since late 2003 to address concerns about access to civilian outpatient obstetric care and 

about the adequacy of payments to civilian physicians for obstetric care and (2) examines the 

extent to which TRICARE’s managed care support contractors achieved targeted numbers of 

obstetric care providers in their civilian provider networks in 2005 and 2006, and potential 

implications for access to care. In addition, we provide information on the change in 

TRICARE payment rates for obstetric care compared to inflation; this information is shown 

in enclosure I. 

 5

When TRICARE beneficiaries who have not enrolled in Prime choose to receive care from a network

physician, they do so under the rules of TRICARE Extra, which resembles a preferred provider 

organization. In contrast, TRICARE Standard resembles a traditional fee-for-service program. 

Nonenrolled TRICARE beneficiaries cannot be categorized as belonging to either Extra or Standard 

because each time they seek care, they can choose to see a network or nonnetwork civilian physician, 

and this choice determines whether they receive coverage under Extra or Standard. 

6

The managed care support contractors have a financial incentive to ensure that they develop and 

maintain an adequate supply of physicians in the civilian provider network. TMA requires, on a 

monthly basis, that not less than 96 percent of all referrals of TRICARE beneficiaries who reside within 

40 miles of an MTF be made to a physician at an MTF or a physician in the civilian provider network. If 

this standard is not met, TMA imposes a monetary penalty that reduces its payment to the contractor. 

7

See Pub. L. No. 109-163, § 734, 119 Stat. 3136, 3353-55. 

 2 GAO-07-941R TRICARE Civilian Obstetric Care
To provide information on TRICARE changes to policies regarding access to obstetric care 

and payment rates, we reviewed relevant coverage and payment policies implemented in late 

2003 through 2006. We interviewed officials from TMA, the office with responsibility for 

ensuring that DOD health policy is implemented for the TRICARE program. We also 

interviewed representatives of the American College of Obstetricians and Gynecologists and 

the National Military Family Association.8

To provide information on the extent to which TRICARE’s managed care contractors met 

targets for the number of obstetricians9

 in their civilian provider networks, and implications 

for access to care, we analyzed data provided by the managed care support contractors for 

TMA-defined service areas called prime service areas (PSA).10 The managed care support 

contractors provided us with periodic reports on the targeted and actual number of network 

obstetricians participating in the civilian provider networks during 2005 and 2006. For each 

reporting period, in each PSA, we determined whether the actual number of network 

obstetricians fell short of the targeted number of network obstetricians by one or more. 

Across the entire reporting period of calendar years 2005 and 2006, we identified the number 

of PSAs that had fewer obstetricians than were targeted for four or more reporting periods. 

We considered these PSAs to have “frequently fallen short” of the targets set by the managed 

care contractors. We also interviewed representatives of the three managed care support 

contractors, the American College of Obstetricians and Gynecologists, and the National 

Military Family Association about TRICARE beneficiaries’ access to obstetric care during 

2006. 

Our analysis of the number of obstetricians participating in TRICARE’s civilian provider 

networks was limited by the data available. We asked the managed care support contractors 

to provide monthly data for January, April, July, and October 2005 and 2006. The North and 

West regions’ managed care support contractors provided periodic data reports for calendar 

year 2005 and most of calendar year 2006, while the South region managed care support 

contractor provided monthly data as we requested. The North region was unable to report 

until March 2005, which resulted in slightly different reporting periods for the North and West 

regions. The data provided by the managed care support contractors were sufficient to

illustrate the extent to which each of the three managed care contractors met its own targets 

for the number of network obstetricians during the period for which data were provided, 

which generally covered early calendar year 2005 through late calendar year 2006. 

Through our review of relevant documentation and discussions with TMA officials and 

representatives of managed care support contractors, we determined that the data presented 

in this report were sufficiently reliable for our purposes. We did not assess the soundness of 

TRICARE’s policy changes, nor did we evaluate the criteria used by the managed care 

support contractors for determining the targeted number of network obstetricians. Although 

we did not verify the managed care support contractors’ data on the number of network 

 8

The American College of Obstetrics and Gynecologists is a national professional society that

represents 90 percent of U.S. board-certified obstetrician-gynecologists. The National Military Family

Association represents members of the armed forces and their families. 

9

TRICARE’s managed care support contractors set targets for specialists in obstetrics and gynecology, 

which may include providers other than obstetricians. 

10PSAs typically include a 40-mile radius around MTFs and thus can include multiple counties. PSAs 

are also established for other areas where TMA has determined that networks would be cost effective. 

 3 GAO-07-941R TRICARE Civilian Obstetric Care
obstetricians, we reviewed the data for implausible values and internal consistency. Because 

TMA made several changes to its payment rates for obstetric care that took effect during 

2006, at the time of our review data were not yet available to draw conclusions about the 

effect of these changes on beneficiaries’ access to civilian obstetric care.11

We conducted our work from December 2006 through June 2007 in accordance with 

generally accepted government auditing standards. 

Results in Brief 

Since late 2003, TMA has made several changes aimed at addressing concerns about 

TRICARE beneficiaries’ access to civilian obstetric care. TMA’s nationwide changes began in

late 2003; the most recent changes took effect in 2006. In late 2003, TMA loosened controls 

over access to civilian obstetric care nationwide by permitting TRICARE Extra and Standard 

beneficiaries to obtain obstetric care from civilian physicians without first receiving approval 

from the local MTF. In 2006, TMA made two nationwide changes to its physician payment 

rates for obstetric care. First, TMA began paying separately for maternity ultrasounds—

outside of TRICARE’s two global payments for obstetric care—performed during an 

uncomplicated pregnancy, which is likely to result in increased total payments to 

physicians.12 Second, TMA increased payment rates for obstetric care in geographic areas 

where TRICARE payment rates were lower than the Medicaid payment rates for obstetrics, to 

match the Medicaid payment rates.13 In addition, in response to localized concerns about 

severe physician shortages, TMA increased payment rates for specialized obstetric care in 

Alaska and raised payment rates for obstetric care in a South Dakota PSA to improve access 

and network capacity in these locations. 

In 2005 and 2006, managed care support contractors met most of the targets—77 percent—

they set for numbers of obstetricians in TRICARE’s regionally based networks. Of the 175 

PSAs in the civilian provider networks, 24 PSAs (14 percent) fell short of obstetrician supply 

targets for four or more reporting periods during 2005 and 2006, while another 16 PSAs 

(9 percent) fell short of these targets for one to three quarters. The contractors’ achievement 

in meeting the majority of their targets in 2005 and 2006 serves as an indicator that access 

was not likely a problem for most TRICARE beneficiaries seeking obstetric care. However, 

we could not be conclusive about access from these data alone because of other factors that 

can influence access. For example, in PSAs where targets were consistently met, access 

could have been a problem if the contractors overestimated the percentage of TRICARE 

patients that network civilian obstetricians were willing to treat. Conversely, in PSAs that 

frequently fell short of established targets, network civilian obstetricians may have been 

 11TRICARE claims data offer information about trends in service use and the number of physicians 

providing care to TRICARE beneficiaries, but complete data have a lag time of about 1 year behind 

program changes as physicians and other providers may take up to 1 year to submit claims for 

payment. Only after claims are submitted for payment are the records of service use and physician

participation included in the claims database. 

12Ultrasound is a type of imaging used by health professionals in many types of examinations and

procedures. A standard maternity ultrasound creates a picture that helps a provider determine a baby’s 

gestational age and evaluate a baby’s growth and development.

13Medicaid is the joint federal-state program that provides health care coverage for certain low-income

individuals. In fiscal year 2005, the last year for which data were available, about 60 million lowincome children, families, and aged or disabled individuals were covered by Medicaid. 

 4 GAO-07-941R TRICARE Civilian Obstetric Care
willing to absorb more TRICARE patients than had been estimated by the contractors. 

Representatives of the American College of Obstetricians and Gynecologists and the National 

Military Family Association told us that they had not heard significant concerns from their 

members in 2006 about the adequacy of TRICARE’s payment rates for obstetric care or 

access to civilian obstetricians. In commenting on a draft of this report, DOD agreed with our 

findings. 

Background 

To supplement health care provided in MTFs, TMA requires managed care support 

contractors to develop civilian provider networks. To accomplish this, managed care support 

contractors develop comprehensive network plans that include physician targets for each 

specialty, including the number of obstetric care providers required for each PSA. A key 

factor for civilian obstetricians in deciding whether to participate in TRICARE has been the 

payment rate for obstetric care, which has undergone significant changes over the past 

decade as part of an overall effort to reduce military health care costs. In geographic 

locations where the TRICARE program is experiencing shortages of providers or access to 

health care is severely impaired, TMA has the authority to approve payment rate increases to 

encourage civilian physicians and other providers to participate in TRICARE. 

TRICARE Provisions for Extra and Standard Beneficiaries to Use Civilian Care

TRICARE Standard is designed to provide TRICARE beneficiaries maximum flexibility in 

selecting civilian providers. Under Standard, TRICARE beneficiaries may obtain care from 

TRICARE-authorized nonnetwork civilian providers of their choice.14 TRICARE beneficiaries 

using this option do not need a referral for most specialty care. Network civilian physicians 

enter a contractual agreement with the regional managed care support contractors to provide 

health care to TRICARE beneficiaries. However, network civilian physicians do not have to 

accept all TRICARE beneficiaries seeking care if the physician’s practice does not have 

sufficient capacity. Nonnetwork civilian physicians do not have a contractual agreement with 

a managed care support contractor, and may accept TRICARE beneficiaries as patients on a 

case-by-case basis. They also have the option of charging up to 15 percent more than the 

TRICARE payment rate. The beneficiary must pay the additional 15 percent, along with their 

required copayments. 

TMA Oversight of TRICARE Program

TMA, in DOD’s Office of the Assistant Secretary of Defense for Health Affairs, establishes 

TRICARE policy and payment rates for services. To help administer the program, TMA uses 

managed care support contractors to develop networks of civilian providers and perform 

other customer service functions, such as claims processing. Currently, there is one managed 

care support contractor for each of TRICARE’s three regions.15 For each PSA within the 

regions, managed care support contractors are required to maintain civilian provider 

networks that are large enough to provide access to care for all TRICARE beneficiaries living 

in the area. To do so, each contractor, using its own methodology, determines the number of 

 14For more information about access to civilian health care providers for TRICARE beneficiaries who 

have not enrolled in Prime see GAO, Defense Health Care: Access to Care for Beneficiaries Who Have 

Not Enrolled in TRICARE’s Managed Care Option, GAO-07-48 (Washington, D.C.: Dec. 22, 2006). 

15Each TRICARE region has about the same number of TRICARE beneficiaries. 

 5 GAO-07-941R TRICARE Civilian Obstetric Care
civilian physicians required for each PSA in its region, based on the number of TRICARE 

beneficiaries in the PSA and other factors, such as the estimated percentage of each 

physician’s practice likely to be made up of TRICARE patients.16 Separate targets are set for 

each specialty, including obstetrics, and these targets along with other information on the 

network size are updated by the contractors in monthly or quarterly reports. 

For each region, TMA has established a TRICARE regional office and has designated the 

office directors as health plan managers for their regions with responsibilities for monitoring 

provider network adequacy, overseeing the managed care support contractors, and 

monitoring customer satisfaction. In 2006, about 9,600 obstetricians participated in

TRICARE’s civilian provider network, representing about 26 percent of all civilian 

obstetricians in the United States.17

TRICARE Payment Structure for Civilian Obstetric Care

TMA pays civilian physicians for most obstetric care using global obstetric payments. Under 

a global payment, physicians are not reimbursed separately for every office visit or individual 

service provided. Rather, the physician receives one payment for a defined set of related 

services. TRICARE’s most frequently used global obstetric payments include payment for 

prenatal care, the physician’s attendance at delivery, and postnatal care.18 Although TMA also 

pays physicians for obstetric care through 59 other billing codes, approximately 68 percent of 

TRICARE’s obstetric payments are made under the 2 billing codes that we refer to as global 

payments—the payments for the set of obstetric services related to uncomplicated vaginal 

deliveries and the set of services related to uncomplicated cesarean deliveries. The other 

59 billing codes used to reimburse for obstetric care are for such obstetric-related services as 

amniocentesis, a diagnostic procedure sometimes performed during pregnancy, or deliveryonly services for cases in which the physician does not provide prenatal or postnatal care. 

TRICARE’s payment rates for obstetric care have been in transition for over a decade. In the 

early 1990s, under DOD’s former health care program, DOD’s payment rates to civilian

physicians were based on historical charges—an annual calculation of physicians’ charges 

for services claimed the previous year.19 Using this approach, DOD’s payment rates were, on 

average, 50 percent higher than those paid for identical treatment under the Medicare 

 16In developing civilian provider networks, managed care support contractors also consider historical

medical needs, availability of existing services in MTFs, and the availability of civilian providers to 

deliver care within the PSAs. 

17According to the 2005 Area Resource File published by the National Center for Health Workforce 

Analysis, Bureau of Health Professions, Health Resources and Services Administration, Department of

Health and Human Services, in 2004 there were about 37,200 civilian obstetricians in the United States. 

The Area Resource File provides data on county-level demographics and health systems. 

18Hospitals bill TRICARE separately for the hospital stay. 

19DOD replaced its Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), 

which had been administered as a fee-for-service type health care program, with TRICARE, a tripleoption benefit type program, in 1994. CHAMPUS payments were based on an annual calculation of the 

80th percentile of physicians’ charges statewide. 

 6 GAO-07-941R TRICARE Civilian Obstetric Care
program.20 Beginning with fiscal year 1991, in response to concerns about rising costs of 

military health care, Congress required that DOD’s physician payments gradually be brought 

in line with payment rates under the physician fee schedule for the Medicare program. Each 

year, the payment rate for a particular service was to be reduced by no more than 15 percent 

of the amount allowed during the previous year for that service.21

As DOD implemented these payment revisions, however, civilian obstetricians expressed 

concerns that the revised payment rates were too low. In response, in July 1998, TMA 

returned payment rates for obstetric billing codes to 1997 levels after having reduced those 

rates earlier in the year. TMA then decided to freeze obstetric payment rates at 1997 levels 

until Medicare payment rates for obstetric care caught up to TRICARE’s 1997 payment rates. 

Thus, TMA allowed inflation to gradually reduce the value of TRICARE’s obstetric 

payments.22 As shown in figure 1, from July 1998 through 2006, TRICARE’s global payments 

for the set of services related to uncomplicated vaginal deliveries and uncomplicated 

cesarean deliveries have remained relatively constant at about $1,600 and $1,800, 

respectively.

 20DOD is now required by law to follow Medicare’s reimbursement rules to the extent practicable. See 

10 U.S.C. § 1079(j)(2). Since 1992, Medicare—the federal program that pays for health care services

and items on behalf of more than 42 million elderly and disabled beneficiaries—has paid physicians 

using a fee schedule with payment rates for more than 7,000 services. The physician community is

involved in setting the relative differences in payment rates for these services, including payment rates

for services not commonly used by the Medicare population, such as obstetric care. 

21See Department of Defense Appropriations Act for Fiscal Year 1991, Pub. L. No. 101-511, § 8012, 104

Stat. 1856, 1877 (1990). This provision was codified at 10 U.S.C. § 1079(h). 

22By 2006, 30 of the 61 obstetric billing codes were still paid at TRICARE’s 1997 payment rate levels. 

 7 GAO-07-941R TRICARE Civilian Obstetric Care
Figure 1: Payment Rates for TRICARE’s Most Frequently Used Billing Codes for Obstetric Services, 

Known as Global Payments, 1997 through 2006 

Dollars

Year

Source: GAO analysis of TRICARE payment data. 

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Global payment for obstetric services related to an uncomplicated cesarean delivery

Global payment for obstetric services related to an uncomplicated vaginal delivery

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Note: In 2006, the two global obstetric payments represented 68 percent of TRICARE’s total physician payments for obstetric 

care. This figure shows that TRICARE’s global payments for obstetric care services have remained relatively constant since 

July 1998, when TMA restored payment rates to 1997 levels in response to physicians’ concerns that payment rates were too 

low. 

TMA Has Authority to Adjust Payment Rates under Certain Conditions

TMA has the authority to adjust TRICARE payment rates under certain conditions to increase 

beneficiaries’ access to care. Under TMA’s locality-based waiver authorities, TMA may 

approve increases in TRICARE’s payment rates for both network and nonnetwork providers 

in locations where access to care is impaired. For example, TMA may approve payment rate 

increases for network providers when it has determined that it is necessary and cost effective 

to approve higher rates to ensure an adequate number and mix of qualified health care 

physicians in a specific locality. In such instances, payment rates can be raised to a maximum 

of 115 percent of rates set in the TRICARE physician fee schedule.23 TRICARE payment rates 

for specific services can also be adjusted for both network and nonnetwork providers in 

localities where access to care has been severely impaired.24 In such instances, one method 

that may be used to establish the higher payment rates is to adopt the payment rates of other 

government health care programs, such as Medicaid. If this method is used, TMA would 

 23See 10 U.S.C. § 1097b(a); 32 C.F.R. §199.14(j)(1)(iv)(E).

24See 10 U.S.C. § 1079(h)(5); 32 C.F.R. § 199.14(j)(1)(iv)(D).

 8 GAO-07-941R TRICARE Civilian Obstetric Care
adopt the applicable state Medicaid rate if TRICARE’s payment rate is lower in a specific 

location.25

Recent Changes Loosened a Restriction on Access to Civilian Obstetric Care and 

Increased Some Obstetric Payment Rates 

Since late 2003, TMA has made several changes aimed at addressing concerns about 

TRICARE beneficiaries’ access to civilian obstetric care. One change loosened a restriction 

on access to civilian providers of obstetric care, and other changes raised payment rates for 

obstetric care in some geographic areas and for specific obstetric services. 

In December 2003, in response to provisions in the NDAAs for fiscal years 2001 and 2002, 

TRICARE loosened restrictions on Standard and Extra beneficiaries’ access to civilian 

obstetricians and other civilian providers of obstetric care.26 Prior to that time, Standard and 

Extra beneficiaries who resided within a 40-mile radius of an MTF had been expected to 

receive their obstetric care from military physicians at the local MTF. Civilian obstetric care 

was permitted for those beneficiaries only when the beneficiary lived more than 40 miles 

from the MTF or when the local MTF provided a written statement of nonavailability, stating 

that the MTF did not have sufficient capacity to provide obstetric care. This limitation caused 

concern among some Standard and Extra beneficiaries who received other medical care from 

civilian physicians. On December 28, 2003, TMA revised its regulations to allow Standard and 

Extra beneficiaries who lived within a 40-mile radius of an MTF to access obstetric care from 

civilian physicians without first obtaining a nonavailability statement.27

Payment changes include the following: 

• TRICARE changed the way it paid for obstetric ultrasounds. Effective April 1, 2006, to help 

address concerns among civilian obstetricians about payment rates for obstetric care, TMA 

began paying for ultrasounds related to uncomplicated pregnancies outside the global 

obstetric payment. This additional payment is likely to result in overall higher payments for 

physicians who perform one or more ultrasounds during the course of pregnancy.28 Prior to 

this change, TRICARE included ultrasounds performed for uncomplicated pregnancies in the 

global obstetric payment.

29 However, after an analysis of historical TRICARE claims data, 

TMA officials determined that the global obstetric payment was not sufficient to cover the 

physicians’ payments for ultrasounds, and that its policy to include ultrasounds in the global

 25Medicaid payment rates are consistent across all geographic areas within a state, whereas TRICARE 

rates are locality based. There are 89 TRICARE payment rate localities for the United States and 

Puerto Rico.

26See Pub. L. No. 106-398, § 728, 114 Stat. 1654, 1654A-189 (2000); Pub. L. No. 107-107, § 735, 115 Stat. 

1012, 1171-72 (2001).

27TRICARE’s Prime enrollees are not affected by this change. They are expected to receive obstetric

care from physicians at the local MTF, unless the local MTF lacks sufficient capacity, in which case 

enrollees are referred to civilian physicians for care. 

28TMA estimated that program costs would increase by about $1.5 million annually as a result of this 

change. 

29TRICARE’s policy has always been to pay separately—outside the global obstetric payment—for 

ultrasounds performed during complicated pregnancies.

 9 GAO-07-941R TRICARE Civilian Obstetric Care
obstetric payment may have inadvertently discouraged physicians from doing as many 

ultrasounds as might be needed.30

• TRICARE matched state Medicaid payment rates for physician-provided obstetric care. 

Effective May 1, 2006, TMA increased payment rates for obstetric care to ensure that 

TRICARE’s payment rates were at least equal to Medicaid payment rates in each state. For a 

locality to qualify for increased obstetric payment rates under this policy change, TRICARE 

had to have been paying an amount below the state’s Medicaid payment rate.31 Specifically, 

TMA identified states where at least one locality was below the state’s Medicaid payment rate 

for any of the six most frequently billed codes for obstetric care. In those localities, TMA 

increased TRICARE payment rates to match the state’s Medicaid payment rates for a broader 

range of obstetric care that includes services provided under 14 billing codes.32 For 2006, this 

policy affected TRICARE’s payment rates in 12 states, primarily in the West region, as shown 

in figure 2. Under this change, TRICARE’s payments for the 14 obstetric billing codes 

increased an average of 19 percent in the affected states.33, 34

 30We did not review TMA’s analysis of the claims data. 

31State Medicaid payments for obstetric care varied widely in 2006. In its comparison of TRICARE 

payment rates and state Medicaid payment rates, TMA found that state Medicaid payments for the set

of obstetric services related to an uncomplicated vaginal delivery (or the closest equivalent set of 

services under the state’s payment system) ranged from $616 in Ohio to $2,859 in Connecticut.

32In 2006, the 6 billing codes used to identify states for the Medicaid-related payment increase together

accounted for about 90 percent of TRICARE’s total payments for obstetric care, while the 14 billing

codes together accounted for over 97 percent of payments for obstetric care.

33In implementing this change across the 12 states, TMA made a total of 118 distinct payment increases 

by adjusting its payment rates for any of the 14 billing codes that were paid below the Medicaid 

payment rate in the state. The average payment increase in 2006 was $142, with a median payment 

increase of about $69. TMA estimated that program costs would increase by about $2 million annually 

as a result of this change. 

34Annually, TMA compares TRICARE payment rates and Medicaid state payment rates for obstetrics. 

According to TMA, 11 of the 12 states that received the increase to the Medicaid payment rate in 2006

(Arizona, Connecticut, Massachusetts, Montana, Nebraska, Nevada, Oregon, South Carolina,

Washington, West Virginia, and Wyoming) also received matching rates in 2007. Alaska did not receive 

a Medicaid matching rate increase for 2007 as its payment rates were raised above the Medicaid rate in 

February 2007 by a TRICARE demonstration project. 

 10 GAO-07-941R TRICARE Civilian Obstetric Care
Figure 2: States Receiving TRICARE Payment Rate Increases for Obstetric Care Services to Match State 

Medicaid Rates, 2006 

Source: GAO analysis of DOD data.

States in which TRICARE obstetric rates were increased to match Medicaid payment rates in 2006

TRICARE

North 

Region

TRICARE

South 

Region

TRICARE

West 

Region

HI

CT

NJ

DE

MD

DC

AK

PA

OR

NV

ID

MT

WY

UT

AZ NM

CO

ND

SD

NE

TX

KS

OK

MN

IA

MO

AR

LA

IL

MS

IN

KY

AL

FL

GA

SC

NC

VA

OH

NH

MA

RI

MI

CA

WA

WI

NY

ME

VT

WV

TN

• Under the locality-based waiver authority, TRICARE increased payment rates for 

perinatology services in Alaska. On November 21, 2005, TMA approved a locality waiver 

request to raise payment rates for perinatologists in Alaska in response to obstetric specialist 

supply problems.35 TMA raised TRICARE payment rates to 140 percent of the obstetric 

payment rates set in the TRICARE physican fee schedule in response to physician concerns 

that the TRICARE payment rate was too low. TMA officials noted that there were only three 

perinatologists in the state at that time; these providers had agreed to continue participating 

when the payment rate was raised to 140 percent. On February 1, 2007, under a 3-year 

demonstration program, TMA began paying all physician services in Alaska at 135 percent of 

the rates set in the TRICARE physician fee schedule, including nonspecialty obstetric care 

 35Perinatologists are obstetric specialists who provide care for women in high-risk pregnancies. They 

generally receive the same global obstetric payment level as obstetricians and other physicians who 

focus on patients who are not high risk.

 11 GAO-07-941R TRICARE Civilian Obstetric Care
services.36 As a result, the gap in payment for services provided by perinatologists and other 

physicians providing obstetric care in Alaska narrowed substantially.37

• Under the locality-based waiver authority for network providers, TRICARE increased 

payment rates for physicians providing obstetric care in the Ellsworth Air Force Base 

PSA, South Dakota. On May 16, 2006, TMA approved a locality waiver request to increase 

payment rates for obstetric services provided by a group practice of 12 obstetricians in the 

Ellsworth Air Force Base PSA, South Dakota.38 Stating that TRICARE’s payment rates for 

obstetric care were too low, the group practice had decided to leave the TRICARE network. 

In its review of the waiver request, TMA found that obstetric care was not offered at the local

MTF. Furthermore, there were no other civilian obstetricians practicing in the area to accept

the TRICARE beneficiaries that were receiving care from the group practice. TMA concluded 

that its payment rates should be increased due to severely limited access to network-based 

obstetric care in the PSA. TMA set its obstetric payment rates at 115 percent of the 

established payment rate and the group of physicians agreed to remain in the civilian 

provider network. In the event that other obstetricians located in the area were willing to join 

the TRICARE network, TMA officials indicated that they would consider whether the

increased payment rate was still necessary to ensure beneficiary access to care from network 

physicians. 

In 2005 and 2006, Managed Care Support Contractors Met Their Targets for

Network Civilian Obstetricians in Most TRICARE Localities 

In 2005 and 2006, managed care support contractors met most of their targets for the number 

of obstetricians in TRICARE’s civilian provider networks. Of the 175 PSAs subject to 

TRICARE’s standards for network adequacy, 135 PSAs (77 percent) met targets for network 

civilian obstetricians during all reported periods during 2005 and 2006. Relatively few 

localities frequently fell short of the contractor-set targets, with “frequently” defined by us as 

missing targets during four or more reported periods during 2005 and 2006. Across the three 

contractors’ regions, 24 PSAs (14 percent) frequently fell short of targets for obstetricians. 

Nineteen of these 24 PSAs were still short of their targets as of late calendar year 2006, the 

last reporting period for which we obtained data. Another 16 PSAs (9 percent) fell short of 

targets during one to three reporting periods in 2005 and 2006. 

 36See 71 Fed. Reg. 67112-13 (Nov. 20, 2006). 

37TMA officials indicated that the payment rate increase for Alaska was necessary due to an overall

scarcity of providers, their reluctance to accept TRICARE payment rates, transportation issues, and

other factors. Through the demonstration project, TMA expects to obtain information about how 

increased payment rates affect provider participation in TRICARE, beneficiary access to care, and the 

cost of health care services. 

38The waiver also included payment for gynecology, which focuses on reproductive health care

services for women. 

 12 GAO-07-941R TRICARE Civilian Obstetric Care
The 24 PSAs where contractors frequently fell short of targets for civilian obstetricians 

include a mixture of urban and rural counties. Sixteen of the 24 PSAs are made up of 

predominately urban counties while 8 PSAs are predominately rural counties.39 Some of the 

locations may have been affected by overall shortages of practicing civilian obstetricians. In 

2004, nationwide, there were 12.5 practicing obstetricians and gynecologists per 100,000 

population.40 In that year, 15 of the 24 PSAs were below this national average, whereas 8 of 

the 24 PSAs exceeded the national average.41

The North region had the greatest number of localities—17 PSAs—that frequently fell short 

of targets for civilian obstetricians. (See fig. 3.) The South region had 5 PSAs and the West, 

2 PSAs, which frequently did not meet targets for civilian obstetricians during the review 

period. 

Our finding that more than three-fourths of PSAs met their physician supply targets for all 

reported periods is an indicator that access was not likely a problem for most TRICARE 

beneficiaries seeking obstetric care. However, we could not be conclusive about access from 

the contractors’ data alone because of other factors that can influence access. For example, 

in PSAs where targets were consistently met, access could have been a problem if managed 

care support contractors overestimated the percentage of TRICARE patients that network 

civilian obstetricians were willing to treat. Alternatively, in PSAs that frequently fell short of 

established targets, network civilian obstetricians may have been willing to take on more 

TRICARE patients than had been estimated by the managed care support contractors. 

 39The 24 PSAs with recurring shortfalls of civilian network obstetricians include a total of 1,580 

counties, of which 1,022 counties (65 percent) are urban and 558 (35 percent) are rural. 

40These figures are based on 2005 data from the Bureau of Health Professions, Health Resources and

Services Administration, Department of Health and Human Services. 

41Two of the PSAs are located within the same county and thus the 24 PSAs collapse into 23 PSAs

when reporting on county-level statistics. 

 13 GAO-07-941R TRICARE Civilian Obstetric Care
Figure 3: Number of PSAs That Met or Fell Short of Targets for Civilian Obstetricians by TRICARE 

Region, 2005 and 2006 

Note: Data for the North region are quarterly from March 2005 through November 2006. Data from the West region are 

quarterly from January 2005 through September 2006, and data from the South region are monthly for January, April, July, and 

October 2005 and 2006. Managed care contractors use different models to set targets for the number of physicians in the 

civilian provider network. 

In separate discussions with national associations representing obstetricians and military 

family members, association officials indicated that, in 2006, their members did not relate 

substantial concerns about the adequacy of TRICARE’s payment rates or access to civilian 

obstetricians. The representatives of managed care support contractors also told us they had

received a minimal number of concerns from beneficiaries and network civilian obstetricians 

about obstetric care matters. 

Agency Comments 

We provided a draft of this report to DOD for comment. DOD’s comments are reprinted in 

enclosure II. In its comments, DOD stated that it agreed with our findings and provided 

technical comments. We incorporated DOD’s technical comments as appropriate. 

- - - - - 

We are sending copies of this report to the Secretary of Defense and other interested parties. 

In addition, this report will be available at no charge on GAO’s web site at 

http://www.gao.gov. We will also make copies available to others upon request. If 

-30

-20

-10

0

10

20

30

40

50

Fell short in 4 or more reporting periods

Fell short in 2 or 3 reporting periods

Fell short in one reporting period

Targets met in each reporting period

North South West

Source: GAO analysis of TRICARE managed care contractor data.

Number of PSAs

 42 45 48

 2 1 5

 2 2 4

 17 5 2

30

20

10

0

10

20

30

40

50

 14 GAO-07-941R TRICARE Civilian Obstetric Care
you or your staff have any questions about this report, please contact me at (202) 512-7114 or 

ekstrandl@gao.gov. Contact points for our Offices of Congressional Relations and Public

Affairs may be found on the last page of this report. Phyllis Thorburn, Assistant Director; 

Alexander Dworkowitz; Hannah Fein; Jenny Grover; and Darryl Joyce made key 

contributions to this report. 

Laurie E. Ekstrand 

Director, Health Care 

Enclosures – 2 

 15 GAO-07-941R TRICARE Civilian Obstetric Care
List of Committees 

The Honorable Carl Levin 

Chairman 

The Honorable John McCain 

Ranking Member 

Committee on Armed Services 

United States Senate 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Ted Stevens 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Ike Skelton 

Chairman 

The Honorable Duncan Hunter 

Ranking Member 

Committee on Armed Services 

House of Representatives 

The Honorable John P. Murtha 

Chairman 

The Honorable C.W. Bill Young 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 

16 GAO-07-941R TRICARE Civilian Obstetric Care 
Enclosure I 

The Change in TRICARE Payments for Obstetric Care as Compared to Inflation 

Table 1 shows the change in TRICARE’s payment rates for six common obstetric billing 

codes that include payment for childbirth, relative to the change in inflation, from 1997 to 

2006. 

Table 1: Percentage Change in TRICARE Payment Rates for Six Obstetric Care Billing Codes Compared 

to the 2.7 Percent Average Annual Change in Medical Inflation, 1997 through 2006 

Services billed under six obstetric codes 

Average annual change

(percentage)

Set of obstetric services related to an uncomplicated vaginal delivery 0.3

Vaginal delivery only 0.0

Vaginal delivery and postpartum care 0.0

Set of obstetric services related to an uncomplicated cesarean section 0.3

Cesarean delivery only 0.0

Cesarean delivery and postpartum care 0.0

Source: GAO analysis of TRICARE payment data.

Note: Together, the six billing codes accounted for about 90 percent of TRICARE’s total payments for obstetric care in 2006. 

The rate of inflation is measured by the Medicare Economic Index (MEI). The MEI is a measure of inflation relative to 

physicians’ practice costs and general wage levels. The MEI includes a set of inputs used in furnishing services such as a 

physician’s own time, nonphysician employees’ compensation, rent, and medical equipment. The MEI measures year-to-year 

changes in prices for these various inputs based on appropriate price proxies. TRICARE payment rates for four of the six 

obstetric care billing codes were above Medicare payment rates in 2006: vaginal delivery only; vaginal delivery, including 

postpartum care; cesarean delivery only; and cesarean delivery, including postpartum care. 

17 GAO-07-941R TRICARE Civilian Obstetric Care
Enclosure II 

Comments from the Department of Defense 

(290602) 

18 GAO-07-941R TRICARE Civilian Obstetric Care
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be

necessary if you wish to reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER