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VA/DOD Health Care: More Guidance Needed to Implement CHAMPUS-Funded
Sharing Agreements (Letter Report, 10/28/94, GAO/HEHS-95-15).

Congress has encouraged the Defense Department (DOD) and the Department
of Veterans Affairs (VA) to enter into resource-sharing agreements to
exchange hospital and other services.  At the end of fiscal year 1993,
332 military and VA hospitals, using hospital operating funds, have
entered into about 600 agreements representing 3,500 shared services.
To improve efficiency and access to care in the DOD and VA health care
system, Congress passed legislation in 1989 and 1992 authorizing the use
of Civilian Health and Medical Program of the Uniformed Services
(CHAMPUS) funds to reimburse VA for providing health care services to
CHAMPUS beneficiaries.  It also authorizes VA to treat all categories of
CHAMPUS beneficiaries.  This report determines the extent to which
CHAMPUS funds are being used for health care resource-sharing agreements
both inside and outside catchment areas--generally a 40-mile radius
around a military treatment facility.

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

 REPORTNUM:  HEHS-95-15
     TITLE:  VA/DOD Health Care: More Guidance Needed to Implement 
             CHAMPUS-Funded Sharing Agreements
      DATE:  10/28/94
   SUBJECT:  Health care costs
             Health resources utilization
             Interagency relations
             Military hospitals
             Veterans hospitals
             Health care planning
             Health care cost control
             Health services administration
             Cost sharing (finance)
             Beneficiaries
IDENTIFIER:  Civilian Health and Medical Program of the Uniformed 
             Services
             CHAMPUS
             CHAMPUS Reform Initiative
             DOD TRICARE Program
             VA/DOD Health Care Resources Sharing Program
             
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Cover
================================================================ COVER

Report to the Chairman, Subcommittee on Military Forces and
Personnel, Committee on Armed Services,
House of Representatives

October 1994

VA/DOD HEALTH CARE - MORE GUIDANCE
NEEDED TO IMPLEMENT CHAMPUS-FUNDED
SHARING AGREEMENTS

GAO/HEHS-95-15

VA/CHAMPUS Health Care Sharing

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

  DOD - Department of Defense
  VA - Department of Veterans Affairs
  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  VAMC - Veterans Affairs Medical Center

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

B-254207

October 28, 1994

The Honorable Ike Skelton
Chairman, Subcommittee on Military
 Forces and Personnel
Committee on Armed Services
U.S.  House of Representatives

Dear Mr.  Chairman: 

By its enactment of Public Law 97-174 in 1982, the Congress
authorized and encouraged the Department of Defense (DOD) and the
Department of Veterans Affairs (VA) to enter into resource-sharing
agreements to exchange hospital and other services.  As of the end of
fiscal year 1993, 332 military and VA hospitals, using hospital
operating funds, had entered into about 600 agreements representing
about 3,500 shared services. 

To improve efficiency and access to care in the DOD and VA health
care systems, the Congress also enacted additional legislation in
1989 and 1992.  This legislation authorizes the use of Civilian
Health and Medical Program of the Uniformed Services (CHAMPUS) funds
to reimburse the VA for providing health care services to CHAMPUS
beneficiaries.  It also authorizes VA to treat all categories of
CHAMPUS beneficiaries.\1 This report responds to your request that we
determine the extent to which CHAMPUS funds are being used for health
care resource-sharing agreements both inside and outside catchment
areas.\2

--------------------
\1 CHAMPUS helps pay for medical care provided its beneficiaries by
civilian hospitals, physicians, and other civilian providers. 
Beneficiaries are dependents of active-duty members, retirees and
their dependents, and dependents of deceased members of the Air
Force, Army, Marine Corps, Navy, Coast Guard, and Commissioned Corps
of the Public Health Service and the National Oceanic and Atmospheric
Administration. 

\2 A catchment area comprises generally a 40-mile radius around a
military treatment facility. 

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

In February 1994, after nearly 3 years of negotiation, VA and DOD
agreed on a framework for VA to treat CHAMPUS-eligible beneficiaries
and receive reimbursement from CHAMPUS funds.  Implementation of
CHAMPUS/VA sharing agreements has been delayed because of
disagreements between DOD and VA over VA hospital requirements.  DOD
wanted VA hospitals to be subject to the same requirements as
civilian hospitals under CHAMPUS.  Disagreements continued until the
Chairman, House Committee on Veterans' Affairs, intervened.  As a
result of this intervention, the first sharing agreement using
CHAMPUS funds to buy VA services in noncatchment areas was signed by
DOD and the Asheville, North Carolina, Veterans Affairs Medical
Center (VAMC) officials.  Although the Asheville VAMC began treating
CHAMPUS patients in February 1994, neither DOD nor VA has conducted a
systemwide search to identify other opportunities for sharing
agreements. 

Within catchment areas, we found that DOD hospital commanders have
not used CHAMPUS funds for sharing agreements between their hospitals
and VA hospitals and, consequently, potential sharing opportunities
have been missed.  According to Defense health officials, this
situation exists because the commanders are unclear about their
authority to do so.  To correct this situation, DOD needs to clarify
the authority of DOD hospital commanders to propose sharing
agreements using CHAMPUS funds, and it needs to provide instructions
on developing and implementing such agreements. 

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

In 1982, the Congress enacted The Veterans' Administration and
Department of Defense Health Resources Sharing and Emergency
Operations Act (Public Law 97-174) to promote greater sharing of
health care resources and thus achieve greater efficiencies in the
DOD and VA health care systems.  One of the main objectives of this
legislation was to reduce the costs of operating those systems by
minimizing duplication and underuse of health care resources.  Under
this legislation, the DOD and VA entered into health care
resource-sharing agreements, which allowed active-duty and eligible
former service members to receive care in VA hospitals and vice
versa.  However, legislation did not provide for the use of CHAMPUS
funds to reimburse VA under sharing agreements nor permit VA to treat
dependents of active-duty and eligible former members. 

In a 1988 GAO report,\3 we recommended that the Congress enact
legislation specifically authorizing (1) the use of CHAMPUS funds to
purchase care for CHAMPUS beneficiaries from VA medical centers and
(2) the treatment of all categories of dependents at VA hospitals. 
Legislation accomplishing these two purposes was passed in 1989 and
1992, respectively. 

Under health resource-sharing agreements using CHAMPUS funds, CHAMPUS
beneficiaries can receive services from the VA in noncatchment areas
through authority provided in sharing agreements between DOD and VA
headquarters officials and in catchment areas through local
agreements between military hospital commanders and the VA medical
center directors subject to headquarters approval.  These agreements
offer DOD the potential for (1) saving CHAMPUS funds because DOD will
reimburse VA less than what it pays the private sector for similar
services and (2) improving access to services for their
beneficiaries.  The VA can benefit by using the extra revenue
generated from CHAMPUS funds to improve services to veterans. 

--------------------
\3 VA/DOD Health Care:  Further Opportunities to Increase the Sharing
of Medical Resources (GAO/HRD-88-51, Mar.  1, 1988). 

   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

The information we developed for this report came from three sources: 
(1) a review of sharing legislation; (2) an examination of the
various drafts of the CHAMPUS/Asheville VAMC sharing agreement, the
DOD/VA memorandum of understanding, and related documents; and (3)
discussions with DOD and VA officials responsible for the sharing
program.  The discussions focused on the reasons for delays in
developing CHAMPUS/VA sharing agreements and in using CHAMPUS funds
for sharing agreements between military hospitals and VA hospitals. 

We performed this work at the Office of the Assistant Secretary of
Defense (Health Affairs) and VA headquarters in Washington, D.C.; the
U.S.  Army Medical Command (a component of the Army Surgeon General's
office) in San Antonio, Texas; CHAMPUS headquarters in Aurora,
Colorado; and the Asheville VAMC (because it was negotiating the
first CHAMPUS/VA sharing agreement).  We supplemented these visits
with telephone discussions with officials from the Air Force Surgeon
General's office and the Navy Bureau of Medicine (Surgeon General's
office) in Washington, D.C. 

We did our work from August 1993 to September 1994 in accordance with
generally accepted government auditing standards. 

   DISAGREEMENTS BETWEEN DOD AND
   VA DELAYED NONCATCHMENT AREA
   CHAMPUS/VA SHARING
   IMPLEMENTATION
------------------------------------------------------------ Letter :4

Differences between DOD and VA over provisions of a memorandum of
understanding and the CHAMPUS/Asheville VAMC sharing agreement
prevented CHAMPUS beneficiaries from receiving services in VA
hospitals in noncatchment areas through the use of CHAMPUS funds. 
The differences over sharing provisions arose shortly after the
passage of the 1989 legislation authorizing the use of CHAMPUS funds
for treatment in VA hospitals and they continued throughout most of
1993. 

Due in large part to the intervention of the Chairman, House
Committee on Veterans' Affairs in October 1993, DOD and VA resolved
their differences.  Both parties signed (1) a sharing agreement in
December 1993 to treat CHAMPUS-eligible beneficiaries in the
Asheville VAMC and (2) a memorandum of understanding in February 1994
providing an overall framework for future CHAMPUS/VA health care
resource-sharing agreements.  The differences between DOD and VA
centered mainly on whether VA's hospitals would be treated more as
military hospitals or as CHAMPUS civilian providers.  These
differences led to many revisions of the agreement. 

More specifically, according to VA officials, DOD wanted VA hospitals
to follow CHAMPUS procedures for seeking reimbursement by filing
claims with CHAMPUS fiscal intermediaries and collecting copayments
and deductibles from beneficiaries.  Also, DOD wanted to use its own
payment methodology, the diagnosis related group system, for
reimbursing VA hospitals for the care they provided.  Further, DOD
wanted VA to adhere to CHAMPUS standards for utilization review and
quality assurance. 

VA, on the other hand, wanted its hospitals to be treated as military
hospitals, which have no copayments and deductibles.  VA also wanted
to bill the military services directly and not use fiscal
intermediaries, and it wanted to bill CHAMPUS on a per diem system
rather than the diagnosis related group system.  In addition, VA
wanted to use its own utilization management and quality review
systems. 

During 1993, the two agencies exchanged several proposals, and, at
one point, it appeared that they had reached an agreement.  In fact,
representatives from the Asheville VAMC and DOD signed a sharing
agreement in July 1993.  However, DOD subsequently rescinded the
agreement because, according to DOD health officials, the person
signing for DOD did not have the authority to do so.  It was not
until the Chairman, House Committee on Veterans' Affairs, called a
meeting of DOD and VA officials in October 1993 and expressed
frustration with the delays that any substantive progress occurred. 

By December 23, 1993, both DOD and VA had signed the
CHAMPUS/Asheville VAMC sharing agreement, and the Asheville VAMC
began treating CHAMPUS patients in February 1994.  Under the
agreement, the Asheville VAMC is treated as a CHAMPUS provider
instead of a direct care provider; it collects CHAMPUS copayments and
deductibles, and it bills through CHAMPUS fiscal intermediaries. 
CHAMPUS reimburses claims submitted by the Asheville VAMC for
hospital inpatient charges at a 5-percent discount off the amount
payable to civilian providers under the CHAMPUS diagnosis related
group-based payment system; it will reimburse professional services
claims at a 5-percent discount off the CHAMPUS maximum allowable
charge.  Although the Asheville VAMC will maintain a utilization
review and quality assurance system, it will also be subject to
CHAMPUS utilization review and quality assurance requirements. 

By February 3, 1994, both DOD and VA had signed a memorandum of
understanding establishing a general policy and framework for
subsequent CHAMPUS/VA health care resource-sharing agreements.  To
date, however, neither DOD nor VA has conducted a systemwide search
to identify noncatchment areas with VA hospitals where sharing
agreements can be implemented.  Although a July 1994 VA directive
encouraged its medical centers to take advantage of the opportunity
to treat CHAMPUS beneficiaries, DOD officials told us that they will
wait and see how the CHAMPUS/Asheville VAMC agreement fares before
entering into additional sharing agreements. 

As of July 1994, DOD and VA were also developing a memorandum of
understanding to establish policies and guidelines for VA to provide
services to CHAMPUS beneficiaries in areas of the country where DOD
has contracted with private companies to manage CHAMPUS
beneficiaries' health care.  This particular memorandum of
understanding would permit DOD contractors to contract with VA health
care facilities.  VA signed the memorandum of understanding in May
1994 and sent it to DOD for review.  As of July 1994, the Office of
the Assistant Secretary of Defense (Health Affairs) was reviewing it. 

   CHAMPUS FUNDS HAVE NOT BEEN
   USED FOR CATCHMENT AREA SHARING
   AGREEMENTS BETWEEN MILITARY
   HOSPITALS AND VA HOSPITALS
------------------------------------------------------------ Letter :5

In addition to the delay in implementing CHAMPUS/VA sharing
agreements in noncatchment areas, such as Asheville, North Carolina,
military hospital commanders in DOD catchment areas have not proposed
using CHAMPUS funds for sharing agreements between their hospitals
and VA hospitals.  The commanders have not proposed using CHAMPUS
funds for buying VA services through sharing agreements because they
have been unclear about the interagency sharing program and their
roles and authorities under it. 

The military services allocate CHAMPUS funds to military hospital
commanders who are responsible for managing the care of all CHAMPUS
beneficiaries in their catchment areas.  The Army began allocating
CHAMPUS funds to its hospitals in fiscal year 1992 and, in fiscal
year 1993, expanded the allocations to all its U.S.  hospitals except
for three in California and one in Hawaii.\4

In fiscal year 1994, Army hospitals were allocated about $540 million
in CHAMPUS funds.  The Air Force and Navy began allocating CHAMPUS
funds to their hospitals in fiscal year 1994 when the Air Force
allocated $476 million and the Navy allocated $356 million. 

Hospital commanders may use these funds to enhance and expand
services available to CHAMPUS beneficiaries in their hospitals or to
purchase services from outside providers, including sharing with
VA.\5 The intent is to use CHAMPUS money in the most cost-effective
manner.  However, all three services told us that their hospital
commanders have not used any CHAMPUS funds for sharing agreements
with VA.  Further, as in noncatchment areas, DOD and VA have not done
a comprehensive search of locations where sharing agreements using
CHAMPUS funds can be implemented. 

Officials from the military services and the Office of the Assistant
Secretary of Defense (Health Affairs) stated that military hospital
commanders have the authority to submit proposals for using CHAMPUS
funds for sharing agreements between their hospitals and VA hospitals
if they so choose.  However, these officials also said that, while no
restrictions exist against using CHAMPUS funds for such sharing,
neither do instructions exist for using CHAMPUS funds for such
sharing.  Further, these officials stated that military hospital
commanders do not understand that they can propose using CHAMPUS
funds for sharing agreements. 

--------------------
\4 These hospitals were participating in a managed care demonstration
project, known as the CHAMPUS Reform Initiative, that DOD conducted
in the two states. 

\5 For example, in fiscal year 1993, the Army used about $38 million
in CHAMPUS funds for projects to treat more CHAMPUS beneficiaries in
their hospitals. 

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

Both DOD and VA can benefit from sharing agreements between CHAMPUS
and VA hospitals and also between military and VA hospitals. 
Implementation of the sharing agreements, however, was delayed by the
inability of DOD and VA officials to agree on sharing provisions and
procedures.  Also, DOD and VA have not engaged in a systemwide
identification of sharing opportunities using CHAMPUS funds. 

With the overall memorandum of understanding in place and the first
CHAMPUS/VA sharing agreement signed, the necessary structure now
exists for further sharing agreements.  To take advantage of sharing
benefits, we believe DOD must make its hospital commanders more aware
of their authority to propose using CHAMPUS funds to buy VA services. 
Additionally, DOD should provide guidance to military hospital
commanders on how to develop and implement sharing agreements. 

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

We recommend that the Secretary of Defense direct the Assistant
Secretary of Defense (Health Affairs) and the military services

  to fully inform and explain to military hospital commanders the
     authority to propose using CHAMPUS funds for sharing agreements
     with VA and their roles and authorities under this program,

  to provide specific instructions on developing and implementing
     such agreements, and

  to identify sharing opportunities in which CHAMPUS funds can be
     used to buy available VA services. 

Similarly, we recommend that the Secretary of Veterans Affairs direct
VA medical center directors to actively identify available VA
services that may be candidates for sharing agreements with DOD and
to communicate such information to the relevant DOD hospital
commander. 

   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

DOD and VA provided written comments on a draft of this report (apps. 
I and II).  DOD agrees that the sharing of health care resources
between the DOD and VA is a worthwhile approach that can result in
overall efficiencies for both agencies.  DOD does not agree, however,
that disagreements between DOD and VA have delayed the implementation
of sharing agreements.  Following are other DOD comments: 

  The progress of the Asheville agreement will be reviewed and
     possible additional sharing opportunities will be discussed in
     October 1994 by the VA/DOD Health Care Resources Sharing Policy
     and Operations Subcommittee;\6

  Guidance is being developed for issuance to the military services
     to evaluate the possibility and feasibility of using and sharing
     medical resources when it is cost-effective to do so; and

  A new DOD Instruction on the VA/DOD Health Care Resources Sharing
     Program is being developed, and its issuance is anticipated by
     the end of fiscal year 1995. 

In our view, the disagreements between DOD and VA did delay the
implementation of sharing agreements using CHAMPUS funds.  These
disagreements, as described in our report, are well documented and
did not get resolved until after the Chairman of the House Committee
on Veterans' Affairs intervened. 

We believe that the DOD actions listed above are good steps. 
However, until they are fully implemented, we believe our
recommendations remain valid.  To date, neither military hospital
commanders nor regional lead agents\7 have been actively pursuing
sharing agreements because, as they stated to us, they are uncertain
about their roles and authorities under the CHAMPUS sharing program. 
They believe they need guidance on the requirements pertaining to
CHAMPUS sharing agreements. 

VA agreed with our overall conclusion that VA and DOD would benefit
from sharing agreements using CHAMPUS funds.  However, VA disagreed
with our draft report recommendation that the VA Secretary direct VA
medical center directors to identify sharing agreements in which
CHAMPUS funds can be used to buy available VA services.  In VA's
view, it should be DOD's--not VA's--responsibility to prioritize the
needs of CHAMPUS beneficiaries.  Further, VA stated that its July
1994 policy directive strongly encourages its medical centers to take
advantage of the opportunity to treat CHAMPUS beneficiaries under
sharing authority in situations where capacity is available and
service to veterans can be enhanced. 

We recognize that DOD has responsibility for determining CHAMPUS
priorities and needs.  Similarly, we recognize that the recent VA
policy directive is a strong positive indicator of its commitment
toward encouraging sharing with DOD using CHAMPUS funds.  The intent
of our recommendation was to have medical center directors actively
identify services that are available to DOD and to communicate such
information to the relevant DOD hospital commander.  We have
clarified our recommendation along these lines. 

As arranged with your office, unless you announce its contents
earlier, we plan no further distribution of this report until 7 days
after its issue date.  At that time, we will send copies to the
Secretary of Defense; the Secretary of Veterans Affairs; the
Director, Office of Management and Budget; and interested
congressional committees.  We will also make copies available to
others upon request.  If you have any questions concerning the
contents of this report, please call me at (202) 512-7101.  Other
major contributors to this report were Stephen P.  Backhus, Assistant
Director, Robert P.  Pickering, Senior Analyst, and Donald C.  Hahn,
Advisor. 

Sincerely yours,

David P.  Baine
Director, Federal Health Care
 Delivery Issues

(See figure in printed edition.)Appendix I

--------------------
\6 The VA/DOD Policy and Operations Subcommittee is part of the
VA/DOD Health Care Resources Sharing Committee, which was established
by P.L.  97-174 in 1982 to oversee and promote sharing.  The
Subcommittee, which consists of representatives from DOD and VA and
deals with all facets of sharing, has met quarterly since May 1992;
its most recent meeting was in July 1994. 

\7 DOD has begun implementing managed health care nationwide. 
Referred to as TRICARE, DOD has divided the country into 12 regions,
with each region's health care managed by a "lead agent," who is one
of the region's hospital commanders.  Under TRICARE, CHAMPUS
expenditures will be under the guidance of the regional lead agent;
and guidance to hospital commanders will come from the lead agent
based on regional plans and priorities. 

COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)

(See figure in printed edition.)Appendix II
COMMENTS FROM THE DEPARTMENT OF
VETERANS AFFAIRS
============================================================== Letter 

(See figure in printed edition.)

(See figure in printed edition.)

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