United States General Accounting Office

GAO Testimony

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

G O A

years

1921 - 1996

GAO/T-HEHS-96-100

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 personnel1

 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.

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.

Page 1 GAO/T-HEHS-96-100
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.

TRICARE’s Origins

and Development

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

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.

Page 2 GAO/T-HEHS-96-100
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

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

5

Defense Health Care: Despite TRICARE Procurement Improvements, Problems Remain

(GAO/HEHS-95-142, Aug. 3, 1995).

Page 3 GAO/T-HEHS-96-100
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.

TRICARE

Implementation Is

Proceeding Despite

Setbacks

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

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.

Page 4 GAO/T-HEHS-96-100
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.

Cost Issues Have

Emerged During Early

Implementation

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

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.

Page 5 GAO/T-HEHS-96-100
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.

Unresolved

Performance Data

Issues

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

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’

Page 6 GAO/T-HEHS-96-100
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 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.

Page 7 GAO/T-HEHS-96-100
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 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.

Page 8 GAO/T-HEHS-96-100
Page 9 GAO/T-HEHS-96-100
Page 10 GAO/T-HEHS-96-100
Appendix I 

Related GAO Products

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).

Page 11 GAO/T-HEHS-96-100
Appendix I 

Related GAO Products

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).

(101490) Page 12 GAO/T-HEHS-96-100
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