Defense Health Care: Applying Key Management Practices Should Help Achieve Efficiencies within the Military Health System
Published: 2012-04-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DODs health care costs have risen significantly, from $19 billion in fiscal year 2001 to $48.7 billion in its fiscal year 2013 budget request, and are projected to increase to $92 billion by 2030.
GAO reviewed DODs efforts to slow its rising health care costs by changing selected clinical, business, and management practices. Specifically, GAO determined the extent to which DOD has (1) identified initiatives to reduce health care costs and applied results-oriented management practices in developing plans for implementing and monitoring them and (2) implemented its seven medical governance initiatives approved in 2006 and employed key management practices. For this review, GAO analyzed policies, memorandums, directives, and cost documentation, and interviewed officials from the Office of the Secretary of Defense, from the three services, and at each of the sites where the governance initiatives were under way.
section_title: What GAO Found
paragraphs: The Department of Defense (DOD) has identified 11 initiatives aimed at slowing its rising health care costs, but has not fully applied results-oriented management practices in developing plans to implement and monitor its initiatives. Results-oriented management practices include developing plans that identify goals, activities, and performance measures; resources and investments; organization roles, responsibilities, and coordination; and key external factors that could affect goals, such as a decrease of funding to a program. At the conclusion of GAOs review, DOD had completed and approved a detailed implementation plan, including a cost savings estimate, for just 1 of its 11 initiatives. Developing cost savings estimates is critical to successful management of the initiatives for achieving the 2010 Quadrennial Defense Reviews call for reduced growth in medical costs. DOD also has not completed the implementation of an overall process for monitoring progress across its portfolio of health care initiatives and has not completed the process of identifying accountable officials and their roles and responsibilities for all of its initiatives. Without comprehensive, results-oriented plans, a monitoring process, and clear leadership accountability, DOD may be hindered in its ability to achieve a more cost-efficient Military Health System, address its medical readiness goals, improve its overall population health, and improve its patients experience of care.
Additionally, DOD has another set of initiatives, which were approved in 2006 to change aspects of its medical governance structure. GAO found that DOD had implemented some of the initiatives but had not consistently employed several key management practices that would have helped it achieve its stated goals and sustain its efforts. DOD approved the implementation of the seven governance initiatives with the goal of achieving economies of scale and operational efficiencies, sharing common support functions, and eliminating administrative redundancies. Specifically, DOD expected the initiatives to save at least $200 million annually once implemented; however, to date, only one initiative has projected any estimated financial savings. DOD officials stated that the other governance initiatives have resulted in efficiencies and have significant potential for cost savings. Further, the governance initiatives that are further developed were driven primarily by requirements of Base Realignment and Closure Commission recommendations and their associated statutory deadlines for completion. Additionally, GAO found that DOD had not consistently employed several key management practices, which likely hindered the full implementation of the initiatives. For example, the initiatives initial timeline was high-level and generally not adhered to, a communication strategy was not prepared, an overall implementation team was never established, and performance measures to monitor the implementation process and achievement of the goals were not established. With more emphasis on the key practices of a successful transformation, DOD will be better positioned in the future to realize efficiencies and achieve its goals as it continues to implement the initiatives.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD (1) complete and fully implement comprehensive results-oriented plans for each of its medical initiatives; (2) fully implement an overall monitoring process across the portfolio of initiatives and identify accountable officials and their roles and responsibilities; and (3) complete its governance initiatives and employ key management practices to show financial and nonfinancial outcomes and evaluate interim and long-term progress. In written comments on a draft of this report, DOD concurred with each of these three recommendations.

section_title: Letter
paragraphs: Over the past decade, health care costs in the United States have grown  substantially, and the Department of Defense’s (DOD) medical costs for  its Military Health System (MHS) have been no exception. DOD’s total  medical costs have more than doubled from $19 billion in fiscal year 2001  to its fiscal year 2013 budget request of $48.7 billion. The Secretary of  Defense stated that the cost of the MHS continues to increase and there  is a need to explore all possibilities to control the costs of military health  care. DOD’s health care system serves about 9.6 million beneficiaries— including active duty, reserve, and National Guard troops and their  dependents as well as military retirees and their dependents. According  to a 2011 Congressional Budget Office report, DOD’s health care costs  are projected to reach $59 billion by 2016 and nearly $92 billion by 2030.
Under the current structure, the responsibilities and authorities for the  management of DOD’s MHS are distributed among several organizations,  including the Assistant Secretary of Defense for Health Affairs, who  serves as the principal advisor to the Secretary of Defense and the Under  Secretary of Defense for Personnel and Readiness. Health Affairs is  responsible for submitting the Unified Medical Budget a single combined  medical budget for itself and the services’ health operations, and centrally  manages Defense Health Program funds for the military services through  the TRICARE Management Activity, while each of the military services  manages its respective medical personnel and programs. In 2007, the  Defense Health Board stated in its report, Task Force on the Future of  Military Health Care, that DOD’s MHS does not function as a fully  integrated health care system and this lack of integration diffuses  accountability for fiscal management, results in misalignment of  incentives, and limits the potential for continuous improvement in the  quality of care delivered to beneficiaries. Further, we previously identified  DOD’s health care system as an example of a key challenge facing the  U.S. government in the 21st century and an area in which DOD could  improve delivery of services by combining, realigning, or otherwise  changing selected support functions and could achieve economies of  scale.
Congressional leaders have also raised questions regarding rising military  health costs and DOD’s MHS governance structure. For example, the  House Committee on Armed Services’ Print accompanying the Ike  Skelton National Defense Authorization Act for Fiscal Year 2011 noted  that the department had not yet developed a comprehensive plan to  enhance quality, efficiencies, and savings in DOD’s MHS, and it  encouraged the Secretary of Defense to evaluate the potential  operational, organizational, and financial benefits of a unified medical  command. We previously identified in our March 2011 report  opportunities to reduce potential duplication in government programs by  realigning DOD’s military medical command structures and consolidating  common functions that could increase efficiencies and reduce costs. We  noted that DOD could potentially save from approximately $281 million to  $460 million annually depending upon the governance option chosen. We  also reported that DOD had actions under way for a concept approved in  November 2006 that directed seven incremental reorganizational  initiatives designed to minimize duplicative layers of command and  control, among other things. For this review, we evaluated Health Affairs’  cost saving efforts and the status of its seven governance initiatives.  Specifically, we determined the extent to which DOD has (1) identified  initiatives to reduce health care costs and applied results-oriented  management practices to develop plans for implementing and monitoring  them and (2) implemented its seven medical governance initiatives  approved in 2006 and employed key management practices.
To determine the extent to which DOD has identified initiatives to reduce  health care costs, we reviewed documentation and interviewed officials  from the Health Budgets and Financial Policy Office and from the Office  of Strategy Management, within Health Affairs, as well as officials in the  TRICARE Management Activity. Additionally, to determine the extent to  which DOD applied results-oriented management practices to develop  plans for implementing and monitoring its initiatives, we evaluated the one  implementation plan for reducing health care costs that had been  completed at the time of our review. The analyses included comparing the  implementation plan for the completed initiative with results-oriented   and  management practices on which we have previously reporteddrawing conclusions from a consensus of the analyses. To determine the  extent to which DOD has implemented its seven medical governance  initiatives approved in 2006, we visited the locations where DOD’s MHS  governance initiatives were being implemented to collect relevant  documents, interview agency officials, and observe any physical changes  to the locations. We also reviewed cost estimates, budget documents,  business plans, and other instructions, policy statements, and documents  related to progress made. Additionally, we interviewed officials within the  Office of the Secretary of Defense and the military services concerning  the initiatives’ implementation status. Further, to determine the extent to  which DOD employed key management practices in implementing its  seven medical governance initiatives approved in 2006, we identified prior  reports that documented key management practices of successful  transformational efforts. Using these practices as a guide, as well as  documentation and discussions with MHS officials, we assessed DOD’s  actions taken and processes employed while implementing its seven  governance initiatives. Throughout this report, we used financial data for  illustrative purposes to provide context on DOD’s efforts and to make  broad estimates about potential costs savings. We determined that these  data did not materially affect the nature of our findings and therefore did  not assess its reliability.
We conducted this performance audit from March 2011 through February  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. For details on our scope  and methodology, see appendix I.
subsections: section_title: Background
subsections: section_title: Rising Health Care Costs
paragraphs: According to the Defense Health Board’s Task Force on the Future of  Military Health Care, rising health care costs result from a multitude of  factors that are affecting not only DOD but also health care in general.  These factors include greater utilization of health care services,  increasingly expensive technology and pharmaceuticals, growing  numbers of users, and the aging of the retiree population. Additionally, in  2009, the Defense Business Board reportedcosts are taking up more of the defense budget, and its health care  programs may eventually compete with other critical defense acquisition  and operational programs. Figure 1 illustrates the actual and projected   that defense health care  future cost growth for DOD’s MHS according to the Congressional Budget  Office.
DOD operates a large, complex health system that provides health care  to 9.6 million beneficiaries. DOD employs almost 140,000 military, civilian,  and contract personnel who work in medical facilities throughout the  world. Beneficiaries fall into different categories: (1) active duty  servicemembers and their dependents, (2) eligible National Guard and  Reserve servicemembers and their dependents, and (3) retirees and their  dependents or survivors. In fiscal year 2009, active duty servicemembers  and their dependents represented 32 percent of the beneficiary  population, eligible National Guard and Reserve servicemembers and  their dependents represented 14 percent, and retirees and their  dependents or survivors made up the remaining 54 percent.
The management of DOD’s MHS crosses several organizational  boundaries. Reporting to the Under Secretary of Defense for Personnel  and Readiness, the Assistant Secretary of Defense for Health Affairs is  the principal advisor for all DOD health policies, programs, and force  health protection activities. Health Affairs issues policies, procedures, and  standards that govern management of DOD medical programs and has  the authority to issue DOD instructions, publications, and directive-type  memorandums that implement policy approved by the Secretary of  Defense or the Under Secretary of Defense for Personnel and Readiness.  It integrates the services’ budget submissions into a unified medical  budget that provides resources for DOD’s MHS operations. However,  Health Affairs lacks direct command and control of the services’ military  treatment facilities. See figure 2 for the current organizational structure of  DOD’s MHS.
Operationally, DOD’s MHS has two missions: supporting wartime and  other deployments, known as the readiness mission, and providing  peacetime care, known as the benefits mission. The readiness mission  provides medical services and support to the armed forces during military  operations, including deploying medical personnel and equipment  throughout the world, and ensures the medical readiness of troops prior  to deployment. The benefits mission provides medical services and  support to members of the armed forces, retirees, and their dependents.  DOD’s dual health care mission is delivered by the military services at 59  military treatment facilities capable of providing diagnostic, therapeutic,  and inpatient care, as well as hundreds of clinics and private sector  civilian providers. The military treatment facilities make up what is known  as DOD’s direct care system for providing health care to eligible  beneficiaries. The Departments of the Army and the Navy each have a  medical command, headed by a surgeon general, who manages each  department’s respective military treatment facilities and other activities  through a regional command structure. The Navy’s Bureau of Medicine  and Surgery supports both the Navy and Marine Corps. The Air Force  Surgeon General, through the role of medical advisor to the Air Force  Chief of Staff, exercises similar authority to that of the other surgeons  general. Each service also recruits, trains, and funds its own medical  personnel to administer the medical programs and provide medical  services to beneficiaries. For the management of military treatment  facilities within the National Capital Region and the execution of related  Base Realignment and Closure (BRAC) actions in that area, an  additional medical organizational structure and reporting chain was  established in 2007. This structure is known as the Joint Task Force  National Capital Region Medical, whose Commander reports to the  Deputy Secretary of Defense, and the two inpatient medical facilities in  the area are considered joint commands assigned to the task force. DOD  also operates a purchased care system throughout the country that  consists of a network of private sector civilian primary and specialty care  providers. The TRICARE Management Activity, under the authority,  direction, and control of Health Affairs, is responsible for awarding,  administering, and managing these contracts.
section_title: Studies of Governance Options for DOD’s Military Health System
paragraphs: For many years, GAO and other organizations have highlighted a range  of long-standing issues surrounding DOD’s MHS and its efforts to  reorganize its governance structure. For example, in 1995, we reported  that interservice rivalries and conflicting responsibilities hindered  improvement efforts. We further noted that the services have historically  resisted efforts to change the way military medicine is organized,  including consolidating the services’ medical departments, in favor of  maintaining their own health care systems, primarily on the grounds that  each service has unique medical activities and requirements. Since the  1940s, there have been over 20 studies that have addressed military  health care organization.
section_title: DOD Has Identified Initiatives Aimed at Slowing Medical Cost Growth but Has Not Fully Applied Results- Oriented Management Practices
paragraphs: DOD has identified 11 initiatives aimed at slowing medical cost growth,  but it has not fully applied results-oriented management practices to its  efforts. Specifically, it has developed an implementation plan and related  estimates of potential cost savings for only 1 of the 11 initiatives. As a  result, DOD has limited its effectiveness in implementing and monitoring  these initiatives and achieving related cost savings and other  performance goals.
subsections: section_title: DOD Has Identified Initiatives Aimed at Slowing Medical Cost Growth
paragraphs: The Senior Military Medical Advisory Council—a committee that functions  as an executive-level discussion and advisory group, has approved 11  initiatives that it believes will help reduce rising health care costs. (See  table 2 for a list of these initiatives.) These 11 initiatives consist of  changes to MHS clinical and business practices in areas ranging from  primary care to psychological health care to purchased care  reimbursement practices. DOD’s initiatives generally reflect broader  concepts that were discussed by health care experts, business leaders,  and public officials at two separate forums convened by GAO in 2004 and  2007 on ideas for responding to cost and other challenges in the health  care system. For example, in the 2004 forum, 55 percent of participants  strongly agreed that the U.S. health care system is characterized by both  underuse of wellness and preventive care and overuse of high-tech  procedures. In addition, the plenary speakers at the 2004 forum observed  that unwarranted variation in medical practices nationwide points to  quality and efficiency problems. Similarly, DOD developed initiatives that  seek to increase the productivity of and to ease access to primary care  and encourage wellness, preventive, and evidence-based health care.  Further, in the 2007 forum, 77 percent of participants strongly agreed that  the federal government should revise its payment systems and leverage  its purchasing authority to foster value-based purchasing for health care  products and services. Similarly, MHS officials discussed potential  changes that led to the fourth and fifth initiatives as listed in table 2. Both  initiatives involve changes to payment for medical care to reward quality  of care and health outcomes instead of volume of services rendered.  Another of the 11 initiatives aims to reduce costs by keeping patients as  healthy as possible during treatment and recovery. With this initiative,  MHS officials hope to reach the goal of reducing hospital readmissions by  20 percent and hospital acquired infections by 40 percent by 2013 from  the baseline year of 2010.
section_title: DOD Has Not Fully Developed Results- Oriented Management Plans for Implementing Its Health Care Initiatives
paragraphs: DOD has not fully developed results-oriented management plans for  implementing its health care initiatives, which could help ensure the  achievement of these initiatives’ cost savings goals. Specifically, we  found that as a start to managing the implementation of its initiatives,  DOD has developed a dashboard management tool that will include  elements such as an explanation of the initiative’s purpose, key  performance measures, and funding requirements for implementation. In  December 2011, the Senior Military Medical Advisory Council approved  six dashboards that were significantly, but not entirely completed. A  Health Affairs official stated that DOD currently lacks net cost savings  estimates for all but one of the initiatives. Cost savings estimates are  critical to successful management of the initiatives so that DOD can  achieve its goal of reducing growth in medical costs as stated in the 2010  Quadrennial Defense Review. Further, DOD developed an  implementation plan to support the dashboards. The implementation plan  has a set format to include such information as general timelines and  milestones, key risks, and estimated cost savings.
DOD currently has one completed implementation plan, which also  contains the one available cost savings estimate among all the initiatives.  See table 2 for the progress made for each of these initiatives.
As table 2 shows, DOD had completed a dashboard, an implementation  plan, and a cost savings estimate for only 1 of its 11 initiatives as of  January 13, 2012. As DOD completes its dashboards, implementation  plans, and cost savings estimates, it could benefit from the application of  the six characteristics of a comprehensive, results-oriented management  framework, on which GAO has previously reported, including a thorough  description of the initiatives’ mission statement; problem definition, scope,  and methodology; goals, objectives, activities, milestones, and  performance measures; resources and investments; organizational roles,  responsibilities, and coordination; and key external factors that could  affect the achievement of goals. DOD has completed an implementation  plan for 1 of its 11 initiatives—the Patient Centered Medical Home  initiative, which seeks to increase access to DOD’s primary care network.  Based on DOD data, we estimate that this initiative will have a net cost   Using the desirable  savings of $39.3 million through fiscal year 2016.characteristics of a results-oriented management plan, we assessed the  one approved implementation plan, and our analysis of this plan showed  that DOD addressed four of the characteristics and partially addressed  two other characteristics. For an overview of the six desirable  characteristics of comprehensive, results-oriented management plans  and our assessment of the extent to which DOD’s Patient Centered  Medical Home implementation plan incorporates these desired  characteristics, see table 3.
Our review of the Patient Centered Medical Home implementation plan  found that DOD partially addressed the desired characteristic regarding  resources and investments. While DOD acknowledged that some staff will  be committed full-time to working on this initiative, it did not show in the  plan, as prescribed, the number of personnel needed in total to implement  the initiative. A DOD official noted that the section in the plan that asks for  the number of personnel needed was intended for officials to show if  additional personnel and funding beyond the current level were needed.  However, the absence of information concerning DOD’s use of current  staff renders the size of the initiative’s impact on utilization of personnel  unclear. In addition, the Patient Centered Medical Home implementation  plan’s annual cost savings estimate did not reflect net losses when they  occur in a given fiscal year. For example, in fiscal years 2012 and 2013,  DOD’s investment in the Patient Centered Medical Home initiative is  larger than savings, but the implementation plan does not show the net  losses for those early years.those years. A DOD official responded by noting that DOD interpreted  estimated savings to only include actual savings in any given year and  not net losses. However, without accounting for both cost savings and  investments, decision makers lack a comprehensive understanding of a  program’s true costs.
Instead, it shows zero cost savings for  Additionally, our review of this implementation plan found that DOD  partially addressed the desired characteristic of discussing the key  external factors that could have an impact on the achievement of goals.  While it provided an extensive overview of internal and external  challenges, DOD did not outline a specific process for monitoring such  developments. Further, the implementation plan does not fully explore the  effect of such challenges on the program’s goals or explain how it takes  such challenges into account, such as by outlining a mitigation strategy to  overcome them.
As DOD further develops its dashboards and implementation plans and  incorporates the desired characteristics, it will be in a stronger position to  better manage its reforms and ultimately achieve cost savings. For  example, DOD was experiencing a 5.5 percent annual increase in per  capita costs for its enrolled population according to data available as of  December 2011, but DOD had set its target ceiling for per capita health  care cost increases for fiscal year 2011 at a lower rate of 3.1 percent.  According to DOD calculations using 2011 enrollee and cost data, if DOD  had met its target ceiling of 3.1 percent increase as opposed to a 5.5  percent increase, the 2.4 percent reduction would have resulted in  approximately $300 million in savings. As DOD’s initiatives evolve and  each of these management tools is completed for each of the initiatives,  they may provide DOD with a road map to improve its efforts to  implement, monitor progress toward, and achieve both short-term and  longer-term financial and other performance goals.
section_title: DOD Is in the Initial Stages of Developing a Monitoring Process for Measuring the Progress of Its Health Care Initiatives
paragraphs: DOD also has not completed the implementation of an overall process for  monitoring progress across its portfolio of health care initiatives and has  not completed the process of identifying accountable officials and their  roles and responsibilities for all of its reform efforts. Our work on results- oriented management has found that a process for monitoring progress is  key to success. We have also reported that clearly defining areas of  responsibility is a key process that provides management with a  framework for planning, directing, and controlling operations to achieve  goals. In addition, as MHS leaders develop and implement their plans to  control rising health care costs, they will need to work across multiple  authorities and areas of responsibility. As the 2007 Task Force on the  Future of Military Health Care noted, the current MHS does not function  as a fully integrated health care system. As we reported in October  2005, agreement on roles and responsibilities is a key step to  successful collaboration when working across organizational boundaries,  such as the military services. Committed leadership by those involved in  the collaborative effort, from all levels of the organization, is also needed  to overcome the many barriers to working across organizational  boundaries. For example, Health Affairs centrally manages Defense  Health Program funds for the military services, but it lacks direct  command and control of the military treatment facilities. Additionally, we   that the commitment of agency managers  reported in September 2005to results-oriented management is an important practice to help increase  the use of performance information for policy and program decisions.  DOD’s one approved implementation plan for the Patient Centered  Medical Home initiative provides further information on how DOD has  applied a monitoring structure, defined accountable officials, and  assigned roles and responsibilities in the case of this initiative. Senior  officials stated that they plan to monitor performance, specifically cost  savings, and said that if projected cost savings were not realized, senior  leadership would reconsider further investment in the program. We  reported that in some instances, up-front investments are needed to yield  longer-term savings and that it is essential for officials to monitor and  evaluate whether the initiative is meeting its goals. However, DOD has  not completed this process for the remainder of its initiatives. Without  sustained top civilian and military leadership which is consistently  involved throughout the implementation of its various initiatives and until  DOD fully implements for all of its initiatives a mechanism to monitor  performance and identify accountable officials, including their roles and  responsibilities, DOD may be hindered in its ability to achieve a more  cost-efficient MHS and at the same time address its medical readiness  goals, improve its overall population health, and improve its patients’  experience of care.
section_title: Some Governance Initiatives Have Been Implemented, but DOD Has Not Fully Employed Key Management Practices
paragraphs: Beyond the medical initiatives designed to slow medical cost growth,  DOD has taken steps to implement several other initiatives designed to  improve MHS governance. However, DOD officials have not fully  employed several key management practices to help ensure that these  medical governance initiatives will achieve their stated goals.
subsections: section_title: DOD Has Taken Steps to Implement Its Seven Governance Initiatives
paragraphs: DOD has to varying degrees taken steps to implement some of the seven  governance initiatives approved by the Deputy Secretary of Defense in  2006 with the goal of achieving economies of scale, operational  efficiencies, and financial savings as well as consolidating common  support functions and eliminating administrative redundancies. In 2007,  after the initiatives were approved, we recommended that DOD  demonstrate a sound business case for proceeding with these initiatives  to include providing detailed qualitative and quantitative analyses of  benefits, costs, and associated risks. Initially, DOD expected that the  seven initiatives would save at least $200 million annually once  implemented. However, more than 5 years later, DOD officials have  projected estimated financial savings for only one of the seven initiatives  concerning the governance and management of the MHS—an initiative to  consolidate the command and control structure of its health services  within the National Capital Region. Similarly, as part of a separate  initiative aimed at increasing efficiency and conserving funds, DOD  consolidated its operations at the Naval Health Clinic Great Lakes with  the Department of Veterans Affairs’ (VA) North Chicago Veterans Affairs  Medical Center, but has not measured its progress in achieving financial   Officials said that many of the governance initiatives have  savings.significant potential for cost savings, and some of these governance  initiatives have already achieved various efficiencies. However, financial  savings have not been demonstrated for the majority of the initiatives  because most have not been fully implemented. For those that have been  implemented, such as the Joint Medical Education and Training Campus  in San Antonio, Texas, officials stated that they were unable to develop  baseline training costs against which to measure future costs and  potential savings. However, the governance structure to command,  control, and manage operations at the campus has resulted in the  consolidation of 39 of 64 courses. According to officials, this has resulted  in efficiencies such as the standardization of pharmacy clinical policy  across the services. Table 4 lists the steps DOD has taken to implement  the seven governance initiatives, the results of those actions, and  potential opportunities to achieve additional cost savings and efficiencies.
Although DOD has achieved varying levels of implementation of its MHS  governance initiatives, it did not consistently employ several key  management practices found at the center of successful mergers,  acquisitions, and transformations. Further, BRAC implementation  requirements drove implementation progress for a number of initiatives.  At a GAO forum in September 2002, leaders with experience managing  large-scale organizational mergers, acquisitions, and transformations  identified at least nine key practices and lessons learned from major  private and public sector organizational mergers, acquisitions, and  transformations. During the course of our work examining DOD’s health  care initiatives, we determined that six of the key practices identified at  our 2002 forum were especially important to ensure that DOD has the  framework needed to implement its governance initiatives: (1) a focus on  a key set of principles and priorities that are embedded in the  organization to reinforce the new changes, (2) coherent mission and  integrated strategic goals to guide the transformation, (3) implementation  goals and a timeline to build momentum and show progress from day  one, (4) a communication strategy to create shared expectations and  report related progress, (5) a dedicated implementation team with the  responsibility and authority to drive the department’s governance  initiatives, and (6) committed and sustained leadership.
To its credit, DOD developed a set of guiding principles to facilitate its  transformation of DOD’s medical command structure. A clear set of  principles and priorities can serve as a framework to help the agency  create a new culture and drive employee behavior. For example, a set of  core values can become embedded in every aspect of the organization  and can serve as an anchor that remains valid and enduring while  organizations, personnel, programs, and processes change. Senior DOD  officials developed a set of guiding principles to direct efforts throughout  the governance transformation. These principles and goals were included  in the November 2006 memorandum: (1) provide a healthy, fit and  protected force; (2) create a trained, ready, and highly capable medical  force that delivers superior medical support; and (3) ensure efficient  delivery of a comprehensive health benefit to eligible beneficiaries.
Although DOD provided initial guidance and strategic goals in its  November 2006 memorandum, it did not follow leading results-oriented  strategic planning guidance by establishing performance measures. As  we have previously reported, effective implementation includes adopting  leading practices for results-oriented strategic planning and reporting,  such as establishing specific and measurable performance measures for  the transformed organization. In addition, intermediate measures can be  used to provide information on interim results and show progress toward  intended results. DOD provided initial guidance, which includes strategic  goals to assist in the implementation of the governance transformation.  For example, the memo provided that lessons learned from the  consolidation and realignment of health care delivery within the National  Capital Region and San Antonio be used as the basis for establishment of  similar structures in other multiservice medical markets. However, MHS  officials stated that Health Affairs did not fully monitor and evaluate the  progress of its governance initiatives using performance measures.  Specifically, DOD leaders stated that specific measures to evaluate the  outcomes of the different governance approaches taken in these two  locations had not been established. Therefore, DOD lacked information  that would be useful in deciding if governance changes are needed in  other multiservice medical markets. Such measurable outcomes provide  the information DOD needs to determine if it is meeting its goals, make  informed decisions, and track the progress of the governance  transformation activities.
The November 2006 memorandum provided a brief, initial 3-year  timetable for the implementation of the governance transformation  initiatives; however, this timetable is high level and did not contain interim  dates indicating progress. Besides meeting the approval date of the  memorandum, MHS officials did not meet any of the other major dates  that were set in the timetable. We have reported that establishing  implementation goals and a timeline is critical to ensuring success, as  well as pinpointing performance shortfalls and gaps and suggesting  midcourse corrections. A transformation, such as changing DOD’s MHS  governance, is a substantial commitment that could take years before it is  completed and therefore must be carefully managed and monitored to  achieve success. At a minimum, successful mergers and transformations  should have careful and thorough interim plans in place well before the  effective implementation date. However, the timetable lacked any  interim goals. While DOD has made progress in implementing the three  initiatives that were related to BRAC recommendations, this is most likely  because DOD was required by law to complete most implementation of  BRAC recommendations by September 15, 2011, and to have a  monitoring process in place to support these efforts. These three  initiatives are (1) create governance structures to command, control, and  manage the combined operations at the military treatment facilities in the  National Capital Area and in the San Antonio, Texas, area; (2) create a  governance structure to command, control, and manage the Joint Medical  Education and Training Campus in San Antonio, Texas; and (3) colocate  Health Affairs, TMA, and the services’ medical headquarters staff.  However, the latest completion date for the colocation of the Health  Affairs, TMA, and the services’ medical headquarters staff is the summer  of 2012. DOD’s governance initiatives may have been better implemented  if MHS officials had maintained a long-term focus on the transformation  by setting both short- and long-term goals to show progress and  developing a more complete and specific timetable to guide the efforts.
DOD has not established an effective and ongoing communication  strategy to allow MHS officials to distribute information about its  governance changes early and often. Key practices suggest that a  transforming organization develop a comprehensive communication  strategy that reaches out to employees, customers, and stakeholders and  seeks to genuinely engage them in the transformation process. This  includes communicating early and often to build trust, ensuring  consistency of message, encouraging two-way communication, and  providing information to meet specific needs of employees. While MHS  officials communicated their transformation initiatives in the 2007  TRICARE Stakeholders’ Report, subsequent reports did not contain any  references to the governance initiatives. In addition, the 2008 Military  Health System Strategic Plan references a goal to “improve governance  by aligning authority and accountability” as a strategic priority; however,  the plan does not elaborate on how this goal will be met, and it has not  been reissued since. Furthermore, the lack of a communication strategy  is evident based on the fact that officials in San Antonio responsible for  the initiatives related to establishing the Joint Medical Education and  Training Campus and San Antonio Military Health System told us they  were unaware of the approved governance initiatives. DOD has not  developed an approach to communicate its governance transformation  initiatives with stakeholders to ensure that they have a basic  understanding of their role and involvement. Without a comprehensive  communication strategy, MHS officials will remain limited in their ability to  gain support for the governance transformation. Further, this lack of  communication can create confusion or a lack of awareness among  stakeholders, which can place the success of DOD’s initiatives at risk.
DOD did not form an overarching implementation team for all seven of its  initiatives to direct their progress. Our prior work has shown that a  dedicated team vested with necessary authority and resources to help set  priorities, make timely decisions, and move quickly to implement   As we have  decisions is critical for a successful transformation.previously reported, a strong and stable implementation team responsible  for day-to-day management is important to ensuring that a transformation  effort receives the focused, full-time attention needed to be sustained and  successful. The Deputy Secretary of Defense’s November 2006  memorandum directed DOD to build such a team by 2007. Instead,  according to a DOD official, it initiated independent transition teams to  guide the implementation of some of its initiatives, such as the Joint Task  Force National Capital Region Medical and the colocation of the MHS’s  and the services’ medical headquarters staff. The lack of an overarching  implementation team likely hampered progress and contributed to uneven  progress in the implementation of the initiatives.
GAO-03-669.
Defense internal efficiencies review. Further, officials told us that the lack  of Senate-confirmed, presidentially appointed leadership also presented  challenges in moving forward with governance changes. For example, the  position of the Under Secretary of Defense for Personnel and Readiness  was vacant from January 2009 to February 2010, and the position of  Assistant Secretary of Defense for Health Affairs was vacant from April  2009 to January 2011. According to officials, these vacancies hindered  progress toward greater unification, as someone temporarily filling the  position may be reluctant to make major decisions to change the strategic  direction of the MHS. Without involved and sustained military and civilian  leadership being held accountable to guide and sustain progress of its  initiatives, it may be difficult for the department to fully and successfully  achieve its governance transformation.
Overall, DOD did not consistently employ key management practices to  help improve the implementation of its MHS governance initiatives or to  evaluate the extent to which it accomplished the initiatives’ costs savings  and other performance goals. As a result, the gaps we identified may  have created risks that undermined DOD’s efforts as it began to  implement its plans. Specifically, without key management practices in  place, DOD lacks both a day-to-day and long-term focus on achieving its  goals and accountability to guide and sustain progress of its initiatives.
section_title: Conclusions
paragraphs: If military health care costs continue to rise at their current rate, they will  consume an increasingly large portion of the defense budget and  potentially divert funding away from other critical DOD priorities. MHS  medical-related and governance-related initiatives represent potential  opportunities to implement more efficient ways of doing business, reduce  overhead, and slow the rate of cost growth while continuing to meet the  needs of military personnel, retirees, and their dependents. While DOD  has developed a number of medical initiatives aimed at slowing health  care cost increases, successful implementation will depend upon  incorporating characteristics of results-oriented management practices,  sustaining top military and civilian leadership that holds officials  accountable for achieving agency goals, and establishing clear cost  savings targets where applicable. By fully employing the characteristics of  results-oriented management with greater attention to its investments and  resources and key external factors that could affect the achievement of its  goals, DOD will gain more assurance that it is effectively managing its  health care initiatives and saving money. Additionally, opportunities exist  for an improved governance structure that can result in direct cost  savings but also help to drive clinical savings. As DOD moves forward  with its governance, clinical, and other initiatives, significant financial  savings as well as other efficiencies may be possible with the appropriate  level of management attention to ensure success. With sound decision  making and analysis and by consistently employing key management  practices throughout their implementation, DOD officials will be in a  position to make informed decisions, to better measure DOD’s progress  toward its cost and performance goals, and to be more assured that their  efforts yield necessary improvements and achieve efficiencies within the  MHS.
section_title: Recommendations for Executive Action
paragraphs: In order to enhance DOD’s efforts to manage rising health care costs and  demonstrate sustained leadership commitment for achieving the  performance goals of the MHS’s strategic initiatives, we recommend that  the Under Secretary of Defense for Personnel and Readiness direct the  Assistant Secretary of Defense for Health Affairs, in conjunction with the  service surgeons general, to take the following three actions:
Complete and fully implement, within an established time frame, the  dashboards and detailed implementation plans for each of the  approved health care initiatives in a manner that incorporates the  desired characteristics of results-oriented management practices,  such as the inclusion of performance metrics, investment costs, and  cost savings estimates.
Complete the implementation of an overall monitoring process across  DOD’s portfolio of initiatives for overseeing the initiatives’ progress  and identifying accountable officials and their roles and  responsibilities for all of its initiatives.
Complete the implementation of the governance initiatives that are  already under way by employing key management practices in order  to show financial and nonfinancial outcomes and to evaluate both  interim and long-term progress of the initiatives.
section_title: Agency Comments
paragraphs: In written comments provided in response to a draft of this report, DOD  concurred with our findings and recommendations. Regarding our first  recommendation to complete and fully implement, within an established  time frame, the dashboards and detailed implementation plans for each of  the approved health care initiatives in a manner that incorporates the  desired characteristics of results-oriented management practices, DOD  concurred and noted that it anticipates that these dashboards and  detailed implementation plans will be fully implemented within a year.
Regarding our second recommendation to complete the implementation  of an overall monitoring process across DOD’s portfolio of initiatives for  overseeing the initiatives’ progress and identifying accountable officials  and their roles and responsibilities, DOD concurred and noted that such a  system is being implemented and it anticipates that the overall monitoring  process will also be fully implemented within a year. Regarding our third  recommendation to complete the implementation of the governance  initiatives that are already under way by employing key management  practices in order to show financial and nonfinancial outcomes, DOD  concurred and noted that the department will take further action once the  legislative requirements concerning its submitted task force report on  MHS governance have been fulfilled. DOD noted that it will employ key  management practices in order to identify financial and nonfinancial  outcomes. DOD’s comments are reprinted in their entirety in appendix II.
We are sending copies of this report to the Secretary of Defense, the  Deputy Secretary of Defense, the Under Secretary of Defense for  Personnel and Readiness, the Assistant Secretary of Defense (Health  Affairs), the Surgeon General of the Air Force, the Surgeon General of  the Army, the Surgeon General of the Navy, the Commander, Joint Task  Force, National Capital Region Medical, and interested congressional  committees. In addition, the report is available at no charge on the GAO  website at http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-3604 or farrellb@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: To obtain general background information, we obtained and reviewed  various directives, instructions, and policies that defined the organization,  structure, and roles and responsibilities of the Military Health System’s  (MHS) key leaders.
To determine the extent to which the Department of Defense (DOD) has  identified initiatives to reduce health care costs and applied results- oriented management practices in developing plans to implement and  monitor them, we interviewed DOD officials concerning their approach to  this challenge and examined documentation of related plans and policies.  Specifically, we interviewed DOD officials in the Health Budgets and  Financial Policy Office and in the Office of Strategy Management, within  the Office of the Assistant Secretary of Defense for Health Affairs (Health  Affairs), as well as officials in the TRICARE Management Activity  concerning their 11 health care initiatives and obtained and reviewed  documentation concerning their efforts. We compared DOD’s efforts to  our prior work on the desirable characteristics of comprehensive, results- oriented management and noted any differences.
We compared DOD’s one available implementation plan, concerning the  Patient Centered Medical Home initiative, to key practices that guide  federal agencies’ approaches to strategic planning efforts by examining  the extent to which the implementation plan contained the desirable  characteristics of a comprehensive, results-oriented management  framework. To perform this comparison, we developed a data collection  instrument that contained desirable characteristics and elements that help  establish comprehensive strategies using information from prior GAO  work examining national strategies and logistics issues. The data  collection instrument included the following six desirable characteristics:  1.  Mission statement: A comprehensive statement that summarizes the  main purposes of the plan. 2.  Problem definition, scope, and methodology: Presents the issues to  be addressed by the plan, the scope of its coverage, the process by  which it was developed, and key considerations and assumptions  used in the development of the plan. 3.  Goals, objectives, activities, milestones, and performance measures:  The identification of goals and objectives to be achieved by the plan,  activities or actions to achieve those results, as well as milestones  and performance measures. 4.  Resources and investments: The identification of costs to execute the  plan and the sources and types of resources and investments,  including skills and technology and the human, capital, information,  and other resources required to meet the goals and objectives. 5.  Organizational roles, responsibilities, and coordination: The  development of roles and responsibilities in managing and overseeing  the implementation of the plan and the establishment of mechanisms  for multiple stakeholders to coordinate their efforts throughout  implementation and make necessary adjustments to the plan based  on performance. 6.  Key external factors that could affect the achievement of goals: The  identification of key factors external to the organization and beyond its  control that could significantly affect the achievement of the long-term  goals contained in the plan. These external factors can include  economic, demographic, social, technological, or environmental  factors, as well as conditions that would affect the ability of the agency  to achieve the results desired.
We used the data collection instrument to determine whether each  characteristic was addressed, partially addressed, or not addressed. Two  GAO analysts independently assessed whether each element was  addressed, partially addressed, or not addressed, and recorded their  assessment and the basis for the assessment on the data collection  instrument. The final assessment reflected the analysts’ consensus and  was reviewed by a supervisor.
We also obtained available documentation and interviewed DOD officials  to determine DOD’s approach for monitoring the initiatives’ progress,  identifying accountable officials, and defining their roles and  responsibilities. We compared DOD’s efforts to our prior work on results- oriented management and noted any differences.
We did not assess the reliability of any financial data associated with this  objective since we used such data for illustrative purposes to provide  context of DOD’s efforts and to make broad estimates about potential  costs savings from these efforts. We determined that these data did not  materially affect the nature of our findings.
To determine the extent to which DOD implemented its seven medical  governance initiatives approved in 2006, we first identified the  governance initiatives approved by the Deputy Secretary of Defense, and  then we visited locations where the initiatives were being implemented to  review available documentation related to the status of the efforts and  interviewed officials concerning any progress made. Specifically:
To determine the extent to which command and control structures in  the National Capital Region and San Antonio areas had been  established, we met with officials from the Joint Task Force National  Capital Region Medical and officials from the 59th Medical Wing,  Brook Army Medical Center, and the Army Medical Command in San  Antonio, Texas. We obtained and reviewed the charter establishing  the Joint Task Force and the memorandum of agreement establishing  the San Antonio Military Health System. Based on the interviews and  the reviews of the charter, memorandum of agreement, and other  documents provided by officials, we determined each organization’s  staffing, management structure, responsibilities and authorities, and  financing. We compared the resulting organization with the guidance  contained in the approved governance initiative to determine if the  organization complied with the intent of the approved governance  initiative. Furthermore, we interviewed officials and obtained any  information available to document and determine if any financial  savings had been generated from the change in governance  structure.
To determine the extent to which a command and control structure for  the Joint Medical Education and Training Campus had been  established, we met with officials from the Medical Education and  Training Campus. We obtained and reviewed the memorandum of  agreement establishing the Medical Education and Training Campus.  Based on this interview and the reviews of the memorandum of  agreement and other documents provided by officials, we determined  the organization’s staffing, management structure, responsibilities and  authorities, and financing. We compared the resulting organization  with the guidance contained in the approved governance initiative to  determine if the organization complied with the intent of the approved  governance initiative. Furthermore, we interviewed officials and  obtained any information available to document and determine if any  financial savings had been generated from the change in governance  structure.
To determine the extent to which the MHS’s and services’ medical  headquarters staff had been colocated, we interviewed officials from  Health Affairs, and we obtained briefings on the status of the  colocation as well as the latest Base Realignment and Closure  (BRAC) business plan developed for the colocation. Furthermore, we  obtained and examined the recommendation from the 2005 BRAC  Commission that mandated the colocation.
To determine the extent to which DOD consolidated all medical  research and development under the Army Medical Research and  Material Command, we interviewed Health Affairs officials responsible  for medical research and development funded by the Defense Health  Program appropriation to learn the extent to which these funds had  been consolidated under the Army Medical Research and Material  Command. We reviewed the interservice support agreement that  documents how Health Affairs and the Army Medical Research and  Material Command agreed to interact to manage the research funded  by the Defense Health Program appropriation. We reviewed DOD’s  2008 assessment of medical research and development investments  conducted for the Guidance for Development of the Force (fiscal  years 2010–2015) for background on how DOD handled medical  research and development funds in the past and to document the  need for additional research and development funds.
To determine the extent to which DOD realigned the TRICARE  Management Activity to establish a Joint Military Health Services  Directorate and establish an agency to focus on health insurance plan  management, we interviewed Health Affairs officials to determine  what efforts had been made to accomplish these two initiatives and  examined the proposed Military Heath System Support Activity  organization put forth in the Defense Health Program’s fiscal year  2012 budget request.
To assess the extent to which DOD created governance structures  that consolidate command and control of the military treatment  facilities in locations with more than one DOD component providing  health care services, we interviewed officials at Health Affairs to  determine what efforts had been made and what future plans they  may have in this area.
To determine the extent to which DOD employed key management  practices while implementing the medical governance initiatives, we  compared DOD’s approach to implementing the approved governance  initiatives with key management practices that GAO has found to be at  the center of successful mergers, acquisitions, and transformations.  Although the GAO report on key practices for transformation listed nine  practices, we found that six of the nine had the most relevance to our  review. The six key practices we used in our analysis were ensure top leadership drives the transformation, establish a coherent mission and integrated strategic goals to guide  the transformation,  focus on a key set of principles and priorities at the outset of the  transformation,  set implementation goals and a timeline to build momentum and show  progress from day one, dedicate an implementation team to manage the transformation establish a communication strategy to create shared expectations and  report related progress.
We decided to exclude the following three practices: (1) the use of the  performance management system to define responsibility and assure  accountability for change, (2) the involvement of employees to obtain their  ideas and ownership for the transformation, and (3) the adaptation of  leading practices to build a world-class organization. Rather, we  assessed DOD’s use of each of the six of the practices because DOD  either employed a practice to some degree or the practice was  appropriate given DOD’s position in the transformational process.  However, this exception on our part does not suggest that DOD should  not employ these three practices in the future. As DOD progresses  through the change process, DOD should consider employing all of the  key practices to help ensure a successful transformation.
We determined the extent to which DOD employed the above key  management practices in implementing the medical governance initiatives  by comparing them to the actions taken by MHS officials. Specifically, we  reviewed the November 2006 action memorandum signed by the Deputy  Secretary of Defense that laid out the way ahead, provided some initial  guidance, and identified the seven next steps. We examined the 2008  Military Health System Strategic Plan, the Under Secretary of Defense for  Personnel and Readiness Fiscal Year 2012-2016 Strategic Plan, MHS  stakeholders’ reports, the MHS Strategic Imperatives Scorecard, Defense  Health Program budget estimates, memorandums of agreement, an  interservice support agreement, charters, BRAC business plans, and  memorandums providing the status of implementations efforts. To  complete our understanding of DOD’s approach in implementing the  seven approved governance initiatives, we interviewed officials from the  Office of the Under Secretary of Defense for Personnel and Readiness,  Health Affairs, the TRICARE Management Activity, the Joint Task Force  National Capital Region Medical, the Medical Education and Training  Campus, Brook Army Medical Center, Army Medical Command, and Air  Force 59th Medical Wing. We compared this information to key  management practices for successful mergers, acquisitions, and  transformations and examined any differences.
Finally, we also interviewed officials who participated in the Office of the  Under Secretary of Defense for Personnel and Readiness’ review of  military health care and its impacts on the health of the force and the  Deputy Secretary of Defense’s review of MHS governance options. We  also obtained the final report from the Task Force on MHS Governance,  analyzed its methodology and findings, and discussed the results and its  recommendations with DOD officials.
We conducted this performance audit from March 2011 through February  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Lori Atkinson, Assistant Director;  Rebecca Beale; Stacy Bennett; Grace Coleman; Elizabeth Curda; Kevin  Keith; Charles Perdue; Adam Smith; Amie Steele; and Michael Willems  made key contributions to this report.