Medicare Subvention Demonstration: Pilot Satisfies Enrollees, Raises Cost and Management Issues for DOD Health Care
Published: 2002-02-11T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The Department of Defense's (DOD) Medicare subvention demonstration tested alternate approaches to health care coverage for military retirees. Retirees could enroll in new DOD-run Medicare managed care plans, known as TRICARE Senior Prime, at six sites. The demonstration plan offered enrollees the full range of Medicare-covered services as well as additional TRICARE services, with minimal copayments. During the demonstration period, the program parameters were changed, allowing military retirees age 65 and older to become eligible for TRICARE coverage as of October 1, 2001, and Senior Prime was extended for one year. The demonstration showed that retirees were interested in enrolling in low-cost military health plans and that DOD was able to satisfy its Senior Prime enrollees. By the close of the initial demonstration period, about 33,000 retirees were enrolled in Senior Prime, and more were on waiting lists. When nonenrollees were asked why they did not join Senior Prime, more than 60 percent said that they were satisfied with their existing health coverage; few said that they disliked military care. Although the demonstration had positive results for enrollees, it also highlighted three challenges confronting the military health system in managing patient care and costs. First, care needs to be managed more efficiently. Although DOD satisfied enrollees and gave them good access to care, it incurred high costs. Second, DOD's efforts were hindered by limitations in its data and data systems. Finally, the demonstration illustrated the tension between the military health system's commitment to support military operations and promote the health of active-duty personnel and its commitment to provide care to dependents of active-duty personnel, retirees and their families, and survivors.

section_title: Letter
paragraphs: In recent years, the Congress has sought to improve health care benefits  for Medicare-eligible military retirees. In the past, these retirees were not  eligible for the Department of Defense’s (DOD) TRICARE health care  program and were able to get care from military treatment facilities (MTF)  only when space was available. By law, DOD was not responsible for  providing a full range of services to these Medicare-eligible retirees and  could not receive payments from Medicare for those services that it  provided them. The DOD Medicare subvention demonstration, established  by the Balanced Budget Act of 1997 (BBA), was designed to test an  alternate way of providing health care coverage to retirees through DOD.
The demonstration allowed retirees to enroll in new DOD-run Medicare  managed care plans, known as TRICARE Senior Prime, at six sites. The  Senior Prime plans offered enrollees the full range of Medicare-covered  services as well as additional TRICARE services, with minimal  copayments. At the same time, Senior Prime gave enrollees improved  access to MTF care. The demonstration authorized DOD to receive  payment from Medicare if MTFs continued to spend as much on retirees as  they had in the past. The demonstration, which began in 1998, was  originally authorized for a 3-year period.
During the demonstration period, new legislation altered the manner in  which retirees receive health care coverage through DOD. Under  provisions of the Floyd D. Spence National Defense Authorization Act for  Fiscal Year 2001 (NDAA), military retirees age 65 and older became  eligible for TRICARE coverage as of October 1, 2001. The NDAA also  extended Senior Prime for 1 year, through December 2001, with the  possibility of extension and expansion. DOD has decided, however, not to  extend Senior Prime or implement it in other areas. Nonetheless, DOD’s  experience with Senior Prime illustrated issues that DOD may face in its  future efforts to serve military retirees and other beneficiaries.
The BBA directed us to evaluate the demonstration during its initially  authorized period. The law required us to study a broad range of issues,  including the demonstration’s effects on beneficiaries, its costs to DOD  and Medicare, and any difficulties that DOD encountered in managing the  demonstration. As mandated by the BBA, we have issued a series of  reports on the demonstration to date. This is our last report on the  demonstration. Our objectives are to describe (1) the demonstration’s  appeal to beneficiaries, why some joined and others did not, and the  reactions to the demonstration of those who joined and (2) difficulties  DOD encountered in managing patient care and costs.
To address these issues, we drew on our interviews with DOD and Health  Care Financing Administration (HCFA) officials and our visits to the  demonstration sites both during the start-up phase and toward the end of  the initial demonstration period. In addition, we analyzed data from our  mail survey of about 20,000 Medicare-eligible military retirees in the  demonstration areas. We supplemented the survey data with reports and  administrative data from DOD and HCFA, but did not independently verify  their data. (See appendix I for a discussion of our survey and methods.)
Several features of the demonstration limit the generalizability of our  findings. First, the demonstration sites are not representative of all MTF  service areas. MTF resources are greater in the demonstration areas than  in most other areas. In addition, sites’ ability to support the demonstration  was a factor in site selection. Second, the sites in many ways remained in a  mode of implementing the demonstration; consequently, we were unable  to observe Senior Prime in a period of routine operation. Third, our  findings are particular to the context in which Senior Prime took place. As  an important demonstration project, Senior Prime received a great deal of  management attention at a limited number of locations; if it had been  expanded nationwide, results might have differed. Finally, we cannot  generalize retirees’ demand for Senior Prime to their future demand for  MTF care, in large part because retirees will be able to obtain care in the  civilian sector with TRICARE covering most of their Medicare cost- sharing.
Our evaluation of costs was confined to 1999, the first full year of the  demonstration, because more recent data were not available in time for  our analysis. Findings during this initial period would not necessarily  apply fully were Senior Prime to continue.
We performed our work from March 2001 through November 2001 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: Two large health programs—TRICARE and Medicare—influenced the  design and operation of the Medicare subvention demonstration.
The military health system has three missions: (1) maintaining the health  of active-duty service personnel, (2) medically supporting military  operations, and (3) providing care to the dependents of active-duty  personnel, retirees and their families, and survivors. In fiscal year 1999,  DOD’s annual appropriations included about $16 billion for health care, of  which over $1 billion funded the care of seniors.
In the mid-1990s, DOD implemented the TRICARE framework for military  health care in response to rapidly rising costs and beneficiary concerns  about access to military care. Its goals were to improve beneficiary access  and quality while containing costs. TRICARE offers health care coverage  to approximately 6.6 million active-duty military personnel, retirees,  dependents, and survivors under age 65. These beneficiaries have three  main options: TRICARE Prime, a managed care option; TRICARE Extra, a  preferred provider option; and TRICARE Standard, a fee-for-service  option. A new option, TRICARE Plus, allows beneficiaries to enroll with a  primary care provider at participating MTFs. TRICARE covers inpatient  services, outpatient services such as physician visits and lab tests, and  skilled nursing facility and other post-acute care. It also covers  prescription drugs, which are available at MTFs, through DOD’s National  Mail Order Pharmacy, and at civilian pharmacies. TRICARE delivers care  through over 600 MTFs—such as medical centers, community hospitals, or  major clinics that serve military installations—and a network of civilian  providers managed by DOD’s managed care support contractors. Managed  care support contractors also assist beneficiaries and support regional  DOD management by providing services such as enrollment and utilization  management.
subsections: section_title: DOD Health Care for Medicare-Eligible Military Retirees
paragraphs: There are about 1.5 million retired military personnel, dependents, and  survivors age 65 or older residing in the United States. About 600,000 of  these seniors live within 40 miles of an MTF. In the past, retirees had  access to all MTF and network services through TRICARE until they  turned age 65 and became eligible for Medicare, at which point they could  only use military health care on a space-available basis—that is, when  MTFs had unused capacity after caring for higher priority beneficiaries. In  the 1990s, downsizing and changes in access policies led to reduced space- available care throughout the military health system. Moves to contain  costs by relying more on military care and less on civilian providers under  contract to DOD also contributed to the decrease in space-available care.  As is the case today, MTF capacity varied from a full range of services at  major medical centers to limited outpatient care at small clinics. Some  retirees aged 65 or older relied heavily on military facilities for their health  care, but most did not, and about 60 percent did not use military health  care facilities at all. Retirees could obtain prescriptions from MTFs, but  not from TRICARE’s National Mail Order Pharmacy or network of civilian  pharmacies. In addition to using these DOD resources, retirees could  receive care paid for by Medicare and other public or private insurance for  which they were eligible.
Significant changes in retiree benefits and military health care occurred in  2001 as a result of the NDAA. This legislation gave older retirees two major  benefits:
Pharmacy benefit. Effective April 1, 2001, retirees age 65 and older were  given access to prescription drugs through TRICARE’s National Mail Order  Pharmacy and at civilian pharmacies.
TRICARE eligibility. Effective October 1, 2001, retirees age 65 and older  enrolled in Medicare part B became eligible for TRICARE coverage—  commonly termed TRICARE For Life. As a result, TRICARE is now a  secondary payer for these retirees’ Medicare-covered services—paying  most of their required cost-sharing. This includes copayments required of  retirees enrolled in civilian Medicare managed care plans. Retirees are  eligible to enroll in TRICARE Plus but are not allowed to enroll in  TRICARE Prime.
section_title: Medicare
paragraphs: Medicare is a federally financed health insurance program for persons age  65 and older, some people with disabilities, and people with end-stage  kidney disease. Eligible beneficiaries are automatically covered by part A,  which covers inpatient hospital, skilled nursing facility and hospice care,  as well as some home health care. They also can pay a monthly premium  to join part B, which covers physician and outpatient services as well as  those home health services not covered under part A. Traditional Medicare  allows beneficiaries to choose any provider that accepts Medicare  payment and requires beneficiaries to pay for part of their care. Most  beneficiaries have supplemental coverage that reimburses them for many  of the costs that Medicare requires them to pay. Major sources of this  coverage include employer-sponsored health insurance; “Medigap”  policies, sold by private insurers to individuals; and Medicaid, a joint  federal-state program that finances health care for low-income people.
The alternative to traditional Medicare, Medicare+Choice, offers  beneficiaries the option of enrolling in managed care or other private  health plans. All Medicare+Choice plans cover basic Medicare benefits,  and many also cover additional benefits such as prescription drugs.  Typically, Medicare+Choice managed care plans have limited cost-sharing  but restrict members’ choice of providers and may require an additional  monthly premium.
section_title: The Medicare Subvention Demonstration
paragraphs: Under the Medicare subvention demonstration, DOD established and  operated six Medicare+Choice managed care plans, called TRICARE  Senior Prime, at sites selected jointly by DOD and HCFA. Enrollment in  Senior Prime was open to military retirees enrolled in Medicare part A and  part B who resided within roughly 40 miles of a participating MTF. About  125,000 retirees were eligible for the demonstration. DOD capped  enrollment at about 28,000 for the demonstration as a whole; each MTF  had its own enrollment cap. In addition, retirees enrolled in TRICARE  Prime who had a primary care provider at a demonstration MTF could  “age in” to Senior Prime upon reaching age 65, even if MTFs’ enrollment  caps had been reached.
Senior Prime offered enrollees the full range of Medicare-covered services  as well as additional TRICARE services, notably prescription drugs. It also  gave them higher priority for care at MTFs than retirees who did not join  the program. Enrollees paid the Medicare part B premium, but no  additional premium to DOD. Care at MTFs was free of charge, but  enrollees had to pay any applicable cost-sharing amounts when MTFs  referred them to the civilian network for care (for example, $12 for an  office visit). All primary care was provided at MTFs, but DOD purchased  some hospital and specialty care from the civilian network. Purchased  care was used for services not available at MTFs as well as when MTFs did  not have sufficient capacity in particular specialties.
Although the demonstration was authorized to begin in January 1998,  implementation was delayed, and the first site began delivering care in  September 1998. All sites were operational by January 1999. The six  demonstration sites are in different regions of the country and include 10  MTFs that vary in size and types of services offered (see table 1), as well  as by managed care penetration in the local Medicare market. The five  medical centers offer a wide range of inpatient services and specialty care  as well as primary care. They accounted for over 75 percent of all  enrollees in the demonstration. The two San Antonio medical centers had  38 percent of all enrollees. The four community hospitals have more  limited capabilities, and the civilian network provided much of the  specialty care. At Dover, the MTF is a clinic that offers only outpatient  services, thus requiring all inpatient and specialty care to be obtained at  another MTF or purchased from the civilian network.
The BBA established rules for Medicare to follow in paying DOD for  Senior Prime care. It authorized Medicare to pay DOD in a way that was  similar to the way it pays civilian Medicare+Choice plans, with several  major exceptions:
Senior Prime’s capitation rate—a fixed monthly payment for each  enrollee—differed from the Medicare+Choice rate in several ways. The  Senior Prime rate was set at 95 percent of the rate that Medicare would  pay civilian Medicare+Choice plans in the demonstration areas, consistent  with a belief that DOD could provide care at lower cost than the private  sector. The rate was further adjusted by excluding the part of the  Medicare+Choice rate that reflects graduate medical education (GME) and  disproportionate share hospital (DSH) payments, as well as a percentage  of payments made for hospitals’ capital costs. The GME exclusion took  into account the fact that GME in the military health system is funded by  DOD appropriations, and the DSH exclusion recognized that DOD medical  facilities do not treat the low-income patients for whom DSH payments  compensate hospitals. The law directed HCFA and DOD to determine the  amount of the capital adjustment, and the two agencies agreed to exclude  two-thirds of the capital costs reflected in the Medicare+Choice rate.
The Senior Prime capitation rate was to be adjusted if there was  “compelling” evidence that enrollees were healthier or sicker than their  Medicare fee-for-service counterparts. The adjustment was intended to  reflect whether Senior Prime enrollees would be expected to be  significantly more or less costly than the average Medicare beneficiary.  HCFA and DOD agreed that if the difference between the adjusted and  unadjusted payments equaled or exceeded 2.5 percent, then that would be  compelling evidence that enrollees’ health status differed from that of their  Medicare counterparts. In that case, the Medicare payment would reflect  the adjustment.
The BBA required that, before DOD could receive Medicare payment,  participating MTFs must spend as much on care for retirees age 65 and  older as they did prior to the demonstration. This threshold amount—  termed DOD’s baseline level of effort or LOE—was intended to prevent  the federal government from paying for the same care twice, through both  DOD appropriations and Medicare.
The total amount that Medicare could pay DOD for the demonstration was  capped at $50 million in 1998, $60 million in 1999, and $65 million in 2000.
The demonstration was initially scheduled to end in December 2000. The  NDAA extended the demonstration for 1 year—through 2001—with the  possibility of further extension and expansion. However, DOD allowed  Senior Prime to end on December 31, 2001, because the new TRICARE For  Life program provides health care coverage to older military retirees. DOD  has stated that Senior Prime enrollees will have priority for enrollment in  TRICARE Plus, which began at the former demonstration MTFs in January  2002.
As authorized by the BBA, the demonstration was to include a second  component—Medicare Partners. Under Medicare Partners, a  demonstration MTF would be allowed to contract with civilian  Medicare+Choice plans to provide selected MTF services to military  retirees enrolled in the civilian plans. According to DOD, lack of interest  among local Medicare+Choice plans was key to its decision not to  implement the Medicare Partners program. Plans may have had little  incentive to participate in Medicare Partners and pay for MTF care  because retirees already were eligible for such care at DOD’s expense—  when space was available.
section_title: Demonstration Illustrated Retirees’ Interest in Military Health Care, Had Positive Impact on Enrollees
paragraphs: The demonstration showed that DOD health care plans based at MTFs  could attract many retirees, particularly those who were recent users of  military care. Retirees said they were attracted to Senior Prime by the  quality and convenience of MTF care, as well as by the program’s low cost- sharing. After enrolling, most reported that they were able to get the care  that they needed at little expense. Most retirees who did not enroll in  Senior Prime reported that they were satisfied with their existing health  care coverage.
subsections: section_title: Senior Prime Met Enrollees’ Expectations for Access to MTFs, Quality Health Care, and Low Costs
paragraphs: Senior Prime’s enrollment showed that there was substantial demand  among retirees for DOD health care plans based at MTFs, and also that  demand varied by site. By December 2000, Senior Prime had attracted  roughly 33,000 enrollees—over one-fourth of all retirees eligible to join.  (See table 2.) Over 6,500 of these enrollees had aged-in from TRICARE  Prime after turning age 65. The percentage of eligible retirees who  enrolled varied significantly, from 14 percent at San Diego to over 40  percent at Keesler and Lackland Air Force Base. However, these figures  understate retirees’ interest in Senior Prime: during the demonstration, 6  of the 10 MTFs reached their maximum enrollment and had to establish  waiting lists.
Senior Prime’s strong link to military care was particularly attractive to  retirees. When asked why they wanted to join Senior Prime, enrollees  most often cited reasons related to military care, such as the quality of  care at MTFs, a preference for military care, and the convenience of local  MTFs. (See table 3.) Most enrollees had used MTFs to some extent the  year before enrolling in the program, and about 60 percent had relied on  these facilities for most or all of their care. In part, this reflected the design  of the program. To be eligible for Senior Prime, retirees must have used  military care since becoming Medicare-eligible. However, DOD relied on  retirees’ answers to a question about prior MTF use and did not verify  their answers. Over half of enrollees believed that by joining Senior Prime  they would be able to get appointments at MTFs more easily. This is not  surprising, given that Senior Prime offered retirees the same priority  access to MTFs as younger retirees enrolled in TRICARE Prime. Senior  Prime attracted some retirees—about 3,500—who had not recently used  MTFs; most of these retirees nonetheless cited a preference for military  care. Retirees who were attracted to Senior Prime varied in their health  care coverage before the demonstration. About 30 percent had had  traditional Medicare exclusively. The remainder had had supplemental  insurance coverage in addition to traditional Medicare or were enrolled in  a civilian Medicare managed care plan.
Although less important than the link to military care, other features of  Senior Prime also appealed to retirees. The program’s low cost-sharing  was attractive to retirees; about half of enrollees saw joining Senior Prime  as a way to save money on health care expenses. This was true even  though many enrollees had only minimal out-of-pocket costs before  joining the program, due in part to their use of free MTF care. In addition,  about half of enrollees saw joining Senior Prime as a way to obtain  improved health care benefits or coverage.
After enrolling in Senior Prime, retirees reported that they were able to get  the care that they needed at little expense. When asked what they liked  about Senior Prime, the majority of enrollees cited access-related features  such as the ability to get all the care that they needed and the ability to get  appointments when needed. (See table 4.) This is not surprising, given that  enrollees had more hospital stays and outpatient visits than before the  demonstration and used significantly more services than their Medicare  fee-for-service counterparts. Enrollees also reported that they received  good care at their MTFs and that they liked their MTF doctors. Despite  their heavy use of services, most enrollees also were pleased with the low  cost of their care. They reported few financial barriers to obtaining care  and that their spending on health care services was minimal. About two- thirds of enrollees reported no out-of-pocket costs; their costs were low  even at smaller sites where network care, which required copayments, was  more common.
Once enrolled, relatively few retirees decided to leave Senior Prime—  another indication of enrollees’ satisfaction with the program. Early in the  demonstration, disenrollment rates were relatively low compared with  other Medicare managed care plans. Disenrollment remained low  throughout the demonstration, averaging about 2 percent during the last  year of the initial demonstration period.
Although retirees generally were positive about Senior Prime, some  reported difficulties. Over 70 percent of enrollees reported that there was  nothing about the program that they disliked. Very few enrollees reported  that they did not like their doctors, that they did not get good care at  MTFs, or that Senior Prime refused them treatment. However, 13 percent  of enrollees reported that they did not like having to wait too long to get  an appointment, 13 percent cited not being able to see the same primary  care doctor every time, and 8 percent cited difficulty making  appointments. In addition, among those few who disenrolled from Senior  Prime, the most commonly cited reasons for doing so were these same  three access-related difficulties as well as the inability to use regular  Medicare benefits while enrolled in the program—that is, the inability to  have Medicare pay for services not authorized by Senior Prime.
section_title: Most Nonenrollees Were Satisfied with Their Existing Health Coverage
paragraphs: Most retirees who did not enroll in Senior Prime reported that they were  already satisfied with their existing health care coverage, and few cited  negative attitudes about military care. When asked why they did not try to  enroll in Senior Prime, over 60 percent of nonenrollees cited satisfaction  with their current coverage. (See table 5.) About one-third said they did  not have enough information about Senior Prime or did not understand it.  Although the sites used many means of providing information about  Senior Prime to local retirees, many retirees surveyed early in the  demonstration had not previously heard of the program. The lack of  information about Senior Prime remained an issue later in the  demonstration as well; at the end of the demonstration, many retirees still  reported this as one reason for not wanting to enroll. Other major reasons  for not enrolling included not wanting to join a managed care organization  and the belief that Senior Prime might not be permanent. Few  nonenrollees—about 9 percent—reported that they decided not to join  Senior Prime because they disliked military care.
Nonenrollees’ access to care was generally unaffected by the  demonstration, but among the minority who had previously relied on  military care, most experienced reduced access to MTFs. When asked at  the start of the demonstration why they had not joined Senior Prime, many  of the nonenrollees—almost 40 percent—who were later “crowded out” of  MTFs had said that they were able to get military health care when they  needed it. This suggests that they did not forsee that space-available care  would decline as a result of the demonstration. By the end of the  demonstration, about 20 percent of those who were crowded out had tried  to join Senior Prime. However, most sites had reached their enrollment  caps, and retirees who applied after the caps were reached were placed on  a waiting list.
section_title: Demonstration Underscored Challenges in Managing Care and Costs Within the Military Health System
paragraphs: While the demonstration had positive results for enrollees, it also  highlighted several challenges that confront the military health system in  managing patient care and costs. The high costs generated by enrollees’  care revealed the need to deliver care more efficiently. In addition,  difficulties encountered in obtaining and managing data during the  demonstration underscored problems that DOD officials generally face in  monitoring patient care and costs. Finally, the demonstration illustrated  the tensions between the military health system’s commitment to care for  active-duty personnel and support military operations and its commitment  to provide care to civilian family members and retirees.
subsections: section_title: High Senior Prime Costs Are Associated with Weak Incentives for Managing Care
paragraphs: Senior Prime’s experience revealed the need to deliver care more  efficiently, and differences in sites’ utilization suggested that this might be  possible. Although DOD satisfied its new senior enrollees and gave them  good access to care, it incurred high costs in doing so. These high costs  were largely due to enrollees’ heavy use of medical services, which  substantially exceeded that of comparable Medicare beneficiaries. If  DOD had delivered fewer services, it is possible that enrollees would have  been less satisfied. However, we found that the number of outpatient visits  by enrollees affected their satisfaction with care only slightly.  Furthermore, substantial site differences in utilization—with little  difference in enrollee satisfaction—provide evidence that some sites were  able to satisfy enrollees with fewer services and, consequently, lower  costs. This suggests that other sites could have reduced utilization  somewhat without sacrificing enrollee satisfaction.
Although sites’ costs varied, managers at all sites faced similar  disincentives to containing utilization and costs. MTFs generally tried to  restrain inappropriate utilization, but basic features of the military health  system’s financial and management practices weakened their incentives to  moderate utilization and costs. First, while MTFs cannot spend more than  their budget, several factors act as safety valves for budgetary pressure:
The primary factor is space-available care: when resources required for  enrollees increase, space-available care declines and those who are not  enrolled are less able to get MTF care. This was observed during the  demonstration: as Senior Prime enrollment climbed, the amount of space- available care provided to nonenrolled seniors decreased. (See figure 1.)
MTFs can request supplemental funding from their respective services.
During the demonstration, every MTF requested supplemental funding  either for Senior Prime specifically or for the MTF generally, and all  received some added funds. Although MTFs cannot always count on  receiving such funding, the potential to obtain extra funds reduces  incentives for moderating utilization.
MTFs can try to defer some utilization until the following fiscal year—for  example, by postponing elective surgery or issuing prescriptions on a 60- day rather than a 90-day basis. At the end of fiscal year 2000, officials from  several sites told us that they were considering this approach to staying  within their budgets, and at the time of our visits at least one had  implemented it.
Second, MTFs have no direct financial incentive to manage care purchased  from the civilian network. At the local level, MTF providers refer patients  for services that, depending on MTF resources and capacity, may be  obtained from network providers. However, MTFs are not directly  responsible for the costs of network claims; DOD funds purchased care  centrally, thereby reducing sites’ incentive to trim unnecessary network  utilization. An additional factor unique to the demonstration was the lack  of incentives for the managed care support contractors to limit utilization  in Senior Prime. Under the demonstration, these contractors authorized  network services but bore no risk for the costs of enrollees’ care.  Consequently, they had no financial incentive to limit use of specialists  and other civilian network providers.
Third, Senior Prime’s low cost-sharing, although beneficial for enrollees,  limited DOD’s ability to control utilization and costs. Research has shown  that patients tend to use more care when their out-of-pocket expenses are  low. Therefore, copayments tend to encourage patients to curb their use  of health care services. In Senior Prime, however, there were few financial  incentives for enrollees to reduce their use of health care services.  Enrollees had no annual deductible; furthermore, care within MTFs, where  most services were delivered, was free and copayments for visits to  network providers were small.
Finally, practice patterns among military physicians may also explain part  of the high costs and utilization seen in Senior Prime. High utilization is  not unique to the demonstration: studies have shown that the military  health system has higher utilization than the civilian sector. As with  civilian physicians, military physicians’ training, experience, and the  practice style of their colleagues affect their use of procedures and tests,  their readiness to hospitalize patients, as well as their recommendations to  patients about follow-up visits and referrals to specialists.
section_title: Limitations in Data and Data Systems Posed Problems for DOD Managers
paragraphs: Although DOD was able to establish and operate the demonstration, its  efforts were hampered by limitations in its data and data systems.  Throughout the demonstration, officials had difficulty producing reliable,  timely, and comprehensive information on retirees’ care. This hampered  their ability both to implement the demonstration’s payment mechanism  and to monitor enrollees’ health care costs and utilization.
DOD’s experience with the demonstration’s payment mechanism  illustrated DOD’s problems with data and data systems. At the beginning  of the demonstration, DOD needed to determine the cost of the care that  participating MTFs had provided to military retirees prior to Senior  Prime—an amount referred to as DOD’s baseline level of effort or LOE.  This step was critical in determining how much payment, if any, DOD  would earn from Medicare. However, DOD’s data systems did not permit it  to isolate the costs of retirees’ previous MTF care, and DOD had to  undertake a substantial effort to estimate its baseline LOE—an effort  made more difficult by deficiencies in the source data on MTF costs. The  payment mechanism also required DOD to collect information on  enrollees’ inpatient and outpatient diagnoses to determine whether  enrollees were significantly more or less healthy than other Medicare  beneficiaries—in which case, Medicare’s payment to DOD would be  adjusted. DOD and HCFA agreed to use a method of assessing enrollees’  health status that involved both inpatient and outpatient data. DOD took  over 1 year to assemble the final data and later stated that the outpatient  data may have omitted certain items and may have contained coding  errors. Overall, although DOD completed the tasks necessary to  implement the payment mechanism, its efforts consumed considerable  time and resources due to data problems.
DOD’s data systems were not well-suited to monitoring health care costs  and utilization—an impediment to effective management. At the local  level, data limitations reduced site officials’ ability to monitor Senior  Prime costs. At first, the sites operated with little information on the costs  of enrollees’ care. For care provided at MTFs, sites’ data systems could not  isolate costs specific to Senior Prime enrollees. For care provided outside  MTFs, claims submitted by network providers recorded the costs of  civilian care, but there were delays between the time services were  provided and when complete claims data were available. About 1 year into  the demonstration, cost information available to site officials improved. In  the fall of 1999, DOD’s TRICARE Management Activity (TMA) office  began distributing periodic Senior Prime databooks, which provided  information on enrollment, utilization, cost, and satisfaction for each site. Sites found that these databooks were a useful resource; for the first time,  they were able to compare their sites’ costs to the Senior Prime capitation  rate. However, neither the databooks nor the systems on which they were  based permitted the sites to identify the cases or practices that led to high  costs. Moreover, the information was not timely—the lag was usually 6  months or more—and changed over time as problems in underlying data  and calculations were identified and corrected. For example, the databook  reports on the costs of enrollees’ care changed repeatedly as mistakes  were uncovered and corrected, reducing confidence in comparisons to the  Senior Prime capitation rate.
Data limitations also hindered officials’ ability to monitor enrollees’ use of  health care services. Sites had information on utilization, but had difficulty  integrating data from MTF and network providers and encountered data of  questionable accuracy. These problems undermined the ability of  managers and physicians to obtain a comprehensive picture of the care  provided to individuals or to groups of patients. In addition, site officials  told us they had some difficulties using benchmark utilization rates from  civilian managed care to help understand the patterns in Senior Prime  utilization. They were sometimes uncertain about the quality and  credibility of the underlying data used to generate Senior Prime measures,  and often found that comparisons between Senior Prime and civilian rates  were distorted by differences in clinical and coding practices.Comparisons between the sites were also problematic. Some officials cited  differences in coding practices as a partial explanation of site differences  in utilization rates.
While DOD is making efforts to improve its data and data systems, its  fundamental data problems are pervasive and persistent. Key data-related  difficulties include inaccurate and incomplete data, systems that produce  usable data only after substantial delays, and the inability to segregate  costs for particular patient groups, such as seniors. In addition, DOD’s  separate, unconnected systems for recording inpatient and outpatient MTF  care, and for MTF and network care, complicate data collection and  analysis. Most important, the lack of strong incentives for MTFs to achieve  efficiency in delivering care reduces officials’ demand for improved data  and related tools. Officials told us about efforts to improve data and data  systems, some resulting directly from the demonstration. The  demonstration’s requirements for reporting quality and cost information,  including the need for MTF commanders to certify data submitted to  HCFA, led to increased scrutiny of data systems by national and local  managers. Officials at several sites noted that the demonstration had  stimulated MTF efforts to generate better data, for example, by more  accurately recording and coding patient visits and diagnoses. In addition,  DOD’s new Data Quality Management Control program, initiated in  November 2000, introduced data quality as a formal management objective  and made MTF commanders more accountable for their data.It is too  early to tell whether DOD’s recent efforts to make MTFs more accountable  for data quality will have an impact that is systemwide and sustained.  Although the new data quality program may give MTF managers added  reason to improve their data, it does not alter their incentives for using  those data.
section_title: Demonstration Illustrated Tension between Military Mission and Civilian Care Responsibilities
paragraphs: The demonstration illustrated a central challenge confronting the military  health system: dealing with the tensions that arise from its commitment to  support military operations and care for active-duty personnel while  providing care for their family members and retirees. As part of its  mission, the military health system is responsible for medical support of  military deployments, from small humanitarian engagements to major  military actions. The military health system must ensure that clinicians  and other medical personnel have the skills they need when deployed and  must maintain the health of active-duty personnel. Like other large  employers, DOD also provides health care coverage for the families of  active-duty personnel and for retirees. Unlike most other employers, DOD  provides much of its beneficiaries’ care in its own facilities. Overall, MTFs’  experiences during the demonstration highlighted ways in which the  provision of care to civilians, in particular older retirees, can both support  and hinder the military mission. It also illustrated the ways in which that  mission complicates the delivery of civilian care.
Senior Prime demonstrated that providing care to civilian beneficiaries  can contribute to the mission of providing medical support for military  operations. According to DOD, during wartime and peacetime military  operations (such as humanitarian or peacekeeping missions), most cases  encountered are commonplace medical or surgical conditions, not  complex illnesses or injuries requiring specialized skills. Consequently,  clinicians with broad general training and experience are able to manage  most conditions they are likely to see. However, clinicians supporting  military operations are likely to encounter some complex medical and  surgical cases. They therefore need experience with patients requiring  complex care—rather than young, generally healthy adults and children  requiring routine care—to ensure that they are prepared to provide  complex care in the field. Senior Prime illustrated how seniors can  contribute to the skills needed for deployment. MTF officials reported that  enrollees gave medical staff experience with conditions that are relevant  to both wartime and peacetime operations but are not typically seen  among younger patient groups. Although the underlying causes of illness  and injury differed from what would occur on the battlefield, seniors’  needs for complex care, such as vascular and orthopedic surgery and  intensive care, helped prepare staff to treat complex cases while deployed.  Treating seniors also prepared staff for humanitarian missions, on which  they may encounter individuals who are older or who have chronic  conditions.
However, as Senior Prime also demonstrated, providing civilian care can  interfere with an MTF’s efforts to meet its military medical mission. Not all  services provided to civilians contribute directly to providers’  preparedness for deployment. For example, according to officials at one  MTF, under Senior Prime some specialists were providing more routine  care to seniors and seeing fewer of the complex cases important for  training, compared to before the demonstration. In addition, MTFs’  responsibility for primary care influenced the selection of medical staff for  deployments. Several MTFs chose to deploy specialists or others who  were not primary care managers, rather than disrupt primary care teams  and patients. In this way, civilian care posed a constraint for officials in  meeting their primary mission. Finally, increased demands for care among  civilian beneficiary groups have the potential to affect the care of active- duty personnel—the primary population that the military health system is  intended to serve. Although active-duty personnel receive priority for MTF  care, the assignment of MTF appointment slots to civilians can affect how  quickly active-duty personnel get care. During the demonstration,  officials found little evidence that, at its small scale, Senior Prime had led  to a decline in active-duty personnel’s access to care or satisfaction with  care. However, several officials either expressed concern that continued  growth in the program could cause difficulties in the future or noted the  strain resulting from MTFs’ commitment to both active-duty and other  patient groups.
Conversely, the demonstration illustrated ways in which the military  mission complicates civilian care and can increase costs. Medical  personnel absences due to deployments, readiness training, and rotations  complicated MTFs’ efforts to ensure enrollees’ access to and continuity of  care, although the extent varied by site. During the demonstration, MTFs  experienced temporary shortages in personnel important for seniors’ care,  including nursing staff and key specialists. Officials took steps to mitigate  the effect of these absences on patient care, and enrollees had good access  to care overall. However, they were not always able to see the same  provider and at times were referred to civilian providers. Personnel  absences had implications not only for patient care but also for DOD’s  costs, particularly when care had to be purchased from network providers.  These costs could be significant if personnel absences occurred in large  numbers or were extended over a long period.
section_title: Concluding Observations
paragraphs: While the demonstration showed that DOD’s new MTF-based health plans  could attract and satisfy military retirees, it also highlighted challenges  that DOD encountered in doing so. The issues DOD encountered in  launching and implementing Senior Prime leave open the question of  whether the program could have been successfully implemented on a  larger scale. Although DOD has chosen not to continue Senior Prime, the  demonstration offers lessons about managing the care of seniors and other  beneficiary groups.
The challenges revealed by the demonstration relate to DOD’s  management of health care delivery and costs within the broader military  health system:
The high utilization and costs observed during the demonstration  underscore the importance of designing incentives and management  practices within DOD that promote efficient care—that is, the delivery of  appropriate care and improved health outcomes while discouraging  inappropriate utilization and costs.
As the demonstration illustrated, limitations in DOD data and information  systems, as well as weak incentives for greater efficiency, are obstacles to  managing military beneficiaries’ health care use and costs. Data analysis  could help managers target clinical and financial areas needing  improvement.
The demonstration highlighted a strategic issue facing the military health  system: how to reconcile its commitment as an employer to provide care  to the families of active-duty personnel as well as retirees with its  responsibility to provide medical support for military operations.
section_title: Agency Comments
paragraphs: We provided DOD and CMS an opportunity to comment on a draft of this  report, and both agencies provided written comments. DOD said that the  report identified some of the challenges it faced in implementing and  managing the demonstration and that the report appropriately noted  limitations in the generalizability of its findings. DOD commented that one  statement—that difficulties in producing information on retirees’ care  hampered its ability to implement the demonstration’s payment  mechanism—was only partially true and somewhat misleading. DOD  asserted that the Senior Prime databooks were reasonably timely and  reliable and that, once DOD and CMS had agreed on financial policies, the  payment mechanism was implemented without significant difficulties. In  response to our statement that DOD took over 1 year to assemble the data  needed for risk adjustment, DOD emphasized that delays in the risk  adjustment process were largely beyond its control. Regarding our  statement that DOD’s data systems were not well-suited to monitoring  health care costs and utilization, DOD stated that its data systems,  although not capable of providing all data that might be desired,  adequately showed that utilization and costs were high. DOD further  stated that high costs and utilization are more attributable to the benefit  structure, financial incentives for MTFs, high administrative costs, and  MTF practice and capacity issues than to data system weaknesses. Finally,  in response to our statement that limitations in DOD data systems are  obstacles to managing military beneficiaries’ health care use and costs,  DOD stated that, while it is true that MTFs have weak incentives for  greater efficiency, the focus on information systems as a primary cause of  high costs and utilization is misleading. DOD said that data analysis  targeted clinical and financial areas needing improvement early in the  demonstration, but noted that systematically responding to clinical and  financial issues across multiple services and MTFs is still a problem.
As noted earlier, the Senior Prime databooks were a useful source for site  officials in monitoring sites’ performance. However, sites did not start  receiving the databooks until about a year into the demonstration, and lags  affecting the databooks’ information limited their usefulness. Moreover,  frequent changes in reported costs reduced site officials’ confidence in the  data. Regarding the demonstration’s payment mechanism, it required DOD  to collect information on enrollees’ inpatient and outpatient diagnoses  before the risk adjustment process could begin. Assembling the data was  DOD’s responsibility and under its control. We cited the time and effort  required for DOD to assemble the data as an illustration of its broader  difficulties with data and data systems. Concerning DOD’s data and data  systems, although they showed that the demonstration was generating  high costs and utilization, neither the Senior Prime databooks nor the  systems on which they were based permitted the sites to identify cases or  practices that led to high costs. Finally, we do not cite data system  limitations as a primary cause of Senior Prime’s high costs and utilization.  However, as the demonstration showed, DOD’s data limitations are  obstacles to managing patient care and costs.
CMS said that the report was accurate and met its objectives. CMS  provided technical comments, which we incorporated where appropriate.  (DOD’s and CMS’s comments appear in appendixes III and IV,  respectively.)
We are sending copies of this report to the secretaries of defense and  health and human services and the administrator of the Centers for  Medicare and Medicaid Services. We will make copies available to others  upon request.
If you or your staffs have questions about this report, please contact me at (202) 512-7114. Other GAO contacts and staff acknowledgments are listed in appendix V.
section_title: Appendix I: Methodology for Evaluating the Subvention Demonstration
paragraphs: In directing us to evaluate the demonstration, the BBA specified that we  study three broad areas: the demonstration’s effects on beneficiaries, its  costs to DOD and Medicare, and difficulties that DOD encountered in  managing the demonstration. To address these topics, we surveyed  retirees living in the demonstration areas, visited the demonstration sites,  interviewed DOD and HCFA officials, and analyzed administrative data  and reports from both agencies.
subsections: section_title: Survey of Retirees
paragraphs: To determine the demonstration’s appeal to and effect on military retirees,  including why they chose to enroll and their satisfaction with care, we  conducted a two-phase mail survey of about 20,000 retirees living in the  demonstration areas. The survey was sent to Senior Prime enrollees and to  retirees who were eligible for Senior Prime but did not join. We surveyed  retirees at the beginning of the demonstration to collect information on  their health care experiences before Senior Prime. Toward the end of the  initial demonstration period, we resurveyed these retirees to measure  changes from their earlier reports. In this second phase, we also surveyed  those who had joined Senior Prime since the first survey and those who  had become eligible for Senior Prime but had not joined.
section_title: Site Visits and Interviews with DOD and HCFA Officials
paragraphs: To collect information on the demonstration’s implementation and  operation, we interviewed officials and reviewed documents that we  obtained during two rounds of visits to the demonstration sites. We first  visited the sites within 3 months after each had begun operations to assess  their status during the start-up phase and to examine the issues that had  emerged in planning and implementing Senior Prime. We conducted  follow-up visits about 15 months later. This allowed us to observe the sites  at a more mature stage. We examined the demonstration’s status, effects  on beneficiaries and providers, and other key management issues. We also  conducted additional interviews with DOD and HCFA officials.
section_title: Retirees’ Health Care Utilization and Costs to DOD
paragraphs: To evaluate retirees’ health care use and costs under the demonstration,  we conducted several analyses using administrative data from DOD and  HCFA. In analyzing utilization, we compared enrollees’ use of services  with that of Medicare fee-for-service beneficiaries in the same areas,  adjusting for the relative health of the two populations. To determine the  demonstration’s impact on the cost to DOD of caring for military retirees,  we compared average monthly costs for Senior Prime enrollees to the  Senior Prime capitation rates.
section_title: Appendix II: Senior Prime Enrollees’ Previous Medicare Managed Care Plan Enrollment
paragraphs: Senior Prime attracted a substantial number of retirees who had been  enrolled in other Medicare managed care plans just prior to enrolling in  Senior Prime. Overall, about 10,000 seniors left other plans to join Senior  Prime—about 40 percent of all seniors who enrolled in the program in  1998 and 1999. This percentage varied by site, in part due to local  variation in Medicare managed care plan availability. Some sites, such as  San Diego and San Antonio, were located in areas with significant  Medicare managed care presence. Other sites, such as Texoma and  Keesler, were located in areas where retirees generally had few or no  other Medicare managed care options. Table 6 provides site-level  information on Senior Prime enrollees drawn from other plans. In most  cases, plans lost a small number of their members, but one plan lost over  3,400 members—about 4 percent of its members who lived in that  subvention area.
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to those named above, Robin Burke, Martha Wood, Jessica  Farb, Maria Kronenburg, Gail MacColl, Dae Park, Lisa Rogers, and Eric  Wedum contributed to this report.
section_title: Related GAO Products
paragraphs: Medicare Subvention Demonstration: DOD Costs and Medicare  Spending (GAO-02-67, Oct. 31, 2001).
Medicare Subvention Demonstration: Greater Access Improved Enrollee  Satisfaction but Raised DOD Costs (GAO-02-68, Oct. 31, 2001).
Medicare Subvention Demonstration: DOD’s Pilot HMO Appealed to  Seniors, Underscored Management Complexities (GAO-01-671, June 14,  2001).
Defense Health Care: Observations on Proposed Benefit Expansion and  Overcoming TRICARE Obstacles (GAO/T-HEHS/NSIAD-00-129, Mar. 15,  2000).
Medicare Subvention Demonstration: Enrollment in DOD Pilot Reflects  Retiree Experiences and Local Markets (GAO/HEHS-00-35, Jan. 31, 2000).
Defense Health Care: Appointment Timeliness Goals Not Met;  Measurement Tools Need Improvement (GAO/HEHS-99-168, Sept. 30,  1999).
Medicare Subvention Demonstration: DOD Start-up Overcame Obstacles,  Yields Lessons, and Raises Issues (GAO/GGD/HEHS-99-161, Sept. 28,  1999).
Medicare Subvention: Challenges and Opportunities Facing a Possible  VA Demonstration (GAO/T-HEHS/GGD-99-159, July 1, 1999).
Medicare Subvention Demonstration: DOD Data Limitations May  Require Adjustment and Raise Broader Concerns (GAO/HEHS-99-39, May  28, 1999).
Medicare Subvention Demonstration: DOD Experience and Lessons for  Possible VA Demonstration (GAO/T-HEHS/GGD-99-119, May 4, 1999).