Defense Health Care: US Family Health Plan is Duplicative and Should be Eliminated
Published: 2014-07-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD provides health care to about 9.6 million eligible beneficiaries through its TRICARE program. The department contracts with MCSCs to administer TRICARE's benefit options in three regions across the United States. Separately, DOD contracts with six USFHP designated providers to offer TRICARE Prime—the managed care option—to enrollees in certain locations across the country.
Senate Report 112-173, which accompanied a version of the National Defense Authorization Act for Fiscal Year 2013, mandated that GAO review DOD's health care contracts, citing concerns with the growing costs of these contracts, including the USFHP. For this report, GAO examined (1) the role of the USFHP within the MHS, and (2) the extent to which the USFHP affects DOD's health care costs. GAO analyzed information about the USFHP and the MCSCs, reviewed available USFHP cost data, and interviewed officials from DOD, the designated providers, and the MCSCs.
section_title: What GAO Found
paragraphs: The role of the US Family Health Plan (USFHP) within the Department of Defense's (DOD) current military health system (MHS) is duplicative because it offers military beneficiaries the same TRICARE Prime benefit that is offered by the regional TRICARE managed care support contractors (MCSC). The USFHP is an association of six health care providers, referred to as designated providers, which took ownership and control of U.S. Public Health Service hospitals in 1982 when Congress enacted legislation that made these facilities part of DOD's health care system. During the implementation of TRICARE in the 1990s, Congress required the designated providers to offer the TRICARE Prime benefit to their enrollees. While the USFHP is a relatively small program—approximately 134,000 enrollees—there is significant overlap with the MCSCs in several key areas, including benefits, geographic service areas, and provider networks. For example, four of the six USFHP designated providers have more than 80 percent of their service area zip codes included in areas where the MCSCs offer TRICARE Prime. Furthermore, the USFHP remains a distinct statutory program that is not integrated with the rest of the MHS. This limits DOD's ability to increase efficiency by maximizing the use of its direct care system of military treatment facilities (MTF), which USFHP enrollees are generally precluded from using because the USFHP's payment structure is intended to cover all enrollees' health care costs. The role of the USFHP has not been reassessed since TRICARE was implemented in the 1990s. However, DOD officials told us that there is not a function that the USFHP designated providers serve that the MCSCs could not perform. Furthermore, officials from all three MCSCs—which together serve over 4.5 million Prime enrollees—said that they would likely have the capacity and capability to provide TRICARE coverage to all current USFHP enrollees, if needed.
Because the USFHP's role of offering TRICARE Prime is duplicative of the role of the MCSCs, DOD has incurred added costs and inefficiencies. Although DOD would incur health care costs for the USFHP enrollees regardless of with whom they are enrolled, DOD pays administrative costs and profits to two different groups of contractors for providing the same TRICARE Prime benefit to the same population of eligible beneficiaries in many of the same areas. However, outside of the negotiated payment amounts, no one knows the designated providers' actual costs for administering the program since the USFHP contracts are characterized in statute as commercial item contracts. This means that the designated providers are exempt from sharing certified cost or pricing data with DOD, and they have been unwilling to share uncertified cost or pricing data when requested. As a result, DOD does not know how much of the approximately $1.1 billion it pays the USFHP designated providers annually actually goes toward their administrative costs and profit versus the cost of health care services. DOD also incurs other expenses for the USFHP through support contracts, including a $21 million data support contract, and through the management of various aspects of the program. Eliminating this statutorily required program would not only eliminate unnecessary costs and inefficiencies, but would also free up departmental resources that could be better used to manage other aspects of the TRICARE program.
section_title: What GAO Recommends
paragraphs: Congress should terminate DOD's authority to contract with the USFHP designated providers in a manner consistent with a reasonable transition of affected USFHP enrollees into TRICARE's regional managed care program or other health care programs as appropriate. DOD confirmed that GAO's factual determinations about the USFHP are correct and agreed that this program is duplicative and results in unnecessary costs and other inefficiencies. DOD reiterated the importance of carefully transitioning USFHP enrollees to other health plans if the USFHP were eliminated.

section_title: Letter
paragraphs: The Department of Defense (DOD) offered health care coverage to about  9.6 million eligible beneficiaries through TRICARE, its regionally  structured health care program, at a cost of almost $50 billion in fiscal  year 2013. TRICARE consists of a direct care system of military  treatment facilities (MTF) and a purchased care system of civilian health  care providers that is used to augment the direct care system when  needed. For each TRICARE region in the United States, DOD’s Defense  Health Agency, which oversees the program, contracts with private sector  companies—referred to as managed care support contractors (MCSC)— to administer TRICARE’s benefit options, including TRICARE Prime, its  managed care option. Specifically, the MCSCs are responsible for  developing and maintaining civilian provider networks and providing other  services, such as enrollment, specialty care referrals, medical case  management, claims processing, and customer service. Separately, in  certain locations, TRICARE Prime is also offered by the US Family Health  Plan (USFHP), an association of six health care providers—referred to as  designated providers—located throughout the country. The USFHP is a  statutorily required component of the Military Health System (MHS) that  offers the TRICARE Prime option to about 134,000 active duty  dependents and retirees and their dependents at a cost of over $1 billion  in fiscal year 2013. The USFHP was initially incorporated into the MHS in  1982 when Congress enacted legislation transferring ownership of certain  U.S. Public Health Service hospitals to the designated providers. This  arrangement guaranteed the designated providers a stable revenue  source by enabling them to provide care to military beneficiaries in  addition to their private health care business, while also improving  beneficiaries’ access to care in the areas served by the designated  providers. During the implementation of the TRICARE program in the  1990s, Congress required the designated providers to offer the TRICARE  Prime benefit to their enrollees in accordance with the National Defense  Authorization Act (NDAA) for Fiscal Year 1997. Today, the USFHP  remains a health care option required by statute to be available to eligible  beneficiaries in certain locations, despite TRICARE’s national presence  through the MCSCs.
Congressional Budget Office, Long-term Implications of the 2012 Future Years Defense  Program, Pub. No. 4281 (Washington, D.C.: June 2011). These numbers are reported in  nominal dollars and have not been adjusted for inflation. within the current MHS. Senate Report 112-173, which accompanied the  Senate Committee on Armed Services’ version of the NDAA for Fiscal  Year 2013, mandated that GAO conduct a comprehensive review of  DOD’s health care contracts, and identify opportunities for potential  savings and efficiencies. In this report, we examine (1) the role of the  USFHP within the MHS, and (2) the extent to which the USFHP affects  DOD’s health care costs.
We did not assess the department’s compliance with the program’s requirements. groups to obtain their perspective about the USFHP. We did not assess  the quality of the care or benefits offered by either the USFHP designated  providers or the MCSCs.
To examine the extent to which the USFHP affects DOD’s health care  costs, we obtained and reviewed USFHP cost information, including the  costs of the designated provider contracts and other DOD contracts  related to the administration of the program. To better understand the  requirements related to the USFHP’s costs, we reviewed relevant federal  laws and regulations, including laws pertaining to the USFHP and the  Federal Acquisition Regulation (FAR). We interviewed DOD officials and  officials from DOD’s actuarial contractor to obtain information about the  costs of the USFHP and how these costs have changed over time.  Additionally, we asked DOD’s contractor to provide us with a breakdown  of the average capitation payments paid to the designated providers for  fiscal year 2013, which includes amounts that have been allocated to  cover the costs of health care services for USFHP enrollees, as well as  the administrative costs and profit margins for the designated providers.Additionally, we obtained information from DOD officials and its actuarial  contractor about DOD’s annual process for developing its capitation  payment rates for the designated providers, the components of these  payments, and challenges related to determining how much these  payment rates reflect actual health care costs. We obtained information  from DOD’s contractor about the reliability of the data on the capitation  payment rates, and we determined that these data were sufficiently  reliable for the purposes of our report. Finally, we obtained information  about the USFHP acquisition process and DOD’s annual process for  negotiating the designated provider capitation payments to identify  resources related to these efforts.
We conducted this performance audit from March 2013 to July 2014 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.
subsections: section_title: Background
subsections: section_title: Overview of the USFHP
paragraphs: The USFHP is a statutorily required component of the MHS that offers the  TRICARE Prime option to eligible military beneficiaries through 6  designated providers in certain locations across the country. Over the  years, the number of designated providers has dropped from 10 to 6. The  6 USFHP designated providers that currently administer the USFHP are:  (1) Johns Hopkins Medical Services Co., (2) Brighton Marine Health  Center, (3) Martin’s Point Health Care, (4) CHRISTUS Health, (5) Pacific  Medical Centers, and (6) St. Vincents Catholic Medical Centers. (See  appendix I for a comparison of USFHP designated providers in 1994 and  2014.) The reduction in designated providers has largely been due to  provider consolidations. In one case, a designated provider opted to no  longer participate in the program. According to DOD officials, USFHP  enrollees for that designated provider were successfully transitioned to  other health care programs for which they were eligible, including the  TRICARE options administered by the TRICARE MCSC in that region.
Some of the designated providers provide care exclusively to  beneficiaries enrolled in the USFHP, while others also provide health care  services to beneficiaries of other health plans and may have additional  lines of business. (See appendix II for more information on the  characteristics of each of the designated providers.) Each of the  designated providers—and their respective service areas—are located  within one of the three TRICARE regions in the United States. Figure 1  below illustrates the location of the USFHP designated providers relative  to the locations of the three TRICARE regions.
The six designated providers offer TRICARE Prime to eligible  beneficiaries through civilian provider networks in their service areas. To  receive care through the USFHP, eligible beneficiaries must enroll in the  program. All beneficiaries eligible for DOD health care and who are under  the age of 65, except active duty servicemembers, are eligible for USFHP  enrollment.designated providers may elect to enroll in TRICARE Prime with the  USFHP instead of enrolling with the MCSC. As of October 2013,  approximately 134,000 beneficiaries were enrolled in the USFHP—about  3 percent of all TRICARE Prime enrollees. See figure 2 for the total  number of USFHP enrollees as a percent of total TRICARE Prime  enrollees, as also delineated by designated provider.
section_title: The USFHP Duplicates the Role of the MCSCs in offering the TRICARE Prime Option and is not Integrated with the Rest of the MHS
paragraphs: The USFHP’s role within the current MHS is duplicative because it offers  military beneficiaries the same TRICARE Prime benefit that is offered by  the MCSCs across much of the same geographic service areas and  through many of the same providers. Furthermore, the USFHP is not  integrated with the rest of the MHS, and does not support DOD’s efforts  to increase efficiency because it potentially diverts enrollees away from  DOD’s direct care system.
subsections: section_title: The USFHP’s Role within the MHS is Duplicative
paragraphs: The USFHP’s role in offering TRICARE Prime within the context of the  current MHS duplicates the role of the MCSCs in several important  ways. For example, the USFHP designated providers and the MCSCs  both offer the same TRICARE Prime benefit as required by law. DOD  implements this uniform benefit requirement by incorporating the  TRICARE Policy Manual, which includes requirements for administering  the TRICARE Prime option, into its contracts with both the USFHP  designated providers and the TRICARE MCSCs. As a result,  beneficiaries enrolled in TRICARE Prime through either the designated  providers or the MCSCs receive the same benefit and have the same  cost sharing responsibilities.
There is also significant overlap in the geographic service areas in which  the USFHP designated providers and the MCSCs offer TRICARE Prime.  As of October 1, 2013, four of the six USFHP designated providers had  more than 80 percent of their service area zip codes overlapping with the   See table 1 for the percent of USFHP zip  MCSCs’ Prime Service Areas. codes included in areas where the MCSCs also offer TRICARE Prime.
Enrollees in the USFHP must live in specific zip codes that are near one of the six  designated providers.
Prime benefits through the MCSC if the USFHP did not exist.designated providers with a lower degree of overlap—CHRISTUS Health  and Martin’s Point Health Care—are located in areas that have fewer or  no MTFs or Base Realignment and Closure sites. Therefore, while  USFHP enrollees in these two specific areas would not have the same  level of access to TRICARE Prime through the MCSCs, they could still  use other TRICARE options that are available nationwide through the  MCSCs such as TRICARE Standard, or other programs for which they  may be eligible. The MCSCs currently serve over 4.5 million Prime  enrollees—therefore, adding 134,000 USFHP enrollees would not appear  to be a significant burden, according to MCSC officials. All three MCSCs  told us that they would likely have the capacity and capability to provide  TRICARE coverage to all of the current USFHP enrollees, including the  TRICARE Prime option or other options, as appropriate, depending on  the enrollees’ locations. Specifically, if the USFHP did not exist, two of the  three MCSCs could each be responsible for fewer than 6,000 additional  enrollees, and the third MCSC would potentially be responsible for  approximately 79,000 enrollees, if all affected beneficiaries maintained  their TRICARE coverage. However, some affected beneficiaries might  choose to enroll in other health care programs for which they may be  eligible.
We limited our analysis to include only providers with a Doctor of Medicine or Doctor of  Osteopathic Medicine degree. The inclusion of other types of providers, including nurse  practitioners or physician’s assistants, could potentially affect the degree of overlap. encourage all of their providers to participate in both the USFHP and  MCSC networks, while officials from another told us that they encourage  their providers not to participate with the MCSC’s network. In general,  providers are allowed to contract with any organization they choose;  therefore, those currently serving only the USFHP might also choose to  participate in the applicable MCSC’s network.
The duplication and related overlap between the USFHP and the MCSCs’  TRICARE Prime option has been longstanding in part because the  program’s role has not been reassessed since TRICARE was  implemented in the 1990s. Many key features of the USFHP have  remained in place since the enactment of the NDAA for Fiscal Year 1997,  notwithstanding TRICARE’s growth during the intervening years. DOD  officials told us that there is not a function that the USFHP designated  providers serve that the MCSCs could not perform. However, because  the USFHP is statutorily required, DOD does not have the authority to  eliminate it and transition the USFHP enrollees into the regional  TRICARE program managed by the MCSCs or into other programs for  which they may be eligible.
section_title: The USFHP Limits DOD’s Ability to Maximize Use of Its Direct Care System Because it Operates Independently of the Integrated MHS
paragraphs: One of the goals of the MHS is to maximize use of the direct care  system’s MTFs, a goal most recently articulated in DOD’s budget request  for fiscal year 2015. TRICARE’s managed care support contracts are  designed to support this goal by requiring the MCSCs to optimize the use  of the direct care system as part of an integrated MHS. For example,  MCSCs are to first assign Prime enrollees to a Primary Care Manager  located at an MTF until its enrollment capacity has been reached, at  which point, enrollees are assigned to a Primary Care Manager from the  civilian provider network. MCSCs are also required to give their region’s  MTFs the right of first refusal for all specialty care referrals for Prime  enrollees to ensure that, if it has the capability and capacity to administer  the care, the MTF has the opportunity to do so prior to referring them to  the civilian network. In these ways, the MCSCs help promote the efficient  use of DOD’s direct care system by helping the MTFs operate at full  capacity.
DOD is unable to promote the efficient use of DOD’s direct care system  through the USFHP, which operates independently of the integrated MHS  as a distinct statutory program. Unlike Prime beneficiaries enrolled with  the MCSCs, USFHP enrollees are generally precluded from receiving  care at MTFs due to the program’s fixed-price capitation payment  structure that is intended to cover all enrollees’ health care costs. Given  the extent of overlap with the MCSCs’ Prime Service Areas, which are  generally around MTFs, thousands of USFHP enrollees are precluded  from using the direct care system. To limit any additional future impact of  the USFHP on MTFs, DOD has denied designated providers’ requests for  service area expansions. For example, in 2012, a designated provider submitted a request to DOD to expand its existing service area to a  location that also included several MTFs. However, DOD denied this  request, citing duplication with the existing MCSC network and a  potentially higher health care cost per beneficiary to provide care through  the USFHP since its enrollees would not be able to use the local MTFs.
As an exception, a USFHP enrollee may access an MTF for emergency  services, and the designated provider is then contractually responsible for  reimbursing the MTF for that care. In addition, USFHP designated  providers may negotiate Memorandums of Agreement with the MTFs for  the purpose of referring enrollees to them on the condition that the  designated providers would be responsible to the MTFs for the  associated health care costs of any referred beneficiaries. During the  course of our review, however, we found that no Memorandums of  Agreement had been established for this purpose, although one  designated provider told us that it was in the process of negotiating one.
section_title: The USFHP Has a Competitive Advantage over the MCSCs, Potentially Diverting Enrollees Away from the Direct Care System
paragraphs: Certain features of the USFHP give designated providers a competitive  advantage over the MCSCs—one that likely results in increased costs  instead of the lower costs that typically result from competition. For  example, the USFHP designated providers offer certain discounts and  services that go beyond TRICARE’s uniform benefits, such as dental and  vision care discounts. (See appendix III for a description of these  discounts and services.) DOD officials acknowledged that the MCSCs’  Prime enrollees do not receive these discounts and services because  MCSCs are paid on a cost reimbursement basis only for allowable  TRICARE Prime benefits. DOD officials acknowledged that these  discounts and services may not be entirely consistent with TRICARE’s  uniform benefit requirement, but they have not taken issue with this  practice because the USFHP designated providers receive a fixed- capitation payment, and therefore, DOD is not billed separately for any  discounts and services that the designated providers choose to offer.  Although the USFHP designated providers do not bill DOD for these  discounts and services, it is not known how the designated providers  account for these discounts and services in developing their proposed  capitation payments. The USFHP designated providers promote these  discounts and services in their marketing materials, which may lead to  beneficiaries choosing to enroll with the USFHP designated providers  over the MCSCs in areas where both programs are offered.
MTF officials expressed concern that the USFHP diverts beneficiaries  away from the MCSCs and, correspondingly, from the direct care system.  MTFs rely on beneficiaries as a source of education and training  opportunities. MTF officials we spoke with expressed concerns that the  USFHP program detracts from the volume and complexity of cases  needed to maintain a robust graduate medical education and skills  training program. For example, a military service medical official noted  that medical facilities with Magnetic Resonance Imaging capabilities seek  to maximize the use of this equipment and strive to offer their providers  opportunities for related specialty care training while treating enrollees  needing this type of service. However, if the MTF is located near a  USFHP, this official noted that such training opportunities may be more  limited because any USFHP enrollees who need these services would not  obtain them from their local MTF.
In addition, since the USFHP contracts are full-risk capitated  arrangements, the designated providers are not limited to the TRICARE  provider reimbursement rates, and thus have the flexibility to offer their  providers higher rates or other incentives. In contrast, MCSCs’ network  providers must accept TRICARE maximum allowable charges as  payment in full, and these rates are generally based on Medicare rates.  The increased flexibility in setting reimbursement rates may provide the  USFHP designated providers a competitive advantage over the MCSCs  in recruiting providers to their networks. The USFHP designated providers  told us that they exceed the TRICARE provider reimbursement rates on  occasion, depending on their market areas, although some generally use  the TRICARE rates as guidelines. DOD officials told us of an example  where the USFHP designated provider recruited a primary care provider  group, which resulted in the group leaving the MCSC network, and these  officials were concerned that reimbursement rates may have been a  factor in this decision. Consequently, beneficiaries who want to obtain  care from this provider group may choose to enroll with the USFHP  instead of enrolling with the MCSC. By maintaining exclusive  relationships with providers—especially those that are highly desired by  beneficiaries—this designated provider has a competitive advantage over  the MCSC, potentially drawing beneficiaries away from and limiting the  use of the direct care system.
The provision of additional discounts and services to USFHP enrollees or  exclusive provider arrangements may contribute to the USFHP’s high  satisfaction rates, which the designated providers point to as a measure  of the program’s success. While high satisfaction rates may be viewed as  an argument in favor of maintaining the USHFP as a separate program,  doing so comes at the expense of an integrated MHS that optimizes the  use of MTFs.
section_title: The USFHP’s Duplicative Role Results in Added Costs and Inefficiencies for DOD
paragraphs: Because the USFHP’s role of offering TRICARE Prime is duplicative of  the role played by the MCSCs, DOD has incurred added costs by paying  the designated providers to simultaneously administer the same benefit  as the MCSCs. Consequently, due to its duplicative role, managing the  USFHP is also an inefficient use of DOD’s resources.
subsections: section_title: DOD Incurs Added Costs by Paying the Designated Providers to Simultaneously Administer the Same Benefit as the MCSCs
paragraphs: Because the USFHP is a statutorily required component of the MHS,  DOD must pay the USFHP designated providers to administer the same  benefit to the same population of eligible beneficiaries in many of the  same locations as the MCSCs. Although DOD would incur health care  costs for the USFHP enrollees regardless of with whom they are enrolled,  DOD must also pay administrative costs and profits to two different  groups of contractors for providing the same TRICARE Prime benefit.  Currently, administrative costs and profit margins are part of the  negotiated payments for the USFHP contracts. We obtained a breakdown  of the average capitation payments DOD made to the designated  providers for USFHP enrollees for fiscal year 2013, and we estimated that  the administrative costs and profit margins were approximately   $27 million of the total cost of the program for that year (2.4 percent of  $1.1 billion). However, our estimate may not represent the total  administrative costs and profit realized since DOD’s knowledge of the  actual cost components underlying these negotiated payments is  limited.requirement to share certified cost or pricing data, DOD has requested  that they share uncertified cost or pricing data. However, according to  DOD officials, the designated providers have been unwilling to do so  when asked. Thus, DOD does not know how much of the approximately  $1.1 billion it pays the USFHP designated providers annually goes toward  their actual administrative costs and profit versus the cost of health care  services for USFHP enrollees. Furthermore, it is also unknown how the  actual administrative costs and profit of the designated providers compare  to the MCSCs.
Although the designated providers are exempt from any  In 2010, DOD hired a consultant to review its methodology for setting  capitation rates for the designated providers. Overall, the consultant  found that DOD’s process for establishing capitation rates was actuarially  sound and that the rates were generally being set in accordance with  current legislation. Nonetheless, the consultant did report some concerns  with the rates—and thus, the cost-effectiveness of the USFHP—since the  rates may not reflect the designated providers’ actual costs of delivering  health care. More specifically, the consultant stated that the health care  costs used by the designated providers in negotiating the capitation  payment rates do not accurately represent their true cost of providing  benefits under the program and offered several recommendations to  improve the cost-effectiveness of the capitation rate setting process.  Additionally, we found that the program likely provides a significant  source of income for the designated providers as more than half of them  rely heavily on the USFHP for their business. Specifically, USFHP  enrollees comprise 100 percent of the total beneficiaries enrolled in two of  the six designated providers and more than 60 percent for two others.
The costs associated with the USFHP designated provider contracts are  not the only costs DOD incurs for this program. DOD also has a data  support contract that provides information technology support services to  the USFHP designated providers. DOD officials told us that this  contract, which is expected to cost $21 million over 5 years, exclusively  supports the USFHP designated providers and that there is no  comparable contract in place for the MCSCs. Additionally, a portion of  DOD’s TRICARE Help Desk contract supports the USFHP at a cost of  about $272,000 per year, according to DOD officials. If the USFHP did  not exist, DOD would potentially save millions of dollars from duplicative  administrative costs and profits.
section_title: Managing the USFHP is an Inefficient Use of DOD’s Resources
paragraphs: In addition to the costs associated with the USFHP designated providers’  capitation payments and support contracts, DOD must expend resources  managing various aspects of the USFHP. As we have previously  reported, expending resources on unnecessarily duplicative programs is  inherently inefficient and that in most of these situations, there are  opportunities for greater efficiencies or effectiveness by eliminating   For example, DOD officials told us that several  unnecessary duplication.officials are responsible for the overall management of the USFHP, which  includes modifying the contracts and educating designated providers’  staff about program requirements. Additionally, several DOD officials  are responsible for conducting the acquisition process necessary to enter  into contracts with the USFHP designated providers, which involves  acquisition planning, the development of a request for proposals, and the  evaluation of proposals. DOD officials said that the most recent process  lasted approximately 9 months, and as a result, they extended the length  of the USFHP contracts to 10 years in an effort to reduce the  administrative burden associated with it.
DOD is also required to annually negotiate capitation payment amounts  with each of the six USFHP designated providers. DOD officials told us  that the process for negotiating these payments lasts approximately   8 months and includes several steps, such as collecting data from  different sources, developing proposed payments, and negotiating the  final payment amount. There are several participants in these  negotiations from both sides, including a contractor that provides DOD  with actuarial assistance. These annual payment negotiations are not  necessary for the managed care support contracts, which are structured  differently. Eliminating the USFHP would allow DOD to potentially realize  savings, as well as better focus its resources on managing other aspects  of the TRICARE program.
section_title: Conclusions
paragraphs: The USFHP’s role in providing care to eligible military beneficiaries  became duplicative once the nationwide TRICARE program was  implemented in the 1990s. Since the NDAA for Fiscal Year 1997 required  the USFHP to offer TRICARE Prime, there has been no assessment of  the continued relevancy of this program despite the apparent overlap and  duplication with the MCSCs, which has likely resulted in added costs and  inefficiencies for DOD. Compounding this problem is the fact that the  USFHP operates at odds, often in competition, with the rest of the MHS,  which limits DOD’s effort’s to maximize the use of its direct care system of  military hospitals and clinics. Moreover, it is not known how much it costs  to deliver health care under the program, or the extent of administrative  costs and profits that accrue to designated providers, because the  designated providers have not been required to, nor have they chosen to,  share cost or pricing data with DOD.
The existence of a duplicative program that provides the same benefit to  the same group of beneficiaries within many of the same service areas  runs counter to DOD’s current environment of budget constraints and the  department’s need to control rising health care costs. Eliminating this  statutorily required program would not only eliminate unnecessary costs  and inefficiencies but would also free up departmental resources that  could be better used to manage and oversee the TRICARE program.  However, it will be important to transition the 134,000 USFHP enrollees to  other health care programs prior to eliminating the program to ensure the  continuity of their care. According to DOD and MCSC officials, the  MCSCs already have the national coverage, capability, and capacity to  absorb these enrollees, assuming they do not obtain coverage elsewhere.  Given the extent to which the USFHP’s role in offering TRICARE Prime  duplicates and overlaps with the MCSCs, there is no compelling reason to  maintain the USFHP as part of the MHS and incur the added costs and  inefficiencies associated with doing so.
section_title: Matter for Congressional Consideration
paragraphs: To eliminate unnecessary program duplication and to achieve increased  efficiencies and potential savings within the integrated MHS, Congress  should terminate the Secretary of Defense’s authority to contract with the  USFHP designated providers in a manner consistent with a reasonable  transition of affected USFHP enrollees into TRICARE’s regional managed  care program or other health care programs, as appropriate.
section_title: Agency Comments
paragraphs: We provided a copy of this report to DOD for review and comment. DOD  stated that since our recommendation to eliminate the USFHP is  addressed to Congress, it defers to Congress to consider it. DOD also  reiterated our statement that if the USFHP were to be eliminated, it will be  important to make provisions to carefully transition USFHP enrollees to  other health care programs.
In its response, DOD confirmed that our factual determinations about the  USFHP are correct. DOD also provided specific comments on many of  the program characteristics we identified, agreeing that they result in  unnecessary costs and other inefficiencies for the department. In  particular, DOD stated that the USFHP sole source contracts are an  exception to congressional and DOD policy favoring competition in  contracting. DOD also noted that the unnecessary duplication between  the USFHP and MCSCs creates costs for the department, as necessary  care is already provided through the MCSCs and the direct care system  and that DOD is required to expend considerable resources in its annual  negotiations with the designated providers to set capitation payment  rates. DOD also stated that the separate existence of the USFHP is an  exception to the general DOD policy of favoring an integrated MHS to  support readiness and cost-effectiveness. DOD further acknowledged  that the USFHP designated providers are allowed to offer their providers  higher reimbursements and other incentives that draw beneficiaries away  from the more cost effective MCSCs, which DOD characterized as an  exception to congressional and DOD policy favoring a uniform TRICARE  benefit.
DOD’s comments are reprinted in appendix IV. DOD did not provide any  technical comments.
We are sending copies of this report to appropriate congressional  committees; the Secretary of Defense; the Assistant Secretary of Defense  (Health Affairs); and other interested parties. In addition, the report will be  available at no charge on GAO’s website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or at draperd@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 V.
section_title: Appendix I: Past and Current US Family Health Plan (USFHP) Designated Providers
paragraphs: Appendix I: Past and Current US Family Health  Plan (USFHP) Designated Providers 2014  Martin’s Point Health Care  Brighton Marine Health Center  St. Vincents Catholic Medical Centers  Johns Hopkins Medical Services Co.
section_title: Appendix II: US Family Health Plan (USFHP) Designated Provider Characteristics
paragraphs: Total Number of USFHP  Enrollees  41,752  (of which 8,602 are 65+)
Massachusetts, Rhode Island, and northern Connecticut  14,288  (of which 5,497 are 65+)
Maine, New Hampshire, Vermont, upstate and western  New York, and the northern tier of Pennsylvania  41,991  (of which 12,573 are 65+)
Southeast Texas and southwest Louisiana   11,803  (of which 6,596 are 65+)
Puget Sound area of Washington state  13,062  (of which 7,354 are 65+)
New Jersey, New York City, southern New York, western  Connecticut, and southeastern Pennsylvania  11,164  (of which 3,575 are 65+)
section_title: Appendix III: Discounts and Services Offered by Designated Providers in Addition to the TRICARE Prime Benefit as of June 2014
subsections: section_title: Brighton
paragraphs: Services Co.
Discounted vision services can include a free annual eye exam, discounts on glasses and lenses at  select providers, or LASIK vision correction.  Designated providers offer a free annual hearing exam, plus discounts on hearing aids.  Designated providers offer up to four round-trips (eight one-way) to approved covered medical  services.  Services offered at a discount under this category can include nutritional counseling or gym  memberships.  This designated provider offers enrollees a $500 discount on any procedure including anti-aging  procedures, such as face lifts and rhinoplasty and a 15 percent discount on all injectables including  Botox.  Enrollees receive an unspecified discount for all in vitro fertilization and intrauterine insemination  procedures.
section_title: Appendix IV: Comments from the Department of Defense
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Bonnie Anderson, Assistant  Director; Kaitlin Coffey; Christine Davis; Sylvia Jones; Drew Long;  Samantha Poppe; James Rebbe; and William T. Woods made key  contributions to this report.