Defense Health Care: Additional Analysis of Costs and Benefits of Potential Governance Structures Is Needed
Published: 2012-09-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Over the past decade, the cost of the MHS has grown substantially and is projected to reach nearly $95 billion by 2030 according to the Congressional Budget Office. As health care costs consume an increasingly large portion of the defense budget, current DOD leadership and Congress have recognized the need to better control these costs. Section 716 of the National Defense Authorization Act for Fiscal Year 2012 required DOD to submit a report analyzing potential MHS governance options under consideration, and also required GAO to submit an analysis of these options. In response to this mandate, GAO determined the extent to which DOD's assessment provides complete information on cost implications and the strengths and weaknesses of potential MHS governance options. To conduct this review, GAO analyzed DOD's governance report along with supporting documents, and interviewed Task Force members.
section_title: What GAO Found
paragraphs: The Department of Defense's (DOD) assessment of potential governance options for its Military Health System (MHS) did not provide complete information on the options' total cost impact and their strengths and weaknesses. As part of DOD's assessment, it identified 13 potential governance options for the MHS and included a limited analysis of the options' estimated costs savings and their strengths and weaknesses. All of the options would create a shared services concept to consolidate common services, such as medical logistics, acquisition, and facility planning, under the control of a single entity. DOD selected an option that would create a defense health agency to, among other things, assume the responsibility for creating and managing shared services, and leave the longstanding military chain of command intact with the services in control of the military hospitals. The National Defense Authorization Act (Act) for Fiscal Year 2012 required DOD to submit a report to congressional committees that would, among other things, estimate the cost savings and analyze the strengths and weaknesses of each option. Using key principles derived from federal guidance, including cost estimating and economic analysis documents, GAO determined that DOD could have provided more information on cost implications and strengths and weaknesses in its report to Congress. Specifically, DOD did not (1) estimate implementation costs and comprehensive cost savings; (2) include a business case to support consolidating common services; or (3) include supporting quantitative data in its analysis of the options' strengths and weaknesses.
DOD's cost analysis for its potential MHS governance options was limited In that it did not include implementation costs and only estimated personnel costs savings based on some potentially flawed assumptions, such as not using representative salaries to estimate personnel savings.
DOD did not develop a business case analysis and an implementation strategy for its proposed shared services concept. A business case analysis would, among other things, define the services to be consolidated, cost to implement and efficiencies to be achieved and could support DOD's assertion that implementing shared services could achieve efficiencies. DOD approved a shared services concept two other times since 2006, but it has yet to develop a business case analysis that would provide a data-driven rationale for implementing the concept.
DOD used a qualitative process with input from internal experts to assess the strengths and weaknesses of the potential governance structures. However, it did not balance this support with quantitative data as its criteria for assessing the strengths and weaknesses specified. DOD officials stated that they did not provide comprehensive cost estimates or quantitative analysis of the options because an internal 90-day deadline to report back to the Deputy Secretary of Defense did not allow enough time. However, the act requiring DOD to report to Congress was enacted subsequent to DOD's own internal assessment and did not establish a specific deadline. As a result, DOD could have taken time to conduct a more comprehensive analysis before submitting its report.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD develop (1) a comprehensive cost analysis for its potential MHS governance options, (2) a business case analysis and strategy for implementing its shared services concept, and (3) more complete analyses of the options' strengths and weaknesses. DOD concurred with developing a business case analysis for its shared services concept. DOD did not concur with the other 2 recommendations, stating that further analysis would not alter its conclusions. GAO disagrees and believes that more comprehensive analysis will help to distinguish the differences among the costs and benefits of the options.

section_title: Letter
paragraphs: Over the past decade, the cost of the Department of Defense’s (DOD)  Military Health System (MHS) has grown substantially. DOD’s fiscal year  2013 budget request for health care is almost $50 billion, and is  projected to reach about $95 billion by 2030. Historical growth rates in  the MHS have been significantly higher than the corresponding rates in  the national economy. For example, from 2006 to 2011, DOD  experienced annual growth rates of 6.2 percent for purchased care and  contracts and 5.2 percent for direct care and administration, compared  with a national rate of 3.3 percent. As health care consumes an  increasingly larger portion of the defense budget, DOD leadership  recognizes the need to reduce duplication, overhead, and operate the  most efficient health system possible. Under the current structure, the  responsibilities and authorities for the management of the MHS and the  medical services it provides to over 9.7 million beneficiaries are  distributed among several organizations. Several past DOD studies have  suggested that realigning the MHS governance structure could help  control the increase in health care costs.
Congressional leaders also have raised questions regarding rising military  health costs and the MHS governance structure. For example, the House  Armed Services Committee’s Print accompanying the Ike Skelton  National Defense Authorization Act for Fiscal Year 2011 noted that DOD had not yet developed a comprehensive plan to enhance quality,  efficiencies, and savings in the MHS, and it encouraged the Secretary of  Defense to evaluate the potential operational, organizational, and  financial benefits of a unified medical command. For the past 6 decades,  DOD and Congress have undertaken many studies to attempt to  determine the governance structure of the MHS, with many of these  studies recommending major organizational realignments. However, for  several years, GAO has highlighted a range of long-standing issues  surrounding the MHS and its efforts to reorganize its governance  structure. In 2005, we identified DOD’s health care system as an example  of a key challenge facing the U.S. government in the 21st century and an  area in which DOD could improve delivery of services by combining,  realigning, or otherwise changing selected support functions to achieve  economies of scale. Additionally, in our March 2011 report on  opportunities to reduce potential duplication in government programs, we  noted that realigning DOD’s military medical command structures and  consolidating common functions could increase efficiencies and  significantly reduce costs.
In June 2011, the Deputy Secretary of Defense established a Task Force  to review various options for changes to the overall governance structure  of the MHS and of its multi-service medical markets and to provide a  report back within 90 days. The Task Force submitted a report to the  Deputy Secretary of Defense in September of 2011. Further, the National  Defense Authorization Act for Fiscal Year 2012 required DOD to submit a  report to the congressional defense committees to include a description of  the alternative MHS governance structures developed and considered by  the Task Force; the goals to be achieved by restructuring or  reorganization and the principles upon which the goals are based; a  description of how each option would affect readiness, quality of care,  and beneficiary satisfaction; an explanation of the costs of each potential  option considered; an analysis of the strengths and weaknesses of each  option; and an estimate of the cost savings, if any, to be achieved by  each option compared to the MHS in place on December 31, 2011. No  deadline for DOD’s report was included in the statutory language.  Additionally, we were required to submit a subsequent report to the  congressional defense committees within 180 days from the date DOD  issued its report (March 2, 2012) reviewing, among other things, the cost  implications and strengths and weaknesses of DOD’s potential  governance structures. In response to this mandate, we determined the  extent to which (1) DOD’s preferred governance option, and the other  options presented in its report, change the current structure of the MHS;  (2) DOD developed a cost analysis of its potential MHS governance  options; and (3) DOD’s assessment of the strengths and weaknesses of  its potential governance options is well supported and data-driven.
We reviewed numerous federal guidance documents related to cost estimating,  accounting standards, economic analysis, and budgeting and identified key principles that  we believe can be applied to the evaluation of cost savings estimates. The guidance  documents we reviewed include: GAO Cost Estimating and Assessment Guide,  GAO-09-3SP (Washington, D.C.: Mar. 2, 2009); Office of Management and Budget  Circular No. A-11, Preparation, Submission and Execution of the Budget (Aug. 2011,  superseded by an August 2012 issuance); Federal Accounting Standards Advisory Board,  Statement of Federal Financial Accounting Standards 4 (June 2011); Department of  Defense Instruction 7041.3, Economic Analysis for Decisionmaking (Nov. 7, 1995); and  Department of Defense Financial Management Regulation 7000.14-R, Volume 4, Chapter  22, Cost Finding (May 2010). Although each of these documents may not apply to these  circumstances as a legal matter, we believe that they collectively contain broad themes  that can be applied to evaluating cost analyses. their analysis, and identified broad cost categories that should be  considered in the course of implementing DOD’s governance  transformation. We were unable to rely on DOD’s cost savings estimates  because the estimates and their supporting data were insufficient in the  key data elements needed to completely and accurately develop them as  discussed in the findings section of this report. Finally, to determine the  extent to which DOD’s assessment of the strengths and weaknesses of  its potential governance options is well-supported and data driven, we  obtained and reviewed the Task Force’s supporting documents including  meeting minutes, briefing slides, and the voting template for the criteria  and process used to formulate the strengths and weaknesses of the  options. We also interviewed Task Force officials regarding their  involvement in the process and how they formulated their assessments.  For each of our objectives, we limited our review to the potential overall  governance structures that the Task Force presented in its report. We did  not specifically review the proposed changes to DOD’s multi-service  medical markets or to the governance structure in place within the  National Capital Region as presented in the Task Force report because  we determined these proposed changes were outside the scope of our  mandate. We conducted this performance audit from March 2012 through  September 2012 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives. For details on our  scope and methodology, see appendix I.
subsections: section_title: Background
paragraphs: The MHS is a complex organization that provides health services to its  beneficiaries across a range of care venues, from the battlefield to  traditional hospitals and clinics at stationary locations. The current  management of this large health system is spread over several  organizations in order to meet its two-fold mission of ensuring  servicemember readiness and delivering beneficiary care. Over the years  many studies have been conducted to assess potential changes to the  governance structure of the MHS.
subsections: section_title: Current Governance Structure of DOD’s Military Health System
paragraphs: DOD operates its own large, complex health system that employs almost  140,000 military, civilian, and contract personnel who work in medical  facilities throughout the world to provide health care to approximately 9.7  million beneficiaries. Operationally, the MHS has two missions:  supporting wartime and other deployments, known as the readiness  mission, and providing peacetime care, known as the benefits mission.  The readiness mission provides medical services and support to the  armed forces during military operations, including deploying medical  personnel and equipment throughout the world, and ensures the medical  readiness of troops prior to deployment. The benefits mission provides  medical services and support to members of the armed forces, retirees,  and their dependents. Beneficiaries fall into several different categories:  (1) active duty servicemembers and their dependents, (2) eligible National  Guard and Reserve servicemembers and their dependents, and (3)  retirees and their dependents or survivors. As of May 2012, active duty  servicemembers and their dependents represented 36.7 percent of the  beneficiary population, eligible National Guard and Reserve  servicemembers and their dependents represented 9.5 percent, and  retirees and their dependents or survivors made up the remaining 53.8  percent. See figure 1.
Reporting to the Under Secretary of Defense (Personnel and Readiness),  the Assistant Secretary of Defense (Health Affairs) is the principal advisor  for all DOD health policies, programs, and force health protection  activities. The Assistant Secretary of Defense (Health Affairs) issues  policies, procedures, and standards that govern management of DOD  medical programs and has the authority to issue DOD instructions,  publications, and directive-type memorandums that implement policy  approved by the Secretary of Defense or the Under Secretary of Defense  (Personnel and Readiness). As the Director of the TRICARE  Management Activity, the Assistant Secretary of Defense (Health Affairs)  is also responsible for awarding, administering, and overseeing  approximately $24.4 billion in fiscal year 2012 funding for DOD’s  purchased care network of private sector civilian primary and specialty  care providers. Additionally, the Assistant Secretary of Defense (Health  Affairs) integrates the military departments’ budget submissions into a  unified medical budget that provides resources for MHS operations;  however, the military services have direct command and control of the  military hospitals and their medical personnel. See figure 2 for the current  organizational structure of the MHS.
The care of the eligible beneficiary population is also spread across the  Army, the Navy, and the Air Force, which deliver care at 56 inpatient  facilities and hundreds of clinics. Both the Army and the Navy have  medical commands headed by surgeons general. The Army’s portion of  the fiscal year 2012 Unified Medical Budget’s funding is approximately  $11.8 billion, and it manages 24 of the 56 inpatient facilities. Additionally,  the Navy’s portion of the fiscal year 2012 Unified Medical Budget funding  was approximately $6.4 billion. It manages 19 of the 56 inpatient facilities  and provides medical support to the Marine Corps. Additionally, the Air  Force’s portion of the fiscal year 2012 Unified Medical Budget’s funding is  approximately $6.6 billion, and it manages 13 of the 56 inpatient clinics.  The Air Force Surgeon General serves as medical advisor to the Air  Force Chief of Staff and as functional manager of the Air Force Medical  Service. Air Force hospitals and their personnel do not report to the Air  Force Surgeon General, but directly to local line commanders. Each  military department also recruits, trains, and funds its own medical  personnel to administer the medical programs and provide medical  services to beneficiaries.
Specifically for the management of Military Treatment Facilities within the  National Capital Region and the execution of related Base Realignment  and Closure (BRAC) actions in that area, an additional medical  organizational structure and reporting chain was established in 2007.  This structure is known as the Joint Task Force National Capital Region  Medical, and its Commander reports to the Secretary of Defense through  the Deputy Secretary of Defense. The two inpatient medical facilities in  the area, Walter Reed National Military Medical Center and Fort Belvoir  Community Hospital, were directed by the Deputy Secretary of Defense in  January 2009 to become joint commands.
section_title: Studies of Governance Structures for DOD’s Military Health System
paragraphs: “The Joint Chiefs of Staff recommend unanimously that the Secretary of Defense  immediately institute studies and measures intended to produce, for the support of the  three fighting services, a completely unified and amalgamated (single) Medical Service.”
As noted in DOD’s 2011 Task Force report, a long series of studies have  addressed the issue of DOD’s health care organization. Performed by  both internal and external boards, commissions, task forces, and other  entities, a number of these studies have recommended dramatic changes  in the organizational structure of military medicine. See figure 3 for a  timeline of MHS governance studies.
Although many of these studies favored a unified system or a stronger  central authority to improve coordination among the services, major  organizational change has historically been resisted by the military  services in favor of the retention of their respective independent health  care systems. In 1995, we reported that interservice rivalries and  conflicting responsibilities, hindered improvement efforts, and noted that  the services’ resistance to changing the way military medicine is  organized is based primarily on the grounds that each service has unique  medical activities and requirements.
section_title: Overview of DOD’s 2011 Task Force and Its Potential Governance Options
paragraphs: In June 2011, with the pending completion of the consolidation of medical  facilities and functions in the National Capital Region undertaken by DOD  in response to 2005 BRAC Commission recommendations, the Deputy  Secretary of Defense recognized that a final decision concerning the  governance of military health care in the capital region needed to be  made. This need for a decision provided an opportunity to address the  desired end-state governance structure of the entire MHS. Furthermore,  in light of the considerable, long-term fiscal challenges the nation faces,  and the 2010 comprehensive review established by the then-Secretary of  Defense to inform future decisions about spending on national security,  the Deputy Secretary of Defense wrote that it was important to ensure  that MHS was organized in a way that curtails expenses and achieves  savings to the greatest extent possible in meeting its mission.
As a result, in June of 2011, the Deputy Secretary of Defense established  an internal task force to conduct a review of the current governance  structure of the MHS. The Task Force was directed to evaluate options  for the long-term governance of the MHS as a whole and for the  governance of multi-service medical markets, to include the National  Capital Region and to provide a report within 90 days detailing the relative  strengths and weaknesses of each option evaluated as well as  recommendations. The Deputy Secretary of Defense designated the co- chairs of the Task Force as the Deputy Assistant Secretary of Defense  (Force Health Protection and Readiness) and the Joint Staff Surgeon.  The Task Force also contained representatives from the military  services, the Joint Chiefs of Staff, the DOD Comptroller, the Cost  Assessment and Program Evaluation Office, and the Under Secretary of  Defense (Personnel and Readiness). In addition to this membership, the  co-chairs included representatives from the Office of the Deputy  Secretary of Defense, the DOD Office of General Counsel, Legislative  Affairs, and Administration and Management as advisors to the Task  Force.
Potential Governance Structures—DOD’s report, submitted to the Deputy  Secretary of Defense in September of 2011 and later to Congress in  response to section 716 of the National Defense Authorization Act for  Fiscal Year 2012, presented 13 potential governance structures for the  overall MHS, with other options for governance of multi-service medical  markets and the National Capital Region. The potential options were  variations of the following three governance structures:
The defense health agency governance structures would create a  combat support agency led by a 3-star flag officer (Lieutenant General  or Vice Admiral) who would report to the Assistant Secretary of  Defense (Health Affairs). This agency would be focused on  consolidating and delivering a set of shared health care support  services. DOD presented variations of a defense health agency which  would (1) leave management of the Military Treatment Facilities with  the military services, (2) place the management of the Military  Treatment Facilities under the control of the defense health agency, or  (3) create hybrid structures by pairing the agency with other options  such as a unified medical command.
The unified medical command governance structures would create  a unified functional combatant command led by a 4-star flag officer  (General or Admiral) who would report to the Secretary of Defense.  The command would exercise direction and control over the entire  MHS but would do so either through (1) service components, (2)  geographic regions, (3) a subordinate health care command, or (4)  various hybrid governance structures pairing the unified medical  command with other options such as a designated single service  structure.
Finally, the single service governance structures would place overall  control of the MHS under one designated military department  Secretary, who would report to the Secretary of Defense. However,  each of the services would continue to organize, train, and equip their  respective forces. The Military Treatment Facilities report to the  designated military department Secretary through a variety of local  and regional commands combinations.
See appendix II for a more detailed description of DOD’s potential  governance options.
Task Force Voting Process—Through the course of 20 formal meetings,  the Task Force members evaluated 13 potential overall governance  structures by first establishing criteria for evaluation and developing a  system to weight the criteria to reflect their relative importance. After  formulating criteria, the Task Force discussed each potential governance  structure in detail. Following discussion, the individual Task Force  members voted on the governance structures by scoring them according  to the criteria. The member score was then adjusted by the weights  established by the Task Force, and the governance structures were  ranked according to the final, weighted score. The Task Force held five  voting rounds on the governance options throughout the 90 days allotted  to the review process (rather than holding a single vote at the end of the  review). Using this method, the Task Force evaluated the potential  structures in “head-to-head” voting rounds, until the governance option  that the Task Force believed was the highest ranking was determined.
Task Force Results—The Task Force provided the Deputy Secretary of  Defense with a report and a recommendation as to which course of action  to follow for changing the governance structure of the overall MHS, the  multi-service medical markets, and specifically, the National Capital  Region. For the overall MHS, the Task Force’s recommendation was to  pursue the formation of a defense health agency which would consolidate  common shared services in support of the three military departments  and to leave the medical components of the military departments as they  are currently. The rationale for this action, according to the Task Force  report, would allow DOD to create shared services, common business  and clinical practices under one leader without large-scale changes to the  MHS at this time. According to the Task Force report, pursuing this  preferred option would not preclude subsequent decisions by the  Department to implement more sweeping changes in the future and was  considered an appropriate incremental next step to improving MHS  governance and providing a structure to rein in healthcare costs.
section_title: DOD’s Preferred Option Generally Retains Command Structures and Includes a Shared Service Concept
paragraphs: DOD’s preferred option would create a defense health agency that would  assume the responsibility for shared services in the MHS with military  hospitals remaining under the control of the services while other potential  options represent larger scale changes. In addition, DOD’s preferred  option would include implementing a shared services concept, which was  common to all of its governance options; however, DOD did not develop a  business case analysis that would provide a data-driven rationale for  implementing the concept.
subsections: section_title: DOD’s Preferred Option Creates a New Agency but Maintains Established Military Chains of Command
paragraphs: DOD’s preferred option creates a defense health agency that would  report to the Assistant Secretary of Defense (Health Affairs) and would  consolidate and deliver shared services in the MHS while services would  maintain control of their military hospitals. DOD presented a wide range of  governance structures in its report, such as creating another unified  functional combatant command or establishing a single service in charge  of all medical operations. However, DOD’s preferred option does not  require complex changes in long-established military chains of command  like some other structures would. As discussed earlier, currently the  Army, the Navy, and the Air Force manage their own personnel,  hospitals, and medical operations. The Assistant Secretary of Defense  (Health Affairs) exercises authority, direction, and control over the policies  and resources of the MHS, but does not have command and control over  the military hospitals or over the respective military departments’ medical  personnel. Over the years, DOD has shifted certain responsibilities and  authorities among various MHS officials, as seen in the establishment of  the Assistant Secretary of Defense (Health Affairs) authority over the  Defense Health Program in 1991 and the TRICARE Management Activity  in 1998, both of which remain part of the current MHS. In 1991, the  Defense Health Program was established as the result of a study of  governance options for the MHS to address concerns about recurring  funding crises and concerns over the inconsistent distribution of health  care services and benefits among the different military departments. In  1992, Department of Defense Directive 5136.1 assigned responsibility for  the program to the Assistant Secretary of Defense (Health Affairs). Later,  the TRICARE Management Activity was created to reduce duplication  within management of the MHS and transfer the direct management of  several functions away from the Assistant Secretary of Defense (Health  Affairs) to allow that position to concentrate on major policy and Defense  Health Program related issues and initiatives. Together, all of these  entities and their responsibilities have evolved into the current MHS  governance structure.
The Task Force reviewed multiple versions of three basic governance  structures—defense health agency, unified medical command, and single  service. The options’ primary differences from the current structure of the  MHS occur mainly in three particular areas of roles and responsibilities— overall control, budgetary authority, and control of personnel. DOD’s  preferred governance option is a defense health agency with military  hospitals remaining under the control of the military services. The unified  medical command options would assign the services’ medical assets to a  functional combatant command. Lastly, the single service options would  assign these assets to a single military service. Figure 4 summarizes  variations of these three structures and the current structure as it has  evolved over the years, while figure 5 presents a number of hybrid  models also considered by the Task Force, such as an option which  includes a unified medical command sharing responsibilities with a  defense health agency.
Overall control – determines policy making authority, dispute  resolution, and lines of accountability. Under the current MHS  structure, the Assistant Secretary of Defense (Health Affairs)  exercises authority, direction, and control of policy and resources, but  DOD noted that in practice, this structure fails to take advantage of  consensus opportunities to more rapidly implement common business  processes. DOD’s preferred option of a defense health agency with  military hospitals remaining under the control of the services would  establish a military-led combat support agency organized under the  Assistant Secretary of Defense (Health Affairs) that would have  authority, direction, and control of shared services, health plan  management, other strategic areas, while another version of this  option would assign the proposed defense health agency control of  military hospitals. The unified medical command options would place  authority, direction, and control of the MHS with a functional  combatant commander, along with direct responsibility for execution  of health care services. This option would mark a departure from the  current separation of these responsibilities among the three military  services. The single-service options would assign responsibility for the  MHS as a whole to a designated military service Secretary who would  also command all military hospitals— a departure from the current  arrangement of split responsibility between the Assistant Secretary of  Defense (Health Affairs) and the military departments. Under all  options, the Assistant Secretary of Defense (Health Affairs) would  retain a policy-making role.
Budgetary authority – determines the organizational entity or entities  with responsibility over the Defense Health Program appropriation. In  2007, the Defense Health Board stated in its report, Task Force on  the Future of Military Health Care, that the MHS does not function  as a fully integrated health care system and this lack of integration  diffuses accountability for fiscal management and results in  misalignment of incentives. The current governance structure vests  overall budgetary authority with the Assistant Secretary of Defense  (Health Affairs), who allocates funds to the services to execute their  respective budgets. The Assistant Secretary of Defense (Health  Affairs) does not have command and control over the military  hospitals or over the respective military departments’ medical  personnel. DOD’s preferred option of a defense health agency with  military hospitals remaining under the control of the services would  not alter this aspect of the current governance structure. An  alternative potential option of a defense health agency with the  military hospitals under the agency’s control would assume direct  control of the Defense Health Program appropriation. Like the latter  option, the unified medical command options would consolidate  budgetary authority with a single official, a functional combatant  commander, along with direct responsibility for the execution of health  care, and would mark a departure from the current separation of these  responsibilities. Similarly, the single-service options would streamline  budgetary authority by vesting all such authority with a designated  military service Secretary.
Personnel control – determines which entity has management and  supervisory responsibility over the personnel working within the MHS.  Historically, military services have exercised command and control  over their own medical personnel, and Task Force members told us  that control over the medical personnel was a sensitive issue in their  discussions. DOD’s preferred option of a defense health agency with  military hospitals remaining under the control of the services would  allow the services to maintain control over their own personnel. An  alternative potential option of a defense health agency with the  military hospitals under the agency’s control would allow the agency  to take control of personnel not assigned to deployable units. The  unified medical command options vary on the level of authorities  retained over personnel, as some options assign control of all forces  to the unified medical command, and others assign control of only  some personnel to the unified medical command. The single service  options provide some level of control of all personnel to the  designated single military service in charge of the MHS, with  variations of this option related to the assignment of the deployable  medical personnel assigned to their respective military services.
DOD’s potential governance options would have different effects on multi- service medical market governance, which is the management of medical  care in a geographic area where more than one service operates Military  Treatment Facilities through a common business plan and coordination of  resources. For example, a single service option would make such  coordination unnecessary, while it still might be required under a unified  medical command. In its report, DOD cites the main weakness of the  current governance of multi-service markets as the failure to fully  leverage the medical capabilities across service boundaries in a given  market to achieve efficiencies. According to DOD officials, DOD’s  preferred option of a defense health agency would allow the department  to implement an enhanced management structure for the multi-service  medical markets that would drive such efficiencies while avoiding  complex changes to long-established military chains of command.  According to DOD’s report, the authorities of the multi-service market  managers would be expanded to include responsibility for developing a 5- year business plan, budgetary authority for the entire medical market, and  the authority to direct personnel to work in other locations within the  market on a short-term basis, among other authorities. However, DOD’s  current effort is not its first attempt at improving multi-service medical  market governance. As its report notes, DOD has experimented with  different approaches to multi-service medical markets over the past 25  years, including the 2003 establishment of Senior Market Managers  responsible for coordinating the development of a single business plan for  all Military Treatment Facilities in each such market. In 2006, the Deputy  Secretary of Defense approved the implementation of an alternative to  wholesale changes in the structure of the MHS, which included seven  targeted governance initiatives. Among other things, the initiatives  included the establishment of governance structures for two multi-service  medical markets, San Antonio and the National Capital Region, as well as  the creation of governance structures that consolidate command and  control of military treatment facilities in other multi-service medical  markets. As we reported in 2012, DOD established these structures in  San Antonio and the National Capital Region, but had made no changes  to the governance structures of other multi-service markets. Several  senior DOD officials noted that while they recognize there are efficiencies  to be gained in multi-service markets, they expressed reservations  concerning the details of DOD’s plans for reforming such markets. One  senior DOD official highlighted challenges that may arise in their  operation, such as the control of medical personnel to support  deployments and other missions and coordination of market business  plans with the services’ priorities.
section_title: DOD Did Not Present a Business Case Analysis for Its Shared Services Concept
paragraphs: DOD did not present a business case analysis for proceeding with its  shared services concept common to all of the proposed governance  structures, including an estimate of costs to merge shared services  functions, operational savings to be accrued, or the likely timeframe in  which this service consolidation would achieve savings. As we have  previously reported, a business-case analysis can provide a data-driven  rationale for why an agency is undertaking a consolidation initiative, such  as a shared services concept since consolidation is beneficial in some  situations and not in others, and so a case-by-case analysis is  necessary. DOD has twice proposed this shared services concept in the  past, which would consolidate areas such as information technology,  contracting, and public health under one entity. DOD first proposed  implementation of a shared services concept in 2006 as part of a series of  seven different incremental governance initiatives adopted as an  alternative to wholesale changes in the structure of the MHS. Specifically,  implementation of the initiative would have created a Joint Military Health  Service Directorate under a joint senior flag officer reporting to the  Assistant Secretary of Defense (Health Affairs), a structure not unlike  DOD’s preferred option of a Defense Health Agency for its current review  of MHS governance. At the time, we recommended that DOD needed to  demonstrate a sound business case, including an analysis of benefits,  costs, and risks, for proceeding with its seven initiatives, and DOD  concurred with our recommendation. Further, we later reported that  DOD had not developed such estimates, and the Assistant Secretary of  Defense (Health Affairs) had not provided guidance on how and when to  complete these initiatives. In 2012, we also reported that in the prior  calendar year, DOD approved a plan to reorganize the TRICARE  Management Activity and establish a shared services division with a new  Military Health System Support Activity as part of the former Secretary of  Defense’s effort to increase efficiencies and reduce costs with the  department. As a result of this effort, DOD reduced the fiscal year 2012  Defense Health Program budget request anticipating the establishment of  the Military Health System Support Activity, but the initiative was put on  hold pending the results of the Task Force report.
In addition to a data-driven analysis, our body of work on organizational  mergers, acquisitions, and other transformations has shown that agencies  should apply essential change management practices such as active,  engaged leadership of top leaders and a dedicated implementation team  to ensure the continued attention needed for a transformation to be  sustained and successful, among others. the implementation of its 2006 governance initiatives, including efforts to  establish a shared services directorate, DOD did not establish an  effective and ongoing communication strategy, did not establish a  dedicated implementation team, and top leadership did not provide the  sustained direction needed to maintain progress. Moreover, we also  have previously reported on the challenges that other federal agencies  have faced in attempting to specifically implement shared services. For  example, in December 2005, the Department of Homeland Security  (DHS) halted its eMerge program, which was expected to integrate  financial management systems across the entire department and address  financial management weaknesses, after DHS had spent about $52  million, according to officials. We noted our concern that moving  forward, DHS did not have a fully developed financial management  strategy and plan for the integration of its financial management systems  and shared services, such as information technology hosting, business  process services, and application management services.
GAO, Highlights of a GAO Forum: Mergers and Transformation: Lessons Learned for a  Department of Homeland Security and Other Federal Agencies, GAO-03-293SP  (Washington, D.C.: Nov. 14, 2002). this concept, it did not estimate potential savings from consolidating  common services. According to DOD officials, DOD’s preferred option of  a defense health agency is a significant change for the MHS because it  would allow the department to implement shared services in order to drive  the adoption of common business and clinical practices and achieve  efficiencies while not requiring complex changes to long-established  military chains of command. However, under the current governance  structure, the Assistant Secretary of Defense (Health Affairs) has the  broad authority that could allow for the implementation of shared support  services across the MHS. As noted above, DOD has developed  proposals to exercise such authority in the past, but such proposals have  never been implemented. Further, DOD has not developed a business  case analysis for its shared services concept since it was first proposed in  2006. Until DOD develops a more detailed business case analysis, it  lacks a data-driven rationale and a strategy for proceeding with the  implementation of this concept.
section_title: DOD’s Cost Analysis of Its Potential MHS Governance Options Was Limited
paragraphs: CNA Center for Naval Analyses, Cost Implications of a Unified Medical Command,  2006.
National Capital Region, the study provides several categories for  potential savings beyond headquarters personnel. For example,  health care operations savings could be accrued through  administrative consolidation between large medical facilities which  perform responsibilities on behalf of smaller clinics in the same  geographic area. CNA reported that by bridging current service  administrative boundaries which require the smaller clinics to report to  larger facilities of the same service, potential savings could be  accrued by designating a single facility in a geographic area to  perform technical, legal, and administrative functions on behalf of all  nearby clinics, regardless of service affiliation. In addition, governance  reorganization may provide an opportunity to reduce infrastructure  costs, and as the CNA report notes, the timeline for realizing cost  savings could influence the amount of possible short- and long-term  savings. The difference in the areas of cost savings considered and  methodological approaches could explain the varying results of CNA  and DOD’s analyses. For example, DOD estimated a net cost  increase for a unified medical command option, while CNA estimated  a net cost savings for the same option in its 2006 study. As noted  earlier, although DOD’s preferred option assumes that DOD would  achieve some personnel efficiencies due to greater use of shared  services, DOD did not estimate the operational savings it expects,  such as savings from consolidated contracts.
DOD used several potentially flawed assumptions in estimating  headquarters personnel savings. DOD used several potentially flawed  assumptions in estimating its headquarters personnel savings, and  therefore it cannot be assured that DOD’s methods to estimate such  savings produced reliable results. First, DOD estimated the size of a  unified medical command by using Joint Task Force National Capital  Region Medical (JTF CapMed) headquarters as an example of a  unified medical command on a small scale. DOD estimated that given  this command performs 10 percent of MHS operations with 150  personnel, a unified medical command would require a minimum of  1,500 personnel. However, DOD did not present evidence that 150  personnel is the most efficient number of staff for JTF CapMed, and  the assumption concerning the relationship between the number of  staff at JTF CapMed and a unified medical command is questionable  because economies of scale could create efficiencies, therefore  requiring fewer personnel. Moreover, the report assumes such  economies of scale in its estimate of personnel savings from shared  services functions. Second, DOD used the services’ execution of the  Defense Health Program’s Operations and Maintenance budget to  determine the most efficient staffing requirements for service support  and regional commands. While these commands currently execute  only their respective services’ portion of the budget, DOD estimated  the number of full-time equivalents each of these commands would  require if charged with executing the entire budget. However, in its  report, DOD undermines the credibility of this method by citing  numerous weaknesses, and characterized this approach as “not a  credible predictor of staffing requirements.” Third, DOD determined  the cost of the potential options’ personnel requirements by  multiplying an average of TRICARE Management Activity civilian  compensation by the number of staffing requirements. However, this  figure excluded military personnel, whose compensation is markedly  different from that of civilian personnel.
Task Force officials stated that the internal 90-day deadline required by  the Deputy Secretary of Defense for the Task Force to complete its report  did not allow for a detailed analysis of implementation costs or a more  thorough review of possible cost savings, and that this time period also  limited the practicality of more detailed analysis. However, the National  Defense Authorization Act for Fiscal Year 2012, which required a report  on MHS governance options to be submitted to the congressional  defense committees, was passed approximately 3 months after the Task  Force completed its review and contained no specific deadline for DOD to  submit its report. DOD chose to submit the report developed by the Task  Force in response to the Deputy Secretary of Defense’s direction, along  with an additional cost analysis in response to the statutory requirement.  However, DOD could have conducted additional analysis before  submitting its report to the congressional defense committees.
Given the concerns outlined above, DOD has not comprehensively  assessed the net costs of the various governance options. As we  reported in 2007, such information is critical to making data-informed  decisions about the structure of the MHS, especially in light of the nation’s  current fiscal challenges. Past transformation experiences, such as the  BRAC process, and prior reports on MHS governance, such as the 2006  CNA study, could provide a starting point for DOD in the consideration of  possible implementation costs, cost savings areas, and methods of  estimating such cost data. DOD has selected its preferred structure, a  Defense Health Agency with the Military Treatment Facilities remaining  under the services, without the benefit of an inclusive cost analysis which  explores these areas. Table 1 provides possible implementation cost and  cost savings categories from BRAC and the 2006 CNA study and  available estimates for DOD’s preferred defense health agency  governance option as provided in their report.
Prior attempts to proceed with MHS reorganization without the benefit of  reliable estimates of implementation costs and cost savings demonstrate  the effects of such an approach. In 2007, DOD did not conduct a  comprehensive cost-benefit analysis, including an analysis of benefits,  costs, and risks, for proceeding with its preferred medical governance  concept at that time, which consisted of seven different incremental  governance initiatives. At the time, DOD concurred with our  recommendation that they develop such an analysis, but we reported in  2011 that it had not done so. Additionally, in 2012, we reported that  DOD had documented estimated financial savings for only one of those  seven governance initiatives while at least one other one had an  estimated cost increase.analysis, DOD’s current effort may produce similar results.
section_title: DOD Limited Its Assessment of the Options’ Strengths and Weaknesses to a Qualitative Process
paragraphs: DOD used a qualitative process to support its assessment of the  strengths and weaknesses of the 13 potential governance options  presented in its report, but did not balance this support with quantitative  data. We recognize the use of quantitative data is a key component of  study quality, and DOD’s criteria calls for assessing the options based on  quantitative data. Also, DOD did not mention in its report some of the  criteria it identified as most important for assessing the governance  options because they asserted that no option that adversely affected  these two criteria would be recommended.
subsections: section_title: DOD’s Assessment Gathered Significant Qualitative Information from Internal Stakeholders, but Did Not Provide Support for the Quantitative Elements Included in Its Criteria
paragraphs: DOD used a deliberative and qualitative approach to assess the strengths  and weaknesses of the 13 potential governance structures presented in  its report that included developing and applying criteria to each of the 13   In establishing the MHS review, the  governance options it developed.Deputy Secretary of Defense prescribed that the review should assess  potential governance options based on their fulfillment of the following  criteria:
Provision of high-quality, integrated medical care for servicemembers
Maintenance of a trained and ready deployable medical force to  support combatant commanders;
Achievement of significant cost-savings through, for example,  elimination of redundancies, increased interoperability, and other  means of promoting cost-efficient delivery of care.
The Deputy Secretary of Defense noted that the Task Force members  could consider additional criteria in their review. As such, the Task  Force members collectively decided to split the criteria provided by  the Deputy Secretary of Defense into separate criteria and add two  new criteria, for a total of seven criteria used to assess the MHS  governance options (see Figure 6). The Task Force members also  collectively defined each of the criteria and added a weight to each  based on their expert opinion of the relative importance of the criteria.
The definitions of the seven criteria used by DOD—while mostly  qualitative—included elements for certain criteria that called for  quantitative data. For example,
DOD defined the Ease of Implementation criterion as “The alternative   short- should be implementable taking into account Title 10 equities,term costs and long-term savings, and decisions required inside and  outside of the DOD.”
DOD defined the Achieve Significant Cost Savings through Reduction  in Duplication and Variation criterion as “The alternative should result  in a reduction of the system operating costs.”
As we have previously reported, the quality of assessments can be  strengthened by using a mixed approach that includes both qualitative  and quantitative information to remove concerns about bias in one data   DOD’s review obtained a great deal of qualitative information  source.from stakeholders and internal experts and used this information to  support its assessment of the strengths and weaknesses of the  governance options, but it did not balance this assessment with  quantitative data. Specifically DOD’s assessments of the strengths and  weaknesses did not provide data to support the quantitative elements  specified in its own criteria as indicated in the following two examples.
DOD did not attempt to estimate the range of either short- or long- term costs or savings data associated with the governance structures  in the 14 instances where Ease of Implementation was listed either as  a strength or a weakness. Instead, the DOD report cited qualitative  information such as “this action would represent a significant  departure in governance for all existing organizations” or “this will  entail a large scale reorganization to include re-mapping of service  medical personnel to operational platforms and there is no known  precedent or example where this approach has been tested in other  military medical organizations worldwide” as support for the  assessment of this criterion. As one leading industry official told us,  statements about how hard it would be to change and that the change  would be too disruptive to actually implement is not sufficient evidence  for avoiding necessary change.
DOD did not provide cost data as support for the 11 instances where  Achieve Significant Cost Savings through Reduction in Duplication  and Variation was listed as a strength or a weakness. During the Task  Force meetings, members expressed concern that no business case  was presented for the governance options, and that the support  presented for the assessment of strengths and weaknesses were  “descriptive statements.” According to the meeting minutes, it was  understood by the Task Force that “deeper analytical work will be  required following the submission of the report.”
Furthermore, DOD’s report listed the Medical Readiness criterion as a  weakness for five options but did not provide supporting examples or  quantitative data for this assessment. DOD defined Medical Readiness as  “The alternative should maintain or enhance the ability to provide  medically ready warfighters.” As support for the assessments where this  criterion was listed as a weakness, DOD stated that coordination between  Service Chiefs and Military Department Secretaries would be required  under governance options where medical personnel were still “owned” by  their service components. For governance options that included a split  between unified medical command and military-led defense health  agency, DOD stated that these structures would effectively split the  readiness sustainment between the higher command and the services,  thereby making the development and sustainment of the medical  readiness forces more complex. However, DOD did not specifically  identify the types of complexities or provide supporting examples in which  such organizational issues have resulted in a negative impact on medical  readiness. In July 2010, we reported that the services’ collaborative  planning efforts regarding requirements determination for medical  personnel working in fixed military treatment facilities have been limited,  and recommended that DOD develop and implement cross-service  medical manpower standards for common medical capabilities. DOD did  not address how the potential governance structures they presented  would affect such issues. Similarly, DOD did not discuss or provide  support for how the governance structures would impact the other MHS  priorities—population health, experience of care, and per capita cost— even though quantitative data that measure the performance of these  priorities for the current governance structure are available.
In addition, DOD’s assessment of the strengths and weaknesses was  often unclear. Specifically, 10 of the 13 assessments of governance  options listed at least one criterion as support for both a strength and a  weakness, without coming to a conclusion as to whether the criterion was  a strength or a weakness on balance. For example, in its assessment of  its preferred governance option (Defense Health Agency with Service  Medical Treatment Facilities), DOD listed the Enhance Interoperability  criterion as both a strength and a weakness for the option without coming  to a final conclusion as to the net effect of this assessment. Task Force  members we met with told us that for options where the same criterion  was listed as both a strength and a weakness, each Task Force member  would make their own judgment as to which was a more important  characteristic and vote accordingly – taking into account the perspective  of their organization or service and the weighting of the criteria. This  approach to assessing the strengths and weaknesses of the options  illustrates the subjective nature of DOD’s analysis, and highlights an area  where additional support, specifically quantitative data, would have  improved the clarity and robustness of DOD’s conclusions about the  strengths and weaknesses of the governance options.
section_title: DOD’s Assessment Did Not Provide Supporting Information for Two of the Criteria It Identified as Most Important
paragraphs: DOD weighted its criteria according to relative importance but DOD’s  assessment of strengths and weaknesses did not mention two of the  three criteria weighted as most important. As noted earlier, DOD assigned  various weights to the seven criteria used to assess the governance  options as shown in figure 6. The DOD report stated that the weighting  system was developed to reflect the relative importance of the criteria.  However, two of the top three criteria with the greatest assigned weight— Trained and Ready Medical Force and Quality Beneficiary Care—were  not mentioned in DOD’s assessment of the strengths and weaknesses.  See figure 7.
DOD officials told us that these two criteria were not discussed in the  report because the Task Force members agreed that each governance  option presented in the report would meet both of these criteria. However,  DOD did not provide an explanation or justification as to how each  governance option would satisfy the two criteria in question. The officials  added that there was a general understanding among the Task Force  members that no option that adversely affected these two criteria would  be recommended. However, five of DOD’s options presented medical  readiness of the active duty force, a related and similarly important  concept, as a weakness. Because DOD’s report does not discuss the  criteria they identified as the most important for their assessment of the  strengths and weaknesses—including providing support for why each  option equally satisfied the Trained and Ready Medical Force and Quality  Beneficiary Care criteria—DOD and Congress lack assurance that these  criteria were sufficiently considered in DOD’s assessment. As a result,  decision makers may not have well-supported, data-driven information  about the strengths and weaknesses of the potential MHS governance  options.
section_title: Conclusions
paragraphs: Transforming the governance structure of the MHS represents a potential  opportunity to implement more efficient ways of doing business while  maintaining a ready and trained medical force as well as continuing to  meet the needs of military personnel, retirees, and their dependents.  Reliable and comprehensive information, including implementation and  other associated costs, is needed to provide a data-driven rationale for  why DOD may be undertaking consolidation initiatives, and a clearly  presented business-case or cost-benefit analysis can justify the benefits  of such action. DOD has repeatedly studied options to transform its  governance structure, but has relied on implementing “interim steps” or  incremental changes toward an unknown final governance structure,  often without the benefit of a clear understanding of the costs and  benefits of its actions. DOD risks repeating this pattern without full  knowledge of the costs, strengths, and weaknesses of each of the  options. As DOD moves forward with its plans to transform its governance  structure, it is imperative that officials benefit from full and complete  information to be assured that they choose the best alternative and that  their efforts yield necessary improvements and achieve maximum  efficiencies.
section_title: Recommendations for Executive Action
paragraphs: To provide decision makers with more complete information on the total  cost impact of the various governance structures to help determine the  best way forward, we recommend that the Secretary of Defense direct the  Assistant Secretary of Defense (Health Affairs) to:
Develop a comprehensive cost analysis for the MHS governance  structures including estimates of implementation costs and cost  savings in additional areas such as health care operations and  infrastructure changes as well as an improved estimate of personnel  savings,
Develop a business case analysis and strategy for the implementation  of its shared services concept, Improve its evaluation of the potential governance structures’  strengths and weaknesses by including quantitative data when  available, and a specific assessment of the degree to which the  options meet the criteria Trained and Ready Medical Force and  Quality Beneficiary Care.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments provided in response to our draft report, DOD  concurred with one of our recommendations and did not concur with the  remaining two recommendations. DOD’s written comments are reprinted  in appendix III of this report.
In concurring with our recommendation that DOD develop a business  case analysis and a strategy for the implementation of its shared services  concept, DOD agreed, but on the premise that it can and should occur in  the context of its ongoing implementation planning effort for the creation  of a defense health agency. DOD reiterated that all of the potential  governance options under consideration include a shared services  concept and noted that as part of its implementation planning, it will  ascertain which shared services, functions, and activities will be  consolidated. Additionally, DOD stated it will produce a detailed  implementation timeline for the transfer of each such service to the  defense health agency. We agree this effort to identify which services will  be consolidated and to develop a timeline for the migration of these  services is important. DOD states that shared services and common  business practices will realize savings, but we are concerned that DOD is  moving forward in implementing its shared services concept without  knowledge of implementation costs or an estimated return on its  investment. Further, with respect to DOD’s governance decisions on the  multi-service markets and the National Capital Region, DOD states that  our recommendations for additional analysis did not apply to these  reforms. We did not include these specific areas in our recommendation  because the potential governance options for the multi-service markets  and the National Capital Region were outside the scope of our mandated  review. As a result, we did not address the extent to which DOD’s reform  plans for the multi-service markets and the National Capital Region may  or may not require additional analysis. However, several senior DOD  officials noted during the course of our review that while they recognize  efficiencies could be gained in multi-service markets, they expressed  reservations concerning the details of DOD’s plans for reforming such  markets.
In its non-concurrence with our recommendation that DOD develop a  comprehensive cost analysis for the MHS governance structures,  including (1) estimates of implementation costs, (2) cost savings in  additional areas such as health care operations and infrastructure  changes, and (3) and an improved estimate of personnel savings, DOD  noted that it recognizes that a more detailed and comprehensive cost  analysis of governance options could be undertaken. However, DOD  states that further cost analysis will not help to materially distinguish  among the options. We disagree with DOD and believe that more  comprehensive cost analysis will help to distinguish the differences  among the costs and benefits of the options. First, DOD did not estimate  implementation costs for any of its 13 governance options. As we  reported, significant implementation costs are a key element of a  comprehensive cost analysis, as illustrated in the case of the Base  Realignment and Closure (BRAC) process, in which DOD’s one-time  implementation costs increased 53 percent over the BRAC Commission’s  original estimate. Second, we continue to believe that further analysis of  cost savings areas beyond personnel cost savings, such as health care  operations or reduced infrastructure, could help DOD to materially  distinguish among the governance options. Third, DOD’s estimate of  personnel cost savings used several potentially flawed assumptions, and  as a result, we determined DOD’s estimate to be unreliable. In its  decision to move forward with implementation of the defense health  agency, DOD not only lacks any estimate of implementation costs and  cost savings in areas such as healthcare operations and reduced  infrastructure, but also reliable estimates of personnel cost savings. DOD  also stated in its non-concurrence that its decision to affect incremental  change through the implementation of a defense health agency enjoys  the consensus of the most senior military leaders. However, the decision  for this option is based on incomplete and potentially flawed data. Absent  such information, we continue to believe that DOD lacks a sound basis  upon which to make its decision about the future of MHS governance.
In its non-concurrence with our recommendation that DOD include  quantitative data as available in its assessment of the strengths and  weaknesses of the potential overall governance structures and conduct a  specific assessment of the degree to which the options meet the criteria  for Trained and Ready Medical Force and Quality Beneficiary Care, DOD  stated that the work of the MHS governance task force provided DOD  senior leaders with sufficient information to make decisions among near- term medical governance reform options based on a variety of criteria,  many of which are inherently qualitative in nature and would not  significantly benefit from the sort of quantitative data we recommended  that DOD include. However, DOD’s own criteria for the assessment of the  potential governance structures called for the inclusion of quantitative  information, as we reported. Further, DOD’s response to our draft report  did not specifically address the portion of our recommendation that a  specific assessment of the degree to which the potential governance  options meet the criteria Trained and Ready Medical Force and Quality  Beneficiary Care—two of the three most important criteria according to  DOD task force members. Without inclusion of these criteria coupled with  the lack of quantitative data, it remains unclear how DOD senior leaders  have sufficient information to make decisions regarding near-and long- term medical governance reform options. Therefore, we believe our  recommendation that DOD improve its evaluation of the potential  governance structures’ strengths and weaknesses by including  quantitative data in its assessment and to determine the impact on a  trained and ready medical force and the quality of beneficiary care  remains valid.
In its comments, DOD noted that it is committed to the MHS governance  changes agreed to by the Department leadership in 2012 that are  presented in its report in response to Section 716 of the National Defense  Authorization Act for Fiscal Year 2012. As we noted, Section 716 required  DOD to submit a report to the congressional defense committees to  include, among other things, a description of the alternative MHS  governance options developed and considered by the Task Force; an  analysis of the strengths and weaknesses of each option; and an  estimate of the cost savings, if any, to be achieved by each option. DOD  stated that to undertake the additional evaluation we recommended would  not only be time-consuming but also inherently speculative and imprecise,  and that additional analysis would not alter its conclusion about which  governance reforms to pursue in the near term. We are not suggesting  that DOD not reap the benefits of certain desirable, near-term reforms,  such as the development of a business-case analysis for its shared  services followed by its implementation, and we recognize that  implementing these near-term reforms can provide some insight into the  potential benefits of further transformation efforts. As we noted in our  report, under the current governance structure, the Assistant Secretary of  Defense (Health Affairs) has the broad authority that could allow for the  implementation of shared support services across MHS, and DOD has  had an opportunity to develop a supporting business case analysis since  this concept was first proposed in 2006. However, given the complex and  costly nature of MHS, we continue to believe that changes to its overall  governance should be well thought out and analyzed to ensure that there  are significant, measurable benefits before being implemented. In  addition, the need to improve the evaluation of potential governance  options by considering critical information such as the cost of DOD’s  reforms, their possible cost savings, and a thorough discussion of the  options’ strengths and weaknesses would benefit DOD’s decision-making  process. DOD has repeatedly studied options to transform its governance  structure, but has relied on implementing “interim steps” or incremental  changes toward an unknown final governance structure, often without the  benefit of a clear understanding of the costs and benefits of its actions.  Prior attempts to proceed with MHS reorganization without the benefit of  such information demonstrate the effects of such an approach. In 2007,  DOD did not conduct a comprehensive cost-benefit analysis, including an  analysis of benefits, costs, and risks, for proceeding with its preferred  medical governance concept at that time, which consisted of seven  different incremental governance initiatives. At the time, DOD concurred  with our recommendation that they develop such an analysis, but we  reported in 2011 that it had not done so. We reiterate that DOD risks  repeating this pattern if it does not develop full knowledge of the costs,  strengths, and weaknesses of each of the options under consideration.
DOD noted that it is currently planning for the implementation of its  governance reforms, and that it expects the defense health agency to  reach an initial operating capability by 2013, with full operating capability  within 2 years. We will continue to monitor DOD’s efforts to reform MHS  governance.
We are sending copies of this report to interested congressional  committees, the Secretary of Defense, the Deputy Secretary of Defense,  the Under Secretary of Defense for Personnel and Readiness, the  Assistant Secretary of Defense (Health Affairs), the Surgeon General of  the Air Force, the Surgeon General of the Army, and the Surgeon  General of the Navy. In addition, the report is available at no charge on  the GAO website at http://www.gao.gov.
If you or your staff have any questions regarding this report, please  contact me at (202) 512-3604 or farrellb@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: To determine how the Department of Defense’s (DOD) preferred  governance option, and the other options presented in its report, changes  the current structure of the MHS, we first obtained documentation  describing key changes in the Military Health System (MHS) governance  structure since 1991 by reviewing relevant DOD directives, legislation,  and interviewing knowledgeable DOD officials. Using this as the basis for  what constitutes the current MHS governance system, we then reviewed  DOD’s description of each of the proposed changes to the current  governance options in the Task Force report. Upon review of all of the  historical as well as proposed changes to the MHS governance structure,  we identified three common governance elements among them all: the  overall control of policy-making authority, budgetary authority, and control  of medical personnel. As a guide for developing our comparison of the  changes, we used these elements to describe the differences among the  various governance options and key changes that have shaped the  current structure. We defined these three governance elements to  encompass the following activities:
Overall Control of Policy-Making Authority: Who controls the overall  MHS? Who heads its various entities? Who reports to the Secretary of  Defense? What is the command and control structure? Who  establishes MHS policy for the Office of the Secretary of Defense, the  Services, and joint entities? What are the roles of senior leaders?
Budgetary Authority: Who controls the Defense Health Program  appropriation?
Control of Personnel: Who manages and supervises the Military  Treatment Facilities and multi-service medical markets? Who controls  the MHS mission and administrative support personnel among the  Office of the Secretary of Defense, the Military Departments, and/or  joint entities?
To review DOD’s shared services concept, we reviewed the information  presented in DOD’s report and interviewed DOD officials concerning their  analysis of this concept. We compared this information to our prior work  on business case analyses in the context of management consolidations,and leveraged our prior work on efforts by DOD and other federal  agencies to establish shared services to provide context for DOD’s  current efforts.
DOD’s cost savings estimate, we interviewed officials concerning their  estimating methods and reviewed supporting documentation, noting  where we identified shortcomings in the Task Force’s approach. We were  unable to rely on DOD’s cost savings estimates because the estimates  and their supporting data were insufficient in the key data elements  needed to completely and accurately develop them as discussed in the  findings section of this report.
GAO-07-536 and GAO-12-224.
To determine the extent to which DOD’s assessment of the strengths and  weaknesses of its potential governance options is well-supported and  data-driven, we obtained and analyzed Task Force documents including  meeting minutes, briefing slides, and voting templates. We then used this  analysis to determine the criteria and process used to formulate the  strengths and weaknesses of the options. We then assembled a list of the  78 strengths and weaknesses cited in the task force report and used a  semi-structured interview process to collect information from Task Force  officials regarding the process and inputs used to formulate each  assessment. We then conducted a content analysis of the information  provided by the officials to identify and categorize the inputs that the  officials cited as contributing to the assessments of strengths and  weaknesses. The categorization of the information was conducted by one  analyst and confirmed by a second analyst to ensure the analysis was  adequately supported by the evidence. In addition, we interviewed  officials from one multi-service market and a health administration expert  to obtain their opinions on the process used by DOD to formulate the  strengths and weaknesses.
For each of our objectives, we limited our review to the potential overall  governance structures that the Task Force presented in its report. We did  not specifically review the proposed changes to DOD’s multi-service  medical markets or to the governance structure in place within the  National Capital Region as presented in the Task Force report because  we determined that these proposed changes were outside the scope of  our mandate. We conducted this performance audit from March 2012  through September 2012 in accordance with generally accepted  government auditing standards. Those standards require that we plan  and perform the audit to obtain sufficient, appropriate evidence to provide  a reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives.
section_title: Appendix II: Detailed Description of the Potential Governance Structures and DOD’s Assessment of Their Strengths and Weaknesses
paragraphs: DOD’s task force report provided the following detailed description, cost  savings estimates, and strengths and weaknesses of the governance  structures2 it identified as potential options for its Military Health System  (MHS). As we noted earlier in our report, we found DOD’s cost savings  estimates to be unreliable because the estimates and their supporting  data were insufficient in the key data elements needed to completely and  accurately develop them. As a result, using DOD’s data as presented  below may lead to an incorrect or unintentional result.
subsections: section_title: Defense Health Agency Governance Structures
subsections: section_title: Defense Health Agency with Military Treatment Facilities under the Services
paragraphs: DOD’s preferred option would create a new defense health agency that  would assume the responsibilities of the TRICARE Management Activity  and additional possible areas of savings known as shared services. The  new agency would be a combat support agency headed by a 3-star  general or flag officer who would report to the Assistant Secretary of  Defense (Health Affairs), but with oversight from the Chairman of the  Joint Chiefs of Staff. The services would maintain their surgeons general,  service support commands, and intermediate headquarters.
These structures are in addition to the current MHS structure, which the Task Force  included in the 13 options presented in the report.
DOD’s Estimate of Projected Net Savings: $46.5 million per year.
Lines of Authority: The services control the hospital and  deployed health care; eliminates the Assistant Secretary of  Defense role as the Director of the TRICARE Management  Activity.  Enhance Interoperability: The defense health agency would be  focused on the shared and consolidated services.  Ease of Implementation: This would require minimal change to  the current service organizational structure.
Enhance Interoperability: Eliminates the Joint Hospitals in  the National Capital Region as well as San Antonio.  Ease of Implementation: This option would require the  Joint Task Force National Capital Region Medical to  transition to a different structure. The services’ cultures  could limit the implementation of common services and  processes.
section_title: Defense Health Agency with Military Treatment Facilities Placed under the Agency
paragraphs: Similar to the previous option, this structure would create a defense  health agency combat support agency led by a 3-star general or flag  officer, but would place Military Treatment Facilities under the authority,  direction, and control of the agency. Military personnel not assigned to a  deployable unit would be under the direction of the defense health  agency, but the services would continue to own their personnel, and all  civilian personnel would be under the direction of the agency.
DOD’s Estimate of Projected Net Savings: $87.4 million per year.
Management of all medical treatment facilities under one  authority (Director, Defense Health Agency); the Defense  Health Agency Director would report directly to the Assistant  Secretary of Defense (Health Affairs). model may elevate management disputes to the highest  levels of the DOD, as local line command disputes with the  defense health agency command structure may need to be  adjudicated at the level of the Secretary of the Military  Department /Assistant Secretary of Defense (Health  Affairs) level.
Achieve Significant Cost Savings Through Reduction in  Duplication and Variation: The defense health agency would be  focused on the most common theme emphasized by the Task  Force – an organizational model that would accelerate  implementation of shared services models that identify and  proliferate best practices and consider entirely new approaches  to delivering shared activities. Further, placement of medical  treatment facilities under the defense health agency would allow  for even more rapid implementation of unified clinical and  business systems, which could create significant savings.
Medical Readiness: Concerns were expressed that an  organization this large with this many authorities could  jeopardize services priorities. A comprehensive defense  health agency could reduce command and leadership  development opportunities.  Ease of Implementation: Moving all medical treatment  facilities to the defense health agency would be a major  reorganization.
Other: Could mix the defense health agency mission
Other: Would align management of purchased care (TRICARE)  and direct care (Medical Treatment Facilities) under one entity,  creating potential for greater coordination and cost-effective  distribution of resources between the two sources of care. between support of MHS-wide functions and direct  operation of hospitals and clinics. The Military  Department’s representatives on the Task Force believed  that operation of the direct care system is a Military  Department responsibility.
section_title: Defense Health Agency – Geographic Model
paragraphs: This option would create a Defense Health Agency to exercise authority,  direction, and control over the Military Treatment Facilities. However,  service intermediate headquarters would be replaced by a single defense  health agency-run organization.
DOD’s Estimate of Projected Net Savings: $21.4 million per year.
Lines of Authority: This organizational construct would have  clear lines of authority and there would be central control of the  Military Treatment Facilities.  Enhance Interoperability: This option would allow for single  processes for key functions. to the highest levels.  Ease of Implementation: This option would be more of a  “civilianized” model which may be difficult to implement in  the current military structure. It may also reduce command  leadership opportunities and professional growth.
section_title: Unified Medical Command Governance Structures
subsections: section_title: Unified Medical Command with Service Components
paragraphs: A unified medical command with service components option would create  a tenth combatant command led by a 4-star general or flag officer, with  forces supplied by service components. Service intermediate  headquarters would manage the Military Treatment Facilities, but  personnel not assigned to deployable units would be assigned to the  unified medical command. A Joint Health Support Command would  manage the TRICARE health plan and shared services.
DOD’s Estimate of Projected Net Cost: $203.6 million per year.
DOD’s Assessment of Weaknesses
Dispute Resolution/Lines of Authority/Accountability: The  of authority would be established.  Achieve Significant Cost Savings Through Reduction in  Duplication and Variation: There would be central control of  common business and clinical processes, and implementation  would be achieved more readily with command and control  throughout the medical structure to ensure compliance.  Ease of Implementation: Joint Task Force National Capital  Region Medical, if retained in its current form, could be  addressed as a region directly reporting to the Commander,  U.S. Medical Command. current structure of civilian authority over components of  the MHS (the Assistant Secretary of Defense (Health  Affairs)) and Military Department Secretaries) would not be  maintained; the first civilian official in the authority chain  would be the Secretary of Defense.  Achieve Significant Cost Savings Through Reduction in  Duplication and Variation: In any unified medical command  structure that maintains service Components (the common  model for all unified commands) the overall management  headquarters overhead would increase above “As Is” and  all other organizational models.  Ease of Implementation: This action would represent a  significant departure in governance for all existing  organizations (Assistant Secretary of Defense (Health  Affairs), TRICARE Management Activity, Military  Department Secretaries, Military Service Chiefs, Service  Medical Departments). For the Air Force, this includes  creating a medical component command for operation of  Air Force medical treatment facilities; the Navy would need  to redesign how garrison billets are mapped to operational  requirements.
section_title: Unified Medical Command, Geographic Model
paragraphs: This structure would create a tenth combatant command for medical care.  However, the unified medical command commander would exercise  control over personnel and the Military Treatment Facilities. Service  intermediate headquarters would be replaced by a single organization.
DOD’s Estimate of Projected Net Cost: $152.3 million per year.
DOD’s Assessment of Strengths
Dispute Resolutions and Lines of Authority: This organizational  structure would have clear lines of authority and there would be  central control of the Military Treatment Facilities. The shared  services (i.e. education and training, research and development,  health information technology, logistics) would be centrally  managed. The TRICARE Regional Offices would be aligned with  the Military Treatment Facilities in the same chain of command.  Enhance Interoperability: This option would focus the  development of common business processes.  Ease of Implementation: The Joint Table of Distributions would  eliminate any multi-service market issues because the unified  medical command would control the multi-service markets.  Achieve Significant Cost Savings Through Reduction in  Duplication and Variation: Reduction in overhead personnel  would be relative to the current MHS structure. Services would  focus on deployable forces with the unified medical command as  the platform for medical professional force development and  benefit delivery.
DOD’s Assessment of Weaknesses   Lines of Authority: This would be a major change for the  Service Surgeons General.  Enhance Interoperability: Some required service assets  would not be under service control — sourcing would be  from the unified medical command.  Ease of Implementation: This would be a massive change  for the way the DOD does business. Hospital based and  wartime medical forces would be split. An alternative is to  embed deployable wartime forces in a Joint Table of  Distribution in the unified medical command.  Achieve Significant Cost Savings through Reduction in  Duplication and Variation: The Command may be focused  on effectiveness over costs.
Unified Medical Command, HR 1540This option would create a tenth combatant command for medical care  with forces supplied by service components. Subordinate service  commands would manage the Military Treatment Facilities, but within the  framework of a Healthcare Command led by a 3-star general or flag  officer to manage the service components.
DOD’s Estimate of Projected Net Cost: $238.8 million per year.
DOD’s Assessment of Weaknesses
Dispute Resolution/Lines of Authority/Accountability: Clear  lines of authority would be established as well as central  management of shared services (i.e. education and training,  research and development, health information technology,  logistics). Military Treatment Facilities would be centrally  controlled.
Enhance Interoperability: Allows for Joint Task Force National  Capital Region Medical to be easily inserted into this structure  as a regional or sub-regional command. Common business  processes would be implemented across the Military Treatment  Facilities.
Ease of Implementation: The service component execution  would minimize organizational change.
Achieve Significant Cost Savings Through Reduction in  Duplication and Variation: The Command would likely be  focused more on effectiveness over costs.
Dispute Resolution/Lines of Authority/Accountability:  Some required service assets would not be under service  control. There would be civilian oversight for budget  located at the Secretary of Defense level which would  bypass the Office of the Secretary of Defense Principal  Staff Assistant.
Enhance Interoperability: Hospital based and unit based  medical forces would be split.
Ease of Implementation: This would require all three  services to significantly change, with the biggest impact on  the Air Force.
Dual-hatted surgeons general could face perception  issues from home service and the unified medical  command.
section_title: Single Service Governance Structures
subsections: section_title: Single Service with Service Components
paragraphs: A single military service Secretary would be assigned all headquarters  management functions, such as management of the TRICARE health  plan and shared services. The designated service also would control a  Defense Healthcare System agency that would include the service  component commands, which in turn would command the Military  Treatment Facilities.
DOD’s Estimate of Projected Net Savings: $94.4 million per year.
DOD’s Assessment of Weaknesses
Dispute Resolution/Lines of Authority/Accountability: Clear  lines of authority would be established as well as central control  of the Military Treatment Facilities and multi-service markets.  Service readiness assets would be under service control.
Achieve Significant Cost Savings Through Reduction in  Duplication and Variation: There would be single processes for  key functions
Dispute Resolution/Lines of Authority/Accountability: This  option would create a need for coordination of issues  between the service Secretaries.
Enhance Interoperability: This would split the warrior and  beneficiary care systems.
section_title: Single Service, Geographic Model
paragraphs: Under this structure, a single military service Secretary would be  assigned all headquarters management functions, such as management  of the TRICARE health plan and shared services. In addition, the  designated service would command all of the Military Treatment Facilities,  while all services would remain responsible for providing personnel.
DOD’s Assessment of Weaknesses
Dispute Resolution/Lines of Authority/Accountability: Clear  lines of authority and chain of command from Secretary through  the Military Treatment Facilities commander would be  established.
Achieve Significant Cost Savings Through Reduction in  Duplication and Variation: With shared services, there would be  one set of business and clinical processes and implementation  would be achieved more readily with command and control in a  single service. It also could eliminate the issues that arise with  multi-service markets. This option would create the most  significant savings in headquarters overhead of any  organizational option.
Medical Readiness: With medical personnel still “owned”  by their service components, a requirement for  coordination between Service Chiefs and Military  Department Secretaries on readiness and personnel  issues would remain.
Ease of Implementation: There is no known precedent or  example where this approach has been tested in other  military medical organizations worldwide. The Navy/US  Marine Corps medical support model does not have the  mission for all of the DOD; however, it is representative of  how a single service model could work. Additionally, this  option would entail a large scale reorganization to include  re-mapping of service medical personnel to operational  platforms.
Dispute Resolution/Lines of Authority/Accountability:  Issues would be adjudicated at a higher level (Military  Department Secretary).
section_title: Hybrid Governance Structures
subsections: section_title: Unified Medical Command with Service Components and Defense Health Agency
paragraphs: This option would create a tenth combatant command led by a 4-star  general or flag officer, with forces supplied by service components, and  service commands charged with management of the Military Treatment  Facilities. However, shared services would be split, with the unified  medical command in charge of readiness-focused areas and a defense  health agency charged with beneficiary health care and clinical quality.
DOD’s Estimate of Projected Net Cost: $225.3 million per year.
DOD’s Assessment of Weaknesses
Dispute Resolution/Lines of Authority/Accountability: This  option would align command and control forces under a military  chain of command. It would also align the Assistant Secretary of  Defense (Health Affairs) role to policy and oversight with  execution delegated to the unified medical command  commander and the defense health agency director.
Ease of Implementation: This option would maintain service  structures as component commands in the unified medical  command. It would also support the Joint Task Force National  Capital Region Medical structure.
Medical Readiness: Service readiness functions would  be located in the unified medical command.
Dispute Resolution/Lines of Authority/Accountability: The  unified medical command commander would report  directly to the Secretary of Defense. It could be difficult to  adjudicate disagreements between the unified medical  command and the defense health agency at the Deputy  Secretary of Defense level.
Achieve Significant Cost Savings: The execution of the  shared services and common processes would require  unified medical command and defense health agency  agreement.
section_title: Unified Medical Command and Defense Health Agency, Geographic Model
paragraphs: Similar to the above, this option would pair a tenth combatant command  with a defense health agency with shared services divided between the  two organizations. However, the defense health agency through Regional  Directors, not service components, would manage the Military Treatment  Facilities.
DOD’s Estimate of Projected Net Cost: $238.8 million per year.
DOD’s Assessment of Weaknesses
Dispute Resolution/Lines of Authority/Accountability: This  option would align command and control forces under a military  chain of command. It would also align the role of the Assistant  Secretary of Defense (Health Affairs) to policy and oversight with  execution delegated to the unified medical command  commander and defense health agency director.
Achieve Significant Cost Savings: The execution of the shared  services and common processes would require unified medical  command combatant command agreement.
Medical Readiness: Service readiness functions would  be located in the unified medical command.
Dispute Resolution/Lines of Authority/Accountability: The  unified medical command commander would report  directly to the Secretary of Defense. It could be difficult to  adjudicate disagreements between the unified medical  command and defense health agency at the Deputy  Secretary of Defense level.
section_title: Single Service with a Unified Medical Command
paragraphs: Similar to the above two options, this option would pair a tenth combatant  command with another organization, a Defense Healthcare System in  charge of all of the Military Treatment Facilities managed by one military  service. Shared services also would be divided between the two  organizations.
DOD’s Estimate of Projected Net Cost: $238.8 million per year.
DOD’s Assessment of Strengths
Dispute Resolution/Lines of Authority/Accountability: This option  would establish clear lines of authority for administrative,  operational, and tactical control of forces with each being vested  in a different structure. It would also create central control of the  Military Treatment Facilities.
Ease of Implementation: In this option, the multi-service markets  are addressed and joint facilities would be maintained.
Enhance Interoperability: This option would allow for single  processes for key functions.
DOD’s Assessment of Weaknesses
Medical Readiness: This would split the warrior care and the  beneficiary care systems.
Dispute Resolution/Lines of Authority/Accountability: This option  would create different responsible agents for administrative,  operational, and tactical control of forces.
section_title: Defense Health Agency Hybrid with Regional Military Treatment Facilities
paragraphs: The defense health agency would be led by a 3-star general or flag officer  who would report directly to either a Service Secretary, the Assistant  Secretary of Defense (Health Affairs) or a combatant commander. The  agency would control the TRICARE health plan. Additionally, a Medical  Operations Support Command would be created to control the education  and training, research and development, and public health. Finally, the  individual military departments would continue to manage the Military  Treatment Facilities, albeit through Service designated regional enhanced  multi-service market offices instead of their current medical commands.
DOD’s Estimate of Projected Cost/Saving: None presented.
DOD’s Assessment of Strengths
None provided.
DOD’s Assessment of Weaknesses
None provided.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Lori Atkinson, Assistant Director;  Edward Anderson, Jr., Rebecca Beale, Grace Coleman, Foster Kerrison,  Charles Perdue, Carol Petersen, Terry Richardson, Adam Smith, and  Karen Nicole Willems made key contributions to this report.
section_title: Related Products
paragraphs: GAO, Defense Health Care: Applying Key Management Practices Should  Help Achieve Efficiencies within the Military Health System, GAO-12-224  (Washington, D.C.: April 12, 2012).
GAO, 2012 Annual Report: Opportunities to Reduce Duplication, Overlap  and Fragmentation, Achieve Savings, and Enhance Revenue,  GAO-12-342SP (Washington, D.C.: Feb. 28, 2012).
GAO, Follow-up on 2011, Status of Actions Taken to Reduce Duplication,  Overlap, and Fragmentation, Save Tax Dollars, and Enhance Revenue,  GAO-12-453SP (Washington, D.C.: Feb. 28, 2012).
GAO, Opportunities to Reduce Potential Duplication in Government  Programs, Save Tax Dollars, and Enhance Revenue, GAO-11-318SP  (Washington, D.C.: Mar. 1, 2011).
GAO, Defense Health Care: DOD Needs to Address the Expected  Benefits, Costs, and Risks for Its Newly Approved Medical Command  Structure, GAO-08-122 (Washington, D.C.: Oct. 12, 2007).