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

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