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February 28, 2005:

Congressional Committees:

Subject: DOD and VA Health Care: Incentives Program for Sharing Health:

Resources:

Combined, the Department of Defense (DOD) and the Department of 
Veterans Affairs (VA) provide health care services to about 16.8 
million beneficiaries at an estimated cost of $58 billion for fiscal 
year 2005--$30.4 billion for DOD and $27.7 billion for VA.[Footnote 1] 
In 1982, the Congress passed the Veterans' Administration and 
Department of Defense Health Resources Sharing and Emergency Operations 
Act (Sharing Act) to promote more cost-effective use of health care 
resources and more efficient delivery of care.[Footnote 2] 
Specifically, the Congress authorized DOD and VA to enter into sharing 
agreements with each other to buy, sell, and barter medical and support 
services.

To further encourage ongoing collaboration, the Congress passed the Bob 
Stump National Defense Authorization Act (NDAA) for Fiscal Year 
2003,[Footnote 3] which directed the Secretary of Defense and the 
Secretary of Veterans Affairs to establish a joint incentives program 
to identify and provide incentives to implement, fund, and evaluate 
creative health care coordination and sharing initiatives between DOD 
and VA. Under the program, DOD and VA are to solicit proposals from 
their program offices, DOD military treatment facilities, or VA medical 
facilities for project initiatives at least annually. DOD and VA health 
care officials are to develop program guidelines and establish project 
evaluation and selection criteria. To facilitate the program, each 
secretary is required to contribute a minimum of $15 million from each 
department's appropriation into an account established in the U.S. 
Treasury[Footnote 4] for each fiscal year from 2004 through 2007. The 
Financial Management Workgroup[Footnote 5] (FMWG) under the Health 
Executive Council[Footnote 6] (HEC) administers the Incentive Fund 
program. The NDAA also requires that we submit a report on the 
implementation[Footnote 7] of the program by February 28 of each fiscal 
year the program is in effect.[Footnote 8]

We reviewed DOD's and VA's plans for implementing the DOD-VA Health 
Care Sharing Incentive Fund--including proposal submission guidelines 
and evaluation and selection criteria--and interviewed department 
officials from DOD and VA involved in the oversight of the program and 
those facility or program office officials responsible for the projects 
that were selected for funding during fiscal year 2004. Our work was 
conducted from April 2004 through February 2005 in accordance with 
generally accepted government auditing standards.

Results in Brief:

From December 2002 through January 2005, DOD and VA developed program 
guidelines and solicited, reviewed, selected, and funded projects. 
During that time DOD and VA officials completed their review of 58 
concept proposals that were submitted, selected 12 projects for 
implementation, and funded 9 of them. Three projects were awaiting 
funds as of February 3, 2005. Project selection took place in August 
2004, and the departments began funding projects in November 2004. 
According to the departments, funding could not be provided until 
project officials and the Surgeons General for DOD's Departments of the 
Army, Navy, and Air Force completed certain administrative actions. 
These actions included project officials ensuring that the project 
would be self-sustaining within 2 years and the Surgeons General 
ensuring that service-specific department protocols for disbursing 
funds were followed. DOD and VA officials generally concurred with the 
information presented in this report.

Project Review and Selection Was Completed in August 2004; Project 
Funding Began in November 2004:

From the NDAA's enactment in December 2002 through February 2004, DOD 
and VA developed program guidelines, solicited proposals, reviewed 
them, and established an account within the U.S. Treasury for funding 
projects. A Memorandum of Agreement entered into by DOD and VA assigned 
FMWG as the administrator of the Incentive Fund under the direction of 
the HEC. DOD and VA developed the following criteria to be used for 
evaluating the concept proposals and selecting the final projects:

* support DOD and VA's joint long-term approach to meeting the health 
care needs of their beneficiary populations;

* improve beneficiary access;

* ensure exportability to other facilities;

* maximize the number of beneficiaries that would benefit from the 
initiative;

* result in cost savings or cost avoidance;

* develop in-house capability at a lesser cost for services now 
obtained by contract; and:

* demonstrate that the project will be self-sustaining after incentive 
funds are no longer supporting the project--that is, if funding is 
needed beyond 2 years, the local facility, or the Surgeon General's 
office, or the Veterans Integrated Service Network[Footnote 9] must 
agree to provide it.

In February 2004, the departments began review of the 58 concept 
proposals that were submitted. In May 2004, DOD and VA officials 
completed their initial review and selected 29 proposals for a more 
detailed second review. Officials at each location whose concept 
proposals were selected were asked to submit a more detailed final 
proposal with a business case analysis for review by the FMWG. FMWG 
officials evaluated and ranked the proposals and submitted their 
recommendations for final approval to the HEC.

In August 2004, 12 projects from the 29 final proposals were selected 
by the FMWG and approved by the HEC for implementation. A project 
cannot receive funding until project officials submit a letter of 
certification that the project would be self-sustaining within 2 years, 
or if not, that it would have other funding to cover costs in future 
years. Disbursement of funds must follow department-funding protocols 
and new accounts are created to track the funding. For DOD, the 
transfer of funds involves four sequential steps to move money from the 
Incentive Fund to DOD's Under Secretary of Defense (Comptroller); to 
TMA; to departments' Surgeon General offices' health care resource 
managers; and to military treatment facilities responsible for the 
project. For VA, the transfer is made from the Incentive Fund to the VA 
medical center or program office responsible for the project.

Three projects were awaiting funds as of February 3, 2005. VA has 
delayed funding for the project at McConnell Air Force Base/Robert J. 
Dole Veterans Affairs Medical Center located in Wichita, Kansas, until 
it receives approval to proceed with building construction from VA 
headquarters. DOD also has delayed funding for two projects at Naval 
Hospital Great Lakes/North Chicago Veterans Affairs Medical Center 
located in Chicago, Illinois. The delay in Chicago occurred because the 
Navy Surgeon General's office was waiting for final agreements from 
each facility outlining the specific responsibilities of each facility 
for implementing the project and the use of the funds. The Navy Surgeon 
General's office received the final agreements on January 31, 2005, and 
is in the process of approving the transfer of funds.

For each of the 12 approved projects, table 1 shows the DOD and VA 
partner, the project description, the amount funded, and the date funds 
were provided to the projects for implementation.

Table 1: Incentive Fund Projects:

DOD partner: DOD TRICARE Management Activity; VA partner: VA Chief 
Business Office; Project name and description: F-Stop-Third Party 
Obligation Program: This national initiative is intended to provide DOD 
and VA with a repository of beneficiary insurance information to allow 
for increased third party collections--similar to a system utilized by 
the Centers for Medicare & Medicaid Services; Total amount of project 
(dollars): $14,929,000; Project funding[A] received date: Nov. 1, 2004.

DOD partner: Tripler Army Medical Center, Hawaii; VA partner: VA 
Pacific Islands Health Care System, Hawaii; Project name and 
description: Delta Systems II-Cad/Cam System: This is a fabrication 
technology system that produces molds for prosthetics and orthotics 
from lightweight foam through use of a laser scanner and mill. 
Installing this device at Tripler is intended to allow for greater 
beneficiary access; 
reduce clinic visits for casting, adjustments, and fittings; and allow 
for an increase in VA beneficiary access; Total amount of project 
(dollars): $515,300; Project funding[A] received date: Jan. 13, 2005.

DOD partner: 319th Medical Group, Grand Forks Air Force Base, N. Dak; 
VA partner: Fargo Veterans Affairs Medical Center, N. Dak; Project name 
and description: Joint TeleMental System: Acquiring videoconferencing 
technology is intended to allow VA to provide mental health services to 
DOD beneficiaries approximately 80 miles away; Total amount of project 
(dollars): $13,535; Project funding[A] received date: Jan. 4, 2005.

DOD partner: 60th Medical Group, Travis Air Force Base, Calif; VA 
partner: VA Northern California Health Care System, Calif; Project name 
and description: Joint Dialysis Unit: Through upgrading equipment and 
increased staffing, Travis Air Force Base's dialysis unit is expected 
to be able to accommodate VA beneficiaries; Total amount of project 
(dollars): $1,343,780; Project funding[A] received date: Jan. 5, 2005.

DOD partner: Naval Hospital Great Lakes, Ill; VA partner: North Chicago 
Veterans Affairs Medical Center, Ill; Project name and description: 
Mammography Unit Expansion: The purchase of new digital mammography 
equipment, a stereotactic unit, and hiring of support staff are 
intended to reduce wait times for DOD beneficiaries and allow for VA 
beneficiary access; Total amount of project (dollars): $655,000; 
Project funding[A] received date: Awaiting funds.

DOD partner: 92nd Medical Group, Fairchild Air Force Base, Wash; VA 
partner: Spokane Veterans Affairs Medical Center, Wash; Project name 
and description: Teleradiology Initiative: This will upgrade DOD's 
system so it can download images from VA for radiological 
interpretation and is intended to allow VA to provide computed 
tomography scans for DOD beneficiaries; Total amount of project 
(dollars): $333,537; Project funding[A] received date: Nov. 18, 2004.

DOD partner: Naval Hospital Great Lakes, Ill; VA partner: North Chicago 
Veterans Affairs Medical Center, Ill; Project name and description: 
Women's Health Center: This project proposes to create a comprehensive 
women's health center for DOD and VA beneficiaries by coordinating 
women's services and includes hiring gynecology, wellness, and case 
management staff; Total amount of project (dollars): $1,314,000; 
Project funding[A] received date: Awaiting funds.

DOD partner: 3rd Medical Group, Elmendorf Air Force Base, Alaska; VA 
partner: VA Alaska Health Care System, Alaska; Project name and 
description: Enhanced Outpatient Diagnostic Services: The acquisition 
of diagnostic equipment is intended to provide in-house imaging 
services to DOD and VA beneficiaries; Total amount of project 
(dollars): $535,000; Project funding[A] received date: Nov. 18, 2004.

DOD partner: Fort Drum, N.Y; 
VA partner: Syracuse Veterans Affairs Medical Center, N.Y; Project name 
and description: Telepsychiatry: The hiring of a full-time VA 
psychiatrist is intended to allow VA to provide mental health services 
to DOD beneficiaries via videoconferencing; Total amount of project 
(dollars): $330,000; Project funding[A] received date: Nov. 23, 2004.

DOD partner: 22nd Medical Group, McConnell Air Force Base, Kans; VA 
partner: Robert J. Dole Veterans Affairs Medical Center, Kans; Project 
name and description: Cardiac Catheterization Laboratory: Remodeling 
existing VA space is intended to accommodate new equipment and provide 
in-house cardiac services to DOD and VA beneficiaries; Total amount of 
project (dollars): $3,539,722; Project funding[A] received date: 
Awaiting funds.

DOD partner: Moncrieff Army Community Hospital and 20th Medical Group, 
Shaw Air Force Base, S.C; 
VA partner: Dorn Veterans Affairs Medical Center, S.C; Project name and 
description: Expansion of Existing Magnetic Resonance Imaging Joint 
Venture: The acquisition of an Open Magnetic Resonance Imaging unit at 
Moncrieff Army Community Hospital and 20th Medical Group, Shaw Air 
Force Base is intended to provide in- house services to DOD and VA 
beneficiaries; 
Total amount of project (dollars): $2,013,387; Project funding[A] 
received date: Dec. 9, 2004.

DOD partner: Wilford Hall Medical Center, Lackland Air Force Base, Tex; 
VA partner: VA South Texas Health Care System, Tex; Project name and 
description: North Central San Antonio Clinic: The establishment of a 
joint DOD/VA clinic is intended to provide greater access to DOD and VA 
beneficiaries; Total amount of project (dollars): $11,973,937; Project 
funding[A] received date: Nov. 18, 2004.

Sources: DOD and VA.

[A] Funding received on this date may not be for the entire amount of 
the project. In some cases, such as acquisition of equipment, the 
entire amount may have been provided. In other cases, such as for 
staffing or a technology upgrade, funding could be disbursed over a 2- 
year period.

[End of table]

In November 2004, DOD and VA issued a second request for proposals. 
Submissions were due by January 12, 2005, and according to DOD and VA 
officials, about 50 concept proposals have been submitted. DOD and VA 
are in the process of reviewing these concept proposals.

We provided a draft of this report to DOD and VA for comment. DOD's 
Assistant Secretary of Defense for Health Affairs and VA's Assistant 
Secretary for Congressional and Legislative Affairs provided written 
comments on it. (DOD's comments are reprinted in enclosure I and VA's 
comments are reprinted in enclosure II.) Both departments generally 
concurred with the information presented in the report and provided 
technical comments, which were included where appropriate. DOD noted 
that the report does not provide an assessment of the department's 
efforts in identifying, evaluating, and implementing joint DOD and VA 
resource sharing projects. Our report describes the activities DOD and 
VA took from December 2002 through February 2005 to identify, select, 
and fund projects. Project funding began in November 2004, and three 
projects are still awaiting funds. As we note in the report, it is too 
early to assess the program's effectiveness because the projects have 
not been under way for a sufficient period for us to evaluate their 
results.

We are sending copies of this report to the Secretary of Defense, the 
Secretary of Veterans Affairs, and other interested parties. We will 
provide copies of this report to others upon request. In addition, the 
report is available at no charge on the GAO Web site at http:// 
www.gao.gov. If you or your staffs have any questions, please contact 
me at (202) 512-7101 or Michael T. Blair, Jr., at (404) 679-1944. Aditi 
Archer was the key contributor to this report.

Signed by: 

Cynthia A. Bascetta:

Director, Health Care--Veterans' Health and Benefits Issues:

Enclosures - 2:

List of Committees:

The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:

The Honorable Larry E. Craig:
Chairman:
The Honorable Daniel K. Akaka:
Ranking Minority Member:
Committee on Veterans' Affairs:
United States Senate:

The Honorable Duncan Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:

The Honorable Steve Buyer:
Chairman:
The Honorable Lane Evans:
Ranking Minority Member:
Committee on Veterans' Affairs:
House of Representatives:

[End of section]

Enclosure I: Comments from the Department of Defense: 

THE ASSISTANT SECRETARY OF DEFENSE: HEALTH AFFAIRS:

1200 DEFENSE PENTAGON: 
WASHINGTON, DC 20301-1200:

FEB 18 2005:

Ms. Cynthia Bascetta: 
Director, Health Care - Veterans' Health and Benefits Issues: U.S. 
Government Accountability Office: Washington, DC 20548:

Dear Ms. Bascetta:

This is the Department of Defense (DoD) response to the draft report 
"DoD and Veterans Affairs Health Care: Incentives Program for Sharing 
Health Resources," dated February 8, 2005 (GAO Code 290367/GAO-05- 
310R).

The Department generally concurs with the report and offers technical 
comments (attached) to the document as written. However, we would like 
to offer several additions for your consideration that are provided in 
the attached technical comments. The report's facts are fundamentally 
correct; however, the report does not provide an assessment of the 
efforts to date of the Department's efforts in identifying, evaluating, 
and implementing joint DoD/VA resource sharing projects.

If you have any questions, please contact Ms. Connie McDonald 
(functional) at (703) 681-1724 and Mr. Gunther J. Zimmerman (Audit 
Liaison) at (703) 681-3492, ext. 4065.

Signed by: 

William Winkenwerder, Jr., MD:

Attachment: As stated:

[End of section]

Enclosure II: Comments from the Department of Veterans Affairs: 

DEPARTMENT OF VETERANS AFFAIRS: ASSISTANT SECRETARY FOR CONGRESSIONAL 
AND LEGISLATIVE AFFAIRS: WASHINGTON DC 20420:

February 16, 2005:

Ms. Cynthia A. Bascetta: 
Director:
Health Care Team:
U. S. General Accounting Office: 441 G Street, NW: 
Washington, DC 20548:

Dear Ms. Bascetta:

The Department of Veterans Affairs (VA) has reviewed your draft report, 
DOD and VA Health Care: Incentives Program for Sharing Resources (GAO- 
05-310R) and concurs as it pertains to VA. Nevertheless, we offer these 
technical comments that we believe will improve the overall accuracy of 
your report.

On page 2, lines 1 and 2: delete "DOD's TRICARE Management Activity 
(TMA) and VA's Medical Sharing Office administer", and replace it with 
"The Financial Management Workgroup under the Health Executive Council 
(HEC) administers..."

On page 2, 3rd line from bottom: Replace "within two years'' with: 
"after the project is no longer supported by the incentive fund"

On page 2, Footnote # 5: Delete words "funded and"

On page 3, line 4: Change "57" to "58"

On page 3, Footnote #7: Change "VA's Resources Sharing Office" to "VHA 
Office of Finance"

On page 4, line 1: Change "within two years of the initial award" to 
"after incentive funds are no longer supporting the project"

On page 4, line 8: Replace "within two years" with "after incentive 
funds are no longer supporting the project"

On page 4, line 9: Replace "Disbursements" with "Disbursement"

On page 4, second paragraph, line 3: Add a comma after KS.

VA appreciates the opportunity to comment on your draft report.

Sincerely yours,

Signed by: 

P.M. Iovino: 

[End of section]

(290367):

FOOTNOTES

[1] DOD estimates the number of its eligible beneficiaries for fiscal 
year 2005 to be 9.1 million. VA estimates the number of enrolled 
beneficiaries to be 7.7 million.

[2] Pub. L. No. 97-174, 96 Stat. 70.

[3] Pub. L. No. 107-314, 721(a)(1), 116 Stat. 2458, 2589-2595 (2002).

[4] DOD-VA Health Care Sharing Incentive Fund.

[5] FMWG membership includes representatives from the Veterans Health 
Administration Office of Finance, the Office of Patient Care Services, 
the Office of the Deputy Under Secretary for Health for Operations and 
Management, and the Office of Health Informatics. DOD membership 
includes representatives from the Departments of the Army, Navy, and 
Air Force; Health Affairs; and the TRICARE Management Activity (TMA). 

[6] HEC membership includes senior leaders from DOD and VA who are 
working to institutionalize DOD and VA sharing and collaboration to 
ensure the efficient use of health services and resources. The 
committee is co-chaired by DOD's Assistant Secretary of Defense for 
Health Affairs and VA's Under Secretary for Health. 

[7] The NDAA requires us to report on the program's effectiveness. As 
of January 2005, however, the projects had not been under way for a 
sufficient period for us to evaluate their results.

[8] See also U.S. GAO, DOD and VA Health Care: Incentives Program for 
Sharing Resources, GAO-04-495R (Washington, D.C.: Feb. 27, 2004).

[9] The management of VA's hospitals and other health care facilities 
is decentralized to 21 regional networks referred to as Veterans 
Integrated Service Networks.