This is the accessible text file for GAO report number GAO-14-49 
entitled 'Defense Health Care Reform: Additional Implementation 
Details Would Increase Transparency of DOD's Plans and Enhance 
Accountability' which was released on November 6, 2013. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

November 2013: 

Defense Health Care Reform: 

Additional Implementation Details Would Increase Transparency of DOD's 
Plans and Enhance Accountability: 

GAO-14-49: 

GAO Highlights: 

Highlights of GAO-14-49, a report to congressional committees. 

Why GAO Did This Study: 

Over the past decade, the cost of DOD’s MHS has increased to almost 
$50 billion and is expected to double by 2030. Section 731 of the 
National Defense Authorization Act for Fiscal Year 2013 required DOD 
to provide three submissions detailing its plan to reform its MHS 
governance structure and also mandated that GAO submit an analysis of 
DOD’s first two submissions. This report addresses the extent to which 
DOD’s March and June 2013 submissions met the statutory requirements 
and reflect key management practices. GAO compared DOD’s submissions 
for reforming its MHS governance structure with the (1) statutory 
requirements and (2) key management practices contained in GAO’s 
Business Process Reengineering Assessment Guide and other relevant GAO 
work. Additionally, GAO interviewed DOD officials from the Office of 
the Assistant Secretary of Defense for Health Affairs, the MHS 
Transition Office, and the military services’ Surgeons General offices. 

What GAO Found: 

GAO determined that the Department of Defense’s (DOD) March and June 
2013 submissions on establishing a Defense Health Agency (DHA) to 
reform the governance of the Military Health System (MHS) met three 
statutory requirements to include information on goals, performance 
measures, and staffing; partially met one requirement to include 
information on timelines; and was not required to include information 
on shared services because the reporting time frame was not 
applicable. GAO also assessed the submissions to determine the extent 
to which DOD incorporated key management practices from GAO’s prior 
work on business-process reengineering. DOD’s submissions provided 
some useful information but did not fully incorporate some key 
management practices as explained below. 

* DOD presented 87 performance measures under its seven goals for its 
MHS reform. However, those measures do not fully exhibit the 
attributes of successful performance measures that can help agencies 
determine whether they are achieving their goals as well as identify 
areas for improvement. Examples of key attributes include clarity, 
measurable targets, and baseline data. None of DOD’s measures included 
an accompanying explanation, definition, or a quantifiable target nor 
did they include information regarding relevant baseline assessments. 

* DOD provided a list of major governance milestones and an overall 
schedule for activities related to establishing the DHA. However, 
DOD’s implementation timeline did not include interim milestones for 
four of the seven goals of its reform. A key practice for agencies 
undergoing business transformations is to develop a detailed 
implementation plan with milestones for all actions so that progress 
can be closely monitored. 

* In its June submission, DOD provided an estimate of authorized staff 
needed as of October 1, 2013, for the DHA. However, DOD does not have 
the information to determine how the creation of the DHA will affect 
the total number of MHS headquarters staff because it has not 
completed an updated baseline assessment of current staffing levels. 
Key management practices require agencies to be aware of the size, 
knowledge, skills, and abilities of their workforces to pursue their 
missions. DOD planned to submit revised estimated staffing levels in a 
September 30, 2013 submission to Congress. 

* DOD presented business cases that included a breakdown of estimated 
implementation costs and aggregated cost-savings estimates for the 
consolidation of four shared services. However, some key details of a 
sound business case were missing, such as the basis for the savings. 
DOD’s business cases aggregated the separate business lines of its 
shared services, which obscures the size and cost of planned 
efficiencies for each discrete business line, and it did not assess 
the risk that implementation costs could increase. 

Without more clear, complete, and transparent information on DOD’s 
plan for establishment of the DHA, it will be difficult for decision 
makers to gauge progress and identify areas of risk that will need to 
be monitored during implementation. 

What GAO Recommends: 

To provide decision makers with more complete information on the 
implementation of DOD’s newly created DHA, GAO recommends that DOD 
develop and present to Congress fully developed performance measures, 
interim timelines, and staffing baseline assessments, and refined cost 
savings estimates. In written responses to this report, DOD concurred 
with each of GAO’s recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-14-49]. For more 
information, contact Brenda S. Farrell at 202-512-3604 or 
farrellb@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

DOD's Submissions for Its MHS Reform Largely Met Statutory 
Requirements but Did Not Fully Incorporate Some Key Management 
Practices: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Comments from the Department of Defense: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Table: 

Table 1: Attributes of Performance Measures: 

Figures: 

Figure 1: Organizational Structure of the Military Health System Prior 
to October 1, 2013: 

Figure 2: Military Health System Governance Transition Organizational 
Structure: 

Figure 3: Proposed Defense Health Agency Organizational Chart: 

Abbreviations: 

DHA: Defense Health Agency: 

DOD: Department of Defense: 

JTF CAPMED: Joint Task Force National Capital Region Medical: 

MHS: Military Health System: 

OASD HA: Office of the Assistant Secretary of Defense for Health 
Affairs: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

November 6, 2013: 

Congressional Committees: 

On October 1, 2013, the Department of Defense (DOD) established a new 
Defense Health Agency (DHA) to assume management responsibility of 
numerous functions of its medical health care system. This change 
comes after a long series of studies since 1949 addressing the issue 
of the governance structure of DOD's Military Health System (MHS). DOD 
faces increasing pressure on its budgetary resources, and in a March 
2013 memorandum directing the establishment of a DHA, the Secretary of 
Defense noted that DOD needs to be responsive to current fiscal 
challenges facing the nation. Over the past decade, the Defense Health 
Program budget has grown substantially, from $19 billion in fiscal 
year 2001 to the fiscal year 2014 budget request of $49.4 billion. 
Further, the Congressional Budget Office has projected MHS costs to 
reach about $92 billion by 2030. As health care consumes an 
increasingly large portion of the defense budget, DOD leadership has 
acknowledged the need to reduce duplication and overhead, operate its 
health system as efficiently as possible, and realize savings in the 
MHS through the adoption of common clinical and business processes. In 
recent years, numerous sources such as the Defense Business Board in 
2006,[Footnote 1] Defense Health Board in 2007,[Footnote 2] and DOD-
initiated internal efficiency reviews,[Footnote 3] as well as our 
previous reviews of DOD's medical governance,[Footnote 4] have 
identified areas for reform of DOD's health care system. As a result, 
DOD established the DHA and chartered an implementation planning team 
consisting of officials from throughout the MHS to provide continuing 
oversight, management direction, and support of this reform. 

Following DOD's 2012 decision to implement this reform to the 
governance of the MHS, the National Defense Authorization Act for 
Fiscal Year 2013 required that DOD create a detailed implementation 
plan for carrying out its health care system reform, and provide it to 
the congressional defense committees in three separate submissions in 
fiscal year 2013. In a submission due no later than March 31, 2013, 
Congress required DOD to provide goals it is to achieve while carrying 
out the reform along with a detailed schedule to carry out the reform, 
including a schedule for meeting its goals. In a second submission, 
due no later than June 30, 2013, Congress required DOD to provide 
metrics to evaluate the achievement of each goal, the required 
personnel levels, and specific information on the shared services 
[Footnote 5] that DOD planned to implement during fiscal year 2013. In 
the third submission, due no later than September 30, 2013, Congress 
required DOD to provide details concerning the shared services it 
planned to implement during fiscal year 2014. DOD provided its first 
submission to the congressional defense committees on March 15, 2013, 
and its second submission on June 27, 2013. 

The National Defense Authorization Act for Fiscal Year 2013 further 
required that GAO submit to the congressional defense committees a 
review of the contents of the first two submissions of DOD's plan to 
assess whether DOD met the statutory requirements. In May 2013, we 
provided a briefing to the committees on information that included the 
extent to which DOD's March 2013 first submission on its plan for MHS 
governance reform contained the statutorily required elements of goals 
and a schedule for achievement of those goals. We also included our 
preliminary observations on how well DOD's goals linked to the 
proposed responsibilities of its new DHA and how the schedule could be 
improved by incorporating features that we have found to be useful in 
effective planning for achieving performance and cost-savings goals. 
As a result of that briefing to the House Armed Services Committee 
personnel, the House Report accompanying a bill for the National 
Defense Authorization Act for Fiscal Year 2014 included language that 
directed the Secretary of Defense to provide the House Armed Services 
Committee with additional information to address the shortcomings that 
we had identified. DOD provided additional information to respond to 
the shortcomings we had identified regarding DOD's first submission in 
its June 2013 second submission and a supplemental report to the 
committee on August 16, 2013. For this report, we are consolidating 
the results of our review of both DOD's March and June 2013 
submissions to Congress. Accordingly, our objective for this report 
was to determine to what extent DOD's March and June 2013 medical 
governance submissions address statutory requirements and reflect key 
management practices. 

To determine the extent to which DOD's March and June 2013 submissions 
of its plan to reform its MHS governance address the statutory 
requirements, we obtained and reviewed both of DOD's submissions to 
the congressional defense committees and the elements required by the 
National Defense Authorization Act for Fiscal Year 2013. We compared 
the two to determine the submissions' compliance with the statutory 
requirements. We rated compliance for each requirement as "addressed," 
"partially addressed," or "not addressed." We considered the 
requirement to be "addressed" in the submission when DOD explicitly 
addressed all parts set forth in the requirement. We considered the 
requirement "partially addressed" in the submission when DOD addressed 
at least one or more, but not all, parts of the requirement. We 
considered the requirement "not addressed" by DOD when the submission 
did not explicitly address any part of the requirement. Further, to 
determine the extent to which these medical governance submissions 
reflected key management practices as identified in GAO's Business 
Process Reengineering Assessment Guide and other leading practices we 
have identified in our prior work,[Footnote 6] we focused our review 
specifically on the information contained in the March and June 2013 
medical governance submissions DOD submitted to Congress. Using our 
prior work that identified key management practices and key 
characteristics of effective planning for achieving performance and 
cost-savings goals, we determined whether DOD's March and June 2013 
submissions included information consistent with those practices or 
characteristics. Additionally, we analyzed DOD's August 16, 2013, 
supplemental report[Footnote 7] to determine if the information it 
provided was consistent with our identified key management practices. 
Further, we conducted interviews with officials, including those from 
the Office of the Assistant Secretary of Defense for Health Affairs 
(OASD HA), the MHS Governance Transition Office, the Offices of the 
Surgeons General for the Army, the Navy, and the Air Force, and the 
TRICARE Management Activity to clarify how DOD's submissions were 
developed and to understand the structure that DOD has established to 
manage its transition to a DHA. 

We conducted this performance audit from March 2013 to November 2013 
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. 

Background: 

The MHS is a complex organization that provides health services to 
almost 10 million beneficiaries across a range of care venues, 
including the battlefield, traditional hospitals and clinics at 
stationary locations, and authorized civilian providers. As we 
reported in 2005, DOD's health care system is an example of a key 
challenge facing the U.S. government in the 21st century as well as an 
area in which DOD can achieve economies of scale and improve delivery 
by combining, realigning, or otherwise changing selected support 
functions.[Footnote 8] Additionally, in 2011, we reported that the 
responsibilities and authorities for DOD's military health system were 
distributed among several organizations within DOD with no central 
command authority or single entity accountable for minimizing costs 
and achieving efficiencies.[Footnote 9] Under the MHS command 
structure that existed prior to October 1, 2013, the OASD HA, the 
Army, the Navy, and the Air Force each had its own headquarters and 
associated support functions, such as information technology, human 
capital management, financial activities, and contracting. 
Additionally, the three services' Surgeons General were responsible 
for overseeing their deployable medical forces and operating their 
health care systems.[Footnote 10] OASD HA manages the Defense Health 
Program budget, but this office does not directly supervise the 
services' medical personnel. See figure 1 for the organizational 
structure prior to October 1, 2013.[Footnote 11] 

Figure 1: Organizational Structure of the Military Health System Prior 
to October 1, 2013: 

[Refer to PDF for image: Organizational chart] 

Top level: 
Secretary of Defense; 
* Deputy Secretary of Defense. 

Second level: reporting to Secretary of Defense: 
* Secretary of the Navy; 
* Secretary of the Army; 
* Secretary of the Air Force; 
* Under Secretary of Defense for Personnel and Readiness. 

Third level, reporting to Secretary of the Navy: 
* Chief of Naval Operations. 

Third level, reporting to Secretary of the Army: 
* Chief of Staff of the Army. 

Third level, reporting to Secretary of the Air Force: 
* Chief of Staff of the Air Force. 

Third level, reporting to Under Secretary of Defense for Personnel and 
Readiness: 
* Assistant Secretary of Defense for Health Affairs: 
- TRICARE Management Activity[B]. 

Fourth level, reporting to Chief of Naval Operations: 
* Navy Surgeon General[C]; 
- Navy Bureau of Medicine and Surgery; 
- Military Treatment Facilities. 

Fourth level, reporting to Chief of Staff of the Army: 
* Army Surgeon General[C]; 
- Army Medical Command; 
- Military Treatment Facilities. 

Fourth level, reporting to Chief of Staff of the Air Force: 
* Air Force Surgeon General[C]; 
* Air Force Major Command: 
- Military Treatment Facilities. 

Fourth level: reporting to Secretary of Defense: 
* Joint Task Force National Capital Region Medical (JTF CAPMED)[A]; 
- Walter Reed National Military Medical Center; 
- Fort Belvoir. 

Source: DOD. 

[A] The Joint Task Force National Capital Region Medical (JTF CAPMED) 
was an additional medical organizational structure and reporting chain 
that was established in 2007 to manage the Military Treatment 
Facilities within the National Capital Region and the execution of 
related 2005 Base Realignment and Closure actions in that area. The 
JTF CAPMED and its Commander reported 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. 

[B] DOD provides civilian health care to millions of eligible 
beneficiaries through its TRICARE program, which was managed by the 
TRICARE Management Activity prior to October 1, 2013. 

[End of figure] 

Over the years, many efforts to control the increase in health care 
costs led to a long series of studies to address the governance 
structure of the MHS and to recommend major organizational 
realignments. Most recently, in March 2011, the Deputy Secretary of 
Defense established an internal task force to conduct a review of the 
governance of the MHS. The task force identified (1) cost containment, 
(2) greater integration, and (3) increased unity of effort as priority 
objectives for the MHS. The task force's September 2011 report noted 
the need for clear decision authority and accountability. Following 
numerous internal discussions, DOD submitted a report to Congress in 
March 2012 outlining various options for reforming the MHS governance, 
including creating a DHA. Additionally, at that time, the Deputy 
Secretary of Defense directed DOD leadership to develop an 
implementation plan that would center on the establishment of a DHA. 
As a result of that direction, the department began implementation 
planning for this change, including organizational changes. 

MHS Governance Transition Organization Chartered to Direct Reform: 

To help ensure that the department maintained momentum on this reform, 
the Deputy Secretary of Defense directed the formation of a team to 
develop an implementation plan for the governance changes. As a 
result, the Assistant Secretary of Defense for Health Affairs 
established a chartered MHS Governance Transition Organization to 
provide oversight, management, and support for the implementation of 
MHS governance reforms in March 2013.[Footnote 12] This transition 
organization consists of individuals, an action group, an advisory 
council, along with a review board, each with specific roles and 
responsibilities. This organization is chartered to exist until 
October 2015, when the DHA is expected to reach full operating 
capability. The formation of this MHS Governance Transition 
Organization addresses a concern that we expressed to DOD in a 
previous report[Footnote 13] about how DOD did not form an overarching 
team to manage the implementation of a 2006 attempt to institute 
changes to its medical governance structure. See figure 2 for a 
diagram of the MHS Governance Transition Organization. 

Figure 2: Military Health System Governance Transition Organizational 
Structure: 

[Refer to PDF for image: Organizational chart] 

Top level: 
Secretary of Defense: 
Deputy Secretary of Defense. 

Second level: 
Under Secretary of Defense (Personnel and Readiness)/Military Health 
System Executive Review. 

Third level: 
Assistant Secretary of Defense (Health Affairs), 

Fourth level: 
Senior Military Medical Advisory Council. 

Fifth level: 
Medical Deputies Action Group. 

Transition teams: report up to the fifth level: 
* Analysis and Metrics; 
* Military Health System Transition Office; 
* Program Management Office Transition support. 

Reporting up to Military Health System Transition Office: 
* Office of the Assistant Secretary of Defense (Health Affairs); 
* Enhanced Multi-Service Market; 
* Headquarters Defense Health Agency: 
- Shared Services; 
- National Capital Region; 
* Shared Services Identification. 

Source: DOD. 

[End of figure] 

The roles and responsibilities of the primary leaders within the MHS 
for overseeing the governance reform are as follows: 

* The Deputy Secretary of Defense serves as the final decision maker 
on all changes to MHS governance. 

* The Under Secretary of Defense for Personnel and Readiness will 
approve the implementation plans. 

* The Military Health System Executive Review, which is chaired by the 
Under Secretary of Defense for Personnel and Readiness and has other 
members such as the Vice Chiefs of Staff for the three services as 
well as the Director of the Joint Staff, will provide a forum for 
dispute resolution and oversight of MHS governance transition and 
implementation activities. 

* The Assistant Secretary of Defense for Health Affairs is accountable 
for the overall management and direction of the MHS Governance 
Transition Organization. 

* The Senior Military Medical Advisory Council, which is chaired by 
the Assistant Secretary of Defense for Health Affairs and includes the 
service Surgeons General and others, will review, recommend, and 
advise the Assistant Secretary of Defense for Health Affairs on 
service-specific implementation issues. 

* The Medical Deputies Action Group, which consists of the service 
Deputy Surgeons General, the Joint Staff Surgeon, and a DHA 
representative, and is chaired by the Principal Deputy Assistant 
Secretary of Defense for Health Affairs, provides oversight of the 
detailed activities of the transition office and its subordinate 
transition teams. 

* The MHS Governance Transition Office provides oversight of day-to-
day implementation activities, to include such actions as (1) 
integrating all transition teams' activities; (2) compiling all 
implementation costs, cost savings, and cost avoidance that result 
from transition activities, and (3) updating higher management at 
least weekly on progress and issues, and developing reports, 
presentations, and other necessary documents. 

DHA Organizational Structure Establishes Centralized Accountability 
for Consolidated Shared Services: 

The MHS Governance Transition Organization with its component parts is 
working to implement the governance reforms laid out by the Deputy 
Secretary of Defense to establish the DHA that will support the 
execution of policy, manage the military's health plan, manage medical 
operations within the National Capital Region,[Footnote 14] and 
provide shared services. In doing so, the DHA will support the 
services in execution of their medical missions. See figure 3 below 
for the organizational chart of the proposed DHA. 

Figure 3: Proposed Defense Health Agency Organizational Chart: 

[Refer to PDF for image: Organizational chart] 

Top level: 
Policy development: 
* Secretary of Defense: 
- Under Secretary of Defense (Personnel and Readiness); 
- Assistant Secretary of Defense (Health Affairs); 
Policy execution: 
* Defense Health Agency Director[C]; 
- Deputy Director. 

Chairman, Joint Chiefs of Staff: 
Connected to: 
Secretary of Defense; 
Defense Health Agency Director. 

Next level, reporting to Defense Health Agency Director: 
* Healthcare Operations Directorate[B]: 
- Warrior Care Program; 
- Clinical Support; 
- Public Health; 
- Pharmacy; 
- Health Plan Integration; 
- Readiness; 
* Research and Development Directorate[A]; 
* Health Information Technology Directorate: 
- Innovation; 
- Solution Delivery; 
- Information Delivery; 
- Governance, Customer Relations and Management; 
- Infrastructure and Operations; 
- Information Security and Privacy; 
* Education and Training Directorate[A]; 
* Business Support Directorate: 
- Facility Planning; 
- Medical Logistics; 
- Contracting; 
- Acquisition Management and Support; 
- Budget and Resource Management; 
* National Capital Region Directorate[B]: 
- Walter Reed National Military Medical Center[A]; 
- Ft. Belvoir Community Hospital. 

Source: DOD. 

[A] One star flag officer heads the directorate. 

[B] Two star flag officer heads the directorate. 

[C] Three star flag officer heads the Defense Health Agency. 

[End of figure] 

Officials discussed the proposed DHA organization with us and provided 
general descriptions of the subordinate directorates shown in figure 
3. According to these officials, 

* the proposed Healthcare Operations Directorate would manage MHS 
operations in such areas as pharmacy, public health issues, the 
warrior care program, clinical support, readiness, and the health plan 
for beneficiaries; 

* the proposed Research and Development Directorate would manage MHS 
operations in the area of medical research and development issues; 

* the proposed Health Information Technology Directorate would manage 
MHS operations in such areas as information security and privacy, 
information delivery, infrastructure and operations, and innovation; 

* the proposed Education and Training Directorate would manage MHS 
operations in the area of medical education and training for all MHS 
personnel; 

* the proposed Business Support Directorate would manage MHS 
operations in such areas as facility planning, medical logistics, 
budget and resources management, acquisition management, and 
contracting; and: 

* the proposed National Capital Region Directorate would exercise 
authority, direction, and control over the inpatient facilities and 
subordinate clinics to deliver healthcare to eligible beneficiaries--
military personnel and their dependents, eligible National Guard and 
Reserve personnel and their dependents, and retirees and their 
dependents and survivors--in the National Capital Region. 

According to DOD's March and June 2013 medical governance submissions 
to Congress, its plan to reform the MHS governance structure is 
intended to further integrate its health care delivery system and to 
enhance the way resources and care are coordinated and redistributed 
across a variety of delivery sites to best address population needs. 
In 2003 the Under Secretary of Defense for Personnel and Readiness 
designated responsibilities and authorities for Multi-Service Markets, 
[Footnote 15] which included common appointment processes, referral 
management, and capacity and workload planning. DOD's June 2013 
submission states that the initial attempts to implement this concept 
demonstrated some success. Further, DOD's first submission states that 
substantial improvements in clinical and business processes will 
occur, and major reductions in cost through standardized processes and 
recapture of private-sector care are most achievable at this 
multiservice market level. As such, DOD has designated six areas 
throughout the country as enhanced Multi-Service Markets[Footnote 16] 
that will implement 5-year performance plans to produce improvements 
in clinical and business practices and cost, infrastructure, and 
personnel reductions. The details of how these improvements will be 
achieved and their yearly cost and performance targets are to be 
specified in performance plans that are to be submitted to the 
Assistant Secretary of Defense (Health Affairs) through both the 
Medical Deputies Action Group and the Senior Military Medical Advisory 
Council as part of the MHS governance reform. Additionally, because 
the enhanced Multi-Service Markets managers will be accountable for 
performance of military treatment facilities operated by more than one 
military service, DOD has reported that it has established a new 
governance structure with representation from the three services, and 
the DHA has been implemented to provide oversight for the planning, 
implementation, and execution of business performance plans. 

A final component of the new DHA is the establishment of the National 
Capital Region Directorate. According to DOD, this arrangement keeps 
the joint organizational structure of the two inpatient hospitals 
within the National Capital Region--Walter Reed National Military 
Medical Center at Bethesda and Fort Belvoir Community Hospital--as 
well as allowing a reduction to the number of intermediate-level 
headquarters' overhead positions. 

DOD's Submissions for Its MHS Reform Largely Met Statutory 
Requirements but Did Not Fully Incorporate Some Key Management 
Practices: 

The National Defense Authorization Act for Fiscal Year 2013 required 
that DOD's first two submissions on health care governance reform to 
Congress include (1) goals to achieve while carrying out the reform, 
(2) performance measures to evaluate the achievement of each goal, (3) 
the required personnel levels, (4) a detailed schedule for carrying 
out reform goals including a schedule for meeting the goals, and (5) 
detailed information in a business-case analysis for each shared 
service to be implemented during fiscal year 2013. In its March and 
June 2013 submissions of its plan for the MHS governance reform, DOD 
addressed the first three statutory requirements, partially addressed 
the fourth, and was not required to address the last item. 
Specifically, in its submissions, DOD presented (1) one overall and 
seven subordinate goals of its reform, (2) performance measures it 
plans to use to evaluate the achievement of each of the goals, and (3) 
an estimate of the personnel levels required for the DHA. However, DOD 
partially addressed its statutory requirement to provide information 
about its schedule for carrying out the reform because it presented 
milestones for only four of the seven subordinate goals. Lastly, the 
statute required DOD to present detailed information in a business-
case analysis for each shared service that was implemented during 
fiscal year 2013. However, DOD did not plan to implement any shared 
services in fiscal year 2013, and thus it was not required by statute 
to provide business case analyses for any shared services. 
Nonetheless, DOD included a discussion of the first four shared 
services it plans to implement in fiscal year 2014, which were medical 
logistics, facilities planning, health information technology, and the 
health care plan. DOD was required to submit a third submission in 
September 2013 that would address its business-case analyses for 
shared services to be implemented in fiscal year 2014. 

In addition to determining whether DOD's submissions addressed the 
statutory requirements, we determined the extent to which DOD 
incorporated key management practices derived from GAO's past work 
into its March and June 2013 submissions. DOD's submissions of its 
plan for MHS governance reform provided some useful information but 
did not fully incorporate some key management practices that we have 
found promote effective planning, implementation, and oversight in 
managing successful business-process reengineering. In discussing 
DOD's required submissions with officials, they said that they 
followed the guidance in our Business Process Reengineering Assessment 
Guide as they moved forward. This guide covers a wide range of 
activities, such as identifying mission and goals, establishing 
performance measures to gauge progress, developing a sound business 
case for implementing the new process, and identifying appropriate 
staffing levels.[Footnote 17] DOD's submissions do reflect some of 
these practices, including information on how DOD believes the goals 
for the reform would result in improvements and savings within the MHS 
and high-level business-case analyses for its efficiency efforts. 
However, DOD's submissions did not fully incorporate these key 
management practices because they did not include clear, quantifiable, 
objective performance measures and a baseline assessment of current 
performance; interim timelines for meeting four of the seven goals; 
complete implementation costs for its business-case analyses for 
shared services; and estimated personnel levels for full operating 
capability. The inclusion of such information would help more-fully 
explain how DOD intends to implement and oversee this significant 
transition. 

Some of DOD's Goals Presented in Its March 2013 Submission Were Not 
Clearly Linked to the Responsibilities of the DHA but Were Later 
Clarified: 

DOD's March 2013 submission for MHS governance reform was required to 
contain goals to achieve while carrying out the reform--including 
goals with respect to improving clinical and business practices and 
reductions in costs, infrastructure, and personnel. In the March 
submission, DOD addressed this requirement by presenting the goals of 
the reform in the form of one overall strategic goal and seven 
subordinate goals. DOD's overarching strategic goal for its MHS is to 
achieve greater system integration. Its seven subordinate goals are as 
follows: 

(1) promote more-effective and efficient health care operations 
through enhanced enterprise-wide shared services; 

(2 deliver more-comprehensive primary care and integrated health 
services using advanced patient-centered medical homes; 

(3) coordinate care over time and across treatment settings to improve 
outcomes in the management of chronic illness, particularly for 
patients with complex medical and social problems; 

(4) match personnel, infrastructure, and funding to current missions, 
future missions, and population demand; 

(5) establish more interservice standards and metrics, and standardize 
processes to promote learning and continuous improvement; 

(6) create enhanced value in military medical markets using an 
integrated approach specified in 5-year business performance plans; 
and, 

(7) align incentives with health and readiness outcomes to reward 
value creation. 

Although DOD met the statutory requirements to submit goals, its 
initial submission did not clearly show the linkage between the goals 
and the mission of the transformation. GAO's Business Process Re-
Engineering Assessment Guide states that agencies should develop goals 
that are clearly linked to the agency's mission and what needs to be 
accomplished to help challenge and motivate an agency to modify its 
performance.[Footnote 18] According to DOD's submissions, the 
strategic vision of the MHS transformation is "to deliver a 
coordinated continuum of preventive and curative services to eligible 
beneficiaries and be accountable for health outcomes and cost while 
supporting the services' warfighter requirements." DOD has stated that 
it selected the DHA to be the organizational structure that will allow 
the department to achieve this mission by accelerating the 
implementation of shared services with common clinical and business 
practices. 

We found that three of DOD's subordinate goals--(1) promote more-
effective and efficient health care operations through enhanced 
enterprise-wide shared services; (2) establish more interservice 
standards/metrics, and standardize processes to promote learning and 
continuous improvement; and (3) create enhanced value in military 
medical markets using an integrated approach specified in 5-year 
business performance plans--were clearly linked to the establishment 
of the DHA in that it was clear how the new agency would be 
responsible for implementing or supporting these goals. However, we 
found that the remaining four subordinate goals--(1) deliver more-
comprehensive primary care and integrated health services using 
advanced patient-centered medical homes; (2) coordinate care over time 
and across treatment settings to improve outcomes in the management of 
chronic illness, particularly for patients with complex medical and 
social problems; (3) match personnel, infrastructure, and funding to 
current missions, future missions, and population demand; and, (4) 
align incentives with health and readiness outcomes to reward value 
creation--did not clearly link to the DHA's proposed responsibilities, 
because either the responsibilities stemming from the four subordinate 
goals already belong to the services or the goal is not clearly 
defined. Moreover, in some cases, the function could be achieved 
regardless of the existence of the DHA. For example, one of the goals 
is to deliver more-comprehensive primary care and integrated health 
services using advanced patient-centered medical homes. However, the 
services are responsible for delivering all primary care, and as such, 
DOD officials told us that each service began implementing its own 
patient-centered medical homes model approximately 3 years prior to 
the establishment of the DHA as a means to address concerns in growing 
dissatisfaction with patient care. Another goal of the reform is to 
coordinate care over time and across treatment settings to improve 
outcomes in the management of chronic illness, particularly for 
patients with complex medical and social problems. However, this 
function was already being performed prior to the establishment of the 
DHA, as the services are currently responsible for coordinating care 
across treatment settings. 

Subsequent to DOD's submission of its goals in its March 2013 
submission and our May 2013 congressional briefing on our preliminary 
observations of this submission, the House Report accompanying the 
proposed National Defense Authorization Act for Fiscal Year 2014 
directed the Secretary of Defense to provide the House Armed Services 
Committee with more information concerning how DOD developed its goals 
and to clarify the linkage of the goals to the responsibilities of the 
newly formed DHA. DOD responded to this direction by providing 
additional details in its June 2013 submission that were absent from 
its March 2013 submission. Specifically, DOD explained who derived and 
approved the goals, what responsibilities the new DHA would have in 
achieving its goals, and how clinical and business practices would be 
improved with the creation of the DHA, as well as what cost, 
infrastructure, and personnel reductions could be expected from this 
reform. In the June submission, DOD stated the seven goals were 
derived and endorsed by the MHS leadership, including the Surgeons 
General of the services. In addition, DOD provided an explanation as 
to how each goal related to the DHA. For instance, DOD explained that 
implementation of the patient-centered medical home model on a service-
specific basis had resulted in significant clinical and business 
process variation among the services, along with use of different 
metrics. According to DOD's June 2013 submission, the DHA will 
standardize the patient-centered medical home model through, among 
other means, the DHA Health Care Operations Directorate, which will 
monitor enterprise performance with measures applied consistently 
across the services, such as standardized business processes for 
appointments and referral management. In addition, in its June 2013 
submission, DOD provided an explanation of the clinical and business-
practice improvements and cost, infrastructure, and personnel 
reductions to be realized for each goal. For instance, a DOD study 
found a significant positive effect on various cost and utilization 
metrics at three patient-centered medical home implementation sites, 
including lower utilization rates of inpatient services, emergency 
room, and urgent care services, with decreases in per member per month 
costs. In its June 2013 submission, DOD explained that on the basis of 
this study, it anticipates that using the DHA to monitor, evaluate, 
and promulgate patient-centered medical home successes should result 
in costs reductions across the Military Health System. 

DOD Addressed Statutory Requirement to Provide Performance Measures; 
However, the Measures Do Not Fully Meet Best Practices: 

DOD's June 2013 submission was required to include performance 
measures to evaluate the achievement of each reform goal with respect 
to the purpose, objective, and improvements made by each goal. We 
found that DOD addressed this requirement because it listed in its 
June 2013 submission 87 different performance measures aligned under 
the seven subordinate goals.[Footnote 19] However, in analyzing the 
measures DOD included in the submission, we found those measures do 
not exhibit important attributes of successful performance measures 
that we established in our prior work. We have previously reported 
[Footnote 20] that federal agencies engaging in large projects, 
including consolidating management functions, can use performance 
measures to determine how well they are achieving their goals and 
identify areas for improvement, if needed. Additionally, we have found 
that by tracking and developing a performance baseline for all 
measures, agencies can better evaluate progress made and whether or 
not goals are being achieved. By using performance measures, ongoing 
monitoring, and reporting on activities in a transparent manner, key 
decision makers can obtain feedback for improving both policy and 
operational effectiveness. Identifying and reporting deviations from 
the baseline as a program proceeds provides valuable information for 
oversight by identifying areas of program risk and their causes to 
decision makers. Through our prior work on performance measurement, we 
have identified several important attributes of performance measures 
(see table 1).[Footnote 21] 

Table 1: Attributes of Performance Measures: 

Attribute: Balance; 
Definition: Balance exists when a suite of measures ensures that an 
organization's various priorities are covered. 

Attribute: Clarity; 
Definition: Measure is clearly stated and the name and definition are 
consistent with the methodology used to calculate it. 

Attribute: Core program activities; 
Definition: Measures cover the activities that an entity is expected 
to perform to support the intent of the program. 

Attribute: Governmentwide priorities; 
Definition: Each measure should cover a priority such as quality, 
timeliness, and cost of service. 

Attribute: Limited overlap; 
Definition: Measure should provide new information beyond that 
provided by other measures. 

Attribute: Linkage; 
Definition: Measure is aligned with division and agencywide goals and 
mission and is clearly communicated throughout the organization. 

Attribute: Measurable target; 
Definition: Measure has a numerical goal. 

Attribute: Objectivity; 
Definition: Measure is reasonably free from significant bias or 
manipulation. 

Attribute: Reliability; 
Definition: Measure produces the same result under similar conditions. 

Attribute: Baseline and Trend Data; 
Definition: Measure has a baseline and trend data associated with it 
to identify, monitor, and report changes in performance and to help 
ensure that performance is viewed in context. 

Source: GAO. 

[End of table] 

In its June 2013 submission, DOD listed 87 performance measures to 
assess its seven goals, and provided only the measures' names with no 
accompanying explanation, definition, or a quantifiable, numerical 
target for performance. For example, DOD listed "HEDIS preventive 
measures" as a performance measure without an accompanying explanation 
or definition. Another measure DOD listed was "TRICARE Service 
Centers," which does not indicate specifically what aspect of the 
service centers is to be observed and measured. Further, decision 
makers using the submission will be unable to determine to what extent 
there is overlap among the measures because DOD did not provide an 
explanation of what each measure will evaluate, which could be used to 
determine whether the measures provide new information beyond that 
provided by other measures. For example, two of the measures listed 
under its second goal are "satisfaction with provider communications" 
and "satisfaction with health care." As presented in the submission, 
it is not possible to determine whether there is any overlap between 
these measures, because the aspects of satisfaction are not clarified 
by any accompanying explanation. In addition, decision makers will not 
be able to determine the objectivity of DOD's measures because there 
is no information accompanying the measures that indicates 
specifically what is to be observed, in which population or 
conditions, and in what time frame. Such information would allow them 
to determine whether the measures are reasonably free from significant 
bias or manipulation. For example, one of the measures is "savings 
achieved versus savings projected." This measure does not indicate 
specifically how savings will be measured, nor does it indicate what 
time frame will be used to compare what savings were projected versus 
what was actually saved. As we have previously reported, performance 
measurement is the ongoing monitoring and reporting of program 
accomplishments, particularly progress toward preestablished goals. 
[Footnote 22] It, additionally, involves identifying performance goals 
and measures, including establishing performance baselines by tracking 
performance over time, identifying targets for improving performance, 
and measuring progress against those targets.[Footnote 23] In its June 
2013 submission, DOD did not include numerical targets for performance 
or a performance baseline for its measures. DOD only listed the names 
of the performance measures with no accompanying information about the 
state of current performance or goals for performance improvement. 

Senior DOD officials responded that the statute did not call for such 
detailed information, but instead just required the inclusion of 
performance metrics to evaluate the achievement of each goal. However, 
without such information, as well as identifying numerical targets and 
baseline assessments of current performance, decision makers will lack 
transparency over DOD's efforts to achieve change from the very start. 
DOD officials also explained that the proposed measures in the 
submission represent a mix of existing measures and measures yet to be 
developed or enhanced. However, they did not clearly indicate in the 
submission which metrics currently exist and which will need to be 
developed. Without transparent explanations of (1) why and how the 
selected performance measures are linked to specific goals, (2) the 
numerical targets for performance, and (3) a baseline of current 
performance for each measure, DOD officials and other decision makers, 
including members of Congress, will find it difficult to determine 
whether DOD's medical governance reform efforts are on track to 
achieve desired results or need corrective actions. 

DOD's Schedule for Reform Lists Steps to Reach Initial Operating 
Milestone but Does Not Address Subsequent Milestones or Include Steps 
to Achieve All Seven Reform Goals: 

DOD's March 2013 submission was required to include a detailed 
schedule for carrying out the reform of the governance of the MHS, 
including a schedule for meeting the goals of the reform. In that 
submission, DOD provided a schedule of activities leading up to its 
first major milestone--initial operating capability of October 1, 
2013--to establish the (1) DHA, (2) enhanced Multi-Service Markets, 
and (3) National Capital Region Directorate. We found that DOD 
partially addressed its statutory requirement to provide information 
about its schedule for carrying out the reform because the submission 
included a schedule of activities; however, it did not provide 
information related to activities beyond its first major milestone and 
it did not present milestones for achieving each of the supporting 
seven goals of the reform. 

Moreover, the schedule presented in DOD's submission did not include 
some key features of effective schedules identified in our prior work, 
such as interim milestones or related timelines for all of the 
activities supporting the reform. We have found in previous work that 
interim milestones can be used to show progress towards implementing 
efforts or to make adjustments when necessary.[Footnote 24] 
Specifically, we have reported that developing and using specific 
milestones and timelines to guide and gauge progress toward achieving 
an agency's desired results informs management of the rate of progress 
toward achieving goals or whether adjustments need to be made in order 
to maintain progress within given time frames. Further, according to 
GAO's Business Process Re-Engineering Assessment Guide, agencies 
undergoing business transformations should develop a detailed 
implementation plan that lays out what needs to be done to achieve 
implementation of the new process by identifying milestones and 
specifying timetables for all actions so that progress can be closely 
monitored. However, DOD's March 2013 submission did not include these 
important interim milestones that help measure progress being made to 
reach goals. For example, while DOD's submission included a series of 
actions to be completed to establish the DHA by October 1, 2013--the 
initial operating capacity date--it provided only one milestone 
respectively for the establishment of the enhanced Multi-Service 
Markets and the National Capital Region Directorate by that date, but 
no interim actions or milestones that could help monitor the progress 
of those efforts. In addition, the submissions did not contain any 
interim actions or milestones between October 1, 2013, and October 1, 
2015--the planned final operating capacity date. Furthermore, the 
schedule provided in the submission does not clearly establish how 
each of the supporting seven goals of the reform will be met. While a 
senior DOD official explained to us how the schedule's activities 
relate to each goal, this is not laid out in the submission itself. 
For instance, one of the goals is to deliver more-comprehensive 
primary care and integrated health services using advanced patient-
centered medical homes. However, it is unclear from the submission how 
the timeline as presented relates to this goal because none of the 
dates in the schedule refer to patient-centered medical homes. 

Subsequent to DOD's submission of the schedule in its March 2013 
submission, the House Report accompanying the proposed National 
Defense Authorization Act for Fiscal Year 2014 directed the Secretary 
of Defense to provide the House Armed Services Committee with a 
detailed schedule for managing the reform effort. In response, DOD 
submitted a supplemental report on August 16, 2013, that included 
estimated interim milestones for the achievement of three of the 
reform goals that it had not initially provided in either of its 
earlier submissions. However, with respect to the four goals that 
milestones were provided for in the March 2013 submission, DOD only 
provided milestones leading up to initial operating capability. In the 
August supplemental report, DOD has not identified interim milestones 
necessary from initial operating capability to achieve full operating 
capability. Unless DOD develops interim milestones for its reform 
timelines, it may not be able to adequately monitor its progress 
toward achieving its goals by 2015. 

DOD's Cost-Savings Estimates Presented for Shared Services Generally 
Reflect Key Characteristics of Business-Case Analyses, but Do Not 
Provide Critical Details Concerning Cost Savings: 

DOD's June 2013 submission was required to include detailed 
information in a business-case analysis for each shared service that 
was to be implemented during fiscal year 2013. However, DOD did not 
implement any shared services in fiscal year 2013, and thus it was not 
required by statute to provide business-case analyses for any shared 
services in its June 2013 submission. Nonetheless, DOD included a 
discussion of the first four shared services it plans to implement in 
fiscal year 2014, which were medical logistics, facilities planning, 
health information technology, and the health care plan. The 
information in DOD's June 2013 submission generally reflected key 
characteristics of business-case analyses; however, DOD did not 
present sufficient information to explain the basis for its cost-
savings estimates. According to GAO's Business Process Reengineering 
Assessment Guide, an initial business case is essentially a high-level 
document aimed at convincing customers and stakeholders that 
reengineering the selected business process is the appropriate means 
for achieving performance and cost-savings goals. As the reengineering 
process matures, it should include detailed qualitative and 
quantitative analysis in support of selecting and implementing the new 
process that includes a statement regarding benefits, costs, and 
risks. DOD officials stated that the business case analyses they 
developed regarding the shared services to be implemented were 
informed by information from our previous reports on their medical 
governance efforts and specifically our Business Process Reengineering 
Assessment Guide. 

While DOD was not required to present its business-case analyses for 
its shared services until its September 2013 submission, we found that 
the information on the four shared services included in the June 2013 
submission contained a number of elements that help make the case for 
shared services. Specifically, the information presented included 
discussion of the consolidation efforts' purpose, the scope of 
services to be consolidated, the responsibilities of the new shared 
service entities, estimated implementation costs and cost savings, a 
timeline of events, and measures of success. DOD's submission also 
provided a breakdown of estimated implementation costs, with specific 
estimates for information technology, contractor support, personnel 
severance, personnel relocation, and military construction. 

However, DOD's submission did not include similarly detailed 
quantitative analysis regarding the sources of its cost-savings 
estimates or provide a basis for or an explanation of key assumptions 
and rationales used in estimating such savings. For example, while the 
proposed medical logistics shared service is composed of three 
business lines--supplies, equipment, and housekeeping services--DOD's 
savings estimate is not similarly differentiated, and is presented as 
a single net savings range of between $132 million and $353 million 
from fiscal year 2014 through fiscal year 2019. Similarly, DOD's June 
2013 submission states that it plans to achieve savings in 
administration of the TRICARE Health Plan by closing walk-in help 
centers and transitioning to a phone-based system and better 
coordinating TRICARE benefit payments with other health insurers. 
However, DOD's savings estimate is not similarly differentiated, and 
instead is presented as an aggregated net savings range of between 
$503 million and $787 million. As DOD moves forward with the 
implementation of shared services, transparent and clear business-case 
analyses could assist DOD in making the case for consolidation of 
business lines. By not providing a detailed quantitative analysis 
regarding the sources of cost savings in its June 2013 submission, 
DOD's aggregated estimate obscures the relative size, cost, and 
potential uncertainties or risks associated with forming a shared 
service. Further, the absence of such information in this submission 
does not allow necessary oversight of DOD's effort to benefit from a 
thorough understanding of how savings estimates were calculated and 
are planned to be achieved. 

DOD also presented a risk-adjusted estimate of net cost savings for 
shared services based on uncertainty regarding the effectiveness of 
its consolidation efforts, but did not similarly consider the effect 
of potential increases in implementation costs. DOD's submission 
provides a high-level cost-savings estimate, an itemized 
implementation cost estimate, and a range of net savings for each of 
the four shared services to be implemented in fiscal year 2014. The 
cost-savings estimates are adjusted for risk related to the likelihood 
of achieving the cost savings and are presented as a range, with a 10 
percent to 100 percent chance of achieving the maximum estimated 
savings for each shared service. Implementation costs are then 
subtracted from the maximum and minimum cost savings to present a 
range of possible net savings. According to DOD's estimates, each 
shared service is expected to achieve savings even when adjusted 
according to these risk factors. However, while DOD assessed the risk 
of its reforms failing to achieve their maximum potential cost 
savings, it did not similarly assess the risk that estimated 
implementation costs may increase. 

DOD's past experience in managing the implementation of large scale 
projects demonstrates that rising implementation costs can reduce or 
negate potential savings. For example, as we have previously reported, 
after obligating approximately $2 billion over the 13-year life of its 
initiative to acquire an electronic health record system, as of 
September 2010, DOD had delivered various capabilities for outpatient 
care and dental care documentation, but scaled back other capabilities 
it had originally planned to deliver, such as replacement of legacy 
systems and inpatient care management. In addition, users continued to 
experience significant problems with the performance (speed, 
usability, and availability) of the portions of the system that have 
been deployed.[Footnote 25] According to DOD's estimates, 
collectively, the four shared services to be implemented as part of 
the MHS reform in fiscal year 2014 require an investment in 
information-technology capabilities of about $233 million between 
fiscal years 2014 and 2019. According to GAO's Business Process 
Reengineering Assessment Guide, business-case analyses should 
demonstrate the sensitivity of the outcome to changes in assumptions, 
with a focus on the dominant benefit and cost elements and the areas 
of greatest uncertainty.[Footnote 26] Given DOD's past experience in 
this area, rising implementation costs are an area of specific 
concern. Should information-technology costs or any of the other five 
cost categories DOD included in its estimate increase significantly, 
implementation costs could reduce or even negate potential cost 
savings. 

DOD Currently Cannot Estimate How the DHA Will Affect MHS Headquarters 
Staff Levels: 

DOD's June 2013 submission was required to include the personnel 
levels required for the DHA and the National Capital Region (NCR) 
Directorate. DOD met the statutory requirement by providing a table 
that gave a number of personnel expected for both the DHA and 
specifically for the subordinate NCR Directorate. DOD's preliminary 
estimate of the DHA staffing as of October 1, 2013, would be 1,081 
people with 42 of them specifically located within the NCR 
Directorate. However, DOD does not currently have the necessary 
information to determine how the creation of the DHA will affect the 
total number of MHS headquarters staff.[Footnote 27] In recent years, 
DOD has placed increased emphasis on efficiency within its 
headquarters operations. For example, in 2010, the Secretary of 
Defense directed a departmentwide assessment of overhead, including 
how the department is staffed, organized, and operated, with the goal 
of reducing excess overhead costs and reinvesting these savings toward 
other priorities. The assessment identified efficiencies that were 
estimated to achieve about $178 billion in projected savings across 
the military departments and other DOD components from fiscal year 
2012 through fiscal year 2016. In 2012, DOD published defense 
strategic guidance to direct defense priorities and spending over the 
coming decade stating that DOD must continue to reduce the cost of 
doing business, which includes finding further efficiencies in 
overhead and headquarters, in its business practices, and in other 
support activities.[Footnote 28] In addition, in July 2013, the Deputy 
Secretary of Defense announced a 20 percent reduction in DOD 
management headquarters spending over 5 fiscal years beginning in 
fiscal year 2014. Our previous work[Footnote 29] has highlighted the 
need for agencies to have valid, reliable data and be aware of the 
size of their workforce, its deployment across the organization, and 
the knowledge, skills, and abilities needed for the agency to pursue 
its mission.[Footnote 30] This requirement extends beyond awareness of 
military and civilian personnel and includes DOD's large contractor 
workforce. DOD policy requires the consideration of all available 
personnel sources when determining manpower mix to accomplish a 
mission, including military and civilian personnel, as well as 
contractors.[Footnote 31] Given the lack of current information, it is 
unclear what effect the DHA will have on total MHS headquarters staff 
levels. 

When choosing among different governance models for the MHS in 2011, 
DOD estimated that its preferred option, which ultimately became the 
DHA, would save DOD $46.5 million per year in reduced personnel costs. 
However, while DOD officials told us in July 2013 that there will be 
no net increase in personnel numbers across the MHS headquarters as a 
result of the creation of the DHA, they do not have a numerical 
estimate of staffing at full operating capability. DOD's June 2013 
submission includes an estimate of staffing, as required by statute, 
but the estimate is at the new agency's initial operating capability 
on October 1, 2013. According to DOD officials, DOD's initial 
operating capability staff estimate includes current TRICARE 
Management Activity headquarters' staff, the NCR Directorate, and 
initial estimates of personnel for the four shared services functions 
DOD plans to implement in fiscal year 2014. It does not include an 
estimate of additional personnel for the other six shared services DOD 
plans to implement at a later point or any other staff necessary to 
reach full operating capability. Additionally, this estimate does not 
include any contractor positions currently associated with TRICARE 
Management Activity, the shared services, or other headquarters 
functions. Contractors form an integral part of DOD's workforce, and 
as noted above, DOD policy requires consideration of all sectors of 
the workforce when determining workforce mix, including contractors. 
Further, according to DOD officials, for some of these functions the 
number of military, civilian, and contractor staff at full operating 
capability could be significantly higher than the estimate of initial 
operating capability provided in the June 2013 submission. For 
example, according to a senior official responsible for information 
technology within the MHS, the number of staff for information 
technology at initial operating capability is estimated at about 400 
military and civilian positions; however, that estimate increases to 
about 3,500 military and civilian positions and about 5,000 contractor 
equivalent positions at full operating capability. As a result, the 
submissions do not account for about 3,100 positions that may be 
assigned to the DHA at full operating capability. 

DOD is also currently unable to estimate whether the creation of the 
DHA will result in an increase or decrease in DOD health care 
personnel because it has not completed an updated baseline assessment 
of MHS headquarters staff levels. DOD did conduct such a baseline 
assessment of its MHS headquarters staff in 2011 in order to develop 
cost-savings estimates as part of its examination of different 
possible governance models for the MHS. DOD based its decision to 
establish the DHA, in part, on a resulting estimate of $46.5 million 
in annual personnel savings, as noted above. However, according to DOD 
officials, the military services objected to the use of this previous 
baseline assessment because they believed it did not accurately 
reflect the current number of personnel staffed with the MHS 
headquarters. DOD has encountered similar issues in previous efforts 
to eliminate redundancies and integrate services in the MHS, such as 
the establishment of the Joint Task Force National Capital Region 
Medical (JTF CAPMED), in which officials encountered significant 
challenges developing an accurate, complete, and realistic joint 
manning document that listed all military and civilian medical 
personnel on board. In addition, it is unclear whether DOD plans to 
increase or decrease spending and reliance upon contracted full-time 
equivalents. DOD officials stated that while some efficiency may be 
achieved in headquarters staffing levels, they believe the greatest 
savings are to be achieved through shared services, standardization, 
and a more-integrated approach to the MHS as reflected in their plans 
for the DHA. However, by not fully describing estimated staffing 
levels required for implementing the reform of the governance of the 
MHS, DOD cannot provide decision makers with a transparent and 
complete picture of the military, civilian, and contractor resources 
that will be needed to implement the transformation. DOD officials 
told us that they plan to conduct a baseline assessment of 
headquarters staffing levels and submit a revised estimated staffing-
level chart in their next required report to Congress, which was due 
on September 30, 2013. 

Conclusions: 

After decades of incremental alterations to its governance structure, 
DOD has moved forward with an approach that it believes will increase 
integration and realize cost savings throughout the MHS, including an 
organized process for the standup of the DHA. In this context, 
although DOD mostly met its statutory reporting requirements in its 
March 2013 and June 2013 submissions, the submissions are missing key 
details that are important for oversight of DOD's implementation of 
the governance reform. Without comprehensive timelines that include 
interim milestones for implementation, as well as clear performance 
measures that are strongly linked to measurable goals and objectives, 
have targets, and include baseline assessments, it will be difficult 
for decision makers to gauge progress and identify areas requiring 
corrective actions. Similarly, without thoroughly explaining the 
sources of estimated cost savings from the implementation of its 
shared services projects and a means to assess the potential for cost 
increases, decision makers will lack visibility over the actual cost 
implications of implementing these projects, which could hinder their 
ability to achieve cost savings or adjust plans when appropriate. 
Finally, without a baseline assessment of current personnel numbers in 
MHS headquarters and an estimate of the personnel needed for DHA at 
full operational capability, DOD cannot provide decision makers the 
full scope of information they need to understand the full magnitude 
of implementation costs and efficiencies estimated to be gained by the 
reform. Until DOD provides greater clarity and transparency with 
regard to the performance measures, the sources of cost savings, the 
sensitivity of cost savings to rising implementation costs, and total 
staffing requirements, decision makers within DOD and Congress will 
not have critical information to monitor the implementation of the MHS 
reform effort. 

Recommendations for Executive Action: 

To provide decision makers with more-complete information on the 
planned implementation, management, and oversight of DOD's newly 
created DHA, we recommend that the Secretary of Defense direct the 
Assistant Secretary of Defense (Health Affairs) to take the following 
five actions: 

* Develop and present to Congress performance measures that are clear, 
quantifiable, objective, and include a baseline assessment of current 
performance. 

* Develop and present to Congress a comprehensive timeline that 
includes interim milestones for all reform goals that could be used to 
show implementation progress. 

* Provide Congress with a more-thorough explanation of the potential 
sources of cost savings from the implementation of its shared services 
projects: 

* Monitor implementation costs to assess whether the shared-services 
projects are on track to achieve projected net cost savings or if 
corrective actions are needed. 

* Develop and present to Congress a baseline assessment of the current 
number of military, civilian, and contractor personnel currently 
working within the MHS headquarters and an estimate for DHA at full 
operating capability, including estimates of changes in contractor 
full-time equivalents. 

Agency Comments: 

In written comments on a draft of this report, DOD concurred with our 
five recommendations to guide implementation of the Defense Health 
Agency. DOD's comments are reprinted in appendix I. 

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 Defense Health 
Agency Director, 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 [hyperlink, 
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 II. 

Signed by: 

Brenda S. Farrell: 
Director: 
Defense Capabilities and Management: 

List of Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable James N. Inhofe: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Dick Durbin: 
Chairman: 
The Honorable Thad Cochran: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable Howard P. "Buck" McKeon: 
Chairman: 
The Honorable Adam Smith: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Chairman: 
The Honorable Peter Visclosky: 
Ranking Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

[End of section] 

Appendix I: Comments from the Department of Defense: 

The Assistant Secretary of Defense: 
Health Affairs: 
1100 Defense Pentagon: 
Washington, DC 20301-1200: 

October 31, 20113: 

Ms. Brenda S. Farrell: 
Director, Defense Capabilities and Management: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Farrell: 

This is the Department of Defense's (DoD) response to the Government 
Accountability Office (GAO) Draft Report, GAO-14-49 entitled Defense 
Health Care Reform: Additional Implementation Details Would increase 
Transparency of DoD's Plans and Enhance Accountability," dated 
September 25, 2013 (GAO Code 351809). 

Thank you for the opportunity to review and comment on the draft 
report. I concur with the Draft Report's findings, recommendations, 
and conclusion, with the following points of context: 1) the third 
report to Congressional Defense Committees required by section 731 of 
the National Defense Authorization Act for Fiscal Year (FY) 2013 
addresses many of these points; and 2) with respect to the ongoing 
transition process from initial operating capability to full operating 
capability during FY 2014 and 2015,000 expects to have opportunities 
to update the Congressional Defense Committees on the broad range of 
implementation details and progress. 

My points of contact on this matter are Dr. Michel Dinneen 
(Functional) and Mr. Gunther Zimmerman (Audit Liaison). Dr. Dinneen 
may be reached at (704) 681-1724, or michael.dinneen@ha.osd.mil. Mr. 
Zimmerman may be reached at (703) 681-4360, or 
gunthcr.zimmerman@dha.osd.mil. 

Signed by: 

Jonathan Woodson, M.D. 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Brenda S. Farrell, (202) 512-3604 or farrellb@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Lori Atkinson, Assistant 
Director; Rebecca Beale; Grace Coleman; Jeffrey Heit; Terry 
Richardson; Adam Smith; and Michael Willems made key contributions to 
this report. 

[End of section] 

Related GAO Products: 

Defense Health Care: Additional Analysis of Costs and Benefits of 
Potential Governance Structures is Needed, [hyperlink, 
http://www.gao.gov/products/GAO-12-911] (Washington, D.C.: September 
26, 2012). 

Defense Health Care: Applying Key Management Practices Should Help 
Achieve Efficiencies within the Military Health System, [hyperlink, 
http://www.gao.gov/products/GAO-12-224] (Washington, D.C.: April 12, 
2012). 

2012 Annual Report: Opportunities to Reduce Duplication, Overlap and 
Fragmentation, Achieve Savings, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-12-342SP] (Washington, D.C.: Feb. 28, 
2012). 

Follow-up on 2011 Report, Status of Actions Taken to Reduce 
Duplication, Overlap, and Fragmentation, Save Tax Dollars, and Enhance 
Revenue, [hyperlink, http://www.gao.gov/products/GAO-12-453SP] 
(Washington, D.C.: Feb. 28, 2012). 

Opportunities to Reduce Potential Duplication in Government Programs, 
Save Tax Dollars, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP] (Washington, D.C.: Mar. 1, 
2011). 

Military Personnel: Enhanced Collaboration and Process Improvements 
Needed for Determining Military Treatment Facility Medical Personnel 
Requirements, [hyperlink, http://www.gao.gov/products/GAO-10-696] 
(Washington, D.C.: July 29, 2010). 

Defense Health Care: DOD Needs to Address the Expected Benefits, 
Costs, and Risks for Its Newly Approved Medical Command Structure, 
[hyperlink, http://www.gao.gov/products/GAO-08-122] (Washington, D.C.: 
Oct. 12, 2007). 

[End of section] 

Footnotes: 

[1] The Defense Business Board stated that DOD may not be fulfilling 
its obligations under public law requiring consolidation of shared 
services. Defense Business Board, Military Health System-Governance, 
Alignment and Configuration of Business Activities Task Group Report, 
Report to the Secretary of Defense, Report FY06-5, September 2006. 

[2] The Defense Health Board noted in its 2007 report that although 
consolidation and centralization are occurring at the military service 
level, fragmentation still exists at the MHS enterprise level. Defense 
Health Board, Task Force on the Future of Military Health Care Final 
Report, December 2007. 

[3] The Secretary of Defense directed a series of initiatives to move 
the defense enterprise toward a more efficient, effective, and cost-
conscious way of doing business, in part, by reducing excess and 
duplication. See, for example, Secretary of Defense Memorandum, 
Department of Defense (DOD) Efficiency Initiatives, Memorandum (Aug. 
16, 2010) and Secretary of Defense Memorandum, Track Four Efficiency 
Initiatives Decisions, Memorandum (Mar. 14, 2011). 

[4] GAO, Defense Health Care: DOD Needs to Address the Expected 
Benefits, Costs, and Risks for Its Newly Approved Medical Command 
Structure, [hyperlink, http://www.gao.gov/products/GAO-08-122] 
(Washington, D.C.: Oct. 12, 2007); Defense Health Care: Applying Key 
Management Practices Should Help Achieve Efficiencies within the 
Military Health System, [hyperlink, 
http://www.gao.gov/products/GAO-12-224] (Washington, D.C.: Apr. 12, 
2012); Defense Health Care: Additional Analysis of Costs and Benefits 
of Potential Governance Structures Is Needed, [hyperlink, 
http://www.gao.gov/products/GAO-12-911] (Washington, D.C.: Sept. 26, 
2012). 

[5] According to DOD, a shared services concept is a combination of 
common services performed across the medical community. DOD identified 
10 shared services it plans to implement: medical logistics, facility 
planning, health information technology, health plan management, 
pharmacy, medical education and training, medical research and 
development, public health, acquisition, and budget and resource 
management. 

[6] GAO, Business Process Reengineering Assessment Guide, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-10.1.15] (May 1997); Streamlining 
Government: Questions to Consider When Evaluating Proposals to 
Consolidate Physical Infrastructure and Management Functions, 
[hyperlink, http://www.gao.gov/products/GAO-12-542] (Washington, D.C.: 
May 23, 2012); [hyperlink, http://www.gao.gov/products/GAO-12-224]. 

[7] Subsequent to DOD's March submission, the House Report 
accompanying the proposed National Defense Authorization Act for 
Fiscal Year 2014 directed the Secretary of Defense to provide the 
House Armed Services Committee with additional information about the 
DHA's milestones and goals. In response, DOD submitted a supplemental 
report on August 16, 2013. 

[8] GAO, 21st Century Challenges: Reexamining the Base of the Federal 
Government, [hyperlink, http://www.gao.gov/products/GAO-05-325SP] 
(Washington, D.C.: February 2005). 

[9] GAO, Opportunities to Reduce Potential Duplication in Government 
Programs, Save Tax Dollars, and Enhance Revenue, [hyperlink, 
http://www.gao.gov/products/GAO-11-318SP] (Washington, D.C.: Mar. 1, 
2011). 

[10] With the creation of the DHA, the services' Surgeons General will 
continue to be responsible for overseeing medical forces and operating 
health care systems including Military Treatment Facilities. 

[11] Under the new governance structure, the Assistant Secretary of 
Defense for Health Affairs will maintain these same responsibilities. 

[12] The MHS Governance Transition Organization Charter was signed on 
March 25, 2013. 

[13] [hyperlink, http://www.gao.gov/products/GAO-12-224]. 

[14] The National Capital Region is the geographic area that includes 
Washington, D.C., and other specific surrounding cities and counties 
in both Maryland and Virginia. 

[15] Multi-Service Markets are areas in which more than one DOD 
component provides military health care services. 

[16] The six multiservice markets identified are Tidewater, Virginia; 
Colorado Springs, Colorado; San Antonio, Texas; Puget Sound, 
Washington; Hawaii; and the National Capital Region. 

[17] [hyperlink, http://www.gao.gov/products/GAO/AIMD-10.1.15]. 

[18] [hyperlink, http://www.gao.gov/products/GAO/AIMD-10.1.15]. 

[19] Some performance measures were used to assess multiple objectives. 

[20] [hyperlink, http://www.gao.gov/products/GAO-12-542]. 

[21] GAO, Tax Administration: IRS Needs to Further Refine Its Tax 
Filing Season Performance Measures, [hyperlink, 
http://www.gao.gov/products/GAO-03-143] (Washington, D.C.: Nov. 22, 
2002); GPRA Performance Reports, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-96-66R], (Washington, D.C.: Feb. 
14, 1996); Missile Defense: Opportunity to Refocus on Strengthening 
Acquisition Management, [hyperlink, 
http://www.gao.gov/products/GAO-13-432] (Washington, D.C.: Apr. 26, 
2013); Performance Measurement and Evaluation: Definitions and 
Relationships, [hyperlink, http://www.gao.gov/products/GAO-11-646SP] 
(Washington, D.C.: May 2011); and Agency Performance Plans: Examples 
of Practices That Can Improve Usefulness to Decisionmakers, 
[hyperlink, http://www.gao.gov/products/GAO/GGD/AIMD-99-69] 
(Washington, D.C.: Feb. 26, 1999). 

[22] [hyperlink, http://www.gao.gov/products/GAO-11-646SP]. 

[23] GAO, Aviation Weather: Agencies Need to Improve Performance 
Measurement and Fully Address Key Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-10-843], (Washington, D.C.; Sept. 9, 
2010). Department of the Navy, Office of the Chief Information 
Officer, Guide for Developing and Using Information Technology (IT) 
Performance Measurements (Washington, D.C.: October 2001); and General 
Services Administration, Office of Governmentwide Policy, Performance-
Based Management: Eight Steps To Develop and Use Information 
Technology Performance Measures Effectively (Washington, D.C.: 1996). 

[24] [hyperlink, http://www.gao.gov/products/GAO/GGD/AIMD-99-69] and 
GAO, Executive Guide: Effectively Implementing the Government 
Performance and Results Act, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-96-118] (Washington, D.C.: June 
1996). 

[25] GAO, Information Technology: Opportunities Exist to Improve 
Management of DOD's Electronic Health Record Initiative, [hyperlink, 
http://www.gao.gov/products/GAO-11-50], (Washington, D.C.: Oct. 6, 
2010). 

[26] [hyperlink, http://www.gao.gov/products/GAO/AIMD-10.1.15]. 

[27] According to DOD officials, MHS headquarters staff includes all 
personnel in commands and agencies that manage the MHS above the level 
of direct hospital administration. 

[28] Department of Defense, Sustaining U.S. Global Leadership: 
Priorities for 21st Century Defense, (Jan. 3, 2012). 

[29] [hyperlink, http://www.gao.gov/products/GAO/AIMD-10.1.15]. 

[30] GAO, A Model of Strategic Human Capital Management, [hyperlink, 
http://www.gao.gov/products/GAO-02-373SP], (Washington, D.C.: March 
2002). 

[31] DOD Directive 1100.4, Guidance for Manpower Management (Feb. 12, 
2005). 

[End of section] 

GAO’s Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO’s commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO’s website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select 
“E-mail Updates.” 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO’s 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, DC 20548. 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, DC 20548. 

[End of document]