Department of Defense (DOD) components provide health care to over 9.6 million eligible beneficiaries, including U.S. military personnel, retirees, and their family members. With more than 130,000 military and government medical professionals, a large network of private health care providers, 59 DOD hospitals, and hundreds of clinics worldwide, DOD's collective Military Health System (MHS) manages more than 200,000 medical visits and fills more than 300,000 prescriptions per day. Additionally, the MHS is an important source for education, military medical training, and research and development. However, MHS costs have more than doubled from $19 billion in fiscal year 2001 to $49 billion in 2010 and are expected to increase to over $62 billion by 2015. Studies by GAO and others over many years have identified opportunities to gain efficiencies and save costs by consolidating administrative, management, and clinical functions.
The responsibilities and authorities for DOD's military health system are distributed among several organizations within DOD with no central command authority or single entity accountable for minimizing costs and achieving efficiencies. Under the MHS's current command structure, the Office of the Assistant Secretary of Defense for Health Affairs, the Army, the Navy, and the Air Force each has its own headquarters and associated support functions, such as information technology, human capital management, financial activities, and contracting. Additionally, the three services each have Surgeons General to oversee their deployable medical forces and operate their own health care systems. Moreover, while the Assistant Secretary of Defense for Health Affairs controls the Defense Health Program budget, this office does not directly supervise the services' medical personnel.
In 2005, GAO identified DOD's health care system as an example of a key challenge facing the U.S. government in the 21st century as well as an area in which DOD could achieve economies of scale and improve delivery by combining, realigning, or otherwise changing selected support functions. In 2001, a RAND Corporation study on reorganizing the MHS uncovered at least 13 studies since the 1940s that had addressed military health care organization. All but three of those studies had either favored a unified system or recommended a stronger central authority to improve coordination among the services. However, DOD has taken limited actions to date to consolidate common administrative, management, and clinical functions within its MHS.
In 2005, DOD formed a working group to develop an implementation plan for a joint medical command. This group in 2006 developed and evaluated several reorganization alternatives to promote effectiveness and efficiency in its medical command structure by increased sharing of resources, use of common operating processes, and reduction in duplicative functions and organizations. One alternative would have established a unified medical command similar to DOD's unified transportation command; the second alternative would have established two separate commandsone to provide operational/deployable medicine and another to provide beneficiary care through military hospitals and contracted providers; and a third alternative would have designated one of the military services to provide all health care services across DOD.
Because of an inability to obtain a consensus among the services on which alternative to implement, the Under Secretary of Defense for Personnel and Readiness and the Assistant Secretary of Defense for Health Affairs presented a new concept which, in November 2006, the Deputy Secretary of Defense approved. This chosen concept directed seven smaller scale, incremental reorganization efforts designed to minimize duplicative layers of command and control where possible; reduce redundant efforts, personnel, and expenses; and leverage efficiencies through combining common service support functions being performed within each of the services, such as finance, information management and technology, human capital management, support, and logistics. However, the concept left the existing command structures of the three services' medical departments over all military treatment facilities essentially unchanged. In updating its previous reviews, GAO found that DOD officials have made varying levels of progress in implementing four of the seven incremental steps.
More specifically, DOD is taking actions to (1) create a command, control, and management structure in DOD's base realignment and closure (BRAC) markets (National Capital Area and San Antonio); (2) realign command and control of the Joint Medical Education Training Center in San Antonio; (3) colocate the Military Health System and service medical headquarters; and (4) consolidate all medical research and development under the Army Medical Research and Material Command. Progress on these actions has been facilitated by the fact that three of them are related to BRAC recommendations made in 2005 that DOD must complete by the BRAC statutory deadline of September 2011. According to officials, DOD has not implemented actions to (1) establish a Joint Military Health Service Directorate under Assistant Secretary of Defense for Health Affairs; (2) consolidate command and control in other locations with more than one DOD component providing military health care services; and (3) realign current TRICARE Management Activity to focus on health plan management. The Office of the Assistant Secretary of Defense for Health Affairs has not provided guidance on how and when to accomplish the three remaining steps, and officials indicated that further action is not likely to occur until the results of a broader, ongoing DOD-wide organizational and efficiency assessment is completed.
For the three BRAC-related steps under way, DOD's BRAC budget reporting indicates a net annual savings of $275 million after full implementation. However, DOD medical officials have expressed uncertainty as to whether these savings will be achieved because of changes that occurred within the MHS since the BRAC decision was made. For example, they point out that the care of casualties from operations in Iraq and Afghanistan and the congressional direction to provide "world class health care" in the National Capital Region have all significantly increased MHS costs.
Finally, GAO reported in July 2010 that DOD would benefit from enhanced collaboration among the services in their medical personnel requirements determination processes and recommended that DOD identify, develop, and implement cross-service medical personnel standards for common capabilities. The report made recommendations to each of the services to improve their medical personnel requirements determination processes. That report also recognized that while each of the services has unique operational medical capabilities, the day-to-day operations at military treatment facilities are very similar across the services and could be more collaboratively managed, and that DOD should identify the common medical capabilities that are shared across the services in their military treatment facilities that would benefit from the development of cross-service medical personnel standards. DOD replied that developing cross-service standards in specific medical functional areas where there is measurable benefit makes good sense, and the services generally agreed with the need for improvements to their respective requirements determination processes.
 DOD is required by section 2907 of the Defense Base Closure and Realignment Act of 1990, Pub. L. No. 101-510 (as amended by section 2831(b) of Pub. L. No. 109-163 (2006) and section 2711 of Pub. L. No. 110-417 (2008)) to, among other reporting requirements, estimate the total expenditures required and cost savings to be achieved by each closure and realignment. To calculate DOD's expected BRAC annual savings, GAO used dollar amounts obtained from DOD's budget submission for fiscal year 2011.
To reduce duplication in its command structure and eliminate redundant processes that add to growing defense health care costs, DOD could take action to further assess alternatives for restructuring the governance structure of the military health care system. In 2007, GAO recommended that DOD needed to demonstrate a sound business case for proceeding with its chosen concept, including an analysis of benefits, costs, and risks of implementing that choice. Although not explicitly stated, such an analysis, to be complete, would require analyzing other alternatives such as a unified medical command. These analyses have not been conducted, and GAO's ongoing review will seek to determine the extent to which DOD has developed an approach for implementing the remaining actions in its chosen concept. Without such actions, DOD is not in a sound position to assure the Secretary of Defense and Congress that it made an informed decision in implementing its chosen concept over other alternatives or whether it will have the desired impact on DOD's MHS or achieve anticipated results.
In 2006, if DOD and the services had chosen to implement one of the three other alternatives studied by the DOD working group, a May 2006 report by the Center for Naval Analyses showed DOD could have achieved significant savings. GAO's adjustment of those projected savings from 2005 into 2010 dollars indicates those savings could range from $281 million to $460 million annually depending on the alternative chosen and numbers of military, civilian, and contractor positions eliminated. The report largely focused on personnel as the primary source of potential savings or costs. However, the report indicated that these savings would require a long and potentially costly transition period to be realized. Additionally, the report stated that DOD's ability to realize the potential savings depended crucially on clear command and control to make the necessary changes.
In his selection of the chosen option in 2006, the Deputy Secretary of Defense acknowledged that implementing the chosen concept may not achieve the estimated level of savings of implementing a unified medical structure but believed minimum annual savings of about $200 million ($221 million in 2010 dollars) was a realistic goal. Additionally, significant cost avoidance from improved performance once changes had beenimplemented was anticipated. For example, in September 2010, DOD officials told GAO that they had identified about $30 million in annual savings from the reduction in contract medical staff among the newly established joint hospitals in the National Capital Regionone of the seven incremental steps of the chosen concept. Additionally, officials believe the colocation of the medical headquarters will provide improved collaboration and opportunities for consolidating their operations where possible.
The Center for Naval Analyses categorized the potential savings into the following 10 areas: health care operations; comptroller operations; information management and information technologies; education and training; research and development; logistics; strategic planning; human capital management; force health protection and environmental health; and general headquarters.
The information contained in this analysis is based on the GAO reports listed under the "Related GAO Products" tab as well as work updating the extent to which DOD has (1) conducted a cost benefit analysis of its chosen concept and (2) implemented its 2006 chosen concept. To do this, GAO obtained, reviewed, and discussed with DOD officials any analyses performed related to the chosen concept or other alternatives subsequently considered. Additionally, GAO reviewed DOD documents, policies, directives, briefings, and concept papers related to DOD's 2006 chosen concept, as well as GAO's prior findings and recommendations associated with this effort. In meetings with officials from OSD, the services' medical departments, and other relevant offices, GAO obtained, analyzed, and discussed documents related to the status, costs, and results of the seven steps in the chosen concept. In obtaining oral comments, DOD officials said that they generally agreed with the facts and findings in this analysis.
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