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Defense > 36. Military Health Care Costs

To help achieve significant projected cost savings and other performance goals, DOD needs to complete, implement, and monitor detailed plans for each of its approved health care initiatives.

Why This Area Is Important

As GAO reported in February 2005, the Department of Defense’s (DOD) 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 could achieve economies of scale and improve delivery of services.[1] Currently, health care costs constitute nearly 10 percent of DOD’s baseline budget request. For its fiscal year 2012 budget, according to DOD documentation, DOD received $52.7 billion[2] to provide health care to approximately 9.6 million active duty servicemembers, reservists, retirees, and their dependents. According to a 2011 Congressional Budget Office report, military health spending could reach $59 billion by 2016, and is projected to grow to $92 billion by 2030.[3] In 2009, the Defense Business Board,[4] a group of private sector experts who advise DOD on its overall management and governance, expressed concern at the rise in military health care costs and noted such spending could eventually begin to divert funding away from other priorities such as critical national security initiatives, compensation and personnel costs, and the acquisition of equipment.

Congressional leaders also share concerns over rising military health costs. For example, the House Committee on Armed Services’ Print accompanying the Ike Skelton National Defense Authorization Act for Fiscal Year 2011[5] noted that DOD had not yet developed a comprehensive plan to enhance quality, efficiencies, and savings in the Military Health System.[6] Furthermore, DOD officials also agree that the rate at which health care costs are rising must be addressed, as noted in the 2010 Quadrennial Defense Review,[7] which stated that DOD intends to continue to develop health care initiatives that will improve the quality and standard of care, while reducing growth in overall costs.

Under the current structure of DOD’s Military Health System, the responsibilities and authorities for its management are distributed among several organizations—including the Assistant Secretary of Defense for Health Affairs and the military services. Health Affairs[8] is responsible for creating and submitting a unified medical budget and allocating funds to the military services for their respective medical systems; however, Health Affairs lacks direct command and control of the services’ military treatment facilities. Additionally, the three departments each have Surgeons General to oversee their deployable medical forces and operate their own health care systems, including training for medical personnel. In GAO’s first report issued in response to its mandate to report on duplication, overlap, and fragmentation within the federal government,[9] GAO stated that realigning DOD’s military medical command structures and common functions could increase efficiency and result in projected savings ranging from $281 million to $460 million annually.[10] GAO is currently conducting additional work to look beyond these potential governance transformation efforts and to examine other initiatives DOD is undertaking that could help contain its rising health care costs. These other initiatives—with the exception of one which is related to governance—are focused on reducing per capita costs,[11] improving its servicemembers’ medical readiness, and improving its beneficiaries’ overall health and experience of care.



[1]GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, GAO-05-325SP(Washington, D.C.: February 2005).

[2]DOD’s fiscal year 2012 budget of $52.7 billion for its Unified Medical Budget includes $32.5 billion for the Defense Health Program, $8.3 billion for military personnel, $1.1 billion for military construction, and $10.8 billion for the Medicare Eligible Retiree Health Care Fund. The total excludes overseas contingency operations funds and other transfers.

[3]Congressional Budget Office, Long-Term Implications of the 2012 Future Years Defense Program, Pub. No. 4281, June 2011.

[4]Defense Business Board, Focusing a Transition, January 2009.

[5]The Ike Skelton National Defense Authorization Act for Fiscal Year 2011 (Pub. L. No. 111-383 (2010)) was not accompanied by a conference report. In lieu of a formal conference report and joint explanatory statement, House Armed Services Committee Print No. 5 (Dec. 2010) was provided to show congressional intent and maintain legislative history.

[6]The Military Health System refers to DOD’s health operations as a whole, and consists of the Office of the Assistant Secretary of Defense for Health Affairs; the medical departments of the Army, the Navy, the Air Force and Joint Chiefs of Staff; the Combatant Command surgeons; and the TRICARE network of health care providers.

[7]DOD, Quadrennial Defense Review Report, (Washington, D.C.: Feb. 1, 2010).

[8]For purposes of this report, the Office of the Assistant Secretary of Defense for Health Affairs will be called Health Affairs.

[9]GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: March 1, 2011).

[10]This estimate is based on a May 2006 report by the Center for Naval Analyses and were adjusted by GAO from 2005 to 2010 dollars.

[11]DOD monitors the annual increase in costs for enrollees in its TRICARE Prime benefit and measures it against a civilian benchmark.

What GAO Found

GAO’s ongoing work has found that DOD has begun a number of health care initiatives intended to slow the rise in its health care costs, but it has not fully applied results-oriented management practices to its efforts, which limits its effectiveness in implementing these initiatives and achieving related cost savings and other performance goals. The Senior Military Medical Advisory Committee—a committee that functions as an executive-level discussion and advisory group,[1] has approved 11 strategic initiatives that it believes will help reduce rising health care costs. DOD’s strategic initiatives consist primarily of changes to clinical and business practices in areas ranging from primary care to psychological health to purchased care reimbursement practices. DOD was experiencing a 5.5 percent annual increase in per capita costs for its enrolled population, according to data available as of December 2011, but DOD had set its target ceiling for per capita health care cost increases for fiscal year 2011 at a lower rate of 3.1 percent. According to DOD calculations using 2011 enrollee and cost data, if DOD had met its target ceiling of a 3.1 percent increase as opposed to a 5.5 percent increase, the 2.4 percent reduction would have resulted in approximately $300 million in savings.

Partly in response to GAO’s ongoing work assessing DOD’s management of its initiatives, the department has taken some initial steps toward managing their implementation. GAO found that, in addition to developing a number of high-level, non-monetary metrics and corresponding goals for each strategic initiative, DOD has developed a dashboard management tool that will include elements such as an explanation of the initiative’s purpose, measures, and funding requirements for implementation. In December 2011, the Senior Military Medical Advisory Committee approved 6 dashboards that were significantly, but not entirely completed. A Health Affairs official stated that only one initiative out of 11 currently has a cost savings estimate associated with it. Cost savings estimates are critical to successful management of the initiatives so that DOD can achieve its goal of reducing growth in medical costs as stated in the 2010 Quadrennial Defense Review. In addition, DOD has developed a template, or a more detailed implementation plan, that is to be completed for each dashboard and is intended to include general timelines and milestones, key risks, and cost savings estimates. DOD currently has one completed implementation plan, which also contains the one available cost savings estimate among all the initiatives. See the table below for a list of the 11 initiatives and their current status as of January 13, 2012.

Progress made in Developing a Dashboard and Detailed Implementation Plans for Each of DOD’s Strategic Initiatives as of January 13, 2012

Description of DOD’s strategic initiatives

Dashboard approved?

Implementation plan approved?

Estimated net savingsa

Implement the Patient Centered Medical Home model of care to increase satisfaction, improve care and reduce costsb

•

•

$39.3 million

Integrate psychological health programs to improve outcomes and enhance value

•

Implement incentives to encourage adherence to medical standards based on evidence to increase patient satisfaction, improve care and reduce per capita health care costs

•

Implement alternative payment mechanisms to reward value in health care services

•

Revise DOD’s future purchased care contracts to offer more and varied options for care delivery from private sector heath care providers

•

Improve the measurement and management of DOD’s population health by moving away from focusing on illness and disease to an emphasis on prevention, intervention, and wellness by health care providers

•

Optimize pharmacy practices to improve quality and reduce cost

Implement policies, procedures, and partnerships to meet individual servicemembers’ medical readiness goals

Implement DOD and Veterans Affairs joint strategic plan for mental health to improve coordination

Implement modernized electronic health record to improve outcomes and enhance interoperability

Improved governance to achieve better performance in multiservice medical markets

Source: GAO analysis of DOD information.

aThe net savings is DOD’s estimate and it covers fiscal years 2012 through 2016. GAO did not independently assess the reliability of this cost savings estimate.

bDOD estimates that its investment in Patient Centered Medical Home will be $571.4 million in total from fiscal years 2010 through 2016.

As shown above, DOD has not fully completed the dashboards, implementation plans, and cost savings estimates for its 11 initiatives as of January 13, 2012. GAO has found that comprehensive, results-oriented plans are key to effectively implementing agency strategies.[2] As DOD completes its dashboards, implementation plans, and cost savings estimates, it could benefit from the application of a comprehensive, results-oriented management framework, including a robust description of the initiatives’ mission statement; problem definition, scope, and methodology; goals, activities and performance measures; resources and investments; organizational roles, responsibilities, and coordination; and key external factors that could affect goals. Without completing its plans and incorporating these principles into them, DOD will be limited in its ability to implement these initiatives and achieve cost savings.

In addition, DOD has not completed the implementation of an overall monitoring process across its portfolio of initiatives for overseeing the initiatives’ progress and has not completed the process of identifying accountable officials and their roles and responsibilities for all of its initiatives. Further, GAO’s work on results-oriented management practices has found that a process for monitoring progress and defining roles and responsibilities is key to successful implementation.[3] As Military Health System leaders develop and implement their plans to control rising health care costs, they will also need to work across multiple authorities and areas of responsibility. As the 2007 Task Force on the Future of Military Health Care noted, the current Military Health System does not function as a fully integrated health care system.[4] For example, while the Assistant Secretary of Defense for Health Affairs controls the Defense Health Program budget, the services directly supervise their medical personnel and manage their military treatment facilities.

As GAO reported in October 2005, agreement upon roles and responsibilities is a key step to successful collaboration when working across organizational boundaries, such as the military services.[5] Committed leadership by those involved in the collaborative effort, from all levels of the organization, is also needed to overcome the many barriers to working across organizational boundaries. For example, Health Affairs manages the medical budget by allocating money to the services, but it lacks direct command and control of the military treatment facilities. DOD’s one approved implementation plan provides further information on how DOD has applied a monitoring structure and has defined accountable officials and assigned roles and responsibilities in the case of this one initiative. However, DOD has not completed this process for the remainder of its initiatives. Without sustained top civilian and military leadership that is consistently involved throughout the implementation of its various initiatives and until DOD fully implements for all of its initiatives a mechanism to monitor progress and identify accountable officials including their roles and responsibilities, DOD may be hindered in its ability to achieve a more cost-efficient military health system and at the same time address its medical readiness goals, improve its overall population health, as well as increase its patients’ experience of care.



[1]This group is chairedby the Assistant Secretary of Defense for Health Affairs and includes the Surgeons General from the Army, the Navy, and the Air Force; the Joint Staff Surgeon; and four Deputy Assistant Secretaries of Defense.

[2]GAO, Combating Terrorism: Evaluation of Selected Characteristics in National Strategies Related to Terrorism, GAO-04-408T (Washington, D.C.: Feb. 3, 2004).

[3]GAO-04-408T

[4]Defense Health Board, Task Force on the Future of Military Health Care, December 2007.

[5]GAO, Results-Oriented Government: Practices That Can Enhance and Sustain Collaboration Among Federal Agencies, GAO-06-15 (Washington, D.C.: Oct. 21, 2005).

Actions Needed

Based on ongoing work, GAO expects to recommend that, in order to enhance its efforts to manage rising health care costs and demonstrate sustained leadership commitment for achieving the performance goals of the Military Health System’s strategic initiatives, DOD should

  • complete and fully implement the dashboards and detailed implementation plans for each of the approved health care initiatives in a manner consistent with results-oriented management practices, such as the inclusion of upfront investment costs and cost savings estimates; and
  • complete the implementation of an overall monitoring process across its portfolio of initiatives for overseeing the initiatives’ progress and identifying accountable officials and their roles and responsibilities for all of its initiatives.

DOD may realize projected cost savings and other performance goals by taking the actions GAO describes to help ensure the successful implementation of its cost savings initiatives. Given that DOD identified these initiatives as steps to slow the rapidly growing costs of its medical program, if implemented these initiatives could potentially save DOD millions of dollars. For example, according to a DOD calculation, if it had met its cost growth target for fiscal year 2011, it could have saved approximately $300 million.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from the products listed in the related GAO products section as well as additional work GAO conducted to be published as a separate product in 2012. GAO interviewed DOD officials in the Health Budgets and Financial Policy Office and in the Office of Strategy Management, within the Office of the Assistant Secretary of Defense for Health Affairs, as well as officials in the TRICARE Management Activity concerning their 11 health care initiatives and obtained and reviewed documentation concerning their efforts. GAO compared DOD’s efforts to its prior work on results-oriented key management practices. GAO obtained available documentation and interviewed DOD officials to determine DOD’s approach for monitoring the initiatives’ progress, identifying accountable officials, and defining their roles and responsibilities. GAO did not assess the reliability of any financial data since GAO was using the data for illustrative purposes to provide context on DOD’s efforts and to make broad estimates about potential cost savings from these efforts, and GAO determined that this data did not materially affect the nature of its findings.

Agency Comments & GAO Contact

GAO provided a draft of this report section to DOD for review and comment. DOD provided technical comments, which were incorporated as appropriate. DOD agreed with GAO’s finding on the need to complete, implement and monitor plans for each of its approved health care initiatives. Further, DOD officials agreed with GAO’s expected recommendation to complete and fully implement, for each of their initiatives, detailed implementation plans in a manner consistent with results-oriented management practices, such as the inclusion of upfront investment costs and cost savings estimates. They stated that quantifying the financial benefits of programs that change the way care is delivered is an extremely complex task but that they are committed to trying to do so. Additionally, these officials agreed with GAO’s second expected recommendation to complete and fully implement, for each of their initiatives, an overall monitoring process across DOD’s portfolio of initiatives, and to identify accountable officials and their roles and responsibilities. As part of its routine audit work, GAO will track the extent to which progress has been made to address the identified actions and report to Congress.

For additional information about this area, contact Brenda S. Farrell at 202-512-3604 or farrellb@gao.gov.

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