Defense Health Care

The Defense Department's (DOD) nationwide managed care program, called TRICARE, is intended to improve the access of military personnel and their families to health care while maintaining quality and controlling costs. DOD has entered into seven multistate managed care support contracts with civilian health care entities. Resource sharing is an important cost-saving aspect of these partnerships. To share resources, the contractor supplements the capacity of a military hospital or clinic by providing civilian personnel, equipment, and supplies. DOD estimates that resource sharing could save about $700 million over five years for these contracts. However, GAO found that DOD and the support contractors will realize only about five percent of the $700 million in projected savings. Problems impeding progress on resource-sharing agreements have included the lack of clear program policies and priorities, uncertainty about cost effects on military hospitals, lack of financial rewards for the hospitals entering into such agreements, and changes in military hospital capacities after contractors developed bids. DOD has revised policies, improved training and analytical tools, and taken other steps to promote resource sharing under the contracts, but so far these efforts have not brought needed results.

GAO noted that: (1) DOD and the contractors have made agreements likely to save about 5 percent of DOD's overall resource sharing savings goals; (2) new agreements are being considered, but neither DOD nor the contractors are confident that pending agreements will be reached or that further cost savings can be attained; (3) because resulting TRICARE contract costs may be greater than anticipated, both parties may experience related financial losses; (4) problems impeding progress on resource sharing agreements and the related savings have included lack of clear program policies and priorities, uncertainty about cost effects on military hospitals, lack of financial rewards for the hospitals entering into such agreements, and changes in military hospital capacities after contractors developed bids; (5) in response, DOD has revised policies, improved training and analytical tools, and taken other steps to promote resource training under the contracts, but to date, these efforts have not been sufficient to bring needed results; (6) for the last two contracts, DOD is applying a revised financing approach that includes resource sharing but at a reduced level; (7) the new approach allocates more funds to the military hospitals and less to the contractors, enabling the hospitals to directly acquire and use outside resources rather than use resource sharing with the contractor; (8) how the military hospitals, other sources, and contractors interact under the new approach is still being defined and has not been tested; resource sharing problems will not be automatically eliminated and may be exacerbated when used in combination with revised financing; (9) for the future, DOD plans even broader changes intended to simplify military hospital budgeting and support contract operations; (10) while the military hospitals and contractors could still use resource sharing, it no longer would be the basis for projecting major savings and lowering bids at the contract's outset; (11) DOD officials acknowledged their resource sharing savings problems but told GAO that lower than expected contract award prices have led to over $2 billion in unexpected, offsetting savings; (12) while TRICARE's overall cost-effectiveness was beyond GAO's review scope, there are reasons to question the currency and analytical completeness of DOD's preliminary savings claims; and (13) GAO supports DOD's current plans to undertake a detailed analysis, based on more up-to-date cost data and estimates, of TRICARE's overall cost-effectiveness.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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