Medicare Subvention Demonstration

The Balanced Budget Act of 1997 authorized a three-year test--called Medicare subvention--that allows military retirees, their dependents, and survivors to enroll in a new Department of Defense (DOD) health maintenance organization (HMO). The goal is to offer accessible, quality care while keeping costs down for DOD and Medicare. Care for these beneficiaries at military treatment facilities is now provided on a space-available basis that lacks the continuity so important to many older retirees. Under the Medicare subvention demonstration, Medicare will pay DOD for health care provided to retirees at six sites. DOD will provide enrollees with the full range of Medicare-covered services as well as some additional ones. In principle, beneficiaries, DOD, and Medicare could all gain under subvention. GAO is required to report annually on the demonstration's effect on Medicare costs. The demonstration was not fully implemented at all sites until January 1999, so there is not yet enough evidence to assess subvention's cost to Medicare. Consequently, this report focuses on the ability of DOD's data systems to (1) determine DOD's historical "level of effort" and Medicare payments and (2) manage the demonstration and assess its costs effects.

GAO noted that: (1) portions of DOD's baseline costs may be understated, which could lead to Medicare overpayments if not adjusted; (2) this results from data inaccuracies in areas of DOD's medical cost accounting system such as pay and prescription drugs; (3) these findings show that the DOD cost system problems GAO and others have reported on over the years persist and continue to affect the DOD health care activities that rely on these systems; (4) at the root of the problem is the long-standing lack of DOD and services' oversight as well as a lack of incentives to ensure the data's accuracy, timeliness, and completeness; (5) DOD officials told GAO that DOD is committed to making whatever adjustments are needed to ensure Medicare does not overpay DOD; (6) data problems also make the subvention demonstration more difficult to manage at both the national and local levels; (7) for example, DOD managers do not have sufficiently accurate or timely data to know whether Medicare capitated payments will cover DOD's costs to provide the full range of health care to beneficiaries or to determine whether it is more cost-effective to deliver care in DOD facilities or purchase it from network providers; (8) timely and accurate tracking of cost and utilization data is critical to these decisions, as is the case in other managed care organizations; (9) acting on the problems GAO identified, DOD officials developed a management improvement plan to begin addressing baseline and systematic data weaknesses, and the Health Care Financing Administration (HCFA) plans to hire a contractor to review DOD's data and methodology; (10) in their reviews, these agencies may need to reestimate the baseline using more reliable data or consider alternate ways to determine the baseline; (11) because DOD uses its cost accounting systems for many other health care management purposes beyond the demonstration's needs, such as resource allocation and make versus buy decisions, GAO believes DOD needs to dedicate sufficient management attention and effort to ensure data reliability and accuracy; and (12) DOD established a health care data quality task force to begin addressing the broader system causes of the data problems that GAO and others have continued to identify.

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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