Defense Health Care
Implementation Issues for New TRICARE Contracts and Regional Structure Gao ID: GAO-05-773 July 27, 2005The Department of Defense (DOD) provides health care through TRICARE--a regionally structured program that uses civilian contractors to maintain provider networks to complement health care provided at military treatment facilities (MTF). In 2004, DOD implemented extensive changes to its TRICARE contracts and regional structure. A committee report accompanying the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005 directed GAO to provide information on implementation issues for (1) the new TRICARE contracts and (2) the new regional structure. This report also provides information on the new management tools used to assess (3) contractors' performance and (4) program performance at the MTF and regional levels.
During implementation of the new health care delivery contracts, issues arose that affected the administration of the TRICARE program. These issues increased program costs and impacted operations but had a minimal impact on the delivery of health care to beneficiaries. In particular, DOD's automated referral and authorization system was not available for contractors and MTFs at the start of health care delivery, resulting in the need for labor-intensive manual processes. DOD could not provide comprehensive costs associated with the system's development and subsequent nonavailability, but contractors' initial estimates for implementing manual processes in response to the system's nonavailability exceed $250 million over the 5-year contract period. DOD continues to incur costs to identify and develop solutions for managing referrals and authorizations and could not yet provide a time frame for when an automated system would be implemented. Implementation of the new regional structure, called the governance structure, highlighted ambiguities about the roles and responsibilities of the newly established TRICARE regional offices (TRO) with respect to both contract oversight and coordination with the military services' MTFs. DOD offices, which traditionally oversee the contracts, and the TROs, which were assigned contract oversight responsibilities under the plan for the new governance structure, have had difficulties coordinating their responsibilities. In addition, while the governance plan states that TRO directors are to work with MTFs on issues such as maximizing the use of the direct care system, it does not provide the TROs with a protocol for these interactions. TRO directors do not have authority over MTFs and must rely on a collaborative approach to obtain cooperation. In some instances, military service officials have expressed concern that TROs have overstepped their authority by directly providing MTFs with guidance. DOD has two new management tools for assessing the performance of contractors--performance guarantees and award fees. While performance guarantees serve as the basis for financial penalties, DOD's process for assessing penalties is still evolving. Nonetheless, for the first quarter of the contract year, DOD assessed all contractors with performance guarantee penalties, including penalties related to telephone wait times and the timely submission of referral reports for specialty care. In addition to penalties, DOD uses award fees to provide contractors with financial bonuses based on customer service. All contractors received an award fee for their performance during the first quarter of their contract year. Although business plans were intended to be the management tools used to assess program performance at the MTF and regional levels, the fiscal year 2005 business plans for MTFs and TROs could not be used as intended for program oversight. Lacking clear guidance, each military service used its own approach to develop MTF business plans. The resulting inconsistencies in content and form impeded development of regional business plans, which are intended to incorporate the regions' MTF business plans. The three military services have collaborated to develop a standard MTF business planning approach--an effort that should improve both the MTF and regional plans for fiscal year 2006.
RecommendationsOur 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.
Director: Team: Phone:GAO-05-773, Defense Health Care: Implementation Issues for New TRICARE Contracts and Regional Structure
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Report to the Committees on Armed Services, U.S. Senate and House of
Representatives:
United States Government Accountability Office:
GAO:
July 2005:
Defense Health Care:
Implementation Issues for New TRICARE Contracts and Regional Structure:
GAO-05-773:
GAO Highlights:
Highlights of GAO-05-773, a report to Committees on Armed Services,
U.S. Senate and House of Representatives:
Why GAO Did This Study:
The Department of Defense (DOD) provides health care through TRICARE--
a regionally structured program that uses civilian contractors to
maintain provider networks to complement health care provided at
military treatment facilities (MTF). In 2004, DOD implemented extensive
changes to its TRICARE contracts and regional structure. A committee
report accompanying the Ronald W. Reagan National Defense Authorization
Act for Fiscal Year 2005 directed GAO to provide information on
implementation issues for (1) the new TRICARE contracts and (2) the new
regional structure. This report also provides information on the new
management tools used to assess (3) contractors' performance and (4)
program performance at the MTF and regional levels.
What GAO Found:
During implementation of the new health care delivery contracts, issues
arose that affected the administration of the TRICARE program. These
issues increased program costs and impacted operations but had a
minimal impact on the delivery of health care to beneficiaries. In
particular, DOD's automated referral and authorization system was not
available for contractors and MTFs at the start of health care
delivery, resulting in the need for labor-intensive manual processes.
DOD could not provide comprehensive costs associated with the system's
development and subsequent nonavailability, but contractors' initial
estimates for implementing manual processes in response to the system's
nonavailability exceed $250 million over the 5-year contract period.
DOD continues to incur costs to identify and develop solutions for
managing referrals and authorizations and could not yet provide a time
frame for when an automated system would be implemented.
Implementation of the new regional structure, called the governance
structure, highlighted ambiguities about the roles and responsibilities
of the newly established TRICARE regional offices (TRO) with respect to
both contract oversight and coordination with the military services'
MTFs. DOD offices, which traditionally oversee the contracts, and the
TROs, which were assigned contract oversight responsibilities under the
plan for the new governance structure, have had difficulties
coordinating their responsibilities. In addition, while the governance
plan states that TRO directors are to work with MTFs on issues such as
maximizing the use of the direct care system, it does not provide the
TROs with a protocol for these interactions. TRO directors do not have
authority over MTFs and must rely on a collaborative approach to obtain
cooperation. In some instances, military service officials have
expressed concern that TROs have overstepped their authority by
directly providing MTFs with guidance.
DOD has two new management tools for assessing the performance of
contractors--performance guarantees and award fees. While performance
guarantees serve as the basis for financial penalties, DOD's process
for assessing penalties is still evolving. Nonetheless, for the first
quarter of the contract year, DOD assessed all contractors with
performance guarantee penalties, including penalties related to
telephone wait times and the timely submission of referral reports for
specialty care. In addition to penalties, DOD uses award fees to
provide contractors with financial bonuses based on customer service.
All contractors received an award fee for their performance during the
first quarter of their contract year.
Although business plans were intended to be the management tools used
to assess program performance at the MTF and regional levels, the
fiscal year 2005 business plans for MTFs and TROs could not be used as
intended for program oversight. Lacking clear guidance, each military
service used its own approach to develop MTF business plans. The
resulting inconsistencies in content and form impeded development of
regional business plans, which are intended to incorporate the regions'
MTF business plans. The three military services have collaborated to
develop a standard MTF business planning approach--an effort that
should improve both the MTF and regional plans for fiscal year 2006.
What GAO Recommends:
GAO is making recommendations to DOD that are aimed at determining the
costs associated with its automated system for referrals and
authorizations to decide what future investments are warranted as well
as clarifying responsibilities for contract oversight and establishing
protocols for regional offices to collaborate with MTFs to facilitate
regional oversight.
DOD concurred with each of GAO's recommendations and stated that it was
actively working to manage these issues.
www.gao.gov/cgi-bin/getrpt?GAO-05-773.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Marcia Crosse at (202)
512-7119 or crossem@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Briefing on the Implementation of New TRICARE Contracts and
Governance Structure:
Appendix II: Comments from the Department of Defense and GAO's
Response:
Abbreviations:
DEERS: Defense Enrollment Eligibility Reporting System:
DOD: Department of Defense:
EWRAS: Enterprise Wide Referral and Authorization System:
MCSC: managed care support contractor:
MTF: military treatment facility:
RFP: request for proposal:
TED: TRICARE Encounter Data:
TMA: TRICARE Management Activity:
TOL: TRICARE On Line:
TRO: TRICARE regional office:
United States Government Accountability Office:
Washington, DC 20548:
July 27, 2005:
The Honorable John Warner:
Chairman:
The Honorable Carl Levin:
Ranking Minority Member:
Committee on Armed Services:
United States Senate:
The Honorable Duncan Hunter:
Chairman:
The Honorable Ike Skelton:
Ranking Minority Member:
Committee on Armed Services:
House of Representatives:
The Department of Defense (DOD) provides health care to over 9 million
beneficiaries, including active duty personnel, retirees, and their
dependents, through its TRICARE program, which is expected to cost $36
billion in 2005. TRICARE beneficiaries can obtain health care through
DOD's direct care system of military hospitals and clinics, commonly
referred to as military treatment facilities (MTF), and through DOD's
purchased care system of civilian providers. DOD uses managed care
support contractors (MCSC) to develop networks of providers to
complement care available in MTFs and to perform other customer service
functions, such as claims processing. DOD's TRICARE Management Activity
(TMA), under the Assistant Secretary of Defense for Health Affairs, is
responsible for procuring, administering, and overseeing the health
care delivery contracts for purchased care. Beginning in 1995, TMA
implemented the TRICARE purchased care system through 7 health care
delivery contracts that covered 11 geographic health care regions
nationwide. We previously reported that the contracts' size,
complexity, and prescriptive requirements limited innovation and
competition among contractors.[Footnote 1]
In August 2002, TMA announced extensive changes to the next generation
of TRICARE contracts that included consolidating the number of health
care regions from 11 to 3 and correspondingly reducing the number of
health care delivery contracts to 3. Additionally, some of the health
care functions that had been included in the previous TRICARE
contracts, such as retail pharmacy services and MTF appointments, were
removed from the new health care delivery contracts. These functions
were either separately awarded as national contracts or were given to
the military services to manage. In designing the new contracts, TMA
used a performance-based contracting approach that focuses on outcomes
and gives the MCSCs latitude on how to achieve them--unlike the
previous contracts that more specifically prescribed how MCSCs were to
meet contract standards. To oversee MCSCs' performance under the new
contracting approach, TMA developed management tools to ensure that
specific program outcomes are achieved and to monitor MTF commanders'
and beneficiaries' satisfaction with customer service.
TMA and the military services also made substantial changes to the
management and oversight of TRICARE's purchased and direct care systems
through the joint development of a governance plan. This plan
established a new, regional governance structure, including the
creation of TRICARE regional offices (TRO) to manage each of the three
TRICARE regions (North, South, and West).[Footnote 2] The TROs are each
led by a director, who reports to the Deputy Director of TMA. According
to the governance plan, TRO directors are considered the health plan
managers for the regions and are responsible for managing the new
contracts, including ensuring network quality and adequacy, monitoring
customer satisfaction outcomes, and coordinating appointment and
referral management policies. TRO directors are also responsible for
supporting MTF commanders in their efforts to maximize the use of MTFs
and for providing other assistance as needed.
Through the governance plan, TMA and the military services established
annual business plans as the primary management tools for overseeing
the delivery of health care at the MTF and regional levels. MTFs are
responsible for developing business plans that establish their
capabilities and capacity and that provide financial and workload
information. After each military service approves the MTF business
plans, MTF commanders submit them to the TROs for inclusion in a
single, regional business plan that also contains information about
health care delivery in areas without MTFs. To oversee the delivery of
health care and achieve optimal use of the direct care system, senior
officials can use business plans to make informed decisions on what
health care should be provided through the MTFs versus the purchased
care system of civilian providers.
The implementation of the new contracts and governance structure
involved numerous transition activities that required careful planning
and execution to ensure that the delivery of health care to
beneficiaries was not disrupted. The Senate Committee on Armed
Services, in a report accompanying the Ronald W. Reagan National
Defense Authorization Act for Fiscal Year 2005, directed GAO to monitor
the transition to the new contracts and governance structure supporting
the TRICARE program and to provide an assessment of initial transition
activities.[Footnote 3] In response, we examined:
1. issues that arose during implementation of the new TRICARE contracts
and how they are being addressed,
2. issues that arose during implementation of the new TRICARE
governance structure and how they are being addressed,
3. management tools established to assess MCSCs' performance and how
these tools are being used, and:
4. management tools established to assess TRICARE program performance
at the MTF and regional levels and how these tools are being used.
To conduct our evaluation, we interviewed officials at the offices
responsible for administering the TRICARE program, including TMA; the
Offices of the Surgeons General for the Army, Navy, and Air Force; TROs
and MCSCs for the North, South, and West regions; and beneficiary group
representatives. We also reviewed TMA directives, organizational
charts, guidance, manuals, and contract requirements. We evaluated the
governance plan and organizational structure and reviewed the timelines
and plans for the transition to the new contracts and governance
structure. We analyzed business planning documents for each of the TROs
and for selected MTFs for fiscal year 2005. We also reviewed the
reports and tools that are being used to monitor MCSC performance,
including customer satisfaction surveys that are administered to
beneficiaries and to MTF commanders. We assessed the reliability of the
data used in this report and determined that they were sufficiently
reliable for our purpose. To assess the reliability of the data, we (1)
confirmed with TMA and MCSCs that the data they provided included the
elements that we requested and that these data elements were consistent
with provided documentation and (2) conducted detailed interviews with
TMA and MCSC officials to identify any limitations in the data. We
conducted our work from December 2004 through July 2005 in accordance
with generally accepted government auditing standards.
On May 2, 2005, we provided your staff with a briefing on the
preliminary results of this review. The purpose of this letter is to
provide the published briefing slides to you, which appear as appendix
I. The information in these slides has been updated to provide more
current data.
Results in Brief:
A range of issues arose during implementation of the new health care
delivery contracts that affected the administration of the TRICARE
program. These issues increased program costs and impacted operations
but had a minimal impact on the delivery of health care to
beneficiaries. For example, the transition to new contracts prompted a
higher-than-expected volume of beneficiary calls, requiring MCSCs to
use additional resources to reduce telephone hold times and minimize
beneficiary inconvenience. In addition, other problems, including
difficulties with computer systems, strained program operations. The
most significant and costly issue was the nonavailability of the
Enterprise Wide Referral and Authorization System (EWRAS) that TMA and
the military services had been developing since 2001. EWRAS was
expected to provide automated referrals and authorizations for
specialty care, and both MTFs and MCSCs had developed business
processes based on the assumption that EWRAS would be available at the
start of health care delivery. In its absence, both entities
expeditiously developed and implemented labor-intensive manual
processes. MCSCs' initial estimates of the costs involved with
addressing the absence of EWRAS exceed $250 million over the 5-year
contract period, but they have not yet negotiated this cost with TMA
for reimbursement. MTFs had to absorb the costs associated with
addressing the additional workload resulting from the need to manually
process referrals and authorizations, and the military services could
not provide the costs of these efforts. TMA officials also could not
provide comprehensive costs incurred to develop EWRAS but estimated $9
million in contract costs--an estimate that does not include the staff
resources expended to develop specifications for the system. Further,
additional resources are being expended as TMA has established multiple
teams to develop solutions for managing referrals and authorizations.
Depending on what these teams recommend, TMA officials will decide
whether EWRAS will be used or whether another automated system will
need to be developed even though TMA lacks critical cost information
needed to facilitate decision making on the optimal approach for
managing referrals and authorizations. Additionally, although TMA
continues to incur costs related to identifying and developing
solutions, TMA officials could not provide an estimate of when an
automated system would be available.
Issues arose during the implementation of the new TRICARE regional
governance structure that highlighted ambiguities about the roles and
responsibilities of the TROs with respect to both contract oversight
and collaboration with the military services' MTFs. Although the
governance plan gives TRO directors responsibility for overseeing
contract functions, it does not specifically delineate how this
responsibility is to be coordinated with the TMA offices traditionally
responsible for contract oversight. As a result, there have been
coordination difficulties between the TROs and these TMA offices,
resulting in conflicting communications on issues such as financial
penalties and policy related to authorizations for care to an MCSC. In
light of these difficulties, TMA officials have acknowledged the need
to reassess and clarify the responsibilities and coordination
requirements for contract oversight functions. In addition, while the
governance plan states that TRO directors are to work with MTFs on
issues such as maximizing the use of the direct care system, it does
not provide the TROs with a protocol for these interactions. Because
MTFs belong to the military services, TRO directors do not have
authority over them and must rely on a collaborative approach to obtain
cooperation. In the absence of clear protocols, military service
officials have expressed concern about TROs' efforts to exert influence
on MTFs stating that TROs have overstepped their authority in some
instances by directly providing guidance to MTFs on issues such as
referral management procedures and the movement of staff among MTFs.
TMA has two new management tools for assessing the performance of the
MCSCs--performance guarantees and award fees--which are used to
financially penalize and reward MCSCs. Performance guarantees establish
a minimum baseline for performance against 10 specific standards and
serve as the basis for financial penalties. Although TMA has assessed
performance guarantee penalties for each of the MCSCs, the process for
assessing these penalties is still evolving. Because the new health
care delivery contracts are performance based and focus on outcomes
instead of processes, each MCSC measures and reports performance data
differently. As of April 2005, TMA was still working with two MCSCs to
understand their reported data and was still working to complete the
validation of MCSCs' systems that generate reported performance data.
Furthermore, TMA and MCSC officials acknowledge that administering the
performance guarantees is difficult because not all of these standards
reflect common industry practices and, therefore, they have no
precedent on how to measure them. Separately, TMA uses award fees to
provide MCSCs with financial bonuses based on customer satisfaction
surveys administered to beneficiaries and MTF commanders as well as the
TRO directors' firsthand knowledge of MCSCs' performance. All MCSCs
received an award fee for their performance during the first quarter of
their contract year.
Business plans--the management tools established for overseeing TRICARE
performance at the MTF and regional levels--could not be used as
intended during fiscal year 2005. TMA provided the military services
with only minimal guidance on developing MTF business plans and,
consequently, each of the services developed its own guidance,
resulting in variations among the fiscal year 2005 MTF business plans
in both content and format. These inconsistencies subsequently impeded
the development of the regional business plans, which were intended to
incorporate the regions' MTF business plans. As a result, regional
business plans for fiscal year 2005 focused primarily on regional
operations and health care delivery in areas without MTFs and could not
be used to ensure optimal use of the direct care system. To improve
upon the business planning process for fiscal year 2006, the three
military services collaborated to develop an automated tool to
standardize the content and format of MTF business plans and to ensure
that the plans are aligned with the military health system's
overarching strategic plan. The automated tool also includes metrics
that can be used to assess direct care system performance. TMA
officials expect that the automated tool for MTF business plans will
subsequently improve the quality of information to be incorporated in
the regional plans, allowing regional plans to be used as intended to
monitor both the direct and purchased care systems.
Conclusions:
The overall implementation of the new contracts and governance
structure was an enormous undertaking for all stakeholders in the
TRICARE system that proceeded with few issues affecting beneficiaries
due to the close collaboration of TMA, MCSCs, and the military
services. Most of the contract implementation issues were related to
program administration and affected costs and operations with little
impact on health care delivery. The most significant implementation
issue--the nonavailability of EWRAS--required extensive and costly
process changes under short time frames. However, TMA has not clearly
identified all of the costs associated with EWRAS development and
nonavailability although MCSCs' have estimated costs of over $250
million for their efforts in addressing this problem over the 5-year
contract period. Additionally, TMA continues to incur costs related to
developing solutions for managing referrals and authorizations--a
process that may take years to complete. Without a complete
understanding of past and ongoing costs associated with EWRAS and the
development of solutions, TMA will have difficulty determining what
further investments are warranted in developing the optimal approach
for managing referrals and authorizations.
The implementation of the new regional governance structure has not
been flawless, largely because the role of the newly created TROs was
not always clearly defined in the governance plan. Confusion about the
TROs' role in contract oversight has created coordination problems with
the TMA offices that have traditionally conducted contract oversight
functions, resulting in conflicting directions on certain issues.
Further, despite the TROs' lack of authority over the direct care
system, the governance plan did not provide clear protocols for how
TROs are expected to collaborate with the military services' MTFs in
order to obtain their cooperation and maximize regional use of the
direct care system. In some instances, military service officials have
expressed concerns about the TROs overstepping their authority in
working with MTFs, potentially straining the collaborative
relationships. Without clearly defined roles and responsibilities for
overseeing the contracts and collaborating with MTFs, TRO's oversight
of regional health care delivery as envisioned by the governance plan
could be compromised.
Finally, the management tools used in assessing program performance
continue to evolve. TMA is working with the MCSCs to hone its approach
for measuring and administering performance guarantees, an effort that
should help improve contract oversight. Furthermore, the new automated
business planning tool appears promising and could result in
improvements in the consistency and content of the fiscal year 2006 MTF
business plans, subsequently improving the quality of the regional
plans. If effective, TROs and MTF commanders should be able to use the
business plans as intended to assess program performance at the MTF and
regional levels and to ensure optimal use of the direct care system.
Recommendations for Executive Action:
As DOD considers what further investments are warranted for managing
referrals and authorizations, we recommend that the Secretary of
Defense direct the Assistant Secretary of Defense for Health Affairs to
determine comprehensive costs for the development and nonavailability
of EWRAS as well as the costs being incurred to develop a solution.
To facilitate the TROs' oversight of regional health care delivery, we
recommend that the Secretary of Defense direct the Assistant Secretary
of Defense for Health Affairs to take the following two actions:
5. clearly define the TROs' contract oversight roles and
responsibilities as they relate to other TMA offices and:
6. establish protocols for how TROs are to collaborate with the
military services' MTFs.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, DOD concurred with each of our
recommendations and said that it was actively working to manage the
issues we noted. DOD's written response is reprinted in appendix II.
DOD also provided several technical comments that we incorporated where
appropriate.
DOD specifically stated that as the search for an automated solution to
referrals and authorizations continues, the process of cost development
and containment is ongoing. Once all costs associated with the
nonavailability of EWRAS have been fully examined, DOD plans to
negotiate a final cost for manual referral processing with the MCSCs.
In addition, DOD stated that as it develops and implements an automated
solution for processing referrals and authorizations, program oversight
will be maintained to ensure that an automated solution satisfies the
needs of all end users.
To more clearly define contract oversight responsibilities, DOD said
that it is in the process of reexamining business functions for the
TROs and other TMA offices. DOD acknowledged that TMA's existing
business practices and processes were established before the TROs were
created and that business functions need to be reexamined in light of
the new regional structure. The Assistant Secretary of Defense for
Health Affairs has directed TMA to evaluate certain business functions
and to develop written guidance to clearly define how the related
business practices are performed. In conducting this evaluation, it
will be important for DOD to specifically examine the administration of
MCSCs' performance guarantees and the associated financial penalties--
a critical aspect of contract oversight where coordination has been
problematic. Further, to ensure continuous communication and
coordination of critical issues affecting all contracts, DOD has
recently established a Program Oversight Council, whose members include
the TRO Directors, the Deputy Chief for Acquisitions, the Deputy Chief
for Resource Management and Procurement, and the Chief of Health Plan
Operations.
In addition, DOD stated that it intends to establish protocols and
specific management mechanisms for the TROs to coordinate with MTFs. In
particular, the Assistant Secretary of Defense for Health Affairs has
directed the development of agreed-upon protocols and mechanisms for
the TROs to coordinate regional business plans with MTFs in their
regions. While we agree that the business planning process is the
primary method of collaboration between TROs and MTFs, it is not the
only area for which protocols are needed. Because TROs serve as the
health plan managers for the regions, they will sometimes need to
collaborate with MTFs on issues that are not directly related to
business plans, such as the communication of referral management
procedures. We believe that established protocols could facilitate such
communication and alleviate the military services' concerns about how
TROs are interacting with the MTFs.
Despite concurring with our recommendations, DOD stated that the report
did not emphasize what it viewed as the positive aspects of the
implementation--primarily that DOD achieved its paramount goal of
assuring a minimal impact on beneficiaries. However, the objectives of
our review were to identify the issues that were encountered during the
implementation of the new contracts and governance structure, and our
report appropriately focuses on these issues. Nonetheless, our
overarching assessment of DOD's implementation activities clearly
states that the impact on beneficiaries was minimal and attributes this
to the close collaboration of TMA, MCSCs, and the military services.
We are sending copies of this report to the Secretary of Defense and
other interested parties. We will also make copies available upon
request. In addition, the report will be available at no charge on
GAO's Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-7119. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. In addition to the contacts named above, Bonnie
Anderson, Assistant Director, Lois Shoemaker, Rob Suls, and Cathy
Hamann made key contributions to this report.
Signed by:
Marcia Crosse:
Director, Health Care:
[End of section]
Appendix I: Briefing on the Implementation of New TRICARE Contracts and
Governance Structure:
[See PDF for images]
[End of slide presentation]
[End of section]
Appendix II: Comments from the Department of Defense and GAO's
Response:
THE ASSISTANT SECRETARY OF DEFENSE:
HEALTH AFFAIRS:
WASHINGTON, D.C. 20301-1200:
JUN 2 9 2005:
Ms. Marcia Crosse:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Ms. Crosse:
This is the Department of Defense (DoD) response to the GAO draft
report, 'DEFENSE HEALTH CARE: Implementation Issues for New TRICARE
Contracts and Regional Structure,' dated June 13, 2005, (GAO Code
290419/GAO-05-773).
Thank you for the opportunity to review the draft report. We do not
concur with the draft report as written. The report is a very one-sided
assessment of a very complex and multifaceted transition/transformation
of DoD's purchased health care system. The report does not offer
comments on the many positive aspects of this endeavor.
In your notice of review for this audit, it was stated that the audit
would focus, in part, on what impacts the new TRICARE contracts are
having on beneficiaries and civilian providers. The letter portion of
your report addressed to the Chairmen and Ranking Members of the
Committees on Armed Services for the Senate and House of
Representatives states that, "issues increased program costs and
impacted operations but had a minimal impact on the delivery of health
care to beneficiaries." Our paramount goal during the transition was to
assure a minimal impact on beneficiaries. We believe there is clear and
ample evidence to show that the transition had an overall positive
impact, such as the seamless transfer of management responsibility for
provider networks in Region North that allowed many beneficiaries to
enjoy uninterrupted continuity of care. While no program is implemented
100% without flaw, given the magnitude of this effort, the complexity
of the actions, and the scope the endeavor called for, we believe DoD
has achieved, and continues to achieve, its goals for a successful
transition. This should be reflected in the report.
The report makes three recommendations for action by the TRICARE
Management Activity. We concur with comments on these recommendations
and are actively working to manage the issues noted in the
recommendations. Our comments are included in the enclosure along with
responses to the recommendations. We have also included specific
technical corrections for your consideration to help strengthen the
report.
My points of contact are Mr. Ron Richards (functional) at (703) 681-
1133 and Mr. Gunther Zimmerman (Audit Liaison) at (703) 681-3492.
Sincerely,
Signed by:
William Winkenwerder, Jr., MD:
Enclosure: As stated:
GAO DRAFT REPORT - DATED June 13, 2005 GAO CODE 2904191GAO-05-773:
"DEFENSE HEALTH CARE: Implementation Issues for New TRICARE Contracts
and Regional Structure"
DEPARTMENT OF DEFENSE COMMENTS:
The draft report provides a review of the Department's implementation
of the new TRICARE contracts and regional structure recently
implemented for the Military Health System (MHS).
Overall Comments:
ENTERPRISE-WIDE REFERRAL AND AUTHORIZATION SYSTEM (EWRAS):
1. Executive Summary Highlights, paragraph 1, lines 7-10: with regard
to EWRAS costs, the report reads: "DOD could not provide comprehensive
costs associated with the system's development, but contractors'
initial estimates for implementing manual processes in response to
system nonavailability exceed $250 million over the five year contract
period."
It is recommended that the report should read: "DOD estimates that $9M
has been spent on concept exploration, initial business process and
requirement definition and the development of EWRAS. DOD is in the
process of negotiating the costs for the current manual referral and
authorization process. Contractors' initial estimates for implementing
manual processes in response to system nonavailability exceed $250
million over the five year contract period."
Rationale: The replacement wording and revised sentence structure more
accurately depicts the history and status of the enterprise wide
referral and authorization and progress to date.
2. Executive Summary Highlights, paragraph 1, lines 10-13: with regard
to DoD cost estimates, the report reads: "DOD continues to incur costs
to identify and develop solutions for managing referrals and
authorizations and could not yet provide a timeframe for when an
automated system would be implemented."
It is recommended that the report should read: "The Enterprise Wide
Referral and Authorization (EWRA) IPT has clearly delineated the
enterprise wide referral and authorization business process. Functional
requirements are being defined and technical solutions analyzed.
Development of the referral and authorization automated technical
solution is expected to be complete within 24 months."
Rationale: The DODI 5000.2 defines the incremental steps required for
development and implementation of Information Technology related
acquisitions.
Clear definition of business processes and functional requirements must
be completed prior to development of a technical solution and timelinc
for implementation.
3. Page 5, paragraph l, lines 2-23: with regard to the EWRAS
development history, the report reads: "EWRAS was expected to provide
automated referrals ...... TMA officials could not provide an estimate
of when an automated system would be available"
It is recommended that the report should read: "EWRAS was expected to
provide automated referrals and authorizations for specialty care,
however both MTFs and MCSCs had developed unique processes which could
not be uniformly automated. In the absence of EWRAS, both entities
expeditiously developed and implemented manual processes. TMA is
currently negotiating the cost for the manual referral and
authorization process with the MCSCs. TMA officials estimate that $9M
has been spent on concept exploration, initial business process and
requirement definition, and development of EWRAS to date. A EWRA IPT
has clearly delineated the enterprise wide referral and authorization
business process. Development of the referral and authorization
automated technical solution is expected to be complete within 24
months."
Rationale: The replacement wording more accurately depicts the history
and status of the enterprise wide referral and authorization and
progress to date.
4. Pages 7-8, Conclusions, paragraph 1, lines 6-16: with regard to
EWRAS implementation, the report reads: "The most significant
implementation issue ... warranted in developing the optimal approach
for managing referrals and authorizations."
It is recommended that the report should read: "The most significant
implementation issue was the lack of standardization of the referral
and authorization process across the MHS which prevented the fielding
of EWRAS. TMA has estimated the costs associated with concept
exploration, initial business process and requirement definition, and
development of EWRAS to be $9M. The cost of the manual process is not
yet available as it is currently being negotiated between TMA and the
MCSCs. The EWRA IPT has clearly delineated the enterprise wide referral
and authorization business process. The Senior Military Medical
Advisory Council (SMMAC) has indicated that the fielding of the
automated technical referral and authorization solution is a top
priority. High level program oversight by the SMMAC will ensure that
the automated solution is developed based on the end users needs as
defined by the enterprise wide referral and authorization business
process."
Rationale: The replacement wording more accurately depicts the history
and status of the enterprise wide referral and authorization and
progress to date.
GAO DRAFT REPORT - DATED June 13, 2005 GAO CODE 290419/GAO-05-773:
"DEFENSE HEALTH CARE: Implementation Issues for New TRICARE Contracts
and Regional Structure"
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Assistant Secretary of Defense (Health Affairs) to determine
comprehensive costs for the development and nonavailability of the
Enterprise Wide Referral and Authorization System as well as costs
being incurred to develop a solution." (Pages 8 and 9/GAO Draft
Report):
DOD RESPONSE: Concur. The process of cost development and containment
is ongoing. The Enterprise Wide Referral and Authorization System
(EWRAS) is designed to support the business processes involved in
managing the referral and authorization process for specialty care. The
goal is to field an automated information system, EWRAS, whose measure
of effectiveness is to effectively support the Enterprise Wide Referral
and Authorization Processes (EWRAP) as defined by the users. The end
result is EWRAP optimization. The Enterprise Wide Referral and
Authorization (EWRA) Integrated Project Team (IPT) has clearly
delineated EWRAP. The ERWA IPT, chaired by a Flag Officer, is defining
the functional requirements and analyzing the technical solutions.
Development of the referral and authorization automated technical
solution, EWWAS, is expected to be complete within 24 months." As this
process continues to unfold, the development and implementation costs
of the EWRAP and EWRAS remain an important consideration. TMA issued a
contract change order to implement contingency plans in the absence of
an automated EWRAS solution. Although the Managed Care Support
Contractors (MCSCs) estimate the cost of the manual process at $250M
over five years, this figure is only their rough order of magnitude
(ROM). Historically, once all costs have been fully examined, TMA has
negotiated the cost of unilateral change orders at substantially less
than the contractors' ROM estimates, and is confident of achieving the
same result in this instance. The $9M cost to date to develop the EWRAS
capability was not a wasted investment for the Government. The
capability developed was an electronic solution to referrals and
authorizations, but lacked adequately approved business processes to
accomplish the function. The EWRA IPT developed, refined, and achieved
approval of the business process requirements for performing referrals
and authorizations by the MTFs and the MCSCs, and is now performing a
map-and-gap analysis of the relationship between the electronic EWRAS
platform and the functional requirement to determine what, if any,
adjustments are required to field the EWRAS system. As DOD implements
the automated solution, program oversight will be maintained to ensure
that the automated solution is developed based on the end users needs.
The DODI 5000.2 defines the incremental steps required for development
and implementation of Information Technology related acquisitions, and
is the model being employed to develop, track and control program
costs.
RECOMMENDATION 2: The GAO recommended that the "Secretary of Defense
direct the Assistant Secretary of Defense (Health Affairs) to clearly
define the TRICARE regional offices' contract oversight roles and
responsibilities as they relate to other TRICARE Management Activity
offices." (Page 9/GAO Draft Report):
DOD RESPONSE: Concur. In January 2005, as part of the continuing
TRICARE Management Activity (TMA) transformation process, the ASD(HA)
appointed an SES-level committee to look at what appropriate additional
steps were required to assure that the organization had the optimal
balance to effectively support the TRICARE governance structure. In
April, the committee provided several recommendations designed to
support the appropriate balance to enhance TMA's effective management
of both the global and regional aspects of the TRICARE Program. The
committee noted that the major business practices and processes had all
been established, either in writing or practice, before the TRICARE
Regional Office (TRO) structure was put in place and have remained
unchanged. Because new guidance had not been issued to the staff,
confusion occurred in what is expected of them and how they were to
perform various functions. The committee recommended that TMA re-
examine its business functions and clearly define how it wanted its
business practices to be performed.
The Assistant Secretary of Defense (Health Affairs) has embraced this
recommendation and in May 2005 he directed a re-look of the following
TMA business functions: policy development and coordination; issue
development and coordination; requirements management; change order
management; pre-negotiation/award review and approval; coordination
among the TRICARE Regional Offices; financial management [contract
financial execution visibility and purchase care requirements
determination]; program integrity; program management decision process;
and marketing and education. The ASD(HA) directed that the review
process of these business functions and the development of written
guidance be completed in 60 days to clearly define how business
practices are performed. This will provide a clear picture to the staff
of what is expected of them and how they are to perform various
functions.
In addition, a Program Oversight Council whose members include the TRO
Directors, the Deputy Chiefs for Acquisitions and Resource Management
and Procurement, and the Chief, Health Plan Operations (Chair), has
been formed and meets weekly. This forum links the field (TROs) with
the operations, policy and resource functions of TMA, and ensures
continuous communication and coordination of critical issues affecting
all contracts. It also allows for prioritization of issues to be worked
and vetted through the TMA leadership.
RECOMMENDATION 3: The GAO recommended that the "Secretary of Defense
direct the Assistant Secretary of Defense (Health Affairs) to establish
protocols for how TRICARE regional offices are to collaborate with the
military services' military treatment facilities." (Page 9/GAO Draft
Report):
DOD RESPONSE: Concur. The Regional Directors are the health plan
managers for their respective regions, and are charged with developing
a regional business plan that optimizes the capabilities of the direct
care Military Treatment Facilities (MTFs). In the first year of the new
governance structure, Fiscal Year 2005, the business planning process
was in its initial stages. The Assistant Secretary of Defense (Health
Affairs) has issued Military Health System Business Planning Guidance
to the Service Surgeons General and the TRICARE Regional Directors for
the Fiscal Year 2006-2008 budget cycle. The guidance:
* Directs use of the Tri-Service Business Planning Tool for Military
Treatment Facility, Multi-Service Market and TRICARE Regional Office
business plans;
* Establishes 8 critical initiatives as the focus of the plans;
* Assigns responsibility to the TRICARE Regional Offices for optimizing
the direct care and purchased care resources and for determining the
purchased care requirements of the "white spaces" (the areas in a
region outside the Prime Service Area of any Military Treatment
Facility); and:
* Includes a timeline to make the Fiscal Year 2006 business plan the
basis for the Fiscal Year 2008-FY 2013 Defense Health Program Budget
Estimate Submission.
To assure that the business planning process is optimized, the
Assistant Secretary of Defense (Health Affairs) has directed that the
Military Health System Strategic Management process be used as the
vehicle to establish agreed upon protocols and specific management and
coordination mechanisms for the TRICARE Regional Offices to coordinate
effective regional business plans with the Military Treatment
Facilities and multi-service market managers in their regions.
The following are GAO's comments on the DOD June 29, 2005, letter.
GAO's Comments:
7. The TRICARE Management Activity (TMA) estimated that $9 million in
contract costs had been spent for the development of EWRAS through June
2004. In addition, as a result of EWRAS nonavailability, the managed
care support contractors (MCSC) estimated $250 million for implementing
a manual referral and authorization process over five years. However,
TMA did not provide us with complete data related to EWRAS costs. TMA
could only verify that $6 million had been spent on a contract to
develop the system and estimated that an additional $3 million had been
spent on EWRAS development through another information system contract.
Therefore, TMA's estimate of EWRAS expenditures are associated only
with system development contracts and do not include the separate costs
incurred by TMA or the military services for staffing resources
expended in conceptualizing the system and developing system
specifications.
8. TMA has established multiple teams to develop solutions for managing
referrals and authorizations. In July 2005, we confirmed with TMA
officials that the most recent team has established a business process
that will serve as the framework for the automated management of
referrals and authorization. DOD's response acknowledges that efforts
to develop an automated system are ongoing as functional requirements
for a system are being defined and technical solutions analyzed.
Therefore, as we reported, TMA continues to incur costs to identify and
develop solutions for managing referrals and authorizations.
Additionally, DOD's response asserts that an automated system is
expected to be complete within 24 months. However, in further
discussions, TMA officials told us that implementation would not be
initiated until the concept of operations is approved and funding is
provided--activities that had not occurred and would likely stretch the
timeline past 24 months. Additionally, in its rationale, DOD confirms
that until definitions for both business processes and functional
requirements are completed, a technical solution and implementation
timeline cannot be developed.
9. We believe that our report paragraph accurately depicts the history
and status of the referral and authorization process. Further, as
previously stated, TMA officials told us that implementation would not
be initiated until the concept of operations is approved and funding is
provided--activities that had not occurred and would likely stretch the
timeline past 24 months. In addition, DOD confirmed that a technical
solution and implementation timeline cannot be developed until
definitions for both business processes and functional requirements are
completed.
10. We agree that the lack of standardization of the referral and
authorization process prohibited TMA from deploying its EWRAS automated
system. This was a critical issue that TMA should have recognized and
addressed during EWRAS development. Because this was not done, EWRAS
could not be deployed, and, as we concluded, EWRAS nonavailability
became the most significant implementation issue.
[End of section]
FOOTNOTES
[1] GAO, Defense Health Care: Lessons Learned From TRICARE Contracts
and Implications or the Future, GAO-01-742T (Washington, D.C.: May 17,
2001).
[2] The governance plan also designated selected locations with more
than one MTF as Multiple Service Markets. We did not include these
markets in the scope of our review.
[3] S. Rep. No. 108-260, at 351 (2004).
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