Review of the President's Fiscal Year 2009 Budget Request for the Defense Health Program's Private Sector Care Budget Activity Group
Gao ID: GAO-08-721R May 28, 2008The President's budget request for the Department of Defense's (DOD) Defense Health Program has increased steadily in recent years. For example, from fiscal year 2005 to fiscal year 2009, the budget request for the program increased from about $17.6 billion to about $23.6 billion, an increase of about 34 percent. DOD has attributed a majority of this increase to growth in medical care, dental care, and pharmaceuticals provided in the private sector to active duty personnel and other eligible beneficiaries. These private sector expenses are funded through the Defense Health Program's Private Sector Care Budget Activity Group (BAG). From fiscal year 2005 to fiscal year 2009, the budget request for this BAG increased by about 36 percent--from about $9.0 billion to almost $12.2 billion. The Conference Report accompanying the Fiscal Year 2008 Department of Defense Appropriations bill directed us to review the President's fiscal year 2009 budget request for the Defense Health Program's Private Sector Care BAG. To do this, we reviewed (1) DOD's justification for the request for the Private Sector Care BAG, including the underlying estimates and the extent to which DOD considered historical information; and (2) changes between this request and the request for fiscal year 2008 and factors causing these changes.
DOD based the President's fiscal year 2009 budget request of almost $12.2 billion for DOD's Private Sector Care BAG on models and cost projections that used historical data. The department developed the budget request through a two-step process. The first step involved building an initial budget estimate, which was largely based on fiscal year 2006 data that were adjusted using trend models to reflect changes in the number of TRICARE users, utilization (i.e., health care usage per user), and costs. The second step resulted in a net reduction of almost $2.2 billion to the initial budget estimate of about $14.3 billion. To do this, DOD considered various factors, including projected savings from increased beneficiary cost sharing. While DOD included appropriate factors in developing the President's fiscal year 2009 budget request for the Private Sector Care BAG, it is likely that DOD underestimated its funding needs as we do not believe that all of the cost savings DOD expects to achieve from increased beneficiary cost sharing will be realized. In addition, similar proposals in the past to increase beneficiary cost sharing have not been enacted. The President's fiscal year 2009 budget request of almost $12.2 billion for the Private Sector Care BAG was about $1.7 billion higher than the about $10.5 billion requested for fiscal year 2008. Of this increase, $995 million was due to estimated increases in the number of TRICARE users, utilization, health care costs, and administrative costs. The remainder of this increase was due to several factors, including greater funding needs for congressionally mandated benefit changes.
GAO-08-721R, Review of the President's Fiscal Year 2009 Budget Request for the Defense Health Program's Private Sector Care Budget Activity Group
This is the accessible text file for GAO report number GAO-08-721R
entitled 'Review of the President's Fiscal Year 2009 Budget Request for
the Defense Health Program's Private Sector Care Budget Activity Group'
which was released on May 29, 2008.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
May 28, 2008:
The Honorable Daniel Inouye:
Chairman:
The Honorable Ted Stevens:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable John P. Murtha:
Chairman:
The Honorable C. W. Bill Young:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
Subject: Review of the President's Fiscal Year 2009 Budget Request for
the Defense Health Program's Private Sector Care Budget Activity Group:
The President's budget request for the Department of Defense's (DOD)
Defense Health Program has increased steadily in recent years.[Footnote
1] For example, from fiscal year 2005 to fiscal year 2009, the budget
request for the program increased from about $17.6 billion to about
$23.6 billion, an increase of about 34 percent. DOD has attributed a
majority of this increase to growth in medical care, dental care, and
pharmaceuticals provided in the private sector to active duty personnel
and other eligible beneficiaries.[Footnote 2] These private sector
expenses are funded through the Defense Health Program's Private Sector
Care Budget Activity Group (BAG).[Footnote 3] From fiscal year 2005 to
fiscal year 2009, the budget request for this BAG increased by about 36
percent--from about $9.0 billion to almost $12.2 billion.
The Conference Report accompanying the Fiscal Year 2008 Department of
Defense Appropriations bill directed us to review the President's
fiscal year 2009 budget request for the Defense Health Program's
Private Sector Care BAG.[Footnote 4] To do this, we reviewed (1) DOD's
justification for the request for the Private Sector Care BAG,
including the underlying estimates and the extent to which DOD
considered historical information; and (2) changes between this request
and the request for fiscal year 2008 and factors causing these changes.
To conduct our work, we analyzed the methodologies that DOD used to
develop the budget requests for the Private Sector Care BAG in fiscal
years 2008 and 2009. We also interviewed officials and analyzed
documents from DOD's Office of the Under Secretary of Defense
(Comptroller) and TRICARE Management Activity, which were the offices
responsible for developing budget requests for the Private Sector Care
BAG. We also relied on prior GAO work, particularly past work in which
we analyzed DOD's projected savings from planned increases in
beneficiary cost sharing.[Footnote 5]
In addition, we reviewed budget and obligation data related to the
Defense Health Program but we did not validate these data.[Footnote 6]
We have raised concerns about the quality of DOD's financial data in
previous reports.[Footnote 7] However, we determined that these data
were sufficiently reliable to understand DOD's budget formulation
process and the underlying assumptions used to develop the President's
budget request. We based our determination on interviews with DOD
officials and an examination of the data for obvious errors and
omissions. We conducted this audit from January 2008 to May 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. A detailed description of
our scope and methodology is listed in enclosure I.
Results in Brief:
DOD based the President's fiscal year 2009 budget request of almost
$12.2 billion for DOD's Private Sector Care BAG on models and cost
projections that used historical data. The department developed the
budget request through a two-step process. The first step involved
building an initial budget estimate, which was largely based on fiscal
year 2006 data that were adjusted using trend models to reflect changes
in the number of TRICARE users, utilization (i.e., health care usage
per user), and costs. The second step resulted in a net reduction of
almost $2.2 billion to the initial budget estimate of about $14.3
billion. To do this, DOD considered various factors, including
projected savings from increased beneficiary cost sharing. While DOD
included appropriate factors in developing the President's fiscal year
2009 budget request for the Private Sector Care BAG, it is likely that
DOD underestimated its funding needs as we do not believe that all of
the cost savings DOD expects to achieve from increased beneficiary cost
sharing will be realized.[Footnote 8] In addition, similar proposals in
the past to increase beneficiary cost sharing have not been enacted.
The President's fiscal year 2009 budget request of almost $12.2 billion
for the Private Sector Care BAG was about $1.7 billion higher than the
about $10.5 billion requested for fiscal year 2008. Of this increase,
$995 million was due to estimated increases in the number of TRICARE
users, utilization, health care costs, and administrative costs. The
remainder of this increase was due to several factors, including
greater funding needs for congressionally mandated benefit changes.
Background:
DOD's Defense Health Program provides funding for medical and dental
services to active duty personnel and other eligible beneficiaries,
medical command headquarters, medical personnel training, occupational
and industrial health care worldwide, and veterinary services. Defense
Health Program funding is divided into three parts: Operation and
Maintenance (O&M); Research, Development, Test and Evaluation; and
Procurement. The President has requested about $23.6 billion for the
Defense Health Program for fiscal year 2009, of which about $23.1
billion (about 98 percent) was for O&M. The O&M request was distributed
into seven BAGs, including one for Private Sector Care. (See encl. II
for a list and description of these BAGs.) The Private Sector Care BAG
accounts for about $12.2 billion (almost 53 percent) of the request for
O&M. The budget request for this BAG is divided among 12 program
elements, which are described in detail in enclosure III. See figure 1
for the amount of requested funding for each program element in the
fiscal year 2009 budget request for the Private Sector Care BAG.
Figure 1: The President's Fiscal Year 2009 Budget Request of about
$12.2 Billion for the Private Sector Care BAG by Program Element:
This figure is a horizontal bar graph showing the president's fiscal
year 2009 budget request of about $12.2 billion for the private sector
care BAG by program element.
Dollars in millions:
Purchased Healthcare Pharmaceuticals: $256.1;
National Retail Pharmacy: $1,701.9;
Managed Care Support Contracts: $5,155.2;
Purchased Care for Military Treatment Facility Enrollees: $2,230.4;
Purchased Dental Care: $293.9;
Uniformed Services Family Health Program: $374.3;
Healthcare Supplemental Care: $1,031.2;
Dental Supplemental Care: $108.1;
Continuing Health Education/Capitalization of Assets: $253.0;
Overseas Purchased Healthcare: $255.9;
Miscellaneous Purchased Healthcare: $464.3;
Miscellaneous Support Activities: $31.4.
[See PDF for image]
Source: GAO analysis of DOD data.
[End of figure]
The Defense Health Program includes funding for TRICARE--DOD's program
that provided health care to about 7.6 million active duty personnel
and other beneficiaries in 2007.[Footnote 9] TRICARE beneficiaries can
elect to obtain health care either through TRICARE network or
nonnetwork providers, funded through the Private Sector Care BAG, or
through DOD's direct care system of military treatment facilities,
funded through the In-House Care BAG.
The President's budget requests for the Private Sector Care and In-
House Care BAGs have sometimes differed from the actual funding
amounts. The President's budget request for the Private Sector Care BAG
has grown at a rate similar to the budget request for the In-House Care
BAG. For example, from fiscal year 2005 to fiscal year 2008, the budget
request for the In-House Care BAG increased by 16 percent compared to
the 17 percent increase in the budget request for the Private Sector
Care BAG. However, during that same period, funding for the In-House
Care BAG increased by 26 percent compared to a 38 percent increase for
the Private Sector Care BAG. The difference for the Private Sector Care
BAG is because Congress funded it for $12.3 billion in fiscal year
2008, which is $1.8 billion more than the President's budget request of
$10.5 billion. Congress provided this additional funding to offset
projected savings associated with DOD's proposal to increase TRICARE
beneficiary cost sharing since provisions in the Conference Report
accompanying the National Defense Authorization bill for Fiscal Year
2008 prevented DOD from implementing this proposal before October 1,
2008.[Footnote 10]
DOD's Process for Developing the Fiscal Year 2009 Budget Request for
the Private Sector Care BAG Relied on Historical Data:
The President's fiscal year 2009 budget request of almost $12.2 billion
for DOD's Private Sector Care BAG was based on models and cost
projections that used historical data. DOD developed the budget request
through a two-step process. The first step involved building an initial
budget estimate. The second step consisted of revising the initial
budget estimate for the Private Sector Care BAG of about $14.3 billion
to reflect various factors, including projected savings from increased
beneficiary cost sharing. This revision resulted in a net reduction of
about $2.2 billion. While DOD included appropriate factors in
developing the President's fiscal year 2009 budget request for the
Private Sector Care BAG, it is likely that DOD underestimated its
funding needs as we do not believe that all of the cost savings DOD
expects to achieve from increased beneficiary cost sharing will be
realized.[Footnote 11]In addition, similar proposals in the past to
increase beneficiary cost sharing have not been enacted.
The first step in DOD's process was to develop the initial budget
estimate for the Private Sector Care BAG and began in mid 2006. DOD
established a baseline for the initial budget estimate by using Private
Sector Care obligation data from the first 7 months of fiscal year
2006, which it annualized and adjusted for seasonal differences in
health care spending. DOD officials told us that the department used
part-year data because full-year data for fiscal year 2006 were not
available when the budget estimate was being developed. Since DOD
develops an initial budget estimate every 2 years, the initial budget
estimates for fiscal years 2008 and 2009 were developed simultaneously
and both used fiscal year 2006 obligation data as their baseline. This
baseline represented the size of the program (or program capacity) in
fiscal year 2006 whether the source of funding was from new budget
authority (obligational authority) or carryover amounts.[Footnote 12]
Furthermore, DOD did not adjust its initial budget estimate for
reprogramming actions because there were no funds reprogrammed into the
Private Sector Care BAG.[Footnote 13] Hence, there were no obligations
related to reprogrammed funds for the Private Sector Care BAG that
occurred in fiscal year 2006.
To project its funding needs beyond the baseline year, DOD primarily
used trend models, which projected growth in TRICARE user numbers,
health care utilization, and costs.[Footnote 14] The department used
the trend models to make adjustments to the baseline for retail and
mail-order pharmacy programs and major private sector health care
programs for active duty personnel, active duty dependents, as well as
retirees and dependents under age 65. Together, funding needs for these
programs accounted for about 80 percent of the fiscal year 2009 request
for Private Sector Care BAG and largely comprised the following program
elements: Purchased Healthcare Pharmaceuticals, National Retail
Pharmacy, Managed Care Support Contracts, Purchased Care for Military
Treatment Facility Enrollees, and Healthcare Supplemental Care. For a
detailed overview of DOD's trend models, see table 1.
Table 1: Description of DOD's Trend Models Used to Develop the Initial
Estimate for the President's Fiscal Year 2009 Budget Request:
Model: Pharmacy trend model;
Purpose: To project year-to-year changes in the funding needs for
TRICARE's retail pharmacy system and the TRICARE Mail Order Pharmacy
for active duty personnel, active duty dependents, as well as retirees
and dependents under age 65;
Description: DOD used historical data to estimate trends in the TRICARE
user numbers, utilization (i.e., the average number of prescriptions
per user), and the average cost per prescription;
Program element(s): * National Retail Pharmacy;
* Purchased Healthcare Pharmaceuticals.
Model: Health care trend model for active duty dependents as well as
retirees and dependents under age 65;
Purpose: To project year-to-year changes in the funding needs for
private sector health care for active duty dependents as well as
retirees and dependents under age 65;
Description: DOD used historical data to estimate trends in the TRICARE
user numbers, utilization (i.e., the average number of weighted
inpatient and outpatient services per user), and the average cost per
weighted service;
Program element(s): * Managed Care Support Contracts;
* Purchased Care for Military Treatment Facility Enrollees.
Model: Health care trend model for active duty personnel;
Purpose: To project year-to- year changes in the funding needs for
private sector health care for active duty personnel;
Description: DOD used historical data to estimate trends in the TRICARE
user numbers, utilization (i.e., the average number of weighted
inpatient and outpatient services per user), and the average cost per
weighted service;
Program element(s): * Healthcare Supplemental Care.
Source: GAO analysis based on DOD process.
[End of table]
DOD developed the initial budget estimate for the remaining 20 percent
of the Private Sector Care BAG--including administrative costs, dental
programs, overseas purchased health care, and other miscellaneous
purchased health care programs--by using various methodologies. For
example, DOD projected its funding needs for administrative costs
associated with providing health care to active duty dependents as well
as retirees and dependents under age 65 primarily by using data on the
fees it had negotiated with its managed care support contractors and
its projected health care costs for these beneficiaries. This total
process resulted in an initial budget estimate of about $14.3 billion.
The second step in developing the fiscal year 2009 budget request for
the Private Sector Care BAG was to adjust the initial budget estimate
for various factors. DOD officials told us they used actual obligation
data from fiscal years 2006 and 2007 to make adjustments to the initial
budget estimate for fiscal year 2009, which was based on actual
obligation data from only 7 months of fiscal year 2006. DOD also
considered the results of economic models that were developed by a DOD
contractor to project growth trends in retail and mail-order pharmacy
programs and DOD's major private sector health care programs for active
duty personnel, active duty dependents, as well as retirees and
dependents under age 65. DOD officials compared the results of the
economic models with the results of DOD's trend models and decided to
reduce its initial budget estimate as a result of this comparison. DOD
decided to use the lower of the two projections, because the difference
between them was relatively small. Table 2 lists the adjustments,
including factors that were not accounted for in the initial budget
estimate, such as changes in TRICARE beneficiary cost sharing. The
adjustments to the initial budget estimate for the Private Sector Care
BAG resulted in a net reduction of almost $2.2 billion, bringing the
fiscal year 2009 budget request to almost $12.2 billion.
Table 2: Adjustments to the Initial Budget Estimate for the President's
Fiscal Year 2009 Budget Request for the Private Sector Care BAG:
Dollars in millions:
Adjustment: 1. Proposed changes in TRICARE beneficiary cost sharing:
Projected savings from DOD's proposed increase in TRICARE enrollment
fees, deductibles, and copayments for certain TRICARE beneficiaries;
Amount: -$1,262.1.
Adjustment: 2. Alternative projection of pharmacy and health care cost
growth: Difference between the results of economic models developed by
a DOD contractor and the results of DOD's trend models;
Amount: -$437.0.
Adjustment: 3. Revised cost projections for DOD's TRICARE Reserve
Select program:
Lower than expected enrollment in the original three-tier TRICARE
Reserve Select program.[A];
Amount: -$208.3.
Adjustment: 4. Federal pricing arrangements for pharmaceuticals:
Projected savings from federal pricing arrangements for drugs purchased
at retail pharmacies.[B];
Amount: -$352.0.
Adjustment: 5. Changes to the number of active duty personnel:
Projected health care savings due to the reduction in the number of
active duty personnel.[C];
Amount: -$131.0.
Adjustment: 5. Changes to the number of active duty personnel:
Projected health care savings due to the conversion of active duty
medical positions to civilian medical positions;
Amount: -$3.0.
Adjustment: 5. Changes to the number of active duty personnel:
Projected health care costs associated with an increase in the number
of Army and Marine Corps ground forces.[D];
Amount: $100.9.
Adjustment: 6. Benefit changes from the National Defense Authorization
Act for Fiscal Year 2007: Projected costs for forensic exams for sexual
assaults;
Amount: $1.1.
Adjustment: 6. Benefit changes from the National Defense Authorization
Act for Fiscal Year 2007:
Projected costs for dental anesthesia covered by TRICARE for pediatric
cases;
Amount: $1.1.
Adjustment: 6. Benefit changes from the National Defense Authorization
Act for Fiscal Year 2007:
Projected costs for expansion of TRICARE Reserve Select.[E];
Amount: $204.4.
Adjustment: 6. Benefit changes from the National Defense Authorization
Act for Fiscal Year 2007:
Projected savings from the prohibition on employers to offer military
retirees incentives to use TRICARE;
Amount: -$166.0.
Adjustment: 6. Benefit changes from the National Defense Authorization
Act for Fiscal Year 2007:
Projected costs due to the standardization of claims processing under
TRICARE and Medicare;
Amount: $39.0.
Adjustment: 6. Benefit changes from the National Defense Authorization
Act for Fiscal Year 2007:
Projected costs of TRICARE's disease management program;
Amount: $27.0.
Adjustment: 7. Technical adjustments: Technical adjustments to account
for rounding;
Amount: $0.3.
Total;
Amount: -$2,185.6.
Source: GAO analysis based on DOD data.
[A] Through September 30, 2007,TRICARE Reserve Select consisted of
three tiers, with reservists in each tier paying different premiums
based on the tier for which they qualified. The expanded TRICARE
Reserve Select program went into effect on October 1, 2007. Additional
projected costs for the expansion are included under item 6, above.
[B] Federal pricing arrangements refer to prices made available through
the Federal Supply Schedule under 38 U.S.C. § 8126. The Federal Supply
Schedule price is generally available to all federal purchasers through
contracts administered by the Department of Veterans Affairs. The law
also requires drug manufacturers to provide brand-name drugs to the
four large federal purchasers of drugs (DOD, the Department of Veterans
Affairs, the United States Coast Guard, and the United States Public
Health Service) at a price that does not exceed a federal ceiling
price. If the Federal Supply Schedule price for a given brand-name drug
exceeds the federal ceiling price, manufacturers must offer another
price to the four large agencies that is at or below the federal
ceiling price. The federal ceiling price does not apply to generic
drugs.
[C] DOD reviewed service-projected end strengths for fiscal year 2009
and identified end strength reductions for the Navy and Air Force.
[D] In January 2007 the President announced plans to request authority
for a permanent increase in the Army and Marine Corps end strength
through the Grow the Force initiative to enhance overall U.S. forces,
reduce stress on deployable personnel, and provide necessary forces for
success in the Global War on Terrorism. This expansion will increase
the active Army's end strength by 50,000 soldiers and the Marine Corps'
end strength by 19,000 marines through fiscal year 2009. In total, the
Grow the Force initiative will increase the active Army's end strength
by 65,000 soldiers through fiscal year 2012 and the Marine Corps' end
strength by 27,000 through fiscal year 2011.
[E] DOD initially projected that the costs for the expansion of TRICARE
Reserve Select would be $368.6 million, but decided to decrease its
projection to $204.4 million due to lower-than-expected enrollment in
the program.
[End of table]
Overall, we believe DOD considered appropriate factors in developing
the President's fiscal year 2009 budget request for the Private Sector
Care BAG for two reasons. First, DOD employed a methodology that relied
heavily on historical data. These data (consisting of obligation data,
TRICARE user numbers, health care utilization rates, and health care
and administrative costs) provided a basis for the department to
project future funding needs and adjust past cost projections. For
example, DOD adjusted its cost projection for the original three-tier
TRICARE Reserve Select program based on lower-than-expected enrollment
in the program (see table 2, item 3). Second, the department compared
the results of the DOD-developed models to project growth trends for 80
percent of the Private Sector Care BAG with alternative economic models
developed by a contractor. The trend models and economic models used
different methodologies for their projections but arrived at somewhat
similar results. However, while DOD considered appropriate factors in
developing the budget request, we have questioned DOD's projected
savings from increased TRICARE beneficiary cost sharing. We have
previously reported that DOD is unlikely to achieve some of its
projected savings from these increases largely because we believe that
DOD overestimated the number of beneficiaries that are likely to leave
or not enroll in TRICARE due to these increases.[Footnote 15] In
addition, similar proposals in the past to increase beneficiary cost
sharing have not been enacted. Therefore, DOD will have underestimated
its funding needs for the Private Sector Care BAG if it is unable to
achieve some of its anticipated savings from increased TRICARE
beneficiary cost sharing.
The Increase from the Fiscal Year 2008 Budget Request to the Fiscal
Year 2009 Budget Request Was Largely Due to Projected Growth in TRICARE
User Numbers, Utilization, and Costs:
The President's fiscal year 2009 budget request of almost $12.2 billion
for DOD's Private Sector Care BAG was about $1.7 billion higher than
the fiscal year 2008 budget request of about $10.5 billion. This
increase was due to the following factors.
* Projected growth in TRICARE user numbers,[Footnote 16] projected
increases in health care utilization, and projected increases in health
care and administrative costs increased the budget request for the
Private Sector Care BAG by about $995 million above the fiscal year
2008 budget request.
* Higher projected funding needs for congressionally mandated benefit
changes relative to fiscal year 2008 increased the budget request by an
additional $107 million in fiscal year 2009.
* DOD's fiscal year 2009 cost savings projection for its plan to
increase beneficiary cost sharing was about $600 million lower than in
fiscal year 2008, which resulted in an increase in the fiscal year 2009
budget request. Projected savings in fiscal year 2009 were lower
largely because DOD has proposed a smaller increase for TRICARE
enrollment fees than it had in the fiscal year 2008 budget request.
* The increases were partially offset by projected savings from federal
pricing arrangements for drugs purchased at retail pharmacies.[Footnote
17] These savings were expected to be about $54 million higher in
fiscal year 2009 than the expected savings in fiscal year
2008.[Footnote 18] This increase in projected savings was due to
assumed growth from fiscal year 2008 to fiscal year 2009 in DOD's
retail pharmacy costs.
Agency Comments:
We received written comments on a draft of this report from DOD. DOD
stated that it concurs with our findings and believes that we
appropriately captured the process DOD uses to develop the budget
request for the Private Sector Care BAG. DOD's written comments are
reprinted in enclosure IV. DOD also provided technical comments, which
we incorporated as appropriate.
We are sending copies of this report to the Secretary of Defense and
appropriate congressional committees. We will also make copies
available to others upon request. In addition, the report is available
at no charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff have questions about this report, please contact
Denise M. Fantone at 202-512-7114 or fantoned@gao.gov or Sharon Pickup
at 202-512-9619 or pickups@gao.gov. Contact points for our Office of
Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff members who made key contributions to
this report are listed in enclosure IV.
Signed by:
Denise M. Fantone:
Acting Director:
Health Care:
Signed by:
Sharon Pickup:
Director:
Defense Capabilities and Management:
Enclosures - 5:
[End of section]
Enclosure I: Scope and Methodology:
Our objectives were to review (1) the Department of Defense's (DOD)
justification for the President's fiscal year 2009 request for the
Private Sector Care Budget Activity Group (BAG), including the
underlying estimates and the extent to which DOD considered historical
information; and (2) changes between this request and the request for
fiscal year 2008 and factors causing these changes.
To analyze DOD's justification for the fiscal year 2009 budget request
for the Private Sector Care BAG including the underlying estimates and
the extent to which DOD considered historical information, we reviewed
the analyses DOD used to develop this budget request. As part of our
review, we examined how DOD (1) developed the initial budget estimate
for the Private Sector Care BAG and (2) adjusted this estimate for
various factors to form the President's fiscal year 2009 budget
request. Specifically, we examined how DOD developed its initial budget
estimate by reviewing (1) the fiscal year 2006 obligation data that DOD
used as a baseline for this estimate; (2) the three models that DOD
used to project cost trends for its private sector health care and
pharmacy programs for active duty personnel, active duty dependents, as
well as retirees and dependents under age 65; and (3) DOD's methodology
for projecting the costs for the remainder of the Private Sector Care
BAG. We examined how DOD adjusted the initial budget estimate to form
the President's fiscal year 2009 budget request by identifying all of
the changes DOD made to the estimate and analyzing the methodology DOD
used to project the financial implications of these changes. We also
considered related GAO reports and interviewed DOD officials in the
TRICARE Management Activity (TMA) and the Office of the Under Secretary
of Defense (Comptroller).[Footnote 19] These officials were responsible
for developing the budget request for the Private Sector Care BAG.
To identify the changes from the fiscal year 2008 budget request for
the Private Sector Care BAG to the budget request for fiscal year 2009
and the factors causing these changes, we reviewed the factors that DOD
identified as contributing to the increase in the budget request and
the dollar values associated with them.
We also reviewed budget and obligation data related to the Defense
Health Program but we did not validate these data. We have raised
concerns about the quality of DOD's financial data in previous
reports.[Footnote 20] However, we determined that these data were
sufficiently reliable to understand DOD's budget formulation process
and the underlying assumptions used to develop the President's budget
request. Our assessments consisted of (1) manually and electronically
checking the data for obvious errors and missing values, (2)
interviewing knowledgeable DOD officials responsible for overseeing the
data sources in question to determine if they had any concerns about
the quality of their data and internal controls in place to ensure data
quality, and (3) reviewing documentation on the data sources in
question.
We conducted this performance audit from January 2008 to May 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Enclosure II:
Table: Description of the Defense Health Program Operation and
Maintenance Budget Activity Groups:
The budget request for the Defense Health Program Operation and
Maintenance (O&M) is distributed into seven Budget Activity Groups
(BAGs). The name and description of each of the seven BAGs are below.
Budget Activity Group: In-House Care;
Description of Budget Activity Group: This BAG provides for the
delivery of patient care inside and outside the continental United
States. The program includes inpatient and outpatient care in
Department of Defense (DOD) medical centers, inpatient facilities, and
medical clinics for surgical and nonsurgical conditions for military
health system beneficiaries. It also provides for dental care and
pharmaceuticals.
Budget Activity Group: Private Sector Care;
Description of Budget Activity Group: This BAG provides funds for
medical and dental care plus pharmaceuticals received by DOD-eligible
beneficiaries in the private sector. The BAG includes Purchased
Healthcare Pharmaceuticals, National Retail Pharmacy, Managed Care
Support Contracts, Purchased Care for Military Treatment Facility
Enrollees, Purchased Dental Care, Uniformed Services Family Health
Program, Healthcare Supplemental Care, Dental Supplemental Care,
Continuing Health Education/Capitalization of Assets, Overseas
Purchased Healthcare, Miscellaneous Purchased Healthcare, and
Miscellaneous Support Activities. See enclosure III for additional
information about these programs.
Budget Activity Group: Consolidated Health Support;
Description of Budget Activity Group: This BAG provides funds for seven
functions which support delivery of patient care worldwide. It
comprises Examining Activities, Other Health Activities, Military
Public/Occupational Health, Veterinary Services, Military Unique-Other
Medical Activities, Aeromedical Evacuation System, and Armed Forces
Institute of Pathology.
Budget Activity Group: Information Management;
Description of Budget Activity Group: This BAG provides for the
Information Management and Information Technology resources dedicated
to the operation and maintenance of Defense Health Program facilities.
This program includes the Tri-Service Information
Management/Information Technology (IM/IT), Service Medical IM/IT, and
Defense Health Program IM/IT Support Programs. The O&M portion of the
Tri-Service centrally- managed IM/IT program funds the costs of program
management, system and infrastructure sustainment, annual software
licensing fees, and software and hardware maintenance fees. The Service
Medical IM/IT funds noncentrally managed programs. The Defense Health
Program IM/IT funds services in support of the program.
Budget Activity Group: Management Activities;
Description of Budget Activity Group: This BAG provides funds for
Services Medical Headquarters and TRICARE Management Activity functions
supporting Military Health System worldwide patient care delivery. It
includes Management Headquarters, the TRICARE Management Activity, and
the Business Management Modernization Program.
Budget Activity Group: Education and Training;
Description of Budget Activity Group: This BAG provides funds for the
three primary categories that provide support for education and
training opportunities for personnel with the Defense Health Program,
including the Health Professions Scholarship Program, Uniformed
Services University of the Health Sciences, and Education and Training
for specialized skill training and professional development education
programs.
Budget Activity Group: Base Operations-Communications;
Description of Budget Activity Group: This BAG provides funds for the
operation and maintenance of Defense Health Program facilities. It
provides for facilities and services at military medical activities
supporting active duty combat forces, reserve and guard components,
training, and eligible beneficiaries. This BAG includes the following:
Facility Restoration and Modernization, Facility Sustainment,
Facilities Operations, Base Communications, Base Operations Support,
Environmental, Visual Information Systems, and Demolition/Disposal of
Excess Facilities.
Source: DOD budget justification documents.
[End of table]
[End of section]
Enclosure III:
Table: Description of Operations Financed by Defense Health Program:
Private Sector Care Budget Activity Group:
This Budget Activity Group (BAG) provides for private sector medical
care, dental care, and pharmaceuticals received by Department of
Defense (DOD) eligible beneficiaries. Twelve program elements make up
the Private Sector Care BAG.
Program element: Purchased Healthcare Pharmaceuticals;
Description of program element: This program element includes
pharmaceutical costs associated with contractual pharmacy services
providing authorized benefits to eligible beneficiaries via the TRICARE
Mail Order Pharmacy Program.
Program element: National Retail Pharmacy;
Description of program element: This program element includes
pharmaceutical costs associated with contractual pharmacy services
providing authorized benefits to eligible beneficiaries via the TRICARE
Retail Pharmacy contract, which provides network pharmaceutical
prescription benefits for medications from local economy
establishments.
Program element: Managed Care Support Contracts;
Description of program element: This program element funds the TRICARE
Managed Care Support Contracts, which provide a managed care program
that integrates a standardized health benefits package with military
medical treatment facilities and civilian network providers on a
regional basis. With the full deployment of TRICARE, all but a small
portion of the standard Civilian Health and Medical Program of the
Uniformed Services benefits have been absorbed into the Managed Care
Support Contracts. This program element includes health care costs
provided in civilian facilities and by private practitioners to retired
military personnel and authorized family members of active duty,
retired, or deceased military service members.
Program element: Purchased Care for Military Treatment Facility
Enrollees;
Description of program element: This program element includes
underwritten costs for providing health care benefits to the Military
Treatment Facility enrollees in the private sector as authorized under
the Civilian Health and Medical Program of the Uniformed Services.
Program element: Purchased Dental Care;
Description of program element: This program element includes the
government paid portion of insurance premiums which provides dental
benefits in civilian facilities and by private practitioners for
beneficiaries enrolled in the Dental Program. Beneficiaries eligible
for enrollment are (a) active duty family members and (b) certain
reservists and their family members.
Program element: Uniformed Services Family Health Program;
Description of program element: This program element provides TRICARE-
like benefits authorized through contracts with designated civilian
hospitals in selected geographic markets to beneficiaries who reside in
one of these markets and who are enrolled in the program.
Program element: Healthcare Supplemental Care;
Description of program element: This program element provides the
TRICARE benefit to active duty servicemembers and other designated
eligible patients who receive health care services in the civilian
sector and non-DOD facilities either referred or nonreferred from
military treatment facilities, including emergency care. This program
element also covers health care sought in the civilian sector or non-
DOD facilities due to active duty assignments in remote locations under
TRICARE Prime Remote.[A] It does not cover care to active duty
servicemembers stationed overseas who receive health care in the
private sector, which is paid under the Overseas Purchased Healthcare
program element.
Program element: Dental Supplemental Care;
Description of program element: This program element provides for
uniform dental care and administrative costs for active duty
servicemembers receiving dental care services in the civilian sector,
including from Veteran Administration facilities. All dental claims are
managed, paid, and reported by the Military Medical Support Office.
Program element: Continuing Health Education/Capitalization of Assets;
Description of program element: This program element provides for
support of graduate medical education and capital investment within
civilian facilities that provide services to the Military Healthcare
System and Medicare.
Program element: Overseas Purchased Healthcare;
Description of program element: This program element includes coverage
for delivery of TRICARE benefits in civilian facilities by private
practitioners to eligible active duty and active duty family members
through the Global Remote Overseas Contract and foreign claims for
nonactive duty beneficiaries, including Medicare eligibles. The
Medicare eligibles claims are administered by the Medicare Eligible
Retiree Health Care Fund. This program element also includes the
Supplemental Care program, which pays for care provided overseas to
active duty members.
Program element: Miscellaneous Purchased Healthcare;
Description of program element: This program element provides for
payments of health care services in civilian facilities by private
practitioners not captured in other specifically defined elements. It
includes administrative, management, and health care costs for
Custodial Care, Special and Emergent Care Claims, Alaska Claims,
Expanded Cancer, Dual-Eligible Beneficiaries Program, Transition
Assistance Programs, the TRICARE Reserve Select premium-based program
for Guard/Reservists and their family members, TRICARE Management
Activity managed demonstrations, and congressionally directed health
care programs.
Program element: Miscellaneous Support Activities;
Description of program element: This program element provides for
payments of costs for functions or services in support of health care
delivery not actual health care. Contracts for marketing and education
functions, claims auditing, e-Commerce, and the National Quality
Monitoring Service are reflected in this program element.
Source: DOD budget justification documents.
[A] TRICARE Prime Remote and TRICARE Prime Remote for Active Duty
Family Members are managed care options for active duty service members
and their eligible family members while they are assigned to remote
duty stations in the United States.
[End of table]
[End of section]
Enclosure IV: Comments from the Department of Defense:
The Assistant Secretary Of Defense:
200 Defense Pentagon:
Washington, Dc 20301-1 200:
Health Affairs:
May 2, 2008:
Ms. Janet A. St Laurent:
Managing Director, Defense Capabilities and Management:
U.S. Government Accountability Office 441 G. Street, N.W.
Washington, DC 20548
Dear Ms. St Laurent:
This is the Department of Defense response to the Government
Accountability Office (GAO) draft report, GAO-08-721R, "Military Health
Care: Review of the President's Fiscal Year 2009 Budget Request for the
Defense Health Program's Private Sector Care Budget Activity Group,"
dated May 9, 2008 (GAO Code 351143).
Thank you for the opportunity to review and comment on the draft
report. Overall, I concur with the information contained in the Draft
Report by GAO, and believe you have appropriately captured the process
the TRICARE Management Activity uses to develop, document, and support
Private Sector Care requirements and budget requests. The technical
comments are enclosed.
My points of contact on this action are Ms. Farah Sarshar (Functional),
who can be reached at (703) 681-6779 and Mr. Gunther Zimmerman (Audit
Liaison) who can be reached at (703) 681-4360.
Sincerely,
Signed by:
S. Ward Casscells, MD:
Enclosure:
As stated:
Government Accountability Office Draft:
Report Dated MAY 1, 2008:
GAO-08-721R (GAO CODE 351143):
Military Health Care: Review of the President's Fiscal Year 2009 Budget
Request for the Defense Health Program's Private Sector Care Budget
Activity Group:
Department Of Defense Comments:
Technical Comments:
1. Page 8, "This process resulted in an initial budget estimate of
about $14.3 billion." TRICARE Management Activity (TMA) recommends this
sentence be changed to: "This total process resulted in an initial
budget estimate of about $14.3 billion," 2. Page 9, "Department of
Defense (DoD) officials compared the results of the economic models
with the results of DoD's trend models and decided to reduce its
initial budget estimate as a result of this comparison because DoD
wanted to use the lower of the two projections." TMA recommends this
sentence be changed to: "DoD officials compared the results of the
economic models with the results of DoD's trend models and decided to
reduce its initial budget estimate as a result of this comparison. DoD
believed additional risk could be taken within the Defense Health
Program, and therefore chose to accept the lower of the two estimates."
[End of section]
Enclosure V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Denise M. Fantone (202) 512-7114 or fantoned@gao.gov:
Sharon Pickup (202) 512-9619 or pickups@gao.gov:
Acknowledgments:
In addition to the contacts named above, key contributors to this
report were Tom Conahan, Assistant Director; Laura Durland, Assistant
Director; John Bumgarner; Cynthia Forbes; Mae Jones; Ron La Due Lake;
Brian Mateja; Lonnie McAllister; Charles Purdue; Joseph Rutecki; and
Michael Zose.
[End of section]
Related GAO Products:
Military Health Care: Cost Data Indicate That TRICARE Reserve Select
Premiums Exceeded the Costs of Providing Program Benefits. GAO-08-104.
Washington, D.C.: December 21, 2007.
Military Health Care: TRICARE Cost-Sharing Proposals Would Help Offset
Increasing Health Care Spending, but Projected Savings Are Likely
Overestimated. GAO-07-647. Washington, D.C.: May 31, 2007.
High-Risk Series, An Update: Department of Defense Financial
Management. GAO-07-310. Washington, D.C.: January 31, 2007.
Defense Travel System: Reported Savings Questionable and Implementation
Challenges Remain. GAO-06-980. Washington, D.C.: September 26, 2006.
Financial Management: Improvements Under Way but Serious Financial
Systems Problems Persist. GAO-06-970. Washington, D.C.: September 26,
2006.
Department of Defense: Sustained Leadership Is Critical to Effective
Financial and Business Management Transformation. GAO-06-1006T.
Washington, D.C.: August 3, 2006.
Defense Working Capital Fund: Military Services Did Not Calculate and
Report Carryover Amounts Correctly. GAO-06-530. Washington, D.C.: June
27, 2006.
Military Pay: Hundreds of Battle-Injured GWOT Soldiers Have Struggled
to Resolve Military Debts. GAO-06-494. Washington, D.C.: April 27,
2006.
Environmental Liabilities: Long-Term Fiscal Planning Hampered by
Control Weaknesses and Uncertainties in the Federal Government's
Estimates. GAO-06-427. Washington, D.C.: March 31, 2006.
Fiscal Year 2005 U.S. Government Financial Statements: Sustained
Improvement in Federal Financial Management Is Crucial to Addressing
Our Nation's Financial Condition and Long-Term Fiscal Imbalance. GAO-
06-406T. Washington, D.C.: March 1, 2006.
DOD Business Transformation: Defense Travel System Continues to Face
Implementation Challenges. GAO-06-18. Washington, D.C.: January 18,
2006.
Global War on Terrorism: DOD Needs to Improve the Reliability of Cost
Data and Provide Additional Guidance to Control Costs. GAO-05-882.
Washington, D.C.: September 21, 2005.
Army Corps of Engineers: Improved Planning and Financial Management
Should Replace Reliance on Reprogramming Actions to Manage Project
Funds. GAO-05-946. Washington, D.C.: September 16, 2005.
DOD Problem Disbursements: Long-standing Accounting Weaknesses Result
in Inaccurate Records and Substantial Write-offs. GAO-05-521.
Washington, D.C.: June 2, 2005.
[End of section]
Footnotes:
[1] The Defense Health Program account is established under 10 U.S.C.
Sec. 1100 and is funded by a separate Defense Health Program account
appropriation every year in the Department of Defense Appropriations
Act. In addition to appropriations, the Defense Health Program account
contains other sources of spending authority, such as offsetting
collections, which are funds collected by the government that are
required by law to be credited directly to an expenditure account.
[2] DOD provides these health care services through its TRICARE
program.
[3] Budget Activity Groups represent major programs within the Defense
Health Program.
[4] H.R. Conf. Rep. No. 110-434, at 355 (2007).
[5] Increases in beneficiary cost sharing refer to higher TRICARE
enrollment fees, deductibles, and copayments for certain TRICARE
beneficiaries. See GAO, Military Health Care: TRICARE Cost-Sharing
Proposals Would Help Offset Increasing Health Care Spending, but
Projected Savings Are Likely Overestimated, GAO-07-647 (Washington,
D.C.: May 31, 2007).
[6] In obligation is a definite commitment that creates a legal
liability of the government for the payment of goods and services
ordered or received.
[7] See, for example, GAO, High-Risk Series, An Update: Department of
Defense Financial Management, GAO-07-310 (Washington, D.C.: Jan. 31,
2007).
[8] In our prior work, we stated that projected savings from DOD's
proposal to increase TRICARE cost sharing for certain beneficiaries in
the form of higher enrollment fees, deductibles, and copayments are
likely too high. See GAO-07-647.
[9] The Defense Health Program does not include funding for about 1.6
million Medicare-eligible beneficiaries. Costs for these beneficiaries
are funded through the Medicare Eligible Retiree Health Care Fund.
[10] H.R. Conf. Rep. No. 110-477, at 937 (2008). Savings associated
with increased TRICARE beneficiary cost sharing are also a part of the
President's budget request for fiscal year 2009.
[11] See GAO-07-647.
[12] Budget authority is the authority provided by federal law to enter
into financial obligations that will result in immediate or future
outlays involving federal government funds. DOD excludes any
obligations related to the Global War on Terrorism from these data
because these costs are not funded through the Private Sector Care BAG.
The Defense Health Program O&M appropriation allows for carryover
funds, which remain available for new obligations from one fiscal year
until the end of the next fiscal year. Prior to fiscal year 2008,
carryover of up to 2 percent of the initial appropriation was allowed,
but the Fiscal Year 2008 Department of Defense Appropriations Act
limited the allowable carryover amount to 1 percent. The unobligated
balance, or the portion of the budget authority that was not obligated
in 2006, was not factored into the baseline because the baseline was
developed using actual obligations, which are a more accurate
reflection of the size of the program (or program capacity).
[13] Since fiscal year 2002, Congress has not allowed DOD to reprogram
funds into the Private Sector Care BAG without obtaining prior
congressional approval. H.R. Conf. Rep. No. 107-298, at 221 (2001).
However, it does generally allow DOD to reprogram funds out of the
Private Sector Care BAG.
[14] In this report, health care utilization refers to the average
number of prescriptions, weighted inpatient services, and weighted
outpatient services per user. DOD weighted both inpatient and
outpatient services by the relative intensity of resources required to
perform each service.
[15] See GAO-07-647.
[16] DOD's projected growth in TRICARE user numbers includes increases
in the Army and Marine Corps end strength through the Grow the Force
initiative.
[17] Federal pricing arrangements refer to prices made available
through the Federal Supply Schedule under 38 U.S.C. § 8126. The Federal
Supply Schedule price is generally available to all federal purchasers
through contracts administered by the Department of Veterans Affairs.
The law also requires drug manufacturers to provide brand-name drugs to
the four large federal purchasers of drugs (DOD, the Department of
Veterans Affairs, the United States Coast Guard, and the United States
Public Health Service) at a price that does not exceed a federal
ceiling price. If the Federal Supply Schedule price for a given brand-
name drug exceeds the federal ceiling price, manufacturers must offer
another price to the four large agencies that is at or below the
federal ceiling price. The federal ceiling price does not apply to
generic drugs.
[18] DOD officials told us that some of DOD's expected savings from
federal pricing arrangements in fiscal year 2008 were not realized and
that it is unlikely that all of the department's expected savings for
fiscal year 2009 will be realized.
[19] For example, GAO, Military Health Care: Cost Data Indicate That
TRICARE Reserve Select Premiums Exceeded the Costs of Providing Program
Benefits, GAO-08-104 (Washington, D.C.: Dec. 21, 2007) and GAO,
Military Health Care: TRICARE Cost-Sharing Proposals Would Help Offset
Increasing Health Care Spending, but Projected Savings Are Likely
Overestimated, GAO-07-647 (Washington, D.C.: May 31, 2007).
[20] See, for example, GAO, High-Risk Series, An Update: Department of
Defense Financial Management, GAO-07-310 (Washington, D.C.: Jan. 31,
2007).
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Mail or Phone:
The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
more copies mailed to a single address are discounted 25 percent.
Orders should be sent to:
U.S. Government Accountability Office:
441 G Street NW, Room LM:
Washington, D.C. 20548:
To order by Phone:
Voice: (202) 512-6000:
TDD: (202) 512-2537:
Fax: (202) 512-6061:
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
