Potential for Improvements in the Civilian Health and Medical Program of the Uniformed Services

Published by the Government Accountability Office on 1971-07-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)


-a--   Department of Defense
                            COMPTROLLER      GCNERAL     OF    T?-lE   UNITED   STATES
                                           WRSHINGTON.    O.C.     20548


        Dear     Mr.        Chairman:

                 Reference       is made to your request           of October                   20,
        1969, that we make a comprehensive                  review     of the                 military
        Medicare       program     --now   called  the Civilian       Health                  and Medi-
        cal Program         of the Uniformed      Services.

                     This    is the fifth and final    report   in response      to your
        request,          It summarizes       the information       included   in our four
        earlier        reports,     and presents     our observations        on several
        additional          aspects    of the program.

                 We have not obtained       written       comments       from    the De-
        partment     of Defense     on matters       discussed       in this report,
        but in conducting       the review,    we have discussed            the sub-
        stance    of our findings     with officials       responsible       for the pro-

                 As arranged       with your office,        we are providing       the De-
        partment     of Defense       with copies     of this report.       We plan to
        make     no further    distribution      unless      copies   are specifically
        requested,      and then we shall       make distribution         only after
        your agreement        has been obtained           or public   announcement
        has been made by you concerning                 the contents     of the report.

                                                              Sincerely         yours,

                                                              Comptroller           General
                                                              of the United         States

      -F The Honorable        George          H. Mahon
CI]      Chairman,      Committee             on Appropriations                  \I 3~ c
         House     of Representatives

---.---I---                      50TH     ANNIVERSARY             1921 m..1971
    DIGEST                                                    I 1

      1       INTRODUCTION                                      4
                  History and features of the program           4
                  How the program is administered               6
                  Program costs                                 8
                       Hospital costs                           9
                       Physician costs                          9
                       Handicap benefits                       10
                       Outpatient drug program                 10
                Increased costs                                12
                Comparison of hospital charges                 12
                Rising cost of hospital care                   13
                Extent that hospital costs might be re-
                  duced                                        14
                Reasonableness of administrative costs         15
                Adequacy of audits                             15
                Recommendations or suggestions                 16
                Matters for consideration by the Com-
                  mittee                                       16
                 Use of the reasonable-charge concept
                   to pay physicians                           18
                 Comparisons of payments to physicians         20
                 Substantial amounts paid to individual
                   physicians, clinics,     and group prac-
                   tice organizations                          20
                 Psychiatrrc care                              20
                 Utilization    reviews of medical care
                   furnished                                   21
                 Administrative     costs and weaknesses in
                   controls                                    21
                  Handling   outpatient   deductible   and
                    other insurance provisions                 23

               Need for expanded audit coverage           and re:
                 lated evaluation controls                             23
               Recommendations or suggestions                          24

          CAPPED PERSONS                                               26
              Cost sharing and limits                                  26
              Increasing      costs of the handicap por-
                 tion of CHAMPUS                                       26
             Liberal     interpretation       of law                   27
             Administration         of handicap benefits               27
             Need for authoritative           standards for de-
                 termining     degree of handicap                      27
              Better support needed for evaluation               of
                 cases                                                 27
             Errors and omissions           in data used for
                 payment of claims                                     28
             Approval after care has been received
                 or started                                            28
             Written     instructions     needed to achieve
                uniform actions                                       29
             Use of medical expertise            available    at
                 Fitzsimons     General Hospital        and.longer
                 tours of duty for military           personnel       29
             Inadequate audit coverage of the handi-
                 cap portion      of CIQMPUS                          29
             Recommendations or suggestions                           30

               Issue of identification       cards                    32
              Recovery of invalid      identification      cards      33
                    Procedures for recovery of identifi-
                       cation cards                                   34
                    Notification    by the uniformed      ser-
                      vices of separatees whose depen-
                      dents are receiving       medical care
                      under CHAMPUS                                   34
                    Unauthorized    use of identification
                      cards to obtain CHAMPUSbenefits                 35
              Recommendation                                          36
               Policies   among the uniformed     services        37
               Need to check availability     of care at
                 other unifo-rmed services     facilities         38
               Costs incurred   under CHAMPUSdue to
                 shortages in military     hospitals              39

           PROGRAM                                                41     *
               Responsibility  for CHAMPUSinformation             41
               Problems in implementing   the informa-
                 tion program                                     42
               Results of the information    program              43
               Conclusions                                        44

           EQUIPMENT FROM GOVERNMEW SOURCES                       45
               Recommendation                                     46

               Surveillance   by OCHAMPUSover claim proc-
                  essing and paying activities      of fiscal
                  agents                                       47
                    Submission of claim forms to OCHAMPTJS48
                    Recommendation                             48
               Returned or rejected      claims                49
               Defense Contract     Audit Agency audits        50
               Audit of OCHAMPUSby the U.S. Army Audit
               Inspectors   General inspections                52
               Recent administrative       actions by OCHAMFUS 53

  10       SCOPE OF REVIEW                                        54


  I        Letter     dated October 20, 1969, to the Comp-
              troller     General from the Chairman, Commit-
              tee on Appropriations,      House of Representa-
              tives                                               57
         CHAMPUS Civilian  Heal&h and Medical     Progrant of the

                 Uniformed Services

         GAO      General   Accounting   Office                            i
         OCHAMPUSOffice for the Civilian Health      and Medical    Pro-
                 gram of the Uniformed Services
                                                         POTENTIAL FOR IMPROVEl'4EPtTS
                                                         IN THE CIVILIAN HEALTH AND
                                                         MEDICAL PROG2AYOF THE
                                                      /' UNIFORMEDSERVICES 71-g
                                                     ZDepartment     of Defense 1


    The Committee Chairman asked the General Accounting Office (GAO) to        *
    make a comprehensive review of the Civilian   Health and Medical.Program
    of the Uniformed Services.  (S ee app. I.)   Modifications to the request,
    agreed to by the Chairman's office,  are discussed on pages 10 and 11.

    Four reports     have been issued on the program as the work was completed.
    They are:

         --The Civilian   Health and Medical Program of the Uniformed Services
            (interim  report),  May 19, 1970.

         --Improved Management Needed in the Program Providing Benefits        to
            Handicapped Dependents of Servicemen, March 16, 1971.

         --Potential     for Reducing Hospital   and Administrative  Costs Under
            the Civilian    Health and Medical   Program of the Uniformed Services,
            April 16, 1971.

         --Costs of Physician and Psychiatric   Care--Civilian Health      and Medi-
            cal Program of the Uniformed Services, July 1971.

     Chapters 2 through 4 of this report summarize these earlier   reports,
     and the remaining chapters contain the‘FTnaings  of the review of addi-
     tional aspects of program activities.

    Evaluation     of total   costs   inmrred

     Annual program costs have increased from $33 million   in fiscal year
     1957 to over $237 million  in fiscal year 1970. About $163 million
     of this increase has occurred since fiscal year 1966. Estimated 1971
     costs will be almost $300 million.   (See pp. 8 to 10.)
One-half of the cost increase in recent years was attributed     by GAO
to the additional   benefits and the new beneficiaries authorized by
the E*lilitary Medical Benefits Amendments of 1966. The remainder was
due primarily   to the higher cost of medical care and the increased
use of the program by beneficiaries.    (See pp. 8, 12 to 14, 78 and 79.1

Evaluation of fees
Program beneficiaries generally were charged the same for comparab'le
care and services as were other hospital patients,  and average pay-
ments to physicians under the program general'ly were in line with
average payments made under other health programs.   (See pp. 12 and 20.)

EvaZuation of achinistratiue     expenses
The Office for the Civilian    Health and Medical Program of the Uniformed
Services had exercised limited manageria'l control;    opportunities    for
cost reductions either had not been identified     or had not been acted
upon. GAO believes that the potential      exists for substantial    reduc-
tions in administrative   costs.    (See pp. 15, 21, 27 to 29, and 47 to SO.!

EZii~ibiZity   of program participants
Procedures and controls over the issuance and recovery of identifica-
tion cards--which  are used to identify   e'ligible  beneficiaries to those
who furnish medical care--were deficient      at al7 nine military installa-
tions GAO visited.    (See pp. 32 to 36.)

Adequacy of audits and rev&m
made bg Government agencies

Audits made by the Department of Health, Education, and klelfare's
Audit Agency have been adequate for determining        the allocation and
allowability      of program administrative  costs.   The scope of the audits
and time allowed for performing them in the past have been too limited,
however$ for the audits to function as an effective        tool for management
in several important areas of operations and cost effectiveness.          Ef-
fective     implementation   of the Audit Agency's plans for expanded coverage
of program activities       should result in valuable benefits to the Govern-
ment.     (See pp- 15, 23, and 29.)

Improvements are also needed in reviews of program activities      made by
Defense organizations.  (See pp. 16, 23, 29 and 50 to 53.)

    l%J~iTC,~   <:L;T T,sp*7-;XT:

    There has been SOW improvement in the information          program. About
    92 percent of over 230 married active duty servicemen i ntervieweci
    by CA0 :';cre ak;are of th.2 Fr?::-e m in varying degrees.    As the infor-
    mation progudm becomes more effective,        it is reasonable to expect
    that the use of the program and the associated costs will increase.
    (See pp* 31 t0 44.)
    ~?onavaiZubiZdty         of care at miZitary   hospitaZs

    At the nine military   hospitals    visited,  GAO did not find i-proper
    issuances of nonavailability     statements--authorizations    to obtain
    care from a civilian   hospital.      (See pp. 37 to 40.)

    Detailed recommendations which were presented in earlier reports
    are set forth in chapters 2 through 4. Additiona‘l recommendations
    for improving the program are shown in chapters 5, 8, and 9. (See
    PP- 163 24, 25, 30, 31, 36, 46 and 48,)

    Witten   comments have not been requested from the Department of
    Defense on matters contained in this report.     In discussions with
    the Executive Director of the program, however, GAOwas provided
    with a listing   of actions recently taken to imProve program oper-
    ations.   GAO believes that these actions,   if properly implemented,
    will be beneficial.     (See pe 53.)

                      BY THECOMMITTEE
    Reduction in the lengths of hospital     stay would have a significant
    effect on Federal expenditures for hospitai       care.    Therefore the
    Committee may wish to consider the need for an analysis of the
    factors affecting    lengths of stay, to identify     steps that can be
    taken to reduce them without sacrificing      the qua7ity of medical
    care.   (See p. 16.)
                               CHAPTER 1

HISTORY AND FEATURES OF THE PROGRAM                                           '_
        The Civilian     Health and Medical Program of the Uniformed
Services1     (CHAMPUS) provides medical care benefits           from ci-
vilian    sources for dependents of active members, retirees
and their     dependents,     and the dependents of deceased members.
The program, formerly         called the Dependents'      Medical Care '
Program (referred        to as Medicare until      the larger   Social Se-
curity    Administration      program preempted the name), became
effective     on December 7, 1956.        The program was redesignated
CHAMPUSon January 1, 1967, to more fully              indicate   the ex-
panded mission resulting          from the Military     &dical     Benefits
Amendments of 1966 (Pub, L. 89-614).             These amendments in-
creased the benefits        available    under the program and the
beneficiaries      eligible    for the program.

      Under the original    program as authorized     by the Depen-
dents' Medical Care Act of 1956 (10 U.S.C. 1071) only depen-
dent spouses and children      of active duty members were eli-
gible for benefits.      The amendments added retirees       and their
dependents and the dependents of deceased members. At age
65 these added beneficiaries,      who become entitled     to medi-
cal care under the Social Security       Medicare Program, lose
their eligibility   for CHAMPUSbenefits.        Also, benefits     are
not payable under CHAMPUSto the extent that the costs of
medical care are paid by other insurance provided by law or
through employment to retired      members, their    dependents,    or
dependents of deceased members.

      The determination   of eligibility       for CHAMPUSis the
responsibility    of the uniformed      service of which the

1The term "uniformed  services“    includes   the Army, Navy, Air             1
 Force, Marine Corps, the Coast Guard, and the commissioned
 corps of the U.S. Public Health Service and the National                     '
 Oceanic and Atmospheric   Administration     (formerly the Envi-
 ronmental  Science Services Administration),

sponsor 1 is or was & member, Eligible       persons are issued
an identification  card on which eligibility       for CHAMPUSis
indicated.                                                1

      Benefits  available    under the program cover a wide range
of health and medical services.,           Initially      these benefits
included only physician       services     furnished      on an inpatient
basis and hospital     care.    The amendments added outpatient
care, drugs, and, for dependents of active duty personnel,
special handicap care,        Specifically        excluded from the pro-
gram were routine    physical     examinations,        routine  calz of
the newborn, routine      eye examinations,          and dental care--           D
except handicapping     conditions     and care furnished        as a nec-
essary part of medical or surgical            treatment.

        Costs of the medical services      provided to eligible    ben-
eficiaries     are shared by the Government and the beneficiary.
The cost-sharing      arrangement which applies      to dependents of
active duty members is different        from that which applies to
retirees,    their dependents,    and the dependents of deceased
members. A special cost-sharing         arrangement applies to the
handicap program, where.the       active duty member pays a part
of the monthly cost of care based upon his pay grade.             These
arrangements      are described  in the earlier    reports.

         Dependents of active duty members residing            with their
sponsors must obtain a nonavailability              statement certifying
that, as determined by the local commander, it is not prac-
ticable      for the required    inpatient     care to be furnished        by
facilities       of the uniformed    services.      This statement      autho-
rizes the dependent to obtain treatment              at a civilian      facil-
ity.      All other CHAMPUSbeneficiaries           have the freedom to
select a uniformed       service or a civilian         medical facility
without being required         to obtain the nonavailability          state-

1A sponsor is or was an active duty member or a retired   mem-
 ber of the uniformed  services from whom a dependent derives
 eligibility for medical care under CHAMPUS.

         Responsibility      for, administration         of the program has
been delegated from the Secretary                of Defense and the Secre-
tary of Health, Education,and              Welfare,      through channels,      to
the Executive Director,            Office   for   the   Civilian    Health   and
Medical Program of the Uniformed Services (OCHAMPUS>. Ac-
tivities     of OCHAMPUSinclude           (1) development and implemen-
tation     of a public information          program to inform entitled
personnel of the available             benefits,      (2) preparation      of a
manual explaining         policies     and procedures for use by pro-
viders of services,           (3) preparation       of suggested changes to
the regulations         and to a booklet explaining             the program, and
(4) operation        of an information        center for providing         assis-
tance to families         with handicapped children.

       OCHAMPUShas contracted       with the Blue Cross and Blue
Shield medical agencies,      private    insurance companies, State
medical societies,   or combinations        of these organizations
to process and pay all claims for medical care, except those
from Canada and Mexico and some special claims which are
processed at OCHAMFUS. The Blue Cross Association             and Mu-
tual of Omaha Insurance Company have contracted           with OCHANPUS
for paying hospital    claims.      Blue Cross pays claims in 33
States, the District     of Columbia, and Puerto Rico.          Mutual
of Omaha pays hospital     claims from the remaining 17 States.

       There are 45 different     contractors,    or fiscal     agents as            '
they are commonly called,      who process physician,        drug, and
handicap claims for the 50 States, the District             of Columbia,
and Puerto Rico.      Of these fiscal     agents, 22 are also the
fiscal   agents (carriers)    for the Social Security        Medicare
       OCHAMEVScontracts     with the fiscal    agents are the cost-
reimbursement      type, under which administrative      costs incurred
in processing      and paying claims are paid by OCHAMPUS. These
costs are normally paid at a provisional          rate for each claim
processed pending a final       determination   of costs based on
audits made by the Department of Health,          Education,  and Wel-
fare's   auditors.
     Effective January 1, 1970, OCHAKPUSbegan converting                                 i
from a system of funding fiscal   agents in advance for pay-                             1
ment of claims to a correspondent   bank method.   Under the
correspondent  ban& method? necessary funds are wired to the'
fiscal-agent's   bank after    the fiscal    agent has written   the
checks to the providers      of care.     The checks are released
by the fiscal  agent after     the funds arrive     at the Lank.
This method eliminates     the former situation,      in which the
interest-free  funds were held by the fiscal         agents.

      Each of the uniformed services  budgets separately   for
CHAMPUS. The funding program for CHAMPUSis a consolidation
of the programs of all the uniformed    services  prepared by
the Office of the Surgeon Ceneral,Department     of the Army.          .


       Cur report dated F&y 19, 1970, showed the trends in
the costs of (Xi.ME'US from its inception         through fiscal   year
1969 and discussed the annual changes.            It showed also that
the total    costs for benefits    provided under CHAMPUSgener-
ally had followed     the trend of medical care prices in the
Consumer Price Index over the years, although the rate of
increase for CHAMPUSwas greater during fiscal             years 1968
and 1969,     Benefit payments made by the Government for fis-
cal year 1970 were $237.5 million        compared with $218
million1   for fiscal    year 1969.    Costs were allocated      to the
period in which care was provided,         regardless    of when the
payment was made.

       A substantial     part of the increase in annual program
costs-- from $32.9 million       for fiscal  year 1957 to $237,5 mil-
lion for fiscal      year 1970-- occurred because the prugram ex-
panded as a result       of the 1966 amendments.     About $79.8 mil-
lion,   or 49 percent of the $163.1 million       increase from fis-
cal year 1966 to fiscal       year 1970, was attributable    to the
additional    benefits    and the additional   beneficiaries   autho-
rized by the amendments.         Other reasons for the increase
were the higher cost of medical care and the increased use
of the program by beneficiaries.

       Current estimates   made by OCHAMPUSof the costs of pro-
gram benefits   for fiscal   years 1969, 1970, and 1971 will ex-
ceed the budgeted costs shown in the President's     budget, as

                                                          Excess over
 Fiscal       Presidential            OCHAMPUS            Presidential
  year           budget               estimates              budget

  1969        $205,800,003          $229,041,000          $23,241,000
  1970         225,700,OOO           270,335,OOO           44,635,OOO
  1971         226,900,OOO           294,727,ooo           67,827,OOO

1 The difference    from the $197.3 million  shown in our May 1970
 report    is due to fiscal  year 1969 claims processed since
  our previous report.
      r.mnfit     paymmt~'; made by the Government          in fiscal    year
1970 ',:.pyc distributed    as 5321ows:
                                                  Number           Pro&am
                                                of claims           casks
                                                (percent)         (percent)     '

Dependents of active duty mem-
  bers                                               64                 74
Dependents of retirees and de-
  ceased members                                     27                 20
Retired members                                       9                  6

Hospital    costs

        Hospital    costs are the major part of the CXAMPUSex-
penditures,      the $140.5 million        paid for hospital     care in
fiscal    year 1970 being 59 percent of total            program costs,
CHAMPUShospital         costs increased for all types of benefi-
ciaries     in fiscal    year 1969.      The number of claims      paid for
dependents of active duty members decreased slightly                  in fis-
cal year 1970, but the number of claims paid for other types
of beneficiaries        increased,      OCHAMPUSreported      that the in-
creased use of civilian          hospitals     was due, in part, to the
closing of some military           medical facilities     which had served
a sizable number of retirees,            their   dependents,    or depen-
dents of deceased members.

        The average cost per hospital      claim increased      from $183
in fiscal      year 1966 to $378 in fiscal     year 1970, an increase
of 107 percent.       The average length of hospital        stay in-
creased from 5.6 days in fiscal        year 1966 to 7.2 days in
calendar year 1969,        The increase was due primarily         to the
addition     in January 1967 of benefits      for long-term     hospital-
ization    for emotional disorders     and chronic diseases and to
the fact that an older age group was under the expanded cov-

Physician    costs

      AS    shovn in our report dated Hay 19, 1970, physician
costs began rising      sharply in fiscal  year 1967 after being
relati7'21y    s-table during most_ of the program.      Total ph>rsi-
cian costs increased from $27.2 million        in fiscal     year 1966              /
to $84.4 million       in fiscal   year 1970, an increase of
210 percent.       For example, as part of' the additionai‘bene-
fits   authorized    by the 1966 amendments, CHAN$?UScosts for
outpatient     psychiatric    treatment  were $7.4 r&llion    in fiscal
year 1970 compared with $1.2 million         in fiscal   year 1967,

j-landicap   benefits

       The handicap portion      of CHAMPUSrepresented   about 4 per-
cent of total      CHAMPUScosts in fiscal     year 1970.  The costs
and number of claims increased from $6.7 million         and 27,000
in fiscal    year 1969 to $8.9 million      and 37,000 in fiscal
year 1970.     The major change was the increase for dental'
handicapped cases.      Use of the program also increased sub-
stantially    as more military     families  became aware of the
availability     of the benefits,

Outpatient     drug program

       The Government paid $2.8 million      for 140,000 drug
claims in fiscal      year 1970 compared with $1.8 million        for
117,000 claims in fiscal      year 1969.   Individual     prescrip-
tions increased     from 580,000 to 844,000.      Increased usage
was attributed    to the increased awareness on the part of
beneficiaries    of the scope of prescription       coverage,

         Our review was limited    to the CHAMPUSportion--in         the
United States, Puerto Rico, Canada, and Mexico--of              the over-
all Uniformed Services Health Benefits         Program.     The over-
all program includes medical care benefits          in facilities       of
the uniformed      services  as well as under CHAMPUS. Care may
be obtained,      on a space available   basis, by retirees        at fa-
cilities     of the Veterans Administration     and by dependents of
active duty members from Indian or Alaskan native medical

         Because of the lack of criteria    and data for determin-
ing    the reasonableness     of charges and profits made by hospi-
tals     and physicians--  as requested by the Committee--agreement
was    reached with the office     of the Chairman to concentrate
our    efforts   on comparing

        --hospital  charges to CHAMPUSwith charges made to
           other medical programs and to uninsured persons and

      -..   pyncnts  made to plq~~icians under CHAMPUSwith   pay-
            nonts made under other medical programs.

It was also agreed that 7Texmuld report      on large amount.+
paid tc $-q-"-j4---IX
                   9  mder CELWTJS during    selected   periods.
The results   of this work are summarized    fn chapters    2 and 3.   '

     Four previous reports  on CHAMPUShave been issued        to
the Committee under B-133142 as shown below,

                     Title                        Date of issue

The Civilian     Health and Medical Pro-
  gram of the Uniformed Services                  %Y      19, 1970
Improved Management Needed in the
  Program Providing       Benefits  to
  Handfcapped Dependents of Ser-
  vicemen                                         March 16, 1971
Potential     for Reducing Hospital    and
  Administrative      Costs Under the
  Civilian     Health and Medical Pro-
  gram of the Uniformed'Services                  April   16, 1971
Costs of Physician and Psychiatric
  Care--Civilian      Health and Medical
  Program of the Uniformed Services               July        1971
         This chapter briefly    sunmarizes the detailed     report on
    this subject dated April 16, 1971, previously      furnished    to
    the Committee on Appropriations,     House of Representatives,


            Increased hospital      charges, along with such other fac-
    tors as expanded benefits          and the addition    of new classes of
    eligible     beneficiaries    (authorized   by the Military    Medical
    Benefits     Amendments of 1966), and increased use of the pro-
    gram have significantly         increased costs of the program since
    its inception      in 1956.     The major increase occurred in re-
    cent years when costs for hospital          care increased from
    $46,2 million      in 1966 to $134.5 million        in 1969,  (See ppO 8
    to 13 and exhibit        A of the detailed   report,)


           A comparison of hospital          claims paid under CHAMPUSwith
    amounts paid under several medical insurance programs and a
    review of hospital       billing     procedures   showed that CHAMPUS
    beneficiaries      generally     were charged the same for comparable
    care and services as were other hospital             patients,  We found
    that,   although hospital        charges had been consistently     ap-
    plied,    the total    charge per claim for insured patients,        in-
    cluding CHAMPUSbeneficiaries,             had exceeded that for unin-
3   sured patients      primarily     because of a longer average length
    of hospital     stay.    (See ppe 14 to 20 of the detailed       re-

           The average length of hospital       stay for maternity     cases
    involving   care without      complications  under the program dif-
    fered widely among hospitals         and among geographical    areas.
    Also, the average length of stay for maternity          cases under
    CHAMPUSh-as longer than that for similar          cases in military
    hospitals.     Significant     savings to the program could be
    made if, without      reducing the quality     of care, the lengths
    of stay for maternity        cases could be brought more into line

with the shorter lengths of stay experienced   at some hospi-
tals.    But we are not in a position to say whether a shorter
length of stay is feasible.    (See pp. 15 and 19 to 23 of the
detailed   report,)

      Hospitals  generally    charged less than cost for maternity
care but recovered their      total    costs by charging more than
cost for other services@        It appears that hospital         charge
systems are designed,      in general,     to recover total      operating
costs rather than costs for specific           servicese      As a result
of these practices,     CHAMPUSpays less than cost for maternity
cases9 which constitute      about one third       of the hospital
claims under the program.         In contrast,     the Federal mployees
Health Benefits    Program received less advantage from mater-
nity cases because9 during the period 1966-69, only 11 per-
cent of hospital    admissions under that program were for such
care.   (See ppe 17 to 19 of the detailed            report.)

        Total payments to hospitals         under CKAMPUSwere signifi-
cantly affected       by hospital     reimbursement       agreements between
participating       hospitals   and the Blue Cross Plans administer-
ing the program.         These.agreements       generally     provide that
the hospitals--      in consideration      of the Plans' making prompt
payments and thereby minimizing            collection      efforts   and elim-
inating     bad debts-- accept less than their            normal charges for
services      rendered to the Plansv subscribers.              The.benefits
of these agreements were given to the program by 39 of the
52 Blue Cross Plans which process CHAMPUSclaims.                     In fiscal
year 1968 this practice         resulted     in the program's paying
about $2,3 million         less than would have been paid without
the benefits       of these agreements.

       The 13 remaining Plans reimbursed     hospitals   for CHAMBUS
claims on different    bases from those used for their      own
private   subscribers.   We estimate  that the program could have
saved about $850,000 annually had the Plans been able to ex-
tend to the program the more favorable       reimbursement   rates,
(See pp* 24 and 25 of the detailed      report.)


      The rise in salary expense, which accounts for almost
two thirds   of hospital    operating expenses9 is the major rea-
son for the dramatic     increase in the cost of hospital   care

                                     13      .
in recent years.         The Nation's    community hospitals    have ex-
perienced     an i.xer,~ge payroll    increase of 74 perdent during
the period 1965-69,        mainly   because  of increased sala-ry ex-
penses and increased hospital          xork forces which have re-
sulted in more hospital         employees per patient.       Hospital
employees have traditionally          been underpaid,    but, due to     *
labor and wage legislation          and to the effect    of unioniza-
tion,    hospital   employees' salaries      have increased signifi-
cantly    in recent years.        (See pp. 26 to 31 of the detailed
      Other   factors   contributing          to rising     hospital   costs   are

      --new high-cost     services          now available     in community
         hospitals,   and

      --the increase in the number of services customarily
          provided. (See pp. 32 to 35 of the detailed report.)


       Medical officials  believe that reducing unnecessary
hospital    admissions and shortening     the lengths of hospital
stay to the minimum number of days needed for good quality
care can reduce medical care costs significantly.             Attempts
currently    are being made to control     unnecessary hospital
admissions and lengths of stay, but current          patterns    of
health insurance provide little       incentive   to encourage gen-
eral acceptance.

       Studies indicate      that the prepaid group practice          method
for delivery    of medical care may be more economical than the
more common fee-for-service          method.     The prepaid group prac-
tice method, which aphasizes            preventive    care, motivates
physicians    to limit    hospital    use to the minimum consistent
with good care,        The fee-for-service       method lacks similar
incentives    to limit    hospital    use.

       Other methods being used to control        hospital  costs are
service-sharing      agreements, utilization    review committees,
preadmission    testing,     employee incentive   programs, reim-
bursement incentive       programss and the planning and coordi-
nating of hospital       services.   Serious problems exist that
must be solved if the arttempts to control         rising  hospital

t2ost.s are to have a sigiificant           impact,     (See ppo 39 to 60
of the detailed   report,)

        Payments by OCHAMPUSto selected fiscal                  agents for costs
incurred     in processing     hospital    claims were, for the most
part s allowable     under contract       provisions.         OCHAMPUS, how-
ever9 has exercised       limited    managerial        control,    and oppor-
tunities     for cost reductions        had not been identified          or had
not been acted upon by responsible              officials,        We believe
that there is a potential         for substantial          reductions    in ad-
ministrative     costs.     (See pp* 61and62 of the detailed                re-     .

       Savings would have been achieved if OCHAHPUShad elim-
inated the claims review procedure of the Blue Cross Asso-
ciation--a     prime contractor--    since the procedure essentially
duplicates    reviews previously      made by Blue Cross Plans--the
subcontractors,       Investigations      should have been made into
the wide variances       in administrative      claim rates paid to the
52 Plans.     The rates ranged from $1.25 to $8,64 per claim
during 1968.       (See pp. 61, to 69 of the detailed       report.)

       We believe that further    savings might be possible        if
OCHAMPUSwere to take advantage of differences           in certain
geographical     areas between administrative    costs per claim
charged by Blue Cross Plans and those charged by Mutual of
Omaha and were to award contracts,        on a competitive    basis,
for paying the claims.       (See pp. 66 and 67 of the detailed


        Audits by the Department of Health,                Education,    and
Welfare#s Audit &Agency at selected              fiscal     agents where we
made our review were adequate for determining                    the allow-
ability     and allocability      of administrative          costs,    But the
scope of the audits and the time spent on them were too
limited     for the audits to function           as an effective       tool of
max:gement for such matters as the reasonableness                     of ad-
ministrative      costs and hospital        charges3 the eligibility           of
beneficiaries,      and    the efficiency       of  fiscal    agents.     (See
ppa 70 to 72 of the detailed            report.)

      ..       1

                          In December 1967 oCW&lPUS created its own review team
.-n        ,
                   to evaluate contractor       performances,   but it did not visit  any
                   hospital   fiscal     agents until  September 1970.    (See p0 65 of
                   the detailed      report.)


                         We believe    that   the Executive   Director,    OCHA.PUS,
                   should consider

                        '--looking    into the differences    in certain  geographical
                             areas between the administrative      costs per claim
                             charged by the Blue Cross Plans and those charged by
                             Mutual of Omaha and, where it appears advantageous
                             to do so, changing fiscal     agents;

                         --requesting   proposals from other commercial insurance
                            firms to act as fiscal   agents for the program;

                        --investigating    the causes for differences in operat-
                            ing efficiency  which appear to exist among fiscal
                            agents and taking necessary action to improve opera-
                            tions of the less efficient  agents;

                        --attempting     to obtain the more favorable   Blue Cross
                           reimbursement    formulas for paying hospitals   in areas
                           where CHAMPUSis not obtaining      them;

                        --discontinuing  the duplicate    claim       review   procedure
                           of the Blue Cross Association;

                        --arranging     with Department of Health,        Education,  and
                           Welfare's    Audit Agency officials  for       an expansion of
                           the audit    effort and scope of review        of CHAMPUS; and

                        --initiating       a pilot   program to determine the feasibil-
                            ity and economy of paying CHAPPUS claims on a prepaid
                            group practice      basis.    (See ppe 74 and 75 of the de-
                            tailed   report.)


                         Reductions    in the lengths of hospital    stay would have
                   a significant    effect   on Federal expenditures    for hospital

care,     Therefore   the Committee may wish to consider the need
for an analysis      of the factors   afiecting   lengths of stay,,
to idcn-lify    steps that can be taken to reduce them without
sacrificing     the quality   of medical care*      (See pp. 21 to 23,
40 to 44, and 75 of the detailed         report.)

                              CHAPTER 3

       The payments to physicians0     including   psychiatrists;
the surveillance     over the cost and quality     of services;   and
the related    administrative  costs and audits are the subjects
of our report issued in July 1971 to the Committee on Ap-
propriations,    House of Representatives.       The subject matter
of that report is briefly     summarized in this chapter.

        As of September 30, 1970, physician       claims under CHAMPUS
were    being paid under 48 contracts     with Blue Shield and Blue
Cross    agencies, State medical societies,       and private   insur-
ance    companies.    These organizations    processed and paid
$84.4    million   in physician  fees under CHAMPUSfor fiscal
year    1970.    (See pp. 7 and 8 of the detailed      report.)


        Maximum-fee schedules for paying physician       claims were
discontinued     and the reasonable-charge    concept was adopted
in 1967 and 1968, Under the reasonable-charge           concept,  also
adopted by the Social Security       Medicare program in 1966, a
physician    receives his customary charge for each service
rendered,    as long as it is within     the prevailing   level of
charges made for the service by other physicians           in the same

       Physician profiles --histories       of each physician's    past
charges for a specific       medical service,    which are used to
determine each physician's        customary charge for that ser-
vice--were     adopted by the program for determining        reasonable
charges,     The prevailing     charge, derived from individual
physician    profiles,    was the charge most frequently       and widely
used by phipsicians in a locality        for a particular    medical

      We noted that the controls     provided by the use of pro-
files  were somewhat limited,    since they enabled physicians,
over a period,   to influence  the amounts they would receive

                                                --      -   -. ,..    .. _
       Our tests and studies by the Departient        of the Army
show that average amounts paid for selected medical proce-
dures have increased as much as 70 percent          in some States
since the reasonable-charge       concept has been adopted.      Hea-
sons given by fiscal     agent officials    for the increase    in-
cluded (1) the use of usual and customary fees encouraged
physicians    to develop a higher profile,      through increased
charges in their billings,       (2) the trend toward specializa-
tion,   and (3) the fact that, under fee schedules,         some phy-        -
sicians had charged only what they knew was allowable,            al-
though their normal charge might have been higher.            (See pp.
9 and 17 of the detailed      report.)

       We found that there was little      standardization   among
the fiscal    agents in the bases for paying claims against
CHAMFIJS. Many did not consider customary charges of physi-
cians and paid fees based on schedules of allowa.t:es         or rel-
ative value scales --a method of determining         the amount of a
physician's     fee for a particular   service by using h&reed
levels    of units of effort    and an assigned value per 1lni.t.
 (See pp. 10 to 13 of the detailed      report.)

        The establishment    of physician    profiles     for paying rea-
sonable charges does not appear feasible             or economical for
many CHAMpirS fiscal      agents, because (1) the volume of claims
for many medical procedures        is insufficient      for valid pro-
files    and (2) the costs for establishing          and maintaining
profiles    are high.     (See pp- 14 and 15 of the detailed         re-

        A different    procedure for determining      fees to be paid
to physicians       under CWmS may be warranted          because of prob-
lems or potential        problems in implementing     the reasonable-
charge concept --such as the significant          increase     in, and the
reduced control       over, the level of physician       fees--and   be-
cause of the high administrative         costs associated       with the
use   of physician     pmfiles.     (See pp.14 to 18 of the detailed

                    -- TO PHYSICIANS
      Average payments made for selected procedures under
CHAMPUSgenerally      were in line with average payments under
other health care programs.        Comparisons of amounts charged
by individual   physicians    against CHAM3JS with amounts charged
against other health care programs for the same medical pro-
cedures showed that some physicians         charged one program more
than they charged another for the same service--possibly
because of complications      in individual     cases. We found,how-
ever, no indications      of CRAWUS' being charged consistently
higher amounts..     (See pp. 19 to 25 of the detailed      report.)


       The number of physicians  or clinics      and group practices
receiving   more than $20,000 from CHAQWUSin 1969 increased
about 72 percent over the previous year.          Of these, 13 phy-
sicians --eight  of whom were psychiatrists--received         over
$50,000 each.    (See pp. 25 and 26 of the detailed        report.)


       Psychiatric     care benefits     under CAMPUS generally         are
more liberal       than those under other health programs.             Ap-
proval is required        for more than 90 days of care, but there
is no limitation       on the dollar value or the number of days
of care that may be authorized.            Extensive      care was being
provided    to program beneficiaries        and several psychiatrists
were being paid large amounts under CHAMPUS. There is a
need forguidelines        for authorizing     psychiatric       care and a
need for some controls        over the extent to which this care is
furnished.       (See pp. 27 to 32 of the detailed            report.)

        The fiscal agents included in our review made no at-
tempts to determine whether patients      receiving psychiatric
care in high-cost    facilities  could obtain the prescribed
care in lower cost facilities,       (See p* 33 of the detailed

      Wt: found   that. p:;Ychi.ntr  Fc cars had been approved' and
proLpid+&  in  facilities     \;hich  did not conform to criteria
prescrfbed    by OC3!&i.WS. (See ppa 33 to 37 of the detailed

        None of the four fiscal.        agents included in our'review
had made utilization       reviews --evaluations        of the quality,
quantity,    or timeliness      of medical services--on        a systematic
basis, but one of them had recently             implemented procedures
which should help in performing             adequate reviews.     Limited
guidance for establishing         utilization      review procedures has
been provided by OCHAMPUSto fiscal              agents.    We believe that
effective    utilization     reviews are necessary.          (See pp. 38
to 41 of the detailed        report.)


       Administrative      costs of fiscal     agents' processing      phy-
sician claims against CHAMFUS increased from $754,000 in
fiscal    year 1966 to $5.8 million        in fiscal    year 1970. Rea-
sons for the increased costs include (1) the need for com-
puterization     of fiscal     agent operations      to handle the in-
creased claims resulting         from the expansion of benefits         and
the increased use of the program, (2) full              allocations    of
costs to CHAMPUSbecause it became a larger part of fiscal
agents' business,       and (3) the hiring      and training      of addi-
tional    personnel by the fiscal        agents to cope with the ex-
panded program authorized          by the Military     Medical Benefits
Amendments of 1966.          (See pp. 42 and 43 of the detailed          re-

       There is a lack of standards for evaluating          the perfor-
mance of fiscal    agents.     Widely varying costs for processing
CHAMRJS claims and different        levels of contract     performance
have been accepted.      During   fiscal   year 1970   the  costs per
claim for individual     fiscal   agents ranged from $2.37 to
$9.93,     (See ppa 43 to 47 of the detailed      report.)      I

       We identified     problems in which payments made by the
California    fiscal    agenE for physician  claims for obstetrical
and psychiatric      care resulted  from errors   in computer

    pjwgrGms       a-Id   2   leclc   CA! management controk.       We are per-
    farming an additional               revim     to ascertain   the extent and
    signific&nce of ti~sc               deficiencies.       (SC& pp. 29 and 48 of
    the detailed report,)
        A deductible    is applied against claims submitted          for
outpatient    care.    Also payments made to physicians           on behalf
of certain    beneficiaries     as a result     of other insurance must
be applied against related         claims under CHAMPUS. We noted
that CHAMPUSwas incurring          additional    costs by not limiting
the amount physicians       receive    in these instances     to the
amount payable through application            of the reasonable     charge
criteria.     (See pp. 51 to 57 of the detailed          report.)

       CHAMPUSlegislation   requires     that all beneficiaries
other than dependents of active       duty members declare other
medical insurance provided by law or through employment,              We
believe that an opportunity     for reduced costs would exist
if the same legal and administrative         provisions  pertaining
to other insurance were applied to all beneficiaries.              (See
pp. 56 and 57 of the detailed      report.)

        The certification         of other insurance on the claim form
is worded in a manner which provides              no means for indicating
that the claimant          is covered by other insurance which may pay
a portion, of the claimed amount.             We believe that the certi-
fication    statement        should be revised to elicit     a more infor-
mative response from the claimant.               (See pp. 57 and 58 of
the detailed       report.)

                  AUDIT COVERAGEAND

       We found that audit work performed by the Department of
Health,      Education,   and Welfare's    Audit Agency in reviewing
the activities        of CHAMPUSfiscal     agents had been limited.
The time spent by the Audit Agency on the assignments was
insufficient       to adequately    cover fiscal   agents'   activities.
We believe,      however, that the expanded coverage planned by
the Audit Agency staffs          should result   in valuable   benefits
to the Government.         (See pp. 59 to 63 of the detailed           re-

     Revlcws of the perEormance of physician     fiscal  agents
made by the Contract  Performance Review Branch of OCHAMPUS
were limited by the inability    to make adequate evaluations

    of activities      in the brief      time spent on each review.    This

    restricted    their    effectiveness     and precluded   overall evalua-
    "Lions of fiscal     agents' activities,       Ge believe that these
    reviews would be more useful to management if they wore ex-
    panded in scope and were made in depth,              (See ppe 60 and 61
1   of the detailed      report.)


          We believe    that   the Executive     Director,   OCHAPIPUS,
    should consider

          --developing    a more effective   and less costly method
             for determining   the amounts to be paid to physicians
             (see p, 18 of the detailed    report);

          --issuing    guidelines   for use in establishing       effective
              controls   over psychiatric    care, such as more frequent
              reviews of cases involving      extensive   outpatient
             visits,   therapy sessions,     and hospital    stays (see p.
              37 of the detailed    report);

          --seeking    ways to use available        Government facilities
             for both inpatient       and outpatient     psychiatric     care of
             dependents and ways to transfer          patients     to lower
             cost civilian       or Government facilities      whenever it
             appears to be medically       feasible     (see p. 37 of the
             detailed    report);

          --establishing   and enforcing        more definitive      criteria
             for approving psychiatric         facilities    under   CHAMPUS
             (see p. 37 of the detailed         report);

          --providing    guidelines       outlining   the requirements    for
             acceptable   utilization        reviews,   approving the utili-
             zation review systems of the fiscal             agents, and con-
             ducting effective        surveillance    to ensure that these
             systems are properly         implemented (see pa 41 of the
             detailed   report);

          --establishing     perfo-LTilance stanc;=rds to cffectjvely
             evaluate    and compare the operations      of fiscal    agents
             and taking prompt action to ixprov‘z zhe operations             o
  fiscal  ;i,pZkS  xmiever   their    costs or levels 'of per-
  formance-are    considered   to be unacceptable    (see pp.
  49 and 50 05 thz &tailed        report);

--applying       the reasonable-charge       limitation      to charges
   b,il.led   to beneficiaries     for payment under the de-
   ductible     provisions     and limiting     payments to physi-
   cians,     when combined with other insurance payments,
   to the     reasonable charge for services            rendered (see
   pp, 54     and 56 of the detailed        report);

--proposing     legislation  which would require  dependents
   of active duty members to report     other insurance
   provided by law or through employment (see p. 57 of
   the detailed     report); and

--revising   the claim form to elicit   a more informative
   response as to whether the beneficiary    has other
   health insurance coverage (see p. 58 of the detailed



                         HAYDICAPPED PERSONS

       This chapter summarizes the salient     matters    included
in the detailed     report   on this subject dated March 16, 1971,
previously   furnished     to the Committee on Appropriations,
House of Representatives.


      The law authorizes     care for dependents of active duty
personnel who are moderately       or severely mentally     retarded
or seriously    physically   handicapped but precludes      less se-
vere cases from benefits      under the handicap portion        of
CHAMPUS    l Members of the uniformed    services   or their     depen-
dents are required      to share in the cost of the benefits        and
must contribute    from $25 to $250 a month according         to a
graduated scale based upon military        grade.   Maximum benefits
of $350 a month1 for each beneficiary         are payable by the
Government.     (See pp. 5 and 6 of the detailed      report.)


      Costs of the handicap portion       of CHAMPUShave in-
creased annually   since inception      on January 1, 1967.    By
June 30, 1970, over $18 million       had been paid in benefits,
of which about $5.6 million     was for dental claims.      About
6,000 physical   handicap and mental retardation'cases       were
approved by OCHAMPUSfrom January 1967 through December
1969.   Most of the cases involved.continuing       care rather
than care on a one-time basis,      such as providing   hearing
aids and wheelchairs.     An estimated      30,000 cases for den-
tal handicap care have been approved by OCHAMPUS, (See
pp. 8 and 9 of the detailed     report,)

    This   maximum applies to the first   beneficiary  in a family.
    For additional   beneficiaries   in a family there is no limi-
    tation   to the Government's   share.                                 0

       Since the purpose of the law creating  CKAXPUS is to
create and maintain high morale throughout    the uniformed
services,   OCXfXXlS of Eicials consider the act to be bencfi-
cial legislation   and have applied a liberal   interpretation
in approving care to be paid under the program,        These lib-
eral approvals   of care have increased the costs borne by
the Government.     (See pp. 10 to 19 of the detailed     report.)


        Several decisions    of the Executive         Director,   OCHAMPUS,
which we believe to be in the interest              of good management,
have been disapproved       or substantially        modified by higher
headquarters.     Consequently,     benefits      have been liberalized
and the Government has incurred         added costs.          Also the over-
ruling    of OCJMMPUSdecisions      has inhibited         the efforts  and
attitude    of OCHA?HPUS  in carrying     out its responsibilities.
(See pp. 28 to 32 of the detailed           report.)


       Specific     and authoritative     standards were not being
used for determining        the degree of handicap.      We.noted in-
consistencies       in the determinations      and the approval of
cases which may be questionable,             (See pp. 10 to 19 of the
detailed    report.)


      In the absence of specific        standards for evaluating
the degree of the handicap condition,          OCHAMPUSrelies    upon
statements   of attending    physicians,     which in some cases are
very brief   or incomplete.      This has led to poorly supported
judgments on whether care will be provided and has resulted
in approval of cases under the wrong portion          of CWAMPUS.
The two alternatives      are the program for the handicapped and
the basic health and medical program for military           dependents
generally o (See ppe 20 and 21 of the detailed          report.)

       Placement under the proper portion     of CWJPUS is impor-
tant   because of the different  costysharing    arrangements
between                   and the Government and because of
             the servicemen
the different   benefits  a-gailable. The Government's  lia-
bility   may be more or less depending on these factors    and
on related      considerations,    (See p* 20 of the detailed        re-


         Claims in the program for the handicapped are paid by
fiscal      agents hired under contract.       The basis for payment
of the claims is provided by management plans, which are
documents setting        forth   the medical diagnosis    of the bene-
ficiary;      the details      of the care authorized,    including
duration;       the estimated    total cost of the care and the share
of the total       to be paid by the serviceman;       and other perti-
nent data.

       Our review showed many, errors and omissions in the
management plans.      For example, in some cases servicemen's
pay grades-- which determine the cost-sharing       ratio--were
incorrect.     In other cases information    was not properly
supported by backup data.      Therefore   control  over the pro-
gram for the handicapped was seriously       impaired.      (See
pp* 22 to 24 of the detailed      report.)


        We found, in 62 of 69 randomly selected            cases, that
approval had been given after the care had been started                 or
had been received,        although policy requires        advance ap-
proval.     An OCHAMPUSofficial         said that,    in some instances,
care had been approved retroactively             because beneficiaries
had started     receiving     care before they learned that they
were entitled      to benefits     under the program.       He also stated
that beneficiaries        had applied belatedly       for benefits    be-
cause they were unaware that advance approval was required,
Another reason given for retroactive             approval was that there
were backlogs in processing          applications.       (See pp. 22 and
23 of the detailed        report.)

      Because of a la&       0f -tirittm   guidan.ce   to fiscal    agents
and because of in&equate         control  over their operations,
the agents made eirors        in paying claims and used different
bases for payment.       We found that the agents visited       had
not determined whether the providers'         charges were reason-
able.   Written   instructions     are needed to achieve uniform
actions by fiscal      agents, to minimize confusion,     and to en-
sure that payments conform with policy.           (See pp, 25 to 27
of the detailed    report,)


       Administration    should improve if OCHAMPUSmakes in-
creased use of medical expertise        available   at the adjacent
Fitzsimons    General Hospital   and if longer tours of duty
are authorized      for military personnel     in OCKAplpUSor if the
positions    are assigned to civilians.

       After completion    of our fieldwork,    recently appointed
OCXAMPUSofficials      advised us in December 1970 th[at more
extensive     use of medical expertise    at Fitzsimons  General
Hospital    was being made. (See pp. 33 and 34 of the de-
tailed    report.)


          The most recent audit of OCHAMPUSoperations              made by
the U.S. Army Audit Agency in 1968 did not cover the handi-
cap portion        of CHAMPUS. At the four fiscal          agents we vis-
ited,       the Department of Health,        Education,   and Welfare's
Audit Agencyss coverage of the program was limited                  to re-
viewing any claims for handicap care that chanced to be in-
cl&cd         in s~qle     sel.ections of claims representin?       the en-
tiri!     CWWUS         Also CCH-T_!iMPUS
                                        Contract Performance Review
Ij, di-! Ci; pcrso~'~ilel do not specifically      consider the handicap
poi-tion of the program when visiting              fiscal  agents.

        On the basis of    our review of the prorrram for the
handicapped 5 :ve feel     that there is a need for increased
audit efforts     on the   program at both the OCWWUS and the
fiscal    agent iwel.      (See pp. 34 and 35 of the detailed

              OR SUGGESTIONS

        The Secretary   of Defense,    in consultation    with the
Secretary    of Health,   Education,     and Welfare,  where appro-
priate,    should consider

      --revising   the criteria     and standards for approving
         handicap care to include,       wherever possible,      stan-
         dards established      by authoritative      medical organiza-
         tions for use as guidelines          in approving benefits;

      --seeing   that, in approving benefits    under the program,
         due regard is given to economic considerations;      for
         example, using the least costly     of comparable treat-

      --reevaluating,  in the light  of medical evidence,  De-
         partment of Defense policy decisions   that appear to
         increase the cost of the program unnecessarily;

      --reducing  turnover in key management positions      of
         OCMQUS, by either   establishing Icnger tours of
         duty for military personnel or assigning   civilians
         to the positions; and

      --requiring   that groups responsible    for       audits of the
         program for the handicapped intensify           their  efforts,
          (See p, 36 of the detailed  report.)

      The Executive    Director,   OCFMUS,      should    consider

      --establtshing   a committee of medical        personnel to de-
         cide the types of cases that should         be approved;

      --establishing    a standard for~nat for ;ise by physicia;
         Cn making, diagnoses,    to fa?ti'Litate or encourage the
         preparation   of complete medical statements;
--providing    detailed,  written   instructions     for use by
   fiscal   agents in processing    claims for     payment;

--requiring    that fiscal    agents make every effort       to
   determine the reasonableness        of c'harges for care
   provided and requiring      inclusion    of certification
   on handicap claims submitted by all sources of care
   that the charges do not exceed those for all other
   patients  receiving     comparable services;       and

--taking   steps to reduce to a minimum retroactive       ap-
   provals of care under the program for the handi-
   capped.    (See pp. 36 and 37 of the detailed    report.)

                                     CWITTER- 5

                _-- ---     ------OFm-v-
                                     PART1CIPAXT.SUXXR CHJLWUS

           The primary means used to indicate           eligibility     for
    CWUS       benefits    is an identification      card, which includes
    a photograph of the person to be authorized               benefits    and
    which is issued by the uniformed services              at the installa-
    tion level after eligibility          of an individual        has been es-
    tablished.      A block on the identification          card indicates
    whether the designated person is entitled              to CWWPUS bene-
    fits.     The identification     card is also used for other pur-
    poses, such as denoting eligibility           for commissary and post
    or base exchange privileges          and admission to military         the-

           Procedures and controls        over the issuance and recovery
    of identification       cards were deficient       at all nine military
    installations      we visited,      We found that (1) some identifi-
    cation cards containing         erroneous information      were being is-
    sued,(Z)      some cards were not being recovered from depen-
    dents no longer eligible,          and (3) Oe"rzAKpUSwas not always
    being notified      of dependents receiving        care at the time the
    sponsor was separated from military            service*    Thtxs, Govern-
    ment funds were expended under CWNRJS for medical care pro-
    vided to ineligibl      e recipients     and other privileges      outside
    of CI%4KBJScould be extended to unauthorized              persons*


             Personnel at military     installations      were issuing     iden-
    tification      cards containing    erroneous information         regarding
    eligibility      for CGmUS benefits,           The rate of error found
    in our sample test of about 2,200 cards was 2.1 percent.
    Most of the errors can be attributed             to unfamiliarity      with
    regulations      governing issuance of the cards and to care-
    lessness of responsible        personnel.

           Some persons were authorized      CHAWUS bzr:efits       after
    they bccaIw ineligi-ble    9 e,g, , in certain   i~.;tc:xes     after
    beneficiaries     had reached their 21.~'~ cr 65th birthdays,
    parents or' sponsors had been authorized       CiLQX:-‘t’j: Eenef its
    althcu&      not eligible,  persons eligible   for CHAPPUShad not
       The TCoSt COl?XiOn type of error encountered        was the in-
              . -r-+-i
correct c::p~-,~-      cn &.?tc?$-i
                                  r;h~v~ on I.4 cards) which ranged
from 1 day to over 3 years beyond the correct            expiration
date.    Eight of these cards had l- or Z-day errors,             and the
remaining 6 ranged from 150 days to 1,170 days beyond the
correct   expiration      date.

         We found that applications       for some dependents'       iden-
tification       cards were incomplete      or were not on file      with
the sponsor's        service records;    also the applications       were
not supported by needed backup information.                At one Air
Force installation,          the officer  responsible     for approving
the issuance of identification           cards queried the computer
to determine whether applicants           were eligible      dependents.
If the computer answered that they were, authorization                  was
given to issue the identification            card.    This system did not
furnish     information      on whether cards had been issued previ-
ously to the dependent and therefore             would not prevent the
issue of duplicate          cards.


        A dependent's  identification      card showing entitlement
to CHAPPUS benefits      becomes invalid       when a sponsor is sepa-
rated from the military        service prior to the end of his en-
listment    or when he is officially       classified     as a deserter.
A card also becomes invalid          when either    a divorced spouse
or a spouse of a deceased sponsor remarries,when              dependent
children    pass their 21st birthday,         or when dependents or
retired    members reach their       65th birthday.

         Regulations   are not specific        and do not assign respon-
sibility     for recovering      invalid   dependent identification
cards to any specific         function,    organization,      or person.
Consequently       the majority     of invalid    dependent identifica-
tion cards are not recovered.             Records are not kept of
cards recovered,       and, since entitlements         remain available
to a 115ld,r oiY a card until          the exJiration     date, it is pos-
sible for CHAMPUSor other benefits               and privileges    to be
obtcimd      by holders of invalid        cards.

       Air Force; .!Irmy, md Navy regulations          do not spccffi-
calby    ~sign   responsibilities       for recovering    identification
CZEdS C. In genecal      recc~ery     of dependent identification
cards seems to rest with the willingness             of the sponsor and
his dependentsto      turn in the cards,        Navy regulations        state
that, when an ineligible          card holder refuses     to surrender
his card, the assistance          of the Naval Investigations         Service
will be requested,         But a resident    agent of the Naval In-
vestigations     Service info-rmed us that he acts only when .
fraudulent     use of the card can be demonstrated,

       At the installation   level procedures      for recovery of
cards vary considerably,,      Records of destruction       of identi-
fication    cards are not required    by Air Force and Army regu-
lations,     Although Navy regulations     require    such records to
be kept, two of the three Navy installations           we visited    did
not do so0 Some of the installations         we visited     kept rec-
ords on cards turned in, but no reconciliation           of these
cards and the cards issued was made. Some installations
were not aware that they were responsible          for recovering
dependent identification     cards,    Procedures for recovery of
dependent cards at the installations        we visited    included:

        --Briefings  and instructions      to sponsors about                    to be
           separated concerning    turning   in identification                    cards
           issued to dependents,

        --Supplying   sponsors with self-addressed,     franked                    en-
           velopes for returning   dependents"   cards.

        --Instructing         the sponsor        to destroy       dependents'     cards,

 NotifLcation ---       b2 -----------_--
                             the uniformed           services
 OL x?.~aratees
---         ----.------- w'hose dexndents             are receiving .
---------------I care   under      CWUS

       The Govex~~~-ent~s cost-sharing     responsibility      under                       1
G&AXFUS ter~~imtr,s     uhen t-he sponsar separates       from the uni-
fo-med services     or is officially   listed     as a deserter      and
when cerL2i.i.n other circi.2xtance.s  exist,      sponsors bzing
separated z.i-a req-ulired to inform their uniformed          service
wkt-her   their  dependents are currently       receiving     care under
      We found that OCl+W.XJS was notifying   its fiscal   agents
timely and efficiently   but that the uniformed   services   were
not always notifying   OCHAHPUSthat the dependents of sepa-                  .
ratees were receiving   medical care under the program.

        The Army, Navy, and Air Force were requiring          separatees
to certify     whether their   dependents were receiving       care, but
most installations       were not reporting   the information      to
ocwus       e Those which did were not doing so timely.            Rea-
sons given by responsible        installation   officials   for not
notifying     OCHAMPUSincluded a lack of awareness of the re-
porting    reqtiirements   and a Pack of certification      forms,

        Of the. notificatio&     received by OCHAMPUSduring July
1970, 78 percent were from Army installations,         and, of the
78 percent,     65 percent were from one installation.      With a
few exceptions       the Navy and Air Force and other Amy in-
stallations     apparently   were not notifying  OCHAPPUS.at all.

Unauthorized  use of identification         cards
to obtain?HAMPUS benefits

        Unnecessary costs are being incurred             under CHAMPUSbe-
cause the uniformed         services     are not recovering      dependent
identification        cards and are not notifying          OCHAMPUSof de-
pendentsq receiving        care at the time their          sponsors sepa-
rate from the uniformed           services.      These costs are incurred
because the source of care cannot determine whether an
identification        card contains      correct   infomation     nor
whether the holder of the card is an eligible                 beneficiary,
T-k&US care    received by holders of Invalid           cards could go
undztcctle?d ~

      1n ~~;:a:;!!~nia~gthe ciaiix of 346 married individuals   who
separated early or were listed       as deserters, we found that
about $4,800 in CHAMPUScosts had been incurred          by dependents

&Jr  C<Z'.TCzftrr     ::!E c?a'ic'.5 -;;hcir spor,sors had, been officially
separated from the uniformed                services  or ilad been listed   as
deserters,        Eie~ti~i S~L;LG~~'Shad dependents who received rm-
authorized      care,     The dependents of tvo of thaw inwxred
cw2us      costs of about $I.,600 and $1,200, respectively.
Three of the sponsors were deserters and eight were early

      During the first 8 months of 1970, OCIHAKWJS      sent to
the services, for collection,    57 cases involving payments
for unauthorized care,, The payments exceeded $32,000. 'Ex-
cept for four cases payments were made on behalf of Ibneli-
gible beneficiaries--   such as parents and grandchildren--on
the basis of identification    cards which should not have
been issued and on behalf of dependents of sponsors who had
been discharged early or had been officially      listed as de-

     Because of the potential for incurring substantial
costs by the unauthorized use of identification     cards, we
recomend that the Secretary of Defense direct that regula-
tions and procedures of the military    services be stsength-
ened to ensure, insofar as is practicable,     proper issuance
and recovery of identification   cards.

       ppn&n~-s cf act ivc r!:::v, Personnel          residing    with   their
spo~xsors   zire   required   to have, except for emergencies,             non-
avsilnbiltty       statements    :%%cnapplying   for civilian     hospital-
ization      in the United States and Puerto Rico.            These state-
ments are used for only the immediate medical care required
and are issued to dependents by uniformed              services    facili-
ties when the required          care cannot be provided at a nearby
uniformed services medical facility.             All other CHAMPUSben-
eficiaries      have the freedom to select a uniformed           services
or a civilian        medical facility    without   being required       to ob-
tain the nonavailability          statement.

        At the nine military       hospitals    we visited,     persons is-
suing the statements were aware of hospital                conditions   and
capabilities,       Over 1,400 nonavailability          statements    were
issued by the nine hospitals          during the 6 months ended
June 30, 1970. We did not find improper issuances of non-
availability     statements;     however, we did find that (1) some
differences     existed    in the policies      among the services      for
issuing nonavailability         statements,     (2) determinations      as to
whether care could be furnished             at nearby facilities      had not
been made on a routine        basis; and (3) shortages of staff             and
facilities     at military    hospitals      had caused increa-sed use of
cwus       *

       There are some differences      in policies     for issuing non-
availability     statements   among theuniformed      services   and among
individual     hospital   commanderso    Consequently     under  similar
circumstances,      dependents tend to receive different         treat-
ment.      More consistency   in this area appears to be needed.

       The CHABPUSjoint        regulation      provides    that, with few
exceptions,     dependents of active duty members residing                with
their   sponsors be required         to obtain inpatient         care in uni-
formed &r>rviccs facilities         when such facilities          are within
reasonable     distances    of their residences         and are capable of
proaidin:;   the needed care.          Differences     noted    in the policj-es
of the services       and among hospital         commanders at the instal-
lations    we visited    follow,
             cons idc2.c.d L 2,,,..              lack   of confidence   in mili-
             tary hospitals      or their  personnel   a& a sucficient
             re2so;; to XX-r?nt issuing a nonavailability          state-
             ment.    Of t?e statements     issued at t'hree Air Force
             location@ J9 20 percent were issued because of depen-
             dents' preferences      for treatment   in civilian    rather
             than military    hospitals.

           --The Air Force was the only branch of service           that
              followed   a policy of issuing nonavailability        state-
              ments when a conflict      of opinion existed between'
              civilian   and military    physicians    on the necessity
              for a particular     treatment.     Joint regulations     is-
              sued in September 1970, however, made this policy             ap-
              plicable   to all uniformed services.

           --The Navy's "Home Port Rule" results          in Navy depen-
              dents' being considered      to be residing    with their
              sponsors if the sponsors'      ships have as their        home
              ports the same cities     or areas where the dependents
              reside,    even though the ships may be at sea,           We have
              been informed that this often results         in hardships     to
              the dependents and lowersthe       morale of the sponsors.
              In contrast,    once a soldier   or airman is sent oversee
              his dependents are no longer considered          to be resid-
              ing with him and they do not require         nonavailability
              statements    to obtain care in civilian      facilities.


          The CHAMPUSjoint          regulation   provides    that, where there
    are two or more medical facilities             of the uniformed service:
    in a locality     and the inpatient        care required      by a dependen!
    cannot be furnished        at the facility       of the service    to which
    he applies,    the other facilities         of the uniformed      services
    in the area be asked to provide the care.               A nonavailabilit:
    statement    is authorized       only after    it has been determined
    that the cc?z-c cannot be furnished          at any of the other uni-
    formed services     facilities.

           Military medical     facilities        in the three    areas we vis-
    ited   were not routinely      checking       the potential    for provisic

of care at neighboring     facilities       of other tranrhes     of the
uniforinzc? sr-rvices S Since     this   practice    could result    in an
unnecessary use of civilian         sources of care,      it is essential
that the policy rcquirir!g      coordination      with nearby facili-
ties of the unifcrmed     services      be imp'lemented effectively.

       --      UNDI$R CFNUS DUE TO

         Shortages of staff     and medical facilities        at military
hospitals      have resulted    in increased use of CHAMPUS. About
61 percent of all nonavailability           statements     issued during
the 6-month period ended June 30, 1970, by the nine mili-
tary installations        we visited   were issued because staff           and
facilities      were not available     when needed for types of care
ordinarily      available    to dependents in the issuing        facility.
Reasons cited were increased hospital             admissions caused by
the war in Southeast Asia, the fact that higher priorities
had been assigned to more complex operations               in operating
rooms, and cutbacks of civilian          hospital    employees ordered
by the Department of Defense.

       At one hospital   we visited,    the number of nurses in
the obstetrics     ward had been reduced from 10 to four,            and,
during an 8-month period in 1970, 556 nonavailability                state-
ments were issued for obstetrics        care.     During the same
months in 1969, only 16 nonavailability           statements     were is-
sued for obstetrics     care by the hospital.         The hospital      com-
mander stated that he had been required           to reduce total       ci-
vilian   personnel   and that a decrease in obstetrics           services
had been more appropriate      than reductions       in services     to
active duty personnel.       Thus the Department of Defense ac-
tion has increased the use of civilian           hospitals,     but the
increased    costs to CHAMPUSare offset        to some degree by
related   savings in military     hospital    operating     costs.

      At another military      hospital,    when operating       room time
was insufficient,     nonavailability      statements    were     issued
for all individuals     under age 18 requiring         tonsillectomies
and adenoidectomies.      We estimate      that this practice         in-
creased CHAMPUScosts about $139,000 annua.1I.y.                In addi-
tion,   we noted that a U.S. Public Health Service hospital
in the same area had not been fully           utilized    arid had had
operating    room time available.        The military     service

     __- .___I--- r\lry'f?TlK=n
                       --    IN CHAWUS TNFORMATfON PROGRAM j

       The prograin to educate beneficiaries        about CHAMPUSap-
pears to nave shown some recent improvement.             About 92 per-
cent of the married active duty officers           and enlisted    men
interviewed     during our review were aware of CHAMPUSin vary-
ing degrees.       Earlier  Department of Defense studies found a
substantially      lower ratio of informed personnel.         Despite
this improvement there are several important           areas where
greater efforts       are needed.    These include the need for
 (1) better    coordination   within   the Department of Defense in
implementing     the CJ3AMHJSinformation      program and (2) better
control    over the content of informational        material.

      In this area our review was limited to examining ef-
forts made by OCHAMPUSin educating CHAMPUSbeneficiaries
and to determining  the awareness of CHAMPUSbenefits   among
active duty members of the Army, Navy, and Air Force.


      The authority and responsibility      for the development
and implementation  of a complete public information       program
was delegated by the Surgeon General, Department of the
Army, to OCHAMPUSin January 1969,         OCHAMPUSlater estab-
lished a Public Affairs   Office,    but it was not operational
until  mid-1970.

        The OCRAMPUSinformation          program includes distributing
press releases,     maintaining       a speakers bureau, and providing
supplemental    printed    material      for beneficiaries           and for se-
lected groups, such as information               officers,      recruiters,       and
coordinators    at the installation           level,       Despite the quality
and quantity    of information        disseminated         about the program
by OCWLJS,      the actual education            of beneficiaries         and dis-
tribution    of information     on CHAMPUSremains largely                  the re-
sponsibility    of the individual          uniformed       services,       OCWJPUS
ihas no mz211s of obtaining       follow-up        information       concerning
how, in 5~ha.t minner, or to W&t            extent,      the information       it
furnishes    LO tiie services     is used,

      T!lL  $l;";7   Ail<! i,gcriry
                             if:     in 1963 identified       some problems
of the information       program.       These were (1) the late and
incomplete   distribution         of an official   pamphiet explaining            -
the major program changes caused by the 1966 amendments,
(2) the uncontrolled         issue of supplemental       publications,
(3) the lack of c 1 arity         and the incompleteness       of informa-
tion in publications,          and (4) the lack of formal training
for counselors      at military      installation    infoxation       centers.

         The Subcommittee on Supplemental Service Benefits,
House Armed Services Committee, reported                in December 1969
that there was no clear understanding             as to who was respon-
sible for the CHAMPUSinformation             program.      The Subcommit-
tee found that OCHAMPUShad the responsibility                  for develop-
ing an information        program but that the responsibility            for
informing     beneficiaries     was in the hands of the individual
services.      The Subcommittee recommended that the Department
of Defense issue directives          clearly    setting    out the respon-
sibility     by agency for the various functions            associated     with
the CHAmUS information          program and providing         authority    to
one official     to make sure that these functions             are carried
       In January 1971 the Subcommittee reported             that imple-
mentation      of its earlier       recommendation concerning     responsi-
bility    for the information         program still   had not been
achieved.        The Subcommittee report pointed out that a clear
line of authority          had to be provided below the Assistant
Secretary      level to see that needed information          programs were
carried     out promptly      and efficiently.      The Subcommittee rec-
ommended that the Department of Defense, when submitting                   its
appropriation       request,     include a request for financing       in-
formational       activities     on benefits,    such as those available
under CHAMPUS.

        We noted that a recent Army publication       substantially
hzd mi >-stated a CH:_tPUS p;3 !_i.cy in conden5-,fng i-t for printing
WC? that,     because OCI!MPUS did not receive an advance copy
in sufficient      time, the erroneous I'nformation     had been pub-
lished.     We were informed by OCHAMPUSofficials         that this
vould result     in numerous complaints    to OCHMPUS,
        Coordination    and cooperation   of the uniformed       services
p;,-ith OCH?AYTTSconcerning     the information    program is limited
and in some cases is nonexisten;.           We found that desk pack--
ets prcpnred for recruiter:;       of the uniformed     services     by
OC%VPUS had been dcsigncd to provid e the recruiters               with
informati.on     concerning  WAYPUS. During our review OCKAMPUS
was in the process of mailing 1,200 packets to Army recruit-
ers and 900 to Air Force recruiters.            The Navy and Marine
Corps, however, had not responded to the OCHAMPUSrequest
for permission       to mail the packets to their recruiters.


       An Army staff  study in 1968 reported    that 34 percent of
married Army personnel were not aware of the changes in
CX.AMPUScaused by the 1966 amendments and that about 45 per-
cent, although aware of the changes, were unaware of any de-
tails.    The Army Audit Agency estimated    that 57 percent of
the OCHAMPUScomplaints      reviewed in 1968 had been caused by
lack of understanding     of the program.

       A Department of Defense survey in January 1970 showed
that 75 percent of enlisted   personnel  in the lower enlisted
grades (E-5 and below) and 46 percent of those in the higher
enlisted   grades (E-6 and above) were not well-informed    about

       Our interviews      of over 230 married service personnel--
including   officers--in       the Army, Navy, and Air Force showed
that almost 92 percent of those interviewed            were aware, in
varying degrees, of CHAPPUS or of a medical program which
paid for civilian        medical care of their    dependents.       About
51 percent had a fair knowledge of available             benefits,     and 8
percent had no knowledge of the program.            Other servicemen
interviewed    knew of a medical program for their dependents,
but they had no detailed          knowledge of available    benefits.
The overall     impression     we received from the latter        group of
servicemen was that they did not care to learn the details
of the program.        They felt    that they knew to whom they could
go for assistance        or information    if the need arose.

      IJealso noted that,    of those servicemen with 12 months
Or less service,    89 percent had little    or no knowledge of
the benefits   available   to them. These servicemen with

                                    43      .
      We F;C~C jnf~.,^~.~-\c~that.OCI-MFUS would attempt' to have
the uniformed      services   give a 15m5nute orientation        on
CEAFETJSto all incorj.nz personnel       as part of their mandatory
indoctrination.        OclHAPPUSforesees no difficulty        in getting
this revirement        implemented by the Army but feels that De-
partment of Defense assistance        is needed to get the plan ad-
equately     implemented by the other uniformed        services.


       We believe that there is a need for better       coordination
within   the Department of Defense for promoting CHAMPUSbene-
fits,    In addition,     controls over the content of informa-
tional   material    issued by the uniformed   services  appear to
be necessary,     to prevent misstatements   of OCKAMPUSpolicies
and complaints      about the program.

      In view of the recommendations for improving the infor-
mation program made by the Subcommittee on Supplemental Ser-
vice Benefits,  House Armed Services Committee, we have no
reconxxndations  at this time.

      Purchase of medical equipment is authorized      under both
the basic and handicap portions   of CHAFWJS. The purchasers
who may be either CHABXJS beneficiaries     or providers    of care
are reimbursed by CHAMPUSfiscal     agents.   Our  review   has
shown opportunities  for savings if this equipment is pur-
chased from Government supply sources rather than civilian

        Costs recorded by CHAMPUSfor medical equipment in 1969
amounted to nearly $500,000--over        $353,000 under the handi-
cap portion     of CHAMPUSand over $141,000 under the basic
portion    of the program.    In addition,    medical equipment was
rented under the basic portion       at a cost of over $82,000.
Some rentals     were made through a lease-purchase      arrangement
which provided that the equipment would revert         to the bene-
ficiary    when rental  payments equaled the purchase price.
The costs recorded by CHWPUS in 1969 for purchases of med-
ical equipment are shown below by category.

             Type of equipment                      fzx3AMPuscosts

            Hearing aids                            . $206,000
            Orthopedic  devices                         68,000
            Prosthetic  devices                         49,000
            Nebulizers                                  16,000
            Other items (note a)                       155,000

                                                       $494 ,uuu

aIncludes   wheelchairs,          iron    lungs,   hospital   beds,   etc.

      We noted         that   the types of medical equipment purchased
by CZ!/‘?E?ITS beneficiaries       were  frequently available    from Gov-
ernment supply sources at prices considerably              less than
those that'  &ivilia         vendors ~erc charging.     The following
table shows the results          of our comparisons of a sample of

fivct     items    ri~r~t-1~~4
                   b               by   CK~F.PUS    beneficiaries       from    civilian
so'.zce?s arld L1le cost           Lur comparable           items   from Government
supply so11rc'es .

                                 Cost from            Cost from
                                 civilian            Government
         Equipment                vendor            supply source       Difference

        Hospitai    bed            $397                   $221                 $176
        Hearing    aid              345                    127                  218
             DO.                    350                    110                  240
        Wheelchair                  289                    173                  116
            Do.                     220                    184                   36
        Certain items of medical equipment are stocked at mili-
tary hospitals      and at Veterans Administration     hospitals,
Veterans Administration      officials told us that there would
be no major problem in supplying medical equipment for
CHAMPUSbeneficiaries.        They said that the Veterans Adminis-
tration     procured some items for the Department of Defense
because of the lower prices which result          from volume pur-


      We recommend that the Executive Directcr,     OCHAMPUS, ex-
amine into the potential   savings available    if satisfactory
arrangements  can be made for CHAMPUSbeneficiaries        to pur-
chase medical equipment from Government sources of supply.

       Cur earlier     reports     on the hospital,      physician,     and
handicap portions        oLF CflAieUS discussed certain         weaknesses
in administration        of the program.       (See chs, 2, 3, and 4.)
Other weaknesses in the administration              of CHAMPUSare dis-
cussed below.       These concern (I) the surveillance              by
OCHAMPUSover claims processing             and paying activities         of
fiscal   agents,    (2) the high number of claims returned               or re-
jected by fiscal       agents,     (3) Defense Contract Audit Agency
Audits,   (4) the audits'of         OCHA+X!?USby the U.S. Army Audit
Agency 3  and   (5)  the    Inspector    General's    inspections      of fis-
cal agents.


      We found that OCHAMPUScontrols    over claim processing
and paying activities   of fiscal agents were inadequate.
Improvements were needed in OCKAMPUSprocedures     for process-
ing claims data provided by the fiscal    agents.

      OCHAMPUSaudits of claims paid by fiscal    agents were
sporadic and ineffective.   The claims examiners making the
audits had received no formal training   and had no written
guidance to aid them in performing   the audits,   Only limited
supervisory  reviews of work done by claims examiners had
been made.

        The audits consisted       primarily       of scanning computer
listings    to identify    questionable        claims either          (1) prior
to a visit    to a fiscal     agent by an OCHA?pUS Contract                 Perfor-
mance Review Team or (2) when examiners had time to review
the listings.      Few claims are examined.              Fiscal agents were
notified    of the claims questioned by the claims examiners;
but, although they were supposed to notify                  OCHAMHCJS      of the
disposition     of clainls which had been questionad,                  n:any of the
agents had not done so. The claims examiners had not taken
any follow- up action on the questioned               claims aftcr         July
1969, and potential       adjustn,, ants    in   the  suspense       files   were
doted as far back as March 1967.
                                                   g-1 ijghju
                                                           * 9“tJl;\i3ENT #Q//qp$/-F
          OCFL4WUSh;7s no con+rol          over adjustments     lnitiatcd      by
fiscal      agents,      'i&se     adjustments   appear   in listings       sub-
mitt:-d     b:; fiscal    ngents without  explanations, Ordinarily
the adjustmwts           arc due to erroneous payments made to the
source      of care,

Submission       of claim        forms   to OCWUS

         Physician fiscal     agents sent over a million     claim forms
to OCHAMPUSin fiscal          year 1970, OCHAMPUSutilized        the doc-
uments in verifying        error checks made on a sample basis, in
making special studies,         and in identifying   potential     third-
party liability       cases.    Except for potential   third-party
liability      cases, the claims forms were disposed of after
about 3 months,        Few of the documents were actually        used by
ocmus       D
       In September 1969 OCHAMPUSdecided that hospital               fiscal
agents should submit only those claims involving              potential
third-party      liability    but failed    to notify  one of the two
hospital    fiscal      agents to stop submitting     all claims,      In
view of the OCHAMPUSprocedure that requires               computer list-
ings with data on paid claims to be submitted by the fiscal
agents, we suggested in July 1970 that OCHAMPUSpreselect
claims on a statistical         basis for review and audit and that
fiscal    agents not be required         to submit all paid claims
       In November 1970 OCHAMPUSimplemented our suggestion
that not all claims forms be submitted        by the fiscal  agents,
As a result     OCHAMTJSestimated    a savings of $150,000 a year--
$125,000 in reduced salaries      of fiscal   agent employees han-
dling and shipping the claims and $25,000 in reduced post-
age.     The fiscal  agents are now required    to submit only a
preselected     sample of paid claims forms and those claims in-
volving potential     third-party  liability.


          IYe recommend that         the Exccutivc  Directnr, NXAPPUS, de-
velop and irny2kment             Zo ~Pow-up procedures on claims ques-
tioned by OCHAMPUSand require      that fiscal    arents inform
~~CI-'ML'~TSof the disposition  of such claims.      We recommend
also that manuals and other fotis      of written    guidance be
m?de av~il.able   to assist claims examiners *!I-1c%aims audit                      5v
and verification.                                                                   =s
        i iw   i a-rg,:e nui~~hr   c~i clrt i 111seii.Iler          (1) ret-urned to the
source of care or to the beneficiary                             for correction,       ravi-
SiOilj      C1 ,z:i   tioi-iii;l I Ll>;CI
                                   .         ‘l.ULi~ll   vi     2)  1 ej ecied  for  pdyille!lt
for such reasons as incl.igibility                          has been a major problem
!liild:E'iI:;;   efficient         op zTatio1-1        of CWMYJS, During fiscal
year 1970 physician                fiscal          agents rejected        or returned more
than 480,000 claims-- over 28 percent of the claims processed
for payment.            Hospital          fiscal       agents rejected        or returned
approximately           24 percent of the claims.                      These percentages
have remained relatively                     constant       since fiscal       year 1968.

       The rate for returned     claims has been much higher than
that for rejected     claims--  during    fiscal   years 1968 through
1970, returned claims represented           an average of more than
20 percent of claims processed for payment.              This increases
administrative    costs of claims      processing,     causes backlogs
of unprocessed claims,       and creates dissatisfaction        with
CHAMWS, as evidenced by complaints            concerning   delayed pay-

         OCHAMPUSbecame aware of this problem about October
1967 when physician     fiscal  agents began submitting      claims
activity    reports.   The matter was subsequently      brought to
the attention      of OCHA?YPUSby special study and audit groups
in January and June 1969.       No effective  corrective     action,
however, has yet been developed.

      Our review at OCHAMPUSand fiscal      agent locations    has
shown that the high rate of claims returned        or rejected  has
been attributed     to (1) inadequate education of beneficiaries
about CHAMPUS, (2) complex claim forms, (3) carelessness
in preparing    the claim forms, and (4) the return of forms
by fiscal    agents prior  to searching their  files    for needed

       As pointed out in chapter 7, efforts     are now being
made to improve the program to educate beneficiaries        about
cgpipli;s . This could have a beneficial    effect  on the prepa-

early     in 196%- to recommend changes to the claim                            forms,
l-.:i&;Z:c   G’c:t-Gi   C‘;:             inr:iuciing coilg:iessio;iLL
                               cc-5:k”cj:i;::;,                              committees
3rd    2l.ldi-t   ory2ni73tions?          had    recommended simplified            claim
f OEllS &S 2 ihC2L.i;; SE :zchcing               L'Ctiirl>S and     rcj ections.       This
committw          2nd one nutsi.ri_c group made recommendations                      for
revising        the claim forms, but the recommendations                         were
based on limited               information       obtained from fiscaL agents
and a small sample of forms completed by about 20 persons.
The committee was abolished,                     and another committee is to be
established           to study revising            the claim forms and to study
a new system for identifying                     beneficiaries.

      OCHAJYPUS has proposed a revised claims activity         report,
which requires    a more detailed    breakdown of the reasons
for returning   or rejecting    claims,   to be made by fiscal
agents.    We believe that this could provide the information
necessary for making sound decisions        on revisions  to the
claim forms.

       An embossed identification      card has been proposed for
use for beneficiary     identification     and for use as a means of
reducing the number of claims being returned             because of in-
correct   data.   The same types of problems currently             being
experienced regarding      eligibility    determinations       (see ch, 5)
would continue with embossed cards.           Nevertheless,       such
cards would eliminate      many errors by correctly         inserting    key
data on the claim form directly        from the embossed card.
This would greatly    reduce the number of claims returned              be-
cause of omission or errors in such data, but such advantage
might be offset    by the increased costs for the cards and re-
lated equipment.

       In 1970 OCHAJGVSmade a study of fiscal         agents for 19
States that had high claim return rates,           The study group
found that fiscal      agents in two States did not research their
files    prior to returning     claim forms for correction   or addi-
tional    information.       OCHAMPUSdirected  these fiscal  agents
to resea-rch their     files   prior to

         -- ------___-__I____-
        Initially   responsibility    for auditing CJJAMPUSa.nti its
 fiscal    agents rcstcd with the U.S. Army Audit Agency,          The
 responsibility     for auditing   Fiscal agents \;a~ trarlsfezred     in
July 1965 by the U.S. Army Audit Agency to the Defense Con-
.tract Audit Agency.
            j     ,?   .   .,I-   #.,-     1 O&-y
                                                             + k-7        i.,:- fr.l;.':"          c(-Jr;p      ~-act Audit Agency
..-,  sly,    _   .-  . '.).<>,   - ,(>r'G-        7;i i  --,  :   ! : ,,
. ..&i -~
       3 'I       Tf-   .Y -.-'     '--_I-1 -. '1.s 4 t.,                      Yi-~-~-t-';xt~r~Lof i!crilth,                    Education,
rirlu     ,r,siiz-iL
                               ..-ALL--,J               __-.      r,:p:'.'f+vr-it                      of       !k+th,     Education,
and Welfare's                        kIdit             AfieY~ry--. Gtli ch t:mkc-s similar                                    audits   of
s*ra;c Lz +i--z :-i‘.r.,> -::iy-:>                                 -, r' I‘q?        ::   llnc:z:T           the     Social Security'
Medicare Program--k:ould                                          ccrfom! the contrnct                                    audits on a
rei~h1i~:;zl::I.e                  FasF s o Undh- thi. s agreement the Defense agency
retainEd                the ova-d.1                       responsibility                                   for the audits and the
Department of Health,                                        Education,                           and Welfare's             Audit Agency
agreed to perform the audits in accordance with the Defense
agency's audit standards and regulations.

        We met with officials    of the Defense Contract         Audit
Agency and were informed that,         during the transition       period
when the Department of Health,         Education,   and Welfare's      Au-
dit Agency was beginning its audits of CHAMPUScontracts,
the audit agencies had coordinated          to deal with a few prob-
lems which arose and that, until          June 1970, the Defense
agency had reviewed copies of audit reports             prepared by the
Department of Health,       Education,    and Welfare's     Audit Agency.
The Defense agency discontinued         its review of these audit
reports    because of the lack of significant         problems.     These
officials    also informed us that they did not manage or di-
rect the performance of the audits of CHMIPUS contracts.,

       The last audit of OCHAMPUS, made in 1968 by the U.S.
Army Audit Agency, although limited     in scope, was adequate
in the areas of activity    which it reviewed.      The audit con-
centrated    on the problem of conformance with Army Regula-
tions rather than on overall     management effectiveness.

          The stated primary purpose of the audit was an evalua-
tion of the effectiveness                 and efficiency         with which OCHAMPUS
utilized        its resources          to accomplish its mission of admin-
istering        CFIANPUSand reimbursing                fiscal   agents and individ-
uals for the cost of medical care.                          The audit included a
compxhensive             review of zutoxtic              data processing   activi-
t I. ses 9 Cl i"e:Jj ia;? Of t;71: proced:: 7~s for identi Fy ing and proc-
essirl? pc:tcnti;:l           third-party     Iiability        cases, an evaluation
of -2; *, J-j-.'.r...
                      ‘I n.3tj 031 o.? j n.?o~.-:::.kicn on CTT,QlP'USto benzfi-
ciarrcs      2 an analysis          of complaint         mail, and a review of bud-
get isi; and financial              management activities,
        The: rct;iir       L ~i;~jc-L;:~~<,        thai   improvt7.c-rlts            Tiere    needed      in
th-_‘ (1.)     dCT'?'9p-~?*::?~      ) C!i stari bil I 'j iill;   arid     control         5E   infcrma-
tion    51-t the       prn~~c"l-;,~~    (2)       &sign      of cla?n          forms       and instmc-
ticns      ior     preyarat.i.o~l,          dilil     (2) ih~     iAxt'flZ<S       of detxxining
thz   dcsirzliliq-                of purchasing:             rather than lea?ing:                     auto-'
matic data processing                     q-kpmnt.              Areas        not     revieved         in
depth were contract      administration,        including    compliance
by fiscal   agents with contract         requirements;      overall     manage-
ment of CHANPUS; staffing       of OCHAMPUS; and activities              re-
lated to approval of handicap and long-term                hospitalization
cases.    We believe that the U.S. Army Audit .,gency should
include examination      of such areas of OCHAWUS activities                 in
its future   audits.     Examination       of such areas     is essential
for evaluation     of the effectiveness         and efficiency       of

      The Inspector     General, Office of the Surgeon General,
Department of the Army, performed contract            compliance in-
spections     of the activities     of the fiscal   agents approxi-
mately every 2 years.         He also made periodic     inspections  of
the activities      of OCHBWUS. In addition,        the Inspector
General, Department of the Army, made an inspection              of
OCHMPUS in 1968 as part of his inspection             of the Office of
the Surgeon General.

      The policy  statement issued by the Inspector       General,
Office of the Surgeon General,        for guidance of inspectors
engaged in procurement     inspections    stated that:

         "Inspectors    General,   in their      inspection   of
         CUJlPUS contractors,      will   strive     to provide as-
         sistance    to Jt-fcJcOCHA?YPUSip*** in the over-all
         impravement of operations        and in the solution
         of  problems,"

      Uiz   thCZ   LaSiS   Of   tlLJ   lLinidLcdspent on these in-

spections p O'UZ-revi.c:*? of Inforxztion      conteined     in the re-
ports,   the general absence of significant           recommendations,
and a lark of identification        02 significant       problem areas,
it appeared that inspections        made by the Inspector         General,
Office of the Surgeon General, had been of limited               value to
management for improving CTMPUS.


       In December I.970 the Executive Director,           0CHAVl@US,pro-
vided us with a listing       of actions recently       taken to improve
CHAHHJS operations.       For example, workshops have been ini-
tiated   for training    contractor    employees who process claims,
and the scope and frequency         of contract   performance reviews
have been increased.       A request for additional          health care
professionals     to make inspections      of health care facilities
has been sent to the Surgeon General, Department of the
Army. We believe that many of these actions,               together    with
actions on the recommendations made in this report,                 if
properly    implemented,   should improve the operation            of

      Our examination      of   CWNTJS        included a review of the
authorizing       legislation      a~ld its background.       We reviewed
applicauie       policies,     procedures,      and practices    used in
the administration           of CHAMPUS. We conferred         with appro-
priate    officials       responsible     for the administration      and op-
eration    of the program, as well as officials               of professional
medical organizations.

        Our review was performed at OCI-lAHJ?US,near Denver, Colo-
rado and at the offices           of selected CHAPPUS fiscal      agents.
Additional     work was performed at various hospitals,            hospital
and medical associations,           areawide planning commissions,
military    installations,        and regional   offices    of the Depart-
ment of Health,        Education,    and Welfare's     Audit Agency,

       Our work was directed         primarily      to (1) determining
whether amounts paid under CHAMPUSto hospitals                   and physi-
cians for selected medical and surgical                procedures were in
line with those amounts paid under Federal and private                   in-
surance plans,      (2) evaluating       the bases for payment of both
hospital     and physician    charges,      (3) determining      the extent
of fiscal     agent surveillance        of the costs and quality       of
services provided to beneficiaries,              (4) examining into the
reasonableness     of expenses of the fiscal            agents in adminis-
tering    the program0 (5) examining into the controls               used
for establishing       the eligibility        of program participants,
and (6) evaluating        the adequacy of audits and reviews of
CHAPPUSmade by responsible             Goveinment agencies.


Honorable Elmer B. Staats
Comptroller General of the
 United States
U. S. General Accounting Office
Washington, D. C. rO548
Dear Mr. Staats:
      In the last several years the coat to operate the military
Medicare program has increased substantially.    The program was
first instituted in fiscal year 1957 at a cost of about $2!,5OO,OOO.
For fiscal years 1966, 1957 and 1968 expenses were about $75,616,000,
$105~676,000 and $162,374,000, respectively.    The preliminary report
of obligations for fiscal year Zf.9h9shows @77,366,000, and the budget
estimate for 1970 is in excess of $200 million.
     While testjmony before the Committee indicates that there has
been an annual increase in the number of beneficiaries and an
increase in the cost of benefits received, it appears that cost
increases are greater than might be exxected and not in proportion
to benefits derived.
     The Committee is interested in knowing whether the fees being
paid participating  physicians, hospitals, or others for services
rendered are in line with those which would be customarily charged
to non-subscribers of medical-hospitalization  programs. Tdewould
also like to know whether any substantial profits have been realized
by anyone servicing the program.
     Wewould appreciate the General Accounting Office msklng a
comprehcnsiue review of the nilitar-y Xndicare prczr3.m end i-rtp3rting
to the Com!tittee on its findings as soon as possible.   If you so
1,   An e~~lu3tiGn      e
                       OA    the reasonableness    of total    cost incu-red
     by fiscal   years.

2.   Tne reasonableness of fees charged and profits              realized   by
     participz$tin, 0 individuals, medical facilities           or ot’ner

3.   The reasonableness        of expenses incurred     in the administration
     of the program.
4.   A determination        of the eligibility    of participants.

5.   The adequacy of audits made by responsible  Govcrment
     agencies of the administration and operation of the
     program and benefit payments made under the prograz!.