oversight

Defense Health Care: TRICARE Claims Processing Has Improved but Inefficiencies Remain

Published by the Government Accountability Office on 2003-10-15.

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

               United States General Accounting Office

GAO            Report to the Committees on Armed
               Services, U.S. Senate and House of
               Representatives


October 2003
               DEFENSE HEALTH
               CARE

               TRICARE Claims
               Processing Has
               Improved but
               Inefficiencies Remain




GAO-04-69

                                                October 2003


                                                DEFENSE HEALTH CARE

                                                TRICARE Claims Processing Has
Highlights of GAO-04-69, a report to the        Improved but Inefficiencies Remain
Committees on Armed Services, U.S.
Senate and House of Representatives




Testifying before Congress in 2002,             In an effort to improve TRICARE claims processing, DOD and its managed
military beneficiary groups and                 care support (MCS) contractors have made changes that are designed to
civilian managed care support                   make it more efficient. First, they have jointly identified—and then
contractors described problems                  eliminated or changed—certain DOD requirements they deemed inefficient
with the processing of TRICARE                  and nonessential to accurate claims processing. For example, contractors
claims for civilian-provided care.
These problems included slow
                                                are no longer required to hold claims with incomplete information and
payments and procedures that                    request the missing information from the provider or beneficiary. Instead,
made claims processing inefficient.             contractors may now return some claims with missing information. In
                                                another change, DOD eliminated preauthorization requirements for certain
The Bob Stump National Defense                  procedures and gave the MCS contractors more latitude for determining
Authorization Act of 2003 required              when preauthorizations are appropriate. To encourage providers to submit
GAO to review improvements to                   their claims electronically, DOD gave MCS contractors the authority to
TRICARE claims processing and                   decide whether to adjudicate electronically submitted claims sooner than
continuing impediments to claims                those submitted on paper. Further, MCS contractors have worked with their
processing efficiency. Specifically,            claims processors to implement new technologies for data input, claims
GAO describes (1) efforts to                    routing, customer service, and claims submission. Finally, MCS contractors
improve claims processing and
changes in processing timeliness
                                                and their claims processors have improved the timeliness with which they
and (2) Department of Defense                   process claims. In fiscal year 2002, claims processors processed over 97
(DOD) procedures and data that                  percent of claims in 30 days or less—an improvement over fiscal year 1999,
continue to affect claims                       when 91 percent of claims were processed in 30 days or less.
processing efficiency.
                                                Although DOD and its MCS contractors have made changes to improve
To identify improvements to claims              claims processing, some DOD procedures and inaccuracies in its data
processing and impediments to                   continue to create inefficiencies in TRICARE claims processing. Some DOD
processing efficiency, GAO                      procedures may create inefficiencies by inadvertently increasing the demand
analyzed 1999 and 2002 claims data              for customer service, which claims processors are required to provide.
for changes in processing                       Additionally, inaccuracies in DOD eligibility data—data that are needed to
timeliness. GAO also interviewed
and analyzed claims processing
                                                process TRICARE claims—can contribute to claims processing delays or
documentation from DOD officials,               rework if, for example, claims must be reprocessed when errors are
managed care support contractors,               identified. Finally, some DOD procedures lead to rework for claims
and claims processors.                          processors, either in the form of reprocessing claims or reprogramming
                                                processing software. For example, when DOD makes program changes to
                                                TRICARE to alter or create a health benefit, it does not adhere to any
                                                schedule. In 2002, DOD made 123 program changes on 19 different dates
To improve the efficiency of                    throughout the year. Given the fact that implementing these changes often
TRICARE claims processing, GAO
                                                involves reprogramming and testing processing software, this approach can
recommends that DOD evaluate
how it issues program changes and               create rework for claims processors when DOD issues similar or related
identify ways to improve the                    changes on separate occasions.
consolidation and scheduling of
such changes. DOD concurred
with the recommendation.
www.gao.gov/cgi-bin/getrpt?GAO-04-69.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Majorie E.
Kanof at (202) 512-7101.
Contents 



Letter                   
                                                                       1
                         Results in Brief 
                                                      3
                         Background
                                                             4
                         DOD, MCS Contractors, and Claims Processors Have Made 

                           Changes to Improve Claims Processing Efficiency, and 

                           Timeliness Has Improved 
                                             8
                         DOD’s Procedures and Inaccurate Data Continue to Create Some 

                           Inefficiencies in Claims Processing 
                                 13
                         Conclusions                                                            
18
                         Recommendation for Executive Action 
                                  18
                         Agency Comments 
                                                       19

Appendix I               Scope and Methodology                                                  20



Appendix II 	            Comparison of Current and Future TRICARE
                         Regions                                                                23



Appendix III             TRICARE Claims Flow                                                    25



Appendix IV              Health Care Service Records                                            28



Appendix V               Comments from the Department of Defense                                30



Appendix VI              GAO Contacts and Staff Acknowledgments                                 32 

                         GAO Contacts                                                           32

                         Acknowledgments                                                        32


Related GAO Products 
                                                                          33




                         Page i                                GAO-04-69 TRICARE Claims Processing
Tables
          Table 1: Regions, Managed Care Support Contractors, and Claims

                   Processors                                                      5

          Table 2: Percentage of TRICARE Claims Processed in 30 Days or 

                   Less in Fiscal Years 1999 and 2002                             12



Figures
          Figure 1: Current TRICARE Regions                                       23

          Figure 2: Future TRICARE Regions After TNEX Implementation              24

          Figure 3: TRICARE Claims Flow                                           27





          Page ii                                GAO-04-69 TRICARE Claims Processing
Abbreviations

CDCF              central deductible catastrophic cap file 

CMS               Centers for Medicare & Medicaid Services 

DEERS             Defense Enrollment Eligibility Reporting System 

DMDC              Defense Manpower Data Center 

DOD               Department of Defense 

DRG               diagnosis-related group 

EMC               electronic media claims

HCSR              health care service record 

HIPAA             Health Insurance Portability and Accountability Act of 1996 

MCS               managed care support 

MTF               military treatment facility 

OCR               optical character recognition 

PGBA              Palmetto Government Benefits Administrators 

TED               TRICARE encounter data 

TFL               TRICARE for Life 

TMA               TRICARE Management Activity 

TMAC              TRICARE maximum allowable charges 

WPS               Wisconsin Physician Services 




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Page iii                                         GAO-04-69 TRICARE Claims Processing
United States General Accounting Office
Washington, DC 20548




                                   October 15, 2003


                                   The Honorable John Warner 

                                   Chairman 

                                   The Honorable Carl Levin 

                                   Ranking Minority Member 

                                   Committee on Armed Services 

                                   United States Senate 


                                   The Honorable Duncan L. Hunter 

                                   Chairman 

                                   The Honorable Ike Skelton 

                                   Ranking Minority Member 

                                   Committee on Armed Services 

                                   House of Representatives 


                                   In 2003, more than 8.7 million active duty personnel, their dependents, and 

                                   retirees are eligible to receive health care through TRICARE, the military’s 

                                   $26.4 billion-per-year health care system. Medical care under TRICARE is 

                                   provided by Department of Defense (DOD) personnel in military treatment 

                                   facilities (MTF) or through civilian providers in civilian facilities. Civilian-

                                   provided care requires that providers or beneficiaries submit claims to 

                                   DOD managed care support (MCS) contractors who, on behalf of 

                                   TRICARE, are responsible for adjudicating and paying the claims 

                                   according to established policies and procedures. The MCS contractors 

                                   have each hired subcontractors, referred to as claims processors, to 

                                   perform these functions. During fiscal year 2002, DOD’s MCS contractors 

                                   were responsible for processing approximately 42 million TRICARE 

                                   claims worth approximately $4.6 billion dollars.1


                                   Since its inception in 1995, TRICARE has garnered criticism over its claims 

                                   processing performance. During 2002, for example, testimony before the 

                                   House Armed Services Committee, Subcommittee on Military Personnel, 




                                   1
                                    These numbers do not include claims from TRICARE for Life (TFL), a separate program
                                   from TRICARE. TFL is a program for Medicare-eligible beneficiaries enrolled in Medicare
                                   Part B, which covers charges from licensed practitioners, as well as clinical laboratory and
                                   diagnostic services, surgical supplies and durable medical equipment, and ambulance
                                   services. TFL pays expenses remaining after Medicare has paid its share of claims.



                                   Page 1                                             GAO-04-69 TRICARE Claims Processing
discussed problems with the timeliness of claims payments.2 This
testimony also identified DOD policies and procedures for claims
processing that confuse beneficiaries and providers and create
disincentives for electronic claims submission, which is more efficient
than paper claims submission.

In response to concerns over claims processing, the Bob Stump National
Defense Authorization Act of 20033 directed us to report on improvements
to TRICARE claims processing and continuing impediments to claims
processing efficiency. Specifically, as agreed with the committees of
jurisdiction, this report describes (1) DOD, MCS contractor, and claims
processor efforts to improve TRICARE claims processing and changes in
processing timeliness and (2) DOD procedures and data that continue to
affect claims processing efficiency.

To identify improvements in TRICARE claims processing, we compared
the timeliness with which DOD processed its claims between fiscal years
1999 and 2002. To make this comparison, we obtained and analyzed data
from health care service records (HCSR), which are the final records of
TRICARE claims. To identify efforts to improve TRICARE claims
processing, we interviewed and obtained documentation from officials and
representatives from the TRICARE Management Activity (TMA), the DOD
agency responsible for managing TRICARE; DOD’s MCS contractors; and
claims processors. To obtain information on TRICARE requirements that
affect claims processing efficiency, we interviewed the same officials and
representatives, along with beneficiary and provider representatives. We
reviewed DOD’s request for proposals for the new health care contracts
that DOD awarded in August 2003, and we interviewed DOD and MCS
contractor officials to determine how the new contracts might affect
claims processing efficiency.4 We also reviewed our prior work on
TRICARE and Medicare claims processing. Our review did not include
claims processed under DOD’s TFL program for Medicare-eligible
beneficiaries because TFL is a separate program that follows different



2
 Hearings on the National Defense Authorization Act for Fiscal Year 2003—H.R. 4546
and Oversight of Previously Authorized Programs Before the Subcomm. on Military
Personnel of the House Comm. on Armed Services, 107th Cong. 297-318 and 318-334 (2002)
(statements of MCS contractors and beneficiary representatives, respectively).
3
 Pub. L. No. 107-314, § 711(c), 116 Stat. 2458, 2588 (2002).
4
 DOD issued a request for proposals in August 2002 because the current health care
contracts will be expiring.




Page 2                                               GAO-04-69 TRICARE Claims Processing
                     program rules and uses different claims processing procedures. We
                     conducted our work from June 2002 through October 2003 in accordance
                     with generally accepted government auditing standards. For more on our
                     scope and methodology, see appendix I.


                     In an effort to improve TRICARE claims processing, DOD and its MCS
Results in Brief 
   contractors have made changes that are designed to make it more
                     efficient. First, they have jointly identified—and then eliminated or
                     changed—certain DOD requirements they deemed inefficient and
                     nonessential to accurate claims processing. For example, contractors are
                     no longer required to hold claims with incomplete information and request
                     the missing information from the provider or beneficiary. Instead,
                     contractors may now return claims with missing information, as long as
                     the necessary information cannot be supplied from in-house sources. In
                     another change, DOD eliminated preauthorization requirements for certain
                     procedures and gave the MCS contractors more latitude for determining
                     when preauthorizations are appropriate. In an effort to encourage
                     providers to submit their claims electronically, DOD gave MCS contractors
                     the authority to decide whether to adjudicate electronically submitted
                     claims sooner than those submitted on paper. Further, MCS contractors
                     have worked with their claims processors to implement new technologies
                     for data input, claims routing, customer service, and claims submission.
                     Finally, MCS contractors and their claims processors have improved the
                     timeliness with which they process claims. In fiscal year 2002, claims
                     processors processed over 97 percent of claims in 30 days or less—an
                     improvement over fiscal year 1999, when 91 percent of claims were
                     processed in 30 days or less.

                     Although DOD and its MCS contractors have made changes to improve
                     claims processing and MCS contractors have exceeded DOD’s standard for
                     processing timeliness, some DOD procedures and inaccuracies in its data
                     continue to create inefficiencies in TRICARE claims processing. Some
                     DOD procedures lead to rework for claims processors, either in the form
                     of reprocessing claims or reprogramming processing software. For
                     example, when DOD makes program changes to TRICARE to alter or
                     create a health benefit, it does not adhere to any schedule. In 2002, DOD
                     made 123 program changes on 19 different dates throughout the year.
                     Given the fact that implementing these changes often involves
                     reprogramming and testing processing software, this approach can create
                     rework for claims processors when DOD issues similar or related changes
                     on separate occasions. Some DOD procedures may create inefficiencies by
                     inadvertently increasing the demand for customer service, which claims


                     Page 3                                  GAO-04-69 TRICARE Claims Processing
                  processors are required to provide. For example, the method used for
                  calculating TRICARE’s liability when beneficiaries have other health
                  insurance can lead to claim outcomes that are not understood by
                  providers and beneficiaries. When providers and beneficiaries question
                  such outcomes, claims processors must explain the benefit calculation.
                  Finally, inaccuracies in DOD eligibility data—data that are needed to
                  process TRICARE claims—can contribute to claims processing delays or
                  rework if, for example, claims must be reprocessed when errors are
                  identified.

                  We are recommending that the Secretary of Defense direct the Assistant
                  Secretary of Defense for Health Affairs to evaluate DOD’s process for
                  issuing program changes and to identify ways to improve the
                  consolidation and scheduling of such changes. In commenting on a draft
                  of this report, DOD concurred with the report’s findings and
                  recommendation.


                  Under TRICARE, MTFs provide the majority of health care for
Background        beneficiaries. However, civilian providers supplement this care, and claims
                  must be submitted by providers or beneficiaries to MCS contractors’
                  claims processors for this civilian-provided care. There are three options
                  under which TRICARE beneficiaries may obtain civilian-provided care:

             •	  TRICARE Prime, a program in which beneficiaries enroll and receive care
                 in a managed network similar to a health maintenance organization;
             • 	 TRICARE Extra, a program in which beneficiaries receive care from a
                 network of preferred providers; and
             • TRICARE Standard, a fee-for-service benefit that requires no network use.

                  The Office of the Assistant Secretary of Defense for Health Affairs
                  establishes TRICARE policies and procedures and has overall
                  responsibility for the program. TMA, under Health Affairs, is responsible
                  for awarding and administering contracts to MCS contractors that manage
                  the delivery of care to beneficiaries in 11 regions. While the MCS
                  contractors are ultimately responsible for claims processing activities, all
                  of them have subcontracted with one of two claims processors that
                  process the claims and handle beneficiary and provider inquiries
                  associated with them. (Table 1 contains a list of regions, their MCS
                  contractors, and their claims processors.)




                  Page 4                                    GAO-04-69 TRICARE Claims Processing
Table 1: Regions, Managed Care Support Contractors, and Claims Processors

    Region                 MCS contractor           Claims processor
    Northeast              Sierra Military Health   Palmetto Government Benefits
                           Services                 Administrators
    Mid-Atlantic and       Humana Military          Palmetto Government Benefits
    Heartland              Healthcare Services      Administrators
    Southeast and          Humana Military          Palmetto Government Benefits
    Gulfsouth              Healthcare Services      Administrators
    Southwest              Health Net Federal       Wisconsin Physicians Service
                           Services
    Central                TriWest Healthcare       Palmetto Government Benefits
                           Alliance, Inc.           Administrators
    Southern California,   Health Net Federal       Palmetto Government Benefits 

    Golden Gate, and       Services                 Administrators

    Hawaii-Pacific

    Northwest 	            Health Net Federal       Wisconsin Physicians Service
                           Services

Source: DOD



In August 2003, DOD awarded new civilian health care contracts, known
as TNEX that will reorganize the 11 regions into 3—North, South, and
West—with a single contract for each region.5 Implementation of these
new contracts is expected to begin in June 2004. See appendix II for maps
depicting the current and future TRICARE regions.

Claims processing begins with the receipt of claims—either paper or
electronic—and any supporting documentation that is submitted by
providers and beneficiaries.6 Information from paper claims must be
scanned or manually entered into the processing system used by the
claims processor. Data from electronic claims automatically enter the
system after the system verifies that each entry or field on the form
contains appropriate data. Compared to paper claims, electronically
submitted claims can be processed more efficiently because they do not


5
 DOD has awarded TNEX contracts to Health Net Federal Services for the TRICARE North
region, to Humana Military Healthcare Services for the TRICARE South region, and to
TriWest Healthcare Alliance Corp. for the TRICARE West region. Palmetto Government
Benefits Administrators will process claims for the North and South regions, and Wisconsin
Physicians Service will process claims for the West region.
6
 According to TRICARE claims processors, providers submit about 99 percent of the
claims, with beneficiaries submitting the rest.




Page 5                                              GAO-04-69 TRICARE Claims Processing
require handling in the mailroom, document preparation, imaging, data
entry, and storage of the original document. Furthermore, claims
processors told us that because each field in an electronic claim must be
completed before it is accepted into the processing system, electronic
claims generally are more complete and have fewer errors from imaging
and data entry than paper claims. As a result, they are more likely to be
processed without manual intervention.

Once claims data enter the system, they are subject to automatic edits
designed to ensure their accuracy and to determine how the claim will be
adjudicated. For instance, one edit cross-checks the Defense Enrollment
Eligibility Reporting System (DEERS) to verify beneficiaries’ eligibility.7 At
any time during this automated process, a claim can require manual
intervention by claims processing employees to correct errors, supply
missing data, or verify that the provided care was properly authorized,
medically necessary, and appropriate. After adjudication, the claim is
either paid or denied and the beneficiary and provider are notified of the
outcome. The final record of the claim is sent to DOD in the form of a
HCSR. HCSRs do not affect the amount of beneficiary or provider
reimbursement, nor do they delay claims processing timeliness. (Appendix
III contains a more detailed description of the claims processing flow. See
app. IV for a more detailed description of the HCSR.)

DOD requires its MCS contractors to meet certain standards for claims
processing timeliness. Specifically, DOD requires them to process 95
percent of retained claims within 30 calendar days of receipt, 100 percent
of retained claims within 60 days, and 100 percent of all excluded claims
within 120 days, unless DOD specifically directs a MCS contractor to




7
 DEERS is a DOD database maintained by the Defense Manpower Data Center (DMDC), a
DOD contractor. DEERS contains service-related eligibility and demographic data used to
determine eligibility for military benefits, including health care, commissary, and exchange
privileges for all service members, retirees, and their family members. As individuals enter
the military, the services add information to DEERS. The services are responsible for
updating information as service members’ military status changes. Individual service
personnel are responsible for enrolling their dependents in DEERS at local military
installations and for notifying DEERS when an eligible dependent’s status changes.




Page 6                                             GAO-04-69 TRICARE Claims Processing
continue holding for processing a claim or group of claims.8 DOD verifies
whether MCS contractors are meeting timeliness standards by monitoring
its database of HCSRs.

DOD, like other entities that offer health plans and are providers of health
services, is required by the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) to use uniform standards for data
code sets and electronic transactions, including claims filing.9 HIPAA was
enacted to combat waste, fraud, and abuse; to improve the portability of
health insurance coverage; and to simplify the administration of health
care.10 Uniform standards for electronic filing will allow providers to use
the same software to submit claims to all insurance plans, including
TRICARE. However, providers retain the option of submitting claims on
paper if they so choose.11 The compliance date for this requirement is
October 15, 2003.12




8
 Before processing, DOD classifies submitted claims as either retained, excluded, or
returned. Retained claims are those held in the MCS contractor’s possession, which contain
sufficient information to allow processing to completion, and all claims for which missing
information may be developed from in-house sources. Excluded claims are claims held at
the discretion of the contractor for external development of information necessary to
process the claim to completion, claims requiring development for possible third-party
liability, or claims requiring intervention by another MCS contractor or DOD. Returned
claims are claims with missing, incomplete, or discrepant information that cannot be
resolved using all in-house methods; are not held by the contractor as excluded claims; and
are subsequently returned to the sender.
9
 Pub. L. No. 104-191, sec. 262, § 1175(a), 110 Stat. 1936, 2027 (codified at 42 U.S.C. § 1320d-
2(a) (2000)).
10
     H.R. Rep. No. 104-496, pt. 1, at 174 (1996).
11
     65 Fed. Reg. 50,312, 50,314 (Aug. 17, 2000).
12
 Administrative Simplification Compliance Act, Pub. L. No. 107-105, § 2 (a)(1), 115 Stat.
1004 (2001).




Page 7                                               GAO-04-69 TRICARE Claims Processing
                         DOD and its MCS contractors have made a number of changes to
DOD, MCS                 TRICARE claims processing since the beginning of 1999 that are designed
Contractors, and         to improve its efficiency. They have jointly identified certain procedural
                         and adjudication requirements as nonessential to claims processing. These
Claims Processors        requirements have been eliminated or changed in an effort to reduce the
Have Made Changes        need for manual intervention during processing and to encourage the
                         electronic submission of claims. Furthermore, MCS contractors have
to Improve Claims        worked with their claims processors to implement best industry practices
Processing Efficiency,   designed to improve claims processing efficiency. These practices include
and Timeliness Has       the use of new technologies for data input, claims routing, customer
                         service, and claims submission. Finally, MCS contractors, working with
Improved                 their claims processors, have improved the timeliness with which they
                         adjudicate and pay claims.


DOD and the MCS          In July 1999, DOD and the MCS contractors instituted a joint initiative to
Contractors Have Made    improve claims processing efficiency that eliminated an existing
Changes Designed to      requirement that claims processors hold claims submitted with incomplete
                         information and obtain, if possible, the information needed to process the
Improve Claims           claim. Before July 1999, claims processors had been required to retain all
Processing Efficiency    claims with missing information, request this information from providers
                         and beneficiaries if the information was not available from in-house
                         sources—such as the DEERS database—and ultimately deny the claim if
                         the information was not received within 35 days. The claims processors
                         reported that managing these claims and matching them with additional
                         information when it was received increased their workload. Also,
                         according to claims processors, the information was frequently received
                         after the 35-day period elapsed. The claims processors would then have
                         already denied the claim, and it would have to be resubmitted. With the
                         elimination of the requirement, MCS contractors return claims with
                         missing information, as long as the necessary information cannot be
                         supplied from in-house sources. For example, a claim missing a required
                         signature would be returned to the submitter. In contrast, a claim missing
                         a beneficiary’s date of birth would not be returned because this
                         information could be found in the DEERS database.

                         DOD and the MCS contractors also jointly identified certain requirements
                         that they determined were unlikely to alter payment or care decisions and
                         that, if eliminated, would make claims processing more efficient. One joint
                         DOD and MCS contractor initiative decreased the number of




                         Page 8                                   GAO-04-69 TRICARE Claims Processing
DOD-required preauthorizations and gave the MCS contractors more
latitude to determine when preauthorizations are necessary.13 DOD
eliminated preauthorization requirements for 21 procedures, including
cataract removal, hernia repair, caesarian section, and tonsillectomy.
Although preauthorizations are used to ensure the medical necessity of
and appropriate access to health care before the care is provided, they
also can delay claims processing because they often require manual
intervention by claims processing staff to ensure the care was properly
ordered. By giving MCS contractors the authority to eliminate
preauthorization requirements that were not essential to accurate claims
adjudication, certain categories of claims could be processed and
reimbursed with less manual intervention.

Further, a joint initiative intended to create an incentive for providers to
submit claims electronically resulted in DOD giving MCS contractors the
authority to decide whether to adjudicate electronically submitted claims
at a faster rate than those submitted on paper.14 Electronically submitted
claims can be processed more efficiently than paper claims. However,
prior to this initiative, MCS contractors paid claims as they were received
and adjudicated with no distinction between paper or electronic
submission. In January 2000, DOD gave MCS contractors the authority to
decide to pay electronically submitted claims as soon as they were
processed and to delay payment of paper-submitted claims, as long as the
contractors met the basic overall standards for claims processing
timeliness. In fiscal year 2003, two MCS contractors responsible for 5 of
the 11 TRICARE regions decided to delay payment on some types of
provider-submitted paper claims.15 However, MCS contractors told us it
was too soon to determine whether this change has resulted in providers
submitting more claims electronically.




13
   Preauthorizations are a standard of managed health care that require a physician or other
medical provider to certify, before a procedure is performed, that the procedure being
considered is medically necessary and the proposed location for delivery of care is
appropriate. If required preauthorizations for care are not obtained, the associated
services rendered may not be reimbursed or reimbursements may be reduced when claims
are processed.
14
 The Centers for Medicare & Medicaid Services (CMS) has encouraged providers to submit
claims electronically by requiring its claims processing contractors to delay payment of
Medicare claims submitted on paper.
15
 The remaining two MCS contractors told us they decided to reimburse paper claims and
electronic claims in the order in which they were processed.




Page 9                                             GAO-04-69 TRICARE Claims Processing
     DOD also adopted another initiative intended to increase the number of
     electronically submitted claims. As of July 1, 2003, it changed the
     requirements for provider identification on claims forms, making it easier
     for providers to submit their claims electronically.16 The change allows
     providers to submit claims using their Medicare identification number or
     another alternate provider identifier. Before this change, the provider
     identification number required for TRICARE claims was not compatible
     with the software used by many providers to submit claims. As a result,
     many providers had to modify their claim systems and retrain staff if they
     wanted to submit TRICARE claims electronically. Because TRICARE is
     generally a small portion of their business, providers had little incentive to
     make these changes.17

     In addition to their collaborative efforts with DOD, claims processors,
     since the beginning of 1999, have implemented best industry practices,
     including new technologies designed to increase the efficiency of claims
     processing. These technologies include

•	  using optical character recognition (OCR) technology, which enables the
    efficient, cost-effective, and high-quality capturing of claims data without
    any manual data entry;
• 	 providing claims processing staff with the capability to immediately
    resolve and adjust claim errors when responding to provider and
    beneficiary inquiries, instead of requiring them to hold corrections for
    resolution at a later date; and
• 	 employing electronic routing systems to send simpler claims to less
    experienced processors and more complex ones to those who have been
    trained to adjudicate them.18




     16
      HIPAA required that the Secretary of Health and Human Services adopt standard unique
     provider identifier numbers. Pub. L. No. 104-191, sec. 262, § 1173(b)(1), 110 Stat. 1936, 2025.
     The regulations to implement this provision were not expected until October 2003 at the
     earliest, according to CMS officials responsible for these regulations. Providers will be
     required to comply with the regulation beginning 2 years after its effective date, which will
     be included in the regulation when it is published.
     17
      For example, one claims processor estimated that TRICARE is frequently about 3 percent
     of a provider’s business.
     18
      For example, if a multifaceted surgery claim needed clinical review, the electronic routing
     system would send the claim segments needing review to a nurse with appropriate surgery
     expertise instead of the claim being initially reviewed by an individual without the required
     expertise.




     Page 10                                             GAO-04-69 TRICARE Claims Processing
                           Claims processors have also adopted best industry practices by providing
                           customer service via the Internet and by providing the capability for
                           Internet claim submission. To do this, both claims processors have created
                           Web sites that providers and beneficiaries can use to inquire about the
                           status of submitted claims and to obtain patient and benefit information.
                           In addition, one claims processor gives physicians the option of submitting
                           claims via the Internet. In general, claims submitted via the Internet can be
                           immediately processed without human intervention. According to this
                           claims processor, the current number of Internet claim submissions is
                           small19 but is likely to grow because of the ease of submission and the
                           speed at which these claims are processed. MCS contractors told us that
                           they have plans for additional Web-based enhancements that will further
                           simplify TRICARE claims processing and provide additional services for
                           both providers and beneficiaries, such as allowing institutions to submit
                           claims via the Internet and providing additional self-help features.


MCS Contractors’ Claims    In fiscal year 2002, MCS contractors’ claims processors processed over 97
Processors Have Improved   percent of claims in 30 days or less—exceeding DOD’s standard that 95
Claims Processing          percent of retained claims be processed within 30 calendar days.20 This is
                           an improvement over fiscal year 1999, when they processed 91 percent of
Timeliness                 all claims within 30 days.21 (See table 2.) During this time period, the
                           number of claims processed increased 43 percent, from 29.2 million in
                           fiscal year 1999 to 41.7 million in fiscal year 2002.22




                           19
                                In June 2003, 2 percent of this processor’s claims were submitted via the Internet.
                           20
                            We also found that in fiscal year 2002, 82 percent of all claims were processed in 15 days
                           or less, while in fiscal year 1999, 76 percent were processed in 15 days or less.
                           21
                             A portion of this improvement may be due to the DOD and MCS contractor initiative that
                           started late in fiscal year 1999 and permitted MCS contractors to return claims submitted
                           with insufficient or missing information. About 2 percent of claims were returned in fiscal
                           year 2002. However, according to claims processors, many of these claims would have
                           been returned even before this initiative.
                           22
                                In addition, claims processors processed 41.7 million TFL claims in fiscal year 2002.




                           Page 11                                                GAO-04-69 TRICARE Claims Processing
Table 2: Percentage of TRICARE Claims Processed in 30 Days or Less in Fiscal
Years 1999 and 2002

                                                  1999                              2002
                                                     Number                                 Number
                                      Percent (in thousands)            Percent      (in thousands)
    All claimsa                           91.4             28,413            97.2             38,965
    Method of claim submission
    Electronic                            97.7             11,968            99.0             19,533
    Paper                                 86.8             16,445            95.4             19,432
    Type of providerb
    Professional                          88.5             18,770            96.0             24,923
    Pharmacy                              97.9               9,327           99.6             13,660
    Institutional                         69.7                 316           86.5                 382
    Dollar amount paid by DOD
    Less than $100                        92.5             24,832            97.5             32,469
    $100 to $999                           84.9              3,205           96.2               5,991
    $1,000 or more                        72.3                 376           89.1                 505

Source: DOD.

Note: GAO analysis of DOD claims data.
a
 These calculations include only claims for health care provided inside the United States. They do not
include Senior Pharmacy claims and Medicare claims. In addition, they do not include claims if the
final record of a claim was modified due to reprocessing.
b
 Professional claims represent care rendered by physicians and other health care providers, such as
physical therapists. Pharmacy claims are claims for prescription drugs. Most institutional claims
represent care provided by hospitals.


Even though MCS contractors’ processing timeliness increased in all
categories of claims from fiscal year 1999 to fiscal year 2002, timeliness in
each category varied. For instance, pharmacy claims, which in fiscal year
2002 constituted about 35 percent of all claims, were almost always
processed within 30 days because they were submitted electronically in
nearly all cases. On the other hand, in fiscal year 2002, 86.5 percent of
institutional claims and 89.1 percent of claims with government liability of
$1,000 or more were processed within 30 days or less. Institutional and
high-dollar claims are usually more complicated and often require medical
review, adding to processing time. However, MCS contractors still met
DOD’s standard for overall processing timeliness because institutional
claims comprised only about 1 percent of overall claims, and claims with
liability over $1,000 comprised only 1.3 percent of contractors’ claims.




Page 12                                                  GAO-04-69 TRICARE Claims Processing
                         Therefore, these claims had little effect on MCS contractors’ ability to
                         meet DOD’s standard.


                         Although DOD and MSC contractors have made changes to make claims
DOD’s Procedures         processing more efficient, some of DOD’s procedures, as well as
and Inaccurate Data      inaccuracies in its data, continue to create inefficiencies in TRICARE
                         claims processing. In some cases, DOD’s procedures lead to rework for
Continue to Create       claims processors, either in the form of reprocessing claims or
Some Inefficiencies in   reprogramming processing software. Other DOD procedures, such as the
                         method for calculating TRICARE’s liability when beneficiaries have other
Claims Processing        health insurance, lead to claim outcomes that are not understood by
                         providers and beneficiaries. This confusion may increase claims
                         processors’ workload when there is additional demand for them to provide
                         customer service. Finally, inaccuracies in DOD eligibility data contribute
                         to claims processing delays and rework, which create inefficiencies in
                         TRICARE claims processing.


DOD’s Procedures for     DOD’s procedures for making program changes to TRICARE create
Making Program Changes   inefficiencies in claims processing. Program changes include the
to TRICARE Lead to       introduction of new exclusions or inclusions in coverage, the creation of
                         new benefit packages for special populations, revisions to billing
Rework and Increased     procedures, changes in reporting requirements, or other administrative
Demand for Customer      changes. DOD does not adhere to a set schedule for making health benefit
Service                  or other program changes. In 2002, DOD made 123 program changes on 19
                         different dates throughout the year.23 For example, in May 2002, DOD
                         made 41 changes on 4 different days. DOD officials told us they had
                         limited control over scheduling some program changes because
                         approximately one-third of changes result from new laws or regulations.

                         Implementing program changes often involves reprogramming and testing
                         processing software, and not adhering to a schedule for issuing changes
                         can create extra work for claims processors. When unscheduled changes
                         give claims processors little or no time to anticipate, implement, and test
                         the changes, claims processors said they are more likely to make errors in
                         their programming. These programming errors must be corrected and
                         create additional work when incorrectly processed claims must be
                         reprocessed.


                         23
                              In 1999, DOD made 310 program changes, in 2000 it made 194, and in 2001 it made 172.




                         Page 13                                             GAO-04-69 TRICARE Claims Processing
In addition, when DOD has issued similar or related changes on separate
occasions, claims processors have needed to reprogram their software on
multiple occasions for a single benefit area. While DOD has made some
attempts to issue changes at the same time, three of the four MCS
contractors said these attempts to consolidate changes have, in some
cases, delayed the implementation of some changes. They said that such
delays result either in beneficiaries not receiving the benefits of a change
as soon as possible or in claims processing rework if adjudicated claims
are retroactively affected and must be reprocessed.

Unscheduled changes also make it difficult for providers and beneficiaries
to account for or learn about recent changes. When these changes result in
claims outcomes that providers and beneficiaries do not understand,
claims processors experience demands for customer service to explain the
outcomes, even if the claims in question have been properly adjudicated.
For example, according to a claims processor, providers often require
customer service when program changes have added to or deleted codes
that they use to bill for procedures. When this happens, providers become
confused when the amounts on recently adjudicated claims differ from the
amounts they previously were reimbursed for identical services.

MCS contractors are required to educate providers and beneficiaries about
policies and procedures that have an impact on claims processing—such
as new benefits or changes in billing requirements.24 However, because
TRICARE is often a relatively small portion of most providers’ business,
providers have little incentive to participate in educational seminars or to
read the many bulletins and updates to stay current on the frequent
program changes. Therefore, MCS contractors told us that they also
maintain relationships with provider associations and provide one-on-one
education through phone conversations or on-site visits to individual
providers. Most educational efforts are directed at providers because
beneficiaries submit few claims. However, MCS contractors publish
periodic newsletters for beneficiaries and provide beneficiary briefings.




24
 MCS contractors disseminate information on program changes through Web sites,
monthly or quarterly newsletters, and periodic bulletins.




Page 14                                        GAO-04-69 TRICARE Claims Processing
DOD’s Procedures for the   According to DOD officials, MCS contractors, and claims processors,
Coordination of the        DOD’s procedures for calculating TRICARE liability when beneficiaries
TRICARE Benefit with       have other health insurance is the claims processing area that causes the
                           most confusion for providers and beneficiaries.25 Officials told us that
Other Insurers May         providers and beneficiaries frequently misunderstand the outcomes of
Increase Demand for        claims involving other health insurance. Officials told us that TRICARE
Customer Service           providers and beneficiaries are often confused because in many cases
                           TRICARE does not provide any payment when a beneficiary has other
                           health insurance.26 In these cases, there is no TRICARE cost share because
                           the other health insurance reimbursement is equal to or greater than the
                           reimbursement that TRICARE allows. When providers and beneficiaries
                           question such decisions, claims processors must explain TRICARE’s
                           benefit calculation. This increases the demand for customer service, which
                           creates inefficiencies in TRICARE claims processing. One MCS contractor
                           told us that about 10 percent of its priority inquiries during September and
                           October 2002 were related to questions about other health insurance.27

                           Although DOD officials, MCS contractors, and claims processors all told
                           us that the procedures for calculating TRICARE liability when
                           beneficiaries have other health insurance result in inefficiencies in claims
                           processing, the extent of this problem has not been determined. MCS
                           contractors and claims processors could provide very little data
                           demonstrating the impact of these procedures on the efficiency of claims
                           processing. Furthermore, DOD officials told us that when the new
                           contracts for civilian-provided care are implemented, the procedures for
                           calculating TRICARE liability when beneficiaries have other health
                           insurance will be simplified.




                           25
                              One claims processor told us that 25 percent of the TRICARE claims it processed
                           involved other health insurance. The other processor could not provide these data for
                           TRICARE claims.
                           26
                                10 U.S.C. § 1079(j)(1) (2000).
                           27
                            Priority inquiries are those received from members of Congress, the Office of the
                           Assistant Secretary of Defense (Health Affairs), TMA officials, Surgeons General, flag
                           officers, state officials, and others.




                           Page 15                                            GAO-04-69 TRICARE Claims Processing
DOD’s Procedure for          DOD’s procedure for determining which contractor is responsible for
Determining Responsibility   beneficiaries’ claims creates inefficiencies in TRICARE claims processing.
for Processing               Confusion over this responsibility can lead to MCS contractors receiving—
                             and in some cases beginning to process—claims over which they have no
Beneficiaries’ Claims        jurisdiction. These improperly submitted claims must eventually be
Contributes to Rework        reprocessed by another MCS contractor. Under TRICARE rules, an MCS
                             contractor is responsible for processing all the claims of beneficiaries who
                             live or are enrolled in its region regardless of the region of the country
                             where care was received. As a result, when beneficiaries receive care in
                             regions where they do not live, some providers incorrectly submit claims
                             to the MCS contractor responsible for the region.28 When providers submit
                             claims to the incorrect MCS contractor, the claims processor must then
                             notify the provider and forward these claims to the MCS contractor with
                             proper jurisdiction. According to claims processors, out-of-jurisdiction
                             submission is the main reason for returned claims.29 In fiscal year 2002,
                             officials from one claims processor told us they returned nearly 1 million
                             of the claims they received, and officials from the other claims processor
                             said they returned over 400,000 received claims.30 Under the terms of
                             TNEX, jurisdictional problems are likely to be reduced when the 11
                             current regions will be replaced by 3 larger ones.


Inaccuracy of DOD Data       Inaccuracies in DOD’s DEERS data create delays in the processing of
Used to Verify Eligibility   claims. Processors are required to use the DEERS database to verify the
Creates Processing Delays    eligibility of TRICARE beneficiaries, but when these data are inaccurate,
                             the related claims cannot always be processed or they may be processed
and Rework                   incorrectly. There are two main reasons why DEERS eligibility data are
                             incorrect. First, TRICARE beneficiaries, who are responsible for keeping
                             their personnel data current, do not always report changes—such as
                             marriage, divorce, or the birth of a child—that may affect their
                             dependents’ eligibility status. Second, when the military status of
                             TRICARE beneficiaries changes, the services may not report these
                             changes to update the database on time—even though these changes in
                             status can affect TRICARE eligibility. As a result, DEERS may not always
                             indicate whether beneficiaries have moved from inactive reserve to active


                             28
                              In contrast, the jurisdiction for processing Medicare fee-for-service physician claims is
                             determined by the location where the service is provided.
                             29
                               Claims processors told us their statistics on returned claims include those claims
                             forwarded to another MCS contractor as well as those returned to the submitter.
                             30
                                  The 400,000 claims include TFL claims submitted to the wrong contractor.




                             Page 16                                             GAO-04-69 TRICARE Claims Processing
status or if they have changed the TRICARE option through which they are
receiving their health care. Moreover, when beneficiaries retire or change
their branch of service, these changes may not be correctly reflected in
DEERS on time.

According to DOD officials, MCS contractors are currently only allowed to
access and change information related to TRICARE enrollments that are
less than 289 days old.31 All other changes needed to update the database
are handled by DMDC, the contractor who maintains DEERS for DOD.
Without timely and accurate eligibility data, MCS contractors must delay
processing some claims whose outcomes are contingent on changes to
DEERS until DMDC makes the necessary corrections. According to a DOD
contractor, as of June 2003, about 1,000 military sponsors and their
dependents had claims that could not be immediately processed because
of problems stemming from DEERS.

In other cases, claims are processed with inaccurate data from DEERS,
leading to claim outcomes that are incorrect. For example, when reservists
are mobilized to active duty, their DEERS file must reflect this or their
dependents will appear to be ineligible for services and denied care.
Further, if DEERS does not indicate the correct enrollment status for a
dependent, his or her claim might be denied or if it is paid, may result in
copayment charges that might not have been required. Claims with
incorrect outcomes decrease claims processing efficiency because they
must be reprocessed when errors are identified and often require
additional customer service. According to MCS contractors and claims
processors, inaccuracies in DOD’s DEERS are responsible for increased
demands for customer service and claims processing rework. However,
MCS contractors told us they have no specific data that demonstrate
increased demands for customer service or record how much rework is
related to problems in DEERS.

With the implementation of TNEX contracts, DOD will be upgrading the
existing DEERS system to New DEERS. According to a DOD official, New
DEERS will be easier to program than the existing DEERS and will help
ensure that some beneficiary changes—such as address and jurisdictional
changes—are immediately reflected in the system. However, problems



31
 According to DOD officials, this period was temporarily extended to 289 days when a July
2001 change in the system created many enrollment errors. However, DOD specifications
only allow contractors to change enrollment data that are less than 60 days old.




Page 17                                          GAO-04-69 TRICARE Claims Processing
                     related to beneficiaries’ failure to notify the system of changes may
                     continue. In addition, with the implementation of TNEX, MCS contractors
                     will not be allowed to access and change enrollment information that is
                     more than 60—rather than 289—days old.


                     Since fiscal year 1999, the timeliness of TRICARE claims processing has
Conclusions          improved, and it currently exceeds DOD’s timeliness standards. During
                     this time, DOD and its MCS contractors have also made a number of
                     changes, both procedural and technological, to TRICARE claims
                     processing that are intended to improve its efficiency. However, some
                     DOD procedures result in inefficiencies in TRICARE claims processing.
                     Specifically, DOD’s procedures for introducing program changes continue
                     to create additional work and increased levels of provider and beneficiary
                     inquiries, even though DOD has taken some steps to improve the process
                     for scheduling program changes. DOD clearly faces a number of
                     considerations when determining how to schedule program changes and
                     cannot always control when legislative changes must be implemented.
                     However, because MSC contractors have raised significant concerns about
                     the scheduling process, it appears that further consolidation of program
                     changes and improvements in scheduling may be warranted.

                     Other inefficiencies may result from procedures for calculating the
                     TRICARE liability when beneficiaries have other health insurance, from
                     confusion over DOD’s procedure for determining which contractor is
                     responsible for beneficiaries’ claims, and from inaccuracies in DOD data
                     used to verify TRICARE eligibility. Inefficiencies resulting from these
                     procedures and inaccurate data may be reduced once the new contracts
                     for civilian-provided health care are implemented. However, at this time it
                     is not possible to determine the extent to which these inefficiencies may
                     be affected by the implementation of the new contracts.


                     To improve the efficiency of TRICARE claims processing, we recommend
Recommendation for   that the Secretary of Defense direct the Assistant Secretary of Defense for
Executive Action     Health Affairs to evaluate DOD’s process for issuing program changes and
                     to identify ways to improve the consolidation and scheduling of such
                     changes.




                     Page 18                                  GAO-04-69 TRICARE Claims Processing
                  DOD provided written comments on a draft of this report. (See app. V.)
Agency Comments   DOD concurred with the report’s findings and recommendation.

                  In its written comments, DOD noted that one of the constraints in
                  consolidating changes to TRICARE contracts is the variation in effective
                  revisions and other program enhancements, sometimes arising from
                  statutory effective dates for new provisions. However, DOD said it would
                  work to improve consolidations and scheduling of changes as it transitions
                  to the new TRICARE contracts over the next 18 months.


                  We are sending copies of this report to the Secretary of Defense,
                  appropriate congressional committees, and other interested parties.
                  Copies will also be made available to others upon request. In addition, the
                  report is available at no charge on the GAO Web site at
                  http://www.gao.gov. If you or your staff have questions about this report,
                  please contact me at (202) 512-7101. Other contacts and staff
                  acknowledgments are listed in appendix VI.




                  Marjorie E. Kanof
                  Director, Health Care—Clinical
                   and Military Health Care Issues




                  Page 19                                  GAO-04-69 TRICARE Claims Processing
Appendix I: Scope and Methodology 



              To identify improvements in claims processing timeliness, we compared
              the timeliness with which the Department of Defense (DOD) processed its
              claims between fiscal years 1999 and 2002. To do this we asked DOD to
              prepare two spreadsheets using the database of health care service
              records (HCSR). The first spreadsheet provided information on claims
              processing time and included only initial1 claim submissions that had been
              processed to completion for each year, stratified by type of claim
              (professional, pharmacy, and institutional), processing time (less than or
              equal to 15 days, 16-30 days, 31-60 days, 61-120 days, and greater than 120
              days), submission method (electronic or paper), and the dollar amount
              paid by DOD (less than or equal to $0, greater than $0 and less than $100,
              $100 to $999, $1,000 to $4,999, $5,000 to $9,999, $10,000 to $99,999, and
              $100,000 and more). The second spreadsheet included all claims processed
              to completion for each year, stratified by type of claim (professional,
              pharmacy, and institutional), submission method (electronic or paper), the
              dollar amount paid by DOD (less than or equal to $0 and greater than $0),
              the presence or absence of other health insurance, and denied claims.
              Both of these spreadsheets excluded claims for health care provided
              outside the United States as well as Senior Pharmacy claims, TRICARE for
              Life (TFL) claims, and Medicare claims from Base Realignment and
              Closure sites. These types of claims were excluded because they follow
              different program rules and use different claims processing procedures.
              We evaluated the reliability of the HCSR database by obtaining
              information about DOD’s efforts to ensure its reliability and by assessing
              the consistency of the resulting data by comparing it with internal DOD
              reports that were produced using another database. Through this
              evaluation we determined that the data were sufficiently reliable to
              provide information on the timeliness of claims processing. However, we
              did not independently review the computer programs DOD used to
              prepare these spreadsheets.

              To identify DOD efforts to improve TRICARE claims processing, we
              interviewed and obtained documentation from officials at (1) the
              TRICARE Management Activity (TMA) in Aurora, Colo., (2) the four
              managed care support (MSC) contractors—Sierra Military Health Services,
              Inc. in Baltimore, Md.; Humana Military Healthcare Services in Louisville,


              1
               Claims that were subsequently adjusted after their addition to the HCSR database were
              excluded from this spreadsheet because the processing time, which included adjustments,
              was not wholly under the control of the claims processor. If these claims were included,
              the processing time would have been artificially lengthened since submitters could take
              weeks before providing the information that made the adjustment necessary.




              Page 20                                          GAO-04-69 TRICARE Claims Processing
Appendix I: Scope and Methodology




Ky.; TriWest Healthcare Alliance in Phoenix, Ariz.; and Health Net Federal
Services in Rancho Cordova, Calif., and (3) the two claims processing
subcontractors, Palmetto Government Benefits Administrators (PGBA) in
Surfside Beach, S.C., and Wisconsin Physician Services (WPS) in Madison,
Wis.

To describe how DOD procedures and data affect claims processing
efficiency, we interviewed and obtained documentation from officials at
TMA, the four MSC contractors, and claims processing subcontractors. We
reviewed TRICARE’s process for creating a final record of a processed
claim, looking for inefficiencies in the process of creating HCSRs and
comparing the process with one that will be used to create data records
for TNEX. We obtained beneficiaries’ views on claims efficiencies by
interviewing and obtaining documentation from officials from the Military
Coalition, an organization representing the members of the uniformed
services. We also reviewed our prior work on TRICARE and Medicare
claims processing. In addition, we obtained data from DOD’s Change
Order Tracking System to identify the number of program changes DOD
made in 1999, 2000, 2001, and 2002. We evaluated the reliability of the 1999
and 2000 database by comparing it with lists of change orders obtained
from the MCS contractors, who were charged with implementing those
change orders. This comparison indicated that the data were sufficiently
reliable for us to use and, therefore, we did not do a similar comparison
for data from 2001 and 2002.

To identify areas where DOD procedures and data might have affected
claims processing efficiency, we identified the major differences between
processing TRICARE claims and processing commercial or Medicare
claims. We confirmed this information in meetings with officials from the
Centers for Medicare & Medicaid Services (CMS) and with two of its
claims processing subcontractors—PGBA and WPS—who also process
commercial healthcare claims. We also obtained comparison information
on claims processing from officials from the American Medical
Association and the Health Insurance Association of America.

Finally, we obtained information from DOD on its next generation of
TRICARE contracts, TNEX, to identify how claims processing may change
in the future. We also interviewed and obtained documentation from DOD
and CMS experts on the Health Insurance Portability and Accountability
Act of 1996 (HIPAA) to determine how it may affect claims processing
efficiency.




Page 21                                   GAO-04-69 TRICARE Claims Processing
Appendix I: Scope and Methodology




Our review did not include claims processed under DOD’s TFL program
because TFL is a supplemental insurance program that pays second to
Medicare and follows some different claims processing procedures. We
performed our work from June 2002 through October 2003 in accordance
with generally accepted government accounting standards.




Page 22                               GAO-04-69 TRICARE Claims Processing
Appendix II: Comparison of Current and
Future TRICARE Regions

                                    The shaded areas in figure 1 represent the 11 current TRICARE geographic
                                    regions. The shaded areas in figure 2 represent the 3 planned TRICARE
                                    geographic regions under the TNEX contracts that were awarded in
                                    August 2003.

Figure 1: Current TRICARE Regions




                                    Page 23                                GAO-04-69 TRICARE Claims Processing
                                      Appendix II: Comparison of Current and
                                      Future TRICARE Regions




Figure 2: Future TRICARE Regions After TNEX Implementation




                                      Page 24                                  GAO-04-69 TRICARE Claims Processing
Appendix III: TRICARE Claims Flow 



                 TRICARE claims processing begins when claims processors receive claims
                 in one of three ways—on paper, electronically, or via the Internet.1 Paper
                 claims are sent to a unique post office box for each TRICARE contract.
                 Optical character recognition (OCR) technology is used to enter paper
                 claims directly into the processing system whenever possible. If this is not
                 possible, claims are manually entered into the system through interactive
                 data entry. The claims processing system preedits electronic media claims
                 (EMC) and Internet-submitted claims before accepting them into the
                 system to ensure that the required fields contain appropriate data. For
                 instance, system edits ensure that the fields identifying who is submitting
                 the claim are complete.

                 Once claims enter the processing system, paper and electronic claims are
                 processed similarly. The processing system either automatically finalizes
                 claims2 or identifies that they require manual intervention, deferring
                 finalization. Some manual intervention results from incorrect or missing
                 claims data, in which case claims processors obtain the needed
                 information from MCS contractor-maintained files or request additional
                 information from providers or beneficiaries before claims processing is
                 resumed. Other manual reviews, resulting from claim edits that stop the
                 process, ensure care was medically necessary and properly authorized.

                 As claims flow through the processing system, computer edits are applied
                 to each claim to ensure the precision and reliability of claim data and to
                 determine how the claim will be adjudicated. Among these edits are

            •	  validity and consistency edits that confirm the data are accurate and
                uniform;3
            • 	 provider edits that ensure only credentialed providers are reimbursed for
                care and that identify the specific location services were rendered, in
                order to apply the correct payment, including any discounts agreed to by
                contracted providers;



                 1
                  Providers generally use forms that they use to submit Medicare claims—HCFA-1500 and
                 UB-92. Beneficiaries submit claims on DD 2642 forms. To obtain reimbursement for civilian
                 care outside the United States, providers and beneficiaries use DD form 2520.
                 2
                  When a claim is finalized, the adjudication process is complete—a decision has been made
                 about whether DOD has a liability on the claim and the amount that will be paid.
                 3
                  Validity edits check for the presence of an expected value in the data field, such as a
                 number in an age field. Consistency edits check for the accuracy of an expected data value
                 relative to another, known data value, such as relating ‘female’ to ‘hysterectomy’.




                 Page 25                                           GAO-04-69 TRICARE Claims Processing
     Appendix III: TRICARE Claims Flow




•	   Defense Enrollment Eligibility Reporting System (DEERS) edits that verify
     beneficiaries’ eligibility for TRICARE and whether they are enrolled in
     Prime;
•	   historical edits that confirm services rendered to a beneficiary are in
     accordance with past utilization of care—such as examining any dramatic
     changes in a beneficiary’s use of health care services;
•	   edits that determine the benefits that TRICARE will pay and that validate
     physician preauthorizations and referrals when they are required;
•	   ClaimCheck edits that help prevent overpayment by analyzing
     relationships between medical procedure codes;
•	   duplicate logic reviews that ensure claims are not paid twice by inspecting
     dates of service, provider numbers, types of service, and procedure codes;
     edits that access pricing files to determine the amount TRICARE can pay
     for provided services;4 and
•	   edits that access the central deductible catastrophic cap file (CDCF) to
     determine the payment after deductibles are applied.5

     Once claims are finalized, the system mails payments and explanations of
     benefits to providers and beneficiaries and updates provider file
     information and beneficiaries’ claim histories.

     After claims processing is complete, claims processors send Health Care
     Service Records (HCSR) electronically to the Department of Defense
     (DOD), where HCSRs are subjected to an additional set of validity and
     consistency edits. DOD maintains and archives HCSRs, which are the final
     documentation of each claim’s adjudication. DOD uses HCSRs for
     monitoring contractor performance, financial oversight, audit
     accountability, and fraud and abuse detection. See appendix IV for
     additional information on HCSRs. See figure 3 for an overview of EMC,
     Internet-submitted, and paper claim processing flow.




     4
       The claims system accesses diagnosis-related group (DRG) and TRICARE maximum
     allowable charge (TMAC) files to determine the maximum amount that DOD can pay for
     the specific services that have been provided.
     5
      The CDCF also maintains information on the amount to be applied to beneficiaries’
     catastrophic cap coverage for each fiscal year.




     Page 26                                          GAO-04-69 TRICARE Claims Processing
                                                     Appendix III: TRICARE Claims Flow




Figure 3: TRICARE Claims Flow


     Paper claims                                                                              Defera



                                                                   DEERS                                                Auth/Ref
      Mail room




                                 No                              Validity and                  Historical               Benefit
                                       Interactive                                                                                       Pricing
      Imaged             OCR                                 consistency provider                edits               determination
                                       data entry
                                                                     edits
                           Yes


        EMC claims                Pre-edits                                                                           ClaimCheck      DRG/TMAC
                                                                                                                          edits

       Internet claims            Pre-edits
                                                                                                                   History              CDCF




                                                                                       Beneficiary/                                    Payment
                                                                                                                 Finalization        determination
                                                                                        provider



                                                                                         DOD’s
                                                                   DOD’s               validity and                HCSR
                                                                  data base            consistency
                                                                                           edits
Source: GAO.

                                                     Note: The following is a list of the abbreviations used in this figure. 


                                                     Auth/Ref:             preauthorizations and referrals 

                                                     CDCF                  central deductible catastrophic cap file 

                                                     DEERS                 Defense Enrollment Eligibility Reporting System 

                                                     DOD                   Department of Defense 

                                                     DRG                   diagnosis-related group       

                                                     EMC                   electronic media claims       

                                                     HCSR                  health care service record 

                                                     OCR                   optical character recognition     

                                                     TMAC                  TRICARE maximum allowable charges 

                                                     a
                                                      At any point between Interactive Data Entry and Pricing, processing can be deferred and the claim 

                                                     can loop back to obtain additional information, usually requiring manual intervention. 





                                                     Page 27                                                     GAO-04-69 TRICARE Claims Processing
Appendix IV: Health Care Service Records 



              The Department of Defense (DOD) requires claims processors to create an
              electronic record of each claim called a Health Care Service Record
              (HCSR). DOD uses HCSRs to ensure compliance with TRICARE
              requirements and provide standardized information on medical services
              provided to TRICARE beneficiaries. Claims processors create HCSRs
              either during claims processing or after claim adjudication, depending on
              the system they have developed. Claims processors then submit the
              HCSRs to DOD. Before HCSRs are accepted into DOD’s database, they are
              subject to many edits designed to ensure that the data are correct and in a
              standard format. HCSRs do not affect the amount of beneficiary or
              provider reimbursement, nor does creating them delay claims processing.

              When a HCSR fails an edit, claims processors must resolve the problem
              before the data can be added to the HCSR database.1 Most HCSRs are
              correctly rejected because they do not conform to DOD’s specifications,
              such as when a required data element is not present. However, according
              to claims processors and DOD officials, in a very small percentage of cases
              HCSRs are rejected because inaccuracies in DOD’s editing programs
              incorrectly reject them. For example, HCSRs were erroneously rejected
              when DOD changed the codes used by claims processors to identify
              services and procedures but did not modify its own edits to reflect these
              changes. This error was subsequently corrected when claims processors
              identified the problem.

              HCSRs are useful to DOD. By requiring that claims processors produce
              data in a format amenable to its edits, DOD attempts to ensure that MCS
              contractors are following TRICARE requirements. In addition, DOD uses
              the HCSR database for other purposes, including financial oversight and
              fraud and abuse detection. HCSR data are also used in fraud investigations
              conducted by other departments and agencies, including the Department
              of Justice, Federal Bureau of Investigation, and Defense Criminal
              Investigative Service.

              Under the terms of the TNEX contracts, DOD will require claims
              processors to submit TRICARE encounter data (TED) records instead of




              1
               About 4 percent of submitted HCSRs—including TRICARE for Life and Basic TRICARE
              claims—initially fail HCSR edits.




              Page 28                                      GAO-04-69 TRICARE Claims Processing
Appendix IV: Health Care Service Records




HCSRs.2 DOD, MCS contractors, and claims processors agree that TEDs is
a simpler format for claims records. DOD estimates that the number of
records submitted may be reduced by about 1 million annually under
TNEX.




2
 The Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 required use
of the TRICARE encounter data information system rather than the health care service
record for maintaining information on covered beneficiaries. Pub. L. No. 106-398, § 727(1),
114 Stat. 1654, 1654A-188 (2000).




Page 29                                           GAO-04-69 TRICARE Claims Processing
Appendix V: Comments from the Department
of Defense




             Page 30        GAO-04-69 TRICARE Claims Processing
Appendix V: Comments from the Department
of Defense




Page 31                                    GAO-04-69 TRICARE Claims Processing
Appendix VI: GAO Contacts and Staff
Acknowledgments

                    Kristi Peterson, (202) 512-7951 

GAO Contacts 	      Lois Shoemaker, (404) 679-1806 



                    In addition to those named above, key contributors to this report were
Acknowledgments 	   Cynthia Forbes, Krister Friday, and John Oh.




                    Page 32                                  GAO-04-69 TRICARE Claims Processing
Related GAO Products 



              Defense Health Care: Oversight of the TRICARE Civilian Provider
              Network Should Be Improved. GAO-03-928. Washington, D.C.: July 31,
              2003.

              Defense Health Care: Oversight of the Adequacy of TRICARE’s Civilian
              Provider Network Has Weaknesses. GAO-03-592T. Washington, D.C.:
              March 27, 2003.

              Defense Health Care: Most Reservists Have Civilian Health Coverage but
              More Assistance Is Needed When TRICARE Is Used. GAO-02-829.
              Washington, D.C.: September 6, 2002.

              Medicare: Recent CMS Reforms Address Carrier Scrutiny of Physicians’
              Claims for Payment. GAO-02-693. Washington, D.C.: May 28, 2002.

              Defense Health Care: Across-the-Board Physician Rate Increases Would
              be Costly and Unnecessary. GAO-01-620. Washington, D.C.: May 24, 2001.

              Defense Health Care: Continued Management Focus Key to Settling
              TRICARE Change Orders Quickly. GAO-01-513. Washington, D.C.: April
              30, 2001.

              Defense Health Care: Tri-Service Strategy Needed to Justify Medical
              Resources for Readiness and Peacetime Care. GAO/HEHS-00-10.
              Washington, D.C.: November 3, 1999.

              Defense Health Care: Claims Processing Improvements Are Under Way
              but Further Enhancements Are Needed. GAO/HEHS-99-128. Washington,
              D.C.: August 23, 1999.

              Defense Health Care: DOD Needs to Improve Its Monitoring of Claims
              Processing Activities. GAO/T-HEHS-99-78. Washington, D.C.: March 10,
              1999.

              Defense Health Care: Reimbursement Rates Appropriately Set; Other
              Problems Concern Physicians. GAO/HEHS-98-80. Washington, D.C.:
              February 26, 1998.

              Defense Health Care: Actions Under Way to Address Many TRICARE
              Contract Change Order Problems. GAO/HEHS-97-141. Washington, D.C.:
              July 14, 1997.




(290191)
              Page 33                                GAO-04-69 TRICARE Claims Processing
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