oversight

Defense Health Care: Applying Key Management Practices Should Help Achieve Efficiencies within the Military Health System

Published by the Government Accountability Office on 2012-04-12.

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

             United States Government Accountability Office

GAO          Report to Congressional Committees




April 2012
             DEFENSE HEALTH
             CARE
             Applying Key
             Management Practices
             Should Help Achieve
             Efficiencies within the
             Military Health System




GAO-12-224
                                                 April 2012

                                                 DEFENSE HEALTH CARE
                                                 Applying Key Management Practices Should Help
                                                 Achieve Efficiencies within the Military Health
                                                 System
Highlights of GAO-12-224, a report to
congressional committees




Why GAO Did This Study                           What GAO Found
DOD’s health care costs have risen               The Department of Defense (DOD) has identified 11 initiatives aimed at slowing
significantly, from $19 billion in fiscal        its rising health care costs, but has not fully applied results-oriented management
year 2001 to $48.7 billion in its fiscal         practices in developing plans to implement and monitor its initiatives. Results-
year 2013 budget request, and are                oriented management practices include developing plans that identify goals,
projected to increase to $92 billion by          activities, and performance measures; resources and investments; organization
2030.                                            roles, responsibilities, and coordination; and key external factors that could affect
GAO reviewed DOD’s efforts to slow               goals, such as a decrease of funding to a program. At the conclusion of GAO’s
its rising health care costs by changing         review, DOD had completed and approved a detailed implementation plan,
selected clinical, business, and                 including a cost savings estimate, for just 1 of its 11 initiatives. Developing cost
management practices. Specifically,              savings estimates is critical to successful management of the initiatives for
GAO determined the extent to which               achieving the 2010 Quadrennial Defense Review’s call for reduced growth in
DOD has (1) identified initiatives to            medical costs. DOD also has not completed the implementation of an overall
reduce health care costs and applied             process for monitoring progress across its portfolio of health care initiatives and
results-oriented management practices            has not completed the process of identifying accountable officials and their roles
in developing plans for implementing             and responsibilities for all of its initiatives. Without comprehensive, results-
and monitoring them and                          oriented plans, a monitoring process, and clear leadership accountability, DOD
(2) implemented its seven medical                may be hindered in its ability to achieve a more cost-efficient Military Health
governance initiatives approved in               System, address its medical readiness goals, improve its overall population
2006 and employed key management                 health, and improve its patients’ experience of care.
practices. For this review, GAO
analyzed policies, memorandums,                  Additionally, DOD has another set of initiatives, which were approved in 2006 to
directives, and cost documentation,              change aspects of its medical governance structure. GAO found that DOD had
and interviewed officials from the               implemented some of the initiatives but had not consistently employed several
Office of the Secretary of Defense,              key management practices that would have helped it achieve its stated goals and
from the three services, and at each of          sustain its efforts. DOD approved the implementation of the seven governance
the sites where the governance                   initiatives with the goal of achieving economies of scale and operational
initiatives were under way.                      efficiencies, sharing common support functions, and eliminating administrative
What GAO Recommends                              redundancies. Specifically, DOD expected the initiatives to save at least
                                                 $200 million annually once implemented; however, to date, only one initiative has
GAO recommends that DOD                          projected any estimated financial savings. DOD officials stated that the other
(1) complete and fully implement                 governance initiatives have resulted in efficiencies and have significant potential
comprehensive results-oriented plans             for cost savings. Further, the governance initiatives that are further developed
for each of its medical initiatives;             were driven primarily by requirements of Base Realignment and Closure
(2) fully implement an overall                   Commission recommendations and their associated statutory deadlines for
monitoring process across the portfolio          completion. Additionally, GAO found that DOD had not consistently employed
of initiatives and identify accountable
                                                 several key management practices, which likely hindered the full implementation
officials and their roles and
                                                 of the initiatives. For example, the initiatives’ initial timeline was high-level and
responsibilities; and (3) complete its
governance initiatives and employ key            generally not adhered to, a communication strategy was not prepared, an overall
management practices to show                     implementation team was never established, and performance measures to
financial and nonfinancial outcomes              monitor the implementation process and achievement of the goals were not
and evaluate interim and long-term               established. With more emphasis on the key practices of a successful
progress. In written comments on a               transformation, DOD will be better positioned in the future to realize efficiencies
draft of this report, DOD concurred with         and achieve its goals as it continues to implement the initiatives.
each of these three recommendations.

View GAO-12-224. For more information,
contact Brenda S. Farrell at (202) 512-3604 or
farrellb@gao.gov.

                                                                                          United States Government Accountability Office
Contents


Letter                                                                                     1
               Background                                                                  4
               DOD Has Identified Initiatives Aimed at Slowing Medical Cost
                 Growth but Has Not Fully Applied Results-Oriented
                 Management Practices                                                    11
               Some Governance Initiatives Have Been Implemented, but DOD
                 Has Not Fully Employed Key Management Practices                         19
               Conclusions                                                               29
               Recommendations for Executive Action                                      30
               Agency Comments                                                           30

Appendix I     Scope and Methodology                                                     33



Appendix II    Comments from the Department of Defense                                   39



Appendix III   GAO Contact and Staff Acknowledgments                                     42



Tables
               Table 1: The Seven Approved Military Health System Governance
                        Initiatives                                                      10
               Table 2: Progress Made in Developing a Dashboard and Detailed
                        Implementation Plan for Each of DOD’s Strategic
                        Initiatives as of January 13, 2012                               14
               Table 3: Extent to Which the Patient Centered Medical Home
                        Implementation Plan Addressed the Six Desired
                        Characteristics of Comprehensive, Results-Oriented
                        Management Plans                                                 16
               Table 4: Status of the Seven Approved Military Health System
                        Governance Initiatives                                           21


Figures
               Figure 1: Actual and Projected Costs of DOD’s Plans for Its Military
                        Health System                                                      5
               Figure 2: Current Governance Structure of the MHS                           7



               Page i                                          GAO-12-224 Defense Health Care
Abbreviations

BRAC              Base Realignment and Closure
DOD               Department of Defense
FYDP              Future Years Defense Program
J/UMC             Joint/Unified Medical Command
MHS               Military Health System
MRMC              Army Medical Research and Material Command
VA                Department of Veterans Affairs


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Page ii                                                   GAO-12-224 Defense Health Care
United States Government Accountability Office
Washington, DC 20548




                                   April 12, 2012

                                   Congressional Committees

                                   Over the past decade, health care costs in the United States have grown
                                   substantially, and the Department of Defense’s (DOD) medical costs for
                                   its Military Health System (MHS) 1 have been no exception. DOD’s total
                                   medical costs have more than doubled from $19 billion in fiscal year 2001
                                   to its fiscal year 2013 budget request of $48.7 billion. 2 The Secretary of
                                   Defense stated that the cost of the MHS continues to increase and there
                                   is a need to explore all possibilities to control the costs of military health
                                   care. DOD’s health care system serves about 9.6 million beneficiaries—
                                   including active duty, reserve, and National Guard troops and their
                                   dependents as well as military retirees and their dependents. According
                                   to a 2011 Congressional Budget Office report, DOD’s health care costs
                                   are projected to reach $59 billion by 2016 and nearly $92 billion by 2030. 3

                                   Under the current structure, the responsibilities and authorities for the
                                   management of DOD’s MHS are distributed among several organizations,
                                   including the Assistant Secretary of Defense for Health Affairs, 4 who
                                   serves as the principal advisor to the Secretary of Defense and the Under
                                   Secretary of Defense for Personnel and Readiness. Health Affairs is
                                   responsible for submitting the Unified Medical Budget 5 a single combined


                                   1
                                    The MHS refers to DOD’s health operations as a whole and consists of the Office of the
                                   Assistant Secretary of Defense for Health Affairs; the medical departments of the Army,
                                   Navy, Air Force, and Joint Chiefs of Staff; the Combatant Command surgeons; and the
                                   TRICARE network of health care providers.
                                   2
                                     DOD’s fiscal year 2013 budget request of $48.7 billion for its Unified Medical budget
                                   includes $32.5 billion for the Defense Health Program, $8.5 billion for military medical
                                   personnel, $1.0 billion for military construction, and $6.7 billion set aside for the Medicare-
                                   Eligible Retiree Health Care Fund. The total excludes overseas contingency operations
                                   funds and certain transfers.
                                   3
                                    Congressional Budget Office, Long-Term Implications of the 2012 Future Years Defense
                                   Program, Pub. No. 4281 (June 2011).
                                   4
                                     For purposes of this report, the Office of the Assistant Secretary of Defense for Health
                                   Affairs will be called Health Affairs.
                                   5
                                     One component of the Unified Medical Budget is the Defense Health Program, which is
                                   a single appropriation account typically consisting of operation and maintenance;
                                   research, development, test, and evaluation; and procurement funds for the MHS.




                                   Page 1                                                       GAO-12-224 Defense Health Care
medical budget for itself and the services’ health operations, and centrally
manages Defense Health Program funds for the military services through
the TRICARE Management Activity, 6 while each of the military services
manages its respective medical personnel and programs. In 2007, the
Defense Health Board stated in its report, Task Force on the Future of
Military Health Care, 7 that DOD’s MHS does not function as a fully
integrated health care system and this lack of integration diffuses
accountability for fiscal management, results in misalignment of
incentives, and limits the potential for continuous improvement in the
quality of care delivered to beneficiaries. Further, we previously identified
DOD’s health care system as an example of a key challenge facing the
U.S. government in the 21st century and an area in which DOD could
improve delivery of services by combining, realigning, or otherwise
changing selected support functions and could achieve economies of
scale. 8

Congressional leaders have also raised questions regarding rising military
health costs and DOD’s MHS governance structure. For example, the
House Committee on Armed Services’ Print accompanying the Ike
Skelton National Defense Authorization Act for Fiscal Year 2011 9 noted
that the department had not yet developed a comprehensive plan to
enhance quality, efficiencies, and savings in DOD’s MHS, and it
encouraged the Secretary of Defense to evaluate the potential
operational, organizational, and financial benefits of a unified medical
command. We previously identified in our March 2011 report 10


6
  DOD provides health care and mental health care through its TRICARE program, its
regionally structured health care program. DOD’s TRICARE Management Activity, which
oversees the program, uses contractors to develop networks of civilian providers and to
perform other customer service functions, such as processing claims and assisting
beneficiaries with finding providers.
7
 Defense Health Board, Task Force on the Future of Military Health Care (December
2007).
8
 GAO, 21st Century Challenges: Reexamining the Base of the Federal Government,
GAO-05-325SP (Washington, D.C.: February 2005).
9
  The Ike Skelton National Defense Authorization Act for Fiscal Year 2011 (Pub. L. No.
111-383 (2010)) was not accompanied by a conference report. In lieu of a formal
conference report and joint explanatory statement, House Armed Services Committee
Print No. 5 (December 2010) was provided to show congressional intent and maintain
legislative history.
10
   GAO, Opportunities to Reduce Potential Duplication in Government Programs, Save
Tax Dollars, and Enhance Revenue, GAO-11-318SP (Washington, D.C.: Mar. 1, 2011).




Page 2                                                   GAO-12-224 Defense Health Care
opportunities to reduce potential duplication in government programs by
realigning DOD’s military medical command structures and consolidating
common functions that could increase efficiencies and reduce costs. We
noted that DOD could potentially save from approximately $281 million to
$460 million annually depending upon the governance option chosen. We
also reported that DOD had actions under way for a concept approved in
November 2006 that directed seven incremental reorganizational
initiatives designed to minimize duplicative layers of command and
control, among other things. For this review, we evaluated Health Affairs’
cost saving efforts and the status of its seven governance initiatives.
Specifically, we determined the extent to which DOD has (1) identified
initiatives to reduce health care costs and applied results-oriented
management practices to develop plans for implementing and monitoring
them and (2) implemented its seven medical governance initiatives
approved in 2006 and employed key management practices.

To determine the extent to which DOD has identified initiatives to reduce
health care costs, we reviewed documentation and interviewed officials
from the Health Budgets and Financial Policy Office and from the Office
of Strategy Management, within Health Affairs, as well as officials in the
TRICARE Management Activity. Additionally, to determine the extent to
which DOD applied results-oriented management practices to develop
plans for implementing and monitoring its initiatives, we evaluated the one
implementation plan for reducing health care costs that had been
completed at the time of our review. The analyses included comparing the
implementation plan for the completed initiative with results-oriented
management practices on which we have previously reported 11 and
drawing conclusions from a consensus of the analyses. To determine the
extent to which DOD has implemented its seven medical governance
initiatives approved in 2006, we visited the locations where DOD’s MHS
governance initiatives were being implemented to collect relevant
documents, interview agency officials, and observe any physical changes
to the locations. We also reviewed cost estimates, budget documents,
business plans, and other instructions, policy statements, and documents
related to progress made. Additionally, we interviewed officials within the
Office of the Secretary of Defense and the military services concerning
the initiatives’ implementation status. Further, to determine the extent to



11
   GAO, Combating Terrorism: Evaluation of Selected Characteristics in National
Strategies Related to Terrorism, GAO-04-408T (Washington, D.C.: Feb. 3, 2004).




Page 3                                                  GAO-12-224 Defense Health Care
                           which DOD employed key management practices in implementing its
                           seven medical governance initiatives approved in 2006, we identified prior
                           reports that documented key management practices of successful
                           transformational efforts. 12 Using these practices as a guide, as well as
                           documentation and discussions with MHS officials, we assessed DOD’s
                           actions taken and processes employed while implementing its seven
                           governance initiatives. Throughout this report, we used financial data for
                           illustrative purposes to provide context on DOD’s efforts and to make
                           broad estimates about potential costs savings. We determined that these
                           data did not materially affect the nature of our findings and therefore did
                           not assess its reliability.

                           We conducted this performance audit from March 2011 through February
                           2012 in accordance with generally accepted government auditing
                           standards. Those standards require that we plan and perform the audit to
                           obtain sufficient, appropriate evidence to provide a reasonable basis for
                           our findings and conclusions based on our audit objectives. We believe
                           that the evidence obtained provides a reasonable basis for our findings
                           and conclusions based on our audit objectives. For details on our scope
                           and methodology, see appendix I.



Background
Rising Health Care Costs   According to the Defense Health Board’s Task Force on the Future of
                           Military Health Care, 13 rising health care costs result from a multitude of
                           factors that are affecting not only DOD but also health care in general.
                           These factors include greater utilization of health care services,
                           increasingly expensive technology and pharmaceuticals, growing
                           numbers of users, and the aging of the retiree population. Additionally, in
                           2009, the Defense Business Board reported 14 that defense health care
                           costs are taking up more of the defense budget, and its health care
                           programs may eventually compete with other critical defense acquisition
                           and operational programs. Figure 1 illustrates the actual and projected



                           12
                             GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers and
                           Organizational Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003).
                           13
                                Defense Health Board, Task Force on the Future of Military Health Care.
                           14
                                Defense Business Board, Focusing a Transition (January 2009).




                           Page 4                                                     GAO-12-224 Defense Health Care
                                         future cost growth for DOD’s MHS according to the Congressional Budget
                                         Office.

Figure 1: Actual and Projected Costs of DOD’s Plans for Its Military Health System




                                         Notes:
                                         Definitions of cost categories: Military medical personnel includes funds for pay and benefits for
                                         uniformed personnel assigned to work in the MHS. Direct care and other includes funds for the
                                         operation of military medical facilities and other activities. It includes pay and benefits for civilian
                                         personnel assigned to work in those facilities but excludes the pay and benefits of military personnel.
                                         Purchased care and contracts covers medical care delivered to military beneficiaries by providers in
                                         the private sector, both inside and outside the network. Pharmaceuticals covers purchases of
                                         medicines dispensed at military medical facilities, at pharmacies inside and outside DOD’s network,
                                         and through DOD’s mail-order pharmacy program. TRICARE for Life accrual payments covers funds
                                         deducted from DOD’s appropriation and credited to the Medicare-Eligible Retiree Health Care Fund.
                                         Outlays from that fund are used to reimburse military treatment facilities for care provided to military
                                         retirees and their family members who are also eligible for Medicare and to cover most of the out-of-
                                         pocket costs those beneficiaries would otherwise incur when seeking care from private-sector
                                         providers.




                                         Page 5                                                             GAO-12-224 Defense Health Care
                             Supplemental and emergency funding for overseas contingency operations, such as those in
                             Afghanistan and Iraq, is included for 2011 and earlier but not for later years. Before 2001,
                             pharmaceutical costs were not separately identifiable but were embedded in the costs of two
                             categories: purchased care and contracts and direct care and other. In 2001, and later years, most
                             pharmaceutical costs were separately identifiable, but some of those costs may be embedded in the
                             category TRICARE for Life accrual payments. The amounts shown for the Future Years Defense
                             Program (FYDP) and the extension of the FYDP are the totals for all categories. The FYDP period is
                             2012 to 2016, the years for which DOD’s plans are fully specified.
                             Each category shows the Congressional Budget Office projection of the base budget from 2012 to
                             2030. That projection incorporates costs that are consistent with DOD’s recent experience.
                             For the extension of the FYDP (2017 to 2030), the Congressional Budget Office projects the costs of
                             DOD’s plans using the department’s estimates of costs to the extent they are available and costs that
                             are consistent with the broader U.S. economy if such estimates are not available.
                             Research, development, test, and evaluation; procurement; and military construction funds are not
                             included in this illustration.




Current Structure of DOD’s   DOD operates a large, complex health system that provides health care
Military Health System       to 9.6 million beneficiaries. DOD employs almost 140,000 military, civilian,
                             and contract personnel who work in medical facilities throughout the
                             world. Beneficiaries fall into different categories: (1) active duty
                             servicemembers and their dependents, (2) eligible National Guard and
                             Reserve servicemembers and their dependents, and (3) retirees and their
                             dependents or survivors. In fiscal year 2009, active duty servicemembers
                             and their dependents represented 32 percent of the beneficiary
                             population, eligible National Guard and Reserve servicemembers and
                             their dependents represented 14 percent, and retirees and their
                             dependents or survivors made up the remaining 54 percent. 15

                             The management of DOD’s MHS crosses several organizational
                             boundaries. Reporting to the Under Secretary of Defense for Personnel
                             and Readiness, the Assistant Secretary of Defense for Health Affairs is
                             the principal advisor for all DOD health policies, programs, and force
                             health protection activities. Health Affairs issues policies, procedures, and
                             standards that govern management of DOD medical programs and has
                             the authority to issue DOD instructions, publications, and directive-type
                             memorandums that implement policy approved by the Secretary of
                             Defense or the Under Secretary of Defense for Personnel and Readiness.
                             It integrates the services’ budget submissions into a unified medical
                             budget that provides resources for DOD’s MHS operations. However,



                             15
                               GAO, Defense Health Care: 2008 Access to Care Surveys Indicate Some Problems,
                             but Beneficiary Satisfaction Is Similar to Other Health Plans, GAO-10-402 (Washington,
                             D.C.: Mar. 31, 2010).




                             Page 6                                                           GAO-12-224 Defense Health Care
                                        Health Affairs lacks direct command and control of the services’ military
                                        treatment facilities. See figure 2 for the current organizational structure of
                                        DOD’s MHS.

Figure 2: Current Governance Structure of the MHS




                                        Operationally, DOD’s MHS has two missions: supporting wartime and
                                        other deployments, known as the readiness mission, and providing
                                        peacetime care, known as the benefits mission. The readiness mission
                                        provides medical services and support to the armed forces during military
                                        operations, including deploying medical personnel and equipment
                                        throughout the world, and ensures the medical readiness of troops prior
                                        to deployment. The benefits mission provides medical services and
                                        support to members of the armed forces, retirees, and their dependents.
                                        DOD’s dual health care mission is delivered by the military services at 59
                                        military treatment facilities capable of providing diagnostic, therapeutic,
                                        and inpatient care, as well as hundreds of clinics and private sector
                                        civilian providers. The military treatment facilities make up what is known
                                        as DOD’s direct care system for providing health care to eligible


                                        Page 7                                            GAO-12-224 Defense Health Care
                             beneficiaries. The Departments of the Army and the Navy each have a
                             medical command, headed by a surgeon general, who manages each
                             department’s respective military treatment facilities and other activities
                             through a regional command structure. The Navy’s Bureau of Medicine
                             and Surgery supports both the Navy and Marine Corps. The Air Force
                             Surgeon General, through the role of medical advisor to the Air Force
                             Chief of Staff, exercises similar authority to that of the other surgeons
                             general. Each service also recruits, trains, and funds its own medical
                             personnel to administer the medical programs and provide medical
                             services to beneficiaries. For the management of military treatment
                             facilities within the National Capital Region and the execution of related
                             Base Realignment and Closure (BRAC) actions 16 in that area, an
                             additional medical organizational structure and reporting chain was
                             established in 2007. This structure is known as the Joint Task Force
                             National Capital Region Medical, whose Commander reports to the
                             Deputy Secretary of Defense, and the two inpatient medical facilities in
                             the area are considered joint commands assigned to the task force. DOD
                             also operates a purchased care system throughout the country that
                             consists of a network of private sector civilian primary and specialty care
                             providers. The TRICARE Management Activity, under the authority,
                             direction, and control of Health Affairs, is responsible for awarding,
                             administering, and managing these contracts.


Studies of Governance        For many years, GAO and other organizations have highlighted a range
Options for DOD’s Military   of long-standing issues surrounding DOD’s MHS and its efforts to
Health System                reorganize its governance structure. For example, in 1995, we reported
                             that interservice rivalries and conflicting responsibilities hindered
                             improvement efforts. We further noted that the services have historically
                             resisted efforts to change the way military medicine is organized,
                             including consolidating the services’ medical departments, in favor of
                             maintaining their own health care systems, primarily on the grounds that
                             each service has unique medical activities and requirements. Since the
                             1940s, there have been over 20 studies that have addressed military
                             health care organization.



                             16
                                The 2005 BRAC Commission recommended that certain patient care activities at Walter
                             Reed Army Medical Center in Washington, D.C., be relocated to the National Naval
                             Medical Center in Bethesda, Maryland, and to a new community hospital at Fort Belvoir,
                             Virginia.




                             Page 8                                                 GAO-12-224 Defense Health Care
In October 2007, 17 we reported that DOD evaluated several options for
widespread reorganization and integration of its medical governance
structure, but it did not evaluate the option resulting in the seven
governance initiatives that it is currently implementing. 18 As part of its
evaluation, DOD commissioned CNA’s Center for Naval Analyses to
conduct a study to determine the cost savings associated with various
organizational options. In its report, 19 CNA’s officials estimated potential
savings from $281 million to $460 million annually, 20 and noted that any
merger or transformation needs to be well planned and executed to
realize potential benefits and efficiencies. 21 However, because the
services could not reach a consensus concerning which of the proposed
governance options to implement, in November 2006, the Deputy
Secretary of Defense approved the implementation of an alternative
option that consisted of seven targeted governance initiatives. 22 (See
table 1.)




17
  GAO, Defense Health Care: DOD Needs to Address the Expected Benefits, Costs, and
Risks for Its Newly Approved Medical Command Structure, GAO-08-122 (Washington,
D.C.: Oct. 12, 2007).
18
   Governance is defined as an entity’s ability to serve its constituents through the rules,
processes, and behaviors by which interests are articulated, resources are managed, and
power is exercised.
19
   CNA’s Center for Naval Analyses, Cost Implications of a Unified Medical Command
(Alexandria, Va.: May 2006).
20
   CNA’s Center for Naval Analyses developed the savings estimates, and GAO adjusted
the estimates from 2005 to 2010 dollars.
21
   CNA’s Center for Naval Analyses categorized the potential savings into the following 10
areas: health care operations, comptroller operations, information management and
information technologies, education and training, research and development, logistics,
strategic planning, human capital management, force health protection and environmental
health, and general headquarters.
22
   Action Memorandum for the Deputy Secretary of Defense, Joint/Unified Medical
Command (J/UMC) Way Ahead (Nov. 27, 2006).For purposes of this report, this memo
will be referred to as the November 2006 DOD memo.




Page 9                                                     GAO-12-224 Defense Health Care
Table 1: The Seven Approved Military Health System Governance Initiatives

1. Create governance structures in the National Capital Area and in the San Antonio, Texas, area to command, control, and manage
                                                                                    a
the combined operations of the components’ respective Military Treatment Facilities
2. Create a governance structure to command, control, and manage the Joint Medical Education and Training Campus in San
               a
Antonio, Texas
                                                                  b
3. Colocate the MHS’s and services’ medical headquarters staff
4. Consolidate all medical research and development under the Army Medical Research and Material Command
5. Realign the TRICARE Management Activity and establish a Joint Military Health Service Directorate to consolidate shared services
and common functions
6. Realign the TRICARE Management Activity and establish a TRICARE Health Plan Agency to focus on health insurance plan
management
7. Create governance structures that consolidate command and control in multiservice medical markets (other than the National
                                c
Capital Region and San Antonio)
                                           Source: DOD.
                                           a
                                               This initiative is related to a recommendation(s) from the 2005 BRAC Commission.
                                           b
                                               This initiative is a recommendation of the 2005 BRAC Commission.
                                           c
                                            Multiservice medical markets are areas in which more than one DOD component provides military
                                           health care services.


                                           Our analysis of the decision to implement this alternative concluded that
                                           DOD did not complete a comprehensive analysis to support its decision.
                                           Accordingly, we recommended in our October 2007 report that DOD
                                           should assess the expected benefits, costs, and risks for implementing
                                           these seven governance initiatives and develop performance measures to
                                           monitor the progress of its plan. DOD concurred with our
                                           recommendations and responded that it would form a team to conduct
                                           comprehensive planning to include an assessment of implications for
                                           doctrine, organization, training, material, leadership, personnel, and
                                           facilities. In a follow-on March 2011 report on duplication, overlap, and
                                           fragmentation in the federal government, 23 we stated that these analyses
                                           had not been conducted, and Health Affairs had not provided guidance on
                                           how and when to complete the governance initiatives. Additionally, we
                                           emphasized that DOD needed to take action to reduce duplication in its
                                           command structure and eliminate redundant processes by further
                                           assessing alternatives for restructuring MHS governance.

                                           Further, DOD officials implemented two separate efforts during 2011 to
                                           address, among other things, rising military health costs. First, in March


                                           23
                                                 GAO-11-318SP.




                                           Page 10                                                           GAO-12-224 Defense Health Care
                         2011, the Under Secretary of Defense for Personnel and Readiness
                         initiated a comprehensive review and evaluation of military health care to
                         develop a series of proposals aimed at increasing the performance and
                         efficiency of DOD’s MHS in a number of key areas. Additionally, in June
                         2011, the Deputy Secretary of Defense established a 90-day task force to
                         review various options for changes to the overall governance structure of
                         the MHS and of its multiservice medical markets. Subsequent to the
                         establishment of this task force, the National Defense Authorization Act
                         for Fiscal Year 2012 required DOD to submit a report to the congressional
                         defense committees to include (among other things) options considered
                         by the task force, the goals to be achieved by governance reorganization,
                         costs of each option considered, and an analysis of the strengths and
                         weaknesses of each option. 24 The Comptroller General is required to
                         review DOD’s report and report back to the congressional committees
                         within 180 days from DOD’s issuance. The act also prohibits the
                         Secretary of Defense from restructuring or reorganizing the MHS until 120
                         days after GAO submits its report.


                         DOD has identified 11 initiatives aimed at slowing medical cost growth,
DOD Has Identified       but it has not fully applied results-oriented management practices to its
Initiatives Aimed at     efforts. Specifically, it has developed an implementation plan and related
                         estimates of potential cost savings for only 1 of the 11 initiatives. As a
Slowing Medical Cost     result, DOD has limited its effectiveness in implementing and monitoring
Growth but Has Not       these initiatives and achieving related cost savings and other
Fully Applied Results-   performance goals.

Oriented Management
Practices




                         24
                           National Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 112-81, § 716
                         (2011).




                         Page 11                                                  GAO-12-224 Defense Health Care
DOD Has Identified     The Senior Military Medical Advisory Council—a committee that functions
Initiatives Aimed at   as an executive-level discussion and advisory group, 25 has approved 11
Slowing Medical Cost   initiatives that it believes will help reduce rising health care costs. (See
                       table 2 for a list of these initiatives.) These 11 initiatives consist of
Growth
                       changes to MHS clinical and business practices in areas ranging from
                       primary care to psychological health care to purchased care
                       reimbursement practices. DOD’s initiatives generally reflect broader
                       concepts that were discussed by health care experts, business leaders,
                       and public officials at two separate forums convened by GAO in 2004 and
                       2007 on ideas for responding to cost and other challenges in the health
                       care system. 26 For example, in the 2004 forum, 55 percent of participants
                       strongly agreed that the U.S. health care system is characterized by both
                       underuse of wellness and preventive care and overuse of high-tech
                       procedures. In addition, the plenary speakers at the 2004 forum observed
                       that unwarranted variation in medical practices nationwide points to
                       quality and efficiency problems. Similarly, DOD developed initiatives that
                       seek to increase the productivity of and to ease access to primary care
                       and encourage wellness, preventive, and evidence-based 27 health care.
                       Further, in the 2007 forum, 77 percent of participants strongly agreed that
                       the federal government should revise its payment systems and leverage
                       its purchasing authority to foster value-based purchasing for health care
                       products and services. Similarly, MHS officials discussed potential
                       changes that led to the fourth and fifth initiatives as listed in table 2. Both
                       initiatives involve changes to payment for medical care to reward quality
                       of care and health outcomes instead of volume of services rendered.
                       Another of the 11 initiatives aims to reduce costs by keeping patients as
                       healthy as possible during treatment and recovery. With this initiative,
                       MHS officials hope to reach the goal of reducing hospital readmissions by
                       20 percent and hospital acquired infections by 40 percent by 2013 from
                       the baseline year of 2010.



                       25
                          This group is chaired by the Assistant Secretary of Defense for Health Affairs and
                       includes the surgeons general from the Army, the Navy, and the Air Force; the Joint Staff
                       Surgeon; and four deputy assistant secretaries of defense.
                       26
                         GAO, Comptroller General’s Forum: Health Care: Unsustainable Trends Necessitate
                       Comprehensive and Fundamental Reforms to Control Spending and Improve Value,
                       GAO-04-793SP (Washington, D.C.: May 2004), and Highlights of a Forum: Health Care
                       20 Years from Now: Taking Steps Today to Meet Tomorrow’s Challenges,
                       GAO-07-1155SP (Washington, D.C.: September 2007).
                       27
                         Evidence-based medicine is the integration of the best research evidence with clinical
                       expertise and patient values.




                       Page 12                                                   GAO-12-224 Defense Health Care
DOD Has Not Fully            DOD has not fully developed results-oriented management plans for
Developed Results-           implementing its health care initiatives, which could help ensure the
Oriented Management          achievement of these initiatives’ cost savings goals. Specifically, we
                             found that as a start to managing the implementation of its initiatives,
Plans for Implementing Its   DOD has developed a dashboard management tool that will include
Health Care Initiatives      elements such as an explanation of the initiative’s purpose, key
                             performance measures, and funding requirements for implementation. In
                             December 2011, the Senior Military Medical Advisory Council approved
                             six dashboards that were significantly, but not entirely completed. A
                             Health Affairs official stated that DOD currently lacks net cost savings
                             estimates for all but one of the initiatives. Cost savings estimates are
                             critical to successful management of the initiatives so that DOD can
                             achieve its goal of reducing growth in medical costs as stated in the 2010
                             Quadrennial Defense Review. Further, DOD developed an
                             implementation plan to support the dashboards. The implementation plan
                             has a set format to include such information as general timelines and
                             milestones, key risks, and estimated cost savings.

                             DOD currently has one completed implementation plan, which also
                             contains the one available cost savings estimate among all the initiatives.
                             See table 2 for the progress made for each of these initiatives.




                             Page 13                                         GAO-12-224 Defense Health Care
Table 2: Progress Made in Developing a Dashboard and Detailed Implementation Plan for Each of DOD’s Strategic Initiatives
as of January 13, 2012

Dollars in millions
                                                                                  Dashboard       Implementation              Estimated net
                                                                                                                                           a
Strategic initiative                                                              approved?       plan approved?                   savings
1. Implement Patient Centered Medical Home model of care to
increase satisfaction, improve care, and reduce costs
                                                                                                                                      $39.3
2. Integrate psychological health programs to improve outcomes
and enhance value
                                                                                       
3. Implement incentives to encourage adherence to medical
standards based on evidence to increase patient satisfaction,                          
improve care, and reduce costs
4. Implement alternative payment mechanisms to reward value in
health care services
                                                                                       
5. Revise DOD’s future purchased care contracts to offer more
and varied options for care delivery from private sector health                        
care providers
6. Improve the measurement and management of DOD’s
population health by moving away from focusing on illness and
disease to an emphasis on prevention, intervention, and
                                                                                       
wellness by health care providers
7. Optimize pharmacy practices to improve quality and reduce
costs
8. Implement policies, procedures, and partnerships to meet
individual servicemembers’ medical readiness goals
9. Implement DOD and Department of Veterans Affairs joint
strategic plan for mental health to improve coordination
10. Implement modernized electronic health record to improve
outcomes and enhance interoperability
11. Improve governance to achieve better performance in
multiservice medical markets
                                            Source: GAO analysis of DOD information.
                                            a
                                             The net savings represents GAO’s analysis based on DOD data. GAO did not independently assess
                                            the reliability of DOD data. DOD estimates that its investment in the Patient Centered Medical Home
                                            initiative will be $571.4 million in total from fiscal years 2010 through 2016.


                                            As table 2 shows, DOD had completed a dashboard, an implementation
                                            plan, and a cost savings estimate for only 1 of its 11 initiatives as of
                                            January 13, 2012. As DOD completes its dashboards, implementation
                                            plans, and cost savings estimates, it could benefit from the application of
                                            the six characteristics of a comprehensive, results-oriented management




                                            Page 14                                                         GAO-12-224 Defense Health Care
framework, on which GAO has previously reported, 28 including a thorough
description of the initiatives’ mission statement; problem definition, scope,
and methodology; goals, objectives, activities, milestones, and
performance measures; resources and investments; organizational roles,
responsibilities, and coordination; and key external factors that could
affect the achievement of goals. DOD has completed an implementation
plan for 1 of its 11 initiatives—the Patient Centered Medical Home 29
initiative, which seeks to increase access to DOD’s primary care network.
Based on DOD data, we estimate that this initiative will have a net cost
savings of $39.3 million through fiscal year 2016. 30 Using the desirable
characteristics of a results-oriented management plan, we assessed the
one approved implementation plan, and our analysis of this plan showed
that DOD addressed four of the characteristics and partially addressed
two other characteristics. For an overview of the six desirable
characteristics of comprehensive, results-oriented management plans
and our assessment of the extent to which DOD’s Patient Centered
Medical Home implementation plan incorporates these desired
characteristics, see table 3.




28
     GAO-04-408T.
29
   For the Patient Centered Medical Home program, which seeks to increase access to
DOD’s primary care network, DOD has developed five measures to track progress in
terms of positively affecting emergency room utilization, patient satisfaction with health
care and appointment availability, primary care staff satisfaction, and the percentage of
the times patients receive care from their primary care managers.
30
     We did not assess the reliability of DOD data.




Page 15                                                     GAO-12-224 Defense Health Care
Table 3: Extent to Which the Patient Centered Medical Home Implementation Plan Addressed the Six Desired Characteristics
of Comprehensive, Results-Oriented Management Plans

                                                                                                 Our assessment of the Patient Centered
Six desired characteristics of a comprehensive, results-oriented management plan                   Medical Home implementation plan
(1) Mission statement—A comprehensive statement that summarizes the main purposes
of the plan.
                                                                                                                     ●
(2) Problem definition, scope, and methodology—Presents the issues to be addressed by
the plan, the scope of its coverage, the process by which it was developed, and key                                  ●
considerations and assumptions used in the development of the plan.
(3) Goals, objectives, activities, milestones, and performance measures—The
identification of goals and objectives to be achieved by the plan, activities or actions to                          ●
achieve those results, as well as milestones and performance measures.
(4) Resources and investments—The identification of costs to execute the plan and the
sources and types of resources and investments, including skills and technology and the
human, capital, information, and other resources required to meet the goals and
                                                                                                                      ◐
objectives.
(5) Organizational roles, responsibilities, and coordination—The development of roles
and responsibilities in managing and overseeing the implementation of the plan and the
establishment of mechanisms for multiple stakeholders to coordinate their efforts                                    ●
throughout implementation and make necessary adjustments to the plan based on
performance.
(6) Key external factors that could affect the achievement of goals—The identification of
key factors external to the organization and beyond its control that could significantly
affect the achievement of the long-term goals contained in the plan. These external
factors can include economic, demographic, social, technological, or environmental
                                                                                                                      ◐
factors, as well as conditions that would affect the ability of the agency to achieve the
results desired.

                                               Legend: ◐ = Partially addressed; ● = Addressed; ○ = Not addressed.
                                               Source: GAO analysis of DOD data.



                                               Our review of the Patient Centered Medical Home implementation plan
                                               found that DOD partially addressed the desired characteristic regarding
                                               resources and investments. While DOD acknowledged that some staff will
                                               be committed full-time to working on this initiative, it did not show in the
                                               plan, as prescribed, the number of personnel needed in total to implement
                                               the initiative. A DOD official noted that the section in the plan that asks for
                                               the number of personnel needed was intended for officials to show if
                                               additional personnel and funding beyond the current level were needed.
                                               However, the absence of information concerning DOD’s use of current
                                               staff renders the size of the initiative’s impact on utilization of personnel
                                               unclear. In addition, the Patient Centered Medical Home implementation
                                               plan’s annual cost savings estimate did not reflect net losses when they
                                               occur in a given fiscal year. For example, in fiscal years 2012 and 2013,
                                               DOD’s investment in the Patient Centered Medical Home initiative is
                                               larger than savings, but the implementation plan does not show the net



                                               Page 16                                                        GAO-12-224 Defense Health Care
losses for those early years. 31 Instead, it shows zero cost savings for
those years. A DOD official responded by noting that DOD interpreted
estimated savings to only include actual savings in any given year and
not net losses. However, without accounting for both cost savings and
investments, decision makers lack a comprehensive understanding of a
program’s true costs.

Additionally, our review of this implementation plan found that DOD
partially addressed the desired characteristic of discussing the key
external factors that could have an impact on the achievement of goals.
While it provided an extensive overview of internal and external
challenges, DOD did not outline a specific process for monitoring such
developments. Further, the implementation plan does not fully explore the
effect of such challenges on the program’s goals or explain how it takes
such challenges into account, such as by outlining a mitigation strategy to
overcome them.

As DOD further develops its dashboards and implementation plans and
incorporates the desired characteristics, it will be in a stronger position to
better manage its reforms and ultimately achieve cost savings. For
example, DOD was experiencing a 5.5 percent annual increase in per
capita costs for its enrolled population according to data available as of
December 2011, but DOD had set its target ceiling for per capita health
care cost increases for fiscal year 2011 at a lower rate of 3.1 percent.
According to DOD calculations using 2011 enrollee and cost data, if DOD
had met its target ceiling of 3.1 percent increase as opposed to a 5.5
percent increase, the 2.4 percent reduction would have resulted in
approximately $300 million in savings. As DOD’s initiatives evolve and
each of these management tools is completed for each of the initiatives,
they may provide DOD with a road map to improve its efforts to
implement, monitor progress toward, and achieve both short-term and
longer-term financial and other performance goals.




31
  GAO’s calculation of the cost savings for the Patient Centered Medical Home initiative
as shown in table 2 takes both net savings and total net losses into account.




Page 17                                                   GAO-12-224 Defense Health Care
DOD Is in the Initial Stages   DOD also has not completed the implementation of an overall process for
of Developing a Monitoring     monitoring progress across its portfolio of health care initiatives and has
Process for Measuring the      not completed the process of identifying accountable officials and their
                               roles and responsibilities for all of its reform efforts. Our work on results-
Progress of Its Health Care    oriented management has found that a process for monitoring progress is
Initiatives                    key to success. 32 We have also reported that clearly defining areas of
                               responsibility is a key process that provides management with a
                               framework for planning, directing, and controlling operations to achieve
                               goals. 33 In addition, as MHS leaders develop and implement their plans to
                               control rising health care costs, they will need to work across multiple
                               authorities and areas of responsibility. As the 2007 Task Force on the
                               Future of Military Health Care noted, the current MHS does not function
                               as a fully integrated health care system. 34 As we reported in October
                               2005, 35 agreement on roles and responsibilities is a key step to
                               successful collaboration when working across organizational boundaries,
                               such as the military services. Committed leadership by those involved in
                               the collaborative effort, from all levels of the organization, is also needed
                               to overcome the many barriers to working across organizational
                               boundaries. For example, Health Affairs centrally manages Defense
                               Health Program funds for the military services, but it lacks direct
                               command and control of the military treatment facilities. Additionally, we
                               reported in September 2005 36 that the commitment of agency managers
                               to results-oriented management is an important practice to help increase
                               the use of performance information for policy and program decisions.
                               DOD’s one approved implementation plan for the Patient Centered
                               Medical Home initiative provides further information on how DOD has
                               applied a monitoring structure, defined accountable officials, and
                               assigned roles and responsibilities in the case of this initiative. Senior
                               officials stated that they plan to monitor performance, specifically cost



                               32
                                 GAO, Results-Oriented Government: GPRA Has Established a Solid Foundation for
                               Achieving Greater Results, GAO-04-38 (Washington, D.C.: Mar. 10, 2004).
                               33
                                  GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
                               (Washington, D.C.: November 1999).
                               34
                                    Defense Health Board, Task Force on the Future of Military Health Care.
                               35
                                 GAO, Results-Oriented Government: Practices That Can Help Enhance and Sustain
                               Collaboration among Federal Agencies, GAO-06-15 (Washington, D.C.: Oct. 21, 2005).
                               36
                                 GAO, Managing for Results: Enhancing Agency Use of Performance Information for
                               Management Decision Making, GAO-05-927 (Washington, D.C.: Sept. 9, 2005).




                               Page 18                                                    GAO-12-224 Defense Health Care
                         savings, and said that if projected cost savings were not realized, senior
                         leadership would reconsider further investment in the program. We
                         reported that in some instances, up-front investments are needed to yield
                         longer-term savings and that it is essential for officials to monitor and
                         evaluate whether the initiative is meeting its goals. 37 However, DOD has
                         not completed this process for the remainder of its initiatives. Without
                         sustained top civilian and military leadership which is consistently
                         involved throughout the implementation of its various initiatives and until
                         DOD fully implements for all of its initiatives a mechanism to monitor
                         performance and identify accountable officials, including their roles and
                         responsibilities, DOD may be hindered in its ability to achieve a more
                         cost-efficient MHS and at the same time address its medical readiness
                         goals, improve its overall population health, and improve its patients’
                         experience of care.


                         Beyond the medical initiatives designed to slow medical cost growth,
Some Governance          DOD has taken steps to implement several other initiatives designed to
Initiatives Have Been    improve MHS governance. However, DOD officials have not fully
                         employed several key management practices to help ensure that these
Implemented, but         medical governance initiatives will achieve their stated goals.
DOD Has Not Fully
Employed Key
Management
Practices

DOD Has Taken Steps to   DOD has to varying degrees taken steps to implement some of the seven
Implement Its Seven      governance initiatives approved by the Deputy Secretary of Defense in
Governance Initiatives   2006 with the goal of achieving economies of scale, operational
                         efficiencies, and financial savings as well as consolidating common
                         support functions and eliminating administrative redundancies. In 2007,
                         after the initiatives were approved, we recommended that DOD
                         demonstrate a sound business case for proceeding with these initiatives
                         to include providing detailed qualitative and quantitative analyses of
                         benefits, costs, and associated risks. Initially, DOD expected that the



                         37
                           GAO, Streamlining Government: Key Practices from Select Efficiency Initiatives Should
                         Be Shared Governmentwide, GAO-11-908 (Washington, D.C.: Sept. 30, 2011).




                         Page 19                                                 GAO-12-224 Defense Health Care
seven initiatives would save at least $200 million annually once
implemented. However, more than 5 years later, DOD officials have
projected estimated financial savings for only one of the seven initiatives
concerning the governance and management of the MHS—an initiative to
consolidate the command and control structure of its health services
within the National Capital Region. 38 Similarly, as part of a separate
initiative aimed at increasing efficiency and conserving funds, DOD
consolidated its operations at the Naval Health Clinic Great Lakes with
the Department of Veterans Affairs’ (VA) North Chicago Veterans Affairs
Medical Center, but has not measured its progress in achieving financial
savings. 39 Officials said that many of the governance initiatives have
significant potential for cost savings, and some of these governance
initiatives have already achieved various efficiencies. However, financial
savings have not been demonstrated for the majority of the initiatives
because most have not been fully implemented. For those that have been
implemented, such as the Joint Medical Education and Training Campus
in San Antonio, Texas, officials stated that they were unable to develop
baseline training costs against which to measure future costs and
potential savings. However, the governance structure to command,
control, and manage operations at the campus has resulted in the
consolidation of 39 of 64 courses. According to officials, this has resulted
in efficiencies such as the standardization of pharmacy clinical policy
across the services. Table 4 lists the steps DOD has taken to implement
the seven governance initiatives, the results of those actions, and
potential opportunities to achieve additional cost savings and efficiencies.




38
   In addition to the one documented estimate of financial savings, there may be
additional cost savings or costs incurred as a result of the BRAC actions related to these
initiatives.
39
   In 2011, we reported on the progress that the joint venture had made toward achieving
the integration areas identified in the executive agreement between DOD and VA. GAO,
VA and DOD Health Care: First Federal Health Care Center Established, but
Implementation Concerns Need to Be Addressed, GAO-11-570 (Washington, D.C.:
July 19, 2011).




Page 20                                                    GAO-12-224 Defense Health Care
Table 4: Status of the Seven Approved Military Health System Governance Initiatives

Steps taken                             Outcomes achieved                                               Potential additional opportunities
Create governance structures to command and control the combined operations at the military treatment facilities in the
National Capital Area and in the San Antonio, Texas area
                                                            b
In 2007, the Deputy Secretary of        Financial savings achieved for Joint Task Force                 Joint Task Force National Capital
Defense established the standing        National Capital Region Medical:                                Region Medical officials expect
Joint Task Force National Capital       •    Joint Task Force officials reported that they had a        consolidation to eventually reduce
                a
Region Medical to deliver military           onetime savings of about $109 million for fiscal year      contractor and civilian personnel,
health care within the National Capital      2009 through the use of one consolidated contract to       which they estimate will decrease
Region using all available military          cover the equipment and relocation costs for the           costs by $60 million per year by
health care resources and to manage          hospitals being built or renovated under this              fiscal year 2016.
the BRAC-directed consolidation of           recommendation and to employ bulk buying power
medical service in the National              to save money.
Capital Region.
                                        •    Joint Task Force officials stated that the new unified
                                             human resources center resulted in a reduction of
                                             nine full-time positions and a new joint referral and
                                             appointment office achieved $0.2 million in recurring
                                             annual savings from staffing efficiencies.
                                        Estimates from the fiscal year 2011 BRAC budget
                                        request project an annual recurring savings of
                                        $172 million for the 13 separate actions associated with
                                        the BRAC recommendation related to this initiative (2 of
                                        which are closely related to the establishment of the Joint
                                                                                        c
                                        Task Force National Capital Region Medical). However,
                                        our analysis has shown that the up-front costs for the
                                        actions under this recommendation are so great that they
                                        more than offset the annual recurring savings that might
                                        accrue. Therefore, this BRAC action very likely will not
                                        provide any savings over the 20-year projected payback
                                                d
                                        period.
                                                            b
In September 2010, the Army and Air     Financial savings achieved for the San Antonio                  San Antonio Military Health System
Force Chiefs of Staff signed a          Military Health System: The staffing for this office was        officials expect that the collaborative
memorandum of agreement                 accomplished through the reallocation of existing               governance structure will assist
establishing a collaborative            personnel. While agency officials report no documented          commanders with optimizing
organization known as the San           savings associated with this initiative, they believe that      available medical resources and
Antonio Military Health System that     establishing the San Antonio Military Health System             reallocating resources to prevent or
will provide oversight for clinical,    governance structure will save money. However, they             eliminate redundant operations
educational, and business operations    state that it is too early to quantify the savings. Estimates   within the San Antonio area.
for the San Antonio area.               from the fiscal year 2011 BRAC budget request for a             Additionally, officials anticipate that
                                        related BRAC recommendation projected an annual                 efficiencies and associated cost
                                                                  c
                                        savings of $6.8 million. However, our analysis has              savings will result from the area’s
                                        shown that the up-front costs for the actions under this        shared beneficiary population,
                                        recommendation are so great that they more than offset          facilities, and mission.
                                        the annual recurring savings that might accrue.
                                        Therefore, this BRAC action very likely will not provide
                                                                                                    d
                                        any savings over the 20-year projected payback period.




                                             Page 21                                                        GAO-12-224 Defense Health Care
Steps taken                              Outcomes achieved                                             Potential additional opportunities
Create a governance structure to command, control, and manage the Joint Medical Education and Training Campus in
San Antonio, Texas
                                                            b
The Army, Navy, and Air Force            Financial savings : While agency officials report no          Officials stated that they will
signed a memorandum of agreement         documented savings associated with this initiative, they      continue to investigate ways to
that outlines the command and            believe that by reducing the number of overall training       consolidate the remaining 25
control structure for the BRAC-          locations money has been saved and other efficiencies         programs of instruction, which could
directed establishment of the joint      have been achieved. However, estimates from the fiscal        lead to further financial and
Medical Education Training Campus        year 2011 BRAC budget request project an annual               nonfinancial benefits in the future.
                                                                    c
in San Antonio, which reduced the        savings of $97.1 million. This estimate includes savings      Officials stated that they are in the
number of enlisted medical training      from changes in the cost of military personnel, civilian      process of developing an
locations from five to one.              personnel, operations and maintenance, overhead, and          accounting system that will be able
                                         other expenses.                                               to track the cost per course, per
                                         Other nonfinancial outcomes achieved: According to            class, per service, and per student.
                                         senior officials, 39 of the 64 named programs of
                                         instruction have been consolidated and are achieving
                                         nonfinancial efficiencies. For example, senior officials
                                         stated that colocating
                                         •    the pharmacy training provided the opportunity for
                                              differences in clinical policy across services to be
                                              identified and standardized and
                                         •    courses for X-ray and dental technicians provided
                                              the opportunity to standardize and raise the quality
                                              of instruction across the services.
Colocate the MHS’s and services’ medical headquarters staff
                                                            b
DOD leased a building for the BRAC-      Financial savings : Agency officials report no realized       Officials believe the colocation will
directed colocation of Health Affairs,   savings associated with this initiative, and estimates from   provide more opportunities for the
the TRICARE Management Activity,         the fiscal year 2011 BRAC budget request project this         different services to collaborate and
                                                                                               c
and the military services’ medical       initiative to increase costs annually by $0.9 million.        consolidate functions or share
headquarters staff, and renovations to   According to officials, projected increases are the result    services thus possibly producing
that building are under way. However,    of the decision to lease a building, as opposed to the        efficiencies and cost savings in the
the staff are not scheduled to move      original plan to renovate an existing building or build a     future. However, according to
into the building until the summer of    new facility.                                                 diagrams provided by Health Affairs
2012.                                                                                                  officials, MHS and each of the
                                                                                                       services’ personnel are segregated
                                                                                                       in different wings of the building,
                                                                                                       which could hinder opportunities for
                                                                                                       collaboration and further
                                                                                                       consolidation of functions.




                                              Page 22                                                      GAO-12-224 Defense Health Care
Steps taken                                Outcomes achieved                                          Potential additional opportunities
Consolidate all medical research and development under the Army Medical Research and Material Command (MRMC)
Officials stated that Health Affairs and   Financial savings: Agency officials report no              Approximately one-fourth to one-
MRMC agreed to a management                documented savings associated with this initiative.        third of medical research and
arrangement that resulted in the Army      However, officials stated that Health Affairs avoided      development is not centrally
managing two-thirds to three-fourths       establishing a duplicative structure for the management    managed, but according to officials,
of DOD’s medical research and              of its increased research and development funding by       DOD has no plans to consolidate
development funding, mostly from the       using the existing Army research and development           that funding. A 2008 DOD
Army and the Defense Health                management structure already in place at MRMC. Health      assessment concluded that a single
Program.                                   Affairs reimburses the Army for costs related to this      consolidated medical research and
                                           effort.                                                    development budget structure with
                                                                                                      centralized planning, programming,
                                                                                                      and budgeting authority along with
                                                                                                      centralized management would
                                                                                                      provide the most efficient and
                                                                                                      effective process and governance
                                                                                                                           e
                                                                                                      for the investment. Further, GAO
                                                                                                      recently reported that multiple
                                                                                                      entities play roles in psychological
                                                                                                      health and traumatic brain injury
                                                                                                      health care activities, but none
                                                                                                                                           f
                                                                                                      serves as a coordinating authority.
Realign TRICARE Management Activity and establish a Joint Military Health Service Directorate to consolidate shared
services and common functions
Realign TRICARE Management Activity and establish a TRICARE Health Plan Agency to focus on health insurance plan
management
                                                              b
In March 2011, Secretary Gates             Financial savings : Agency officials report no realized    If additional consolidation of shared
approved an Assistant Secretary of         savings associated with this initiative; however, Health   support activities occurs not only
Defense for Health Affairs                 Affairs reduced the fiscal year 2012 Defense Health        within the TRICARE Management
recommendation to reorganize the           Program budget request by $51 million and reduced          Activity but among the services also,
TRICARE Management Activity and            estimates for future year requests by the same amount      officials indicated that additional
establish the Military Health System       anticipating the establishment of the Military Health      cost savings may be possible. For
Support Activity consisting of four        System Support Activity.                                   example, the services could reduce
divisions: (1) Uniformed Services                                                                     overhead costs by consolidating
University of the Health Sciences,                                                                    corporate-level functions, such as
(2) TRICARE health plan, (3) Health                                                                   human capital management,
Management Support, and (4) Shared                                                                    finance, support, and logistics.
Services division.
Create governance structures that consolidate command and control of the military treatment facilities in multiservice
markets (other than the National Capital Region and San Antonio)
In June 2011, the Deputy Secretary of Financial savings: Agency officials report no realized          DOD documentation supporting the
Defense established a team to study savings associated with this initiative.                          development of the November 2006
the governance in these multiservice                                                                  memo approved by the Deputy
markets and to recommend any                                                                          Secretary of Defense stated that the
necessary changes to their structure.                                                                 services agreed that there is a
The task force completed its work in                                                                  significant opportunity to improve
September 2011, but DOD has made                                                                      health services delivery at the
no changes to the governance                                                                          market or regional levels, especially
structures of current multiservice                                                                    where two or more services operate,
markets throughout MHS.                                                                               by empowering a single commander
                                                                                                      with clear authority over programs,
                                                                                                      budget, and personnel.




                                               Page 23                                                    GAO-12-224 Defense Health Care
                        Source: GAO analysis of DOD information.
                        a
                         A joint task force is a jointly manned and operated force that is designated by the Secretary of
                        Defense (among others) that may be established on a geographical area or functional basis when the
                        mission has a specific limited objective and does not require overall centralized control of logistics,
                        such as the Joint Task Force National Capital Region Medical, which covers both geographical and
                        functional bases.
                        b
                            GAO did not independently assess the reliability of this cost savings estimate.
                        c
                         The estimates were obtained from the electronic version of the fiscal year 2011 BRAC budget
                        request and not the published document. We and the BRAC Commission believe that DOD’s net
                        annual recurring savings estimates are overstated because DOD includes savings from eliminating
                        military personnel positions without corresponding decreases in end strength. DOD disagrees with
                        our position. See GAO, Military Base Realignments and Closures: Estimated Costs Have Increased
                        While Savings Estimates Have Decreased Since Fiscal Year 2009, GAO-10-98R (Washington, D.C.:
                        Nov. 13, 2009).
                        d
                         We used net present value analysis to determine whether future annual savings achieved by BRAC
                        action would exceed their up-front costs. Net present value is a financial calculation that accounts for
                        the time value of money by determining the present value of future savings minus up-front investment
                        costs over a specific period of time. Determining net present value is important because it illustrates
                        both the up-front investment costs and long-term savings in a single amount. In the context of BRAC
                        implementation, net present value is calculated for a 20-year period from 2006 through 2025.
                        e
                         See Dr. Robert E. Foster, Captain C. Douglas Forcino, MSC, USN, and Dr. Frederick Pearce,
                        “Guidance for the Development of the Force FY2010–2015, Program and Budget Assessment A4.16,
                        Medical Research and Development Investments,” prepared for the Under Secretary of Defense for
                        Acquisitions, Technology and Logistics (June 2008).
                        f
                         GAO, Defense Health: Coordinating Authority Needed for Psychological Health and Traumatic Brain
                        Injury Activities, GAO-12-154 (Washington, D.C.: Jan. 25, 2012).




DOD Did Not Fully       Although DOD has achieved varying levels of implementation of its MHS
Employ Key Management   governance initiatives, it did not consistently employ several key
Practices               management practices found at the center of successful mergers,
                        acquisitions, and transformations. Further, BRAC implementation
                        requirements drove implementation progress for a number of initiatives.
                        At a GAO forum in September 2002, leaders with experience managing
                        large-scale organizational mergers, acquisitions, and transformations
                        identified at least nine key practices and lessons learned from major
                        private and public sector organizational mergers, acquisitions, and
                        transformations. 40 During the course of our work examining DOD’s health
                        care initiatives, we determined that six of the key practices identified at
                        our 2002 forum were especially important to ensure that DOD has the
                        framework needed to implement its governance initiatives: (1) a focus on
                        a key set of principles and priorities that are embedded in the
                        organization to reinforce the new changes, (2) coherent mission and
                        integrated strategic goals to guide the transformation, (3) implementation



                        40
                              GAO-03-669.




                        Page 24                                                               GAO-12-224 Defense Health Care
                                   goals and a timeline to build momentum and show progress from day
                                   one, (4) a communication strategy to create shared expectations and
                                   report related progress, (5) a dedicated implementation team with the
                                   responsibility and authority to drive the department’s governance
                                   initiatives, and (6) committed and sustained leadership. 41

Focus on a Key Set of              To its credit, DOD developed a set of guiding principles to facilitate its
Principles and Priorities at the   transformation of DOD’s medical command structure. A clear set of
Outset of the Transformation       principles and priorities can serve as a framework to help the agency
                                   create a new culture and drive employee behavior. For example, a set of
                                   core values can become embedded in every aspect of the organization
                                   and can serve as an anchor that remains valid and enduring while
                                   organizations, personnel, programs, and processes change. Senior DOD
                                   officials developed a set of guiding principles to direct efforts throughout
                                   the governance transformation. These principles and goals were included
                                   in the November 2006 memorandum: (1) provide a healthy, fit and
                                   protected force; (2) create a trained, ready, and highly capable medical
                                   force that delivers superior medical support; and (3) ensure efficient
                                   delivery of a comprehensive health benefit to eligible beneficiaries.

Establish a Coherent Mission       Although DOD provided initial guidance and strategic goals in its
and Integrated Strategic Goals     November 2006 memorandum, it did not follow leading results-oriented
to Guide the Transformation        strategic planning guidance by establishing performance measures. As
                                   we have previously reported, effective implementation includes adopting
                                   leading practices for results-oriented strategic planning and reporting,
                                   such as establishing specific and measurable performance measures for
                                   the transformed organization. 42 In addition, intermediate measures can be
                                   used to provide information on interim results and show progress toward
                                   intended results. 43 DOD provided initial guidance, which includes strategic



                                   41
                                      We determined that DOD’s use of each of these six of the practices was relevant
                                   because DOD either employed a practice to some degree or the practice was appropriate
                                   given DOD’s position in the transformational process and therefore it should have
                                   employed the practice. However, this exception on our part does not suggest that DOD
                                   should not employ the other three practices in the future. As DOD progresses through the
                                   change process, DOD should consider employing all of the key practices to help ensure a
                                   successful transformation. For a more detailed discussion concerning our methodology for
                                   assessing DOD’s application of these key practices, see app. I of this report.
                                   42
                                        GAO-03-669.
                                   43
                                     GAO, DOD’s High-Risk Areas: Challenges Remain to Achieving and Demonstrating
                                   Progress in Supply Chain Management, GAO-06-983T (Washington, D.C.: July 25, 2006).




                                   Page 25                                                 GAO-12-224 Defense Health Care
                               goals to assist in the implementation of the governance transformation.
                               For example, the memo provided that lessons learned from the
                               consolidation and realignment of health care delivery within the National
                               Capital Region and San Antonio be used as the basis for establishment of
                               similar structures in other multiservice medical markets. However, MHS
                               officials stated that Health Affairs did not fully monitor and evaluate the
                               progress of its governance initiatives using performance measures.
                               Specifically, DOD leaders stated that specific measures to evaluate the
                               outcomes of the different governance approaches taken in these two
                               locations had not been established. Therefore, DOD lacked information
                               that would be useful in deciding if governance changes are needed in
                               other multiservice medical markets. Such measurable outcomes provide
                               the information DOD needs to determine if it is meeting its goals, make
                               informed decisions, and track the progress of the governance
                               transformation activities.

Set Implementation Goals and   The November 2006 memorandum provided a brief, initial 3-year
a Timeline to Build Momentum   timetable for the implementation of the governance transformation
and Show Progress from Day     initiatives; however, this timetable is high level and did not contain interim
One                            dates indicating progress. Besides meeting the approval date of the
                               memorandum, MHS officials did not meet any of the other major dates
                               that were set in the timetable. We have reported that establishing
                               implementation goals and a timeline is critical to ensuring success, as
                               well as pinpointing performance shortfalls and gaps and suggesting
                               midcourse corrections. 44 A transformation, such as changing DOD’s MHS
                               governance, is a substantial commitment that could take years before it is
                               completed and therefore must be carefully managed and monitored to
                               achieve success. At a minimum, successful mergers and transformations
                               should have careful and thorough interim plans in place well before the
                               effective implementation date. 45 However, the timetable lacked any
                               interim goals. While DOD has made progress in implementing the three
                               initiatives that were related to BRAC recommendations, this is most likely
                               because DOD was required by law to complete most implementation of
                               BRAC recommendations by September 15, 2011, and to have a
                               monitoring process in place to support these efforts. These three



                               44
                                    GAO-03-669.
                               45
                                  GAO, Highlights of a GAO Forum: Mergers and Transformation: Lessons Learned for a
                               Department of Homeland Security and Other Federal Agencies, GAO-03-293SP
                               (Washington, D.C.: Nov. 14, 2002).




                               Page 26                                               GAO-12-224 Defense Health Care
                            initiatives are (1) create governance structures to command, control, and
                            manage the combined operations at the military treatment facilities in the
                            National Capital Area and in the San Antonio, Texas, area; (2) create a
                            governance structure to command, control, and manage the Joint Medical
                            Education and Training Campus in San Antonio, Texas; and (3) colocate
                            Health Affairs, TMA, and the services’ medical headquarters staff.
                            However, the latest completion date for the colocation of the Health
                            Affairs, TMA, and the services’ medical headquarters staff is the summer
                            of 2012. DOD’s governance initiatives may have been better implemented
                            if MHS officials had maintained a long-term focus on the transformation
                            by setting both short- and long-term goals to show progress and
                            developing a more complete and specific timetable to guide the efforts.

Establish a Communication   DOD has not established an effective and ongoing communication
Strategy to Create Shared   strategy to allow MHS officials to distribute information about its
Expectations and Report     governance changes early and often. Key practices suggest that a
Related Progress            transforming organization develop a comprehensive communication
                            strategy that reaches out to employees, customers, and stakeholders and
                            seeks to genuinely engage them in the transformation process. This
                            includes communicating early and often to build trust, ensuring
                            consistency of message, encouraging two-way communication, and
                            providing information to meet specific needs of employees. While MHS
                            officials communicated their transformation initiatives in the 2007
                            TRICARE Stakeholders’ Report, subsequent reports did not contain any
                            references to the governance initiatives. In addition, the 2008 Military
                            Health System Strategic Plan 46 references a goal to “improve governance
                            by aligning authority and accountability” as a strategic priority; however,
                            the plan does not elaborate on how this goal will be met, and it has not
                            been reissued since. Furthermore, the lack of a communication strategy
                            is evident based on the fact that officials in San Antonio responsible for
                            the initiatives related to establishing the Joint Medical Education and
                            Training Campus and San Antonio Military Health System told us they
                            were unaware of the approved governance initiatives. DOD has not
                            developed an approach to communicate its governance transformation
                            initiatives with stakeholders to ensure that they have a basic
                            understanding of their role and involvement. Without a comprehensive
                            communication strategy, MHS officials will remain limited in their ability to



                            46
                              DOD, The Military Health System Strategic Plan: A Roadmap for Medical
                            Transformation (Summer 2008).




                            Page 27                                               GAO-12-224 Defense Health Care
                                gain support for the governance transformation. Further, this lack of
                                communication can create confusion or a lack of awareness among
                                stakeholders, which can place the success of DOD’s initiatives at risk.

Dedicate a Transition Team to   DOD did not form an overarching implementation team for all seven of its
Implement MHS Governance        initiatives to direct their progress. Our prior work has shown that a
Transformation                  dedicated team vested with necessary authority and resources to help set
                                priorities, make timely decisions, and move quickly to implement
                                decisions is critical for a successful transformation. 47 As we have
                                previously reported, a strong and stable implementation team responsible
                                for day-to-day management is important to ensuring that a transformation
                                effort receives the focused, full-time attention needed to be sustained and
                                successful. The Deputy Secretary of Defense’s November 2006
                                memorandum directed DOD to build such a team by 2007. Instead,
                                according to a DOD official, it initiated independent transition teams to
                                guide the implementation of some of its initiatives, such as the Joint Task
                                Force National Capital Region Medical and the colocation of the MHS’s
                                and the services’ medical headquarters staff. The lack of an overarching
                                implementation team likely hampered progress and contributed to uneven
                                progress in the implementation of the initiatives.

Ensure That Top Leadership      DOD leadership did not provide the sustained direction needed to help
Drives the Transformation       ensure progress of its MHS governance transformation. We previously
                                reported that leadership sets the direction, pace, and tone for the
                                transformation and provides sustained attention over the long term. In
                                addition, top leaders who are clearly and personally involved in mergers
                                or transformations can help to provide stability during such tumultuous
                                times. 48 Since the approval of the governance initiatives in 2006, DOD
                                leadership has not provided such direction. While progress was made in
                                implementing three of the initiatives, BRAC statutory requirements
                                provided an additional impetus for this progress. As noted above,
                                leadership’s failure to establish performance measures, set interim
                                implementation dates, establish a communication strategy, and establish
                                an implementation team may have hampered the initiatives’ progress. For
                                example, DOD made no progress in the realignment of the TRICARE
                                Management Activity to create separate units focused on shared services
                                and health insurance plan management until the 2010 Secretary of


                                47
                                     GAO-03-669.
                                48
                                     GAO-03-669.




                                Page 28                                         GAO-12-224 Defense Health Care
              Defense internal efficiencies review. Further, officials told us that the lack
              of Senate-confirmed, presidentially appointed leadership also presented
              challenges in moving forward with governance changes. For example, the
              position of the Under Secretary of Defense for Personnel and Readiness
              was vacant from January 2009 to February 2010, and the position of
              Assistant Secretary of Defense for Health Affairs was vacant from April
              2009 to January 2011. According to officials, these vacancies hindered
              progress toward greater unification, as someone temporarily filling the
              position may be reluctant to make major decisions to change the strategic
              direction of the MHS. Without involved and sustained military and civilian
              leadership being held accountable to guide and sustain progress of its
              initiatives, it may be difficult for the department to fully and successfully
              achieve its governance transformation.

              Overall, DOD did not consistently employ key management practices to
              help improve the implementation of its MHS governance initiatives or to
              evaluate the extent to which it accomplished the initiatives’ costs savings
              and other performance goals. As a result, the gaps we identified may
              have created risks that undermined DOD’s efforts as it began to
              implement its plans. Specifically, without key management practices in
              place, DOD lacks both a day-to-day and long-term focus on achieving its
              goals and accountability to guide and sustain progress of its initiatives.


              If military health care costs continue to rise at their current rate, they will
Conclusions   consume an increasingly large portion of the defense budget and
              potentially divert funding away from other critical DOD priorities. MHS
              medical-related and governance-related initiatives represent potential
              opportunities to implement more efficient ways of doing business, reduce
              overhead, and slow the rate of cost growth while continuing to meet the
              needs of military personnel, retirees, and their dependents. While DOD
              has developed a number of medical initiatives aimed at slowing health
              care cost increases, successful implementation will depend upon
              incorporating characteristics of results-oriented management practices,
              sustaining top military and civilian leadership that holds officials
              accountable for achieving agency goals, and establishing clear cost
              savings targets where applicable. By fully employing the characteristics of
              results-oriented management with greater attention to its investments and
              resources and key external factors that could affect the achievement of its
              goals, DOD will gain more assurance that it is effectively managing its
              health care initiatives and saving money. Additionally, opportunities exist
              for an improved governance structure that can result in direct cost
              savings but also help to drive clinical savings. As DOD moves forward


              Page 29                                            GAO-12-224 Defense Health Care
                      with its governance, clinical, and other initiatives, significant financial
                      savings as well as other efficiencies may be possible with the appropriate
                      level of management attention to ensure success. With sound decision
                      making and analysis and by consistently employing key management
                      practices throughout their implementation, DOD officials will be in a
                      position to make informed decisions, to better measure DOD’s progress
                      toward its cost and performance goals, and to be more assured that their
                      efforts yield necessary improvements and achieve efficiencies within the
                      MHS.


                      In order to enhance DOD’s efforts to manage rising health care costs and
Recommendations for   demonstrate sustained leadership commitment for achieving the
Executive Action      performance goals of the MHS’s strategic initiatives, we recommend that
                      the Under Secretary of Defense for Personnel and Readiness direct the
                      Assistant Secretary of Defense for Health Affairs, in conjunction with the
                      service surgeons general, to take the following three actions:

                      •   Complete and fully implement, within an established time frame, the
                          dashboards and detailed implementation plans for each of the
                          approved health care initiatives in a manner that incorporates the
                          desired characteristics of results-oriented management practices,
                          such as the inclusion of performance metrics, investment costs, and
                          cost savings estimates.

                      •   Complete the implementation of an overall monitoring process across
                          DOD’s portfolio of initiatives for overseeing the initiatives’ progress
                          and identifying accountable officials and their roles and
                          responsibilities for all of its initiatives.

                      •   Complete the implementation of the governance initiatives that are
                          already under way by employing key management practices in order
                          to show financial and nonfinancial outcomes and to evaluate both
                          interim and long-term progress of the initiatives.

                      In written comments provided in response to a draft of this report, DOD
Agency Comments       concurred with our findings and recommendations. Regarding our first
                      recommendation to complete and fully implement, within an established
                      time frame, the dashboards and detailed implementation plans for each of
                      the approved health care initiatives in a manner that incorporates the
                      desired characteristics of results-oriented management practices, DOD
                      concurred and noted that it anticipates that these dashboards and
                      detailed implementation plans will be fully implemented within a year.


                      Page 30                                          GAO-12-224 Defense Health Care
Regarding our second recommendation to complete the implementation
of an overall monitoring process across DOD’s portfolio of initiatives for
overseeing the initiatives’ progress and identifying accountable officials
and their roles and responsibilities, DOD concurred and noted that such a
system is being implemented and it anticipates that the overall monitoring
process will also be fully implemented within a year. Regarding our third
recommendation to complete the implementation of the governance
initiatives that are already under way by employing key management
practices in order to show financial and nonfinancial outcomes, DOD
concurred and noted that the department will take further action once the
legislative requirements concerning its submitted task force report on
MHS governance have been fulfilled. DOD noted that it will employ key
management practices in order to identify financial and nonfinancial
outcomes. DOD’s comments are reprinted in their entirety in appendix II.


We are sending copies of this report to the Secretary of Defense, the
Deputy Secretary of Defense, the Under Secretary of Defense for
Personnel and Readiness, the Assistant Secretary of Defense (Health
Affairs), the Surgeon General of the Air Force, the Surgeon General of
the Army, the Surgeon General of the Navy, the Commander, Joint Task
Force, National Capital Region Medical, and interested congressional
committees. In addition, the report is available at no charge on the GAO
website at http://www.gao.gov.

If you or your staff have any questions regarding this report, please
contact me at (202) 512-3604 or farrellb@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to this
report are listed in appendix III.




Brenda S. Farrell
Director
Defense Capabilities and Management




Page 31                                         GAO-12-224 Defense Health Care
List of Committees

The Honorable Carl Levin
Chairman
The Honorable John McCain
Ranking Member
Committee on Armed Services
United States Senate

The Honorable Daniel K. Inouye
Chairman
The Honorable Thad Cochran
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate

The Honorable Howard P. “Buck” McKeon
Chairman
The Honorable Adam Smith
Ranking Member
Committee on Armed Services
House of Representatives

The Honorable C.W. Bill Young
Chairman
The Honorable Norman D. Dicks
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives




Page 32                                 GAO-12-224 Defense Health Care
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             To obtain general background information, we obtained and reviewed
             various directives, instructions, and policies that defined the organization,
             structure, and roles and responsibilities of the Military Health System’s
             (MHS) key leaders.

             To determine the extent to which the Department of Defense (DOD) has
             identified initiatives to reduce health care costs and applied results-
             oriented management practices in developing plans to implement and
             monitor them, we interviewed DOD officials concerning their approach to
             this challenge and examined documentation of related plans and policies.
             Specifically, we interviewed DOD officials in the Health Budgets and
             Financial Policy Office and in the Office of Strategy Management, within
             the Office of the Assistant Secretary of Defense for Health Affairs (Health
             Affairs), as well as officials in the TRICARE Management Activity
             concerning their 11 health care initiatives and obtained and reviewed
             documentation concerning their efforts. We compared DOD’s efforts to
             our prior work on the desirable characteristics of comprehensive, results-
             oriented management and noted any differences.

             We compared DOD’s one available implementation plan, concerning the
             Patient Centered Medical Home initiative, to key practices that guide
             federal agencies’ approaches to strategic planning efforts by examining
             the extent to which the implementation plan contained the desirable
             characteristics of a comprehensive, results-oriented management
             framework. To perform this comparison, we developed a data collection
             instrument that contained desirable characteristics and elements that help
             establish comprehensive strategies using information from prior GAO
             work examining national strategies and logistics issues. The data
             collection instrument included the following six desirable characteristics:

             1. Mission statement: A comprehensive statement that summarizes the
                main purposes of the plan.

             2. Problem definition, scope, and methodology: Presents the issues to
                be addressed by the plan, the scope of its coverage, the process by
                which it was developed, and key considerations and assumptions
                used in the development of the plan.

             3. Goals, objectives, activities, milestones, and performance measures:
                The identification of goals and objectives to be achieved by the plan,
                activities or actions to achieve those results, as well as milestones
                and performance measures.




             Page 33                                           GAO-12-224 Defense Health Care
Appendix I: Scope and Methodology




4. Resources and investments: The identification of costs to execute the
   plan and the sources and types of resources and investments,
   including skills and technology and the human, capital, information,
   and other resources required to meet the goals and objectives.

5. Organizational roles, responsibilities, and coordination: The
   development of roles and responsibilities in managing and overseeing
   the implementation of the plan and the establishment of mechanisms
   for multiple stakeholders to coordinate their efforts throughout
   implementation and make necessary adjustments to the plan based
   on performance.

6. Key external factors that could affect the achievement of goals: The
   identification of key factors external to the organization and beyond its
   control that could significantly affect the achievement of the long-term
   goals contained in the plan. These external factors can include
   economic, demographic, social, technological, or environmental
   factors, as well as conditions that would affect the ability of the agency
   to achieve the results desired.

We used the data collection instrument to determine whether each
characteristic was addressed, partially addressed, or not addressed. Two
GAO analysts independently assessed whether each element was
addressed, partially addressed, or not addressed, and recorded their
assessment and the basis for the assessment on the data collection
instrument. The final assessment reflected the analysts’ consensus and
was reviewed by a supervisor.

We also obtained available documentation and interviewed DOD officials
to determine DOD’s approach for monitoring the initiatives’ progress,
identifying accountable officials, and defining their roles and
responsibilities. We compared DOD’s efforts to our prior work on results-
oriented management and noted any differences.

We did not assess the reliability of any financial data associated with this
objective since we used such data for illustrative purposes to provide
context of DOD’s efforts and to make broad estimates about potential
costs savings from these efforts. We determined that these data did not
materially affect the nature of our findings.

To determine the extent to which DOD implemented its seven medical
governance initiatives approved in 2006, we first identified the
governance initiatives approved by the Deputy Secretary of Defense, and



Page 34                                          GAO-12-224 Defense Health Care
Appendix I: Scope and Methodology




then we visited locations where the initiatives were being implemented to
review available documentation related to the status of the efforts and
interviewed officials concerning any progress made. Specifically:

•   To determine the extent to which command and control structures in
    the National Capital Region and San Antonio areas had been
    established, we met with officials from the Joint Task Force National
    Capital Region Medical and officials from the 59th Medical Wing,
    Brook Army Medical Center, and the Army Medical Command in San
    Antonio, Texas. We obtained and reviewed the charter establishing
    the Joint Task Force and the memorandum of agreement establishing
    the San Antonio Military Health System. Based on the interviews and
    the reviews of the charter, memorandum of agreement, and other
    documents provided by officials, we determined each organization’s
    staffing, management structure, responsibilities and authorities, and
    financing. We compared the resulting organization with the guidance
    contained in the approved governance initiative to determine if the
    organization complied with the intent of the approved governance
    initiative. Furthermore, we interviewed officials and obtained any
    information available to document and determine if any financial
    savings had been generated from the change in governance
    structure.

•   To determine the extent to which a command and control structure for
    the Joint Medical Education and Training Campus had been
    established, we met with officials from the Medical Education and
    Training Campus. We obtained and reviewed the memorandum of
    agreement establishing the Medical Education and Training Campus.
    Based on this interview and the reviews of the memorandum of
    agreement and other documents provided by officials, we determined
    the organization’s staffing, management structure, responsibilities and
    authorities, and financing. We compared the resulting organization
    with the guidance contained in the approved governance initiative to
    determine if the organization complied with the intent of the approved
    governance initiative. Furthermore, we interviewed officials and
    obtained any information available to document and determine if any
    financial savings had been generated from the change in governance
    structure.

•   To determine the extent to which the MHS’s and services’ medical
    headquarters staff had been colocated, we interviewed officials from
    Health Affairs, and we obtained briefings on the status of the
    colocation as well as the latest Base Realignment and Closure
    (BRAC) business plan developed for the colocation. Furthermore, we


Page 35                                         GAO-12-224 Defense Health Care
Appendix I: Scope and Methodology




    obtained and examined the recommendation from the 2005 BRAC
    Commission that mandated the colocation.

•   To determine the extent to which DOD consolidated all medical
    research and development under the Army Medical Research and
    Material Command, we interviewed Health Affairs officials responsible
    for medical research and development funded by the Defense Health
    Program appropriation to learn the extent to which these funds had
    been consolidated under the Army Medical Research and Material
    Command. We reviewed the interservice support agreement that
    documents how Health Affairs and the Army Medical Research and
    Material Command agreed to interact to manage the research funded
    by the Defense Health Program appropriation. We reviewed DOD’s
    2008 assessment of medical research and development investments
    conducted for the Guidance for Development of the Force (fiscal
    years 2010–2015) 1 for background on how DOD handled medical
    research and development funds in the past and to document the
    need for additional research and development funds.

•   To determine the extent to which DOD realigned the TRICARE
    Management Activity to establish a Joint Military Health Services
    Directorate and establish an agency to focus on health insurance plan
    management, we interviewed Health Affairs officials to determine
    what efforts had been made to accomplish these two initiatives and
    examined the proposed Military Heath System Support Activity
    organization put forth in the Defense Health Program’s fiscal year
    2012 budget request.

•   To assess the extent to which DOD created governance structures
    that consolidate command and control of the military treatment
    facilities in locations with more than one DOD component providing
    health care services, we interviewed officials at Health Affairs to
    determine what efforts had been made and what future plans they
    may have in this area.

To determine the extent to which DOD employed key management
practices while implementing the medical governance initiatives, we


1
 Dr. Robert E. Foster, Captain C. Douglas Forcino, MSC, USN, and Dr. Frederick Pearce,
“Guidance for the Development of the Force FY2010–2015, Program and Budget
Assessment A4.16, Medical Research and Development Investments,” prepared for the
Under Secretary of Defense for Acquisitions, Technology and Logistics (June 2008).




Page 36                                                GAO-12-224 Defense Health Care
Appendix I: Scope and Methodology




compared DOD’s approach to implementing the approved governance
initiatives with key management practices that GAO has found to be at
the center of successful mergers, acquisitions, and transformations. 2
Although the GAO report on key practices for transformation listed nine
practices, we found that six of the nine had the most relevance to our
review. The six key practices we used in our analysis were

•     ensure top leadership drives the transformation,
•     establish a coherent mission and integrated strategic goals to guide
      the transformation,
•     focus on a key set of principles and priorities at the outset of the
      transformation,
•     set implementation goals and a timeline to build momentum and show
      progress from day one,
•     dedicate an implementation team to manage the transformation
      process, and
•     establish a communication strategy to create shared expectations and
      report related progress.

We decided to exclude the following three practices: (1) the use of the
performance management system to define responsibility and assure
accountability for change, (2) the involvement of employees to obtain their
ideas and ownership for the transformation, and (3) the adaptation of
leading practices to build a world-class organization. Rather, we
assessed DOD’s use of each of the six of the practices because DOD
either employed a practice to some degree or the practice was
appropriate given DOD’s position in the transformational process.
However, this exception on our part does not suggest that DOD should
not employ these three practices in the future. As DOD progresses
through the change process, DOD should consider employing all of the
key practices to help ensure a successful transformation.

We determined the extent to which DOD employed the above key
management practices in implementing the medical governance initiatives
by comparing them to the actions taken by MHS officials. Specifically, we
reviewed the November 2006 action memorandum signed by the Deputy
Secretary of Defense that laid out the way ahead, provided some initial
guidance, and identified the seven next steps. We examined the 2008
Military Health System Strategic Plan, the Under Secretary of Defense for


2
    GAO-03-669.




Page 37                                         GAO-12-224 Defense Health Care
Appendix I: Scope and Methodology




Personnel and Readiness Fiscal Year 2012-2016 Strategic Plan, MHS
stakeholders’ reports, the MHS Strategic Imperatives Scorecard, Defense
Health Program budget estimates, memorandums of agreement, an
interservice support agreement, charters, BRAC business plans, and
memorandums providing the status of implementations efforts. To
complete our understanding of DOD’s approach in implementing the
seven approved governance initiatives, we interviewed officials from the
Office of the Under Secretary of Defense for Personnel and Readiness,
Health Affairs, the TRICARE Management Activity, the Joint Task Force
National Capital Region Medical, the Medical Education and Training
Campus, Brook Army Medical Center, Army Medical Command, and Air
Force 59th Medical Wing. We compared this information to key
management practices for successful mergers, acquisitions, and
transformations and examined any differences.

Finally, we also interviewed officials who participated in the Office of the
Under Secretary of Defense for Personnel and Readiness’ review of
military health care and its impacts on the health of the force and the
Deputy Secretary of Defense’s review of MHS governance options. We
also obtained the final report from the Task Force on MHS Governance,
analyzed its methodology and findings, and discussed the results and its
recommendations with DOD officials.

We conducted this performance audit from March 2011 through February
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




Page 38                                           GAO-12-224 Defense Health Care
Appendix II: Comments from the Department
             Appendix II: Comments from the Department
             of Defense



of Defense




             Page 39                                     GAO-12-224 Defense Health Care
Appendix II: Comments from the Department
of Defense




Page 40                                     GAO-12-224 Defense Health Care
Appendix II: Comments from the Department
of Defense




Page 41                                     GAO-12-224 Defense Health Care
Appendix III: GAO Contact and Staff
                  Appendix III: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Brenda S. Farrell, (202) 512-3604 or farrellb@gao.gov
GAO Contact
                  In addition to the contact named above, Lori Atkinson, Assistant Director;
Staff             Rebecca Beale; Stacy Bennett; Grace Coleman; Elizabeth Curda; Kevin
Acknowledgments   Keith; Charles Perdue; Adam Smith; Amie Steele; and Michael Willems
                  made key contributions to this report.




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                  Page 42                                         GAO-12-224 Defense Health Care
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