Medicare Subvention Demonstration: DOD Start-Up Overcame Obstacles, Yields Lessons, and Raises Issues

Published by the Government Accountability Office on 1999-09-28.

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

                      United States General Accounting Office

GAO                   Report to Congressional Committees

September 1999

                      DOD Start-up
                      Overcame Obstacles,
                      Yields Lessons, and
                      Raises Issues

United States General Accounting Office                                                           General Government Division
Washington, D.C. 20548

                                    September 28, 1999

                                    Congressional Committees:

                                    This report conveys our findings on the early implementation of the
                                    Department of Defense (DOD) Medicare Subvention Demonstration. The
                                    demonstration is designed to test whether DOD, by forming Medicare
                                    Health Maintenance Organizations (HMO) at six sites, can provide
                                    accessible and quality health care to military retirees and their survivors
                                    and dependents, while not increasing federal costs for either Medicare or

                                    Military health care and Medicare share a sizable service population. There
                                    are 1.3 million military retirees (including their dependents and survivors)
                                    who are 65 and older. Most of them are eligible for Medicare as well as for
                                    military health benefits—dual eligibles—and many of these dual eligibles
                                    are enrolled in traditional fee-for-service Medicare or a Medicare HMO.
                                    Some of these Medicare enrollees obtain Medicare-covered health services
                                    at military treatment facilities (MTF) as well as from their private
                                    physician or HMO. However, legislation prior to this demonstration
                                    prohibited Medicare from reimbursing DOD, which had paid for these
                                    services from appropriated funds. DOD’s 1999 appropriation for military
                                    health care was almost $16 billion, of which about $1.2 billion was spent
                                    on those 65 and older.

                                    Although retirees 65 and older have historically received some care at
                                    MTFs, prior to this demonstration DOD could not offer them
                                    comprehensive care. DOD had a managed care program (TRICARE
                                    Prime), but only for service members on active duty, retirees under 65, and
                                    their respective dependents and survivors. However, once they reached 65,
                                    retirees were no longer eligible for TRICARE Prime. The demonstration
                                    program, called TRICARE Senior Prime, extends DOD-provided managed
                                    care at the six sites to these older retirees.

                                        “Subvention” means a transfer of money from one federal department to another.
                                     For the names of the six sites and summary information about them, see table 1. More detailed
                                    information about the sites is included in appendixes I through VI.
                                     We will use the term “retirees” in this report when referring to retirees and their dependents and

                                    Page 1               GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

Senior Prime differs from TRICARE Prime in three important ways. First,
Senior Prime covers Medicare benefits, such as care at a skilled nursing
facility, in addition to TRICARE Prime benefits. Second, Senior Prime
serves two masters. It must comply with Medicare as well as DOD
requirements and answer to the Health Care Financing Administration
(HCFA), which administers the Medicare Program, as well as to Defense
health care officials. Third, Senior Prime involves Medicare subvention
payments to DOD, provided that certain conditions are met.

In principle, the subvention demonstration offers several advantages. It
enables older military retirees to obtain Medicare managed care benefits
within the military health care system, which is an option that military
retiree groups have supported. It also enables DOD to receive Medicare
funds for services to Medicare-eligible retirees, beyond what DOD was
already providing at its own expense. Medicare might gain from the
subvention demonstration if its payments to DOD are lower than what
Medicare would otherwise have paid on behalf of these beneficiaries.

However, key features of the demonstration are new and there were many
questions as to how the program would work out. Accordingly, the
Balanced Budget Act of 1997 (BBA), which established this
demonstration, directs us to evaluate the demonstration’s results. The BBA
poses 15 evaluation questions covering 3 key areas: feasibility of and
difficulties in program implementation; costs to Medicare and DOD; and
effects on beneficiaries (in terms of access to and quality of care). The
questions also ask about possible side effects—for example, whether the
demonstration affects other users of DOD health care, military readiness
and training, and private providers. We have already issued an initial report
on cost information and related payment issues. Other interim reports on
cost, access, and quality issues will follow this report. The BBA calls for us
to issue a final report several months after the demonstration ends in
December 2000.

This report focuses on program implementation during the start-up phase
of the demonstration. Our objectives were (1) to report on progress in
establishing the ground rules for program operation, receiving HCFA
approval, attracting enrollment, and starting to deliver health services; (2)
to present information on useful practices and operational difficulties that
emerged during program start-up; and (3) drawing on experience to date,
    P.L. 105-33.
 Medicare Subvention Demonstration: DOD Data Limitations May Require Adjustments and Raise
Broader Concerns (GAO/HEHS-99-39, May 28, 1999).

Page 2             GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                   to identify issues for the future. Side effects, to the extent that they can be
                   identified at this early stage of program operation, are included in the

                   The start-up period of the Medicare Subvention demonstration was
Results in Brief   successful. Despite unanticipated delays, the six demonstration sites met
                   the requirements for Medicare managed care plans, enrolled substantial
                   numbers of beneficiaries, and began delivery of health care services by
                   January 1, 1999. The sites’ experience in dealing with the difficulties that
                   arose along the way has yielded valuable lessons and has also pinpointed
                   issues that remain to be resolved. While the successful start-up of the
                   demonstration is encouraging, it will be some time before the results of its
                   mature operation can be assessed.

                   Establishing the ground rules for the demonstration took longer and the
                   HCFA approval process was more demanding than anticipated. As a result,
                   the demonstration will cover 24 to 28 months of service rather than 3
                   years. The initial demand for enrollment overall was not as great as
                   expected, in part because retirees were wary of a temporary program and
                   feared that they might be unable to obtain affordable supplementary
                   (Medigap) insurance at the demonstration’s end. Enrollment also reflected
                   site-specific factors, such as prospects for getting space-available care at
                   an MTF without joining Senior Prime, the breadth of services available at
                   the MTF, and options for care elsewhere in the community.

                   Preparing for the start-up of the demonstration brought some useful new
                   senior health care and management practices to the MTFs, but also
                   revealed operational difficulties. Such new practices included enrollee
                   orientations and the early identification of health care needs that affected
                   patients’ transition into Senior Prime. Some of the operational difficulties
                   that arose—such as bulges in demand for primary care—were solved at
                   individual sites. Others were linked to HCFA and DOD central direction,
                   such as difficult-to-combine data systems or inconsistent policy guidance.

                   The fact that this demonstration program operates within two
                   bureaucracies—DOD and HCFA—caused some points of strain. Being new
                   to Medicare, demonstration sites had to devote substantial DOD staff and
                   consultant time learning HCFA requirements. The dual organizational
                   structures within DOD—the governance structure of the Senior Prime
                   Medicare plan and the military chain of command—carry with them the
                   potential for conflict. Additionally, dual DOD and HCFA procedures,
                   although perhaps necessary, may result in duplication of effort.

                   Page 3        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                      Finally, experience in the start-up phase of this demonstration raises
                      issues for the future of this or other similar demonstrations. Current
                      enrollees will need to know several months in advance of the end of this
                      demonstration whether service will continue so that they can plan for their
                      continued health care. Questions continue to arise concerning which
                      aspects of Senior Prime operation DOD will handle centrally for the
                      program as a whole and which aspects will be left to the sites. The
                      demonstration also raises questions about arrangements for seniors’ care
                      during periods of deployment of military medical staff. It is uncertain how
                      program expansion, if enacted at the end of the demonstration, would take
                      place—for example, how sites distant from the DOD regional office that
                      directs a Senior Prime plan might be added. Also, the viability of
                      expanding the program to isolated sites that offer limited services deserves
                      careful review. We make recommendations in this report concerning
                      issues that affect the current demonstration.

                      The DOD Medicare Subvention Demonstration combines a national health
Background            care delivery system operated by DOD with a health insurance system—
                      Medicare—operated by HCFA within the Department of Health and
                      Human Services (HHS). The demonstration includes six sites in different
                      regions of the country.

The DOD Health Care   The DOD health care system covers a service population that includes 1.6
                      million active-duty military personnel, 2.2 million dependents of active-
System                duty personnel, and 4.4 million military retirees and their dependents,
                      including the 1.3 million who are 65 and older. DOD delivers health care
                      through its system of almost 500 MTFs worldwide. These facilities include
                      15 medical centers that offer extensive specialty care and provide graduate
                      medical education (GME), such as residency training. In addition, DOD
                      operates 76 smaller community hospitals with less extensive service
                      options and 374 clinics offering outpatient services only. Pharmacy
                      services are available at most MTFs and are free-of-charge.

                      The direct care provided at MTFs is supplemented with care provided by a
                      network of contracted civilian providers through DOD’s TRICARE
                      program. TRICARE offers beneficiaries three options for health care
                      delivery, including an HMO option called TRICARE Prime. There are 12
                      TRICARE regions within the U.S., each headed by a lead agent, who is
                      usually the commander of the largest medical center in the region. Each
                      region also has a managed care support contractor who manages the
                      private provider network and performs various beneficiary assistance and
                          Approximately 10 community hospitals also offer GME.

                      Page 4              GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

           management support services. The Office of the Lead Agent (OLA)
           oversees the TRICARE management support contractor for the region and
           coordinates TRICARE activities.

           Priority for military medical care is given to active-duty personnel and
           their dependents and retirees under 65 who are enrolled in TRICARE
           Prime, thus enabling them to receive comprehensive health care coverage.
           TRICARE Prime coverage ends when a retiree reaches 65. Older retirees
           are eligible to receive medical care at an MTF, but only when space is
           available. Some MTFs have considerable space available after high-priority
           beneficiaries have been served, and others have very little space.

Medicare   Medicare is a federally financed health insurance program for the elderly,
           some disabled people, and people with end-stage kidney disease. Medicare
           covers 39 million beneficiaries and spends about $212 billion a year. Its
           benefits include hospital, physician, and other services, such as home
           health care and limited skilled nursing facility care. Medicare Part A covers
           inpatient hospital care, skilled nursing facility care, and hospice care;
           Medicare Part B covers physician and other outpatient services for
           beneficiaries who choose to pay a monthly premium.

           Traditional Medicare reimburses private providers on a fee-for-service
           basis and allows Medicare beneficiaries to choose their own providers
           without restriction. Beneficiaries who receive care are responsible for part
           of the charges. Medicare beneficiaries can also join a Medicare HMO, and
           Medicare+Choice provisions that took effect in January 1999 permit them
           to choose other private health plans as well. Currently, 17 percent of these
           beneficiaries use Medicare managed care. Most Medicare managed care
           plans have only modest beneficiary cost-sharing and some offer extra
           benefits, such as eyeglasses and prescription drugs. Military retirees are
           eligible for Medicare on the same basis as anyone else.

           HCFA administers Medicare and regulates participating providers and
           health plans. Both headquarters and regional office HCFA staff have
           oversight responsibilities regarding Medicare+Choice organizations.
           Headquarters staff handle legal and financial matters, while the regions are
           responsible for operational matters.

           HCFA’s oversight of Medicare+Choice plans begins with the certification
           process. To receive certification and begin health care delivery, an
           organization must complete the following tasks, among others:

           Page 5        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                    • submit a comprehensive application to HCFA and respond to HCFA’s
                      requests for clarification and additional information;
                    • develop an organizational structure, bylaws, and policies and procedures,
                      which are subject to approval by HCFA;
                    • conduct training for all staff and providers, including making provisions
                      for training of new staff as they come onboard;
                    • prepare for and participate in a HCFA site visit, during which a team of
                      HCFA personnel examine policies and procedures to determine if the site
                      has the potential to deliver health care according to HCFA regulations;
                    • upon HCFA approval, begin marketing activities to inform beneficiaries
                      about the program;
                    • enroll beneficiaries and provide for coordination of their health care, by
                      assigning each to a primary care manager or by other means; and
                    • begin delivery of health care.

                      HCFA requires a variety of performance information from the plans once
                      they are in operation and conducts both technical assistance and
                      monitoring visits.

The Demonstration     To test a program granting Medicare-eligible military beneficiaries
                      guaranteed access to health care provided through DOD but paid for by
                      Medicare, Congress established the Medicare Subvention Demonstration
                      Project. This demonstration authorized DOD to establish HCFA-certified
                      Medicare plans and provide care to Medicare-eligible military beneficiaries
                      at six sites for a 3-year period—January 1, 1998, to December 31, 2000. The
                      DOD Medicare demonstration program is known as Senior Prime.

                      The goal of this demonstration is to provide a cost-effective alternative for
                      accessible and quality health care while not increasing the federal cost for
                      Medicare or DOD. HHS is to reimburse DOD from the Medicare Trust
                      Funds for Medicare-covered health care services provided to Medicare-
                      eligible military beneficiaries at an MTF or through contracts. However, to
                      receive payment, DOD must at least match DOD’s baseline cost for serving
                      this dual-eligible population in the recent past.

                      To be eligible for Senior Prime, dual-eligibles must be enrolled in both
                      Medicare Part A and Part B, reside in one of the six geographic areas
                      covered by the demonstration, and have used an MTF before July 1, 1997,
                      or become Medicare-eligible after that date. Beneficiaries enrolled in the
                      program will not have to pay a premium during this demonstration, but

                       For more information on the payment mechanism for the Medicare Subvention Demonstration, see

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                             must pay any applicable cost-sharing amounts and must agree to receive
                             all of their health care exclusively through Senior Prime. They will be
                             subject to all of the Medicare+Choice requirements. Enrollees must have a
                             primary care manager within the MTF. The benefit package for Senior
                             Prime is the full Medicare benefits package supplemented by other
                             benefits that DOD provides for its TRICARE Prime enrollees, such as
                             prescription drugs. Senior Prime enrollees are to be given priority for
                             treatment at MTFs over other dual-eligibles who are not enrolled in Senior

The Sites and Their Health   Each of the six demonstration sites is located in a different DOD TRICARE
                             health care region. The lead agent of the region is the chief executive
Care Environments            officer (CEO) of the Senior Prime plan located in that region. Table 1 lists
                             the demonstration sites, their locations, and their Senior Prime enrollment
                             capacities. (Note that sites may have more than one MTF and more than
                             one geographic service area.) For more specific information about each
                             site, consult appendixes I through VI at the end of this report.

                             Page 7        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

Table 1: Medicare Subvention Demonstration Sites
                                                                         Other HMO choices                 TRICARE Senior Prime
                                                                         in area at start                   enrollment capacity
Demonstration site name                  Facility type                   of services                         For MTF        For Site
Colorado Springs
Evans Army Community Hospital,           Community hospital              Limited                                  2,000
Fort Carson
Air Force Academy Hospital               Community hospital              Limited                                  1,200
Total (Colorado Springs)                                                                                                             3,200
Dover Clinic, Dover Air Force            Clinic                          None                                     1,500              1,500
Base, Dover, DE
Keesler Medical Center, Keesler          Medical center                  None                                     3,100              3,100
Air Force Base, Biloxi, MS
Madigan Army Medical Center,             Medical center                  Plentiful                                3,300              3,300
Fort Lewis, Tacoma, WA
San Antonio
San Antonio Sites:
Brooke Army Medical Center,              Medical center                  Plentiful                                5,000
Fort Sam Houston
Wilford Hall Medical Center,             Medical center                  Plentiful                                5,000
Lackland Air Force Base
Texoma Sites:
Sheppard Community Hospital,             Community hospital              None                                     1,300
Sheppard Air Force Base,
Wichita Falls, TX
Reynolds Army Community                  Community hospital              None                                     1,400
Hospital, Fort Sill, Lawton, OK
Total (San Antonio)                                                                                                                12,700
San Diego
Naval Medical Center,                    Medical center                  Plentiful                                4,000              4,000
San Diego, CA
Total                                    N/A                             N/A                                     27,800            27,800
                                        Sources: Facility information is from documents received from each site. Information on HMO choices
                                        is from interviews, the HCFA plan comparison World Wide Web site, and HCFA quarterly enrollment
                                        tables. Enrollment capacity figures are from DOD TRICARE Senior Prime Plan Operations Report

                                        The MTFs in the demonstration sites vary in size and types of services
                                        offered. The medical centers (Madigan, Brooke, Wilford Hall, San Diego,
                                        and Keesler) offer a wide range of inpatient services and specialty care, as
                                        well as primary care. These centers also have GME training programs. The
                                        Sheppard, Reynolds, Evans, and Air Force Academy MTFs are smaller
                                        community hospitals with more limited capabilities. Much of the specialty
                                        care at these hospitals is contracted out to the civilian network. One site,
                                        Dover, is a clinic, offering only outpatient services at the MTF and thus

                                        Page 8            GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                  requiring all inpatient and specialty care to be purchased from the civilian

                  The six demonstration sites serve Senior Prime populations within the 40-
                  mile radius, or catchment area, around each facility. All sites had served
                  seniors to some extent before the demonstration. At the medical centers,
                  seniors had been a substantial part of the workload to support GME in
                  both primary and specialty care. Centers with GME in internal medicine
                  had formed panels of seniors who regularly received primary care at the
                  MTF. At most of the smaller sites, and in specialty areas in which a
                  particular medical center did not have a GME program, care for seniors
                  was more limited and likely to be episodic.

                  Some demonstration sites are located in areas such as the Seattle-Tacoma
                  area, San Diego, and San Antonio where seniors can choose among a
                  number of private Medicare HMOs. Other sites are located in areas where
                  there are no other Medicare HMOs, such as Mississippi and rural

                  We began the evaluation of Senior Prime implementation with a review of
Scope and         the BBA and DOD and HCFA documents relating to the demonstration as
Methodology       well as interviews with headquarters staff from both agencies. We then
                  visited each of the six sites 8 to 12 weeks after the start of program
                  operation at that location. At the sites, we conducted group interviews
                  with administrators and staff, including the lead agent, medical director,
                  health delivery staff, financial managers, and contractor officials as well as
                  beneficiaries and representatives of retiree groups. We collected interview
                  and documentary data on

              • site features pertinent to this demonstration;
              • processes used to set up the program and enroll and serve beneficiaries;
              • issues that arose and how they were addressed;
              • initial results, such as enrollees’ use of health care and Senior Prime’s
                impact on other patient populations and on MTF operations generally; and
              • lessons learned.

                  Follow-up teleconferences were conducted with the sites toward the end
                  of the study period when the sites had from 4 to 8 months’ experience with
                  program operation. We analyzed documentary and interview data to

                   The demonstration service areas are defined by ZIP codes and differ slightly from the catchment

                  Page 9            GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                        identify crosscutting and site-specific issues as well as effective
                        problemsolving strategies.

                        The six sites we studied can support operational findings about the
                        demonstration as a whole. However, the study has several limitations.
                        Although they illustrate a variety of conditions, the six demonstration
                        sites—four of which are major medical centers—are not representative of
                        the universe of DOD health care facilities. A site’s capacity to support the
                        demonstration and its evaluation was a factor in site selection, so our
                        findings will not necessarily apply to sites that do not meet this capacity
                        threshold. We did not conduct interviews with network providers or
                        providers outside of the demonstration plan, nor did we independently
                        verify study data. These findings pertain to the start-up period but not to
                        mature operation of the program. It is also too early to measure midterm
                        or long-term results of the program. We have no comparable information
                        about approval and early implementation for multisite, private
                        Medicare+Choice organizations.

                        We conducted our review from October 1998 through June 1999 in
                        accordance with generally accepted government auditing standards. We
                        requested comments on a draft of this report from the Department of
                        Defense, but none were provided. We also requested comments from the
                        Health Care Financing Administration, and their written responses are
                        presented and evaluated in the final section of this report and reprinted in
                        appendix VII.

                        The process of securing HFCA certification for demonstration sites to
The Application         receive Medicare contracts proved difficult in two respects. First, the
Process Encountered     process got off to a late start, and there was considerable pressure to
Difficulties, But All   complete it quickly. The demonstration could not get started until HHS and
                        DOD had negotiated a Memorandum of Agreement (MOA) that set forth
Sites Earned HCFA       the basic conditions of the demonstration. Several complex issues had to
Approval                be resolved along the way. The MOA spelled out the benefit package, rules
                        for Medicare’s payments to DOD, and the HCFA requirements DOD would
                        have to meet, along with some exceptions, such as waivers of HCFA
                        regulations concerning physician licensing and fiscal soundness. In
                        general, DOD would be operating a Medicare+Choice plan following all of
                        the HCFA requirements.

                         The licensing waiver reflects the fact that each military physician, although licensed in some state, is
                        not necessarily licensed in the state where he or she is currently stationed. Also, as a federal agency,
                        DOD is deemed fiscally sound.

                        Page 10            GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

  Although the MOA certified that DOD had the resources and expertise to
  operate the demonstration program, the MOA still required that each
  demonstration site submit an application to be certified through the HCFA
  approval process. (In requiring each site to complete an application, HCFA
  was following the same procedure that it would use with any multisite,
  private Medicare+Choice organization, such as Kaiser Permanente.)

  The six sites were not officially announced until the MOA was signed on
  February 13, 1998, by which time 6 weeks of the demonstration period
  (which started Jan. 1, 1998) had already passed. DOD immediately directed
  sites to prepare application materials and submit them within a few weeks.
  Site officials commented that 3 months would have been a more
  reasonable length of time.

  Second, having had no prior experience with HCFA reviews, DOD initially
  underestimated the detailed and Medicare-specific nature of the
  information required. Given that the MOA had recognized that existing
  DOD and TRICARE procedures meet many of HCFA’s requirements, DOD
  officials had thought that the applications could be based largely on
  central- and site-level documents that were already on hand. The
  applications initially submitted consisted largely of such documents, and
  thus described procedures and service provider networks that predated
  Senior Prime. These applications did not include signed contracts with
  network providers of Medicare services as HCFA requires, nor did they
  describe the site-level policies and procedures through which Medicare
  requirements would be met. From HCFA’s viewpoint, these applications
  were incomplete and, if not part of a demonstration, would have been sent
  back for further development.

  In view of the pressure of time and considering that demonstration
  programs are often given extra assistance, HCFA officials agreed to
  proceed with the application review and scheduling of site visits despite
  the deficiencies in the applications. However, these officials emphasized
  that signed contracts would have to be available for inspection during the
  site visit and that standard review criteria and procedures would be
  applied. To further speed the reviews, HCFA

• scheduled site visits sooner than usual after the application review,
• gave the demonstration sites priority over other applicants and contributed
  extra central staff to the site reviews where a particular regional office did
  not have sufficient staff available, and
• permitted two sites to proceed with marketing on the basis of verbal
  approval so as to enable services to start by selected target dates.

  Page 11       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                             DOD, in turn, provided funding for sites to retain consultants experienced
                             in Medicare to help the sites prepare for the reviews. The demonstration
                             sites varied in their initial knowledge of HCFA requirements and in the
                             amount of work (especially network development) that remained to be
                             done. Each site team mounted an all-out effort to prepare for the site visits.
                             The first sites were visited in June 1998. DOD staff from the earlier sites
                             gave later sites the benefit of their experience, and the last two site visits
                             were completed by the end of September 1998.

                             The sites’ efforts were ultimately successful. All of the sites received
                             certification. However, because of the time required to develop the MOA
                             and complete the application and review process, the demonstration will
                             cover 24 to 28 months of service rather than 3 years.

                             The first site certified, Madigan, began service September 1, 1998, and all
                             of the sites had begun delivering services by January 1, 1999. HCFA
                             reviewers found the site visit presentations and staff commitment to the
                             program impressive. But two lessons from the experience stood out in our
                             review. First, the application process was more demanding and time-
                             consuming—and required more reworking of existing procedures—-than
                             DOD had envisioned. Officials at nearly every site told us that completing
                             all of the work required in the short time available was a major difficulty
                             they faced in implementing the program. Second, HCFA facilitation of the
                             process was critical. HCFA officials indicated that under normal
                             circumstances, the process would have taken considerably longer.

                             Initial enrollment in the demonstration was lower than DOD officials and
Enrollment Levels            other observers expected, and enrollment rates varied considerably from
Reflected Both General       site to site. The demand for enrollment appeared to reflect both the
and Local Factors            temporary nature of the demonstration and site-specific factors.

The Temporary Nature of      At every demonstration site, we heard either directly from beneficiaries or
                             from Senior Prime staff that many retirees were reluctant to enroll in
the Demonstration Affected   Senior Prime because of the temporary nature of the demonstration. Some
Enrollment                   took a “wait and see approach,” wanting some time to observe the
                             demonstration before committing themselves. Other beneficiaries were
                             concerned about how they would receive medical care after the
                             demonstration was over and whether they would be able to affordably re-
                             enroll in their previous Medigap (supplementary insurance) plans or other
                             Medicare HMOs when the demonstration ended. The fact that the
                             temporary nature of this demonstration reduced enrollment numbers to an
                             unknown degree argues that the demonstration may not be an accurate

                             Page 12       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                                indicator of the number of people who would enroll in a permanent

                                The Medigap issue was a major concern to retirees who were enrolled in
                                fee-for-service Medicare. Medigap policies are private health insurance
                                policies that require a monthly premium and cover certain expenses not
                                covered by fee-for-service Medicare. The BBA provided that participants in
                                demonstration programs would be guaranteed issuance of a Medigap
                                policy and protected against price discrimination if they applied for
                                Medigap insurance after leaving the demonstration. However,
                                implementation of this “guaranteed issue” provision required action by
                                state insurance commissioners. The timing of such actions was uncertain
                                at the beginning of the demonstration. Accordingly, DOD’s marketing
                                materials warned potential enrollees that it may be difficult for them to
                                obtain Medigap coverage under previous terms and conditions when they
                                disenrolled from the demonstration. Beneficiaries told us that a couple
                                pays as much as $190 per month for Medigap coverage. Some
                                beneficiaries did not drop their Medigap policies when enrolling in Senior
                                Prime because of their concern that Medigap re-enrollment would be at a
                                higher rate. However, this problem is being worked out as the
                                demonstration continues. As of the end of July 1999, guaranteed issue
                                protections were in place in each state that includes a demonstration site.

Various Site Factors Also       Our interviews indicated that there were also variables at each site that
                                affected enrollment, such as the
Made a Difference
                            •   breadth of services available at the MTF,
                            •   amount of space-available care at the MTF,
                            •   health care environment in the area, and
                            •   maturity of the TRICARE program.

                                The demonstration sites varied in the number of eligible beneficiaries
                                within each catchment area, the enrollment capacity, and the number
                                enrolled, as shown in table 2 below.

                                  The monthly cost of an individual Medigap policy in the demonstration states ranges from about $50
                                for basic benefits to about $200 per month for the most comprehensive coverage.

                                Page 13           GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

Table 2: Medicare Subvention Demonstration Program Enrollment as of June 28, 1999, by site
                                                 TRICARE                      Enrolled beneficiaries
                                                    Senior     Capacity                                                    Number open
                         Start of                    Prime            as                                                     enrolled as
                           health      Eligible enrollment percentage                                                      percentage of
Demonstration site           care beneficiaries   capacity   of eligible       Open     Age-in       Total                      capacity
Colorado Springs           1/1/99        13,689       3,200      23.4%         2,878         243     3,121                        89.9%
Dover                      1/1/99         3,905       1,500         38.4         706          30       736                          47.1
Keesler                   12/1/98         7,361       3,100         42.1       2,661         186     2,847                          85.8
Madigan                    9/1/98        21,709       3,300         15.2       3,303         427     3,730                         100.0
San Antonio:
 San Antonio Sitesc       10/1/98        34,148     10,000          29.3       9,929         827    10,756                             99.3
 Texoma Sitesd            12/1/98         7,067       2,700         38.2       1,819         114     1,933                             67.4
San Diego                 11/1/98        35,619       4,000         11.2       3,101         180     3,281                             77.5
Total                         N/A      123,498      27,800       22.5%        24,397       2,007    26,404                           87.8%
                                          Age-ins are persons enrolled in TRICARE Prime before their 65th year, and assigned to a primary
                                         care manager at an MTF, who were eligible for and applied to Senior Prime upon turning 65. Age-ins
                                         are guaranteed acceptance, and the number of age-ins does not count toward capacity.
                                          MTFs include Evans Army Community Hospital, which had reached 84.55 percent of capacity, and
                                         the Air Force Academy Hospital, at 98.92 percent of capacity.
                                           MTFs include Brooke Army Medical Center and Wilford Hall Medical Center, both of which had
                                         reached 99 percent of capacity.
                                         MTFs include Sheppard Community Hospital, which had reached 57 percent of capacity, and
                                         Reynolds Army Community Hospital, at 77 percent of capacity.
                                         Source: DOD’s TRICARE Senior Prime Plan Operations Report, June 28, 1999.

                                         Site officials told us that they arrived at their Senior Prime capacity figure
                                         by estimating the workload capability of physicians in the primary care
                                         clinics. Financial considerations played a role at some sites, as discussed
                                         in a later section of this report. As shown in table 2, the percentage of the
                                         eligible population that a site could accommodate if filled to capacity
                                         varied from 11 percent to 42 percent. The lowest capacity percentages
                                         were at Madigan and San Diego. The highest were at Keesler, Dover, and
                                         the Texoma sites, where Senior Prime is the only Medicare HMO in the
                                         market area.

                                         Although most sites anticipated that there would be a high initial demand
                                         for enrollment, only two MTFs filled up within the first few months—
                                         Madigan reached capacity the 3 month of operation, and Wilford Hall
                                         Medical Center in San Antonio reached capacity the 4 month. The Air
                                         Force Academy Hospital reached capacity after 6 months, and Brooke
                                         Army Medical Center reached capacity at 8 months. By the end of June,
                                         Keesler and Evans Army Community Hospital were over 80-percent full,
                                         San Diego was over 75-percent full, the Texoma sites were over 65-percent
                                         full, and Dover was just under 50 percent full.

                                         Page 14           GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

One site factor that apparently affected enrollment was the breadth of
services available at an MTF, where Senior Prime beneficiaries receive
care at no charge. (See apps. I through VI for services available at each
site.) For example, at the large medical centers with many specialties,
most medical services needed by seniors could be within the MTF. Thus,
very little specialty care would need to be referred to the civilian network,
where beneficiaries would be required to make co-payments for their care.
Smaller hospitals, such as those in Colorado Springs (Air Force Academy
and Evans) and Texoma (Fort Sill and Sheppard), needed to refer seniors
to the civilian network for most specialty care, and the Dover clinic needed
to refer all inpatient care to the network. Co-payments, ranging from $12 to
$40 for outpatient services, could be a disincentive to enrollment for some

Also influencing enrollment was the likely availability or shortage of space-
available care at an MTF. We found that some MTFs with GME programs
had substantial space-available care in specialty areas. For example, the
Naval Medical Center in San Diego had ample space-available care in some
specialties (such as cardiology) at the MTF, and we were told that some
seniors felt they could get the specialty care they needed without joining
Senior Prime. Other sites, such as Madigan, Sheppard, and the Air Force
Academy Hospital, were nearly full before Senior Prime and warned
beneficiaries that there would be little space-available care left after Senior
Prime reached its enrollment capacity. In this case, retirees realized that if
they did not enroll in Senior Prime, they would probably not be able to
receive care at the MTF.

The health care environment for seniors at each site was also a factor. In
some areas, seniors could choose from several Medicare HMOs as well as
fee-for-service Medicare. For example, in San Diego, private HMOs have a
48-percent market share of eligible Medicare beneficiaries. This high
penetration rate brings with it much competition for beneficiaries. To
attract customers, San Diego area HMOs offered enhanced benefits,
compared to which the Senior Prime plan was perhaps less attractive. In
other demonstration areas (Keesler, the Texoma sites, and Dover), Senior
Prime was the only Medicare HMO option for most potential beneficiaries.
In these areas, being an HMO was not necessarily an advantage for Senior
Prime: some retirees at these sites expressed reluctance to enroll because
of their discomfort and unfamiliarity with managed care plans in general.
These retirees would be returning to fee-for-service care if the
demonstration were not continued, and concerns about the future
availability of Medigap insurance added to their reluctance. However, MTF
officials told us that some seniors had difficulty finding fee-for-service care

Page 15       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                        in these areas (and sometimes at the MTF) and welcomed the ready access
                        to care that Senior Prime offered.

                        The maturity of DOD’s managed care program, TRICARE Prime, in an area
                        also apparently affected enrollment in Senior Prime. In sites where
                        TRICARE Prime had been in operation for 3 or 4 years, such as Madigan,
                        initial problems had been resolved and seniors could see how the program
                        was working. TRICARE Prime was new in the area where Dover is located,
                        having begun in June 1998. This new program brought new and unfamiliar
                        procedures and encountered some start-up difficulties, and TRICARE
                        Prime enrollment was low. Thus, Dover staff predicted that Senior Prime
                        enrollment would be well below capacity, and that most enrollees would
                        be those who had already been regularly receiving care at Dover.

Aging-in May Stretch    When TRICARE Prime enrollees at demonstration sites turn 65, those who
                        are Medicare-eligible and assigned to a primary care manager in the MTF
Capacity                are guaranteed enrollment in Senior Prime—a process called “aging in.”
                        Age-ins do not count toward capacity levels at demonstration sites. DOD
                        expected age-ins to come from the already enrolled population and to
                        increase at a modest rate. However, some sites are finding that eligible
                        beneficiaries are enrolling in TRICARE Prime in their 64 year, so that they
                        can join Senior Prime when they turn 65. At sites where MTFs are nearing
                        their planned enrollment limit, an increasing number of age-ins might
                        strain current resources.

                        The delivery of medical services under Senior Prime largely followed the
Preparing for Health    managed care framework and procedures established for TRICARE Prime.
Care Delivery Brought   The principal difference was that Senior Prime enrollees now received the
Useful New Practices    full range of TRICARE Prime care, plus added Medicare benefits such as
                        home health care. But in other respects, preparing for the implementation
                        of the Senior Prime demonstration brought useful new practices to the
                        MTFs. (For practices specific to each site, see apps. I through VI.)

Patient Care Enhanced   Sites adopted several new practices to meet the needs of their senior
                        patients. One such practice was to conduct orientation sessions for new
Through Demonstration   enrollees to educate them on the program and identify their individual
Activities              health care needs. Each site conducted some form of orientation for the
                        enrollees to explain the program benefits, health service delivery, the role
                        of the primary care manager, and how to schedule appointments with their
                        health service providers. Many sites combined this educational orientation
                        with identifying the health care needs of enrollees through administering a
                        health assessment survey and/or holding individual health screenings in
                        one-on-one meetings between enrollees and medical staff. As part of the

                        Page 16       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                            intake of enrollees, sites identified patients who had neglected medical
                            conditions and arranged for the immediate care they needed. For example,
                            at one site a patient with a life-threatening heart condition was identified
                            and scheduled for surgery the following day.

                            Other useful changes that Senior Prime brought to the MTFs included the

                          • Identifying enrollees’ continuing health care needs before the start of
                            health care delivery, such as patients who needed durable medical
                            equipment or needed to complete previously scheduled care outside of the

                          • Changing or augmenting case management, already practiced under
                            TRICARE Prime, to meet the special needs of older patients. (Case
                            managers are assigned to monitor certain patients’ care over time,
                            including patients with multiple diseases or complex health problems and
                            patients taking multiple medications.)

                          • Monitoring and assisting older patients who did not qualify for case
                            management but were likely to have difficulty following through on their
                            own care, for example, following up with certain patients to ensure that
                            they scheduled their needed appointments.

Management Improvements     Certain HCFA data collection and reporting requirements prompted or
                            accelerated management improvements at the demonstration sites. For
From Meeting HCFA           example:
                          • Acceleration of the MTFs’ efforts to improve and refine their information
                            systems and generate better data while meeting HCFA reporting
                            requirements. To illustrate, one site trained MTF providers and staff on
                            how to enter outpatient and inpatient data accurately and in accordance
                            with HCFA coding guidelines.

                          • Consolidation and simplification of MTF quality improvement efforts to
                            respond to HCFA program rules, including developing quality indicators
                            and monitoring health care process and outcome metrics. The quality
                            management and utilization management work plans required by HCFA
                            were seen as a useful tracking device that could also be applied to
                            TRICARE Prime.

                            Page 17       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                           • Improved coordination and collaboration between the lead agent offices,
                             MTFs, and managed care support contractors. In San Antonio, this
                             coordination extended across service lines.

                             Officials at one site commented that reviewing HCFA requirements had
                             prompted re-examination of traditional practices, and that preparing for
                             the demonstration had “invigorated” the DOD health care system in that

Comprehensive Treatment      Demonstration site officials see the comprehensive treatment of older
                             patients under Senior Prime as being useful in supporting the MTFs’
of Seniors Seen as           training of providers and readiness missions. According to MTF officials,
Supporting GME and           treating relatively healthy patients is not enough to keep doctors
Readiness                    challenged; however, treating older patients with complex cases gives
                             doctors the chance to practice a broader range of clinical skills. Before
                             Senior Prime, MTFs relied on space-available care to provide older
                             patients, and therefore could not be guaranteed a consistent population for
                             training residents. Under Senior Prime, MTF residents provide the full
                             spectrum of care for these patients and are more likely to have the mix of
                             medical cases they need to develop their skills.

                             MTF officials said that treating seniors helps indirectly with the readiness
                             mission. According to MTF officials, treating the more complex cases
                             indirectly aids retention and recruitment of doctors. In addition, they
                             indicated that having an enrolled population provides a firm basis for
                             planning for such contingencies as the deployment of MTF medical staff.

                             Sites’ experiences during marketing, enrollment, and the first weeks of
Preparing for Service        service delivery revealed several operational difficulties. Some of these
Delivery Also Revealed       difficulties were solvable (and solved) at the site level, but others were
Operational                  linked to central DOD or HCFA direction, policy, or information systems.

Some Difficulties Were       The first sites to begin service encountered operational problems as a
                             result of not identifying patients’ transition needs in advance. Some
Solved at the Site Level     incoming enrollees’ supplies of durable medical equipment, such as home
                             oxygen, were disrupted in the transition to Senior Prime. Other enrollees
                             kept previously scheduled appointments with out-of-network providers
                             after Senior Prime coverage began, which required retroactive approval.

                               See Medical Readiness: Efforts are Underway for DOD Training in Civilian Trauma Centers
                             (GAO/NSIAD-98-75, Apr. 1, 1998).

                             Page 18           GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

  Later sites found ways to ensure that vital equipment was available on the
  first day of service and to arrange permission for out-of-network care in
  advance. For example, one site sent a letter to new enrollees before the
  start of service urging those with transitional needs to call Senior Prime
  program managers about them right away. Another obtained this
  information through telephone calls to all new enrollees.

  Madigan’s experience also illustrated the difficulties of starting services for
  large numbers of new enrollees on a single start date. Serving 3,000 new
  enrollees led to bulges in demand that strained the capacity of primary
  care clinics and made it difficult for them to meet access standards. It was
  also difficult to process large numbers of enrollments in the time available,
  as sites typically received HCFA’s list of approved applicants around the
     th                                           st
  25 of the month, for services starting on the 1 day of the following

  Sites dealt with the first of these difficulties by phasing in enrollment over
  2 or 3 months. This helped spread out enrollment processing and cut down
  on bulges in demand, although they still occurred in some primary care
  clinics and in certain specialties such as eye care. (Senior Prime
  beneficiaries were entitled to a health evaluation within 90 days and an eye
  examination during the course of the demonstration, for which space-
  available care had previously been scarce.) However, phased-in enrollment
  was disadvantageous for applicants who needed a firm start date. For
  example, applicants in Colorado whose former HMOs withdrew from
  Medicare December 31, 1998, needed to know in advance whether, if
  accepted into Senior Prime, their services would start January 1, 1999.
  Start dates were phased in on a first-come, first-served basis, and program
  officials were unable to tell which applicants were in the January group
  until late December, when the list of approved applicants arrived from

  Sites employed several strategies to deal with the tight timelines for
  processing enrollments, including

• preparing enrollment materials for every applicant in advance and then
  removing the packets for the few who were not approved,
• immediately sending approved enrollees a letter of acceptance that also
  served as a temporary ID until their full enrollment packet arrived, and
• seeking access to a HCFA data system (the MCCOY system) that would
  allow site officials to track approvals as they were made rather than
  waiting for a batched report.

  Page 19       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

Other Difficulties Were        Other operational difficulties were linked to central direction, policy, or
                               information systems. While sites devised strategies for handling some of
Linked to Central Direction,   these difficulties in the short term, longer-term solutions would require
Policy, or Information         central action.

Limited Access to Medicare     DOD authorized sites to purchase up to 1,000 hours of consulting time
Expertise                      from experts on Medicare HMO application and site visit requirements and
                               procedures to assist them in preparing for site visits, and all of the sites
                               found this assistance to be very helpful. (San Antonio, with four MTFs, was
                               allowed 2,000 hours.) The HCFA Web site on the Internet was also helpful,
                               and design teams from some sites visited nearby Medicare HMOs. But
                               DOD barred officials at the demonstration sites from consulting another
                               important source—HCFA regional office staff. Instead, they were to direct
                               questions about HCFA requirements to officials at DOD headquarters, who
                               would refer the questions to central HCFA headquarters officials as
                               needed. (Apparently, this restriction was intended to ensure that the
                               information provided was consistent across sites and to minimize the
                               demands on busy HCFA regional offices.) Some sites ignored the ban and
                               worked actively with HCFA regional staff. Others honored the ban, but felt
                               that doing so put them at a considerable disadvantage. Site officials
                               generally agreed that the ban was an impediment, and HCFA regional
                               officials shared this view.

Unclear or Inconsistent        We found several instances of unclear or inconsistent central guidance to
Guidance                       sites. Site officials reported that central program documents described the
                               Senior Prime benefits package in such general terms that they had
                               difficulty determining exactly what was covered. For example, the
                               documents listed diabetic supplies but did not specify which particular
                               diabetic supplies (such as glucose strips and syringes) were included. The
                               sites called for clearer central guidance in the interest of uniformity.
                               Direction was also inconsistent with respect to allowable marketing
                               activities. One site, San Antonio, used direct mail as a part of its marketing
                               strategy with HCFA approval. Other sites asked DOD whether they could
                               use direct mail, and were told that direct mailing was not permitted. (Staff
                               at these sites believed this response to be based on HCFA guidance.) Some
                               sites received DOD approval to arrange for Medicare consultant assistance

                                  The issue of inconsistency across HCFA regional offices has been discussed in previous GAO reports
                               and testimonies. See, for example, Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure
                               Their Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999).

                               Page 20           GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                                beyond the site visit, but another site requested such assistance and was
                                turned down.

                                The clarity of HCFA guidance was also an issue for the sites. While some
                                HCFA regional offices sent detailed letters outlining material to be covered
                                in the site visit, others provided only general guidance or no guidance in
                                advance. Lacking detailed guidance, DOD staff at two sites had not
                                prepared contract materials that the HCFA regional staff person expected
                                to review. During the HCFA approval process, consistency was an issue as
                                well. At one site, HCFA regional staff asked to see the entire provider
                                contract, while at other sites the Senior Prime addendum to the contract
                                was sufficient for review. Similarly, staff at one HCFA regional office
                                objected to marketing materials that had been approved centrally for the
                                demonstration as a whole. DOD site staff we spoke with understood that
                                the regional offices operate somewhat differently from one another. Each
                                site ultimately developed a good working relationship with HCFA regional
                                office staff.

Policy Changes in Mid-process   Changes in policy during the start-up process complicated program
                                planning and management. For example, some sites did not know until the
                                last minute that they would be included in the demonstration, and some
                                began their planning with the understanding that program management
                                would be lodged at the MTF level only to learn later that the lead agent
                                would be in charge. Several critical changes in or clarifications of benefits
                                were made after program operation had begun, which required
                                adjustments in MTF and managed care support contractor operations.
                                Finally, sites had to rewrite their Senior Prime policies and procedures to
                                conform to the BBA-required Medicare+Choice regulations that went into
                                effect on January 1, 1999.

Outdated Marketing Materials    Key changes in eligibility and benefits were made after DOD marketing
                                materials had already been printed. For example, DOD greatly increased
                                the number of days of skilled nursing facility care without a co-payment,
                                and under Medicare+Choice, eligibility was expanded to include persons
                                who spent up to 12 consecutive months outside of the service area.
                                However, DOD continued to use the already printed material,
                                supplemented by lengthy errata sheets. Sites reported that seniors were
                                confused by information presented in this fashion, and that outdated
                                provisions continued to be quoted long after they had been changed.

Design Flaw in the Age-in       The program permits eligible retirees and their dependents who were
Process                         enrolled in TRICARE Prime and assigned to a primary care manager at a
                                demonstration MTF to age in to Senior Prime upon reaching 65, even if

                                Page 21       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                                   Senior Prime enrollment has reached capacity at a given site. The age-in
                                   process calls for such individuals to be identified 150 days in advance and
                                   notified of this option 120 days in advance of their 65 birthday. However,
                                   this procedure was not in place for each site 150 or even 120 days before
                                   the start of service. Sites had to develop their own procedures for
                                   identifying and notifying individuals whose 65 birthdays fell within that
                                   period. A further complication was that HCFA considers a person to have
                                   turned 65 on the first day of his birth month, whereas DOD data systems
                                   use the actual date of birth.

Divergence in Data Systems and     The Senior Prime program draws from various DOD, contractor, and
Measures                           HCFA data systems that must be consistent with one another. Experience
                                   during the start-up period showed that constant monitoring is needed to
                                   ensure alignment between the data in these different systems, and that
                                   even apparently minor differences in data entry practice can make
                                   programwide reporting difficult. For example:

                                 • Senior Prime enrollment data must be entered separately into a DOD data
                                   system, a data system specifically designed to transmit DOD data to HCFA,
                                   and sometimes into a support contractor data set as well. Multiple entry
                                   creates the potential for error at initial entry and also as information is
                                   updated. Also, the data sets use different conventions. DOD lists a
                                   dependent under the sponsor’s (retiree’s) Social Security number with a
                                   prefix, whereas HCFA lists each individual under his or her own Social
                                   Security number. Sites found that discrepancies in information across
                                   these various systems did occur, and that checking for them (as HCFA
                                   required) and determining which of two discrepant entries was correct
                                   was extremely labor-intensive.

                                 • Differences in coding practices complicated the task of aggregating clinical
                                   data for Senior Prime from different clinics or MTFs. For example, in
                                   Colorado Springs, the Army hospital used only the base or generic code for
                                   mammograms, while the Air Force hospital used the base code with
                                   extensions to differentiate various types of mammograms. The DOD data
                                   system that generates management reports reads the generic and extended
                                   codes differently, such that equal numbers of mammograms from the two
                                   sites as recorded in the original data system did not necessarily produce
                                   equal totals in the management reporting system.

Unclear Payment                    Funding arrangements for the demonstration presented site officials with
                                   many uncertainties during the start-up period. Medicare payments are due
Arrangements Did Not               to DOD under the demonstration only if DOD’s cost of caring for Medicare
Affect Early Care                  eligibles (using the level of effort calculation) during the period exceeds

                                   Page 22       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

the costs incurred to serve this population in the recent past. Funding
arrangements provide for DOD to receive interim reimbursement monthly
when a site’s enrollment in Senior Prime meets a specified threshold.
However, the demonstration as a whole must also meet an annual
threshold. Failure to reach this threshold can result in DOD’s returning a
portion of the interim payments.

Managers at each site could tell, on the basis of enrollment, whether that
site was likely to earn interim payments for DOD. However, when services
started they did not know, because DOD had not indicated, whether and
how interim payments might flow to participating MTFs. They also did not
know whether sites that received interim payments would be responsible
for turning back these funds if the demonstration as a whole did not meet
the annual threshold. Thus, the only funds the sites could be sure of were
those already provided from DOD appropriations. Site officials worried
that these DOD funds might not be sufficient to cover the cost of services
added under Medicare, such as home health care. The officials were also
concerned that sites might be asked to bear the cost of very expensive
procedures or equipment, such as liver transplants, if medically necessary
for a Senior Prime beneficiary. Existing MTF budgets were not designed to
cover such extraordinary expenses for the senior population. These
expenses would previously have been borne largely by Medicare.

Although frustrated by the uncertainty in the funding formula, site officials
told us that this uncertainty had relatively little impact on site operations
during the start-up period. Two sites (San Antonio and Keesler) adjusted
their enrollment target upward on the basis of funding considerations.
Funding considerations also influenced Madigan’s decision to begin
services for all enrollees on a single start date, which would help generate
interim payments. However, other sites elected to phase in enrollment in
the interest of avoiding overload, despite the potential financial
disadvantage to DOD. With respect to health care delivery, officials told us
that during this period of uncertainty, they were putting financial
considerations on the back burner and concentrating on providing care to
seniors. Utilization management procedures were in place to guard against
unnecessary or unnecessarily expensive care.

By late spring of 1999, interim payments had been made to DOD and were
being used to pay claims for Senior Prime services received through
network providers. DOD had informed the demonstration sites that the
funds that remained would be released to the various services. However, it
     For a more detailed explanation of the payment mechanisms, see GAO/HEHS-99-39.

Page 23              GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                             takes some time for claims to come in, and DOD was reluctant to release
                             funds until it was clear that reserves for claims payment were adequate.
                             Sites expected that some funds would be released to them shortly, but
                             details and amounts were still not known. Substantial uncertainty will
                             remain until the first annual reconciliation takes place.

                             This demonstration, involving both DOD and HCFA and their separate
Dual Systems Create          requirements, contains some inherent duplication. Operating in a dual-
Points of Strain             systems environment has created some points of strain for the test sites.

Substantial DOD              DOD officials told us that contrary to what they first thought, Senior Prime
                             is not a DOD program with some extra Medicare benefits, it is a
Investment in Learning       Medicare+Choice plan. Staff at each site had to learn and comply with
HCFA Requirements            Medicare rules and regulations to receive certification and operate the
                             demonstration program. Complicating the learning process, the subvention
                             demonstration start-up got caught in a major transition in Medicare. In
                             addition to becoming familiar with prior regulations, personnel at all sites
                             also had to learn the new HCFA regulations for Medicare+Choice, which
                             under the BBA became effective January 1, 1999. Thus, Senior Prime
                             managers at each site have made a substantial investment in learning.

                             This substantial investment in learning the HCFA regulations has the
                             potential for being lost because of DOD’s policy of staff rotation. Under
                             this policy, about one-third of military staff rotate to a new assignment
                             each year. Already some lead agent military personnel, recently
                             knowledgeable about Medicare, are being transferred to locations where
                             there is no test site or where their new job responsibilities will not require
                             them to use their Medicare knowledge. Their replacements will have to go
                             through the same learning process. As a result, some test sites have
                             considered placing civilian employees in charge of administering the
                             demonstration so that their investment in having staff learn HCFA
                             requirements and procedures will not be lost to transfer. The OLA for
                             Madigan currently has a civilian in charge of running the day-to-day
                             aspects of the program, and there is a civilian chief operating officer at the
                             Colorado Springs OLA.

Dual Organization Carries    To meet HCFA’s accountability requirements, the Senior Prime program
                             has its own organizational structure, which differs from the structure for
Potential for Conflict and   TRICARE Prime. At each demonstration site, the lead agent serves as CEO
Duplication                  of the Senior Prime plan and is accountable to HCFA for the plan’s

                              The first annual reconciliation was expected to take place in late summer of 1999. The results were
                             not available during our work for this report.

                             Page 24            GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

performance. However, the lead agent position, established to oversee the
managed care support contractor and foster communication among MTFs
for TRICARE, is not a part of the military chain of command. MTF
commanders report to, and receive appropriated funds from, the Surgeon
General of their respective service (Army, Navy, or Air Force). The
position of lead agent does not carry direct authority over the commanders
of the MTFs in the region, nor do staff in the OLA have authority over staff
with similar functional responsibilities in the MTFs.

Typically, the commanding officer of the largest MTF in the region is
appointed to serve as lead agent/Senior Prime CEO; as MTF commander,
he or she has direct authority over that MTF’s staff. In three of the
demonstration sites (Madigan, San Diego, and Keesler) the lead agent is
the commander of the only MTF offering Senior Prime. In other sites, the
situation is more complex. The lead agent/Senior Prime CEO for the San
Antonio demonstration site commands one of the four participating MTFs,
two of which are within a different service than his. None of the MTFs
participating in the Dover and Colorado Springs sites were under the lead
agent’s command. (See apps. I through VI for details.)

Staff in the demonstration sites recognized the potential for tension in
these arrangements. Having the same person fill three positions (lead
agent, Senior Prime CEO, and MTF commander) could be awkward if the
interests of the three positions do not coincide. Where no formal reporting
relationship between lead agent and MTF staff exists, smooth operation of
Senior Prime depends on cooperation.

As of our review, the sites had worked out command and control issues to
operate the Senior Prime program. Often, program operation rested on
informal lines of authority and cooperation among the individuals
involved. However, staff turnover and expansion of the program could
strain such relationships, bringing the potential for conflict.

Overlap and potential duplication are also an issue in some aspects of this
demonstration program. For example, HCFA and DOD operate parallel
quality assurance systems, both with the goal of ensuring that beneficiaries
receive quality medical care. Although the activities are similar, each has
its own measurement and reporting requirements. Such requirements may
be necessary to support the purposes of their respective agencies.
However, overlapping requirements do not necessarily improve the quality
of care at the MTFs, and these requirements do add cost and
administrative work for Senior Prime staff.

Page 25       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                          Appeals and grievance procedures provide a second example of overlap.
                          HCFA’s requirements, which strongly emphasize patients’ rights, are
                          sufficiently different from DOD’s requirements that sites ended up
                          operating two sets of procedures—one for TRICARE Prime and another
                          for Senior Prime. The two sets of procedures raised the prospect of
                          unequal treatment for different groups of patients.

                          Finally, some HCFA requirements do not apply to the military context.
                          Demonstration sites have to submit a report of physician incentive
                          payments, even though there are no such payments in DOD. Additionally,
                          some items need adaptation for DOD enrollees, such as the Notice of
                          Discharge and Medicare Appeal Rights, which is given to hospitalized
                          patients when they are informed of their discharge date. HCFA’s model
                          language for this document states that the patient would be liable for the
                          cost of hospital care beyond the discharge date. Patients in DOD hospitals
                          are not liable for such costs, and this inapplicable language has caused
                          much confusion for beneficiaries.

Administrative Workload   DOD site officials reported that operating a Medicare HMO required a
                          similar administrative workload, regardless of the size of the enrolled
Similar for Larger and    population, both during the application process and as the new
Smaller Populations       Medicare+Choice program was being launched. Firm measures of
                          administrative workload are not yet available. Most sites told us they had
                          devoted about four full-time equivalents (FTE) from their lead agent staff
                          (more at San Antonio, where there are four MTFs, and fewer at Dover,
                          where the start-up of TRICARE absorbed the attention of lead agent staff).
                          In addition, many MTF staff hours were also devoted to this
                          demonstration. Madigan, for example, estimated that about three FTEs
                          from the MTF were dedicated to Senior Prime. However, administrative
                          workload was not initially counted as program cost for the level of effort
                          calculation and was not measured. HCFA and DOD are now discussing
                          whether administrative cost could be included in the level of effort. DOD
                          has hired a contractor to determine the actual administrative costs of this
                          demonstration, including staff time devoted to the project.

                          Managed care support contractors are responsible for many aspects of the
                          demonstration, including network development, enrollment, marketing,
                          appointments, and claims processing, and the FTEs devoted to these
                          activities were substantial. Cost information from contractors was just
                          becoming available when we concluded this study and bears watching in
                          the future.

                          Page 26       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                             Experience in the start-up phase raises issues for the later years of this
Experience in the            demonstration program, as well as for any future subvention program. For
Start-up Phase Raises        the current program, the issue for beneficiaries is what will happen to
Issues for the Future        them when the demonstration ends. A second issue, both for the
                             demonstration period and for any future program, concerns uniformity
                             versus local variation in program benefits and operation. Other issues are
                             concerned with possible expansion of the program. Finally, military
                             readiness activities raise issues for Senior Prime.

Planning for Transition at   Beneficiaries and site officials alike expressed concern that enrollees had
                             not been informed what arrangements would be made for their transition
the End of the               back to other forms of Medicare if the demonstration were to end as
Demonstration                scheduled. Nor was anything said initially about when the decision
                             regarding the demonstration’s future would be made. DOD has since
                             stated, in the 1999 Annual Notice of Change for Senior Prime, that the
                             program must give enrollees 90 days notice if the program is to be
                             terminated at the end of the demonstration period (Dec. 31, 2000). Such
                             notice would give them time to apply to other Medicare plans during the
                             November 2000 open enrollment period. However, such advance notice
                             would also mean that Congress would have to make a decision regarding
                             continuation—at least with respect to the current sites—before the
                             evaluation of the demonstration had been completed.

                             Our conversations with beneficiaries after the Notice of Change was
                             issued indicate that the notice did not fully resolve their concerns.
                             Questions about access to Medigap insurance remained, and seniors also
                             wanted information regarding whether they would be able to get space-
                             available care at MTFs if the demonstration were terminated.

Central v. Local Decision    Another major question is whether Senior Prime will be operated as one
                             DOD program, as six local programs, or as a combination. Although HCFA
                             central officials coordinated regional offices’ efforts across the
                             demonstration, HCFA generally treats each site as an independent HMO,
                             allowing each the latitude given by the Medicare statute to structure its
                             own product and operations. Thus, HCFA called upon sites to make
                             operational decisions concerning such matters as details of the benefits
                             package, patient notification procedures, and Year 2000 data compliance
                             plans. DOD guidance also permits variation from site to site on many
                             operational matters, and, as each new HFCA directive arrived, the question
                             of central versus local response had to be resolved. In the case of the
                             patient notification-of-discharge requirement, for example, each site
                             framed its own initial response. Responses varied widely, in part because
                             the requirement incorporates assumptions that do not apply to DOD. Sites

                             Page 27       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                              inquired whether a central DOD response to the issue might not be more
                              appropriate—as it was for the Year 2000 issue, which was handled
                              centrally within DOD. The central versus local question is likely to come
                              up within DOD again.

It Is Unclear How Potential   The current demonstration raises several questions regarding how
                              expansion of the program, if enacted at the end of the demonstration,
Expansion, If Enacted,        would take place. Specifically, it is unclear how plans would incorporate
Would Take Place              MTFs that are administratively independent of the lead agent and
                              geographically distant from the lead agent’s office. The demonstration
                              offers only two sites as examples—San Antonio and Dover. Each of these
                              sites raises questions that have not yet been addressed.

                              The San Antonio site includes (1) an initial service area containing the
                              medical center commanded by the lead agent and an independent medical
                              center in the same city and (2) an expansion area containing two
                              geographically distant and independently commanded community
                              hospitals, one of them in another state. This arrangement represents a
                              possible prototype for adding additional MTFs to a plan. However, HCFA
                              officials emphasized that they make decisions about expansion on a site-
                              by-site basis. Because distance can lead to insufficient oversight, HCFA
                              approves such arrangements only when there is evidence of close
                              communication, as there was in San Antonio. HCFA officials told us that
                              they are generally wary of very large service areas. Thus, adding more (and
                              more distant) sites to the San Antonio plan would likely raise questions for
                              HCFA. But adding new plans within the region, each with the lead agent as
                              CEO, might raise issues as well.

                              The Dover site consists of a single clinic that is administratively
                              independent of and about a 2-hour drive from the OLA in Washington,
                              D.C., and not under the lead agent’s command. Before the demonstration,
                              the Dover MTF had little contact with the OLA itself. While HCFA
                              approved the Senior Prime plan for Dover, this is no guarantee that similar
                              arrangements with more distant MTFs in the region would also be

                              It is unclear to what extent Senior Prime procedures and organizational
                              structures developed for each current site could be transferred to or
                              extended to cover other sites in the region. Sites in the demonstration
                              found that although materials from other, already-approved sites were a
                              useful starting point, they generally needed adaptation to local
                              circumstances. Finally, the regional structure of the two agencies is a
                              complicating factor. Some DOD regions overlap with several HCFA

                              Page 28       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                               regional offices. For example, the DOD Northeast Region, with the lead
                               agent in Washington, D.C., includes states that fall under HCFA’s
                               Philadelphia, New York, and Boston Regional Offices.

Expectations of Rapid          As previously indicated in this report, the six sites in this demonstration
                               completed the application and approval process in a little less than 1 year,
Expansion May Not Be           but only because of HCFA’s willingness to augment regional office staff
Realistic                      and expedite the process for the sake of the demonstration. HCFA’s
                               capacity to process applications with current staffing is limited, and HCFA
                               officials made clear to us that if the program were no longer a
                               demonstration, applications from DOD would be treated the same as
                               applications from any other source. Staff capacity limits at the OLAs may
                               be a factor as well.

                               The experience that DOD gained through the demonstration would likely
                               ease the task of preparing applications at new sites, but even so,
                               substantial time and effort would likely be required. Existing policies and
                               procedures would likely be helpful, but may need to be adapted to local
                               circumstances. Even if materials prepared elsewhere were applicable, staff
                               at new sites would need time to absorb their content thoroughly. On the
                               basis of what we heard of the visits to demonstration sites, HCFA
                               reviewers would likely probe site officials’ understanding of the program’s
                               operational procedures, as off-the-shelf procedures that are insufficiently
                               understood may invite problems in program operation.

                               Finally, Medicare+Choice requirements concerning the effective date of
                               enrollment could limit initial enrollment at new DOD sites. Starting with
                               1999, the Medicare+Choice regulation provides for an annual election
                               period in November with enrollments effective January 1 of the following
                               year. At other times, enrollment is to be effective 1 day of the month
                               following the application. These provisions appear to preclude phasing in
                               initial enrollment over several months. As we have seen, DOD sites found
                               phased enrollment essential for handling large numbers of new
                               beneficiaries. Without phasing in, new DOD sites would have to limit initial
                               enrollment or face overloading their primary care clinics.

The Viability of the Program   Judging from experience thus far, MTFs that offer limited services
                               (community hospitals and especially clinics) and are located in isolated or
at Isolated MTFs That Offer    rural areas would likely have special difficulty building a Senior Prime
Limited Services Merits        program. The demonstration sites with these characteristics operated in a
Careful Review                 fee-for-service environment in which private physicians (1) were in
                               relatively short supply and (2) had little incentive to contract with a
                               Medicare managed care plan. Building and maintaining a Senior Prime

                               Page 29       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                            network or providers under such circumstances took extra effort. Building
                            Senior Prime enrollment offered additional challenges as well. At most of
                            the community hospitals and clinic we studied, relatively little space-
                            available care had been available in recent years, so that the initial
                            customer base among seniors was fairly small. The Senior Prime networks
                            for these MTFs offered a limited choice of private specialists, and some
                            seniors chose not to join to stay with a favorite physician who was not
                            included. The use of network specialists also involves co-payments, which
                            decrease the financial advantage of joining the program. Finally, Senior
                            Prime program management at these sites may consume a
                            disproportionate share of administrative resources to serve a small
                            percentage of the patient population.

Procedures and Data         In discussing the interim “fixes” they had made to compensate for the
                            limitations in the data sets essential for program administration, site
Systems That Work at a      officials commented that although workable at a small scale, these labor-
Small Scale May Not Be      intensive procedures would not be adequate to handle a substantially
Adequate at Larger Volume   larger volume of enrollees.

Readiness Raises Senior     Finally, military readiness raises important issues for Senior Prime. Most
                            importantly, if medical staff from the MTF were deployed to support a
Prime Issues                military action, would each site still have sufficient resources to meet its
                            commitments for seniors’ care? This issue arose in concrete form in
                            Colorado Springs, where both the Air Force Academy Hospital and Evans
                            Army Community Hospital had medical staff (including primary care
                            physicians) deployed overseas at the time of our visit. In the temporary
                            absence of one colleague, each of the three remaining Air Force primary
                            care physicians in internal medicine carried a substantial extra number of
                            Senior Prime beneficiaries. Having just gotten to know one new doctor,
                            these beneficiaries were not eager to be reassigned to another when the
                            deployed physician returned. Evans also had some trouble fitting in all of
                            the requested Senior Prime appointments, in light of deployment. Losses of
                            staff due to deployment are particularly important for Senior Prime
                            because DOD requires that Senior Prime beneficiaries (unlike those in
                            TRICARE Prime) be assigned to primary care managers within the MTF—
                            they cannot be assigned to network physicians.

                            MTFs in the demonstration vary in the extent to which staff are subject to
                            absence for readiness training or short-term deployment under normal
                            circumstances. All lead agents are expected to engage in readiness

                             This question is part of the broader question of how DOD can best balance the need for wartime
                            medical training with the needs of its peacetime health care system. See GAO/NSIAD-98-75.

                            Page 30           GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                planning and provide for backup coverage of deployed staff. Readiness
                contingency plans in demonstration sites include shifting Senior Prime
                beneficiaries to network specialty care and, if primary care capacity at the
                MTF is greatly reduced, shifting TRICARE Prime beneficiaries to primary
                care managers in the network. Site officials might ask DOD to permit
                Senior Prime beneficiaries to be shifted to network primary care managers
                as well. If the existing network were not able to take on this extra load,
                support contractors would seek to expand the network, paying higher than
                normal rates if necessary. If physicians who were willing to take on added
                patients were available, coverage would be provided, although perhaps at
                an added cost. However, availability may be a problem in areas where
                private physicians are in short supply.

                The effects of a major deployment on the order of Desert Storm are much
                harder to predict. For example, San Diego is the deploying platform for a
                hospital ship and Keesler for an Air Transportable Hospital, but under
                deployment, staff for these mobile units may be drawn from other
                locations as well as the home base. MTFs that contribute staff to back-fill
                for deployments at other MTFs do not themselves receive backfill.
                However, such a major deployment could potentially lead to gaps in
                coverage or inability to maintain access standards, especially in sites that
                were operating close to capacity before the deployment.

                A demonstration is intended to produce useful evidence of the feasibility
Conclusions     or effectiveness of a new approach, and the start-up period of the Medicare
                Subvention Demonstration has done so. This demonstration provides
                evidence that it is feasible for DOD-designed plans to meet HCFA
                requirements for Medicare managed care plans and begin delivering health
                care to seniors, building on the TRICARE Prime framework but adapting it
                to the needs of this older population. But as demonstration site officials
                expressed it, Senior Prime is not a DOD program with Medicare benefits
                added on—it is a Medicare+Choice plan accountable to HCFA. The dual
                nature of the program affected its implementation in many ways.

                Several feasibility issues connected with the design of the program
                affected the start-up period and would likely pertain to any similar
                demonstration program in the future. For example:

              • The lead time needed to develop interagency agreements and secure HCFA
                certification before service delivery was substantial and shortened the
                period of service delivery to 24 to 28 months.
                     Evidence concerning cost, access, and quality of care will be assessed in future reports.

                Page 31               GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                     • This shortened demonstration period apparently discouraged enrollment.

                     • A key feasibility issue from the enrollees’ standpoint—how they will make
                       the transition to other forms of Medicare at the end of the
                       demonstration—was not adequately addressed.

                     • It was not feasible to start services at all sites on the same date. However,
                       phased-in start dates turned out to be advantageous. The phased dates
                       spread out the HCFA workload over several months and allowed
                       difficulties to be discovered (and solved) early, when their effects were

                       The start-up period also offered lessons regarding coordination within and
                       between DOD and HCFA. Coordination between staffs of the two agencies
                       at the central level was clearly necessary. However, coordination at the
                       central level was not sufficient to enable sites to prepare adequately for
                       certification (i.e., direct contact between site officials and HCFA regional
                       office staff was essential as well). As Medicare+Choice provisions are put
                       into effect, the question of which matters to handle locally and which
                       might more appropriately be handled centrally for this demonstration
                       continues to arise.

                       Finally, experience to date has revealed both useful practices and certain
                       practical difficulties in operating Medicare+Choice plans within the DOD
                       framework. Some of the difficulties—such as the lack of alternative
                       designs for adding sites and bringing large numbers of beneficiaries into
                       the program at once—do not affect current operations. However, these
                       difficulties would affect expansion of the program, if authorized at the
                       close of the demonstration. Other difficulties affect the demonstration
                       itself. These difficulties include (1) possible overlaps in procedures, (2) the
                       lack of clear provisions for beneficiaries’ transition to other forms of
                       health care at the end of the demonstration, (3) uncertainty regarding
                       which aspects of Senior Prime operation DOD will handle centrally for the
                       program as a whole and which will be left to the sites, and (4) insufficient
                       information regarding the adequacy of arrangements for seniors’ care
                       during periods of deployment of military medical staff.

                       We recommend that the Secretary of Defense direct the Assistant
Recommendations to     Secretary of Defense (Health Affairs) to
the Secretary of
Defense                • work with HCFA to examine Medicare and DOD procedures,
                         measurement, and reporting systems with an eye toward seeking

                       Page 32        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                         waivers (where warranted) and eliminating duplication to the extent

                       • work with HCFA to determine conditions for transitioning out of the
                         demonstration into other coverage (including Medicare options, access
                         to Medigap insurance, and care at the MTF) and to notify enrollees of
                         these conditions as soon as possible;

                       • determine (in advance, whenever possible) which HCFA directives and
                         operational matters will be handled centrally and will be uniform across
                         the Senior Prime program and which matters will be handled at the site
                         level; and

                       • review plans for the provision of health care to seniors during times of
                         military deployment and either (1) ensure that staffing at participating
                         MTFs is sufficient to provide seniors with primary care or (2) provide
                         for primary care to be delivered through some other means.

                       We recommend that the Administrator of the Health Care Financing
Recommendations to     Administration work with the Assistant Secretary of Defense (Health
the Administrator of   Affairs) to (1) examine Medicare and DOD procedures, measurement, and
HCFA                   reporting systems with an eye toward granting waivers where warranted
                       and eliminating duplication as previously discussed, and (2) determine or
                       clarify the conditions for transitioning out of the demonstration into other
                       Medicare coverage and notify enrollees of these conditions as soon as

                       HCFA concurred with our recommendations and provided information
Agency Comments and    about current and planned activities to address them, including activities
Our Evaluation         to determine conditions for Senior Prime beneficiaries’ transition to other
                       Medicare coverage at the end of the demonstration.

                       Our work documented that military retirees enrolled in the Medicare
                       Subvention Demonstration need clearer information about their options
                       for care through the military health system as well as their Medicare
                       options once the demonstration has ended. This observation points to the
                       need to identify the options open to Senior Prime enrollees more broadly
                       and for DOD and HCFA to communicate information about these options
                       more clearly. For example, Senior Prime beneficiaries will need to know
                       whether they will be permitted to complete a course of care at the MTF
                       after returning to other Medicare coverage at the end of the demonstration
                       and what chance they will likely have of getting care on a space-available
                       basis. In addition, Senior Prime enrollees will need an explanation of the

                       Page 33       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

guaranteed issue rights that apply to Medigap supplemental insurance
policies, expressed in terms they can understand. Those who dropped
Medigap coverage because they had enrolled in Senior Prime may also
want information on Medigap options, availability, and rates. These
examples illustrate the need for the recommendations we are making in
this report.

We are sending copies of this report to the Honorable William S. Cohen,
Secretary of Defense, and the Honorable Nancy-Ann Min DeParle,
Administrator of HCFA, and will make copies available to others upon

If you have any questions regarding this report, please contact Ms. Westin
or Gail MacColl at (202) 512-5108, or Mr. Backhus at (202) 512-7111. Other
key contributors to this assignment were Cheryl Brand, Linda Lootens, and
Ruth McKay.

Susan S. Westin
Associate Director, Advanced Studies
  and Evaluation Methodology

Stephen P. Backhus
Director, Veterans’ Affairs and Military
  Health Care Issues

Page 34       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

List of Committees

The Honorable John W. Warner
The Honorable Carl Levin
Ranking Minority Member
Committee on Armed Services
United States Senate

The Honorable William V. Roth, Jr.
The Honorable Daniel Patrick Moynihan
Ranking Minority Member
Committee on Finance
United States Senate

The Honorable Floyd D. Spence
The Honorable Ike Skelton
Ranking Minority Member
Committee on Armed Service
House of Representatives

The Honorable Tom Bliley
The Honorable John D. Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives

The Honorable Bill Archer
The Honorable Charles B. Rangel
Ranking Minority Member
Committee on Ways and Means
House of Representatives

Page 35      GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

Letter                                                                                            1

Appendix I                                                                                       38
                      The TRICARE Region and the Demonstration Site                              38
Colorado Springs      The Senior Health Care Environment                                         38
(Central Region)      Preparing for HCFA Approval                                                39
                      Program Features                                                           39
                      Operational Difficulties and Issues                                        39

Appendix II                                                                                      40
                      The TRICARE Region and the Demonstration Site                              40
Dover (Northeast      The Senior Health Care Environment                                         40
Region)               Preparing for HCFA Approval                                                41
                      Program Features                                                           41
                      Operational Difficulties and Issues                                        41

Appendix III                                                                                     42
                      The TRICARE Region and the Demonstration Site                              42
Keesler (GulfSouth    The Senior Health Care Environment                                         42
Region)               Preparing for HCFA Approval                                                42
                      Program Features                                                           43
                      Operational Difficulties and Issues                                        43

Appendix IV                                                                                      44
                      The TRICARE Region and the Demonstration Site                              44
Madigan (Northwest    The Senior Health Care Environment                                         44
Region)               Preparing for HCFA Approval                                                44
                      Program Features                                                           45
                      Operational Difficulties and Issues                                        45

Appendix V                                                                                       46
                      The TRICARE Region and the Demonstration Site                              46
San Antonio           The Senior Health Care Environment                                         46
(Southwest Region)    Preparing for HCFA Approval                                                46
                      Program Features                                                           47
                      Operational Difficulties and Issues                                        47

Appendix VI                                                                                      48
                      The TRICARE Region and the Demonstration Site                              48
San Diego (Southern   The Senior Health Care Environment                                         48
California Region)

                      Page 36     GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up

                        Preparing for HCFA Approval                                                 49
                        Program Features                                                            49
                        Operational Difficulties and Issues                                         49

Appendix VII                                                                                        50

Comments From the
Health Care Financing
Related GAO Products                                                                                52

Tables                  Table 1: Medicare Subvention Demonstration Sites                             8
                        Table 2: Medicare Subvention Demonstration Program                          14
                          Enrollment as of June 28, 1999, by site


                        BAMC           Brooke Army Medical Center
                        BBA            Balanced Budget Act of 1997
                        CEO            chief executive officer
                        DOD            Department of Defense
                        FTE            full-time equivalent
                        GME            graduate medical education
                        HCFA           Health Care Financing Administration
                        HHS            Department of Health and Human Services
                        HMHS           Humana Military Health Services
                        HMO            health maintenance organization
                        MAMC           Madigan Army Medical Center
                        MOA            memorandum of agreement
                        MTF            military treatment facility
                        NMCSD          Naval Medical Center of San Diego
                        OLA            Office of the Lead Agent
                        SMHS           Sierra Military Health Services

                        Page 37      GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Appendix I

Colorado Springs (Central Region)

                         The Central Region, which combines Regions 7 and 8, encompasses 16
The TRICARE Region       states and 1 million eligible beneficiaries, of whom about 183,000 are 65 or
and the Demonstration    older. There is no Medical Center in the region, and the lead agent does not
Site                     command a military treatment facility (MTF). Rather, he is assigned full-
                         time to the Office of the Lead Agent (OLA), in Colorado Springs.

                         The demonstration site includes 2 Colorado Springs MTFs with
                         overlapping 40-mile catchment areas: the 140-bed Evans Army Community
                         Hospital at Fort Carson and the 40-bed U.S. Air Force Academy Hospital.
                         (The clinic at Peterson Air Force Base is also included in the
                         demonstration, but only for “age-ins.”) These community hospitals provide
                         primary care, some specialty care, and ancillary services, relying on the
                         network to fill specialty gaps. The combined catchment areas include a
                         service population of 134,341, including about 13,500 retirees who are 65
                         or older. The two hospitals had collaborated on programs and shared
                         resources before Senior Prime. Each had lost medical staff, including
                         primary care staff, to deployment at the time of our visit.

                         TRICARE began in this region in 1997. The Managed Care Support
                         Contractor, TriWest Healthcare Alliance, is an organization owned by 14
                         local health care entities (including Blue Cross and Blue Shield plans and
                         university hospitals) that was formed in 1995 to bid on the TRICARE
                         contract. TriWest’s main office is in Phoenix, AZ, with satellite staffs at
                         various MTF locations. The firm has no experience in operating Medicare
                         managed care plans, although many of its providers have Medicare

                         Local retiree organizations strongly supported the demonstration and this
                         site’s inclusion in it. Thus, site officials were involved well before site
                         selection was announced.

                         With reductions in staff and the advent of TRICARE, space available to
The Senior Health Care   Medicare eligibles at these hospitals has been very limited since 1997,
Environment              especially for primary care. There were four commercial Medicare Health
                         Maintenance Organizations (HMO) operating in the area, but two of them
                         discontinued service as of January 1, 1999. The supply of private
                         physicians is also limited and military retirees who no longer found space
                         at the MTFs reportedly had difficulty finding private physicians who would
                         accept new patients. Evidence from Senior Prime intake screening
                         suggests that some of these retirees simply went without care.

                         Page 38       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
                            Appendix I
                            Colorado Springs (Central Region)

                            This site’s primary source of information on Medicare requirements was a
Preparing for HCFA          local independent consultant who had worked with Health Care Financing
Approval                    Administration’s (HCFA) regional office staff in Denver. She was hired by
                            TriWest as a full-time employee to assist in preparing for the site visit and
                            continued to provide assistance through the start-up period. Site staff also
                            contacted Denver HCFA staff directly and sent them documents to review
                            before the site visit. Information from other Department of Defense (DOD)
                            demonstration sites about their experiences was also useful. However,
                            policy and procedures documents from earlier sites were of limited use
                            because they were designed for larger medical centers and reflected
                            earlier Medicare requirements rather than the later Medicare+Choice rules.

                          • The enrollment target for the site is 3,200 (1,200 for the Air Force hospital
Program Features            and 2,000 for Evans). Initial enrollment was less than expected, but by the
                            end of June, the Air Force hospital was at 99-percent capacity and Evans at
                            85 percent.
                          • Service delivery was phased in over 3 months to avoid overload.
                          • Retiree organization representatives were hired to assist with marketing
                            and orientation meetings to help put attendees at ease.
                          • Beneficiaries’ transition needs, such as ongoing use of oxygen or other
                            medical equipment and completion of previously scheduled care outside
                            the MTF, were identified before the start of services.
                          • The two hospitals’ approaches to enrollee orientation and health screening
                            reflected differences in their staffing for primary care. Evans included
                            health screenings in the orientation meetings, which were used to identify
                            patients with immediate needs for medical care or coordination of care.
                            The Air Force Academy held briefer orientation meetings, with health
                            assessment covered in the initial visit to the primary care physician.

                          • To ensure coverage during the phase-in of Senior Prime, some retirees
Operational                 applied to a commercial HMO as well, which led HCFA to reject both
Difficulties and Issues     applications.
                          • Deployments of medical staff during the start-up period created a
                            substantial extra workload for the primary care managers that remained.
                            Reassigning Senior Prime patients to even-out workloads once the
                            deployed staff returned posed something of a problem.
                          • Retirees nearing 65 joined TRICARE Prime in order to age in to Senior
                            Prime. As enrollment continues, adding these age-ins may strain capacity.
                          • Differences between the two MTFs in coding medical procedures on the
                            ambulatory care data form make it difficult to compile data for the
                            demonstration site as a whole.
                          • The base year for judging level of effort for funding purposes precedes
                            TRICARE and reflects conditions very different from the present.

                            Page 39        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Appendix II

Dover (Northeast Region)

                         The Northeast Region, Region 1, extends from Maine to Virginia,
The TRICARE Region       encompassing 12 states and the District of Columbia. Its service
and the Demonstration    population is 957,000, of whom 194,000 are 65 or older. The region includes
Site                     three medical centers and two additional military inpatient facilities. All
                         other MTFs in the region deliver only outpatient care. The position of lead
                         agent rotates annually among the commanders of the three medical
                         centers located in the national capital area—Andrews Air Force Base
                         Hospital, Bethesda Naval Hospital, and Walter Reed Army Medical Center.
                         The OLA staff of 33 is located at Walter Reed.

                         Dover is the smallest Senior Prime MTF, with the most limited services
                         beyond primary care. It was added to the demonstration to illustrate
                         outpatient-only services and rural conditions. Staffing at Dover has
                         declined sharply since 1996, and inpatient service was discontinued in
                         1998. MTF facilities are being renovated, and most patient care is currently
                         in temporary buildings. Sixty percent of the care delivered to Dover’s
                         patients was outside of the MTF even when Dover offered inpatient
                         services. Located about a 2-hour drive from Washington, D.C., Dover has a
                         service population of 26,000, of whom 4,100 are eligible for Senior Prime. A
                         unique feature of the site is its proximity to the medical centers of the
                         national capital area. A government van transports Dover patients to and
                         from these centers several days a week. Another unique feature of the site
                         is its inclusion in a demonstration that allows military retirees to join the
                         Federal Employees Health Benefits Program.

                         TRICARE began in this region in June 1998, bringing with it practices that
                         were unfamiliar to beneficiaries in the region, such as a contractor-
                         operated centralized appointment system. Start-up problems in TRICARE
                         were being resolved while Senior Prime was being implemented. The
                         Managed Care Support Contractor is Sierra Military Health Services
                         (SMHS) whose parent company in Nevada has Medicare HMO experience.
                         Local military retiree organizations helped publicize Senior Prime.

                         About 800 seniors, concentrated in a few locations, have traditionally used
The Senior Health Care   the Dover MTF. Space-available care has been shrinking with the advent of
Environment              TRICARE Prime. The geographically isolated Delmarva Peninsula, where
                         Dover is located, has several hospitals but relatively few private sector
                         physicians in each specialty area. The military medical centers of the
                         national capital area have been an important additional source of care for
                         military retirees. Medicare in the Dover area has been primarily fee-for-
                         service. There were commercial Medicare HMOs, but they withdrew at the
                         end of 1998. Their departure may have exacerbated seniors’ concerns
                         about the temporary nature of Senior Prime.

                         Page 40       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
                            Appendix II
                            Dover (Northeast Region)

                            Although Dover was named as a possible demonstration site beginning in
Preparing for HCFA          August 1997, its participation was uncertain until sites were announced in
Approval                    February 1988. Pressed to produce an application quickly, Dover sent in a
                            thin binder that contained placeholders for sections still to be developed at
                            the site. Concerted program development started in June, when staff met
                            in San Diego with staff from other sites and learned what was really
                            needed. The design teams relied heavily on the HCFA site visit guide,
                            documents and advice from Madigan and San Antonio, and consultant
                            assistance. Because the OLA viewed the consultant as critical for
                            implementing the program, it persuaded DOD to continue funding the
                            consultant (through the SMHS contract) beyond the HCFA site visit.

                            HCFA regional office staff in Philadelphia first saw the Dover plan in early
                            July and notified the OLA of additional materials that would be needed.
                            Site officials were not permitted to contact the regional office until shortly
                            before the site visit, which took place September 28 through 30. To meet a
                            January 1 service start date, marketing had to start November 1. HCFA
                            gave verbal approval for the marketing to go forward in advance of the
                            formal plan approval document, which was issued November 18.

                          • The capacity for the site was set at 1,500, but open enrollment had reached
Program Features            only 706 by the end of June. Enrollment consists largely of individuals who
                            had traditionally used the MTF and is not likely to exceed about 800.
                          • With a small staff and TRICARE start-up duties, the OLA delegated
                            considerable responsibility for Senior Prime to the MTF level. At the MTF,
                            staffing and administrative workload for Senior Prime were about the
                            same as at larger sites.
                          • Flu shots were given at new member orientation sessions.
                          • Case management for seniors is located at Dover rather than at SMHS’
                            central site and will be supplemented by MTF nurses.
                          • Network development has been a struggle and network maintenance
Operational                 requires ongoing attention. The few specialists in the area have been
Difficulties and Issues     reluctant to undergo credentialing and to adopt referral procedures for the
                            sake of a small number of Senior Prime patients.
                          • The new DOD data module used as an enrollment vehicle in this region has
                            encountered technical problems and has had difficulty handling age-ins
                            and multiyear enrollment.
                          • Distance between the MTF and the OLA was an impediment. Materials and
                            information important to the program were not always sent to both
                          • Availability of nearby specialty care through the Senior Prime network
                            might reduce seniors’ use of the more-distant capital area medical centers.

                            Page 41        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Appendix III

Keesler (GulfSouth Region)

                         The GulfSouth Region, Region 4, encompasses Alabama, Mississippi, parts
The TRICARE Region       of Florida and Louisiana, and Tennessee. Its service population of 605,000
and the Demonstration    includes 112,748 who are 65 or older. The region includes 13 military
Site                     hospitals and clinics (Departments of the Air Force, Navy, and Army and
                         the U.S. Coast Guard) plus Keesler Air Force Medical Center, whose
                         commanding officer serves as lead agent. The OLA has a staff of 32, of
                         whom 4 are assigned part-time to Senior Prime. Keesler’s status as a site
                         was uncertain, but a strong presentation to DOD helped to win its place in
                         the demonstration.

                         Keesler is a tertiary care teaching facility providing primary care, 44
                         medical and surgical specialties, and graduate medical education (GME)
                         programs in internal medicine and several specialty areas. It serves a
                         close-knit, local retiree population and attracts space-available patients
                         from a wide area for specialized services, such as sleep studies.
                         Vacationers also use Keesler services, particularly its pharmacy. Humana
                         Military Health Services (HMHS), the Managed Care Support contractor, is
                         a new subsidiary of Humana and had no previous experience with
                         Medicare or with government military contracting. The site’s experience
                         with managed care began with TRICARE Prime in 1996. Volunteers from
                         military retiree and veterans’ groups and the Red Cross helped with
                         marketing Senior Prime. One retiree organization did a direct mailing of
                         national material on Senior Prime to 3,500 members.

                         Keesler has traditionally emphasized primary care and continuity of care.
The Senior Health Care   Historically, most of the internal medicine care at the center has been
Environment              given to seniors, and 1,500 seniors were considered “continuity
                         empaneled” with an internal medicine provider. Space-available care was
                         provided to support GME. However, space-available care outside of GME
                         was episodic and has been decreasing in recent years. Seniors who were
                         not empaneled reported difficulty in getting appointments.

                         Mississippi had no HMOs for any age group before TRICARE Prime, and
                         Keesler Senior Prime is the only Medicare HMO. Managed care is a
                         relatively new concept in the Keesler area, and providers and beneficiaries
                         are reluctant to accept it. Keesler’s Senior Prime service area includes a
                         few ZIP codes in Mobile, AL, where Medicare managed care is an option.

                         Planning teams at Keesler had little understanding of Medicare
Preparing for HCFA       requirements when Keesler prepared its initial application in late February
Approval                 1998. To meet DOD’s March deadline, the OLA took boilerplate
                         information from San Antonio’s application and made changes later.

                         Page 42       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
                            Appendix III
                            Keesler (GulfSouth Region)

                            The Keesler team received useful information from other demonstration
                            sites, but otherwise lacked access to Medicare expertise. There were no
                            nearby Medicare HMOs to visit. HMHS delayed hiring a consultant until the
                            contract modification to authorize this action was in place. (Once hired,
                            the consultant was very helpful.) Keesler waited for DOD approval before
                            contacting the regional HCFA office in Atlanta. Central rather than
                            regional HCFA staff had reviewed the Health Services Delivery portion of
                            the application, and when Keesler staff first visited the regional office on
                            July 31, the HCFA staff had apparently just received the Memorandum of
                            Agreement and had not yet been briefed about the demonstration.

                            Because of a misunderstanding of HCFA requirements, Keesler lacked
                            signed contracts with the network providers at the time of the HCFA site
                            visit in late August. HCFA gave verbal approval to start marketing the
                            program even though the contracts were not complete. Keesler asked DOD
                            to support additional consultant help in preparing for the first HCFA
                            monitoring visit, but this request was turned down.

                          • Keesler had enrolled 2,661 beneficiaries toward its capacity of 3,100 by the
Program Features            end of June. About 600 had been in primary care at the MTF before the
                          • The program includes a board-certified geriatrician who has sensitized
                            staff to the needs of patients 65 and over, including the need for louder
                            telephone messages and larger print on signs.
                          • 99 percent of Senior Prime enrollees chose an Internal Medicine over a
                            Primary Care (Family Practice) clinic team. Some younger patients were
                            shifted from Internal Medicine to accommodate the seniors.
                          • Internal Medicine nurse-managers and other staff called all 2,200 people
                            who were enrolled for December 1 and January 1 start dates to screen for
                            special needs and make appointments for the orientation seminars.
                          • Primary care appointments for Senior Prime were lengthened by 5 minutes
                            to allow providers to complete administrative work for each encounter.
                          • Keesler had given previous attention to data quality and data use in
                            program management, which was helpful for Senior Prime.

                          • Limited access to Medicare expertise has been a major difficulty.
Operational               • Keesler must market the concept of managed care, not simply the Senior
Difficulties and Issues     Prime program, to both customers and providers in the community.
                            Network development has been difficult.
                          • The administrative demands of Senior Prime have drawn effort from the
                            health care delivery system for active duty personnel and their families.
                          • Loss of program knowledge through administrative staff turnover is a
                            major concern.

                            Page 43         GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Appendix IV

Madigan (Northwest Region)

                         The Northwest Region, Region 11, covers Washington, Oregon, and part of
The TRICARE Region       Idaho, and a service population of about 370,250, including about 62,290
and the Demonstration    who are 65 and older. There are eight MTFs in this region—one major
Site                     medical center, two community hospitals, and five ambulatory clinics.

                         The demonstration site consists of Madigan Army Medical Center
                         (MAMC), a major medical center, colocated with the OLA at Fort Lewis in
                         Tacoma, WA. MAMC is a 227-bed tertiary care teaching hospital that
                         provides the full range of care, including primary, specialty, and ancillary
                         care, relying on the network to fill gaps in specialty care. The service area
                         for the demonstration covers most of the catchment area around MAMC as
                         well as a few areas outside of the catchment area. There are about 137,791
                         total beneficiaries in the catchment area with about 19,323 beneficiaries
                         who are 65 and older.

                         This region was the first to implement TRICARE in early 1995. The
                         managed care support contract was awarded to Foundation Health Federal
                         Services, an experienced TRICARE contractor, which also operates
                         TRICARE in Regions 6, 9, 10, and 12. Foundation’s main office is in Rancho
                         Cordova, CA, with satellite staff at various MTF locations. Foundation has
                         experience running Medicare managed care plans in its commercial
                         operation. Since 1994, the Madigan staff had been exploring ways for the
                         MTF to be reimbursed for care provided to Medicare patients, and MAMC
                         had been on the list of potential demonstration sites for the DOD program.

                         MAMC has had a commitment to managed care and has been providing
The Senior Health Care   care to seniors before the demonstration, helping to meet the training
Environment              needs of the MTF physicians. Before Senior Prime, the MTF provided
                         ongoing care to certain seniors who were empanelled to the MTF. Space-
                         available care at the MTF has declined for all beneficiaries, but many
                         factors in addition to Senior Prime (e.g., resource reductions) have
                         contributed to this decline. Managed care has long been established in the
                         Pacific Northwest, and seniors in the Madigan area can choose from four
                         commercial HMOs.

                         The site staff worked with Medicare consultants, who were hired by the
Preparing for HCFA       managed care support contractor, to prepare for the HCFA site visit and
Approval                 learn about Medicare requirements. The consultants’ most significant
                         contribution was the mock site visit conducted with site staff to educate
                         them on HCFA’s expectations before the actual site visit. The site staff
                         worked closely with the HCFA regional staff in writing the application and
                         preparing for the site visit, in spite of a lack of authority from DOD

                         Page 44       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
                            Appendix IV
                            Madigan (Northwest Region)

                            headquarters to contact the regional staff. Madigan was the first site to
                            implement Senior Prime, so there were no other DOD examples to follow.

                          • The site was successful in meeting the enrollment target of 3,300 within 3
Program Features            months, but there were some surprises. Enrollment among formerly
                            empanelled beneficiaries who had been served by the MTF was lower than
                            expected, and among “new” beneficiaries was greater than expected.
                          • Service delivery was not phased in over time. DOD headquarters
                            encouraged taking in all enrollees at once, and MAMC wanted to begin a
                            large volume of service so that HCFA interim payments would begin.
                          • In implementing the demonstration, there was no change in medical care
                            delivery, other than adding HCFA-required services, such as skilled nursing
                            facility care. Ninety-five percent of the specialty care under Senior Prime
                            will be provided at the MTF.
                          • In marketing the program, the MTF worked with local retiree groups, such
                            as The Retired Officers’ Association and the Fort Lewis Retiree’s
                            Association, for example, using retiree newsletters to publish program
                          • The site conducted beneficiary orientations to provide information on
                            program benefits, how to access care, and the role of primary care
                            managers as well as to obtain information from beneficiaries on current
                            medications and health care needs.
                          • Deployment of MTF specialists has caused gaps in providing care, which
Operational                 may also be an issue for Senior Prime.
Difficulties and Issues   • The level of effort provision and uncertainty concerning funding have not
                            affected health care delivery, but have caused frustration and concern.
                            Health care delivery and costs are different than they were in 1996—the
                            base year for level of effort.
                          • More time was needed for preparing marketing materials, clarifying the
                            benefit before presenting to enrollees, preparing enrollee documents once
                            HCFA had provided the approved list of enrollees, beneficiary orientation,
                            and provider and staff education.
                          • Enrolling a large number of patients on a single start date strained primary
                            care capacity and the site’s ability to meet the appointment standards.
                          • Two full-time staff in the OLA are needed for start-up and continuation of
                            Senior Prime. One key position is held by a civilian.

                            Page 45        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Appendix V

San Antonio (Southwest Region)

                         The Southwest Region, Region 6, consists of 4 states—Texas (except the
The TRICARE Region       far western portion), Oklahoma, Arkansas, and most of Louisiana—and
and the Demonstration    about 1 million beneficiaries, of whom about 162,000 are 65 and older.
Site                     There are 18 MTFs in this region—2 major medical centers, both located in
                         San Antonio, 7 community hospitals, and 9 ambulatory care clinics.

                         The demonstration site is the most complex, consisting of two service
                         areas—San Antonio (urban) and Texoma (rural), four MTFs, two states
                         (Texas and Oklahoma), and two branches of the armed services—the
                         Army and Air Force. The San Antonio service area MTFs include Wilford
                         Hall, which is a 350-bed medical center located at Lackland Air Force Base
                         and Brooke Army Medical Center (BAMC), a 238-bed medical center
                         located at Fort Sam Houston. Both of these medical centers provide
                         primary care, most specialty care, and tertiary care. The Texoma service
                         area includes Sheppard Air Force Base Hospital, which is a 60-bed
                         community hospital located in Wichita Falls, TX, and Reynolds Army
                         Community Hospital, an 150-bed community hospital located at Fort Sill in
                         Lawton, OK. Both of the Texoma hospitals provide primary care and some
                         specialty care, but rely on the network to fill in specialty care unavailable
                         in the MTFs. The San Antonio service area has a beneficiary population of
                         about 192,000, including almost 33,000 retirees 65 and older. The Texoma
                         service area includes a beneficiary population of about 70,000, of whom
                         6,643 are 65 and older.

                         The TRICARE managed care support contract was awarded for this region
                         in late 1995 to Foundation Health Federal Services, an experienced
                         TRICARE contractor that was discussed in appendix IV. Foundation also
                         supports TRICARE in Regions 9, 10, 11, and 12.

                         Enrollees in the San Antonio area formerly had limited access to space-
The Senior Health Care   available care for primary care, but some of those with complex problems
Environment              were seen for GME purposes. In Texoma, the Ft. Sill senior population had
                         accessed primary care at the MTF as part of its Silver Care Program. The
                         San Antonio area has many Medicare providers and seniors have a choice
                         of enrolling in four commercial HMOs. The Texoma area has more limited
                         availability of civilian physicians and the Senior Prime demonstration in
                         the Texoma area is the first Medicare HMO in this rural market.

                         With the coordination required among four MTFs, the OLA became central
Preparing for HCFA       in leading the effort for the site to obtain HCFA approval. Staff from the
Approval                 four MTFs worked together with OLA staff to prepare policies and
                         procedures and prepare for the site visit. Foundation provided the same
                         consultants used by the Madigan site to teach the San Antonio site about

                         Page 46       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
                            Appendix V
                            San Antonio (Southwest Region)

                            Medicare. In addition, OLA staff took the initiative to inform themselves
                            about HCFA requirements from other sources, such as the HCFA Web
                            page and commercial Medicare HMOs.

                          • Enrollment capacity was set at 12,700 (5,000 each for BAMC and Wilford
Program Features            Hall, 1,300 for Sheppard, and 1,400 for Ft. Sill.) Although initial enrollment
                            was slower than expected, the San Antonio area had reached 99-percent
                            capacity and the Texoma area 67 percent by the end of June 1999.
                          • Service delivery was phased in to avoid overload.
                          • The MTFs had always served substantial numbers of patients who were 65
                            and older as part of Ft. Sill’s Silver Care Program, and largely to support
                            GME at BAMC and Wilford Hall. Senior Prime changed the scope of
                            seniors’ care at BAMC and Wilford Hall from providing specialty care
                            services to meeting patients’ overall medical needs.
                          • This demonstration site accounts for almost half of all enrollees across the
                            six demonstration sites.
                          • HCFA approved the Texoma service area as an “expansion area.” This has
                            the potential to be a model if the program goes nationwide.
                          • New member orientation and health screening procedures resulted in
                            innovative changes for the Senior Prime population, such as telephone
                            calls to all new enrollees at Sheppard for health care screening and
                            orientation meetings that also screened enrollees for health care needs at
                            Wilford Hall.
                          • A phased-in enrollment process, which also allowed enrollees to designate
Operational                 a preferred MTF and primary care manager, proved to be a challenge for
Difficulties and Issues     data systems not equipped to handle these refinements, requiring manual
                          • Continuous shifts in the ground rules with respect to what benefits were
                            actually being offered to enrollees required many adjustments as
                            preparations moved forward.
                          • Combining policies and procedures from the four MTFs and rewriting
                            them into a single plan that meets HCFA requirements and worked for all
                            the MTFs was a daunting task managed by the OLA. This was a new role
                            for the OLA—that of being directly involved with MTFs rather than
                            primarily focusing on contract oversight.

                            Page 47        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Appendix VI

San Diego (Southern California Region)

                         The Southern California Region, Region 9, encompasses southern
The TRICARE Region       California and Yuma, AZ. Its service population totals approximately
and the Demonstration    643,848, of whom 107,197 are 65 or older. The region includes the Naval
Site                     Medical Center of San Diego (NMCSD), a 320-bed tertiary care facility with
                         the largest GME in the Navy, as well as 6 other MTFs not included in the
                         demonstration. NMCSD’s service area contains about 35,000 Medicare
                         eligible beneficiaries in an overall service population of 257,658. NMCSD
                         covers every area of medical treatment except burns and transplants.

                         Retired officers in the San Diego area were among the first to propose
                         subvention, and San Diego volunteered to be a subvention demonstration
                         site in 1995. It was dropped from consideration for a time, but reinstated in
                         November 1997. NMCSD is the only Navy facility in the demonstration. The
                         OLA has a staff of 48; the 7 OLA staff assigned to Senior Prime include 1
                         full-time and 6 part-time positions, for a total of 4 full-time equivalents. The
                         OLA expects to convert one key administrative position to civilian status.

                         The site’s experience with managed care began with TRICARE in 1995.
                         The support contractor is Foundation Health Federal Services, whose
                         parent company has previous Medicare HMO experience. Foundation also
                         supports Madigan and San Antonio and drew on lessons learned in setting
                         up Senior Prime at those earlier sites. Local retiree groups supported San
                         Diego’s inclusion in the demonstration, and some 20 retiree organizations
                         in the area sent out newsletters about the program.

                         The extensive range of services and space available for seniors’ care have
The Senior Health Care   led, historically, to high use of the Naval Hospital by seniors and have
Environment              attracted military retirees to this area. About 18,000 seniors are current
                         users of services. Seniors constitute about half of the patients seen overall
                         and as high as 80 percent in some specialties. However, space has been
                         limited in primary care. About 20 percent of those who joined Senior Prime
                         had been seen regularly in primary care clinics.

                         The Medicare HMO market is highly saturated and enrolls about 49 percent
                         of eligible beneficiaries (military and civilian combined). Some of the
                         commercial HMOs offer richer benefits than Senior Prime. Many dual
                         eligibles who used NMCSD were in private HMOs; some had used the MTF
                         for backup while others used the MTF as primary provider and the HMO as
                         backup. Local HMOs, aware of potential competition, ran newspaper
                         advertisements at the start of the demonstration; one even held a ball for
                         military retirees. Of the 165,000 Medicare eligibles (both military and
                         civilian), site officials estimated that only 10,000 do not have Part B.

                         Page 48       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
                            Appendix VI
                            San Diego (Southern California Region)

                            San Diego had 6 weeks to develop its initial application and turned in a
Preparing for HCFA          supplemental application 2 months after the first. Materials from DOD,
Approval                    Madigan, and San Antonio were useful for the general sections, but San
                            Diego had to develop site-specific materials from scratch. Foundation
                            brought their previous HMO experience to developing the application, and
                            their Arizona Medicare HMO provided a copy of its operating manual.

                            The San Francisco HCFA regional office has a perspective that reflects the
                            highly competitive Medicare HMO market in southern California. By
                            respecting the ban on communication with that office, DOD regional and
                            MTF officials had no opportunity to learn what HCFA regional staff
                            considered important. Nor could HCFA regional staff develop a clear
                            picture of the demonstration program or offer guidance in advance of their
                            visit. San Diego officials found that experience at Madigan and San
                            Antonio did not help them anticipate the HCFA regional office’s special
                            concerns and information requests. Having to respond to newly expressed
                            concerns on the spot added tension to the visit.

                          • As of the end of June, the site had enrolled 3,101 beneficiaries toward its
Program Features            capacity of 4,000; early enrollment was phased in.
                          • “Welcome Aboard” orientation sessions for enrollees included the use of a
                            health assessment form tailored for senior populations.
                          • Cardiology clinic staff took over some duties of the Internal Medicine staff
                            early in the demonstration to ensure that each Senior Prime beneficiary
                            received a first appointment within 90 days of enrolling.
                          • Program officials identify frequent users of emergency room services and
                            alert their primary care manager so that any problems in accessing primary
                            care can be remedied or patients educated on how to obtain care.
                          • Appeals and grievances requirements have led to new mechanisms, such
                            as a 24-hour 800 number to better serve the Senior Prime expedited 72-
                            hour appeal process, and a new role for the lead agent serving as central
                            point of contact for all appeal or grievance actions.

                          • The regional HCFA office considered DOD’s marketing material
Operational                 insufficiently detailed to allow retirees in commercial HMOs to compare
Difficulties and Issues     their current benefits to Senior Prime.
                          • Developing a table that HCFA and site officials could agree was a fair
                            presentation proved challenging.
                          • On the basis of outdated information, some retiree organizations
                            erroneously informed their members that Senior Prime did not provide
                            skilled nursing facility care.
                          • The clinical encounter form had been in use for only a year. Coding issues
                            were not yet resolved and completion rates at some clinics were low.

                            Page 49         GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Appendix VII

Comments From the Health Care Financing

               Page 50   GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Appendix VII
Comments From the Health Care Financing Administration

Page 51        GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
Related GAO Products

             Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their
             Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999).

             Medicare Subvention: Challenges and Opportunities Facing a Possible VA
             Demonstration (GAO/T-HEHS/GGD-99-159, July 1, 1999).

             Medicare Subvention Demonstration: DOD Data Limitations May Require
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             Medicare Subvention Demonstration: DOD Experience and Lessons for a
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             Medicare+Choice: HCFA Actions Could Improve Plan Benefit and Appeal
             Information (GAO/T-HEHS-99-108, Apr. 13, 1999).

             Medicare+Choice: New Standards Could Improve Accuracy and
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             Medicare Managed Care: Greater Oversight Needed to Protect Beneficiary
             Rights (GAO/HEHS-99-68, Apr. 12, 1999).

             Medicare: Progress to Date in Implementing Certain Major Balanced
             Budget Act Reforms (GAO/T-HEHS-99-87, Mar. 17, 1999).

             Medicare HMO Institutional Payments: Improved HCFA Oversight, More
             Recent Cost Data Could Reduce Overpayments (GAO/HEHS-98-153, Sept.
             9, 1998).

             Medical Readiness: Efforts Are Underway for DOD Training in Civilian
             Trauma Centers (GAO/NSIAD-98-75, Apr. 1, 1998).

             Military Retirees’ Health Care: Costs and Other Implications of Options to
             Enhance Older Retirees’ Benefits (GAO/HEHS-97-134, June 20, 1997).

             Page 52       GAO/GGD/HEHS-99-161 Medicare Subvention Demonstration DOD Start-up
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