oversight

Defense Health Program: Reporting of Funding Adjustments Would Assist Congressional Oversight

Published by the Government Accountability Office on 1999-04-29.

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

                 United States General Accounting Office

GAO              Report to the Chairman, Subcommittee
                 on Defense, Committee on
                 Appropriations, House of
                 Representatives

April 1999
                 DEFENSE HEALTH
                 PROGRAM
                 Reporting of Funding
                 Adjustments Would
                 Assist Congressional
                 Oversight




GAO/HEHS-99-79
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-281106

      April 29, 1999

      The Honorable Jerry Lewis
      Chairman, Subcommittee on Defense
      Committee on Appropriations
      House of Representatives

      Dear Mr. Chairman:

      As one of the largest health care providers in the nation, the Department of
      Defense (DOD) has experienced many of the same challenges as the private
      sector health care industry—including rising costs, problems with access
      to care, and lack of a uniform benefit. Between fiscal years 1994 and 1998,
      the Congress appropriated $48.9 billion for DOD’s Defense Health Program
      (DHP) to provide medical and dental services to active duty personnel and
      their families and retired military personnel. These funds were
      appropriated for DHP operations and maintenance (O&M) expenses.1 They
      were primarily used to deliver patient care in DOD’s direct care system of
      service-operated military treatment facilities (MTF) or to purchase care
      through the Civilian Health and Medical Program of the Uniformed
      Services (CHAMPUS) and seven TRICARE managed care support (MCS)
      contracts.2

      Each year, the Congress appropriates funds for DHP O&M expenses after
      reviewing and making adjustments to DOD’s budget request. DOD’s request
      estimates dollar requirements for the entire DHP and shows how proposed
      spending would be allocated among seven major health care subactivities
      (for example, direct care, purchased care, training) and the 34 specific
      program elements. After the Congress appropriates overall DHP funding,
      DOD allocates its appropriation among the seven DHP subactivities and the
      34 program elements. These budget allocations generally align with the
      budget request estimates, and DOD reports the allocated amounts back to




      1
       In addition to the DHP O&M appropriation, the Congress appropriates funds to cover other military
      health system costs. For example, in fiscal year 1999, the Congress appropriated a total of about $15.9
      billion for the military health system. This included $9.9 billion for DHP O&M; $5.3 billion for military
      personnel; $401 million for DHP procurement; $228 million for military construction; and $19.4 million
      for research and development.
      2
       DOD administered CHAMPUS as an insurance-like program to pay for a portion of the care military
      families and retirees under age 65 received from private sector providers. Under its TRICARE managed
      care reform effort, DOD phased out CHAMPUS between 1995 and 1998 and now purchases private
      health care and administrative services nationwide from major health care companies under its MCS
      contracts.



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                   the Congress with the next fiscal year’s budget request. Actual obligations,3
                   however, are separately reported two years later to the Congress with that
                   subsequent fiscal year’s budget request.

                   The previous subcommittee chairman raised concerns about apparent
                   discrepancies between DOD’s budget allocations and the actual obligations
                   for direct and purchased care. The chairman asked that we determine
                   (1) the extent to which DHP obligations have differed from DOD’s budget
                   allocations, particularly for MCS contracts; (2) the reasons for any such
                   differences; and (3) whether congressional oversight of DHP funding
                   changes could be enhanced if DOD provided notification or budget
                   execution data. In doing our work, we interviewed and obtained
                   documentation from budget officials of the Office of the Secretary of
                   Defense (Comptroller); the Office of the Assistant Secretary of Defense
                   (Health Affairs); the TRICARE Management Activity (TMA); and the Army,
                   Navy, and Air Force Surgeons General. Because MCS contracts became a
                   DHP program element in fiscal year 1994, we analyzed fiscal years 1994
                   through 1998 budget data. DOD provided the data on DHP O&M requests,
                   budget allocations, and obligations between 1994 and 1998 by subactivity
                   and program element.4 We reviewed these data for internal consistency,
                   where possible, but did not independently review source data to validate
                   its accuracy. We performed our work between August 1998 and
                   March 1999 in conformance with generally accepted government auditing
                   standards.


                   Between fiscal years 1994 and 1998, the Congress appropriated
Results in Brief   $48.9 billion for DHP O&M expenses. During that period, DHP obligations at
                   the subactivity level, particularly for direct and purchased care, differed in
                   significant ways from DOD’s budget allocations. In total, about $4.8 billion
                   was obligated differently—as either increases to or decreases from the
                   budget allocations DOD had developed for the seven DHP subactivities.
                   Between 1994 and 1998 for example, DOD decreased its purchased care
                   obligations by about $2 billion and adjusted direct patient care and
                   information technology obligations by $1.4 billion. DOD also moved varying
                   amounts into and out of such other subactivities as MTF base operations,
                   medical education, and management activities.



                   3
                    Amounts of orders placed, contracts awarded, services received, and similar transactions during a
                   given period that will require payments during the same or future period.
                   4
                    In compiling the 1994 through 1998 data, DOD used the program element structure for the fiscal year
                   2000 DHP budget request and made adjustments for prior years to ensure accurate comparisons.



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                    These funding changes occurred because of internal DOD policy choices
                    and other major program changes. According to DOD, its strategy was to
                    fully fund purchased care activities within available funding levels. This
                    strategy left less to budget for direct care and other DHP subactivities. TMA
                    officials also told us that because the DHP has both direct and purchased
                    care components, whereby many beneficiaries can access either system to
                    obtain health care, it is difficult to reliably estimate annual demand and
                    costs for each component. Between 1994 and 1996, purchased care
                    obligations were $1.9 billion less than allocated because of faulty
                    physician payment rate and actuarial assumptions. Between 1994 and
                    1998, direct patient care obligations amounted to $1 billion more than DOD
                    had allocated—during a period of base closures and MTF
                    downsizing—largely because DOD understated estimated direct care
                    requirements. Also, between 1996 and 1998, DOD overestimated MCS
                    contract costs, believing that contract award prices would be higher and
                    implementation would begin sooner than what occurred. Thus, most of the
                    unobligated MCS contract funds were used to defray higher than
                    anticipated CHAMPUS obligations.

                    The movement of DHP funds from one subactivity to another does not
                    require prior congressional notification or approval.5 As a result, these
                    sizeable funding changes have generally occurred without congressional
                    awareness. Now that the MCS contracts are implemented nationwide, DOD
                    officials expect future DHP obligations to track more closely with budget
                    allocations. However, they also expect some level of changes to continue
                    during budget execution, given the uncertainties in estimating the annual
                    costs of the direct care and purchased care system components.
                    Meanwhile, current law and regulations will continue to allow DOD the
                    latitude to move funds between subactivities with little or no
                    congressional oversight. Thus, congressional oversight could be enhanced
                    if the Congress chooses to require DOD to (1) notify the congressional
                    defense committees of its intent to shift funds among subactivities
                    whenever the shifted amount exceeds a certain threshold amount and/or
                    (2) provide quarterly budget execution data.


                    The DHP budget estimates submitted to the Congress consist of all the O&M
Background on the   and procurement resources needed to support DOD’s consolidated medical
DHP O&M Budget

                    5
                     As defined in DOD financial management regulation 7000.14-R (Vol. 3, Ch. 6), these actions are not
                    considered reprogramming, which requires notification or prior approval of the Congress.



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activities.6 According to DOD, the budget estimates are based on the
continued refinement and application of a managed care strategy and
methodology used to produce DOD’s health care services for eligible
beneficiaries. Operating under the Assistant Secretary of Defense (Health
Affairs), TMA is responsible for formulating the DHP budget request and for
managing DOD’s CHAMPUS and MCS contracts. The Surgeons General of the
Army, Navy, and Air Force are responsible for the budget execution of
decentralized medical activities such as direct MTF patient care.

The DHP O&M budget request consists of a single budget
activity—administration and servicewide activities.7 Each year, DOD
provides detailed DHP budget information to the Congress in “justification
materials” that show amounts requested for each of the 7 subactivities that
encompass 34 program elements (see table 1).8




6
 This report addresses O&M resources, or about 96 percent of DOD’s fiscal year 1999 DHP budget
request. The remaining 4 percent of the DHP budget request ($401 million in fiscal year 1999) funds
procurement of capital equipment in support of MTF and health care operations.
7
 In addition to the DHP O&M budget request that covers health care expenses, DOD submits O&M
budget requests to finance other portions of DOD’s readiness and quality-of-life priorities. O&M
appropriations fund a diverse range of programs and activities that include salaries and benefits for
most civilian DOD employees, depot maintenance activities, fuel purchases, flying hours,
environmental restoration, base operations, and consumable supplies. Moreover, each service and
DOD agency spends O&M funds.
8
 In general, non-DHP O&M budget requests are presented as four broad budget activities: operating
forces, mobilization, training and recruiting, and administration and servicewide activities. These
requests usually break down each budget activity into activity groups, which in turn are broken into
subactivity groups, and finally into program elements. In contrast, the DHP O&M budget consists of a
single budget activity—administration and servicewide activities. For comparison of the budget line
items, the DHP subactivities and program elements correspond to the non-DHP O&M activity groups
and subactivities line items.



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Table 1: Defense Health Program Operations and Maintenance Subactivities and Program Elements
Subactivity         Pays for                                Program element
In-house care         Medical and dental care for patients in MTFs Defense medical centers, hospitals, and medical clinics—CONUS;
(direct care)                                                      defense medical centers, hospitals, and medical
                                                                   clinics—OCONUS; dental care activities—CONUS; and dental
                                                                   care activities—OCONUS
Private sector care   Medical and dental care for patients in         Managed care support contracts, CHAMPUS, and care in
(purchased care)      private sector settings                         nondefense facilities
Consolidated health   Supporting DOD’s worldwide delivery of          Other health activities, military public/occupational health, other
support               patient care                                    unique military medical activities, aeromedical evacuation
                                                                      activities, Armed Forces Institute of Pathology, examining
                                                                      activities, and veterinary activities
Information           Automated information systems to support        Central information management
management            military medical readiness and health care
                      administration

Management            Headquarters administration of direct care      Management headquarters and TRICARE Management Activity
activities            and private sector medical activities
Education and         Achieving and maintaining general and           Armed Forces Health Professions Scholarship Program, Uniformed
training              specialized medical skills and abilities of     Services University of the Health Sciences, and other education
                      military and civilian professionals             and training
Base operations/      Operating and maintaining DOD-owned             Minor construction—CONUS; minor construction—OCONUS;
communications        medical and dental facilities                   maintenance and repair—CONUS; maintenance and
                                                                      repair—OCONUS; real property services—CONUS; real property
                                                                      services—OCONUS; base operations—CONUS; base
                                                                      operations—OCONUS; base communication—CONUS; base
                                                                      communication—OCONUS; environmental conservation;
                                                                      environmental compliance; pollution prevention; and visual
                                                                      information activities
                                               Note: CONUS means continental United States; OCONUS means outside the continental United
                                               States.

                                               Source: Department of Defense Comptroller.



                                               While the Congress appropriates DHP O&M funds as a single lump sum, its
                                               budget decision is based on the DHP budget request presented at the
                                               subactivity and program element levels. Since 1994, the Congress has
                                               generally appropriated more for DHP O&M expenses than DOD requested (see
                                               fig. 1).




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Figure 1: Defense Health Program
Operations and Maintenance Budget   12      Dollars in Billions
Status, Fiscal Years 1994–99
                                                                                9.86    9.89           9.94   10.04 10.11           9.9
                                    10                        9.61       9.59                                               9.65
                                                    9.33                                       9.36
                                            9.08


                                        8



                                        2



                                        2



                                        2



                                        0


                                             1994                 1995           1996           1997           1998          1999
                                             Fiscal Year


                                                       Requested

                                                       Appropriated



                                    Source: TMA Office of Resource Management.


                                    Committee reports may specify relatively small amounts of funding for
                                    such items as breast cancer and ovarian cancer research, which DOD then
                                    obligates through the appropriate account in accordance with
                                    congressional direction.9 Other than the funds specifically earmarked by
                                    the Congress, DOD has the latitude to allocate its congressional
                                    appropriation as needed to meet estimated subactivity and program
                                    element requirements. Between 1994 and 1999, DOD allocated most
                                    appropriations to direct care (primarily MTF patient care) and to purchased
                                    care (primarily CHAMPUS and MCS contracts). Table 2 shows the allocation
                                    of DHP appropriations by subactivity (see tables I.1 and I.2 for detailed
                                    information on DHP budget requests, budget allocations, and actual or
                                    currently estimated obligations between fiscal years 1994 and 1999).




                                    9
                                     Between fiscal years 1994 and 1999, of the total $58.7 billion DHP O&M appropriation, the Congress
                                    specified about $929 million in funding for designated activities.



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Table 2: DOD’s Allocation of Defense
Health Program Operations and          Dollars in billions
Maintenance Appropriations by          Subactivity           1994      1995         1996        1997        1998        1999
Subactivity, Fiscal Years 1994-99
                                       Direct            $2.93        $3.06         $3.45      $3.46       $3.35       $3.15
                                       care
                                       Purchased             4.38      4.51          4.27       3.94        4.05         4.07
                                       care
                                       Consolidated          0.68      0.66          0.71       0.83        0.98         0.88
                                       health
                                       support
                                       Information           0.22      0.21          0.22       0.31        0.22         0.30
                                       management
                                       Management            0.13      0.12          0.10       0.09        0.15         0.17
                                       activities
                                       Education             0.25      0.26          0.22       0.29        0.32         0.31
                                       and
                                       training
                                       Base                  0.74      0.77          0.91       1.01        1.03         1.02
                                       operations
                                       Totala            $9.33        $9.59         $9.89      $9.94      $10.11       $9.90
                                       a
                                       Totals may not add because of rounding.

                                       Source: TMA Office of Resource Management.




                                       The Congress appropriated $48.9 billion for DHP O&M expenses between
Significant                            fiscal years 1994 and 1998. During budget execution, DOD obligated about
Differences Between                    $4.8 billion differently—as either increases or decreases—from its budget
Budget Allocations                     allocations for the various subactivities (see table 3). Obligations differed
                                       particularly for the direct care and purchased care subactivities. However,
and Obligations                        the magnitude of the funding adjustments has diminished in recent years,
                                       dropping to about $283 million in fiscal year 1998 from a peak of almost
                                       $1.5 billion in fiscal year 1995. Because the Congress makes a lump-sum
                                       appropriation, under DOD regulations and informal arrangements with the
                                       Congress, these adjustments did not require congressional notification or
                                       approval.




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Table 3: Funding Adjustments Made at the Subactivity Level During Budget Execution, Fiscal Years 1994-98
Dollars in thousands
                                                                                                                                 Magnitude of
                                                                                                                                 increase and
Subactivity                          1994                 1995                 1996                1997                1998          decrease
Direct care                      $519,842             $356,469            –$40,875           –$106,997              –$2,691          $1,026,874
Purchased care                   –606,680             –727,119            –546,764             –66,069              –84,093           2,030,725
Consolidated health support         7,403              157,296             148,368               69,111             –78,332             460,510
Information management             23,393               45,458             220,467            –101,271                 5,739            396,328
Management activities             –29,691               –2,938              44,715               68,118              33,628             179,090
Education and training            –23,696               16,927              59,147                4,527              13,458             117,755
Base operations                   127,004              187,738              95,617               69,235             –64,904             544,498
Subtotal, increase                677,642              763,888             568,314             210,991               52,825           2,273,660
Subtotal, decrease               –660,067             –730,057            –587,639            –274,337            –230,020           –2,482,120
Magnitude of adjustment         1,337,709             1,493,945          1,155,953             485,328              282,845           4,755,780
Appropriation                  $9,326,635            $9,591,331        $9,886,961           $9,937,908         $10,108,007         $48,850,842
                                            Note: This table details funding adjustments at the subactivity level during budget execution. See
                                            table I.3 for information presented for each fiscal year on other DHP adjustments such as
                                            supplemental appropriations, rescissions, and reprogramming, as well as the amount of
                                            unobligated funds left over at the end of the fiscal year.

                                            Source: TMA Office of Resource Management data.



                                            The largest funding adjustments occurred in the direct care and purchased
                                            care subactivities. Between 1994 and 1998, DOD allocated $21.2 billion from
                                            the final DHP appropriation for purchased care but obligated only $19.1
                                            billion, allowing DOD to reallocate $2.0 billion into such areas as direct
                                            patient care, information management, and base operations. For example,
                                            between 1994 and 1995, DOD increased obligations for direct care at MTFs
                                            by $876.3 million above the allocation. Between 1994 and 1996, DOD
                                            obligated about $289.5 million more than it had allocated for the
                                            information management subactivity. Also, funding for the base operations
                                            subactivity—which includes such items as repairs and maintenance on MTF
                                            facilities—received an increase of $479.6 million over the budget
                                            allocation between 1994 and 1997. (Table I.4 details the funding increases
                                            and decreases for each subactivity and program element between fiscal
                                            years 1994 and 1998.)

                                            In each year between 1994 and 1998, DOD’s budget allocation for purchased
                                            care—which provided funds for CHAMPUS, the now-terminated CHAMPUS




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                                       Reform Initiative contracts,10 and MCS contracts—exceeded obligations, as
                                       shown in figure 2.


Figure 2: Comparison of CHAMPUS
and MCS Contract Budget Allocations    Dollars in Billions
and Actual Obligations, Fiscal Years   4    3.86               3.86
1994-98                                                                          3.77
                                                                                                                       3.58
                                                                                                    3.49                       3.49
                                                                                                            3.41
                                                       3.32           3.33               3.28

                                       3




                                       2




                                       1




                                       0


                                            1994               1995               1996               1997               1998
                                            Fiscal Year


                                                   Allocated

                                                   Obligated



                                       Source: TMA Office of Resource Management.


                                       At the program element level, the largest adjustments within the
                                       purchased care subactivity occurred between 1994 and 1996, when DOD
                                       obligated $1.4 billion less than the budget allocation for the CHAMPUS
                                       program element (see table I.4 and fig. 3). In contrast, MCS contract budget
                                       allocations more closely matched obligations through 1996, when DOD
                                       implemented two of the then four awarded MCS contracts on time. In 1997
                                       and 1998, however, when implementation of the last three contracts was
                                       delayed, MCS budget allocations exceeded obligations by $990 million.
                                       Because of the delays in starting up these contracts, most of the



                                       10
                                         Between 1994 and 1996, most MCS contract obligations were used for two CHAMPUS Reform
                                       Initiative managed care contracts in Louisiana, California, and Hawaii. Budget obligations for these
                                       two contracts were $820.4 million (1994), $826.2 million (1995), and $838.2 million (1996).



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unobligated MCS contract funds were used to defray higher than
anticipated CHAMPUS program obligations.




Page 10                                 GAO/HEHS-99-79 Defense Health Program
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Figure 3: Purchased Care Subactivity
Funding Adjustments in CHAMPUS         600    Dollars in Millions
and MCS Contract Program Elements,
Fiscal Years 1994-98                                                                                   446.7
                                       400                                                                              371.6



                                       200



                                         0


                                                                             -47.8
                                       -200            -69.8
                                                                                              -103.5



                                       -400

                                                                                     -387.8
                                              -476.2                -486.3                                                      -469.0
                                       -600                                                                    -520.6

                                              1994                  1995             1996              1997             1998
                                              Fiscal Year


                                                 CHAMPUS

                                                 MCS




                                       Source: TMA Office of Resource Management data.




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                           According to DOD officials, between 1994 and 1998, DOD-wide budget
DHP Obligations            pressures and major program changes—such as downsizing and the
Differed From Budget       rollout of TRICARE managed care reforms—made it difficult to estimate
Allocations for            and allocate resources between direct care and purchased care budgets.
                           They emphasized that while they are directly responsible for appropriation
Several Reasons            amounts at the lump-sum level, they have flexibility to manage the health
                           care delivery system. Therefore, in executing the DHP appropriation funds
                           for patient care, such funds may flow from direct care to purchased care
                           and vice versa. They believe this flexibility is critical to efficiently
                           managing the military health care delivery system.11

                           DOD  officials cited several interrelated reasons why DHP obligations
                           differed from DOD’s budget allocations between fiscal years 1994 and 1998.
                           These reasons also suggest why “shortfalls” in recent DHP budget requests
                           have prompted congressional concerns about the process DOD uses to
                           estimate and allocate the DHP budget.


Decision to Fully Fund     TMA, Health Affairs, and service budget officials made various internal
Purchased Care Left Less   budget policy choices that included a DHP budget strategy to fully fund
for Other Subactivities    purchased care activities within available funding levels. This strategy,
                           coupled with general budget pressures, left less money with which to
                           budget direct care and other DHP subactivity requirements (such as
                           information management and base operations). To keep within the
                           DOD-wide spending caps, the officials intentionally understated
                           requirements for direct care and other subactivities in the DHP budget
                           requests submitted to the Congress. This pattern of policy choices, which
                           led budget officials to underestimate direct care budget requirements, is
                           underscored by the congressional testimonies by the Assistant Secretary
                           of Defense (Health Affairs) and the service Surgeons General—all of
                           whom identified shortfalls in the past 3 years of DHP budget requests, 1997
                           through 1999.12 The shortfalls—that is, the difference between the
                           Assistant Secretary’s and the Surgeons General’s views of their needs and
                           the President’s budget submission—have raised congressional concerns
                           over DHP budget requests and prompted both DOD and the Congress to

                           11
                             DOD officials commented that most of the adjustments moved between purchased care and direct
                           care subactivities—both of which pay for the delivery of health care to beneficiaries—and that
                           increased funding for information management also supported the implementation of managed care in
                           the direct care system.
                           12
                             For example, in testimony before appropriations committees on the fiscal year 1997 budget request,
                           the Assistant Secretary of Defense (Health Affairs) and the service Surgeons General provided specific
                           details of how a $475 million shortfall would severely reduce care and medical services to military
                           families and retirees. One Surgeon General testified that the shortfall would force him to cut services
                           equivalent to closing two large hospitals for an entire year.



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                                    offset the shortfalls in various ways (see table 4). In addition, TMA and
                                    service officials told us they have relied on DHP’s flexibility during budget
                                    execution to fund direct patient care with funds available and not needed
                                    for CHAMPUS and MCS contracts.

Table 4: Offsets to Shortfalls in
Defense Health Program Operations   Dollars in millions
and Maintenance Budget Requests,                                                                    Offset by
Fiscal Years 1997-99
                                                                Budget                    DOD       Appropriation       Supplemental
                                    Fiscal year                 request                  action         increase        appropriation
                                    1997                       $9,358.3                   None               $475.0                None
                                    1998                       10,040.6              $274.0                    None                 $1.9a
                                                                            (amended budget
                                                                                    request)
                                    1999                        9,653.4                 104.6b                 None                204.1b
                                                                              (reprogramming)
                                    a
                                     P. L. 105-174.
                                    b
                                     P. L. 105-277. In addition to the almost $309 million in offsets from the supplemental
                                    appropriation and DOD reprogramming, DOD plans to take other actions in fiscal year 1999 to
                                    address the additional fiscal pressures. Planned actions include making cost-saving efficiencies
                                    within the direct care system, support activities, headquarters management, and MCS and
                                    information technology contracts.




Timing of the Budget                TMA officials told us that forecasting health care costs for budgeting
Process Presents                    purposes is inherently challenging because the budget year starts about 18
Challenges                          months after DOD starts preparing DHP budget estimates and 8 months after
                                    the President submits the DHP budget request to the Congress. They
                                    commented that many conditions change, affecting their direct and
                                    purchased care estimates over these protracted periods. In our view,
                                    however, these comments do not explain the often large differences that
                                    have occurred between budget allocations—which are established after
                                    the congressional appropriation is actually received—and obligations,
                                    which follow almost immediately thereafter. DOD has the flexibility to
                                    allocate most of its congressional appropriations as needed among the
                                    various DHP subactivities. Despite this flexibility and even taking into
                                    account the minor impacts of other adjustments to DHP’s allocated budget
                                    amounts such as supplemental appropriations or reprogrammings,13 DHP

                                    13
                                      Table I.3 identifies other adjustments following congressional approval of funds for DHP O&M
                                    expenses enacted through the annual appropriations act. Compared with the almost $4.8 billion in
                                    funding increases and decreases during budget execution, the impacts were minor from other
                                    adjustments: a net decrease of $139.4 million from foreign currency fluctuations, supplemental
                                    appropriations, program cancellations, rescissions, reprogrammings, transfers, and withholds; and
                                    $57.7 million in unobligated funds between 1994 and 1998.



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                        obligations still varied significantly from the budget allocations reported to
                        the Congress, calling into question DOD’s methods for estimating DHP
                        budget requirements.


Number of Nonenrolled   TMA  and Health Affairs budget officials told us that the DHP beneficiary
Beneficiaries Causes    population is largely undefined, leading to budget uncertainty. According
Budget Uncertainty      to these officials, DOD has little control over where beneficiaries go to get
                        their health care because MTFs and MCS contractors do not enroll most
                        beneficiaries. TMA officials stated that, in formulating the DHP budget
                        request, separate cost estimates for MTFs and MCS contracts are based on
                        the best available information at the time. Although service officials told
                        us they had developed higher direct care budget estimates—which TMA
                        nonetheless chose to underfund in the final DHP budget requests—one
                        official told us that the nonenrolled beneficiary population is a major
                        impediment to submitting realistic DHP budget requests. Moreover, DOD’s
                        capitation method (allocating MTF budgets on the basis of the number of
                        estimated users of the military health system) has not kept pace with MTF
                        cost increases for space-available care to nonenrolled beneficiaries for
                        medical services and outpatient prescription drugs.14

                        Others have noted similar concerns about the lack of a clearly defined
                        beneficiary population and the effect on DHP budgeting uncertainties. For
                        example, in a 1995 report,15 the Congressional Budget Office (CBO) raised
                        concerns that, even with TRICARE Prime’s lower cost-sharing features
                        providing incentives, not enough beneficiaries would enroll, and DOD
                        would continue to have difficulties planning and budgeting. For DOD to
                        effectively predict costs and efficiently manage the system, CBO concluded
                        that DOD would need a universal beneficiary enrollment system to clearly
                        identify the population for whom health care is to be provided. CBO
                        concluded that even under TRICARE, beneficiaries can move in and out of
                        the system as they please, relying on it for all, some, or none of their care.
                        DOD would have to continue its reliance on surveys to estimate how many
                        beneficiaries use direct care and purchased care and to what extent DOD is




                        14
                         DOD has designed a new funding system—enrollment-based capitation—which is intended to
                        motivate and reward MTF commanders for maximizing their enrolled population. Under this approach,
                        DOD funds MTFs on the basis of the number of beneficiaries enrolled in Prime at the MTF. Under
                        enrollment-based capitation, MTFs will continue to receive funding for the care they provide to
                        nonenrollees, but at a lower rate than for those enrolled.
                        15
                          CBO Papers: Restructuring Military Medical Care (July 1995).



                        Page 14                                                GAO/HEHS-99-79 Defense Health Program
                         B-281106




                         their primary or secondary source of coverage. In previous reports,16 we
                         also raised concerns about the budgetary uncertainties caused by
                         less-than-optimal enrollment. Moreover, at the end of fiscal year 1998, we
                         estimate that less than half of the 8.2 million DOD-eligible beneficiaries
                         were enrolled. Thus, DOD’s budgeting uncertainties stem, in large measure,
                         from its lack of a universal enrollment requirement.


Base Closures Did Not    Higher than expected MTF costs in fiscal years 1994 and 1995 were given as
Yield Expected Savings   another reason that DHP obligations differed from budget allocations,
                         according to TMA, Health Affairs, and service officials. The budget savings
                         projected to result from base closures (and reflected in their requests)
                         were not achieved. Therefore, although the number of MTFs decreased by
                         9.5 percent between 1994 and 1998, DOD wound up obligating $726 million
                         more for direct care than the amount allocated (see fig. 4). One service
                         official told us that despite MTF downsizing, the number of beneficiaries
                         going to MTFs has not dropped, thus sustaining a high level of demand for
                         MTF health care. But MTF inpatient and outpatient workload data reported
                         to the Congress in DOD’s annual justification materials indicate that MTF
                         inpatient and outpatient workload declined by a respective 54.5 percent
                         and 26 percent between 1994 and 1998. However, DOD and TMA officials
                         cautioned us that the MTF workload data are not accurate. Yet, a May 1998
                         DOD Inspector General audit report (on the extent to which managed care
                         utilization management savings met Health Affairs’ expectations as
                         reflected in its DHP budgets17 found a significant reduction in inpatient and
                         outpatient workload at 15 large MTFs from fiscal year 1994 through 1996,
                         but no corresponding decrease in operating costs. DOD’s Inspector General
                         attributed the cause to MTFs generally increasing their military medical
                         staffing and infrastructure costs (real property maintenance, minor
                         construction, and housekeeping). And, according to the Inspector General,
                         it is especially difficult to reduce operating costs when workload is
                         reducing without decreasing military medical staffing.




                         16
                          For more information on DOD enrollment and capitation features, see Defense Health Care: Issues
                         and Challenges Confronting Military Medicine (GAO/HEHS-95-104, Mar. 22, 1995) and Defense Health
                         Care: Operational Difficulties and System Uncertainties Pose Continuing Challenges for TRICARE
                         (GAO/T-HEHS-98-100, Feb. 26, 1998).
                         17
                          DOD, Office of the Inspector General, Joint Audit Report: Military Health System Utilization
                         Management Program at Medical Centers, Report No. 98-136 (May 22, 1998).



                         Page 15                                                 GAO/HEHS-99-79 Defense Health Program
                                       B-281106




Figure 4: Direct Care Budget Status,
Fiscal Years 1994-98                   4.0   Dollars in Billions

                                       3.8

                                       3.6
                                                 3.45                              3.45   3.45               3.46
                                                                         3.41                                        3.42
                                       3.4                                                                                  3.35
                                                                                      3.41            3.24   3.35       3.35
                                       3.2                         3.1
                                                                            3.06
                                       3.0   2.92    2.93

                                       2.8

                                       2.6



                                       0.2

                                        0


                                             1994                  1995            1996               1997           1998
                                             Fiscal Year

                                                 Requested

                                                 Allocated

                                                 Obligated


                                       Source: TMA Office of Resource Management.




Lower Purchased Care                   TMA, Health Affairs, and service officials also told us that several
Obligations Were Not                   interrelated factors had made purchased care obligations significantly
Anticipated                            lower than the allocated amounts between 1994 and 1998. First, they did
                                       not fully account for savings from rate changes in the CHAMPUS maximum
                                       allowable charge (CMAC) for physician payments.18 DOD officials told us that
                                       during this period, CHAMPUS budget requests and allocations did not
                                       account for $408 million to $656 million in estimated 3-year CMAC savings
                                       between 1994 and 1996. For fiscal years 1997 to 1998, DOD has estimated
                                       that CMAC saved $1.5 billion in CHAMPUS and TRICARE contract costs. Given
                                       that DHP purchased care budget requests and allocations track more
                                       closely with obligations in 1997 and 1998, it appears TMA better accounted
                                       for CMAC savings. Second, DOD officials cited a factor related to their

                                       18
                                         Beginning in 1991, the Congress directed DOD to gradually lower reimbursement rates paid to
                                       civilian physicians under CHAMPUS. Physician payments had been based on charges that were 50
                                       percent higher on average than those paid for identical treatment under the Medicare program. For
                                       more information, see Defense Health Care: Reimbursement Rates Appropriately Set; Other Problems
                                       Concern Physicians (GAO/HEHS-98-80, Feb. 26, 1998).



                                       Page 16                                                   GAO/HEHS-99-79 Defense Health Program
                             B-281106




                             budget strategy of conservatively estimating purchased care costs. After
                             an earlier history of CHAMPUS budget shortfalls, DOD changed its budget
                             strategy from not fully funding CHAMPUS to ensuring CHAMPUS was fully
                             funded.19 However, they noted that an actuarial model for projecting
                             CHAMPUS costs, which was used to formulate the budget requests for fiscal
                             years 1994 through 1996, greatly overestimated CHAMPUS requirements.


Concerns About               Finally, with the CHAMPUS phase-out and the switch to MCS contracts, TMA
Antideficiency Act           and Health Affairs officials cited the need to fully fund these contracts in
Violations Drove Decisions   their budget request. According to these officials, their MCS budgeting
                             strategy was essentially driven by the concern that if there were not
                             enough funds allocated for the MCS contracts, an Antideficiency Act
                             violation could occur. We do not see, however, how requesting the amount
                             of funds DOD anticipates the contracts will actually cost could trigger an
                             Antideficiency Act violation. Budget requests, even where they fail to fully
                             fund an activity, do not cause such violations.

                             One of the ways an Antideficiency Act violation could occur is if DOD
                             continued to pay additional amounts under the contract and overobligated
                             or overexpended the appropriation or fund account related to the
                             contract.20 In such a case, the proper response would be to reprogram
                             funds and/or seek additional appropriations in advance of any such
                             potential deficiency. In other words, should funds allocated for the MCS
                             contracts appear to be inadequate, DOD would find itself in essentially the
                             same position as any agency that anticipates running short of funds. Only
                             if DOD officials continued to make additional payments under the contract
                             knowing that appropriations for them were not available would there be
                             an Antideficiency Act violation.

                             Looking ahead, DOD officials pointed out that the amount of funds shifted
                             between DHP subactivities had fallen in 1997 and 1998, and they anticipated
                             that volatility within the purchased care subactivity would also decrease
                             now that all seven MCS contracts have been implemented. Officials also
                             stated that TMA has established new resource management controls. A
                             quarterly workgroup process, for example, refines CHAMPUS and MCS

                             19
                              Between 1985 and 1991, unanticipated growth in the CHAMPUS program was the main factor behind
                             $2.8 billion budget shortfalls, much of which had to be financed through reprogramming and
                             supplemental appropriations. For more information, see DOD Health Care: Funding Shortfalls in
                             CHAMPUS, Fiscal Years 1985-91 (GAO/HRD-90-99BR, Mar. 19, 1990).
                             20
                               Antideficiency Act violations can also occur when entering into a contract or making an obligation in
                             advance of an appropriation unless authorized by law; or overobligating or overexpending an
                             apportionment or reapportionment of amounts permitted by DOD’s administrative control of funds
                             regulations.



                             Page 17                                                 GAO/HEHS-99-79 Defense Health Program
                          B-281106




                          contract requirements and identifies associated DHP-wide adjustments that
                          can be used to formulate future budget estimates. They stated that these
                          procedures represent significant improvements in their ability to precisely
                          project direct care and purchased care requirements. They acknowledged,
                          however, that the next round of MCS contracts will be awarded and
                          administered differently than the first round and that their integrated care
                          system, with its largely nonenrolled beneficiary population, is inherently
                          difficult to budget for. Thus, funding changes during budget execution are
                          nearly inevitable.


                          The movement of DHP funds between subactivities does not require prior
Notification or Budget    congressional notification or approval. While the Congress must be
Execution Data Would      notified in many cases when DOD transfers or reprograms appropriated
Enhance Oversight of      funds, these reporting rules do not apply to the movement of funds among
                          DHP subactivities. As a result, sizeable funding changes have occurred
DHP Funding               without specific notification. Refinements to the reporting process would
Changes                   put the Congress in a better position to be aware of funding changes.

Reprogramming Actions     Under procedures agreed upon between congressional committees and
Have Varying Degrees of   DOD, funds can be obligated for purposes other than originally proposed

Congressional Oversight   through transfers and reprogrammings. Reprogramming shifts funds from
                          one program to another within the same budget account, while a transfer
                          shifts funds from one account to another. According to the Congressional
                          Research Service, DOD uses the term “reprogramming” for both kinds of
                          transactions.21 DOD budgetary regulations,22 reflecting instructions from
                          the appropriations committees, distinguish among three types of
                          reprogramming actions:

                          1. Actions requiring congressional notification and approval, including (a)
                          all transfers between accounts, (b) any change to a program that is a
                          matter of special interest to the Congress, and (c) increases to
                          congressionally approved procurement quantities;

                          2. Actions requiring only notification of the Congress, including
                          reprogramming that exceeds certain threshold amounts; and


                          21
                           In annual appropriations bills, the Congress grants DOD authority to transfer up to specified amounts
                          between accounts. In recent years, DOD has been given general transfer authority of $2 billion per
                          year, and additional amounts have been made available for transfer for specific purposes. See M.
                          Tyszkiewicz and S. Daggett, CRS Report for Congress: A Defense Budget Primer (Washington, D.C.:
                          Congressional Research Service, 1998).
                          22
                            DOD Financial Management Regulation 7000.14-R (Vol. 3, Ch. 6).



                          Page 18                                                GAO/HEHS-99-79 Defense Health Program
                        B-281106




                        3. Actions not requiring any congressional notification, including
                        reprogramming below certain threshold amounts and actions that
                        reclassify amounts and actions within an appropriation without changing
                        the purpose for which the funds were appropriated.

                        For example, DOD is required to notify the Congress if it shifts funds from
                        the DHP O&M to the DHP procurement component. But the notification
                        requirements do not apply when funds move from one DHP subactivity to
                        another (such as from purchased care to direct care) or between DHP
                        program elements (such as from MCS contracts to CHAMPUS, both within the
                        purchased care subactivity) because such movements are within the same
                        budget activity (administration and servicewide activities). Thus, the
                        movements do not represent a change in the purpose for which the funds
                        were appropriated and fit under the third type of reprogramming
                        procedures.


Congress Has Required   To help increase the visibility of DOD funding changes, the reports
DOD to Report Budget    accompanying recent defense appropriations acts have directed DOD to
Execution Data          provide congressional defense committees with quarterly budget
                        execution data on certain other O&M accounts.23 For example, in fiscal year
                        1999, DOD is directed to provide data for each budget activity, activity
                        group, and subactivity not later than 45 days past the close of each quarter.
                        These reports are to include the budget request and actual obligations and
                        the DOD distribution of unallocated congressional adjustments to the
                        budget request, as well as various details on reprogramming actions. This
                        type of timely information supports congressional oversight of DOD O&M
                        budget execution and shows the extent to which DOD is obligating O&M
                        funds for purposes other than the Congress had been made aware of.24

                        Under current procedures, DHP obligations are reported at the subactivity
                        and program element levels in the prior-year column when DOD submits its

                        23
                         The fiscal years 1998 and 1999 conference reports require DOD to provide the congressional defense
                        committees such data for each of the active, defensewide, reserve, and national guard O&M accounts.
                        24
                          Quarterly reporting of budget execution data may satisfy the congressional committees’ need to
                        know more about such shifting. However, in an earlier report (Year-End Spending: Reforms Underway
                        But Better Reporting and Oversight Needed (GAO/AIMD-98-185, July 31, 1998), we found that budget
                        execution data reported separately to the Office of Management and Budget and to the Department of
                        the Treasury were inconsistent with actual obligations data reported by agencies in formulating the
                        President’s budget request. Also, in recent testimony (DOD Financial Management: More Reliable
                        Information Key to Assuring Accountability and Managing Defense Operations More Efficiently
                        (GAO/T-AIMD/NSIAD-99-145, Apr. 14, 1999)), we noted that DOD’s systems and controls over its use of
                        budgetary resources were ineffective. DOD’s budgetary resources control weaknesses may leave DOD
                        unaware of the actual amount of all funds available for obligation and expenditures in each
                        appropriation account.



                        Page 19                                               GAO/HEHS-99-79 Defense Health Program
              B-281106




              budget request justification material to the Congress. However, such
              information is not reported in a manner that allows easy comparison with
              the prior year’s budget allocations, and thus does not facilitate oversight of
              funding changes that took place during budget execution. Reprogramming
              notification regulations do not apply when funds shift from one DHP
              subactivity to another, and congressional committees have not directed
              DOD to report DHP O&M budget execution data in the same manner as other
              O&M accounts.


              The information needed to support congressional notification or quarterly
              budget execution reports is now readily available because DOD officials
              have instituted their own internal reviews to better track DHP budget
              execution. For example, DOD now requires internal quarterly budget
              execution reports from the services to document the shift of funds
              between subactivities. Therefore, we discussed with DOD officials potential
              reporting changes that would facilitate congressional oversight of DHP
              funding adjustments during budget execution. DOD officials told us that
              subjecting the lump-sum DHP appropriation to the reprogramming
              procedures that require prior approval from the Congress would eliminate
              flexibility, making it very difficult to manage the finances of the integrated
              MTF and MCS contract health care system. However, in our view, subjecting
              the DHP appropriation to reprogramming procedures for notification, but
              not prior approval, to the Congress whenever funds above a certain
              threshold shift from one DHP subactivity to another would not diminish
              DOD’s flexibility. DOD officials agreed that congressional oversight would be
              enhanced by quarterly budget execution reports on DHP obligations by
              subactivity and program element. Depending on where the threshold was
              set and the extent to which special interest DHP subactivities were
              designated for reporting, notification could involve fewer reports than a
              quarterly reporting process for DHP subactivities and program elements.
              Thus, in our view, notification may well offer a less burdensome means of
              facilitating congressional oversight of DHP funding changes during budget
              execution.


              DOD  officials expect future DHP obligations to track more closely with
Conclusions   budget requests and allocations, while acknowledging that some
              movement of funds is inevitable given the lack of a universally enrolled
              beneficiary population for direct and purchased care. Although DOD is not
              required to adhere to its own budget requests or reported budget
              allocations when it obligates funds, in our view, a repeated failure to do so
              without providing sufficient justification could cause the Congress to



              Page 20                                   GAO/HEHS-99-79 Defense Health Program
                     B-281106




                     question the validity of DHP budget requests. The Congress, however, will
                     not be made aware of improvements or continuing funding adjustments
                     unless DOD begins to either notify or report to congressional committees
                     on how it obligates DHP appropriations.

                     In our view, and DOD agrees, additional information on how obligations
                     differ from budget requests and allocations would improve oversight by
                     the Congress and DOD. Since TMA officials already require quarterly budget
                     execution reports to improve their internal budget oversight and budget
                     decisionmaking, DOD would not be burdened by notifying or reporting
                     similar information to the Congress. Such notification or reporting could
                     provide the Congress with a basis for scrutinizing DHP budget request
                     justifications and determining whether additional program controls—such
                     as a universal requirement that all beneficiaries enroll in direct care or
                     purchased care components—are needed.


                     The Congress may wish to consider requiring DOD, consistent with current
Matter for           notification standards and procedures, to notify the congressional defense
Congressional        committees of its intent to shift funds among subactivities (such as direct
Consideration        care, purchased care, and base operations). Such notification, while not
                     requiring congressional approval of the funding shift itself, could be
                     initiated whenever the amount of the funding shift exceeded a certain
                     threshold to be determined by the Congress. The notification would
                     specify where funds are being deducted and where they are being added,
                     and the justification for such reallocation. Also, or alternatively, the
                     Congress may wish to consider requiring DOD to provide congressional
                     defense committees with quarterly budget execution data on DHP O&M
                     accounts. These data could be provided in the same manner and under the
                     same time frames as DOD currently provides data for non-DHP O&M
                     accounts.


                     In its comments on a draft of the report, DOD concurred with the report
Agency Comments      and its focus of making the DHP funding more visible to the Congress. DOD
and Our Evaluation   further agreed that providing additional budget execution data to the
                     Congress, on a regular basis, would be a valuable step toward keeping
                     congressional members informed about the military health care system’s
                     financial status. Finally, DOD agreed to modify its current process for
                     internally reporting DHP obligations to report DHP O&M budget execution
                     data to the Congress in the same manner as the non-DHP O&M accounts.




                     Page 21                                  GAO/HEHS-99-79 Defense Health Program
B-281106




However, DOD did not support requiring it to notify congressional defense
committees of its intent to shift funds among DHP subactivities. DOD stated
that such notification could potentially limit its ability to obligate DHP
funds and affect beneficiaries’ timely access to health care. We disagree.
As we point out, such notification would not require prior approval of the
funding shift itself, but would be initiated whenever the funding shift
exceeded a certain amount to be determined by the Congress. These and
other details of the notification procedure could be worked out between
congressional committees and DOD to further ensure that DOD’s ability to
obligate funds for the timely delivery of health care services was not
impaired. Further, as the report points out, notification could involve
fewer reports than a quarterly reporting process for DHP subactivities.
Thus, in our view, notification may well offer a less burdensome means of
facilitating congressional oversight of DHP funding changes during budget
execution.

DOD  also suggested several technical changes to the draft, which we have
incorporated where appropriate. DOD’s comments are presented in their
entirety in appendix II.


As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days from its
date. At that time, we will send copies to Senator Wayne Allard, Senator
Robert C. Byrd, Senator Max Cleland, Senator Daniel K. Inouye, Senator
Carl Levin, Senator Ted Stevens, Senator John Warner, Representative
Neil Abercrombie, Representative Steve Buyer, Representative John P.
Murtha, Representative David Obey, Representative Ike Skelton,
Representative Floyd Spence, and Representative C.W. Bill Young in their
capacities as chairman or ranking minority member of Senate and House
committees and subcommittees. We will also send copies at that time to
the Honorable William S. Cohen, Secretary of Defense; the Honorable
William J. Lynn, III, Under Secretary of Defense (Comptroller); the
Honorable Sue Bailey, Assistant Secretary of Defense (Health Affairs); and
the Honorable Jacob J. Lew, Director, Office of Management and Budget.
Copies will be made available to others upon request.




Page 22                                   GAO/HEHS-99-79 Defense Health Program
B-281106




If you or your staff have any questions concerning this report, please
contact Stephen P. Backhus, Director, Veterans’ Affairs and Military
Health Care Issues, on (202) 512-7101 or Daniel Brier, Assistant Director,
on (202) 512-6803. Other contributors to this report include Carolyn Kirby
(Evaluator-in-Charge), Jon Chasson, Craig Winslow, and Mary Reich.

Sincerely yours,




Richard L. Hembra
Assistant Comptroller General




Page 23                                  GAO/HEHS-99-79 Defense Health Program
Contents



Letter                                                                                        1


Appendix I                                                                                   26
                    Other Adjustments to DHP Total Obligational Authority                    34
Detailed Defense
Health Program
Budget Tables
Appendix II                                                                                  37
Comments From the
Department of
Defense
Tables              Table 1: Defense Health Program Operations and Maintenance                5
                      Subactivities and Program Elements
                    Table 2: DOD’s Allocation of Defense Health Program Operations            7
                      and Maintenance Appropriations by Subactivity, Fiscal Years
                      1994-99
                    Table 3: Funding Adjustments Made at the Subactivity Level                8
                      During Budget Execution, Fiscal Years 1994-98
                    Table 4: Offsets to Shortfalls in Defense Health Program                 13
                      Operations and Maintenance Budget Requests, Fiscal Years
                      1997-99
                    Table I.1: Defense Health Program Budget Requests, Budget                26
                      Allocations, and Actual Obligations, Fiscal Years 1994-96
                    Table I.2: Defense Health Program Budget Requests, Budget                30
                      Allocations, and Actual Obligations, Fiscal Years 1997-99
                    Table I.3: Other Adjustments to Defense Health Program Budgets,          34
                      Fiscal Years 1994-98
                    Table I.4: Funding Increases and Decreases by Subactivity and            35
                      Program Element, Fiscal Years 1994-98


Figures             Figure 1: Defense Health Program Operations and Maintenance               6
                      Budget Status, Fiscal Years 1994–99
                    Figure 2: Comparison of CHAMPUS and MCS Contract Budget                   9
                      Allocations and Actual Obligations, Fiscal Years 1994-98




                    Page 24                                GAO/HEHS-99-79 Defense Health Program
Contents




Figure 3: Purchased Care Subactivity Funding Adjustments in             11
  CHAMPUS and MCS Contract Program Elements, Fiscal Years
  1994-98
Figure 4: Direct Care Budget Status, Fiscal Years 1994-98               16




Abbreviations

CBO         Congressional Budget Office
CHAMPUS     Civilian Health and Medical Program of the Uniformed
                  Services
CMAC        CHAMPUS Maximum Allowable Charge
CONUS       continental United States
DHP         Defense Health Program
DOD         Department of Defense
MCS         managed care support
MTF         military treatment facility
O&M         operations and maintenance
OCONUS      outside the continental United States
TMA         TRICARE Management Activity


Page 25                               GAO/HEHS-99-79 Defense Health Program
Appendix I

Detailed Defense Health Program Budget
Tables


Table I.1: Defense Health Program Budget Requests, Budget Allocations, and Actual Obligations, Fiscal Years 1994-96
Dollars in thousands

Subactivity/                     1994                                  1995                                  1996
program              Budget        Budget        Actual    Budget        Budget        Actual    Budget        Budget        Actual
element              request    allocation   obligation    request    allocation   obligation    request    allocation   obligation
Direct care
Medical            $2,583,114 $2,592,596 $3,062,708 $2,706,329 $2,658,394 $2,988,546 $3,035,259 $3,026,670 $2,954,594
centers,
hospitals, and
clinics—
CONUS
Medical              222,816      223,634      235,131     233,444      233,444      265,572     232,605      238,125       288,577
centers,
hospitals, and
clinics—
OCONUS
Dental care           98,612       98,612      129,105     132,718      131,718      126,533     134,787      134,787       131,391
activities—
CONUS
Dental care           18,783       18,783       26,523      26,213       33,213       32,587      52,034       53,414        37,559
activities—
OCONUS
  Subtotal         $2,923,325 $2,933,625 $3,453,467 $3,098,704 $3,056,769 $3,413,238 $3,454,685 $3,452,996 $3,412,121
Purchased care
CHAMPUS             3,000,669   3,000,669    2,524,500    2,885,100   2,885,100    2,398,800    2,414,000   2,414,000     2,026,225
Managed care         863,400      863,400      793,600     980,100      980,100      932,300    1,356,100   1,356,100     1,252,621
support
contracts
Care in              461,613      513,937      453,226     613,087      643,087      450,068     496,997      496,997       441,487
nondefense
facilities
  Subtotal         $4,325,682 $4,378,006 $3,771,326 $4,478,287 $4,508,287 $3,781,168 $4,267,097 $4,267,097 $3,720,333
Consolidated health support
Examining             24,294       24,294       22,941      23,456       23,014       24,176      23,089       23,089        26,485
activities—
health care
Other health         209,726      244,295      252,927     242,279      241,542      345,152     255,894      271,394       348,352
activities
Military public/     145,274      169,220      187,507     167,823      163,223      169,444     191,139      191,139       186,230
occupational
health
Veterinary             8,782       10,229        9,898      10,145        9,859       12,692       9,850        9,850        14,135
services
Military unique       95,378      111,099       94,782     110,182      108,975      147,373      96,379       99,779       163,352
requirements
                                                                                                                         (continued)



                                              Page 26                                       GAO/HEHS-99-79 Defense Health Program
                                              Appendix I
                                              Detailed Defense Health Program Budget
                                              Tables




Dollars in thousands

Subactivity/                     1994                                  1995                                   1996
program            Budget          Budget        Actual    Budget        Budget        Actual      Budget       Budget        Actual
element            request      allocation   obligation    request    allocation   obligation      request   allocation   obligation
Aeromedical            72,115      84,001       83,801      83,308       83,142          80,227     82,688      82,688        78,309
evacuation
system
Armed Forces           28,377      33,054       31,739      32,781       32,352          40,339     32,484      32,484        41,928
Institute of
Pathology
  Subtotal        $583,946       $676,192     $683,595    $669,974     $662,107        $819,403   $691,523    $710,423      $858,791
Information management
Central            206,659        224,247      247,640     221,692      211,545         257,003    226,332     224,102       444,569
information
management
Management activities
Management             24,943      28,479       25,457      26,225       25,539          36,481     25,937      25,937        54,144
headquarters
TRICARE            102,472        102,472       75,803      94,000       94,000          80,120     70,000      69,603        86,111
Support Officea
  Subtotal        $127,415       $130,951     $101,260    $120,225     $119,539        $116,601    $95,937     $95,540      $140,255
Education and training
Armed Forces           70,197      70,197       73,479      80,014       79,504          71,513     85,671      85,671        74,081
Health
Professions
Scholarship
Program
Uniformed              39,891      45,756       57,067      40,847       50,457          60,791     43,700      50,552        60,145
Services
University of
Health
Sciences
Education and          92,350     130,255       91,966     130,655      130,655         145,239     86,575      86,575       147,719
training—
health care
  Subtotal        $202,438       $246,208     $222,512    $251,516     $260,616        $277,543   $215,946    $222,798      $281,945
Base operations/communications
Environmental             86            86          20           72           72            10          72           72          524
conservation
Pollution                 76            76          35           64           64            29          64           64          132
prevention
Environmental          22,316      22,316       26,287      18,739       18,612          27,167     16,931      16,931        27,864
compliance
Minor                  14,969      14,969       50,216      20,024       20,024          69,123     32,583      32,583        52,642
construction—
CONUS
                                                                                                                          (continued)



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                                              Detailed Defense Health Program Budget
                                              Tables




Dollars in thousands

Subactivity/                     1994                                     1995                                      1996
program            Budget          Budget        Actual     Budget         Budget         Actual       Budget        Budget         Actual
element            request      allocation   obligation     request     allocation    obligation       request    allocation    obligation
Minor                   2,042       2,042        7,883         2,731         2,731         13,282        4,287         4,287         7,183
construction—
OCONUS
Maintenance        227,491        227,491      235,430      186,462        190,076       260,349       286,864       286,864       302,666
and repair—
CONUS
Maintenance            31,022      31,022       36,156        25,427        25,920         50,663       30,346        30,346        75,970
and repair—
OCONUS
Real property      154,426        165,452      191,668      200,910        199,105       184,964       209,080       209,080       183,312
services—
CONUS
Real property          16,854      18,057       20,918        21,007        20,819         16,269       21,493        21,493        19,286
services—
OCONUS
Visual                 10,321      10,321        9,974        12,316        12,148          7,796       11,819        11,819         8,599
information
activities
Base                   29,881      29,881       36,993        30,741        30,711         39,225       36,853        36,853        40,976
communication-
CONUS
Base                    4,075       4,075        3,682         4,192         4,188          4,006        3,607         3,607         4,496
communication-
OCONUS
Base               176,864        189,494      219,518      226,559        224,522       254,612       235,771       235,771       260,513
operations—
CONUS
Base                   20,650      22,124       25,630        23,689        23,476         32,711       24,235        24,235        25,459
operations—
OCONUS
  Subtotal        $711,073       $737,406     $864,410     $772,933      $772,468      $960,206      $914,005      $914,005 $1,009,622
Total            $9,080,538 $9,326,635 $9,344,210 $9,613,331 $9,591,331 $9,625,162 $9,865,525 $9,886,961 $9,867,636

                                              a
                                               The TRICARE Support Office program element incorporated only Office of CHAMPUS costs in
                                              these years.

                                              Source: TMA Office of Resource Management.




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Detailed Defense Health Program Budget
Tables




Page 29                                  GAO/HEHS-99-79 Defense Health Program
                                       Appendix I
                                       Detailed Defense Health Program Budget
                                       Tables




Table I.2: Defense Health Program
Budget Requests, Budget Allocations,   Dollars in thousands
and Actual Obligations, Fiscal Years                                                           1997
1997-99                                Subactivity/program
                                       element                       Budget request Budget allocation          Actual obligation
                                       Direct care
                                       Medical centers,                  $2,771,958             $2,973,647           $2,856,273
                                       hospitals, and
                                       clinics—CONUS
                                       Medical centers, hospitals           271,479                282,330              301,359
                                       and clinics—OCONUS
                                       Dental care activities—              140,927                153,630              152,002
                                       CONUS
                                       Dental care activities—                  57,949                45,836             38,812
                                       OCONUS
                                         Subtotal                        $3,242,313             $3,455,443           $3,348,446
                                       Purchased care
                                       CHAMPUS                             1,048,700             1,048,770            1,495,502
                                       Managed care support                2,439,900             2,439,900            1,919,292
                                       contracts
                                       Care in nondefense                   447,561                456,103              463,910
                                       facilities
                                         Subtotal                        $3,936,161             $3,944,773           $3,878,704
                                       Consolidated health support
                                       Examining activities—                    28,924                28,924             29,013
                                       health care
                                       Other health activities              325,927                325,927              337,704
                                       Military                             144,047                163,233              198,116
                                       public/occupational health
                                       Veterinary services                      11,713                11,713             13,625
                                       Military-unique                          97,215             182,932              197,564
                                       requirements
                                       Aeromedical evacuation                   81,711                74,861             75,737
                                       system
                                       Armed Forces Institute of                37,982                37,982             42,924
                                       Pathology
                                         Subtotal                          $727,519               $825,572             $894,683
                                       Information management
                                       Central information                  190,077                314,410              213,139
                                       management
                                       Management activities
                                       Management headquarters                  25,637                35,930             32,050
                                       TRICARE Management                           0                     0              46,682
                                       Activityb
                                       TRICARE Support Officec                  54,141                54,141             79,457



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                                      Detailed Defense Health Program Budget
                                      Tables




                     1998                                                               1999
Budget request   Budget allocation       Actual obligation      Budget request     Budget allocation    Current estimatea


    $2,936,809         $2,871,009               $2,856,720           $2,475,717          $2,666,113           $3,140,421


       279,003              279,003                279,070              289,293             289,293              282,464

       158,027              158,027                174,511              155,704             155,704              150,428

        45,723               45,723                 40,770               41,130                41,130             38,681

    $3,419,562         $3,353,762               $3,351,071           $2,961,844          $3,152,240           $3,611,994


       735,120              735,120              1,106,710              573,700             573,700              593,700
     2,848,888          2,848,888                2,379,869            3,010,200           3,010,200            2,819,800

       470,703              470,703                484,039              486,495             486,495              500,614

    $4,054,711         $4,054,711               $3,970,618           $4,070,395          $4,070,395           $3,914,114


        29,101               29,101                 29,463               30,857                30,857             30,813

       379,642              379,642                310,400              372,864             372,864              271,887
       171,058              171,058                191,822              170,271             170,271              202,027

        12,524               12,524                 15,245               13,276                13,276             14,475
       154,952              272,177                229,694              160,889             178,239              213,773

        79,721               79,721                 82,232               79,611                79,611             79,758

        38,724               38,724                 45,759               39,476                39,476             45,600

      $865,722           $982,947                 $904,615             $867,244            $884,594             $858,333


       222,329              219,329                225,068              274,371             297,871              256,568



        91,271               91,271                 35,646               36,228                36,228             33,992
            0                    0                 143,807              128,784             128,784              144,087

        54,554               54,554                       0                    0                   0                   0
                                                                                                               (continued)


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Detailed Defense Health Program Budget
Tables




Dollars in thousands

Subactivity/program                                     1997
element                         Budget request Budget allocation        Actual obligation
  Subtotal                             $79,778              $90,071             $158,189
Education and training
Armed Forces Health                      83,995                80,842             75,389
Professions Scholarship
Program
Uniformed Services                       52,000                70,450             74,463
University of Health
Sciences
Education and                          123,236              142,501              148,468
training—health care
  Subtotal                            $259,231             $293,793             $298,320
Base operations/communications
Environmental                               74                  2,400                904
conservation
Pollution prevention                        66                   500               1,262
Environmental compliance                 23,106                23,653             20,216
Minor                                    33,281                33,384             51,331
construction—CONUS
Minor                                     6,339                 8,727              7,223
construction—OCONUS
Maintenance and                        245,903              285,545              349,450
repair— CONUS
Maintenance and                          46,839                60,240             75,308
repair—OCONUS
Real property services—                184,626              214,058              198,010
CONUS
Real property services—                  16,054                24,858             20,050
OCONUS
Visual information activities             9,605                 8,174              8,363
Base                                     42,047                43,219             43,723
communication—CONUS
Base                                      4,159                 4,820              4,166
communication—OCONUS
Base operations—CONUS                  276,888              277,111              276,450
Base                                     34,222                27,157             26,625
operations—OCONUS
  Subtotal                            $923,209           $1,013,846           $1,083,081
Total                               $9,358,288           $9,937,908           $9,874,562




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                                      Detailed Defense Health Program Budget
                                      Tables




                     1998                                                                 1999
Budget request   Budget allocation       Actual obligation      Budget request       Budget allocation    Current estimatea
      $145,825           $145,825                 $179,453             $165,012              $165,012             $178,079


        85,623               85,623                 83,327               84,959                  84,959             78,854


        51,314               70,314                 74,270               55,760                  64,560             73,630


       163,549              163,549                175,347              157,561               157,561              154,223

      $300,486           $319,486                 $332,944             $298,280              $307,080             $306,707


         1,900                1,900                    504                 3,124                  3,124              3,650

          500                  500                   1,994                     417                 417                 483
        30,276               30,276                 23,180               18,443                  18,443             19,570
        31,468               31,468                 42,288               33,573                  33,573             29,761

         8,865                8,865                  2,206                 8,469                  8,469              8,447

       280,721              280,721                283,005              272,117               272,117              149,743

        63,692               63,692                 58,071               48,082                  50,202             67,737

       221,782              221,782                203,354              232,773               232,773              217,961

        25,453               25,453                 20,566               31,304                  31,304             23,477

         8,234                8,234                  7,703                 8,314                  8,314              7,584
        43,750               43,750                 38,822               41,719                  41,719             44,223

         5,214                5,214                  4,397                 5,018                  5,018              4,215

       287,370              287,370                252,443              287,529               289,529              268,854
        22,722               22,722                 28,510               25,407                  25,407             26,563

    $1,031,947         $1,031,947                 $967,043           $1,016,289            $1,020,409             $872,268
   $10,040,582        $10,108,007               $9,930,812           $9,653,435            $9,897,601           $9,998,063




                                      Page 33                                         GAO/HEHS-99-79 Defense Health Program
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                                           Detailed Defense Health Program Budget
                                           Tables




                                           a
                                            Data source for fiscal year 1999 current estimate is the Defense Health Program Justification of
                                           Estimates for Fiscal Years 2000 and 2001, Vol. I (Feb. 1999). The total $9,998,063,000 current
                                           estimate includes an anticipated $104,561,000 reprogramming from the Air Force O&M account
                                           to the DHP O&M account.
                                           b
                                            DOD established the TRICARE Management Activity program element in fiscal year 1998. The
                                           new organization now includes several former management headquarters offices and the
                                           TRICARE Support Office. TRICARE Management Activity costs shown in fiscal year 1997 reflect
                                           estimates as if the program element existed for that period.
                                           c
                                            The TRICARE Support Office program element incorporated only Office of CHAMPUS costs in
                                           fiscal years 1997 and 1998.

                                           Source: TMA Office of Resource Management.




                                           Following congressional approval of funds for Defense Health Program
Other Adjustments to                       (DHP) operations and maintenance (O&M) expenses enacted through the
DHP Total                                  annual appropriations act, various other actions by DOD or the Congress
Obligational Authority                     result in further adjustments. These adjustments can increase or decrease
                                           the total obligational authority available to DOD for DHP O&M expenses.
                                           Table I.3 details the other adjustments.


Table I.3: Other Adjustments to Defense Health Program Budgets, Fiscal Years 1994-98
Dollars in millions
                                                                                                       Net adjustment,
Adjustment                         1994           1995          1996           1997            1998            1994-98
Foreign currency fluctuations         0              0              0               0       –$13.0                 –$13.0
Supplemental appropriations           0          $13.2              0          $21.0             1.9                 36.1
Program cancellations                 0              0              0           –9.3               0                 –9.3
Rescissions                           0              0        –$15.2           –21.0               0                –36.2
Reprogrammings                    $20.9            26.6          29.7          –36.4        –144.2                 –103.4
Transfers                             0              0            0.2           –3.2           –2.0                  –5.0
Withholds                             0              0           –8.0               0          –0.5                  –8.5
Subtotal                          $20. 9         $39.8           $6.7        –$49.0        –$157.8                 –139.4
Total obligational authority    $9,347.6       $9,630.9     $9,893.6       $9,762.1        $9,950.2             48,584.4
Unobligated balance at end
of fiscal year                      $3.4           $5.8        $26.0            $3.2          $19.4                 $57.7
                                           Note: Totals may not add because of rounding.

                                           Source: TMA Office of Resource Management.




                                           Page 34                                                GAO/HEHS-99-79 Defense Health Program
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                                         Detailed Defense Health Program Budget
                                         Tables




Table I.4: Funding Increases and Decreases by Subactivity and Program Element, Fiscal Years 1994-98
Dollars in thousands
Subactivity/program element                     1994            1995                  1996            1997               1998
Direct care
Defense medical centers, station            $470,112        $330,152               –$72,076      –$117,374           –$14,289
hospitals, and medical
clinics—CONUS
Defense medical centers, station              11,497           32,128                50,452         19,029                 67
hospitals, and medical
clinics—OCONUS
Dental care activities—CONUS                  30,493           –5,185                –3,396         –1,628             16,484
Dental care activities—OCONUS                  7,740            –626                –15,855         –7,024             –4,953
  Subtotal                                  $519,842        $356,469               –$40,875      –$106,997            –$2,691
Purchased care
CHAMPUS                                     –476,169        –486,300               –387,775        446,732            371,590
Managed care support contracts               –69,800         –47,800               –103,479       –520,608           –469,019
Care in nondefense facilities                –60,711        –193,019                –55,510           7,807            13,336
  Subtotal                                 –$606,680        –727,119              –$546,764       –$66,069           –$84,093
Consolidated health support
Examining activities—health care              –1,353            1,162                 3,396             89                362
Other health activities                        8,632         103,610                 76,958         11,777            –69,242
Military public/occupational health           18,287            6,221                –4,909         34,883             20,764
Veterinary services                             –331            2,833                 4,285           1,912             2,721
Military-unique requirements                 –16,317           38,398                63,573         14,632            –42,483
Aeromedical evacuation system                   –200           –2,915                –4,379            876              2,511
Armed Forces Institute of Pathology           –1,315            7,987                 9,444           4,942             7,035
  Subtotal                                    $7,403        $157,296               $148,368        $69,111           –$78,332
Information management
Central information management                23,393           45,458               220,467       –101,271              5,739
Management activities
Management headquarters                       –3,022           10,942                28,207         –3,880            –55,625
TRICARE Management Activity                        0                0                     0         46,682            143,807
TRICARE Support Office                       –26,669         –13,880                 16,508         25,316            –54,554
  Subtotal                                  –$29,691         –$2,938                $44,715        $68,118            $33,628
Education and training
Armed Forces Health Professions                3,282           –7,991               –11,590         –5,453             –2,296
Scholarship Program
Uniformed Services University of              11,311           10,334                 9,593           4,013             3,956
Health Sciences
Education and training—health care           –38,289           14,584                61,144           5,967            11,798
                                                                                                                   (continued)



                                         Page 35                                         GAO/HEHS-99-79 Defense Health Program
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                                 Detailed Defense Health Program Budget
                                 Tables




Dollars in thousands
Subactivity/program element             1994              1995                 1996              1997               1998
  Subtotal                         –$23,696            $16,927              $59,147            $4,527            $13,458
Base operations/communications
Environmental conservation                 –66             –62                     452         –1,496             –1,396
Pollution prevention                       –41             –35                      68            762              1,494
Environmental compliance               3,971             8,555               10,933            –3,437             –7,096
Minor construction—CONUS              35,247            49,099               20,059            17,947             10,820
Minor construction—OCONUS              5,841            10,551                 2,896           –1,504             –6,659
Maintenance and repair—CONUS           7,939            70,273               15,802            63,905              2,284
Maintenance and repair—OCONUS          5,134            24,743               45,624            15,068             –5,621
Real property services—CONUS          26,216           –14,141              –25,768           –16,048            –18,428
Real property services—OCONUS          2,861            –4,550               –2,207            –4,808             –4,887
Visual information activities           –347            –4,352               –3,220               189               –531
Base communication—CONUS               7,112             8,514                 4,123              504             –4,928
Base communication—OCONUS               –393              –182                     889           –654               –817
Base operations—CONUS                 30,024            30,090               24,742              –661            –34,927
Base operations—OCONUS                 3,506             9,235                 1,224             –532              5,788
  Subtotal                         $127,004          $187,738               $95,617           $69,235           –$64,904

                                 Source: TMA Office of Resource Management data.




                                 Page 36                                            GAO/HEHS-99-79 Defense Health Program
Appendix II

Comments From the Department of Defense




              Page 37       GAO/HEHS-99-79 Defense Health Program
                         Appendix II
                         Comments From the Department of Defense




Now on p. 2.


Now on p. 3.



Now figs. 1, 2, and 4.


Now in table 3.




Now on p. 13.




Now on p. 14.



Now on p. 14.




                         Page 38                                   GAO/HEHS-99-79 Defense Health Program
                Appendix II
                Comments From the Department of Defense




Now on p. 14.




Now on p. 17.




(101620)        Page 39                                   GAO/HEHS-99-79 Defense Health Program
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