oversight

Defense Health Care: Potential for Savings by Treating CHAMPUS Patients in Military Hospitals

Published by the Government Accountability Office on 1990-09-07.

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

                                                                         - c
                       United   States   General   Accounting   Office
                       Report to the Chairman, Subcommittee
GAO                -   on Military Personnel and
                       Compensation, Committee on Armed
                       Services, House of Representatives

September   1990
                       DEFENSE
                       HEALTH CARE
                       Potential for Savings
                       by Treating
                       CHAMPUS Patients in
                       Military Hospitals




GAO,‘HRD-90-131
Human Resources    Division

B-240715

September 7, 1990

The Honorable Beverly B. Byron
Chairman, Subcommittee on Military
  Personnel and Compensation
Committee on Armed Services
House of Representatives

Dear Madam Chairman:

In response to your request, this report discusses the potential for savings by adding staff
and other resources at military hospitals to treat more patients, rather than paying for their
care under CHAMPUS. We are making recommendations to the Secretary of Defense to identify
military hospitals and medical specialties in which it would be most cost-effective to expand
services to treat patients whose care is now funded under CHAMPUS.

We are sending copies of this report to the Secretary of Defense, appropriate congressional
committees, and other interested parties.

This report was prepared under the direction of David P. Baine, Director, Federal Health
Care Delivery Issues, who may be reached on 275-6207 if you or your staff have any
questions. Other major contributors are listed in appendix III.

Sincerely yours,




Lawrence H. Thompson
Assistant Comptroller General
                      WD can potentially save money by adding staff and equipment at mili-
Results in Brief      tary hospitals to treat more patients, rather than paying for their care
                      under CHAMPUS. This conclusion tends to support expansion of military
                      hospital capability in the manner now being tested under several DOD
                      health care initiatives.

                      However, potential savings vary significantly by medical specialty and
                      hospital; the savings could be substantial in some specialties and in some
                      locations but negligible in others.

                      Many factors influence whether savings can be achieved by expanding
                      military hospital capability. Among these is the prospect that, because
                      military hospital care is essentially free, eligible persons who previously
                      did not seek care or paid for part of their care in the civilian sector
                      would seek care in the expanded military facilities. Savings could also be
                      reduced if needed staff were in short supply so that recruiting addi-
                      tional staff produced significantly higher personnel costs.

                      GAO believes that DOD should identify facilities and specialties in which
                      expansion of treatment capability is most likely to he cost-effective
                      before it expands the current initiatives. GAO'S methodology should be
                      useful to DOD in targeting such expansion efforts.



Principal Findings

Overview of Savings   GAO estimated savings ranging from $18 million to $21 million     if
                      resources at the hospitals reviewed were increased to care for CHAMPUS
                      patients. The estimates show that military hospital care for such
                      patients would cost from 43 to 52 percent less than CHAMpus-funded
                      care. Savings estimates vary due to the differing costs of adding mili-
                      tary, civilian, or contractor staff, and by hospital, type of care, and
                      other factors. (See p. 18.)

                      Savings are the highest when considering the addition of civilian gov-
                      ernment personnel, and lowest when considering the use of contractors.
                      A hospital would probably have to acquire personnel from a combina-
                      tion of the sources in order to accommodate large increases in workload.
                      (See p. 20.)




                      page3
                  Executive summaly




                  Therefore, local hospital commanders must be able to identify those
                  medical specialties that offer the most potential for savings. (See p. 30.)


                  The need to focus the enhancement of military facilities’ treatment
Recommendations   capabilities will become increasingly important as DOD begins to identify
                  additional locations in which to implement its ongoing cost containment
                  initiatives. Accordingly, GAO recommends that as DOD proceeds with
                  these efforts, the Secretary of Defense direct the secretaries of the mili-
                  tary departments to identify, using either the methodology GAO devel-
                  oped or a similar one, the hospitals and medical speciakies in which it
                  would be most cost-effective to expand services to care for patients
                  whose care is now funded under CHAMPUS. Once this is done, GAO recom-
                  mends that, where warranted, the services proceed to increase hospitals’
                  capabilities. (See p. 31.)


                  DOD agreed with the report’s findings and recommendations, but said
Agency Comments   that the estimated dollar benefits-preferring    to call this “cost avoid-
                  ance” rather than “savings”-may       be reduced or offset if eligible per-
                  sons who previously did not use military health care sought care at
                  hospitals with enhanced capabilities. GAO recognizes that although such
                  a demand for care could reduce potential savings, whether and to what
                  extent it might occur is unknown. (See p. 3 1.)




                  Page6
contents




Table 11.1:Fiscal Year 1988 CHAMPUS Workload and           37
    Costs in Obstetrics/Gynecology and Orthopedics, and
    the Portion That Evans Army Community Hospital
    Could Accommodate With Additional Resources
Table 11.2:Estimated Cost of Accommodating Increased       39
    Obstetrics/Gynecology Workload Under Three
    Staffing Alternatives-Evans     Army Community
     Hospital, Fiscal Year 1988
Table 11.3:Estimated Cost of Accommodating Increased       39
    Orthopedics Workload Under Three Staffing
    Alternatives-Evans     Army Community Hospital,
     Fiscal Year 1988
Table 11.4:Comparison of Actual CHAMPUS Costs With         39
    Costs of Accommodating Additional Obstetrics/
     Gynecology Workload at Evans Army Community
     Hospital During Fiscal Year 1988, Under Three
     Staffing Alternatives
Table 11.5:Comparison of Actual CHAMPUS Costs With         39
     Costs of Accommodating Additional Orthopedics
     Workload at Evans Army Community Hospital
     During Fiscal Year 1988, Under Three Staffing
     Alternatives
Table 11.6:Fiscal Year 1988 CHAMPUS Workload and           41
     Costs in Gynecology and Orthopedics, and the
     Portion That Naval Hospital Jacksonville Could
     Accommodate With Additional Resources
Table 11.7:Estimated Cost of Accommodating Increased       43
     Gynecology Workload Under Three Staffing
     Alternatives-Naval    Hospital Jacksonville, Fiscal
     Year 1988
Table 11.8:Estimated Cost of Accommodating Increased       43
     Orthopedics Workload Under Three Staffing
     Alternatives-Naval    Hospital Jacksonville, Fiscal
     Year 1988
Table 11.9:Comparison of Actual CHAMPUS Costs With         43
     Costs of Accommodating Additional Gynecology
     Workload at Naval Hospital Jacksonville During
     Fiscal Year 1988, Under Three Staffing Alternatives
Table 11.10: Comparison of Actual CHAMPUS Costs With       43
     Costs of Accommodating Additional Orthopedics
     Workload at Naval Hospital Jacksonville During
     Fiscal Year 1988, Under Three Staffing Alternatives
          Table 11.21: Comparison of Actual CHAMPUS Costs With                             53
              Costs of Accommodating Additional Psychiatry
              Workload at Naval Hospital San Diego During Fiscal
              Year 1988, Under Three Staffing Alternatives
          Table 11.22: Fiscal Year 1988 CHAMPUS Workload and                               54
              Costs in Psychiatry, and the Portion That Walter
              Reed Army Medical Center Could Accommodate With
              Additional Resources
          Table 11.23: Estimated Cost of Accommodating Increased                           56
              Psychiatry Workload Under Three Staffing
              Alternatives-Walter     Reed Army Medical Center,
               Fiscal Year 1988
          Table 11.24: Comparison of Actual CHAMPUS Costs With                             56
               Costs of Accommodating Additional Psychiatry
               Workload at Walter Reed Army Medical Center
               During Fiscal Year 1988, Under Three Staffing
               Alternatives
                                                                                       -

Figures
          Figure 1.1: Fiscal Year 1988 Occupancy Rates                                      14
          Figure 2.1: Fiscal Year 1988 Inpatient Workload and                               19
               Potential Workload Increase
          Figure 2.2: Fiscal Year 1988 Outpatient Workload and                              20
               Potential Workload Increase
          Figure 2.3: Estimated Savings by Medical Specialty and                            21
               Staffing Option
          Figure 2.4: Percentage Savings Under Contract Staffing                            22
               Option
          Figure 2.5: Beneficiary Savings by Medical Specialty                              23
          Figure 2.6: Cost Elements Associated With Increasing                              24
               Hospital Workload
          Figure 2.7: Number of Staff on Hand and Number                                    25
               Required to Accommodate CHAMPUS Workload
          Figure 2.8: Change in Direct Care and CHAMPUS                                     27
               Workload, Fiscal Years 1984-89
          Figure 11.1:Fiscal Year 1988 Staffing and Additional Staff                        38
               Required to Accommodate CHAMPUS Workload-
               Evans Army Community Hospital
          Figure 11.2:Fiscal Year 1988 Staffing and Additional Staff                        42
               Required to Accommodate CHAMPUS Workload-
               Naval Hospital Jacksonville



          Page 9                          GAO/HID-9&X31 Increased Use of Mllituy   Haplti
                                 Chapter 1
                                 Introduction




Table 1.1: CHAMPUS Beneficiary
Cost-Sharing Provisions          Beneficiary type                   Inpatient                          Outpatient
                                 Dependents     of actrve-duty      Each admrssron425       or the     (a) Annual deductrbie450
                                 members                            cumulative amount charged          per dependent or $100 per
                                                                    for Inpatient care in a mrlitary   famrly and, then, (b) 20
                                                                    hosprtal ($8.35 per day rn         percent of allowable charge
                                                                    fiscal year 1990), whtchever IS
                                                                    greater

                                 Other benefrcranes                 25 percent of brlled hospital      (a) Annual deductrble450
                                                                    charges or $235 per day (In        per dependent or $100 per
                                                                    fiscal year 1990), whrchever IS    famrly and, then, (b) 25
                                                                    less, and 25 percent of other      percent of allowable charges
                                                                    providers’ allowable charges
                                 Note Beneficlarles annual copayment llablllty IS capped at $1.000 for dependents   of active-duty   mem
                                 bers and at $10,000 for all other CHAMPUS-eligible famtlles


                                 The Assistant Secretary of Defense (Health Affairs) is responsible for
                                 overall supervision and policy guidance for DOD medical care activities.
                                 Each military service’s medical department is headed by a surgeon gen-
                                 eral, who is responsible for the service’s health care system. The Office
                                 of CHAMPUS (a component of Health Affairs), located at Fitzsimons Army
                                 Medical Center near Denver, is responsible for administering CHAMPUS.


                                 In July 1989 we reported that the CHAMPUS portion of DOD’s medical care
CHAMPUS Portion of               costs has risen much faster than have the rest of DOD’S medical care
DOD Medical Care                 costs1 In fiscal year 1989, DOD spent an estimated $12.7 billion for care
Costs Has Risen                  provided in its own facilities, under CHAMPUS, and for related medical
                                 activities. Between fiscal years 1985 and 1989, CHAMPUS costs increased
Significantly                    about 79 percent, from $1.4 billion to an estimated $2.5 billion. During
                                 the same period, the rest of DOD’S medical costs increased about 31 per-
                                 cent, from $7.8 billion to $10.2 billion. CHAMPUS costs now represent
                                 nearly 20 percent of total DOD health care expenditures.

                                  Military facilities have unused capacity primarily because of staff
                                  shortages. In fiscal year 1988, the overall occupancy rate in military
                                  hospitals was 45 percent (based on designed inpatient bed capacity’ ). Of
                                  the 129 military hospitals in the United States, 121 had occupancy rates



                                  ’ DefenseHealth Care:WorkloadReductmnsat Military HospitalsHave IncreasedCKAMPllS Costs
                                  (-D-89-47,        July 10. 1989)
                                  ‘Designedinpatient bedcapacity,as we are defining it, representsthe total numberof beds that
                                  wards or room were designedto hold.




                                  psge 13                                       GAO/HBD!@lSl Increased Use of Military Hospitala
Chapter 1
Introduction




To determine whether savings could be achieved if military hospitals
used their available capacity to accommodate the CHAMPUS workload, we
developed a methodology for identifying the additional variable costs
associated with an increase in military hospital workload. We then com-
pared these added costs to CHAMPUS payments for similar care and ser-
vices We also identified barriers that prevent military services from
treating more patients. Appendix I describes our methodology in detail.

We obtained workload and variable cost information for fiscal year 1988
from the military services’ hospital expense reporting system.” These
data enabled us to project additional costs, such as for supplies, and
staffing needs at various increases in workload. We also made a projec-
tion of increased staffing needs using military staffing standards, and
we received estimates of staffing and equipment needs from department
heads, chief nurses, and other hospital officials. Together with hospital
officials we made final estimates of the additional staffing and equip-
ment needs for various workload increases. The costs of additional
equipment were factored into the analyses on an amortized basis.

To estimate the cost of acquiring the additional staff needed, we consid-
ered three sources: the military services, the civilian government, and
contractual arrangements. For military and civilian government salary
costs, we used DOD data showing the average pay, including fringe bene-
fits and bonuses, for various health care personnel.

We also factored in other staffing-related costs. For example, because
nearly all military physicians are acquired through either the Uni-
formed Services University of the Health Sciences or the Armed Forces
Health Professions Scholarship Program, we added the educational costs
from both sources. We also factored in the cost of residency training,
which many military physicians receive while serving in the military. In
addition, because the government assumes the liability for malpractice
for both military and civilian government physicians, we added a factor
for malpractice insurance based on the military’s history of paid mal-
practice claims.

 For contract personnel, we obtained data from all three military services
 on fiscal year 1988 and 1989 contracts covering personnel in the medical
 specialties that we studied. We used these data to compute national

 ‘This standard system,the Medxal Expenseand PerformanceReportingSystem,LSusedby huspuls
 of all three military services It ldentlfies costsfor (1) direct patient care;(2) ancillary serwcfi wch
 as pharmacyand radiology. that. while generally not having direct responsibility for panent care
 assistphysv%xwm treating patients:and (3) support serwces,such as howkeeplng and iaundr!,



 Page16                                        GAO/HRD90.131Increased Use of Military Hospitals
Table 1.2: Hospitals and Specialties
Reviewed by GAO                        Hospital                                                            Specialty
                                                               .-.                                             I_-        -.~~  ~
                                       Evans Army Communrty Hosprtal, Fort Carson, Colorado                Obstetncs/gynecology
                                                                                                           Orthopedrcs
                                       Walter Reed Army Medrcal Center, Washrngton, D C       _____-       Psychratry
                                       Naval Hosprtal San Diego, Californra                                Obstetrrcs
                                                                                                           Psychratry
                                       Naval Hospital Camp Pendleton, California                           Obstetncs/gynecology
                                       Naval Hospttal Jacksonvrlle. Flonda                                 Gynecology
                                                                                                           Orthopedrcs
                                       554th Medical Group, Nellis Arr Force Base, Nevada                  Obstetncs/gynecology


                                       We conducted our review between April 1988 and May 1990 in accor-
                                       dance with generally accepted government auditing standards.




                                       Page 17                                     GAO/HRD90131 Increased Use of Military Hcxq-dals
                                chapter 2
                                udng Avdahle capadty in Mllttuv
                                Hospitahl to Treat CHAbfPus ileneflciulea
                                ofrerss8vingsPoten~




                                6,400 and their outpatient visits by about 87,700. Figures 2.1 and 2.2
                                show (for the specialties we studied) inpatient and outpatient workload
                                and capacities by facility.



W&load and Potential Workload
Increase                        eom    InpWml   Admbsiom

                                SW0
                                !mo
                                4500
                                4ooo
                                3500
                                3ooo
                                2wo
                                zoo0
                                1500

                                1000

                                 so0




                                 Page 19                                    GAO/HItDWl3IIn-UuseofMilitvy   H~piuls
                                        employ to accommodate more CHAMPUS beneficiaries. The greatest poten-
                                        tial for savings appears to be through acquiring additional civilian gov-
                                        ernment personnel because the costs are less than for military or
                                        contract staff, although significant savings would still be achieved by
                                        acquiring staff from these other sources. It is likely that a hospital
                                        would have to acquire personnel from a combination of sources in order
                                        to accommodate increases in workload. Figure 2.3 shows the range of
                                        savings by staffing option and medical specialty.


Figure 2.3: Estimated Savings by
Medical Specialty and Staffing Option   Ulllions 01oetbm
                                        13

                                        12
                                        11

                                        10

                                         9

                                         9

                                         7

                                         6
                                         5

                                         4

                                         3
                                         2

                                         1

                                         0




                                        Savings also vary significantly by facility and medical specialty, as illus-
                                        trated in figure 2.4 and table 2.1 for the contract staffing option.




                                        Page 21                          GAO/HED9t%131Ind       Use of Military Hospitals
                                     Chapter     2




                                     Treating more dependents of active-duty personnel in military hospitals
                                     would result in the greatest savings to DOD. This is because the govern-
                                     ment pays a larger share of these beneficiaries’ medical payments under
                                     CHAMPUS than it does for other categories of beneficiaries and because
                                     dependents of active-duty personnel are also less likely to have other
                                     insurance-which     by law must pay first. The savings estimates we
                                     developed are based on the cost of treating those beneficiaries that were
                                     treated under CHAMPUS in fiscal year 1988 in the specialties studied.

                                     Those beneficiaries who do not have CHAMPUS supplemental insurance
                                     would also save money by receiving their care in military hospitals.
                                     Retirees, their dependents, and dependents of deceased service members
                                     would save the most because they pay the greatest copayments under
                                     CHAMPUS. For beneficiaries treated under CHAMPUS in fiscal year 1988 in
                                     the specialties studied, figure 2.5 shows the savings they would have
                                     realized by receiving their care in military hospitals.


Figure 2.5: Beneficiary Savings by
Medical Specialty
                                     Ddlvl      (In Thounnds)
                                     1960
                                     1soO

                                      1650

                                     1900
                                     1200

                                      1200

                                      1050
                                       ##

                                       790

                                       mo
                                       460
                                       300

                                       190
                                            0




                                      Prge 23                         GAO/HEB@O-131
                                                                                  Incre~    Use of MilirarY   Hc~~pitab
                                          Chapter 2
                                          Using Available Capacity in Military
                                          Hospitals to Tmtlt CHAMPUSBeneficiarie8
                                          offers savings Potendal




Table 2.2: Types of Medical Personnel
Needed to Accommodate CHAMPUS                                 Allied health        Registered
Workload                                  Physicians          professionals        nurses            Paraprofessionala    Administrative
                                          Obstetrlclan/       Psychologists        Surgical nurses   Lvzensed nurses      Ward clerks
                                          gynecologists
                                          Orthopedic          Nurse                ClinIcal nurses   Ward corpsmen/       Appointment
                                          surgeons            practltloners                          technlclans          clerks
                                          Anesthesi-          Nurse                                  Laboratory           Secretanes
                                          ologlsts            anesthebsts                            technlclans
                                                                                                                                   --
                                          Psychlatnsts        Nurse mldwlves                         Pharmacy
                                                                                                     technlclans
                                          Radlologlsts        Pharmacists                            k3dloloQy
                                                                                                     technicians



Figure 2.7: Number of Staff on Hand and
Number Required to Accommodate
CHAMPUS Workload                          600 Numbu ot Staff
                                          cl!50
                                          500
                                          4so
                                          400




                                                          Addinonal Staff Raqumd
                                                          Fiscal Year 1988 Staff




                                          Page 26                                       GAO/‘IJRDftM31 Inerersed Use of Military Hoapiti
                                        Chapter2




Figure 2.8: Change in Direct Care and
CHAMPUS Workload, Fircal Years
t984-09




                                        -1.2

                                        -1.5




                                               u       Direct Can, Ewunters
                                                       CHAMPlJS Encounters


                                        Note 1. Encounters are the sum of admlssnns   and outpatlent wslts

                                        Note 2: The number of dwct care admw.lons decreased in 1989 The Increase I” direct care encounters
                                        IS due solely to increased dwct care outpatlent wits



                                        Treating more CHAMPUSbeneficiaries in military hospitals could produce
Other Effects of                        other benefits, such as increased medical proficiency and improved
Accommodating the                       graduate medical education programs. Civilian health care providers
CHAMPUS Workload                        located near military hospitals may see their business reduced.

                                        Medical staff in military hospitals would gain better experience from
                                        treating larger numbers and types of patients and a greater diversity of
                                        medical conditions. In March 1990 we reported that military doctors
                                        viewed the importance of having a diverse case mix as a key ingredient
                                        in decisions on whether to pursue a medical career in the military.’



                                         ‘DefenseHealth Care:Military Physicians’Views on Military Medicine(GAO/HRDSO-I \lar ?2.
                                         1990).



                                         Page 27                                      GAO/HRDS@131JncreaaedUse of Miliw           Hospitals
                     Chapter 2
                     Ushg AvaIlable Capacity in Military
                     Hospit& to Treat CHAMPUSBeneficiaries
                     offersSavingsPotential




                     Contracting for medical staff, a third way of adding personnel resources
                     to military hospitals, was described to us by hospital and headquarters
                     officials as slow and cumbersome, the least acceptable way of increasing
                     staffing, and one that should be used only as a short-term solution. Offi-
                     cials pointed out that personnel brought in under contracts are often
                     paid more than the military and civilian government staff already in
                     place, which can create resentment and morale problems. Several hos-
                     pital officials told us of cases in which active-duty or civilian govern-
                     ment staff members have quit their positions in order to return as
                     contract employees earning more money for handling the same or even
                     lighter workloads.


                     DOD has several initiatives underway to demonstrate the feasibility of
DOD Initiatives to   treating more of the CHAMPUS workload in its hospitals. A major initia-
Accommodate More     tive is Project Restore, under which there are several efforts. One is the
CHAMPUS Workload     Partnership Program, in which local community civilian providers treat
                     CHAMPUS patients in military hospitals at a discount from their normal
                     charge. DbD also avoids hospital charges that it would have incurred had
                     the care been provided in a civilian hospital. As of May 1990, about
                     1,300 partnership agreements had been signed with civilian providers.

                     Another effort under Project Restore is the Alternate Use of CHAMPLS
                     Funds Test, under which each military service can use up to $50 million
                     of its CHAMPUS funds for projects that use military hospitals to treat
                     CHAMPUS patients. As of March 31, 1989,40 projects were approved-20
                     in the Army, 19 in the Air Force, and 1 in the Navy. These projects nor-
                     mally involve using contracting strategies to increase medical staffing.
                     The services estimate that CHAMPUS costs will be reduced by about $43
                     million in fiscal year 1990 after an expenditure of about $25 million on
                     the projects.

                     Other major initiatives, directed by the Congress, involve testing
                     managed-care concepts. Two large managed-care models are being
                     tested: the CHAMPUS Reform Initiative and Catchment Area Management.

                     The CHAMPUS Reform Initiative, being tested in California and Hawail,
                     provides comprehensive health care to beneficiaries who enroll in a
                     health plan administered by a private contractor. The contractor has
                     assembled a network of participating medical providers, including phy-
                     sicians and hospitals. Enrollees choose a primary care physician from
                     whom they must receive their care or be referred by this physician for
                     specialty care. There is only nominal cost sharing. We have test I t’~c~i


                     Page29                              GAO/HRD9l%131Increased Use of hliliur,   Hwpitals
GAO Methodology for Determining the Costs
of Treating Additional Patients in
Military Hospitals
                                   We developed a methodology for estimating the incremental costs that
                                   would be incurred by military hospitals if they accommodated some or
                                   all of the CHAMPUS workload in selected medical specialties in their
                                   catchment areas. We excluded fixed costs because they are part of the
                                   current costs of operating military hospitals and would not change with
                                   additional workload. The methodology considers costs for

                           . additional staff,
                           l additional equipment and supplies, and
                           l malpractice claims.

                                   The cost estimates can be compared to CHAMPUS payments that were
                                   made to treat this workload to determine whether using military hospi-
                                   tals’ available capacity to accommodate the CHAMPUS workload would
                                   save money.


                                   Developing costs for additional staff involves (1) estimating the number
Costs for Additional               and type of staff needed to accommodate the CHAMPUS workload and
Staff                              (2) then calculating costs for this additional staff.


Estimating Number and              We determined the number of additional staff needed for many different
Type of Additional Staff           types of positions, represented in the following broad categories:
Needed                         . physicians;
                               . registered nurses;
                               . allied health professionals, such as pharmacists, nurse practitioners,
                                 nurse anesthetists, and nurse midwives;
                               . paraprofessionals, such as corpsmen, laboratory technicians. and radi-
                                 ology technicians; and
                               l administrative personnel, such as appointment clerks, ward clerks, and
                                 secretaries.

                                   To estimate the number and type of staff needed, we used three sources:

                                   1. Workload and staff data from each hospital’s Medical Expense and
                                   Performance Reporting System.’ This system identified (1) the number
                                   of people working in the specific direct care area(s) being studied and

                                   ‘The systemis usedby all m&a-y hospitalsto track workload,staffmg, and costsassxared wth
                                   the provision of medicalcare,including the workload, staffing, and costsin non-directcareareas.
                                   such as ancillary, support. and administrative functions. This systemallocatesfigure Ior rxndrect
                                   careareasto direct carecost centersbasedon the workload measures assignedto eachdwa



                                   Page 32                                    GAO/HRBS&l31 Increased Use of Mili~            Hospitals
                       Appendix I
                       GAO Methodology for Determining the Costs
                       of Treating Additional Patients in
                       Mllltary Hospitals




                       (2) the portion, based on workload allocations, of people in ancillary and
                       support areas dedicated to the studied area(s). We projected an increase
                       in staffing in direct proportion to the direct care workload increase
                       being considered.

                       2. Don-wide manpower standards. We applied standards both to actual
                       fiscal year 1988 workload levels and to the workload levels that would
                       have been needed if the CHAMPUS workload in question had been brought
                       into the military hospital. The difference between the two represented
                       the additional staff required to handle the additional workload.

                       3. Discussions with senior personnel in each area of the hospital that
                       would be affected by the additional workload. The purpose of these dis-
                       cussions was to obtain the staff members’ best estimates of the addi-
                       tional staff required to handle the additional workload in their area
                       using the results of the first two sources as the basis for discussion. We
                       presented this information to a senior hospital official, such as the
                       facility commander or medical director. Minor changes suggested by
                       these officials were incorporated into the final estimate of staff require-
                       ments, while more significant changes were followed up by additional
                       discussions with area-level personnel.


Estimating Costs for   Costs for additional staff were estimated on the basis of acquiring them
Additional Staff       from three different sources-all military, all civilian government, and
                       all contractor.

                       For each military and civilian government position needed, we computed
                       costs based on fiscal year 1988 average salary data supplied by the
                       Army’s Health Services Command. The data include fringe benefits and,
                       for physicians, bonuses.

                       For contractor personnel costs, we used data supplied by each of the
                       three services based on contracts in effect during fiscal years 1988 and
                       1989. In a few medical specialties, the services had only limited numbers
                       of personnel under contract, and therefore the data are less precise.

                       We did not consider whether additional staff in short supply would lead
                       to the need for new financial incentives to recruit and retain these
                       people.

                       Table I.1 summarizes, by staff category, the salary data we obtained for
                       each occupation and source of staff.


                       Page 33                               GAO/HIlD9O-131   Increased Use of Military Hospitals
Appendix I
GAO B¶ethodologyfor Determining the Cats
of ‘Ikea- Additional Patients in
iwllmry IioBpitalB




1986-88, $193,806,941 in costs were incurred by DOD. Over the same
period, the services reported 2,733,977 inpatient admissions-about    $71
per inpatient admission. This cost per admission was applied to the
inpatient admissions we projected that would be brought in if the mili-
tary hospitals accommodated the CHAMPUS workload being considered.




Page 3s                               GAO/EIlD9@131   In&   Use of MilItmy Hospitals
                                      Appendix II
                                      ProflIes of Six Military Hospitals Reviewed
                                      by GAO




Table 11.1:Fiscal Year 1988 CHAMPUS
Workload and Costs in Obstetrics/                                           Obstetrics/pynecolo~                  Orthopedics
Gynecology and Orthopedics, and the                                                     Government                      Government
Portion That Evans Army Community                                           Workload             cost        Workload          cost
Hospital Could Accommodate With       Total FY 1980 CHAMPUS                                                ~.___           ~~_~      _
Additional Resources                  Inpatient    admwons                       2,975     $8.493 300                 79      $416.600
                                      OutpatIent     vwts                        1,499         150,100             6,459       518.600
                                      Actual government cost                               98,643,400                        5935,200
                                      Potential workload increase
                                      Inpatient    admIssIons                    2,230      s5.972.000--33                 ~ la600
                                      Outpatient     vwts                          405          38,300             6,000       481.700
                                      Government cost                                      S6,010,300                         9621,300
                                      Notes. The potenhal workload includes only those cases that requwd a nonavallablllty statement It
                                      excludes cases that the hospital would have been unable to treat regardless of staff and eqwpment
                                      increases The hospital capacity exceeds the CHAMPUS workload I” Inpatient orthopedics vue used the
                                      smaller number (CHAMPUS cases) for our calculations


                                      With additional staffing, Evans could have accommodated much of the
                                      available CHAMPUS workload in the specialties reviewed. For obstetrics,
                                      the facility averaged about 58 deliveries per month during fiscal year
                                      1988. Hospital officials said that, with additional staffing, the facility
                                      could handle about 77 more deliveries per month in the catchment area
                                      (approximately 38 fewer than the deliveries paid each month under
                                      CHAMPUS during fiscal year 1988). On the other hand, Evans officials
                                      said the facility could handle all of the remaining CHAMPIX gynecology
                                      workload with additional staffing.

                                      During fiscal year 1988, Evans provided orthopedic services (inpatient
                                      and outpatient) only to active-duty personnel. With additional staffing,
                                      facility officials said it could serve non-active-duty beneficiaries as well.
                                      Of the 79 CHAMPUS admissions for orthopedic surgery in the Ft. Carson
                                      catchment area, 36 required a nonavailability statement. Officials said
                                      that, with additional staff, 33 of these admissions could have been
                                      brought into the facility. Officials also said that the facility had the
                                      capacity to increase its orthopedic surgery workload beyond the number
                                      of cases paid for under CHAMPUS. The facility also could handle nearly all
                                      of the available CHAMPUS orthopedic outpatient workload (about ~j.000 of
                                      the 6,459 fiscal year 1988 visits). Figure II.1 shows the hospital’s fiscal
                                      year 1988 staffing and the additional staff resources that would have
                                      been required to bring in this additional workload.




                                       Page 37                                   GAO/~9@131         Increased Use of Military Hwpifals
                                          Appendix II
                                          Pronles or s&i Militdry Hoapitdl3 Beviewed
                                          by GAO




Table 11.2:Estimated Cost of
Accommodating Increased Obstetrics/                                                               Obstetrics/gynecology
Gynecology Workload Under Three           Hospital cost category                             Military         Civilian     Contract
Staffing Alternatives-Evans  Army         Salaries                                        $2.683,100      $2,231,600      $3.140.700
Community Hospital, Fiscal Year 1988
                                          Scholarship/tramlng                                  68,200               0               0
                                          Malpractice claims                                  158.100        158.100                0
                                          Supplies                                           437,OcO         437,ccG         437,OuO
                                          Equipment                                             9,000          9,000           9.000
                                          Cost of increase                                53,355,400      52,835,900      $3,586,700


Table 11.3:Estimated Cost of
Accommodating Increased Orthopedics                                                                     Orthopedics
Workload Under Three Staffing             Hospital cost category                             Military        Civilian       Contract
Alternatives-Evans    Army Community      Salaries                                          $435,700        $436,400        $503,400
Hospital, Fiscal Year 1988
                                          ScholarshiD/tralnina                                34.100                 0              0
                                          Malpractice claims                                    2,300           2,300               0
                                          Supplies                                            97.800           97,m           97,800
                                          EaulDment                                                0                  n            n
                                          Cost of increase                                 $589,700         5536,300        S601.000


Table 11.4:Comparison of Actual
CHAMPUS Costs With Costs of                                                                         Obstetrics/gynecology
Accommodating Additional Obstetrics/                                                          Milllry           Civilian    Contract
Gynecology Workload at Evans Army         Actual cost of CHAMPUS workload                  $6,010,300        $6,010.300    $6.010.300
Community Hospital During Fiscal Year
1988, Under Three Staffing Alternatives
                                          Cost of hospital workload Increase                3.355400          2,835,900     3 586,700
                                          Savings with hospital workload increase         $2,654,900        53,174,400    $2.423.600


Table 11.5:Comparison of Actual
CHAMPUS Costs With Costs of                                                                          Orthopedics
Accommodating Additional Orthopedics                                                         Military     Civilian  Contract
Workload at Evans Army Community          Actual cost of CHAMPUS workload                   $621,300     $621,300 - $621 300
Hospital During Fiscal Year 1988, Under
                                          Cost of hospital workload Increase                 569,700      536,300    601 000
Three Staffing Alternatives
                                          Savings with hospital workload increase            551,800      $85,000    $20,300


                                          The Army is conducting one of its two catchment-area demonstration
                                          projects at Evans. Begun in late 1989, this project is exploring ways to
                                          accommodate the CHAMPUS workload in such specialties as obstetrics and
                                          psychiatry. Major characteristics of the project include efforts to ( I )
                                          augment staffing through the CHAMPUS partnership program, (2) tvvoll
                                          beneficiaries in the system, (3) assist beneficiaries in finding a health
                                          care provider, and (4) reduce copayments for beneficiaries using prx-
                                          ferred civilian providers.


                                          Page 39                                  GAO/‘HlD~131   IneRased Use of Millmy Hoaplti
                                          Appendix II
                                          F?d.lea of Six bfilltary Hoepith Reviewed
                                          by GAO




Table 11.6:Ascal Year 1988 CHAMPUS
Workload and Costs in Gynecology and                                                  Gynecology                        Orthopedics
Orthopedics, and the Portion That Naval                                                    Government                         Government
Hospital Jacksonville Could                                                      Workload         cost             Workload          cost
Accommodate With Additional               Total IV 88 CHAMPUS
Resources                                 InDatfent    admissions                        319      $1.512600                185        $1,091,900
                                          Outpatient     wits
                                                                    --
                                                                                       6,454         970,300            18,795          1,695.700
                                          Actual government cost                                 52.482.606                           $2,788,600
                                          Potential workload increase
                                                               -__
                                          Inpatient    admwons                           290      $1,357,200                61    -      $338,100
                                          Outpatient     vwts                          4,000         601.400             5,500            496.200
                                          Government cost                                        $1,958,600                             5834,300
                                          Notes The potential workload Includes only those cases that requwed a nonavallablllty statement, It
                                          excludes cases the hospital would have been unable to treat regardless of staff and equipment
                                          increases. The hospital capacity exceeds the CHAMPUS workload I” orthopedics and Inpatient gyne-
                                          cology, we used the smaller number (CHAMPUS cases) for our calculations


                                          With additional staffing, Jacksonville could have used its capacity to
                                          accommodate much of the available CHAMPUS workload in the two spe-
                                          cialties reviewed. In gynecology the facility handled 646 inpatient
                                          admissions and 8,636 outpatient visits during fiscal year 1988. In ortho-
                                          pedics, the facility handled 1,312 inpatient admissions and 11,985 out-
                                          patient visits. Hospital officials said that the facility could double its
                                          inpatient gynecology caseload and increase its inpatient orthopedic
                                          admissions by about 120. However, because not all 185 orthopedics
                                          cases in the catchment area required nonavailability statements and
                                          others could not have been brought into the hospital, our calculations
                                          are based on only the 61 cases that could have been accommodated. For
                                          outpatient visits, hospital officials estimated that even with additional
                                          staff and resources, the facility could not handle all the CHAMPUS work-
                                          load but could perform an additional 4,000 gynecology outpatient visits
                                          and an additional 5,500 orthopedic outpatient visits. Figure II.2 shows
                                          the hospital’s fiscal year 1988 staffing and the additional staff resources
                                           that would have been required to bring in this additional workload.




                                           Page 41                                      GAO/HRDW131 In-               Use of Military Hoepitds
                                          Appendix II
                                          Pmfueaof SIXMHitJuyHoepit& Reviewed
                                          by GAO




Table 11.7:Estimated Cost of
Accommodating Increased Gynecology                                                                       Gynecology
Workload Under Three Staffing             Hospital cost category                          Military           Civilian        Contract
Alternatives-Naval   Hospital             Salarles                                      $1,183.700           $1.019,700    $1,327 500
Jacksonville, Fiscal Year 1466
                                          Scholarshlp/tralnlnq-m                            17.100                     0            0
                                          Malpractice claims                                   20,600            20,600             0
                                          Supplies                                            140.700           140.700       140.700
                                          Equipment                                             5,000             5.000         5,000
                                          Cost of increase                             61,367,lOO            $1.166.000    61.473.200

Table 11.8:Estimated Cost of
Accommodating Increased Orthopedics                                                                      Orthopedics
Workload Under Three Staffing             Hospital cost category                          Military            Civilian       Contract
Atternatives-Naval   Hospital             Salarles                                       $612,600              $601.100      $733.100
Jacksonville, Fiscal Year 1966
                                          Scholarship/tralnlng                             34,100                      0             0
                                          Malpractice claims                                4,300                 4,300              0
                                          Supplies                                         94.700                94.700        94 700
                                          Equipment                                             0                      0               0
                                          Cost of increase                               $745,660             $760,106      6627,666


Table 11.9:Comparison of Actual
CHAMPUS Costs With Costs of                                                                              Gynecology
Accommodating Addiiional Gynecology                                                        Military          Civilian        Contract
Workload at Naval Hospital Jacksonville   Actual cost of CHAMPUS workload               $1,958,600           $1,9xwO       $l,958,fxlO
During Fiscal Year 190, Under Three
                                          Cost of hospital workload increase             1367,100             1,1wloO        1,473,200
Staffing Alternatives
                                          Savings with hospital workload increase        $591.500             6772.666      5465.400


Table 11.10:Comparison of Actual
CHAMPUS Costs With Costs of                                                                              Orthowdicr
Accommodating Additional Orthopedics                                                          Military        Civilian       Contract
Workload at Naval Hospttal Jacksonville   Actual cost of CHAMPUS workload                                      $834,300      $834300
                                                                                         $834,300
During Fiscal Year 1988, Under Three
                                          Cost of hospital workload increase              745,900               700,100       827,800
Staffing Alternatives
                                          Savings with hospital workload increase         u18,~               $134,200         56,566


                                          Hospital officials are taking actions to control CHAMPIJS
                                                                                                  costs. For
                                          example, the orthopedics department director said that the facility was
                                          negotiating a partnership agreement under which an outside physician
                                          would be allowed to perform surgery on CHAMPUS beneficiaries at Jack-
                                          sonville. Additionally, the Navy’s Bureau of Medicine and Surgery was
                                          planning to provide the hospital with special funding to perform one hip
                                          replacement surgery per month for CHAMPUS beneficiaries. The orthope-
                                          dics department director said that CHAMPUS costs for a hip replacement


                                          Page 43                              GAo/IiBwnU31        IIlaued     Ur of Military Ampit&
                                            Appendix U
                                            Proffles of six Military Hoapit.¶lBRevi&
                                            by GAO




                                            The hospital handled about 640 obstetrics admissions in fiscal year
                                            1988. With additional staff, hospital officials estimate they could handle
                                            about 360 additional deliveries a year-more than the 334 obstetrics
                                            cases paid under CHAMPUS in fiscal year 1988. Hospital officials said that
                                            Nellis could maintain its level of inpatient gynecology admissions while
                                            increasing gynecology outpatient visits by about 6,000 visits each
                                            year-about     double the number of visits paid by CHAMPUS in fiscal year
                                             1988. In fiscal year 1988, Nellis handled 351 gynecology inpatient
                                            admissions and 9,530 gynecology outpatient visits. Figure 11.3shows the
                                            hospital’s fiscal year 1988 staffing and the additional staff resources
                                            that would have been required to bring in this additional workload.


Figure 11.3:Fiscal Year 1966 Staffing and
Additional Staff Required to                50 Numtor0tStatt
Accommodate CHAMPUS Workload-
Nellir Air Force Hospital                   45
                                            40
                                            35


                                            25
                                            20
                                            30                                r
                                            15

                                            10


                                             “I
                                             0
                                                         A          A          A       L




                                                  (       Additional Staff Required
                                                          Fiscal Year 1988 Staff


                                            Note Fiscal year 1988 staff f!gures represent only those staff m the direct care areas bemg mcreased
                                            and the portlon of ward ancillary, and support staff dedicated to those areas




                                            Page 46                                        GAO/HltD90-131    lame&      Use of Military Hospitals
                                        Appendix II
                                        Pmfflea of Six Military Hospitals Reviewed
                                        by GAO




                                        Naval Hospital Camp Pendleton has a capacity of 584 inpatient beds,
Naval Hospital Camp                     135 of which were staffed as of March 1989. In fiscal year 1988, an
Pendleton, California                   average of 118 beds were occupied daily (an occupancy rate of 87 per-
                                        cent for staffed beds and 20 percent for total beds). Inpatient admis-
                                        sions totaled 8,658 in fiscal year 1988; of these, about 42 percent were
                                        active-duty personnel and 58 percent were non-active-duty benefi-
                                        ciaries. Outpatient visits totaled about 369,000 in fiscal year 1988.

                                        Officials told us that Camp Pendleton had unused capacity primarily
                                        due to staff shortages in all categories: physicians, nurses technicians,
                                        and support staff. At the time of our study, the hospital had 9 operating
                                        rooms, 2 of which were inactive but available, and 12 recovery rooms, 6
                                        of which were inactive but available.

                                        Of the approximately $30.2 million in fiscal year 1988 CHAMPCTS     govern-
                                        ment costs in the Camp Pendleton catchment area (for both inpatient
                                        and outpatient care), about $7.3 million was for obstetrics/gynecology
                                        care. Facility officials said that obstetrics and gynecology offer good
                                        potential for accommodating CHAMPUS       workload. Table II. 14 shows the
                                        fiscal year 1988 CHAMPUS workload and government costs for obstetrics
                                        and inpatient gynecology in the Camp Pendleton catchment area and the
                                        portion of this workload and estimated costs that Camp Pendleton had
                                        the capacity to accommodate with additional resources.

Table 11.14:Fiscal Year 1988 CHAMPUS
Workload and Costs in Obstetrics and                                                                             Obstetrics/inpatient
Inpatient Gynecology, and the Portion                                                                                 aynecology
That Naval Hospital Camp Pendleton                                                                                            Government
Could Accommodate With Additional                                                                  -____       Workload               cost
Resources                               Total FY 80 CHAMPUS
                                        Inpatient admcslons                                                         2,512          $6 878 900
                                                                 --
                                        Outpatient vwts                  -__                                        3,335                378 500
                                        Actual aovernment cost                                                                    _ - - . _.
                                                                                                                                  $7.257.400
                                        Potential workload increase
                                        InpatIent admlssions                                                         1,151         $6 007 800
                                        OutpatIent wits                                                               272                 18.900
                                        Government cost                                                                           86.026.700

                                        Note. The potential workload mcludes only those cases that requwed a nonava~lab~l~ty statement    I:
                                        excludes cases the hospital would have been unable to treat regardless of staff and equ~pmerl
                                        mcreases




                                        Page 47                                      GAO/HRD-9%131Increased Useof Military Hospitals
                                         Appendix Il
                                         Profllea of six Military Hospitala Retiewed
                                         by GAO




                                         $3.5 million in fiscal year 1988, depending on the staffing option used.
                                         Table II.15 shows the estimated cost of handling the additional work-
                                         load at Camp Pendleton under three staffing options, and table II. 16
                                         shows the savings that could have accrued from accommodating this
                                         CHAMPUS workload.

Table 11.15:Estimated Cost of
Accommodating Increased Obstetrics/                                                         Obstetrics/inpatient gynecology
Inpatient Gynecology Workload Under      Hospital cost category                               Military        Civilian   Contract
Three Staffing Alternatives-Naval        Salaries                                          $2,650,300     $2.005.600   $2.585.900
Hospital Camp Pendleton, Fiscal Year                              -
                                         Scholarship/training                                  17,100              0              0
1908
                                         Malpractice claims                                    81,600         81.600              0
                                         Supplies                                             369,900        369,900        369,900
                                         Equipment                                              33,500        33,500          33.500
                                         Coat of increase                                  53,152,400    $2,490,600      $2,989,300


Table 11.16:Comparison of Actual
CHAMPUS Costs With Costa of                                                                   Obstetrics/inpatient gynecology
Accommodating Additional Obstetrics/                                                           Military         Civilian   Contract
Inpatient Gynecology Workload at Naval   Actual cost of CHAMPUS workload                    $6,026,700      $6,026,700    $6026.700
Hospital Camp Pendleton, Under Three
                                         Cost of hospital workload Increase                  3,152,4CO       2,490,600     2.989 300
Staffing Alternatives
                                         Savings with hospital workload increase           $2,874,300      $3,536,100    $3,037,400


                                         At the time of our study, Camp Pendleton was pursuing two efforts to
                                         accommodate the CHAMPUS obstetrics workload. In early 1989, hospital
                                         officials said the obstetrics/gynecology department was delivering
                                         approximately 20 additional babies per month with existing staff by,
                                         among other things, decreasing gynecology admissions. Hospital officials
                                         also said that about 50 additional deliveries per month will be brought
                                         in by using physicians supplied by the CHAMPUS Reform Initiative
                                         contractor.


                                         Naval Hospital San Diego has a capacity of 743 inpatient beds, 539 of
Naval Hospital                           which were staffed as of April 1989. The hospital began to occupy its
San Diego, California                    newly built facility early in 1988. In fiscal year 1988, an average of 317
                                         beds were occupied daily (an occupancy rate of 43 percent for stafftsd
                                         beds and 31 percent for total beds).’ At the time of our study, faclllt\
                                         officials were making efforts to fully use the new facility. During f~sc;ii
                                         year 1989, San Diego had 566 staffed operating beds and an averagcs

                                          ‘Occupancyrateswere computedbased on a combinationof the bedsin the prewous f.a Au\ ,M
                                         thosein the new facility



                                         Page 49                                   GAO/‘HRBO131 Increased Use of Mililar, Hmpimls
                                Appendix ll
                                ProNes of six Military Hospitals Reviewed
                                by GAO




                                Hospital officials told us that, at the time of our review, San Diego was
                                already handling most of the local CHAMPUS workload in other than
                                obstetrics and psychiatry. During the last half of fiscal year 1988 (after
                                the hospital moved into its new facility), the hospital handled about 199
                                obstetrics admissions a month and about 89 psychiatric inpatient admis-
                                sions a month. Officials said that, with additional staff, the facility
                                could handle another 150 deliveries and about another 60 psychiatric
                                admissions each month. Figure II.5 shows the hospital’s staffing for the
                                last 6 months of fiscal year 1988 and the additional staff resources that
                                would have been required to bring in this additional workload.



Additional Staff Required to    220   Number   ot 3tHl
Accommodate CHAMPUS Workload-
                                                                     -
Naval Hospital San Diego




                                   Typa of Staff

                                       u        Additial   Staff Required
                                                Fiscal Year 1988 Staff


                                Note Fiscal year 1988 staff figures represent only those staff m the direct care areaa bemg mciea~ed
                                and the portlon of ward, amllary and support staff dedtcated to those areas


                                By adding staff levels and other resources to accommodate the catch-
                                ment area CHAMPUS workload, we estimate the San Diego facility could


                                Page 61                                      GAO/IfRDB@l%l Increased Use of Military Huapitis
                                       AppendixII
                                       Profilea of Sir Mllltary Hospitals Reviewed
                                       by GAO




Table 11.21:Comparison of Actual
CHAMPUS Costs With Costs of                                                                                    Psychiatry
Accommodating Additional Psychiatry                                                                Military        Civilian         Contract
Workload at Naval Hospital San Dlego   Actual   cost of CHAMPUS      workload                   56,121,400       $6,121.400       56,121,400
During Fiscal Year 1999, Under Thraa
                                       Cost of hospital   workload   Increase                    1,949,600        1,661.100        1,813 000
Staiflng Alternatives
                                       Savings with hospital workload increase                 $4,171,0QQ       $4,460,300       $4,308,400
                                       Note The sawngs estrmates for psychratry are based on the assumptron that CHAMPUS patrents
                                       brought Into the factlrty would have the same average length of stay as that experrenced by patrents
                                       who received care rn prwate hosprtals for rermbursement under CHAMPUS (24.6 days) However. psy-
                                       chratric patrents treated by Naval Hosprtal San Drego durrng thus same period had ah average length of
                                       stay of only 12 days If we base our calculations on the larger number of patrents that could be accom-
                                       modated assumrng thus shorter average length of stay figure. the number of addmonal patrents that
                                       could have been accommodated rncreases from 361 to 723 and the CHAMPUS cost of the workload to
                                       be brought rn increases to $11,299,800 The savings Increase to $9.350.200 (mrlrtary staffing optron)
                                       $9638,700 (crvrlran staffing optron), and 59,486,6CO (contract staffmg optron)


                                       San Diego is exploring ways to accommodate some of this CHAMPUS
                                       workload in its catchment area. For example, under a CHAMPUS Reform
                                       Initiative nurse-midwifery contract with the University of California,
                                       San Diego, the hospital planned to bring in approximately 100 to 150
                                       deliveries per month. Under the contract, the university provides certi-
                                       fied nurse-midwives and other support staff, while the hospital provides
                                       the facilities and the medical, nursing, laboratory, and anesthesia sup-
                                       port. The first patients were treated under this contract in August 1989.
                                       Also, under the Reform Initiative, the hospital was exploring resource
                                       sharing in the psychiatry department, which would allow the Initiative’s
                                       contractor to provide staff to work in the hospital’s psychiatric clinics.


                                       Walter Reed Army Medical Center has a capacity of 878 inpatient beds,
Walter ReedArmy                        769 of which were staffed as of March 1989. In fiscal year 1988, an
Medical Center,                        average of 664 beds were occupied daily (an occupancy rate of 86 per-
Washington, D.C.                       cent for staffed beds and 74 percent for total beds). Inpatient admis-
                                       sions totaled 268,942 in fiscal year 1988; of these, about 34 percent
                                       were active-duty personnel and 66 percent were non-active-duty benefi-
                                       ciaries The facility had about 1,088,404 outpatient visits in fiscal year
                                       1988. At the time of our study, officials told us that Walter Reed had
                                       some unused capacity primarily because of shortages of staff, especially
                                       nurses.

                                        The medical specialty we reviewed, psychiatry, makes up about 30 per-
                                        cent of the total CHAMPUS workload in the Walter Reed catchment area.
                                        In fiscal year 1988, CHAMPUS costs to the government in the catchment
                                        area totaled about $21.9 million; of that, about $10.3 million was for
                                        psychiatric care (both inpatient and outpatient). Table II.22 shows the


                                        Page 53                                      GAO/HUD&%131Increased Useof Military Hospitals
                                            Appendix II
                                            Profiles of Six Military Hospitals &viewed
                                            by GAO




Figure 11.6:Fiscal Year 1966 Staffing and
Additional Staff Required to
Accommodate CHAMPUS Workload-               ‘O” NumbsrotS’an
Walter Reed Army Medical Center              90
                                             80
                                             70
                                             60
                                             so
                                             40




                                                   0        Addibnal Staff Required
                                                            Fiscal Year 1988 Staff

                                            Note. Ftscal year 1988 staff figures represent only those staff m the direct care areas bemg mcreased
                                            and the portion of ward, amllary. and support staff dedicated to those areas


                                             By increasing its staff levels and other resources to accommodate the
                                             available catchment area CHAMPUS psychiatric workload, we estimate
                                             Walter Reed could have saved the government between $3.1 and $3.2
                                             million a year, depending on the staffing option used. Table II.23 shows
                                             the estimated cost of handling the additional workload, and table II.24
                                             shows the savings that could have accrued from accommodating the
                                             CHAMPUS workload.




                                             Page 65                                      GAO/HENW131 Increased Use of Military Hospitals
Appendix III

Major Contributors to This Report


                       Stephen P. Backhus, Assistant Director, (202) 708-4228
Human Resources        William A. Hightower, Assignment Manager
Division,              David L. Lewis, Evaluator
Washington, D.C.

                       Anita L. Lenoir, Evaluator
Atlanta Regional
Office

                       Donald C. Hahn, Evaluator-in-Charge
Denver Regional
Office

                       Darryl W. Dutton, Program Manager
Los Angeles Regional   Marie E. Cushing, Evaluator
Office




(101334)               Page 57                         GAO/HRDXb131 Increased Use of Military Hospitals
. .,, .       ..




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                                          Appendix II
                                          ProfIlea of SLxMilitary Hoepit& Beviewed
                                          by GAO




Table 11.23:Estimated Cost of
Accommodating Increased Psychiatry                                                                     Psychiatry
Workload Under Three Staffing             Hospital cost category                           Military        Civilian    Contract
Alternatives-Walter   Reed Army Medical   Salanes                                         $992,900        $884,400    $1,041,300
Center, Fiscal Year 1988
                                          Scholarshlp/tralnlng                               51,200              0              0
                                          Maloractice claims                                 18.400         18 400              0
                                          Supplies                                          135,900         135,900      135,900
                                          Equipment depreclatlon                                  0               0            0
                                          Cost of increase                              91,198,400      $1,038,700    $1,177,200


Table 11.24:Comparison of Actual
CHAMPUS Costs With Costs of                                                                            Psychiatry
Accommodating Additional Psychiatry                                                         Military       Civilian     Contract
Workload at Walter Reed Army Medical      Actual cost of CHAMPUcworkload                 $4278,100       $4278,100    $4,278,100
Center During Fiscal Year 1988, Under
                                          Cost of hospital workload increase              1,198,400       1,038,700    1,177,200
Three Staffing Alternatives     :
                                          Savings with hospital workload increase       $3,079,700      53,239,400    $3,100,900




                                          Page 66                                GAO/HRLL9@13IIncreased Use of hWhvy Hospitals
                                        Appendix U
                                        ProNea of six Military HoSpitala Reviewed
                                        by GAO




                                        fiscal year 1988 CHAMPUS workload and government costs for psychiatry
                                        in the Walter Reed catchment area and the portion of this workload and
                                        estimated costs that the medical center had the capacity to accommo-
                                        date with additional resources.

Table 11.22:Fiscal Year 1988 CHAMPUS
Workload and Costs in Psychiatry, and                                                                               Psychiatry
the Portion That Walter Reed Army                                                                                         Government
Medical Center Could Accommodate        Total FY 88 CHAMPUS                                                  Workload            cost
With Additional Resources               Inpatient    admissions                                                     373         $7.397.400
                                        Outpattent     visits                                                    53,974          2.678.600
                                        Actual government cost                                                                510,276,OOO
                                        Potential workload increase
                                        lnoatient    admwons                                                        259          $4.278.100
                                        Outoatient     visits                                                             0                   0
                                        Government cost                                                                         54,278,100
                                        Notes The potenhal workload includes only those cases that required a nonavalfabillty statement. It
                                        excludes cases the hospital would have been unable to treat regardless of staff and equipment
                                        Increases. The hosp&al InpatIent capacity exceeds the CHAMPUS workload in psychiatry we used the
                                        smaller number (CHAMPUS cases) for our calculations


                                        Officials told us that, with additional staff, Walter Reed could handle
                                        more than the total number of CHAMPUS psychiatric admissions in its
                                        catchment area. In fiscal year 1988, the facility handled 914 psychiatric
                                        inpatient admissions. Officials said that the facility could handle
                                        another 507 psychiatric admissions a year with additional staff. How-
                                        ever, our calculations are based on only the 259 (out of 373) fiscal year
                                         1988 CHAMPUS psychiatric admissions that required a nonavailability
                                        statement. Figure II.6 shows the hospital’s fiscal year 1988 staffing and
                                        the additional staff resources that would have been required to bring in
                                        this additional workload.




                                         Page 54                                     GAO/HEIMO-131 Increased Use of MiUtarj HospIt&
                                           Appendix II
                                           Profiles of six Mllkary Hospitals It&ewe4
                                           by GAO




                                           have saved the government between $7.7 and $9.0 million a year,
                                           depending on the staffing option used. Tables II. 18 and II. 19 show the
                                           estimated cost of handling the additional workload, and tables 11.20 and
                                           II.21 show the savings that could have accrued from accommodating
                                           this workload.

Table 11.18:Estimated Cost of
Accommodating Increased Obstetrics                                                                           Obstetrics
Workload Under Three Staffing              Hospital cost category                                 Military       Civilian         Contract
Alternatives-Naval   Hospital San Diego,   Salaries                                            $3,969,500      $3,023,300        $3,919,&M
Fiscal Year 1988
                                           Scholarshipltralnlnq -                                  21,300                0                 0
                                           Malpractice claims                                     118,lOQ         118,100                  0
                                           Supplies                                             1,320,600       1,320.600         1.320600
                                           Eq;ipment                                               11,CQO          11,OcO             11,OQo
                                           Cost of increase                                   s5,460,500      s4,473,000        55,251,200


Table 11.19:Estimated Cost 01
Accommodating Increased Psychiatry                                                                           Psychiatry
Workload Under Three Staffing              Hospital cost category                                 Military       Civilian         Contract
Alternatives-Naval   Hospital San Diego,   Salaries                                            $1.707,ooo      $1,469,700       $1672,900
Fiscal Year 1988
                                           Scholarshlp/tralnmg                                     51,200                0        ~__     0
                                           Malpractice claims                                      51,300          51,300                 0
                                           SuoDlies                                               140.100         140 100           140.100
                                           Equipment                                                     0                  0                0
                                           Cost of increase                                   S1,949,600      $1,661,100        sl,813Iggg


Table 11.20:Comparison of Actual
CHAMPUS Costs With Costs of                                                                                  Obstetrics
Accommodating Additional Obstetrics                                                               Mllltary       Civilian         Contrad
Workload at Naval Hospital San Dlego       Actual cost of CHAMPUS workload                     $8.971,900      $8,971,900        $8.971,90(
During Fiscal Year 1988, Under Three
                                           Cost of hospital workload increase                   5460.500        4,473,ooo         5,251,20(
Staffing Alternatives
                                           Savinas with hOSDital workload increase            t3.511.4M)      54.498.900        53720.701




                                           Page 62                                     GAO/‘HBD9o131 In-         Use of 6illita-y Hosplti
                                         Appendix II
                                         Profiles of Six Military Hospitala Reviewed
                                         by GAO




                                         daily patient load of 373 (a 66-percent occupancy rate). Of the 23,260
                                         inpatient admissions in fiscal year 1988,44 percent were active-duty
                                         personnel and 56 percent were non-active-duty beneficiaries. Outpatient
                                         visits numbered nearly 510,000.

                                         At the time of our study, San Diego had unused capacity due in part to
                                         shortages of staff, especially nurses and ancillary and support staff, and
                                         a 39-bed surgery ward was closed. The hospital had 14 operating rooms,
                                         4 of which were inactive but available, and 15 recovery rooms, 5 of
                                         which were inactive but available.

                                         The two medical specialties we reviewed, obstetrics and psychiatry,
                                         make up a considerable portion of the catchment area CHAMPUS work-
                                         load. In fiscal year 1988, CHAMPUS costs to the government in the San
                                         Diego catchment area totaled about $109 million-the     highest in the
                                         nation. Of this amount, about $13.7 million was for obstetric care and
                                         about $30.5 million was for psychiatric services related to mental ill-
                                         nesses.” Additionally, of the nonavailability statements that San Diego
                                         issued in fiscal year 1988,52 percent were for obstetric care, and 18
                                         percent were for psychiatric care. Table II.17 shows fiscal year 1988
                                         CHAMPUS workload and government costs for obstetrics and psychiatry
                                         in the San Diego catchment area and the portion of this workload and
                                         estimated costs that the hospital had the capacity to accommodate with
                                          additional resources.

Table 11.17:Fiscal Year 1988 CHAMPUS
Workload and Costs in Obstetrics and                                                       Obstetrics                        Psychiatry
Psychiatry, and the Portion That Naval                                                            Governtnn;;                      Government
Hospital San Diego Could Accommodate                                                   Workload                          Workload       -.__ cost
With Additional Resources                Total FY 08 CHAMPUS                                                                             -~_I
                                         InpatIent    admlwons                             5.309     $13,633,100                 1 508       $22.072.200
                                                                                                                                             --__
                                         OutpatIent     v&s           ____                   900         40,400                111,245        8.450.200
                                         Actual government cost                                     S13,673,500                            $30,522,400
                                         Potential workload increase                     _____
                                         Inpatient    admw.lons                            1,666       f&941,400                   361        $5,163,7(X
                                         Outpatient     vwts                                 680           30,500               12,600
                                                                                                                                              -- 957,7oc
                                         Government cost                                              sa.97l.900                             56.121.4OC
                                         Note The potential workload Includes only those cases that required a nonavallablllty statement it
                                         excludes cases the hospltal would have been unable to treat regardless of staff and equ\pmenl
                                         mcreases




                                          ‘Does not mlude      dependency treatment.    such as drug or alcohol rehabilitatm




                                          Page 60                                          GAO/HRB90131 Incmased Use of Military Hospitn
                                Appendix U
                                Profiles of six Military Hospitals Reviewed
                                by GAO




                                With additional staff, Camp Pendleton could have accommodated much
                                of the catchment area CHAMPUS workload in obstetrics and inpatient gyn-
                                ecology. In fiscal year 1988, the facility handled 1,487 obstetrics admis-
                                sions and 301 gynecology admissions. With additional staff, hospital
                                officials estimate that Camp Pendleton could handle 1,15 1 of the 23 13
                                obstetrics/gynecology admissions in the Camp Pendleton catchment area
                                that required a nonavailability statement. Figure II.4 shows the hos-
                                pital’s fiscal year 1988 staffing and the additional staff resources that
                                would have been required to bring in this additional workload.



Additional Staff Required to
                                100      Numbr     of Sfaff
Accommodate CHAMPUS Workload-                                                -
Naval Horpital Camp Pendleton    90
                                 a0
                                 70
                                 60
                                 so
                                                                -




                                      Types of staff


                                          0            Additional Staff Required
                                                       FiscafYearlSSSStaff

                                Note Fiscal year 1988 staff figures represent only those staff III the dwct care areas being mcreased
                                and the portion of ward ancillary, and support staff dedicated to those areas


                                We estimate that by increasing its staff levels and other resources to
                                accommodate catchment area CHAMPUS workload in the two specialties,
                                Camp Pendleton could have saved the government between $2.9 and


                                Page 43                                            GAO/HBD9&131 Increased LJaeof Military Hospitals
                                          Appmdlx II
                                          Profues of six Military Hospitals Reviewed
                                          byGA0




                                          We estimate that by augmenting its staff levels and other resources to
                                          accommodate available catchment area CHAMPUS workload in the two
                                          specialties, Nellis could have saved the government between $584,900
                                          and $923,800 in fiscal year 1988, depending on the staffing option used.
                                          Table II.12 shows, by staffing option, the estimated cost of handling the
                                          additional workload at Nellis, and table II.13 shows the savings that
                                          could have accrued from increasing staff levels to accommodate the
                                          CHAMPUS workload.

Table 11.12:Estimated Cost of
Accommodating Increased Obstetrics/                                                                Obstetricslgynecoloqv
Gynecology Workload Under Three           Hosoital cost cateaorv                              Military         Civilian     Contract
Stafting Alternatives-Nellis Air Force    Salanes                                          $1,04&800        $878,600       $1,241,200
Hospital, Fiscal Year 1988
                                          Scholarshio/trainina
                                                     ,.        -                               34,100              0                0
                                          Malpractice claims                                   23,700         23.7M)                0
                                          Supplies                                            177,6QO        177,600          177,600
                                          Equipment                                             5,000          5,000            5,000
                                          Cost of increase                                51,289,200      91,084,900       $1,423,000


Table 11.13:Comparison of Actual
CHAMPUS Costs With Costs ot                                                                        Obstetrics/gynecoloqv
Accommodating Additional Obstetrics/                                                          Military         Civilian      Contract
Gynecology Workload at Nellls Air Force   Actual cost of CHAMPUS workload                  $2,006,700      $2,006,700      $2 008.700
Hospital During Fiscal Year 1998, Under
                                          Cost of hospital workload increase                1,269,200       1,064,900       1 423,600
Three Staffing Alternatives
                                          Savings with hospital workload increase           $719,900        $923,800        $584,900


                                          At the time of our study Nellis was exploring several ways to accommo-
                                          date the CHAMPUS workload through partnership agreements. Officials
                                          said that the hospital had entered into several partnership agreements
                                          under which civilian doctors will provide care at Nellis. As of June
                                          1989, partnership agreements were in effect for the primary care clinic
                                          and the pediatrics department. Also, agreements were being negotiated
                                          for the ear, nose, and throat department and the neurology department.
                                          The hospital is also exploring a partnership agreement that would allow
                                          a military doctor to use contracted facilities to provide psychiatric care
                                          to both active-duty personnel and CHAMPUS beneficiaries.




                                           Page 46                                 GAO/HRLWW13IIncreased Use of Military Hospitals
                                         Appendh n
                                         proflle!s of SIXMllhry    Hospitrls Reviewed
                                         by GAO




                                         were about $20,000 to $25,000, whereas the principal variable cost to
                                         Jacksonville would be about $3,000, the cost of the prosthesis,


                                         The Nellis Air Force Base hospital-the    554th Medical Group-has a
Nellis Air Force                         capacity of 65 inpatient beds, 35 of which were staffed as of June 1989.
Hospital, Nevada                         In fiscal year 1988, an average of 24 beds were occupied daily (an occu-
                                         pancy rate of 69 percent for staffed beds and 37 percent for total beds).
                                         Inpatient admissions numbered about 2,660; of these, about 41 percent
                                         were active-duty personnel and 59 percent were non-active-duty benefi-
                                         ciaries. Also, nearly 186,000 outpatient visits were made to the hospital
                                         during the fiscal year.

                                         Officials told us that the hospital had unused capacity primarily due to
                                         shortages of medical staff-physicians,      nurses, and ancillary staff. Offi-
                                         cials said that, with additional staff, the hospital could have accommo-
                                         dated much of the CHAMPUS workload in two medical specialties-
                                         obstetrics and gynecology. Aside from these two specialties, the hospital
                                         had limited capacity to accommodate other workload increases. The
                                         total CHAMPUS costs to the government in the catchment area were about
                                         $23.6 million in fiscal year 1988.

                                         Table II. 11 shows the fiscal year 1988 CHAMPUS workload and govem-
                                         ment costs for obstetrics and gynecology in the Nellis catchment area
                                         and the portion of this workload and estimated costs that Nellis had the
                                         capacity to accommodate with additional resources.

Table 11.11:Fiscal Year 1988 CHAMPUS
Workload and Costs in Obstetrics/                                                                               Obstetrics/qvnecoloqv
Gynecology and the Portion That Nellis                                                                                        Government
Air Force Hospital Could Accommodate                                                                           Workload               cost
With Additional Resources                Total FY 88 CHAMPUS
                                         InpatIent    admissions                                                      813          $2.446.700
                                         Outpatient     visits                                                      3,092             304900
                                         Actual government cost          -                                                        t2.751,600
                                         Potential workload increase
                                         Inpatient    admisslons                                                      334          $1 703 600
                                         OutpatIent     visits                                                      3,092 -           M4 96%
                                         Government cost                                                                          t2.008,700

                                         Notes- The potential workload includes only those cases that reqwed a nonavallablllty statem<” 1
                                         excludes cases the hospital would have been unable to treat regardless of staff and equ~pmew
                                         increases The hospital capacity exceeds the CHAMPUS workload I” these specIaltIes iye ‘;w: ‘v
                                         smaller number (CHAMPUS cases) for our calculations




                                          Page 44                                    GAO/HRD90-131Increased Useof Miiiw              IhviLals
                                            Appendlr II
                                            Pmflles of Six Military liot3pitab l&viewed
                                            by GAO




Figure 11.2:Fiscal Year 1988 Stafllng and
Additional Staff Required to
                                            100     Numkc   of Staff
Accommodate CHAMPUS Workload-
Naval Hospital Jacksonville




                                                                                 r

                                                  Typesd Stdl

                                                     u       Addikml   Staff Required
                                                             Fiscal Year 1888 Staff


                                            Note: Fiscal year 1986 staff figures represent only those sta   the direct care areas bemg Increased
                                            and the portion of ward, ancillary, and support staff dedicat   o those areas.


                                            By adding staff and other resources to accommodate available catch-
                                            ment area CHAMPUS workload in the two specialties, we estimate that
                                            Jacksonville could have saved the government between $492,000 and
                                            $907,000 during fiscal year 1988, depending on the staffing option used.
                                            Tables II.7 and II.8 show the estimated cost of handling the additional
                                            workload at Jacksonville under the three staffing options, and tables
                                            II.9 and II. 10 show the savings that could have accrued from accommo-
                                            dating this CHAMPUS workload.




                                            Page 42                                        GAO/ERS20.131 Incmmed Use of hUMmy Hospital
                        Appendk U
                        FITdues of six Military Hospital@Reviewed
                        by GAO




                        Naval Hospital Jacksonville has a capacity of 385 inpatient beds, 176 of
Naval Hospital          which were staffed as of March 1989. In fiscal year 1988, an average of
Jacksonville, Florida   97 beds were occupied daily (an occupancy rate of 55 percent for
                        staffed beds and 25 percent for total beds). Inpatient admissions totaled
                        10,079 in fiscal year 1988; of these, about 38 percent were active-duty
                        personnel and 62 percent were non-active-duty beneficiaries. Over
                        267,000 outpatient visits were made to the hospital in fiscal year 1988.

                        Hospital officials told us that Jacksonville had unused capacity prima-
                        rily due to staff shortages. As of April 1989, the facility had 458 filled
                        positions and 125 vacancies. Most of the vacant positions were for
                        nurses and ancillary and support staff.

                        At the time of our study, six patient wards, which contained a total of
                        194 beds, were closed or converted to office space. Of the hospital’s six
                        operating rooms, two were inactive (but available).

                        Hospital officials said that the facility had unused capacity in seven
                        inpatient medical specialties: surgery, internal medicine, pediatrics,
                        intensive care, orthopedics, ear/nose/throat, and gynecology. It also had
                        unused capacity in 10 outpatient services, including dermatology,
                        internal medicine, family practice, psychiatry, and obstetrics/gyne-
                        cology. For some specialties, such as orthopedics, the facility was able to
                        treat only active-duty personnel.

                        Of the $47.2 million in fiscal year 1988 CHAMPUS expenditures in the
                        Jacksonville catchment area, $2.5 million was for gynecology services
                        and $2.8 million was for orthopedic services. We selected gynecology
                        and orthopedic surgery for review because the facility has the capacity
                        to handle additional patients in these specialties. Although other med-
                        ical specialties (such as obstetrics, cardiology, and general surgery) con-
                        stituted greater shares of the total CHAMPUS costs, hospital officials did
                        not view them as good candidates for increased workload because of
                        facility capacity limitations.

                        Table II.6 shows the fiscal year 1988 CHAMPUS workload and government
                        costs for gynecology and orthopedics in the Jacksonville catchment area
                        and the portion of this workload and estimated costs that the hospital
                        had the capacity to accommodate with additional resources.




                         Page 40                                GAO/HBDgOl31 Increased Use of Military Hospitals
                                            Appendix U
                                            Pmffles of Sk Military Hospitals Reviewed
                                            by GAO




Figure 11.1:Fiscal Year 1998 Staffing and
Additional Statf Required to
                                            130     Numbmr of Staff
Accommodate CHAMPUS Workload-
Evans Army Community Hospital               110
                                            100
                                             so
                                             w
                                             70
                                             80
                                             50
                                             40
                                                                         -                        L




                                                  Typosof slafl

                                                     0        Addltial       Staff Required
                                                              F!sCa Year 19.38Staff

                                            Note Fiscal year 1988 staff figures represent only those staff in the direct care areas bemg mreased
                                            and the portion of ward, anallaty, and support staff dedicated to those areas.


                                            By augmenting its staff and other resources to accommodate the
                                            CHAMPUS workload in the two specialties, we estimate that the facility
                                            could have saved the government between $2.4 and $3.3 million in fiscal
                                            year 1988, depending on the staffing option used. Tables II.2 and II.3
                                            show the estimated cost of handling the additional workload at Evans
                                            under the three staffing options, and tables II.4 and II.5 show the esti-
                                            mated savings that could have accrued from accommodating this
                                            CHAMPUS workload.




                                            Page 33                                           GAO/HlD3b131 Increased Use of Milltmy Hospitals
Appendix II

Profiles of Six Military Hospitals Reviewed
by GAO

                        During fiscal year 1988, each of the six military treatment facilities we
                        reviewed had unused capacity and a large CHAMPUS workload in its
                        catchment area. Aside from that similarity, the facilities differed in size,
                        workload, and the types of medical specialties in which unused capacity
                        existed. Following are profiles of the six facilities.


                        Evans Army Community Hospital has a capacity of 195 inpatient beds,
Evans Army              108 of which were staffed as of December 1988. In fiscal year 1988, an
Community Hospital,     average of 88 beds were occupied daily (an occupancy rate of 81 percent
Fort Carson, Colorado   for staffed beds and 45 percent for total beds). In fiscal year 1988,
                        inpatient admissions numbered about 8,500; of these, about 36 percent
                        were active-duty personnel and 64 percent were non-active-duty benefi-
                        ciaries. Outpatient visits numbered about 447,000 in fiscal year 1988.

                        Evans’ unused capacity was primarily due to shortages of staff, espe-
                        cially nurses and ancillary staff. One 32-bed ward had never been
                        opened, and five of the nine operating rooms were unused, as were three
                        of the nine labor and delivery rooms and 12 beds in a 19-bed recovery
                        room. Facility officials said that, with augmented staffing, the facility
                        could have accommodated much of the catchment area CHAMPUS
                        workload in obstetrics/gynecology and orthopedics.

                        Obstetrics makes up a large part of the CHAMPUS workload in the Fort
                        Carson catchment area. In fiscal year 1988, CHAMPUS costs to the govern-
                        ment in the catchment area totaled about $27.2 million for both inpa-
                        tient and outpatient care. Of this amount, about $8.6 million was for
                        obstetrics/gynecology and about $0.9 million was for orthopedic care. In
                        fiscal year 1988, the facility issued 2,013 nonavailability statements
                        authorizing beneficiaries to receive care under CHAMPUS. Of these state-
                        ments, 1,332 (66 percent)-or      about 111 per month-were     for obstetric
                        care.

                        Table II. 1 shows the fiscal year 1988 CHAMPUS workload and government
                        costs for obstetrics/gynecology and orthopedics in the Fort Carson
                        catchment area and the portion of this workload and estimated costs
                        that Evans had the capacity to accommodate with additional resources.




                        Page 36                           GAO/llRD~131   Increased Use of Milimy Hospit&
                                       Appendix I
                                       GAOMethodology for Determining the costs
                                       of Treathg Additlod Patients in
                                       MiIitary Hospitals




Table 1.1:Average Costs of Medical
Stsfi, by Staff Category, From Three                                                                 Personnel option
Staffing Sources                       Stan category                                      Military          Civilian    Contract
                                       PhysIctans                                         $86,042           $91,337     $137,917
                                       Allied health professlork                           56,761            42,022 - --___49,460
                                       RegIstered nurses                                   52,439            36,311        46.593
                                       Paraprofessionals                                   26,727            26,953        32,346
                                       Administratwe                                       21,997            21,997        21,997


                                       Because the military services provide scholarships and training for mili-
                                       tary physicians, we factored the costs of these elements into our esti-
                                       mate of the costs of using military physicians. We used data from a
                                       January 1988 DOD report on the cost of physician accessions2 to identify
                                       the total cost of bringing them into the service. We divided this cost by
                                       the average length of service of all military physicians. We calculated
                                       the overall average education cost per year per military physician to be
                                       $17,100. This cost was added to the salary and fringe benefit cost of
                                       military physicians when calculating the costs of adding this type of
                                       physician.


                                       Equipment needs relating to providing care to more patients were
Costs for Additional                   described and itemized by hospital officials. To determine these costs,
Equipment and                          we consulted hospital equipment price lists obtained from hospital offi-
Supplies                               cials or we obtained estimates from senior hospital staff. We calculated
                                       first-year costs by amortizing the total equipment costs over 8 years,
                                       which hospital financial personnel said is the figure used in their
                                       accounting calculations.

                                       Supply costs were obtained by projecting the actual supply costs for
                                       each area of the hospital that would be affected by the workload
                                       increase being considered. Projections were based on the percentage
                                       increase in workload.


                                        The government is the liable party in cases of medical malpractice by
Cost for Malpractice                    military and civilian government physicians. We developed an estimate
                                        of potential malpractice payments by DOD using the services’ historical
                                        information on malpractice payments, through either judgment or settle-
                                        ment, per inpatient admission over a 3-year period. During fiscal years

                                        ‘The Costof Physician Accessions,preparedfor the SenateGmmittee on Armed Serwm 111
                                                                                                                         fw of
                                        the Assistant Secretaryof Defense(Health Affairs), January 1933.



                                        page 34                               GAO,‘HRD3@131Increased Use of MulruY       H-pi-
                  Chapter2
                  Using Available Capacity in Military
                  Hospitalsto TreatCHAMPUSBenefidarles
                  offers saving.9Potential




                  We recommend that as DOD proceeds with efforts to identify additional
Recommendations   locations in which to implement its cost containment initiatives, the Sec-
                  retary of Defense direct the secretaries of the military departments to
                  identify, using either the methodology we developed or a similar one,
                  the hospitals and medical specialties for which it would be most cost-
                  effective to expand capability to care for patients whose care is now
                  funded under CHAhIPUS. Once this is done, we further recommend that.
                  where warranted, the services proceed to increase hospitals’
                  capabilities.


                  DOD agreed with the report’s findings and recommendations and agreed
Agency Comments   that savings are possible by treating in military hospitals patients whose
                  care is now funded under CHAMPUS. DOD officials preferred to charac-
                  terize the potential dollar benefits as “cost avoidance” rather than “sav-
                  ings,” however, since such benefits likely would be expended elsewhere
                  in the services’ medical care program. Also, these officials said that the
                  estimated benefits could be reduced or offset if eligible persons who pre-
                  viously did not use military health care should seek care at hospitals
                  with enhanced capabilities.

                  We believe the term “savings” appropriately characterizes the cost
                  reductions that would accrue to CHAMPUS by treating patients formerly
                  funded under CHAMPCS in military hospitals. Moveover, we recognize in
                  the report that potential savings could be reduced if eligible persons
                  who had not used military health care sought care at hospitals with
                  enhanced capabilities. Whether and to what extent this might occur,
                  however, is not known.




                  Page 31                            GAO/HEDgOl31 lnereased Use of Milita~ Hospitals
              Chapter 2
              Using Available Capacity in Military
              HospItrls to Treat CRAMPUSBenefwariea
              offem SavIngaPotential




              three times and reported once on the Initiative’s implementation.’ In
              March 1990 we testified that it was still unclear whether the Initiative
              was saving money.

              Catchment Area Management, being tested at five locations around the
              nation, places responsibility on hospital commanders for managing the
              local CHAMPUS and direct care budgets. In other words, hospital com-
              manders receive a specified amount of money each year from which
              they have to provide or arrange care for all the beneficiaries in their
              catchment area. (At nontest locations, hospital commanders do not con-
              trol the CHAMPUS budget.) Emphasis is being placed on increasing the
              military hospital capability, so that more patients can be served. DOD
              plans to expand the program nationwide beginning in mid-fiscal year
               1991.

              DOD plans to evaluate these initiatives  to determine whether they
              improve health care services to beneficiaries and whether they enable
              DOD to provide these services more cost-effectively. However, because
              most of the initiatives are relatively new, COD has not completed its eval-
              uations on any of them.


              The potential exists for savings if resources-principally     staff-were
Conclusions   added to military hospitals to treat beneficiaries whose care is now
              funded under CHAMPUS. These potential savings, however, vary signifi-
              cantly by hospital and medical specialty. It would rarely be cost-
              effective for a military medical facility to add resources sufficient to
              treat all of the workload in its catchment area. For example, it would not
              be prudent for small or medium-sized hospitals to add all of the sophisti-
              cated equipment and staff needed to treat relatively few open heart sur-
              gery cases. It is important, therefore, that military hospital commanders
              be able to (1) identify the workload that could be accommodated in med-
              ical specialties that offer the greatest potential for savings and (2) deter-
              mine the feasibility of obtaining the resources for treating this
              workload.




              ‘DefenseHealth Care:CHAMPUSReformInitiative: UnresolvedIssues(GAO/HRD-87-65BR,MU. 4,
              1987-7-4,
                   1;       U                                                 Mar. 12,1987);Im le.
              mentation
                      f o the                                                               -E-xpan-
                                                           / -HRD-8%17,Apr. 181989); Potentwl
              sion of the CHAMPUSReformGztive (GAO/T-HRlN0.17, Mar. 15,199O).



              Page 30                               GAO/lUKN@l31 lncreaeed Use of Militur   Hospitals
                             Chapter 2
                             Using Available Capacity in Military
                             Hospitals to Treat CHAMPUSBeneficiaries
                             Offers Savings Potentld




                             Graduate medical education programs, an attractive feature of DOD’s
                             recruitment strategy, might improve if military hospitals treated more
                             patients. When understaffed military hospitals turn away beneficiaries,
                             the hospitals’ physicians lose opportunities to obtain needed training
                             experience. Some military graduate medical education programs have
                             been criticized by their residency review committees for being
                             understaffed.

                             Officials of private hospitals located near military hospitals said that
                             the loss of CHAMPUS patients would adversely affect their business, but
                             in varying degrees depending on the size of their CHAMPUS patient
                             population.

                             The cost of certain medical personnel to the military could potentially
                             increase as a result of the increased demand for staff to accommodate
                             CHAMPUS workload. Recruiting and retaining larger numbers of medical
                             personnel that are in short supply could mean having to offer bonuses
                             or other financial inducements, and this could reduce the potential for
                             savings.


                             Three principal barriers to acquiring the medical staff that would be
Barriers to Acquiring        needed to accommodate the CHAMPUS workload in military hospitals are
More Staff in Military
Hospitals                l   active-duty personnel ceilings, which limit the number of medical per-
                             sonnel that can be acquired;
                         l   federal civilian salaries, which are not competitive with those in the pri-
                             vate sector; and
                         l   the slow and cumbersome process of acquiring staff through
                             contracting.

                             The annual congressionally imposed limits on the number of active-duty
                             personnel result in requests for medical personnel being weighed against
                             requests for other types of personnel. Any increase in medical personnel
                             would come at the expense of other units, and vice versa, including
                             operational units; this makes increases in medical personnel difficult.

                             Also, military hospitals are finding it increasingly difficult to fill civilian
                             staff vacancies of all types, primarily because of the disparity between
                             federal and private sector salaries. Civilian government employees are
                             an important part of the overall military hospital staffing mix because,
                             among other things, they offer continuity in an environment in which
                             military staff are often transferred.


                             Page 28                               GAO/liFtD-90131 Increased Use of Military   Hospitals
                       Chapter 2
                       Using Available Capacity in Military
                       Hoepit& to Treat clL4MPus Benefldaries
                       offers Savings Potential




                       The savings we have estimated are based on the military hospitals’
Increased Demand for   capacity to accommodate most or all of the fiscal year 1988 CHAMPUS
Care Could Diminish    workload in certain medical specialties. However, if hospitals augment
Savings                their staff and resources to use their available capacities, they may
                       attract more patients than make up the present CHAMPUS workload.
                       These would be people eligible for treatment at military hospitals or
                       reimbursement under CHAMPUS who, for various reasons, have not
                       sought either. To the extent that such beneficiaries seek treatment from
                       the military hospitals, savings would decrease. If the number of those
                       patients is great enough, DOD health care costs could increase. DOD data
                       show that CHAMPUS workload continues to increase, despite the fact that
                       military hospital workload is no longer declining.

                       We did not estimate how much the demand for care in military hospitals
                       might increase above the current CHAMPUS workload. However, a Jan-
                       uary 1988 Congressional Budget Office study suggests that as more care
                       becomes available in military hospitals, more people rely on these facili-
                       ties for care. Also, a 1984 Rand Corporation study found that people
                       whose medical care cost was fully covered seek nearly 25 percent more
                       care than those paying a 25-percent copayment.

                       Workload data provided by DOD show that increased activity on the part
                       of the direct care system may not result in completely corresponding
                       reductions in CHAMPUS workload. As shown by figure 2.8, direct care
                       workload stopped declining in fiscal year 1989, stemming a downward
                       trend seen since fiscal year 1983, which seems to reflect MD’S efforts to
                       begin bolstering its hospital capability. However, even though the mili-
                       tary health services system beneficiary population remained fairly con-
                       stant, CHAMPUS workload has continued to increase over the same period.




                       Page 26                                  GAO/HBD90131 ln-   Ihe of Military H~~itah
                                       Chapter 2
                                       Using Available Capacity in Military
                                       Hospital8 to Treat CHAMPUSBeneficiaries
                                       offms sa*      Potential




                                       Most of the costs of treating more patients in military hospitals are staff
Cost Components                        related, that is, salaries and fringe benefits. These percentages vary only
                                       slightly between the various staffing options. Figure 2.6 shows the per-
                                       centage breakdown of the various cost elements associated with
                                       increased hospital workload, calculated as the average for the three
                                       staffing options.


Figure 2.6: Cost Elements Associated
With Increasing Hospital Workload




                                       Many different types of medical personnel are needed to accommodate
                                       the CHAMPUSworkload. Besides physicians and registered nurses, hospi-
                                       tals would need a variety of other professionals, paraprofessionals, and
                                       administrative staff, as shown in table 2.2 and figure 2.7.




                                       Page 24                               GAO/HBDW131 lncreaaed Use of Mllluq   Hapltrls
Figure 2.4: Percentage Savings Under Contract Staffing Option
100 Pormta~savlnga
 so
 80




Table 2.1: Estimated Savinas in Fiscal
Year 1988, by Hospital andkedical                                                                ObsteMcs/
Specialty, Under Contract Staffing                                                               gynecobw          Psychiatry       Orthopedics
Option                                     Evans Army Community Hospital                           $2,423.600                   .        $20,300
                                           Naval Hospital Jacksonville                               485,400                    .          6,500
                                           Nellis Air Force Hospital                                   5w3oo                    .                 .
                                           Naval Hosoltal Camo Pendleton                             3.037
                                                                                                     _ . - 400
                                                                                                            _.              .                     .
                                           Naval Hospital San Diego                                  3,720,700      4,308,400                     .
                                           Walter Reed Army Medical Center                                     .    3,100.900                     .
                                           Total estimated savings                               510,252,000       $7,409,300           $26,800
                                           Note We did not analyze each medtcal specialty I” each hospital




                                           Page22                                       GAO/lIlUWM31 In-             Use of Milhuy Hospit&
                                          Chapter 2
                                          using Avdlable capllcity in Maitaly
                                          Hospitals to Treat CHAMPUSBeneflciluies
                                          offers smingm Potentid




Figure 2.2: Fiscal Year 1988 Outpatient
Workload and Potential Workload           00     outpatbmvbb(lnlhc4mMb)
Increase
                                          no

                                          70

                                          60 r




                                                         --El-                        Y

                                                 I        Potential IfKma?ed visits
                                                 m        FiiYear1988Visits

                                          Note. Only mpatmt     workload was considered   at Walter Reed Army MedIcal Cente!


                                          In some cases there was a greater CHAMPUS workload in a catchment area
                                          than the hospital could potentially treat; in those cases the excess
                                          CHAMPUS workload could not be factored into our analysis. In other cases
                                          the military hospital’s unused capacity exceeded the total CHAMPUS
                                          workload; in those cases we excluded only that care too complex for the
                                          hospital to treat.


                                           In the specialties we reviewed at the six hospitals, DOD paid $37 million
Savings Estimates                          for CHAMPUS care in fiscal year 1988. That care would have cost an esti-
                                           mated $16 million to $19 million, using the hospitals’ available capacity
                                           and added resources, resulting in savings ranging from $18 to $2 1 mil-
                                           lion. There is a range of savings because of the cost differences associ-
                                           ated with the three sources of additional staffing that hospitals could


                                           Page 20                                        GAO/HED90131 In&             Use of Military Hospitals
Chapter 2

Using Available Capacity in Military Hospit&
to Treat CHAMPUS Beneficiaries Offers
Savings Potential
                      DOD can potentially  save millions by treating more patients in military
                      hospitals, rather than paying for their care under CHAMPUS. Overall, the
                      estimated savings from treating a portion of the CHAMPUS fiscal year
                      1988 workload in the six military hospitals and three specialties we
                      reviewed ranged from $18 million to $21 million. DOD paid $37 million
                      for the care under CHAMPUS. The potential for savings tends to support
                      the expansion of military hospital capability, which is currently being
                      tested around the country under several DOD health care initiatives.

                      However, the potential for savings varies significantly by hospital and
                      medical specialty. Many factors influence whether and to what extent
                      savings can be achieved. For example, costs associated with possible
                      increased demand for care by beneficiaries using neither military facili-
                      ties nor CHAMPUS, but who may seek care from military hospitals if their
                      capabilities are enhanced, might offset any savings. Other factors
                      include barriers to obtaining the staff needed to increase hospital capa-
                      bility and the extent of hospital unused capacity, the cost of medical
                      care in the local community, and hospital efficiency.

                      We believe that DOD decisionmakers should identify the facilities and
                      specialties in which expansion of treatment capability would be the
                      most cost-effective. Being able to focus expansion efforts will become
                      increasingly important as DDD begins to expand some of its current ini-
                      tiatives to accommodate additional CHAMPUS workload.


                      The overall savings potential of treating more CHAMPUS beneficiaries in
Overview of Savings   military hospitals appears significant, but it is limited by such factors as
                      the hospital’s unused capacity; the size and complexity of the CHAMPUS
                      workload; the cost of medical care in the local community; the hospital’s
                      efficiency; the type, availability, and source of additional staff needed;
                      equipment needs; and possible increased demand because care in mili-
                      tary hospitals is essentially free. Because military hospitals differ sub-
                      stantially, the savings estimates we developed vary significantly by
                      hospital and medical specialty. Appendix II profiles the facilities we vis-
                      ited and shows the savings by facility and specialty.

                      Our savings estimates were based on the six hospitals’ capability to
                      increase their inpatient admissions overall by about 55 percent and to
                      increase their outpatient visits by about 54 percent in the specialties
                      studied. In fiscal year 1988, the hospitals had about 11,700 inpatient
                      admissions and about 161,300 outpatient visits in the specialties
                      studied; they had the capacity to increase their inpatient admissions by


                      Page 13                          GAO/llRNW131 In-       Ueeof biiliurU Hoepith
Chapter 1
lntrodllctton




average contract amounts. Contract amounts on a local or regional basis
could vary from those we used. Also, we did not determine whether
civilian government or contract personnel were available in the local job
markets of the hospitals we studied.

To determine the portion of the total CHAMPUS workload that could be
accommodated, and the associated costs, we obtained reports from the
Office of CHAMPUSshowing inpatient and outpatient claims and costs by
hospital catchment area and specialty for the hospitals we reviewed. Of
the total inpatient CHAMPUS claims, we considered only those associated
with nonavailability statements as they best represented the CHAMPUS
workload most likely to return to the military hospital. To make the mil-
itary hospital and CHAMPUScase mix as comparable as possible, we elimi-
nated CHAMpus-paid admissions for diagnoses that hospital officials told
us they could not treat even with additional staff. We did not make com-
parisons between the quality of care provided in military hospitals and
that provided under CHAMPUS.   Rather, we assumed that care provided in
both settings meets DODquality standards.

In selecting military hospitals for review, we matched information on
unused hospital capacity, as indicated by occupancy rates, with CHAMPUS
costs in the catchment area and ranked hospitals accordingly. The
highest ranked hospitals had low occupancy rates and high CHAMPUS
costs in their catchment areas. The six hospitals we selected for review
were among those with high rankings and are not necessarily represen-
tative of the 129 military hospitals. We excluded hospitals that might
require extensive renovation or replacement to accommodate additional
workload. In selecting the medical specialties to study, we chose those
that we believed had the highest likelihood for savings. These were spe-
cialties that (1) hospital officials considered most appropriate, (2) had a
high number of nonavailability statements issued, and (3) had high
CHAMPUS costs in the hospital’s catchment area. Based on this informa-
tion, we selected the hospitals and medical specialties shown in
table 1.2.




 Page16                          GAO/HItD3@131 Increased
                                                       UseOPMilitary Hospitals
                                        chapter1
                                        Introduction




                                        of 70 percent or below. At the same time military hospitals were exper-
                                        iencing these low occupancy rates, about 70 percent of CHAMP~‘S costs
                                        were being incurred within their catchment areas. Figure 1.1 shows
                                        fiscal year 1988 occupancy rates for military hospitals in the United
                                        States.


Flgun 1.1: Fiocal Year 1988 Occupancy
Ratss
                                        60   Numbw     of Hospitals
                                        m




                                        In a letter dated February 16,1988, the Chairman, Subcommittee on Mil-
Objectives, Scope,and                   .
                                        itary Personnel and Compensation, House Committee on Armed Ser-
Methodology                             vices, requested us to determine whether savings could be achieved by
                                        adding staff or other resources to military treatment facilities as an
                                        alternative to referring patients to CHAMPUS. The Chairman expressed
                                        concern about the large increases in CHAMPUS costs and the unused
                                        capacity in military hospitals, noting that a significant portion of
                                        CHAMPUS costs are incurred in military hospitals’ catchment areas

                                        The Chairman asked that we determine what effect an infusion (I!’ staff
                                        or other resources would have on facilities as they currently exist. that
                                        is, without facility renovations or replacements. She also asked that we
                                        not limit our examination to military staff, but also explore othtar means
                                        of acquiring staff, such as through contracting.


                                        Page 14                         GAO/HRB9@131Increased Use of Miliur)   HowAab
Introduction


               The Department of Defense’s (DOD) health care system has both a war-
               time and a peacetime mission. The wartime mission is to provide medical
               support to active-duty military personnel in preparation for and during
               conflict. The peacetime mission is to maintain the health of the 2.3-
               million-member active-duty force and, to the extent that space, staff,
               and other resources are available, to provide medical care to about 6.5
               million non-active-duty beneficiaries (dependents of active-duty mem-
               bers, retired members, their dependents, and survivors of deceased
               members). Care for active-duty members is comprehensive, guaranteed,
               and free.

               The military services operate more than 500 military treatment facilities
               worldwide, ranging in size from small clinics with limited capabilities to
               large hospitals with extensive teaching programs. Of these facilities, 168
               are military hospitals, 129 of which are in the United States.

               Non-active-duty beneficiaries are also eligible for care from civilian hos-
               pitals and professional providers under the Civilian Health and Medical
               Program of the Uniformed Services (CHAMPUS). However, beneficiaries
               who require inpatient care and reside within a 40-mile radius (called a
               catchment area) of a military hospital must first seek care at that hos-
               pital. If the military hospital is unable to provide the care sought, it
               issues a nonavailability statement authorizing the beneficiary to obtain
               the care under CHAMPUS. Nonavailability statements are not required for
               (1) emergency or outpatient care, (2) beneficiaries who reside outside
               the catchment area, or (3) beneficiaries who use health insurance other
               than CHAMPUS to pay a portion of the cost of their care.

               Non-active-duty beneficiaries have a financial incentive to obtain care in
               military facilities rather than under CHAMPUS. In military facilities, these
               beneficiaries pay a daily fee-$8.35 in fiscal year 1990-for inpatient
               care, but pay nothing for outpatient care. Under CHAMPUS, while the gov-
               ernment pays much of the costs, beneficiaries are required to pay
               deductibles and copayments, as shown in table 1.1.




               Page 12                          GAO/IfXB3&131 Increased Useof hiilim-y Hospitals
contents




Figure 11.3: Fiscal Year 1988 Staffing and Additional Staff                45
     Required to Accommodate CHAMPUS Workload-
     Nellis Air Force Hospital
Figure 11.4:Fiscal Year 1988 Staffing and Additional Staff                 48
     Required to Accommodate CHAMPUS Workload-
     Naval Hospital Camp Pendleton
Figure 11.5: Fiscal Year 1988 Staffing and Additional Staff                 51
     Required to Accommodate CHAMPUS Workload-
     Naval Hospital San Diego
Figure 11.6:Fiscal Year 1988 Staffing and Additional Staff                  55
     Required to Accommodate CHAMPUS Workload-
     Walter Reed Army Medical Center




Abbreviations

CHAMPUS Civilian Health and Medical Program of the Uniformed
              Services
DOD        Department of Defense
GAO        General Accounting Office


Page 10                         GAO/HUD-St@131
                                             Increased Use oPMilitary Hospitals
contents




Table II.1 1: Fiscal Year 1988 CHAMPUS Workload and                      44
    Costs in Obstetrics/Gynecology and the Portion That
    Nellis Air Force Hospital Could Accommodate With
    Additional Resources
Table II. 12: Estimated Cost of Accommodating Increased                  46
    Obstetrics/Gynecology Workload Under Three
    Staffing Alternatives-Nellis    Air Force Hospital,
    Fiscal Year 1988
Table 11.13: Comparison of Actual CHAMPUS Costs With                     46
    Costs of Accommodating Additional Obstetrics/
    Gynecology Workload at Nellis Air Force Hospital
     During Fiscal Year 1988, Under Three Staffing
     Alternatives
Table 11.14: Fiscal Year 1988 CHAMPUS Workload and                        47
     Costs in Obstetrics and Inpatient Gynecology, and the
     Portion That Naval Hospital Camp Pendleton Could
     Accommodate With Additional Resources
Table II. 15: Estimated Cost of Accommodating Increased                   49
     Obstetrics/Inpatient Gynecology Workload Under
     Three Staffing Alternatives-Naval     Hospital Camp
     Pendleton, Fiscal Year 1988
Table 11.16:Comparison of Actual CHAMPUS Costs With                       49
     Costs of Accommodating Additional Obstetrics/
     Inpatient Gynecology Workload at Naval Hospital
     Camp Pendleton, Under Three Staffing Alternatives
Table 11.17: Fiscal Year 1988 CHAMPUS Workload and                        50
     Costs in Obstetrics and Psychiatry, and the Portion
     That Naval Hospital San Diego Could Accommodate
     With Additional Resources
Table 11.18: Estimated Cost of Accommodating Increased                    52
     Obstetrics Workload Under Three Staffing
     Alternatives-Naval     Hospital San Diego, Fiscal Year
      1988
Table II. 19: Estimated Cost of Accommodating Increased                   52
     Psychiatry Workload Under Three Staffing
     Alternatives-Naval     Hospital San Diego, Fiscal Year
      1988
Table 11.20:Comparison of Actual CHAMPUS Costs With                       52
     Costs of Accommodating Additional Obstetrics
     Workload at Naval Hospital San Diego During Fiscal
     Year 1988, Under Three Staffing Alternatives




Page 3                           GAO/HRB3@131hcrerned UeeOPMilitary Hospitals
Contents


Executive Summary
Chapter 1                                                                                       12
Introduction           CHAMPUS Portion of DOD Medical Care Costs Has Risen
                           Significantly
                                                                                                13

                       Objectives, Scope, and Methodology                                       14

Chapter 2                                                                                       18
Using Available        Overview of Savings
                       Savings Estimates
                                                                                                18
                                                                                                20
Capacity in Military   Cost Components                                                          24
Hospitals to Treat     Increased Demand for Care Could Diminish Savings                         26
                       Other Effects of Accommodating the CHAMPUS                               27
CHAMPUS                     Workload
Beneficiaries Offers   Barriers to Acquiring More Staff in Military Hospitals                   28
Savings Potential      DOD Initiatives to Accommodate More CHAMPUS                              29
                            Workload
                       Conclusions                                                              30
                       Recommendations                                                          31
                       Agency Comments                                                          31

Appendixes             Appendix I: GAO Methodology for Determining the Costs                    32
                           of Treating Additional Patients in Military Hospitals
                       Appendix II: Profiles of Six Military Hospitals Reviewed                 36
                           by GAO
                       Appendix III: Major Contributors to This Report                          57

Tables                 Table 1: Estimated Savings by Hospital and Medical                        4
                           Specialty, Contract Staffing Option
                       Table 1.1: CHAMPUS Beneficiary Cost-Sharing Provisions                   13
                       Table 1.2: Hospitals and Specialties Reviewed by GAO                     17
                       Table 2.1: Estimated Savings in Fiscal Year 1988, by                     22
                           Hospital and Medical Specialty, Under Contract
                           Staffing Option
                       Table 2.2: Types of Medical Personnel Needed to                          26
                           Accommodate CHAMPUS Workload
                       Table I. 1: Average Costa of Medical Staff, by Staff                     34
                           Category, Prom Three Staffing Sources




                       Page 6                          GA0/liED-m131 Inenucd Ua OPlbulit.uyHlxpitaia
                                           Executive Summary




                                           Table 1 shows savings estimates, expressed both as dollars and as a per-
                                           centage of fiscal year 1988 CHAMPUS costs, based on adding contract
                                           staff at the six hospitals.

Table 1: Estimated Savings by Hospital
and Medical Specialty, Contract Staffing   Dollars in thousands. percents of CHAMPUS costs
Option                                                                                     Obstetrics/
                                           Hospital                                        gynecology           Psychiatry
                                                                                                               __-.--            Orthopedics
                                           Evans Army                                      $2,424(40%)                       .        $20 (3%)
                                           Jacksonville Navy                                  485(25%)                       .          7 (1%)
                                           Nellls AK Force                                    585(29%)                       .                 .
                                                                                                                             .                 .
                                           Pendleton Navy                                 _____- (50%)
                                                                                            3,037
                                           San Dlego Navy                                   3,721 (41%)         $4,308(70%)                    .
                                           Walter Reed Army                                            .         3,101 (72%)                   .
                                           Total estimated savings                       $10,252 (41%)         $7,409(71%)           $27(2%)
                                           Note. GAO did not analyze each of the four medical specialties at each hospttal




Factors Affecting Potential                The magnitude of potential savings is influenced by several factors.
                                           such as the size and complexity of the CHAMPUS workload in the area; the
Savings                                    hospital’s unused physical capacity; the cost of medical care in the com-
                                           munity; the hospital’s efficiency; the type, availability, cost. and source
                                           of additional staff; possible increases in demand when more free care
                                           becomes available; and the type of beneficiary served. (See p. 18.)

                                           The extent to which potential savings are affected by these various fac-
                                           tors is not known. However, aggregate DOD data show that while mu-
                                           tary hospital capability is no longer decreasing overall, CHAMPI’s usage
                                           continues to increase. (See p. 26.)

                                           For example, the overall military hospital system workload (inpatrent
                                           admissions and outpatient visits) stopped declining in fiscal year 19139,
                                           stemming a downward trend, which seems to reflect DOD’S efforts to
                                           begin bolstering its hospital capability. However, CHAMPUS workload con-
                                           tinued to increase. More analysis is necessary to determine the extent to
                                           which CHAMPUS costs can be reduced by increasing military hosprral
                                           capability. (See p. 26.)


Need to Target Expansion                    Rarely would it be cost-effective to treat the entire CHAMPLX ~~c~kl~~rdin
Efforts                                     a hospital’s surrounding area. For example, it would not be prutknr for
                                            small or medium-sized hospitals to add all of the sophisticated oqt III)-
                                            ment and staff needed to treat a relatively few open heart surg~~r~( #LSC’s.


                                            Page 4                                       GAO/HBDW131 Increased Use of Mililan Hwpitals
Executive Summq


             The military hospital system has considerable unused physical capacity
Purpose      primarily because of staff shortages. When beneficiaries cannot receive
             medical services from military hospitals, they may seek treatment from
             civilian medical providers. A substantial portion of such treatment is
             paid for by the Civilian Health and Medical Program of the Uniformed
             Services (CHAMPKS). Between fiscal year 1985 and fiscal year 1989,
             CHAMPUS costs increased from about $1.4 billion to about $2.5 billion;
             they now represent nearly 20 percent of total Department of Defense
             (DOD) health care expenditures.

             Concerned about the unused capacity and the dramatic increase in
             CHAMPUS costs, the Chairman, Subcommittee on Military Personnel and
             Compensation, House Committee on Armed Services, asked GAO to deter-
             mine whether savings could be achieved if military facilities used their
             available capacity (with added staff or other resources) to accommodate
             some of the workload now being referred to civilian providers. The
             Chairman asked that GAO base its determination on facilities as they cur-
             rently exist, that is, without facility renovation or replacement.


             In fiscal year 1988, military hospitals had an overall occupancy rate of
Background   45 percent based on designed capacity. At the same time about 70 per-
             cent of the CHAMPUS costs were being incurred near military hospitals.

             M)D has several initiatives  underway to increase military hospital capa-
             bility and treat more of the CHAMPUS workload in its hospitals and plans
             to expand some of the initiatives in fiscal year 1991. DOD plans to eval-
             uate these initiatives to determine whether they improve health care
             services to beneficiaries and whether they enable WD to provide those
             services more cost-effectively. However, because most of the initiatives
             are relatively new, DOD has not completed its evaluations on any of
             them.

             GAO performed its review at six hospitals and developed a methodology
             for estimating the costs of treating additional patients in military facili-
             ties compared to treatment costs under CHAMPUS.

             GAO focused on four specialties: psychiatry, orthopedics, obstetrics. an
             gynecology. These were selected, in part, because GAO expected that
             they had a high likelihood of savings. In each specialty, GAO'S analysis
             focused on identifying the costs of treating additional patients under
             three staffing alternatives-the  military, civilian government, and
             contractors.


             page2
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