DOD Health Care: Funding Shortfalls in CHAMPUS, Fiscal Years 1985-91

Published by the Government Accountability Office on 1990-03-19.

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

                      United          States      Gener;al.Accounting   Office
                      Briefing Report to the Chairman,                                       ’
.GAO                  Subcommittee on Defense, Committee
                      on Appropriations, U.S. Senate

March 1990
                      DOD HEALTH CARE
                      Funding Shortfalls in
                      CHAMPUS, Fiscal
                      Years 1985-91


                                                                                 ._..   .”
                 ,.            ,.“.    “.-   1.
             General Accounting office
             Washington, D.C. 20648

             Human Resources     Division


             March 19,199O

             The Honorable Daniel K. Inouye
             Chairman, Subcommittee on Defense
             Committee on Appropriations
             United States Senate

             Dear Mr. Chairman:

             On July 20,1989, you requested that we identify the extent of funding
             shortfalls in the Civilian Health and Medical Program of the Uniformed
             Services (CHAMPUS)since fiscal year 1986, reasons for the shortfalls, and
             actions planned by the Department of Defense (DOD) to reduce CHAMPUS
             costs in fiscal years 1990 and 1991. Information presented in our Janu-
             ary 24,1990, briefing to your staff is summarized below. Additional
             information is in appendixes I-IV.

             The DOD medical care system consists of (1) direct care provided by the
Background   military services in over 500 military facilities and (2) CHAMPUS. The mil-
             itary services are required to provide needed medical care to active duty
             members, either through their facilities or through care purchased from
             civilian providers. To the extent that space, staff, and necessary
             resources are available, medical care may also be provided to nonactive
             duty beneficiaries (dependents of active duty members, retired mem-
             bers, their dependents, and survivors of deceased members). These ben-
             eficiaries obtain care under CHAMPUS   when it is not available from a
             military facility or when they do not live near a facility.

             From foal    year 1986 to 1989, the growth in DOD'S CHAMPUS costs has
             outpaced  DOD direct care cost growth. This growth pattern is expected to
             continue into 1990 and 1991. In foal year 1986, CHAWUS costs totaled
             over $1.4 billion; in fiscal year 1991, they are projected to be about $2.7
             billion-a 9Spercent increase. During the same period, the direct care
             system costs will rise to about $11.2 billion-a 43-percent increase.

             In July 1989,’ we reported that the amount and cost of care provided
             under CHAMPUShad grown, in part, because the amount of care provided
             at military facilities had declined. Other reasons for CHAMPUScost
             increases included an overaIl cost increase in providing medical care. an

             l&f-   He&h Cam Workload Reductions at Military Hospitals Have Increased CHAVPL’S Ccsts
             C-7,          July 10, I=).

                   increase in the number of beneficiaries, and an increase in the rate at
                   which beneficiaries use CHAMPUS.

                   We reviewed (1) DOD documents detailing CHAMPUS budget estimates and
Scopeand           appropriations and actual expenditures since fiscal year 1985, (2) policy
Methodology        decisions affecting budget estimates, and (3) information developed by
                   DOD on its efforts to reduce CILAMPUS costs. Also, we interviewed officials
                   from the Office of the Assistant Secretary of Defense for Health Affairs
                   and the Office of CHAMPUS,   Aurora, Colorado.

                   Our work was conducted between July 1989 and January 1990.

                   For the past 5 fiscal years, 1986-89, CHAMPUS has experienced funding
Results in Brief   shortfalls totaling $1.8 billion. (A shortfall is the difference between the
                   appropriated amount before supplemental appropriations and actual
                   costs.) An additional $441 million funding shortfall is expected in fiscal
                   year 1990. In fiscal year 1991, DOD estimates there will be no shortfall
                   because of steps it is taking to reduce CHAMPUS costs.

                   In every year since 1986, DOD has requested less funds in its budget than
                   it estimated the program was going to cost. These lower estimates have
                   been a major contributor to the yearly CHAMPUS funding shortfalls. In
                   addition, each year the Congress appropriates less funds than DOD
                   requests. Other reasons contributed to the shortfalls in some years,
                   including unexpected start-up costs for the CHAMPUS Reform Initiative2
                   and congressional direction that DOD fund CWUS       care to Coast Guard

                   These shortfalls have been financed by reprogramming funds from
                   other DOD activities to CHAMPus,supplemental appropriations, and/or
                   carryover of claims to subsequent fiscal years.

                    In an attempt to reduce CHAMPUS   costs, DOD has initiated numerous
                    efforts aimed at accommodating more of the CHAMPUS       work load in the
                    direct care system. DOD'S estimates of future CHAMPUS costs anticipate
                    substantial savings from these efforts. Should such efforts fail to pro-
                    duce the savings anticipated, DOD may continue to experience substan-
                    tial shortfalls.

                    2A marmged-are demonstration projectin California and Hawaii whose purpose     ISto Improve   basic
                    health care services for military beneficiaries while containing CHAMPUS cc&s.

                    Pmge 2                                       GAO/BBD9092BIt       Funding shortfti     In t‘HAMPUS

               As requested by your office, we did not obtain written agency comments
Agency Views   on this briefing report. We did, however, discuss its contents with offi-
               cials of the Office of the Assistant Secretary of Defense for Health
               Affairs and incorporated their comments where appropriate.

               As arranged with your office, we plan to distribute copies of this report
               to the Senate and House Committees on Armed Services; House Commit-
               tee on Appropriations; the Director, Office of Management and Budget;
               the Secretary of Defense; and other interested parties. We also will make
               copies available to others upon request. If you have questions regarding
               this report, I can be reached on (202) 27643207. Other major contribu-
               tors to this report are listed in appendix V.

               Sincerely yours,

               David P. Baine
               Director, Federal Health
                 Care Delivery Issues

                P8ge 8

Appendix I
Appendix II
CHAMPUS Shortfalls
Appendix III
Financing the
Appendix IV
DOD Initiatives to
Appendix V                                                                                           13
Major Contributors to
This Briefing Report
Tables                  Table 1.1: CHAMPUS Shortfalls (Fiscal Years 1986-91)                          6
                        Table III. 1: How CHAMPUS Shortfalls Were Financed                           10
                            (Fiscal Years 1986439)
                        Table IV. 1: Estimated CHAMPUS Savings From Direct
                            Care Initiatives (Fiscal Years 1990-91)

                        Figure I. 1: Comparison of CHAMPUS Costs, President’s
                             Budget Submissions, and Appropriations (Fiscal
                             Years 1986-9 1)
                        Figure II.1: Reasons for Shortfalls (Fiscal Years 1986-91)                    9
                        Figure IV.l: Efforts to Reduce CHAMPUS Costs                                 12

                        P8ge 4                           ~O/ElUj~99BB    Fbding   Shortfalls in CHA.MpUS


CHAMPUSCivilian Health and Medical Program of the Uniformed
DOD    Department of Defense
GAO    General Accounting Office

P4iP5                         GAO/ERDWBBBR   Pundtng Shortfdb   tn CHAMPUS
 Ppe                                                                                                             -

k6kPUS                         Budget Shortfalls

                                       The CHAMPUS funding shortfalls for fiscal years 1986-89 total $1.8 bil-
                                       lion, with an added $441 million projected for 1990 (see table 1.1).

Table 1.1:CHAMPUS Shortfalls (Fiscal
Years 19859 1)                         Dollars in millions
                                       Fiscal year                          Total shortfall          Appropriation
                                       1985                                           $27.3                  $1 336
                                       1986                                           360.0                   1,346
                                       1987                                           610.7                   1.465
                                       1988                                           529.0                   2.027
                                       1989                                           252.0                   2.467
                                       1990                                           441.4a                  2.393

                                       aDOD estimate.

                                       bNot applicable.

                                       CHAMPUSactual costs for fiscal years 1986-89 exceeded both the Presi-
                                       dent’s budget submission and final appropriations, as figure I. 1 shows.
                                       Although a shortfall is currently projected for fiscal year 1990, DOD
                                       anticipates that savings efforts will significantly reduce the projection
                                       by increasing the portion of care provided in the direct care system. For
                                       fiscal year 1991, the expected shortfall was eliminated because DOD pol-
                                       icy now requires the services to request appropriations equal to the
                                       total amount of CHAWUS funding needed, based on its estimated pro-
                                       gram requirements.

Figure 1.1:Comparison of CHAMPUS
Costs, President’s Budget Submissions,
and Appropriations (Fiscal Years 198591)     4oW








                                            Note: CHAMPUS ccwts 8re proj8otad for fiscal years 1990-91.President’s budged suhission 19pro-
                                            jected for fiecal year 1991. AppropMons are unav8i~       fiscal year 1991.
                                       f*                 *.          q&      ..ll

                                       &    *.                                          2.

                                                 Pyle 7

*~i&s   for CHAMPUSShortfalls

                 Most of the CHAMPUS shortfalls are attributable to unanticipated and
                 unbudgeted growth in the program (see fig. II. 1). For example, in fiscal
                 years 1985-87, during which shortfalls totaled $998 million, CHAMPUS
                 costs increased about $700 million. In our July 1989 report, we noted
                 that most of the cost increase was the cumulative result of a general
                 decrease in work load at military facilities. For example, at these facili-
                 ties, the CHAMPUS inpatient work load decreased about 11 percent and
                 the outpatient work load, 10 percent over fiscal years 1985-87.

                 In some cases, this program growth resulted in expenditures being car-
                 ried over and funded from the next year’s appropriation. This in turn
                 increased the shortfall in the subsequent year, specifically fiscal years
                 1985, 1987, and 1989. Other reasons for the shortfalls included the

             . Start-up costs of $100 million and $52 million for the CHAMPUSReform
               Initiative for fiscal years 1988 and 1989, respectively.
             l Funding of CHAMPUS benefits for Coast Guard beneficiaries amounting to
               $23 million for fiscal year 1988 and $50 million for 1989. previously,
               these benefit-s were included in the Coast Guard budget, but the Con-
               gress directed   DOD to fund these services for these years.
             l Congressional reduction in the CHAMPUS budget requests each year.

                 Page 8                             GAO/I%NMMBBE F’undhg sboxtfah in CTHAMPUS
                       Appendix II
                       Rem01118for CHAMPUS Shortfalla

Figure 11.1

        GAQ Reasons for Shortfalls
            (Fiscal Years 198591)

              aMainly unanticipated and
               unbudgeted program growth
              @Decrease in direct care
              work load
              *Carryover of unpaid claims
              GHAMPUS Reform initiative
               start-up costs

                       Page 9                           GAO/EED99.99BR   Fundlug Shortfalla in (HAMPUS

*&~cing the Shortfalls

                                         Procedures to restrain budget growth, that is cancellation or cutbacks in
                                         programs, are not available to CHAMPUS. The costs incurred when such
                                         services are delivered must be paid.

                                         Thus, other sources of funding must be found if CHAMFTS is unable to
                                         pay for care out of its existing appropriation. CHAMPUS budget shortfalls
                                         are financed in various ways, DOD told us (see table 111.1).They include

                                     l   reprogr amming of funds (transfer of appropriated funds from other                     DOD
                                         activities) to cIiAhm.6,
                                     l   supplemental appropriations, and/or
                                     l   carryover of unpaid claims into the subsequent fiscal year.

Table 111.1:How CHAMPUS Shotialls
Wre Financed (Fiscal Years1965-69)       Dollars in millions
                                                                                          Financing method
                                                                Bud et                          Supplemental             Carryover to
                                         Fiscal year           rho rtpall   Reprogramming        appropriation              next year
                                         1965                      $27.3                                                         $27 3
                                         1966                      360.0             $loai               §2*.i                       .
                                         1967                      610.7                     .            425.0                 185.7
                                         1966                      529.0              529.0                    .                    .
                                         1969                      252.0              152.3                    .                 997

                                         Page 10                                  ~O/JZRD-BfM9BR    F&ding   shortfdla    In (‘MCCW’C’S

*tiElnitiatives                              to ReduceCHAMPUSCosts

                                             As part of its strategy to reduce CHAMPUS costs, DOD plans to add
                                             resources to the military’s direct care system in fiscal years 1990-91 (see
                                             fig. IV.1). In this way, the direct care system can provide more medical
                                             care to beneficiaries rather than using CHAMPUS. Since the services state
                                             that CHAMPUS care is more expensive than care in the direct care system,
                                             they expect to avoid $1.40 to $2.00 in CHAMPUS    care for each $1 .OO
                                             invested in the direct care system.

                                             Each of the services is planning initiatives in accordance with DOD’S
                                             strategy. The Army initiatives rely heavily on Amy-wide increases in
                                             clinical support personnel to assist physician staff. The Navy plans to
                                             recapture the CHAMPUS work load by awarding a wide range of health
                                             care contracts to retain current functions, such as emergency services
                                             and primary care. The Air Force plans to use various contracts and to
                                             increase civilian health care staff.

                                             Projected CHAMPUSsavings from these initiatives are significant-about
                                             $200 million and $313 million in fiscal years 1990 and 1991, respec-
                                             tively (see table IV.1). If the initiatives do not achieve these savings, the
                                             projected shortfall for fiscal year 1990 will be even more significant and
                                             a shortfall may develop in 1991.

Tsble IV.l: Estimated CHAMPUS Savings
From Direct Care Inltlatives (Fiscal Years   Dollars in millions
1990-91)                                                                                                           Estimated
                                                                               cpH”z           Savings          shortfall after
                                             Fiscal year           Service       shortfall   inltiatlves   saving8 initlatlves
                                                                   Army             $206.6       $21.5                  $184 1
                                                                   Navy              209.8        126.2                    63.6
                                                                   Air Force         226.3         52.6                   173.7
                                                                   Total           $641.7       $200.3                  $441.4
                                                                   Army              $58.0        $58.0                      $0
                                                                   Navy              201.2        201.2                       0
                                                                   Air Force          54.1         64.1                       0
                                                                   TOtal           $313.3       3313.3                       30

                      Appendix IV
                      DOD Initiatives   to lb-&we CHAMPUS Costs

Fiaure IV.1

        GAQ Efforts to Reduce
             CHAMPUS Costs
        - _.---

              @Plansto invest additional
              resources in the direct care
              @DODestimates it will avoid
              $1.40 to $2.00 in CHAMPUS
              costs per $1 .OOinvested in
              direct care
              .FY 1990-91 estimated
               savings of $200-313 million

                       Page 12                                    GAO/HiUMWWBR   Fbding   Shortfallm ln CHAMPUS
Appendix V

Major Contributors to This Briefing Report

Human Resources   William A. Hightower, Assignment Manager
Division,         Jacquelyn T. Clinton, Evaluator-in-Charge
Washington, DC.

(101.962)         P8ge 18
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