Defense Health Care: Management Attention Needed to Make TRICARE More Effective and User-Friendly

Published by the Government Accountability Office on 1999-03-11.

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

                           United States General Accounting Office

GAO       ~GAO             ~Testimony
                           Before the Subcommittee on Personnel, Committee on
                           Armed Services, U.S. Senate

Not to Be Released
Before 2:00 p.m.
Thursday, March 11, 1999
                           DEFENSE HEALTH CARE

                           Management Attention
                           Needed to Make TRICARE
                           More Effective and User-
                           Statement for the Record by Stephen P. Backhus, Director
                           Veterans' Affairs and Military Health Care Issues
                           Health, Education, and Human Services Division

                                  ~~~~(   \~~)    £N:%C

Defense Health Care: Management Attention
Needed to Make TRICARE More Effective and
              Mr. Chairman and Members of the Subcommittee:

              We are pleased to be here today to discuss the Department of Defense's
              (DOD) implementation of TRICARE-its managed health care program.
              After years of testing alternative health care delivery systems, DOD began
              restructuring its system into TRICARE in 1993. Today, over 8.1 million
              active-duty personnel, their dependents, and retirees are eligible to receive
              care in this $15.6 billion-per-year health care system. TRICARE was
              designed to improve beneficiaries' access to health care while maintaining
              quality and controlling costs in a time of military downsizing and budgetary

              Since TRICARE's inception, we have reported on the progress DOD has
              made in implementing TRICARE and the challenges that remain. Last June,
              TRICARE became a nationwide program when the last contract covering
              the Northeast became operational. As the program intended, many non-
              active-duty beneficiaries have opted to enroll in the managed care option
              called TRICARE Prime. As of the end of last year, 70 percent of eligible
              active-duty family members and 23 percent of retirees under age 65 had
              enrolled in TRICARE Prime. However, several concerns we have raised in
              the past about operational issues continue to affect TRICARE's progress.

              My statement today will focus on four specific TRICARE issues: the extent
              to which (1) beneficiaries enrolled in TRICARE are getting timely access to
              health care, (2) claims for medical services are paid in a timely and
              accurate manner, (3) DOD and its contractors are identifying and
              mitigating fraud and abuse in TRICARE, and (4) DOD's pharmacy programs
              are cost-effective and consistently serve the needs of all beneficiaries. The
              information I am presenting is based on our completed and ongoing
              studies. This work includes visits to 29 military medical facilities to
              explore the issues at the hospital level, where care is provided. In addition,
              we obtained and analyzed nearly 20 million completed claims to determine
              whether they were processed in a timely manner. (A list of our products
              related to TRICARE appears at the end of this statement.)

              We recognize that DOD has faced a huge undertaking in reforming its
              health care system. Balancing medical readiness needs with the perceived
              promise of peacetime care for beneficiaries who have come to rely on the
              military health care system has been challenging, and DOD has made
              strides in delivering health care to its beneficiaries, including those over
              age 65. However, issues surrounding the day-to-day operations of the
              health care system continue to surface, and much still remains to be done

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             Defense Health Care: Management Attention
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             before TRICARE becomes the smoothly running, beneficiary-friendly
             endeavor envisioned by its developers.

             In summary, DOD is not meeting its standards for scheduling beneficiary
             appointments, even for active-duty members. Also, even though
             contractors are meeting TRICARE claims processing timeliness standards,
             millions of claims are paid late, and claims processing continues to burden
             beneficiaries, civilian providers, and TRICARE contractors and managers.
             Additionally, although DOD has efforts under way to combat health care
             fraud, these efforts have not yet been effective, and additional
             opportunities exist to save hundreds of millions of dollars. Finally, to cost-
             effectively meet beneficiaries' needs for prescription drugs, a top-to-
             bottom redesign of the pharmacy programs of DOD and its contractors is
             needed. We have offered a number of recommendations regarding timely
             access to appointments and the pharmacy programs, which we believe, and
             DOD agrees, should help address these issues. Whether these operational
             difficulties will continue depends largely on the extent to which TRICARE
             management increases its attention and actions to fully resolve these

Background   DOD's primary medical mission is to maintain the health of active-duty
             service personnel and to provide health care during military operations.
             DOD also offers health care to non-active-duty beneficiaries, including
             dependents of active-duty personnel, military retirees, and dependents of
             retirees, if space and resources are available. Care for eligible beneficiaries
             is managed on a regional basis using primarily military hospitals and clinics
             supplemented by contracted civilian services. TRICARE is a triple-option
             benefit program designed to give beneficiaries a choice among a health
             maintenance organization (TRICARE Prime), a preferred provider
             organization (TRICARE Extra), and a fee-for-service benefit (TRICARE
             Standard). TRICARE Prime is the only option for which beneficiaries must

             To better ensure timely access to health care, in 1994 DOD established
             access standards for appointment timeliness similar to those used by
             commercial managed care programs. For example, DOD's standards
             establish the maximum wait times between the day a Prime enrollee
             requests an appointment with his or her primary care physician and the
             actual date of the visit. The standards require that acute illness visits be
             scheduled within 1 day, routine visits within 1 week, and well (preventive)
             visits within 4 weeks. DOD also established a 4-week standard for referrals

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from a primary care physician to a specialist. These standards apply not
only for appointments within the military medical facilities but also for
appointments with physicians in the TRICARE civilian network who treat
Prime enrollees. In June 1998, DOD established a goal that at least 98
percent of the acute and routine primary care appointments for Prime
enrollees fall within the standards.

During 1998, contractors processed about 28 million health care claims
submitted by institutions, health care providers, and beneficiaries. DOD
requires TRICARE contractors to process 75 percent of claims within 21
days and to maintain a 98-percent payment accuracy rate. In addition, DOD
requires contractors to use ClaimCheck, a commercial off-the-shelf
software program that analyzes the appropriateness of billing on
professional claims. Timeliness and accuracy standards vary by private

To help safeguard against health care fraud and abuse in its system, DOD
established a Program Integrity unit in 1982 to coordinate its antifraud
activities. This unit is responsible for developing policies and procedures
regarding the prevention and detection of TRICARE fraud and abuse. The
Defense Criminal Investigative Service within DOD's Office of Inspector
General and the Department of Justice work in conjunction with this unit
to investigate and prosecute alleged health care fraud and abuse. DOD's
contracts with its five managed care support contractors also require them
to perform antifraud activities to ensure that TRICARE dollars are used to
pay only claims that are appropriate.

DOD's pharmacy benefits, which are available through military pharmacies,
TRICARE contractors' retail pharmacies, and a national mail-order service,
cost an estimated $1.3 billion in fiscal year 1997. The largest DOD
pharmacy program is the outpatient pharmacies operated in military
medical facilities, which dispensed about 55 million prescriptions in 1997,
costing an estimated $1 billion. The military medical system is
supplemented by five contractors' retail pharmacy programs and the
national contractor's mail-order pharmacy program, which delivers 30- to
90-day supplies of certain medications. In the private sector, fee-for-service
and managed care plans increasingly work with pharmacy benefit
managers (PBM), who provide high-quality pharmaceutical care at the

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                             lowest possible cost. PBMs employ a number of best business practices,
                             such as formulary development, therapeutic interchange, and drug
                             utilization review. 1

Many Beneficiaries,          Many Prime beneficiaries, including active-duty members, have not been
                             able to obtain appointments at military facilities within DOD's established
Including Those on           standards for appointment timeliness. DOD lacks data to determine if
Active Duty, Do Not          Prime beneficiaries have been able to obtain appointments with civilian
Have Timely Access to        providers within the required standards. Only recently has DOD measured
                             the performance of its military medical facilities in meeting the access
Appointments                 standards; consequently, DOD has not been in a position to take steps to
                             address and improve access.

Many Appointments in         Our review of DOD data indicates that many Prime beneficiaries did not
Military Hospitals Are Not   obtain acute and routine appointments with military providers within the
Made Within Standards        access time standards established by DOD. Surprisingly, even active-duty
                             members, for whom the military medical system was established, were not
                             always able to obtain appointments within the standards. Although
                             TRICARE 'is intended to give appointment priority to beneficiaries enrolled
                             in Prime, they did not report better appointment timeliness than those who
                             were not enrolled. According to data from DOD's Customer Satisfaction
                             Survey, 2 the percentage of Prime beneficiaries obtaining appointments
                             within the standards fell short of DOD's goal of 98 percent for acute and
                             routine appointments. Some examples follow.

                             * About 80 percent of Prime beneficiaries requesting an acute
                               appointment reported they obtained it within the 1-day standard.

                             'A formulary is a list of prescription drugs, grouped by therapeutic class, that a health plan prefers its
                             physicians and. beneficiaries use. Drugs are chosen for a formulary on the basis of medical value and
                             price. Therapeutic interchange programs substitute formulary drugs for nonformulary medications,
                             usually with physician consent Such programs encourage patients to use, and physicians to prescribe,
                             less expensive brand-name formulary drugs, which are considered to be as safe and effective as other,
                             more expensive brand-name nonformulary drugs. Drug utilization review programs analyze patterns of
                             drug use to prevent adverse drug reactions. PBMs use this information to make prescription
                             substitution recommendations to physicians and to inform plans and physicians about physicians'
                             prescribing patterns.
                              DOD sends the Customer Satisfaction Survey to a sample of patients each month to obtain information
                             on their access to and satisfaction with outpatient care provided in military medical facilities. We are
                             currently reviewing DOD's survey methodology and data to determine what limitations, if any, exist

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* About 81 percent of Prime beneficiaries requesting a routine
  appointment reported they obtained it within the 1-week standard.
* About 81 percent of active-duty members requesting an acute
  appointment reported they obtained it within the 1-day standard.
* About 79 percent of enrolled active-duty family members and retirees
  reported they obtained a routine appointment within the 1-week
  standard-the same percentage reported by those family members and
  retirees who were not enrolled.
* Although DOD has not established a goal for preventive or specialty
  appointments, Prime beneficiaries who requested these appointments
  fared better than those requesting acute or routine appointments.
* About 96 percent of Prime beneficiaries requesting a preventive-care
  appointment reported they obtained it within the 4-week standard.
* About 93 percent of Prime beneficiaries requesting an appointment with
  a specialist reported they obtained it within the 4-week standard.

There are several reasons why beneficiaries may not obtain appointments
within the access standards. DOD officials told us that beneficiaries calling
for routine appointments might prefer a later appointment-one outside
the standard-for their personal convenience. In other cases, appointment
availability may be affected by the amount of care provided to non-enrolled
beneficiaries by providers at military medical facilities. For example, at
one military medical facility, our review of appointment data shows that
about one-third of the acute and routine primary care appointments were
booked by beneficiaries who were not enrolled in TRICARE. We could not
determine specifically why appointments for Prime beneficiaries were not
within the access standards because DOD's appointment data do not
capture the reasons for noncompliance with the standard. Also, DOD
officials could not provide estimates on the extent to which appointments
not within the standards resulted from the patient's preference for a later
appointment or from the nonavailability of appointments.

DOD's performance in meeting the access standards in the military medical
facilities corresponds to the beneficiaries' ratings of various aspects of
access. About 80 to 85 percent of the Prime beneficiaries rated their
experience as "good," "very good," or "excellent" in terms of the length of
time it took to get an appointment, the ease of making the appointment,
and overall access to medical care when they need it. However, non-
enrolled beneficiaries reported similar ratings for the same aspects of
access, which indicates enrolled beneficiaries did not report better
experiences than those who were not enrolled.

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DOD Lacks Data to Measure   DOD lacks' data comparable to the data derived from its Customer
Civilian Provider           Satisfaction Survey to determine if beneficiaries who visited TRICARE
Appointment Timeliness      civilian providers obtained appointments within the required access
                            standards. However, through its annual Health Care Survey of DOD
                            Beneficiaries, DOD does collect information on beneficiaries' experiences
                            with both civilian and military health care providers, including how long it
                            took to obtain an appointment. The appointments described in the Health
                            Care Survey, however, do not correspond to the appointments for which
                            access standards were established, and, therefore, the survey cannot be
                            used to measure whether appointments were obtained within the required
                            time frames. The survey enables a comparison of the beneficiaries' access
                            to civilian providers relative to military providers. Our review of the survey
                            data indicates that enrolled beneficiaries who visited civilian providers
                            reported getting appointments more quickly than those who received care
                            from military providers. For example, about 70 percent of the beneficiaries
                            enrolled in Prime reported getting an appointment with a civilian provider
                            within 7 days, compared with 57 percent of those visiting a military
                            provider for the same type of appointment. The survey also shows that
                            Prime beneficiaries who visited civilian providers rated their access higher
                            than those visiting military providers, with 84 percent considering their
                            access to appointments as "good," "very good," or "excellent," compared
                            with 63 percent of those who received care from military providers.

DOD Has Been Slow to        DOD has been slow to take steps to improve access. In 1996, we
Measure and Improve         recommended that DOD collect data on the timeliness of appointments to
                            measure TRICARE's performance in improving beneficiary access. 3
                            Although DOD has collected some data through its surveys on
                            beneficiaries' experience in obtaining appointments, in 1998 we reported
                            that DOD was not measuring its performance in meeting TRICARE access
                            standards. 4 Subsequently, the Strom Thurmond National Defense
                            Authorization Act for Fiscal Year 1999 (P.L. 105-261) (the Defense
                            Authorization Act) required DOD to establish a system to measure
                            appointment timeliness. Rather than developing a new system, DOD plans
                            to use its existing Customer Satisfaction Survey to meet the act's

                             Defense Health Care: New Managed Care Plan Progressing. but Cost and Performance Issues Remain
                            (GAO/HEHS-96-128, June 14, 1996).

                            4Defense Health Care: Operational Difficulties and System Uncertainties Pose Continuing Challenges
                            for TRICARE (GAO/T-HEHS-98-100, Feb. 26, 1998).

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                            requirements for care provided in military medical facilities. Recently,
                            DOD analyzed the Customer Satisfaction Survey data to identify which
                            military facilities have not been meeting the standards; DOD now plans to
                            enhance and use information from its military facility appointment systems
                            to supplement the survey data. To measure its civilian providers'
                            performance in meeting the appointment standards, DOD plans to develop
                            a questionnaire modeled after the Customer Satisfaction Survey, as we
                            recommended in 1998. 5 DOD estimates this survey will not be fully
                            implemented before fiscal year 2000.

Concerns Exist About        Our analysis of a 1-year period of processed claims has shown that
                            TRICARE's contractors met DOD's      timeliness standards by paying over 75
the Timeliness and          percent of claims within 21 days. 6 Even though DOD paid the vast majority
Accuracy of Claims          of claims on time, nearly 3 million were paid late. Moreover, DOD does not
Processing                   aknow whether contractors are paying claims accurately because less than
                            half of the processed claims are subject to the audit and the methodology
                            used to calculate payment error is statistically unsound. According to
                            contractors, the principal reasons for claims processing problems are the
                            complexity of the TRICARE program, frequent program changes, and
                            DOD's delays in directing them to implement identified changes. On
                            average, 130 changes were made for each contract. Further, DOD's claims
                            editing software is impeded by program changes and implementation
                            delays. DOD has a number of initiatives under way to improve claims
                            processing activities, but it remains to be seen how effective these actions
                            will be.

Timeliness Standards Were   Our analysis showed that the three contractors responsible for 8 of the 11
Met Overall, but Some       TRICARE regions were meeting DOD's contractual timeliness standard of
   Impediments Exist        processing 75 percent of claims within 21 days. In fact, between July 1997
                            and June 1998, these contractors exceeded the standard by processing 86
                            percent of claims on time. However, nearly 3 million claims did not meet
                            the timeliness standard, and more than 80 percent of these were from
                            physicians and other professional providers. Furthermore, only 66 percent

                             Defense Health Care: DOD Could Improve Its Beneficiary Feedback Approaches        (GAO/HEHS-98-51,
                            Feb. 6, 1998).
                             The analysis includes claims from Foundation Health Federal Services, Inc.; Humana Military
                            Healthcare Services, Inc.; and TriWest Healthcare Alliance, Inc., but not from Anthem Alliance for
                            Health, Inc., or Sierra Military Health Services.

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                             of claims fi:om hospitals and other institutions were processed within 21
                             days. Hospital claims take longer to process for many reasons, such as
                             their higher cost, their numerous line items, and the need for review by a
                             medical professional. In contrast, 97 percent of pharmacy claims met the
                             standard. Pharmacy claims were processed more quickly because they are
                             usually simpler and because 90 percent are submitted electronically, which
                             can speed processing.

                             Through discussions with contractors, DOD has identified changes that
                             could improve claims processing timeliness as well as other aspects of the
                             program. One of these proposed changes would eliminate unnecessarily
                             prescriptive requirements for assessing the medical necessity of care
                             provided and allow contractors to select and use a nationally accepted
                             criterion. The current adjudication process is slowed because contractors
                             must review and follow extensive criteria to determine whether payment
                             should be allowed. A second initiative would adopt Medicare's timeliness
                             standards, which differentiate between paper and electronic claims, and
                             require contractors to pay interest on late claims. Medicare requires that
                             95 percent of complete electronic claims be paid in 14 days and that 95
                             percent of complete paper claims be paid in 30 days. Another initiative
                             would adopt Medicare's practice of returning incomplete claims. By
                             adopting Medicare's standards and practices, DOD would be mirroring a
                             program that is more familiar to providers. These initiatives should help
                             improve the completeness of claims initially received as well as provide
                             incentives for contractors to process claims timely. In addition, they
                             should increase the submission of electronic claims, which are paid faster
                             and are less expensive to process.

Claims Processing Accuracy   DOD uses external audits to assess contractors' compliance with payment
Is Unknown; Program          accuracy standards by sampling processed claims and calculating the
Complexity Affects           percentage! of dollars paid in error. However, the method for these audits is
                             statistically unsound and does not accurately represent the amount of
Processing Accuracy          overpayment and underpayment for two reasons. First, the sample
                             excludes all claims under $100; consequently, only about 40 percent of
                             processed claims are subject to the audit for payment accuracy. Second,
                             the amount of inaccurate payment is calculated in such a way that the
                             computed error rate is not representative of all claims subject to audit for
                             that period. Therefore, the calculated error rate is not an accurate
                             indicator of overall payment processing accuracy.

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We applied appropriate statistical methods to the same data DOD used in
its quarterly audit reports and recomputed error rates. Rates were
generally higher, in one instance increasing from 5.5 percent to 10.5
percent. Another useful measure would be to calculate the number of
claims processed accurately as a percentage of the total number of claims
processed. When accuracy is calculated using this method, error rates for
some of the contract periods we examined were as high as 25 percent.

Contractors told us that, of the many programs they administer-including
Medicare as well as private plans--TRICARE is the most complicated and
unique, which contributes to claims processing difficulties. The following
features contribute to TRICARE's complexity.

* Each of TRICARE's three options has -a different array of benefits,
  copayments, and deductibles. Claims require different adjudication
  procedures depending on which option is involved, and, even within
  each option, different claims processing rules apply.
* For the Prime and Extra options, provider reimbursement information is
  difficult to accurately maintain because payment agreements are
  complicated, and individual providers may belong to multiple practices
  with varying agreements.
* Claims submitted under the Standard option are also confusing to
  process because providers have the option of accepting TRICARE
  payment in full or charging up to an additional 15 percent on a claim-by-
  claim basis.
* TRICARE is always the final payer when other health insurance is
  involved. Thus, contractors must understand the requirements of many
  other programs' benefit structures and obtain reimbursement
  information before the claim can be processed to completion.

Further compounding claims processing complexity are TRICARE's
frequent program changes, which usually require contract modifications.
According to contractors, their ability to process claims accurately is
impeded because most changes require them to reprogram and test
systems as well as retrain staff. In the future, DOD hopes to resolve some
of these problems by consolidating changes and providing longer
notification periods.

Providers and beneficiaries also contribute to problems with claims
processing accuracy because they sometimes submit claims with
inaccurate information. Subsequently, when the errors are identified, the
claim must be resubmitted and reprocessed. Contractors told us that

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                              because TRICARE usually represents a small percentage of most providers'
                              practices, providers have little incentive to educate themselves on its
                              complex and frequently changing requirements.

DOD Management Problems       DOD's commercial claims editing software, ClaimCheck, is designed to
Impede the Effectiveness of   ensure that providers are accurately reimbursed for services provided.
ClaimCheck                    During fiscal year 1998, ClaimCheck saved over $53 million and affected 3.5
                              percent of claims. ClaimCheck is a key player in the claim editing software
                              industry, with over 200 customers nationwide, including over 60 percent of
                              BlueCross ]3lueShield carriers and the Department of Veterans Affairs. In
                              October 1998, the Health Care Financing Administration (HCFA) started
                              using ClaimlCheck to prevent overpayments in the Medicare program.

                              Despite ClaimCheck's general acceptance in the insurance industry,
                              providers have expressed concerns about it, including its proprietary
                              nature, doubts about its accuracy, the unavailability of edit explanations,
                              and the lack of available recourse. While ClaimCheck edits are not
                              published and available to providers, they are based upon industry
                              standards, and TRICARE providers can request and receive information on
                              specific edits. However, we identified a few instances in which DOD's
                              version of ClaimCheck did not comply with industry standards because
                              DOD was slow to implement policy changes that affected the software's

                              Providers' frustrations have been compounded by DOD's poor
                              communication with its contractors regarding the recourse available to
                              providers and beneficiaries for questioning ClaimCheck determinations.
                              DOD told contractors that ClaimCheck determinations could not be
                              appealed but did not sufficiently communicate to contractors that an
                              allowable charge review process could be used for reviewing ClaimCheck
                              determinations. As a result, contractors improperly informed providers
                              and beneficiaries that they had no recourse when ClaimCheck denied or
                              modified a claim. After beneficiaries and providers complained that DOD
                              and its contractors did not make a review process available to them, the
                              Congress mandated in the Defense Authorization Act that DOD establish an
                              appeals process for ClaimCheck denials.

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DOD Could Save             While DOD does not know the precise extent of military health care fraud
Hundreds of Millions of    and abuse, it estimates the losses to its TRICARE program to be in the
 Hundreds of Mllions of    hundreds of millions of dollars annually. In addition to the financial loss,
Dollars With a More        health care fraud also affects the quality of care provided and may cause
Effective Antifraud        serious harm to patients' health. Despite its responsibility to prevent and
                           detect health care fraud, DOD has not been effective in doing so,
Program                    recovering less than 3 percent of its estimated losses to fraud and abuse
                           between 1996 and 1998. DOD has the opportunity to improve its antifraud
                           efforts by developing clear and measurable goals and ensuring contractor
                           compliance with these requirements. Moreover, DOD could benefit by
                           increasing beneficiary awareness of fraud and abuse, ensuring that DOD
                           knows the individual provider rendering medical care rather than the clinic
                           or group practice, and including health care fraud in the agency's strategic
                           plan with goals for program performance and measurable results. 7

Hundreds of Millions Are   DOD estimates that losses due to fraud and abuse account for 10 to 20
Lost Annually to Fraud     percent of military health care expenditures. These ranges are consistent
                           with estimates of other public and private sector organizations, such as
                           HCFA, the U.S. Chamber of Commerce, the Health Insurance Association
                           of America, and the National Health Care Anti-Fraud Association. Given
                           TRICARE's expenditure of about $2.5 billion for contracted civilian-
                           provided care in fiscal year 1998, DOD could be losing between $250
                           million and $500 million annually to fraud and abuse.

                           Although anyone involved in health care can commit fraud, the primary
                           perpetrator is the health care provider. Common types of provider fraud
                           include billing for services not rendered, misrepresentation of services, and
                           conducting unwarranted medical procedures or withholding necessary
                           ones. For example, illegal practices such as "sink testing," which involves
                           dumping patients' blood and urine specimens rather than actually
                           performing the necessary tests, can result in incorrect diagnoses and
                           inadequate medical treatment.

                            The Government Performance and Results Act of 1993 (the Results Act [P.L. 103-62]) requires agencies
                           to clearly define their missions, set goals, measure performance, and report on their accomplishments.

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DOD's Efforts to Prevent                  DOD officials told us they primarily focus on identifying high-dollar fraud
and Detect Fraud and Abuse                cases and those involving patient harm. As shown in table 1, between 1996
Need to. Be More Effective                and 1998, DOD recovered about $14 million in fraudulent payments.
                                          However, lhis amount is negligible when compared with DOD's estimated
                                          losses of between $570 million and $1.1 billion during the same period.
                                          Additionally, DOD participated in investigations, in conjunction with the
                                          Department of Justice and HCFA, of TRICARE and other government
                                          health care programs that resulted in penalties, fines, and other
                                          assessments totaling approximately $804 million; 199 criminal charges; and
                                          150 civil settlements. DOD officials told us, however, that they could not
                                          identify what portion of these financial restitutions, criminal charges, and
                                          civil settlements was solely attributable to DOD efforts.

Table 1: Results of Antifraud and Abuse Efforts

                    DOD estimates of             payments         Penalties, fines, and
                    fraud and abusea           recoveredb         other assessmentsb                  Number of              Number of civil
Year                     (in millions)        (in millions)                (in millions)       criminal chargesb               settlementsb
1996                        $130-260                   $1.2                        $23.5                      53                              24
1997                          190-380                    7.1                        686.6                           61                        37
1998                         250-500                     6.1                         93.7                           85                        89
Total                     $570-1,140                  $14.4                       $803.8                           199                       150
                                          aThese figures represent DOD's estimate of 10 to 20 percent of program dollars lost to fraud and
                                          bThese figures could be related to cases identified in previous years.

                                          Although DOD officials told us that TRICARE contractors play a critical
                                          role in combating fraud and abuse, the contractors have identified and
                                          referred relatively few potential fraud cases to DOD. Table 2 shows that, of
                                          approximately 50 million claims processed between 1996 and 1998,
                                          contractors referred only about 100 potential fraud cases to DOD for
                                          further development and investigation. Contractor officials told us that
                                          they have not been active in identifying potential fraud cases because their
                                          antifraud staff spend the majority of their time responding to DOD requests
                                          for information related to cases under investigation. TRICARE contractors
                                          also told us they were unclear about the types of potential fraud cases to
                                          refer to DOD for further development and were not adequately trained to
                                          identify fraud and abuse. In addition, DOD officials told us that, because
                                          two of the five contractors were relatively new to the TRICARE program,
                                          they had not yet compiled data to identify fraudulent behavior. DOD

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                            officials acknowledged that they could be more effective in combating
                            fraud and abuse if their TRICARE contractors were more proactive in
                            identifying and referring potential fraud cases.

                            Table 2: Claims Processed and Cases Referred by TRICARE Contractors, 1996-98

                                                                                Claims processed        Referrals of potential
                            TRICARE contractor                                        (in millions)              fraud casesa
                            Foundation Health Federal Services, Inc.                            25.7                           92
                            Humana Military Healthcare Services, Inc.                           14.5                            4
                            TriWest Healthcare Alliance, Inc.                                     6.1                           3
                            Anthem Alliance for Health, Inc.                                      2.7                           2
                            Sierra Military Health Services                                       1.0                           0
                            Total                                                                50.0                          101
                            aPotential fraud cases may involve multiple claims. These figures do not include balance billing and
                            provider participation violations.
                            Source: DOD.

Opportunities Exist to      To reduce its vulnerability to fraud and abuse, DOD needs to develop and
Improve Antifraud Efforts   implement clear and measurable antifraud goals and objectives and ensure
                            that contractors comply with these requirements. According to DOD
                            officials, existing antifraud contract requirements are vague and do not
                            require contractors to be proactive in their antifraud activities. DOD
                            officials are in the process of implementing new antifraud program
                            requirements for DOD contractors, such as requiring them to establish a
                            corporate antifraud commitment, implement fraud identification software,
                            and coordinate their antifraud efforts with one another. However, these
                            new policy requirements still do not specify a level of effort or establish
                            performance outcome measures. DOD officials stated that incorporating
                            greater specificity and performance measurements into their managed care
                            support contracts will improve the effectiveness of its antifraud program,
                            and DOD is currently exploring ways to do so.

                            In addition, DOD has not adequately monitored its contractors' antifraud
                            efforts. For example, since the inception of its managed care contracts,
                            DOD has conducted only one performance evaluation of one contractor's
                            antifraud activities. DOD officials told us that they have no plans to
                            conduct any additional performance evaluations of contractors' antifraud

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                    DOD could also improve its antifraud efforts and increase beneficiary
                    awareness of fraud and abuse by ensuring that its TRICARE contractors
                    provide a fraud hot line number and address on the "Explanation of
                    Benefits" sent to beneficiaries. Only one of the five TRICARE contractors
                    is currently doing so. DOD and TRICARE contractor officials agree that
                    this is an inexpensive and effective tool to use in combating health care
                    fraud. DOD officials told us that they have directed all TRICARE
                    contractors to provide a fraud contact on the "Explanation of Benefits"
                    sent to beneficiaries.

                    Furthermore, DOD would benefit from knowing the individual provider
                    rendering medical care rather than simply the clinic or group practice.
                    Claims submitted by a clinic or group practice can mask individual
                    provider fraudulent activity, such as overbilling and submitting duplicate
                    bills. If claims do not identify individual providers, DOD lacks information
                    to track and monitor whether a physician is engaged in fraudulent
                    practices. Although TRICARE policy requires that claims be denied when
                    submitted as part of a clinic or group practice, DOD waived this
                    requirement in 1996. In the last 3 years, DOD has allowed payment on over
                    6 million claims totaling about $500 million that were submitted by a group
                    or clinic. DOD officials acknowledged that information on individual
                    providers is needed for fraud, abuse, and quality of care purposes and said
                    that they are in the process of reinstating the requirement.

                    Finally, given the threat that health care fraud poses to program funds and
                    patient well-being, DOD also needs to include in its strategic plan how it
                    will address health care fraud and abuse. Specifically, officials at DOD
                    agree that articulating its strategies, goals, and objectives in its strategic
                    plan would help in combating health care fraud and abuse in the future.

Need for Top-to-    During the past several years, the Congress has grown concerned about the
                    costs and quality of DOD's pharmacy benefit and, in 1998, mandated that
                    we review DOD's pharmacy programs. We found that the problems DOD is
Pharmacy Programs   experiencing delivering its pharmacy benefit stem largely from the way
                    DOD manages its $1.3 billion pharmacy programs. Although the military
                    and contractor retail and mail-order pharmacy programs share the same
                    beneficiary population and are otherwise highly interrelated, DOD has
                    adopted a program-by-program focus rather than a systemwide view of
                    these operations. As a result, changes made to one program inevitably
                    affect the others, and cross-program problems-such as nonintegrated
                    databases and different formulary, eligibility, and copayment

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                          requirements-are having substantial, unintended cost and beneficiary

DOD and the Contractors   DOD lacks the comprehensive prescription drug cost and utilization data
Lack the Information      that PBMs and their health plan sponsors routinely track and analyze to
Needed to Effectively     manage pharmacy benefits and control costs. A root cause of the problem
                          is that existing pharmacy patient databases at the military medical
                          facilities, regional TRICARE contractors, and national mail-order pharmacy
Programs                  contractor are not integrated. Although most military beneficiaries
                          regularly obtain prescription drugs from multiple dispensing outlets across
                          DOD's three pharmacy programs, no centralized computer database exists
                          with each patient's complete medication history. Millions of dollars in
                          unneeded costs from overutilization as well as patient safety problems
                          from adverse reactions to prescription drugs are likely occurring because
                          DOD and its contractors lack the databases needed to support automated
                          prospective drug utilization review systems to review prescriptions before
                          they are dispensed. Moreover, the situation has allowed beneficiary
                          prescription drug stockpiling to become so pervasive among military
                          facility pharmacies that pharmacists commonly refer to the problem as
                          "polypharmacy"-or the beneficiaries' practice of visiting multiple
                          pharmacies to accumulate more prescription drugs than needed.

                          In contrast, automated review systems are widely employed by PBMs to
                          reduce inappropriate prescription drug use, which can cause adverse
                          reactions leading to illness, hospitalization, and even death. Since we
                          issued our report, DOD has stepped up its efforts to plan for, acquire, and
                          install an estimated $5 million pharmacy patient data system by March 2000
                          that will support automated drug utilization reviews on a limited basis. 8

                          At the same time, DOD continues to study alternative information
                          technology approaches to implement a comprehensive pharmacy patient
                          management system. DOD may have a cost estimate and completion date
                          for this system later this summer. Last year, DOD pharmacy officials
                          estimated the 10-year cost of a similar system at $43 million. Such a system
                          would save $424 million over the same period and substantially reduce
                          patient safety risks.

                           Defense Health Care: Fullyv Integrated Pharmacy System Would Improve Service and Cost-
                          Effectiveness (GAO/HEHS-98-176, June 12, 1998).

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Applying Commercial Best   In addition to integrated databases, PBMs use other practices to control
Practices Could Reduce     costs and provide quality service. For example, PBMs offer health plan
Costs and Enhance Care     sponsors uniform formularies for beneficiaries as well as help in designing
Quality                    standard beneficiary eligibility criteria and cost-sharing to provide
                           incentives for physicians to prescribe and beneficiaries to use formulary
                           drugs. Features such as copayments for nonformulary drugs, for example,
                           can create the incentives or disincentives crucial to balancing the health
                           plan's financial soundness with beneficiaries' freedom to choose
                           pharmacies and drugs.

                           While DOD's goal is to provide uniform pharmacy benefits, its programs
                           operate under a complicated and confusing array of different policies,
                           regulations, and contractual requirements governing such key benefit
                           design elements as eligibility, drug coverage, and cost-sharing. For
                           example, DOD's formularies vary depending on where the beneficiary gets
                           the drugs. As a result, beneficiaries experience drug coverage and
                           availability uncertainties and unnecessary costs. The lack of a uniform
                           formulary drives up costs in other ways as well, such as by causing cost-
                           shifting among military facilities because pharmacy patients have to "shop
                           around" for prescriptions, Also, although all military beneficiaries obtain
                           drugs from military medical facilities free of charge, the national mail-order
                           and TRICARE contractors' programs require copayments regardless of
                           whether the drugs are formulary or generic. Finally, most of DOD's 1.4
                           million Medicare-eligible beneficiaries lack a systemwide prescription drug
                           benefit and thus have a serious coverage gap because Medicare does not
                           cover outpatient prescriptions. Such problems prevent other PBM
                           practices from being fully and systematically applied in DOD's pharmacy

                           Establishing a uniform formulary with incentives for physicians to
                           prescribe and beneficiaries to use formulary drugs could help reduce
                           current benefit variability and increase cost-effectiveness. With an
                           incentive-based formulary, DOD and its contractors could provide
                           nonformulary drugs but require beneficiaries to make higher copayments
                           than for formulary or generic drugs. Also, like private sector plans and
                           PBMs, DOD could negotiate deeper price discounts from drug companies
                           seeking formulary approval for their products. But, for systemwide
                           effectiveness, such a formulary may require military facility prescription
                           drug copayments, which DOD believes it lacks authority to impose.
                           Nonetheless, the existing pharmacy benefit variation, combined with
                           nonintegrated databases, prevents DOD and its contractors from fully
                           applying other PBM best practices, such as analyzing drug use to curb

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                           inappropriate use and to introduce less costly generic and therapeutic
                           substitutes as well as identifying and, as appropriate, educating physicians
                           who prescribe too many or nonformulary drugs. Such approaches have
                           enabled private sector health plans to reduce their costs by an estimated 10
                           to 20 percent. On this basis, a uniform, incentive-based formulary could
                           save an estimated $61 million to $107 million annually, and other PBM
                           practices could save another $99 million to $197 million annually.

Mail-Order Program and     In April 1998, DOD replaced the TRICARE contractors' mail-order
Retail Pharmacy Proposal   pharmacy-services with a separate national contract to help control the
May Further Fragment       contractors' rising prescription drug costs. The purpose was to extend to
                           contractors' mail-order services the discount drug prices previously
Health Care Services and   available only to military facility pharmacies' prescription drug services. 9
Raise Costs                Also, when the next round of TRICARE managed care support contracts
                           phases in, DOD plans to carve out and provide under one national contract
                           the TRICARE contractors' retail pharmacy services. These initiatives,
                           however, may further fragment DOD's health care services and raise costs
                           for TRICARE contractors, because the initiatives divorce contractors'
                           medical care management from their pharmaceutical care, and this
                           integration is important in maintaining the beneficiary population's good

                           An alternative would allow military medical facilities and TRICARE
                           contractors to institute electronic billing and reimbursement once they
                           integrated their pharmacy patient databases. With electronic billing and
                           reimbursement, military facilities could continue, and possibly increase,
                           the volume of pharmacy services they provide to TRICARE contractors'
                           beneficiaries. By reimbursing military medical facilities, TRICARE
                           contractors could potentially save money by directing their beneficiaries to
                           these facilities to obtain medications at distribution and pricing agreement
                           costs, rather than using retail pharmacies. This approach would also keep
                           pharmaceutical and medical care administration together under existing

                            Military medical facilities get most of their prescription drug supplies through the Defense Supply
                           Center in Philadelphia This DOD agency negotiates discounted drug prices through distribution and
                           pricing agreements with over 200 drug manufacturers. These prices are between 24 and 70 percent less
                           than average wholesale prices.

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Funding and Formulary       Following DOD's downsizing efforts, which reduced the number of military
Management Decisions Can    facilities, the remaining military medical facilities began experiencing
Limit Access to Drugs and   funding reductions that made the pharmacy benefit an attractive target for
      Affect                cost-cutting. At the same time, the demand for prescription drugs began
                            increasing. Also, policy changes required that beneficiaries be treated alike
                            in dispensing formulary drugs. To control costs, military medical facilities
                            dropped certain prescription drugs from their formularies and did not add
                            others. This prevented beneficiaries from obtaining certain drugs at
                            military facilities.

                            According to TRICARE contractors, many beneficiaries responded by
                            buying their prescription drugs at contractor pharmacies, thereby
                            increasing the volume of prescription drug purchases beyond what the
                            contractors had projected in their original bids. Blaming their cost
                            overruns on military facility formulary changes, the contractors told us
                            they intended to seek additional compensation from DOD. A DOD
                            consultant concluded that the contractors' pharmacy use had risen at the
                            same time the military pharmacies' use had dropped somewhat. DOD and
                            the contractors disagreed about the cause of the contractors' cost
                            increases and continue to study the matter. Of course, if DOD and the
                            contractors "hadused integrated pharmacy patient databases during the
                            periods in question, establishing cause and effect for the contractors'
                            allegations could have been greatly facilitated.

Reported                    In view of these problems, we have concluded that DOD needs a top-to-
Recommendations and         bottom redesign of its pharmacy programs that effectively involves the
Agency Actions              programs' major stakeholders. Also, we believe DOD needs to commit
                            itself to managing pharmacy programs as a system and to bringing needed
                            reforms to the system. Otherwise, DOD's pharmacy problems will continue
                            and likely worsen.

                            To help DOD establish a more systemwide approach to managing its
                            pharmacy benefit, we have suggested that the Congress consider directing
                            DOD to establish a uniform, incentive-based formulary across its pharmacy
                            programs and, as appropriate, to use non-active-duty beneficiary
                            copayments at military facilities as incentives for physicians to prescribe
                            and beneficiaries to use formulary drugs. Also, we have suggested that the
                            Congress may wish to give systemwide prescription drug eligibility to
                            Medicare-eligible retirees not now eligible for such benefits. In response,
                            language in the Defense Authorization Act directed DOD to submit a plan
                            this month for a systemwide redesign of the military pharmacy system and

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to implement its planned redesigned pharmacy system at two sites for
Medicare-eligible beneficiaries by October 1999.

We have also made a series of recommendations to DOD, recognizing that
some changes may require additional legislative authorities and, as
appropriate, DOD should seek such authorities from the Congress. The
recommendations included the following:

· Expeditiously integrate the existing military, TRICARE retail, and
  national mail-order pharmacies' patient databases and provide for
  automated prospective drug utilization review.
* Establish a uniform, incentive-based formulary for military, TRICARE
  retail, and national mail-order pharmacies' programs. This should
  include using non-active-duty beneficiary copayments at military
  facilities to encourage the use of formulary drugs at military, TRICARE
  retail, and mail-order pharmacies.
* Extend systemwide prescription drug eligibility to Medicare-eligible
  retirees not entitled to prescription drug benefits under the Medicare
  subvention demonstration and pharmacy base closure programs.
* Upon integrating the existing pharmacy patient databases, institute
  electronic billing and claims reimbursement among military medical
  facilities and TRICARE contractors.
* Direct and ensure that military pharmacies and TRICARE contractors
  routinely apply accepted PBM practices, such as prior authorization and
  physician-approved therapeutic interchange.
* Postpone awarding a separate national retail pharmacy PBM contract
  until the subject reforms have been implemented for current TRICARE
  retail pharmacy programs and until cost savings from those reforms can
  be compared with potential cost savings under a separate retail
  pharmacy contract.

DOD and the TRICARE contractors agreed with each of the
recommendations, but DOD stated that although military pharmacy
copayments are valid and effective, beneficiaries will resist them and
perceive benefit erosion. We believe, however, that the military facility
pharmacy benefit has already eroded because of medical facility funding
reductions and formulary restrictions and that our collective
recommendations will help reverse this troublesome course. Furthermore,
beneficiaries' general acceptance of military medical facilities' pharmacy
copayments will depend on DOD's bringing about and promoting marked
improvements in its overall pharmacy efficiency, cost-effectiveness, and
quality. DOD also stated that extending systemwide drug eligibility to

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Medicare-eligible retirees will require added funding, but we believe the
savings from overhauling the pharmacy system will help offset such costs.

Mr. Chairman, this concludes my prepared statement. I will be glad to
respond to any questions you or other Subcommittee Members may have.
We look forward to continuing to work with the Subcommittee as it
exercises its oversight of the TRICARE program.

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Related GAO Products

             Defense Health Care: Fully Integrated Pharmacy System Would Improve
             Service and Cost-Effectiveness (GAO/HEHS-98-176, June 12, 1998).

             Defense Health Care: Offering Federal Employees' Health Benefits
             Program to DOD Beneficiaries (GAO/HEHS-98-68, Mar. 23, 1998).

             Defense Health Care: Reimbursement Rates Appropriately Set; Other
             Problems Concern Physicians (GAO/HEHS-98-80, Feb. 26, 1998).

             Defense Health Care: Operational Difficulties and System Uncertainties
             Pose Continuing Challenges for TRICARE (GAO/T-HEHS-98-100, Feb. 26,

             Defense Health Care: DOD Could Improve Its Beneficiary Feedback
             Approaches (GAO/HEHS-98-51, Feb. 6, 1998).

             Defense Health Care: TRICARE Resource Sharing Program Failing to
             Achieve Expected Savings (GAO/HEHS-97-130, Aug. 22, 1997).

             Defense Health Care: Actions Under Way to Address Many TRICARE
             Contract Change Order Problems (GAO/HEHS-97-141, July 14, 1997).

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

             Defense Health Care: Limits to Older Retirees' Access to Care and.
             Proposals for Change (GAO/T-HEHS-97-84, Feb. 27, 1997).

             Defense Health Care: New Managed Care Plan Progressing, but Cost and
             Performance Issues Remain (GAO/HEHS-96-128, June 14, 1996).

             Defense Health Care: TRICARE Progressing. but Some Cost and
             Performance Issues Remain (GAO/T-HEHS-96-100, Mar. 7, 1996).

             Defense Health Care: Despite TRICARE Procurement Improvements,
             Problems Remain (GAO/HEHS-95-142, Aug. 3, 1995).

             Defense Health Care: Issues and Challenges Confronting Military Medicine
             (GAO/HEHS-95-104, Mar. 22, 1995).

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