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Maintaining Cost-effective Military Health Care
Prepared statement of Dr. Stephen C. Joseph, assistant secretary of defense for health affairs, the Civil Service Subcommittee, House Government Reform and Oversight Committee, Tuesday, September 12, 1995

Mr. Chairman, distinguished members of the committee ... I welcome this opportunity to present the military health services system and our initiatives to cost-effectively ensure the health of our troops, our retirees and their families. Our task is unique in that we are the only U.S. health care system that goes to war. And that is the foremost responsibility entrusted to military medicine.

I want to respond in some detail to the questions you posed, Mr. Chairman, but first I will briefly summarize my view of military medicine and the FEHBP [Federal Employees Health Benefit Plan] issue at hand.


  • Military medicine's primary responsibility is readiness, and today it "ain't broke"!


  • TRICARE is essential to readiness, a fact clearly misunderstood.


  • TRICARE enhances cost-effectiveness, high quality care and patient satisfaction.


  • FEHBP is undergoing our review as an option with results due in March 1996.


Wholesale conversion of military health care to FEHBP is not a good idea. It would be disastrous to readiness and unacceptably expensive for our beneficiaries. Very important to us, and I am sure to you, it would increase the risk to the health of our troops who we send into harm's way. Furthermore, to continue the patient benefit at the same level we provide within the military health services system, which we believe to be an obligation, the recent CBO [Congressional Budget Office] report states it will cost the government an additional $3.1 billion.

Now let me turn to details of military medicine and answer the questions posed in your letter, Mr. Chairman.

There is a single mission for the military health services system. It is that we are ready to provide top quality health services, whenever and wherever needed in support of military operations, and to members of the armed forces, their families and others entitled to DoD health care.

This mission weaves together the care provided to our active duty personnel with the care provided to all other beneficiaries. These responsibilities are not separable. Separability is a misconception of some who analyze and report on the military medical system of health care delivery.

To provide top quality health services we must have the means to practice professional skills, not only our physicians, but also our nurses, technicians, physician assistants, nurse clinicians, hospital corpsmen and others who may be faced with saving the life of a wounded or seriously ill soldier, sailor, Marine or airman. To maintain professional skills means taking care of patients, sick and injured patients who need extensive evaluation and detailed lab work, patients who need bones set, patients who need delicate or restorative surgery.

Uniquely critical to military medicine is the professional medical training for enlisted medics, hospital corpsmen and independent duty corpsmen. These individuals must be able to recognize critical signs and symptoms, to administer correct life-saving techniques and to stabilize patients sufficiently well to await a physician.

On the front lines and in ships at sea, our medics and our independent duty corpsmen are the initial, and sometimes the only, medical professionals our military men and women have to advise, counsel, treat and, indeed, save them. These medics cannot gain the full required measure of their training anywhere, I repeat, anywhere, except in military medical facilities.

Sustaining professional skills also requires training on how to lead a convoy, command a hospital or run a hospital ship, how to set up in a field environment, how to evacuate patients and to where, what the echelons of care are and where you and your unit or ship are located, how to gain supplies and resupply, how to communicate with the next echelon, where to contact a specialist and so much more.

These are the professional military skills our medical personnel -- physician and medic alike -- must know in order to provide top quality health services to deployed forces. These deployments may be for any of a continuum of military operations: humanitarian support, disaster assistance, quelling civil unrest, peacekeeping operations, as well as conflict and war. Military medical personnel must be prepared today and every day.

The military health services system is an extensive system with tremendous capabilities. In the president's FY [fiscal year] 96 budget, the military medical system seeks $15.5 billion. This includes just over $10 billion in the Defense Health Program appropriation and $5 billion in the three military departments' military personnel appropriations.

The $10 billion DHP amount includes a little more than $6 billion for the direct care system -- that is, our own military hospitals and clinics, where over 70 percent of our beneficiaries care is provided.

For the CHAMPUS [Civilian Health and Medical Program of the Uniformed Services] program, which is also included in the $10 billion DHP, we requested almost $4 billion, which includes funding for the TRICARE-managed care support contracts as well as the standard fee-for-service CHAMPUS program.

The quality of care provided in military medical facilities is better than that provided in nonmilitary medical facilities. Measures supporting this statement include higher accreditation scores from the Joint Commission on Accreditation of Healthcare Organizations, maximum licensure of physicians and dentists, and board certification of the majority of physicians.

The FY 96 budget request includes funding for 104,500 military and 45,200 civilian health care personnel. The military health services system operates 124 medical centers and hospitals and 504 ambulatory care clinics worldwide. The 8.2 million beneficiaries eligible for care in these facilities include 1.7 million active duty, 2.4 million active duty family members, 1.1 million retirees under age 65, 1.8 million retiree family members under age 65 and 1.2 million Medicare-eligible military beneficiaries.

Military medical personnel must be prepared to deploy in support of our armed forces with little notice to any location in the world. Their skills, both medical and military, must be sharp and well-practiced. We can be certain of that only if they are doing military medical activities on a regular and routine basis.

Active duty personnel are usually healthy and fit; they too must be prepared to deploy at a moment's notice. The question then is who will military medical personnel provide everyday care to in order to retain their professional technical medical skills? It is the population which is eligible for care in military medical facilities, our family members and retirees.

If the military health services system did not exist, the United States armed forces would not have well-trained, experienced military medical professionals to support them in their everyday activities, their exercises, in operational deployments or in war. Bluntly, significant numbers of our soldiers, sailors, airmen and Marines would die unnecessarily. That, in my view, and I believe in their families' views, is totally unacceptable.

With the unprecedented changes in world politics, the National Security Strategy and objectives have been rewritten. The size of the armed forces has been reduced; the roles and missions of the military services have been evaluated and re- evaluated in light of the new strategy and objectives. In this whirlwind of change for the U. S. armed forces, military medicine also must change -- and it is.

The military health services system, by the year 1997, will have closed 58 hospitals, or 35 percent, since fiscal year 1988, due to management initiatives, including the Base Realignment and Closure Act decisions. Military and civilian medical manpower has been reduced, deployable medical systems for field operations have been cut back and the military medical budget has not kept pace with inflation, despite annual increases.

Additionally, medicine in this country is grappling with significant change driven in large measure by the spiraling increases in health care expenditures. This change has impacts on the delivery of health care to military medical beneficiaries and on the military health services system itself.

Military medicine, while declining in size, structure and manpower, has deployed medical units in support of our national interests to Haiti, Somalia, Rwanda, Kuwait, Croatia and Macedonia. Plus, military medicine continues to provide everyday health care -- and everyday professional skills maintenance -- for as many of its eligible population as is possible. And that health care is of the highest quality: The military hospitals surveyed by the Joint Commission on Accreditation of Healthcare Organizations last year outscored nonmilitary hospitals in all 17 patient care categories, and four of our hospitals received accreditation with commendation.

Faced with the challenge of maintaining a top quality medical system to deploy at any time and to provide care to more people than possible within the military medical infrastructure, we found smarter ways to organize, to plan, to budget and to deliver health care. In a word, our challenges are met in TRICARE.

Organizationally, TRICARE brings together the three military systems of health care in a joint and collaborative way to better support military operations and to better care for the whole beneficiary population. The United States has been divided by geographic regions, each administered by a military medical center commander who is known as the lead agent. All military hospital commanders within a region joined their lead agent in developing a comprehensive health care delivery plan for the entire region based on military support missions and on beneficiary profiles.

Analyses of our system of health care delivery have led to a significant modification in how we fund our health care operations. We changed from a workload-driven system of budgeting to one of capitation. This initiative has the ability to alter provider incentives so that our patients receive the timely care they need in the most appropriate setting.

We brought the CHAMPUS program into the organizational structure of TRICARE, building on its authorities to purchase care from civilian sources for most categories of our beneficiaries. Seeking and awarding competitive managed care contracts for the TRICARE regions brings in supplemental support to round out health care capabilities to meet the needs of our beneficiaries in the event of a major deployment as well as in the everyday delivery of patient care.

TRICARE is a joint and collaborative effort which relies on lead agents, capitation funding and competitive managed care support contracts.

Let me turn to a brief description of TRICARE as a health care delivery plan. First, it is centered in the military medical facilities so that wherever there is a military hospital, a triple option benefit will be available to beneficiaries. Included in the triple option are a health maintenance organization called TRICARE Prime, a preferred provider organization called TRICARE Extra and a fee-for-service option called TRICARE Standard.

The uniformity and stability of benefit is built into TRICARE. Both the scope of coverage and the beneficiary cost of coverage is the same for the three options anywhere those options are available. Access to care has been standardized across the entire system in terms of wait times and availability of some preventive examinations and their results. And with the supplemental capability of the managed care support contractor, the majority of patients will be able to receive all the care they need in the vicinity of their residence.

The organization and budgeting initiatives inherent in TRICARE will result in a more effective health care delivery system. Unnecessary duplication of programs is being eliminated, consolidations of training programs, logistics, and support services are being accomplished. Each of these measures furthers our efforts to work jointly and to bring about an environment of interservice cooperation that will enhance the medical support capability in joint military operational deployments.

Of the TRICARE benefit options, only Prime is an enrollment option. As the option centered in the military medical facilities, Prime assists in identifying the majority of patients to receive care within that facility or group of facilities. Further, each Prime enrollee will have a primary care manager to be the source for most of the enrollee's health care needs. Primary care managers offer beneficiaries continuity of care as well as familiarity and comfort with the system. Having nonenrollment options extends the ability of military medicine to offer coverage to beneficiaries not within an easy commute of a Prime plan and satisfies the issue of choice which is important to some of our beneficiaries.

TRICARE is a transformation of the military health services system, a transformation in its implementation stages. Many of the management initiatives, organizational arrangements and design elements have been accomplished, but the operational activities involving beneficiaries are just beginning.

TRICARE is in the early stages of full implementation in our first region, Region 11, which includes the states of Washington and Oregon. Using the enrollment figures in that region as one measure [of]beneficiary knowledge of TRICARE, we have over 100,000 beneficiaries enrolled after only six months and our projected enrollment for the first year was less than a third of that number.

As the full implementation of TRICARE draws near within a region, the tempo of educational activities for both beneficiaries and providers increases dramatically. In the interim, we continue to speak with beneficiary groups, advocacy organizations and representatives of the media to let military medical beneficiaries know that TRICARE is a major change to military health care delivery and it will be implemented across the United States by fiscal year 1997.

Any health care plan is detailed and can be rather complex. It is our intent to continue to pursue all opportunities to talk about TRICARE and what it means to the military, to individual service members, to health care providers, to corporate health care and especially to our beneficiaries.

TRICARE supports our readiness requirements, it sustains the skills of our medical personnel, it realigns our organizational structures, it introduces appropriate incentives, it has appeal to the majority of our beneficiaries, it is a partnership between public and private health care systems, and it affords military medicine flexibility to meet its range of responsibilities.

TRICARE Prime today does not include, and under the proposed TRICARE regulation would not include, our Medicare-eligible beneficiaries.

At present, we estimate that military medical facilities provide care to the equivalent of 320,000 Medicare-eligible military beneficiaries at a cost of about $1.4 billion annually. The cost of caring for all military Medicare-eligible beneficiaries who might want to participate in TRICARE Prime is more than the department can afford. In an effort to fix this problem, we have begun working with the Health Care Financing Administration to set up a demonstration project where DoD could continue to care for its Medicare-eligible beneficiaries.

Mr. Chairman, you asked what savings could be realized from downsizing the military health care system to its wartime mission only. As I have indicated, to have a fully prepared, skilled and trained military medical capability to support the armed forces in all of its mission responsibilities, there must be a functioning health care delivery system. Consequently, it is unclear what savings, if any, would be realized by downsizing the military health services system to "purely" wartime requirements.

The total wartime and operational support requirements are currently being refined, updated and quantified by the department. This analysis will be used to update the results of the April 1994 Section 733 study of the military medical care system, which was directed by Section 733 of the National Defense Authorization Act for Fiscal Years 1992 and 1993.

Once the total wartime and operational support requirements of active duty military medical personnel are determined, we must ensure that they are properly trained and continue to maintain their medical proficiency and required wartime skills. The best and most cost effective way, and for some the only way, to achieve this objective is by having our personnel deliver health care services to our eligible beneficiary population in our direct care system of military medical facilities. An important point to note is that the 733 study found that care provided in military medical facilities is the most cost-effective care provided.

If our medical personnel do not practice their professional medical skills in our medical facilities, the only other alternative is to send them to civilian hospitals. This has been advocated by some; however, it is an option that has not been proven to be more cost-effective, it omits entirely military professional training, and it is filled with many unresolved obstacles and potentially serious problems.

The 733 study recommended several steps to eliminate potential military medical cost increases due to military medicine having a more attractive health plan. We are implementing these recommendations.

The recent Report by the Commission on the Roles and Missions of the Armed Forces, dated May 24, 1995, also contained recommendations related to the DoD medical program which we are pursuing. Unlike early staff drafts of this report, the final document contained no recommendation to downsize the direct care system and move that care to the FEHBP. The cost effectiveness of such a recommendation could not be demonstrated.

The recent CBO paper "Restructuring Military Medical Care" (July 1995) suggested downsizing the direct care system from 120 to 11 military hospitals and shifting all but 33 percent of active duty care to the civilian sector. CBO developed three options for downsizing the direct care system, eliminating CHAMPUS, obtaining 67 percent of active duty health care from civilian sources and providing all nonactive duty beneficiary health care through the Federal Employees Health Benefits Program. My concerns with this paper include the following:

First, CBO did not include the closure cost to downsize the direct care system, but stated it would take five to 10 years before the department could realize projected savings from downsizing the direct care system.

Next, only the first of CBO's three options produced a savings for the department, and that is achieved by shifting a significant amount of the department's costs to its beneficiaries. And the beneficiary costs would further increase if the proposed legislation is passed to increase the employee share of FEHBP premium contributions.

Finally, nowhere in the CBO paper is the necessity of professional skills maintenance, both medical and military, addressed for all military medical personnel. It is unclear how the military would be supported medically during extended cruises, operational commitments around the globe, field training exercises and periods where military requirements are centered on the installations in the United States.

It remains unclear to me that there would be a savings generated by downsizing the military health services system to its wartime requirements. In the first instance, wartime requirements must be clearly defined, then mechanisms must be in place to ensure continuous military and medical professional training, the process for identifying operational medical support requirements must be established, and saving should not be accrued at the expense of either medical readiness or beneficiaries.

I think it is very important that the committee know something about the trend of DoD's health care expenditures. Prior to the Defense Health Program appropriation, from 1985 through 1990, DoD health care per capita rates, in constant FY 94 dollars, reflected the national annual increase. With the establishment of the Defense Health Program appropriation, from 1991 through the present time, that per capita rate has remained constant and is projected to decline through our program years. Additionally, the DoD rate of inflation for health care is half that of the nation and one-third that of HMOs. Clearly, the military health services system is operating more cost- effectively than most health care systems in the country today.

Mandatory enrollment in FEHBP will not satisfy our medical readiness requirements, nor will it be willingly accepted by a significant number of our beneficiaries, nor will it produce savings. The FEHBP would seem to offer two advantages for some military beneficiaries. First, it continues to cover retirees beyond the age of 65, which our military medical facilities also do, but CHAMPUS does not. And second, it is available in a number of locations where only standard CHAMPUS is (and standard TRICARE will be) available.

Some military Medicare-eligible beneficiaries may be interested in the FEHBP. However, those who reside near a military medical facility would choose the military facility as long as they could gain access. The FEHBP is significantly more expensive than TRICARE, and the strongest statements from our military retirees regarding their health care are about costs.

Let me be clear on this point: By our estimates and without a significant infusion of new federal funds, military retirees face significantly increased out-of-pocket costs under FEHBP.

In our efforts to consider all possible alternatives, we have in progress an analysis to determine the advantages and disadvantages of including the FEHBP as a fourth option of TRICARE for those beneficiaries who might wish it. This analysis is in its formative stages with a projected completion date of March 1996.

In closing, it is my belief that TRICARE is the most cost- effective delivery system and is the only system which can ensure that the men and women of the armed forces have top quality health care wherever and whenever they and their families may need it. It is the system that ensures we are ready, no matter what the military mission, to support that mission and to protect the health of our troops.

In good conscience, I cannot support a military health services system that does not fulfill our obligation to our troops -- those who serve today and those who have served so well in years past. ...

Published for internal information use by the American ForcesInformation Service, a field activity of the Office of the Assistant to the Secretary of Defense (Public Affairs), Washington, D.C. Parenthetical entries are speaker/author notes; bracketed entries are editorial notes. This material is in the public domain and may be reprinted without permission. Defense Issues is available on the Internet via the World Wide Web at