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Providing a Cost-Effective Health Care System
Prepared statement Dr. Stephen Joseph, assistant secretary of defense for health affairs, House National Security Committee, Washington, Thursday, March 07, 1996

Defense Issues: Volume 11, Number 22-- Providing a Cost-Effective Health Care System In today's deployment environment, U.S. service members move frequently, temporarily living in makeshift accommodations around the globe. DoD has a tremendous need for rapidly deployable, highly qualified medical personnel to ensure their health and safety.


Volume 11, Number 22

Providing a Cost-Effective Health Care System

Prepared statement of Dr. Stephen Joseph, assistant secretary of defense for health affairs, to the House National Security Committee, Washington, March 7, 1996.

Mr. Chairman, distinguished members of the committee: It is an honor for me to be here this afternoon and to present to you an overview of military medicine, particularly our strategy for a cost-effective, everyday health care delivery system and alternatives we are developing for our retired beneficiaries and their families.

Military medicine exists to support the men and women in uniform, especially when they deploy in response to our national security policy decisions. Today, our armed forces are serving the NATO peacekeeping mission in Bosnia; military medicine is there. This mission, while peacekeeping in nature, is fraught with dangers to the health and safety of our troops. The environmental health threats to our force in Bosnia range from the severe cold weather, poor to nonexistent public works such as sanitation, to endemic diseases and the presence of innumerable land mines.

The medical preparations we have taken with this deployed force are different from previous deployments. These differences are a result of the progress we have made in placing tremendous emphasis on our readiness posture and of implementing changes to improve our approaches to deployment, many arising from our experience in the Gulf War.

Prior to deploying, we conducted medical screening of all personnel, we have pointedly informed our troops regarding the environmental health risks they may encounter and offered information and training on how to stay healthy. Plus, we are capturing demographic data for all those who deploy.

During this deployment, we have preventive medicine and combat stress teams to accompanying the force. Other very specialized teams will deploy at the call of the commander in coordination with the U.S. European Command surgeon to address specific potential hazards. Additionally, we have detailed a preventive medicine officer to the staff of the U.S. European Command surgeon. The deployed preventive medicine teams in Bosnia will assess all aspects of disease and environmental threats, establish geographic-specific medical surveillance systems, investigate disease outbreaks, implement preventive medicine measures and document environmental and combat exposures.

Prior to or shortly upon their return, service members will be screened for identified health concerns. Once home, service members will receive information handouts, individual counseling and medical referrals when indicated. Additionally, rosters of all deployed personnel will be stored in an accessible data base to allow for future review and screening.

The medical contingent deployed in support of our peacekeeping efforts in Bosnia includes hospitalization, dental, veterinary services, laboratory and medical evacuation assets. In Hungary we have a larger hospital capability, and for further, more specialized care, patients will be medically evacuated to the Army Medical Center at Landstuhl, Germany.

Most medical units in Bosnia deployed from Europe, notably the 30th Medical Group as the medical command and control headquarters; the 212th Mobile Army Surgical Hospital, a 56-bed capability, situated in Bosnia; and the 67th Combat Support Hospital, a 120-bed capability, located in Hungary. As of March 4, our medical units had admitted 487 patients, performed 26 surgeries, seen 5,596 ambulatory patients and evacuated 218 out of the theater of operations. Virtually all patients sought medical attention for diseases or nonbattle injuries.

We are in the process of establishing a telemedicine network within Bosnia linking all of our medical units, then linking these units to the hospitals in Hungary, Germany and here in the U.S. Additionally, we will connect the USS George Washington in the Mediterranean Sea on this medical net. What telemedicine means in Bosnia is that, real-time, very specialized health care in the form of diagnoses and consultation can be projected forward to the patient. It means very high quality, sophisticated care for the patient, often without having to transport the patient hundreds, even thousands of miles from his or her unit.

Our nation believes it is important to ensure the health of our men and women in uniform and to have medical attention readily available in the event of injury or disease, anywhere, anytime. These expectations mean the armed forces need a health care component that can do as they do; they need Army medicine, Navy medicine, Air Force medicine.

Health care deployed in support of the armed forces, medical research, education, primary, specialized and follow-up care, and prevention and health promotion are all elements of a strong military health care delivery system that is responsive to the needs of the people it serves.

It is my responsibility to develop the policies and design the programs to enable the men and women of the military health services system to do their jobs. It has been my practice to closely coordinate these decisions with the surgeons general of the military services.

A perennial debate to which the MHSS is again joined concerns the appropriate size of the medical force -- just how many physicians should be on active duty, what is the correct size of the MHSS itself, how much more capability can be added or subtracted, based on cost-benefit analyses?

The current assessment, directed by the deputy secretary of defense, is a major update to the original Section 733 study, "The Economics of Sizing the Military Medical Establishment." The Section 733 study was directed in the FY [fiscal year] 1992 and FY 1993 National Defense Authorization Acts.

Mr. William Lynn, director of program analysis and evaluation, testified before this committee on April 19, 1994, on the results of that landmark study, which seriously questioned the size of the current MHSS to support wartime requirements. This update was directed because of the controversy caused by the original study; the subsequent renewed interest in the issue by this committee, Section 745 of FY 1996 National Defense Authorization Act; the recommendations of the Commission on the Roles and Missions of the Armed Forces; and, the secretary's reply to Congress on the CORM recommendations.

Mr. William Lynn and I are co-chairing a senior level steering committee that is overseeing this update study. We have three working groups reporting to the steering committee.


  • Working Group No. 1 -- Wartime Requirements -- will determine the number of medical personnel needed to support the current planning scenarios involving two almost simultaneous major regional conflicts.
  • Working Group No. 2 -- Sustainment and Training -- will determine the number of medical personnel needed in the sustainment and training base to support the wartime and operational requirements.
  • Working Group No. 3. -- TRICARE Cost Savings -- will analyze the full cost savings potential from implementing utilization management, propose metrics to monitor the progress of the department's TRICARE program and consider the proposal of a fourth option, such as access to the FEHBP [Federal Employee Health Benefit Plan], for the TRICARE program.

The current schedule calls for our study to be completed by the end of this month. While it is still too early for the final results, the deliberate approach being taken this time is designed to ensure that all interested parties have an opportunity to participate and that all relevant issues are evaluated. I am confident this effort will provide the department and ultimately this committee with an valuable new baseline for evaluating the appropriate size of the MHSS.

It is not possible to maintain a trained and prepared medical force ready to deploy on short notice without the MHSS. It is in the everyday operation of the MHSS -- caring for patients of all ages -- that our medical personnel increase their skills as health care professionals. And very importantly, it is where our medics and independent duty corpsmen receive the patient care training they need to do their most vital jobs.

An underlying strength of the MHSS is having practitioners who are themselves members of the U.S. military. These health care professionals, like their military professional counterparts, need to maintain their technical skills. Our health care personnel do this by practicing medicine in military medical facilities every day. They also need to understand the military system, its plans, doctrine and operating systems. To gain that understanding, they must use their health care skills in the military operational environment of their service: field, transportable or shipboard medical facilities.

Participation in readiness training exercises is one means that offers military health care professionals an opportunity to learn how field medical units or the medical facilities on board ship might operate during a deployment. This training experience is essential in order that our military medical personnel are fully prepared for military commitments which involve a force deployment.

Bosnia is today's deployment, and it is one cloaked in risk to the health of our men and women who are there. We are committed to minimizing that risk and sustaining the health of our people.

TRICARE increases flexibility for the MHSS, which affords our military medical personnel the ability to maintain their personal readiness while assigned to a base hospital or clinic. This flexibility is demonstrated in the unprecedented collaboration among the military medical departments and in the partnerships we are building with civilian health care companies. These initiatives, joint service sharing and strong public-private partnerships, contribute to the survival of the MHSS.

Survival also means changing: improving operations, controlling costs, becoming more beneficiary-friendly, enhancing the quality of the care provided and always continuing to support readiness. The outcome of these changes are the goals of TRICARE.

Implementation of TRICARE across the country is very much on schedule. We began TRICARE Prime in the Northwest Region, Region 11, in March of last year. Prime services began in Region 6, Oklahoma, Arkansas, most of Texas and most of Louisiana, in November of 1995.

The contract has been awarded for Regions 9, 10 and 12, California and Hawaii, with services scheduled to begin next month.

In the Southeastern United States, Regions 3 and 4, covering the states of Alabama, Florida, Georgia, Mississippi, South Carolina, Tennessee, southeast Louisiana and a small part of Arkansas, we have awarded the contract, and services will begin in July of this year.

We expect to award the contract for Regions 7 and 8, the North Central and Desert States regions, shortly with services to begin by the end of this year. The contracts for the remaining Regions, 1, 2 and 5, will be awarded by the end of this year.

So far, we have been successful in tackling a variety of difficulties and obstacles, from enrollment glitches to contract award protests. While the protests are likely to continue with each new award, many of the implementation difficulties are being minimized through the sharing of information among lead agents.

In the regions where Prime enrollment has begun, the trend is that anticipated numbers of enrollees have been far exceeded very early, leading to slowdowns in the enrollment process and even backlogs. Despite the bottlenecks, the message is clear that beneficiaries want to join Prime.

In Region 11, enrollment of retirees and family members began in March 1995, and, as of Feb. 20, their numbers totaled 137,911. This more than doubles the estimated number of enrollments projected for the whole first year. The experience is similar in Region 6, where, in the first four months of operation, enrollment numbers of retirees and family members now total 132,315 (as of Feb. 20). This exceeds the number projected for the entire first year.

Among the public-private partnerships contributing to the strength and flexibility of the MHSS and TRICARE are the managed care support contracts. Through these contracts, military hospitals expand their ability to offer the full range of health care services to beneficiaries depending on the MHSS for their care. The managed care support contracts assist military medical facilities by establishing a network of civilian providers to complement the military's capabilities, operating a health care finder service, conducting beneficiary services, processing claims and more.

These partnerships also will afford us the opportunity to test the prospect of offering TRICARE Prime to our active duty families assigned to locations far distant from military medical facilities, such as recruiters and those in ROTC assignments. We are finalizing the details of this demonstration and hope to have it begin in Region 11 this summer.

We have awarded three managed care support contracts covering Regions 6, 9, 10, 11 and 12 to Foundation Health Federal Services, Inc. Humana Military Healthcare Services is the winning contractor for Regions 3 and 4.

Last year, the Congress commended the department on its efforts in moving towards a nationwide managed health care system for the military, TRICARE. Existing law at the time mandated that the TRICARE program be fully implemented by Sept. 30, 1996. The Congress was concerned that the department had accelerated the process in order to meet this statutory deadline and felt that there would be great benefit from additional time in meeting the complex requirements of TRICARE. Therefore, they extended the deadline for implementation of the TRICARE program by one year.

We have taken advantage of this new authority. We delayed the start of the procurement process for the Region 1 and Regions 2 and 5 managed care support contracts. While we still plan to award these contracts by the end of this calendar year, the delay has afforded us the opportunity to complete development of the Composite Health Care System interoperability and to evaluate various alternative financing methodologies to allow the military medical facilities to manage and be accountable for all health care of its enrollees.

The new financial approach that we selected will significantly clarify military medical facility financial responsibility for the Prime enrollees while retaining a partnership with the contractor. There will be a continued sharing of risk for all CHAMPUS eligibles not enrolled with the military medical facility and more frequent bid price adjustments to improve the real-time cost impact of management decisions by the military medical facility commanders.

By clarifying the military medical facility's financial responsibility, we strengthen that facility's incentives to manage utilization. Both of these enhancements are included in the requests for proposals for Region 1 and Regions 2 and 5.

One of the management initiatives that has afforded us the ability to make a significant philosophical change in health care delivery is capitation financing. Medical treatment facility commanders have been provided the information and incentive to manage all of the DoD resources expended within their areas of influence, which is considered to be the user beneficiary population in their respective catchment (or health service) areas.

For the past two fiscal years, the three military departments have provided their commanders with specific information concerning the expenditure of CHAMPUS funds as well as the dollar value of the military staff participating in patient care activities. By taking this integrated approach to health delivery planning and execution, commanders and their staffs have realized significant improvements in utilization patterns and better coordination of required services for our beneficiaries.

In short, our shift in external emphasis from process-oriented workload counts to healthy beneficiaries has begun to enable clinicians to concentrate on developing strategies to encourage healthy lifestyles, emphasize preventive measures and return sick and injured patients to full health and functionality as efficiently and quickly as possible.

The development of our capitation model for determining resource requirements has revolutionized the budgeting and programming for the Defense Health Program. With recent refinements such as adjustments for differences in age/sex mix, we have a very dependable way to forecast our per capita resource requirements. As a result, we are better able to identify real opportunities for improvements in efficiency and effectiveness.

We continue to evolve TRICARE in our efforts to make it the best health care plan in the country. In doing so, we must work within the constraints of our budget and to the extents of our legal authorities. By congressional direction, TRICARE shall not increase the department's health care costs, and at the same time the costs to our beneficiaries shall not increase.

This tug-of-war with dollars has caused many of our retirees to be unhappy with the enrollment fees required of them and their families, should they elect to join TRICARE Prime. The FY 1996 Defense Authorization Act, granting priority use of the military treatment facilities for enrollees, serves to alleviate some of that unhappiness.

Still, there remains one very significant issue: care for our Medicare-eligible beneficiaries. This committee was an advocate for legislation last year that would have allowed the Health Care Financing Administration to reimburse DoD for care that military facilities provide for these dual-eligible beneficiaries.

There are many options for resolving this issue. One alternative is to allow these patients to continue on a space-available basis in our military medical facilities. However, space is becoming less and less available as our military medical facilities are closed through the base realignment and closure process and as the competition for military medical facility access increases. Gradually, if no other action is taken, Medicare will probably be responsible for an increasing share. At present, DoD estimates that it provides $1.4 billion in care to dual eligibles.

A second alternative is to have HCFA reimburse DoD for those dual eligibles who enroll in TRICARE Prime. Historically, the CBO [Congressional Budget Office] has scored this alternative as increasing entitlement dollars without an off-setting decrease.

In response to the 1995 Defense Authorization Act, we proposed to HCFA conducting a demonstration whereby military medical treatment facilities may be reimbursed as providers under existing Medicare health maintenance organizations.

Discussions are currently under way within the administration to determine the feasibility of a new demonstration where DoD would maintain its current level of effort and would expend those funds first, then turn to HCFA to cover additional dual-eligible beneficiaries who choose to enroll in TRICARE Prime. We would like to see this demonstration begin as soon as technical and demographic specifications can be agreed upon.

A third alternative would be for DoD to continue to pay for medical care for Medicare eligibles. We currently budget to provide space available care to a growing number of our beneficiaries who are Medicare-eligible. However, providing care under TRICARE for these beneficiaries could be excessively costly to DoD.

Recently, it has come to our attention that the Congressional Budget Office has made cost analyses of the concept of a Medicare reimbursement demonstration. It is our recommendation that the CBO analyze specific authorization language.

Some of the associations which represent our beneficiary populations have examined a variety of health care options and are seeking consideration for access to the Federal Employees Health Benefit Program as an option to TRICARE. We are examining this alternative at the present time.

I strongly believe, as do each of the surgeons general, that any potential modification of the military health benefit must be developed in close coordination with our committees of jurisdiction. In that regard, we pledge to work with our committees to explore all reasonable possibilities, while ensuring the viability of the Military Health Services System and our commitment to meeting our primary responsibility to care for the armed forces when operationally deployed.

We are focusing our study on active duty families assigned to areas where TRICARE Prime is not available rather than retirees, their family members and survivors. This is because DoD already assumes the vast majority of health care cost for active duty families, whereas many CHAMPUS-eligible retirees have other primary health insurance and are not reliant on DoD at present.

There is a risk that beneficiaries who are currently not reliant on the government for their health care coverage could be induced to drop their non-government coverage, resulting in new costs to DoD, estimated at up to $500 million. A parallel circumstance exists for Medicare-eligible DoD beneficiaries. DoD provides space-available care in military facilities for many of these beneficiaries, but costs for private-sector care [are] reimbursed by Medicare. Offering FEHBP coverage to DoD Medicare eligibles would require additional, new funding for DoD, estimated at up to $1.9 billion.

In closing, Mr. Chairman, I want to stress to you the fact that our armed forces are participating in far more operational deployments than just 10 years ago. These are not wars nor combat actions. They are currently peacemaking and peacekeeping operations, humanitarian and disaster assistance efforts. It means that we have our service members on the move frequently, temporarily living in makeshift accommodations around the globe. It means we have a tremendous need for rapidly deployable, highly qualified medical personnel to ensure the health and safety of these men and women. What we learned from Desert Storm, the Sinai, Somalia, Rwanda, Haiti, Macedonia, Guantanamo we are applying today in Bosnia.

Being prepared for the next deployment demands an actively engaged, strong Military Health Services System, one which constantly strives to find better, more effective ways to meet its myriad responsibilities. I believe we are doing exactly that with TRICARE.


Published for internal information use by the American Forces Information Service, a field activity of the Office of the Assistant 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 Stephen C. Joseph HNSC 96