The U.S. Department of Defense can look like a benefits company "that occasionally kills a terrorist." The agency has to overhaul its healthcare contracting, especially TRICARE, according to advocates.
In 2010, then-Defense Secretary Robert Gates said that "healthcare costs are eating the Defense Department alive." In 2000, before September 11th, healthcare accounted for 6 percent of the total military budget. Today, two wars and hundreds of billion dollars later, healthcare accounts for 10 percent of the military's budget.
Total costs of pay and healthcare for active military members, retirees and veterans is around $417 billion a year, or more than 60 percent of the combined DOD/VA budget, according to retired major general Arnold Punaro, chairman of the Reserve Forces Policy Board, who recently warned that the DOD could "turn into a benefits company that occasionally kills a terrorist."
To some extent, military healthcare costs are rising because of the increased war casualties, but much of that care occurs at VA health centers. Healthcare for active military personnel and dependents is still expected to consume $179 billion in the fiscal year 2016, a third of DOD's non-war budget of $534 billion.
The DOD's costs are driven just as much by war-related care as institutional and contracting problems, according to a report by the Center for a New American Security.
"We need to fundamentally rethink how healthcare is delivered to the All-Volunteer Force, military families, and veterans," argue retired Army general Hugh Shelton, analyst Peter Levin, and Stephen Ondra, MD, chief medical officer of Health Care Service Corporation.
"DOD leadership should take bold and necessary actions in healthcare procurement and service delivery, and seize the opportunity to build upon the framework already launched by the Centers for Medicare & Medicaid Services (CMS) and many private sector payers," they write.
With an upcoming procurement for TRICARE and other health services, "the DOD has an opportunity to change their healthcare delivery system," according to Shelton, Levin and Ondra. Consider the critical mass, they suggest, in the three companies administering TRICARE: Humana, Health Net and TriWest. Together they rank as the six largest DOD contractor, trailing behind military giants like Lockheed Martin, Northrop Grumman and Boeing.
More than half of the 10 million enrollees of TRICARE are retirees or eligible family members, and the program's utilization rates are about 40 percent higher than civilian benchmarks -- "presumably because the out-of-pocket costs are approximately one-tenth of comparable non-military health plans," according to Shelton and colleagues. TRICARE's use of fee-for-service reimbursement probably has had the same adverse impacts in military health as it has in rest of American healthcare, they argue.
In the wake of the 2013 military authorization bill, the DOD has been embarking on paths to reform of military health, establishing the Defense Health Agency to oversee integration of military health and contracting.
Under the direction of Ashton Carter, the new Secretary of the DOD, the Defense Health Agency estimated that the consolidation of ten shared services, including facilities planning, pharmacy, and medical education and training, could save as much as $800 million over the six years ending 2019.
Those estimates have been questioned by the Government Accountability Office, but nonetheless the DOD is considering consolidating TRICARE into a single system, while a Congressional committee is pondering scrapping TRICARE altogether.
Whatever the consolidation strategy pursued, according to Shelton, Levin and Ondra, the DOD should first and foremost stop using fee-for-service in procurement -- for healthcare and everything else.
"DOD still uses (FFS) almost exclusively in its private sector contracts, and not just for healthcare, because of its outdated procurement practices. Reforming healthcare service delivery could be a template for other DOD acquisitions, and a model for the rest of the country," Shelton, Levin and Ondra argue.
The DOD "needs to create both the incentives for, and protect the reputations of, those who step forward to assess, report and promote increasing the value of healthcare services purchased and delivered by the DOD," they write. "Breaking the institutional inertia and the politics of that awful spiral is crucial."
In the upcoming procurement, DOD and TRICARE have a chance to improve provider networks by improving or eliminating underused facilities. "Specifically, it could contract for a new kind of provider network and services management that utilize a variety of innovative, fee-for-value reimbursement models, like those promoted by the Center for Medicare and Medicaid Innovation," they suggest.
The DOD also has to find cost-saving solutions in its partnership power with the VA. "Renewed and performance-accountable efforts here would have the immediate benefit of dramatically improving service to uniformed military before, during, and after their transition."