Recommendations

OSD 29-1: A Defense Health Agency should be established under the jurisdiction of the Assistant Secretary of Defense for Health Affairs. This agency should be responsible for managing all military treatment facilities worldwide. The potential benefits include: improved medical readiness and health care delivery; coordination in planning and budgeting for military health care resources; and the development of uniform reporting and costing systems, which will facilitate the control of health resources planning and utilization.

OSD 29-2: To ensure that the Defense Health Agency has the necessary credibility and support, the vacant position of Assistant Secretary of Defense for Health Affairs should be filled. With the creation of the Defense Health Agency, the Secretary of Defense should disestablish the Defense Health Council and the Tri-Service Regionalization Program

OSD 29-3 Physicians and other medical personnel in military treatment facilities should maintain their individual service identity, though they all would fall under the supervision of the new Defense Health Agency when assigned to facilities under its jurisdiction. This

approach would facilitate readiness for mission requirements since medical personnel would be assigned with their individual service.

Savings and Impact Analysis

The FY 1983 budget estimate for direct health care is $5.7 billion, exclusive of CHAMPUS and the Uniformed Services University of the Health Sciences. The OSD Task Force estimates that a conservative 5 percent savings, approximately $285 million, could be realized through the creation of a Defense Health Agency. This 5 percent savings estimate is consistent with savings projected by DOD from consolidation of health care mangement.

The implementation of this recommendation would reduce duplication of staff and result in more effective utilization of all health care resources. It is the judgment of the OSD Task Force that the 5 percent savings estimate is a conservative but sound projection.

Assuming an annual inflation factor of 10 percent, the estimated savings in the first three years would be:

The Secretary of Defense should establish a new Health Care Agency to provide for centralized management and administration of the military health care system as discussed above.

258

II.

ISSUES AND RECOMMENDATION SUMMARIES (CONT'D)

D. HEALTH ISSUES (CONT'D)

OSD 30: HEALTH CARE COST CONTAINMENT

Summary Recommendation

The Department of Defense (DOD) should introduce more effective cost containment measures in the military health care system by requiring that patients pay a greater portion of health care costs. Specifically, this would include charging for outpatient visits at direct care facilities, increasing the deductible for outpatient visits covered by the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS), and increasing co-payments for inpatient visits at direct care facilities and in-patient visits covered under CHAMPUS.

Financial Impact

$282.1 million Potential Savings: We estimate that saving would accrue from our recommendations as follows:

annually

Background and Findings

Concern over rapidly escalating health care costs nationwide is forcing private sector health care plans to introduce cost containment measures and increase beneficiaries' co-payment requirements. Several major companies, such as General Motors and U.S. Steel, implemented such features in their programs in 1982. The Office of the Secretary of Defense (OSD) Task Force feels that the military health care system must take similar action to avoid runaway expenditures for health care. The 1983 budget estimate for cost of medical operations exceeds the actual 1981 cost by more than 20 percent. Cost containment should become a priority in the management of the military health care programs.

Our recommended cost containment measures apply to both the direct care system, which consists of direct care facilities run separately by each service, and to CHAMPUS. Direct care facilities deliver virtually all necessary health care to active duty personnel and provide care to active duty dependents over other classes of dependents and retirees. The CHAMPUS system reimburses active duty dependents and retirees and their dependents who seek health care from the private sector when appropriate care is not available at direct care centers, or a direct care center is not accessible.

Health care for active duty personnel is generally provided at no cost. There is no charge for outpatient care of military dependents and retirees at direct care centers, and a charge of $6.30 per day for inpatient care for dependents of both active duty personnel and retirees. The CHAMPUS system does contain some cost sharing provisions but at significantly lower co-payment rate than most private sector plans.

Exhibit II-17 at the end of this issue provides an overview of the current military health care benefits program and our proposed changes. In this issue, we have dealt with cost containment measures. These recommendations should be considered in conjunction with those in Issue OSD 28, which are aimed at decreasing CHAMPUS expenditures by limiting the use of CHAMPUS funds for private sector health care sought by beneficiaries who reside in areas around military treatment facilities. In Issue OSD 29, we recommend that the management of all military health care programs be consolidated into a central health care agency.

Effective cost containment measures should encourage maximum use of existing facilities by eligible beneficiaries and should also require co-payment and co-insurance provisions that deter unnecessary use of health care resources. This is accomplished, in part, by setting the beneficiaries' proportion of costs at a level which reflects the total cost of health care.

Methodology

The OSD Task Force interviewed appropriate OSD and CHAMPUS officials to gain insight into the operation of the health care system. Data were also obtained from these sources. Previous studies of the military health care system were reviewed. Specific attention was given to the 1979 Defense Resource Management Study and the 1975 Health Care Study coordinated by DOD, the Department of Health, Education, and Welfare (HEW), and the Office of Management and Budget (OMB). Statistical data were obtained from the OSD Operation and Maintenance Overview - FY 1983.

Conclusions

The OSD Task Force concluded that military health care costs are escalating at a rapid rate and that cost containment provisions in the health care system are not sufficient. CHAMPUS utilization has increased dramatically, even though excess capacity exists in the direct care system. Further, co-payment features in the military health care plans are not significant enough to discourage unnecessary utilization of health care resources.

Recommendations

OSD 30-1:

Specifically, we recommend the establishment of a $10 charge per outpatient visit at direct care centers, with a $100 per fiscal year maximum. This charge would apply to active duty dependents and to retirees and their dependents. This recommendation is intended to deter unnecessary use of direct care centers and to allow their medical resources to handle increased patient loads resulting from our recommended changes in the CHAMPUS program (Issue OSD 28).

Outpatient visits at direct care centers for FY 1983 (excluding visits by active duty personnel) are estimated at